In the three months to June, Devon Energy produced 3,252 million cubic feet of natural gas a day — roughly 40% of its output on an equivalent-barrel basis — and booked $104 million of gas sales against $5,106 million of total oil, gas and NGL sales . Unhedged gas realized 35 cents per thousand cubic feet, or 12% of a $2.90 Henry Hub, because spot prices at the Waha hub in West Texas went negative during the quarter . Oil, meanwhile, was 37% of the volume and 85% of the upstream revenue.
That lopsidedness is where the opportunity sits. Devon is a US onshore oil and gas producer that, since closing an all-stock merger with Coterra Energy on May 7, operates in five core areas: the Permian, which was 55% of second-quarter volumes, the Rockies at 15%, the Marcellus at 15%, the Anadarko at 9%, and the Eagle Ford at 6% . The deal doubled the company and bolted a large gas position onto an oil franchise at the precise moment Permian gas was worthless at the wellhead. The market has priced the result as a complicated, gas-dragged aggregate. What it has not priced is that the gas discount was a physical bottleneck with a physical fix now arriving, that the portfolio is being cut down to the Delaware Basin in public, one signed transaction at a time, and that the cash from those sales lands in a repurchase program with room to retire a meaningful slice of the company. At $48.26 on October 9 — about 9.4x the $5.12 consensus estimate for 2027 — the stock still carries the complexity discount and is close to losing the reason for it.
What broke in April was mechanical, not a verdict on the assets
Devon's shares peaked at $52.71 intraday in the week to April 2 and traded as low as $39.99 in the week to July 2, a 24% drawdown — while the oil price did the opposite. The WTI index averaged $72.10 in the first quarter and $92.47 in the second . A producer losing a quarter of its value into a 28% rise in its main product owes most of that move to something...