If you're an independent oil and gas producer these days, nothing much fails like success.
Take Devon (NYSE:DVN), for instance. On Wednesday, the Oklahoma City-based natural gas producer reported record results for its September quarter, lining up with solid output from Apache (NYSE:APA) and other quality names including Chesapeake (NYSE:CHK), XTO (NYSE:XTO), and Southwestern Energy (NYSE:SWN). But management apparently didn't have the foresight to note that the latest natural gas volumes report by the Energy Department's Information Administration was on the horizon.
On Thursday, the administration reported that gas storage levels had risen by 12 billion cubic feet in the past week. Down went Devon's share price, settling some 7.2% lower.
For the quarter, Devon's net profits increased to $2.62 billion, or $5.87 per share, compared with $735 million, or $1.65 a share, a year ago. Where I went to school, that profit differential is substantial.
The company's total production for the quarter was up 3% year over year to 58.6 million barrels of oil equivalent. The numbers would have been higher had it not been for hurricanes Gustav and Ike, whose antics in the Gulf of Mexico cost Devon about 1.5 million barrels of oil equivalent in September. In addition, an outage in Azerbaijan resulting from transportation difficulties and a subsea leak trimmed production there by about 400,000 barrels.
Despite its treatment at the hands of Mr. Market, Devon expanded its operations during the quarter in several areas. In the Barnett Shale of north Texas, for instance, it's now producing about 1.1 billion cubic feet of natural gas equivalent each day. In addition, it's recently completed a couple of high-volume natural gas wells in the Carthage area of east Texas. And in Brazil, it's in the process of evaluating the results of an exploratory well in the Campos Basin. All in all, the company drilled 636 wells in various locations during the September quarter, achieving a 97% success rate.
Through Thursday, Devon's shares had descended by 42% from their 52-week high. Given the magnitude of that decline and the quality of the company, my suggestion to my Foolish friends is to keep Devon high on your watch lists, and consider building a position once the current crazy commodities sell-off has run its course.
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