Source: Devon Energy Corp.

Devon Energy Corp. (NYSE:DVN) recently held its third-quarter conference call. This quarter's call was a break from past calls as the company had very few prepared remarks. Its new format focused on answering analysts' questions. However, the company still had one central message that was hammered home, and that's the incredible upside it sees across its portfolio. Here are five different ways management highlighted the upside it sees in its business.

Strongly positioned upon entering the downturn in oil prices

CEO John Richels opened the call with the following prepared remarks,

While we are closely watching developments in the commodity markets, we are extremely well positioned to fund our 2015 capital program. We've got one of the strongest balance sheets in the sector, we are very well hedged, and we have visible opportunities for continued dropdowns to our midstream business. This places us in a position to continue to invest in our portfolio of high-rate-of-return projects in many of the best US resource plays.

With those remarks, he noted that while the company is watching the drop in oil prices it's not worried at all because it's entering the downturn in a very strong position. The CEO notes that the company has no plans to slow down as it has plenty of high-rate-of-return opportunities, even with lower oil prices, suggesting that there's still plenty of upside left.

Shifting focus, but still growing

Later on in the call, Richels noted that the only real change the company is making due to falling oil prices is shifting its drilling focus. He said that,

Part of what we're doing is just shifting our focus to the highest rate of return areas. For example, we expect next year that the number of rigs that we have working in the Miss will probably go down in some areas, and the Southern Midland Basin may go down and we'll shift those rigs to some of these other areas.

So we feel pretty confident at this time that the kind of growth that we've talked about, the 20% to 25% oil growth in 2015, is achievable in a budget that is similar to what we had in 2014, which I think is a really positive development for us.

Devon Energy's portfolio of opportunities is so large that the company can simply put more focus on its best opportunities so that it can still achieve strong oil production growth and high returns. So, despite the plunge in oil prices the company remains on pace to hit its 2015 growth targets as noted on the following slide.

Source: Devon Energy Corp. Investor Presentation. 

Down-spacing, stacked laterals and more upside

One really interesting note from the call was that the company is still trying to discover how much upside it really has across its portfolio. COO Dave Hager noted that the company was trying to get a handle on how much down-spacing potential it has in the Permian Basin, which is how far apart wells can be drilled without impacting production of previously drilled wells. However, Hager noted that there's more upside beyond that,

So, there's not only down-spacing opportunities but there are stacked lateral opportunities in the Delaware Basin that, again, could significantly increase our inventory and we need to get a handle for how many wells per section that might be ultimately. And so we're doing some pilot testing around that. But the four or five wells per section, when you look at it on a stacked basis, may be significantly higher than that.

He points out that the company has "stacked lateral opportunities" which means that there's not just one target, but an upside to multiple oil-rich targets that can be drilled from a single location, similar to what is shown on the following slide.

Source: Devon Energy Corp. Investor Presentation 

Add it up and the company sees the potential for a significant upside to future drilling locations.

 "Somewhere between significant and staggering"

That upside was reiterated later on by Hager when he pointed out the potential the company was seeing from enhanced completion designs. What the company is doing is investing more money into a well than it normally would to improve its long-term performance. On average, the company is spending an incremental $1 million per well, but the returns it's seeing are incredible. Hager said that,

[...] I can tell you that based on the very preliminary data that we've seen, that the enhancements in the rate of return are somewhere between significant and staggering. And they are outstanding and certainly justify the incremental $1 million cost. [...]

Talk about upside. To use words like significant and staggering when talking about returns is music to an investor's ears.

Focused on the long term

Another big reason why the company remains confident in its upside is because it invests for the long term, and that outlook is much more robust than the recent plunge in crude oil prices would suggest. CEO John Richels pointed out,

[...] when we're implementing our strategy, as you know, we're looking at longer-term prices, not what the spot price is today. And frankly, the longer-term prices haven't changed that much from where they were when we developed the strategy and when we made the moves to so significantly transform our portfolio.

So, we put ourselves in the position today, of having an asset base that has very good rates of return, that can generate high margins where we can have robust growth, [...] So really, a change in the spot price hasn't really affected our view of what we might do.

[...]So, we feel very good about the strategy. We feel very good about the portfolio and the opportunity set that we've created for the next several years.

Said another way, the company sees a lot of future upside because it's not investing based on oil prices today, but on the future of oil, which it sees being very robust. That upside is compounded by the fact that the company has an incredible portfolio that's being improved by an equally incredible boost from new technologies that are improving its returns.