Devon Energy Corp. posted narrower losses for its first quarter on Tuesday, helped in part by a 36% decline in expenses as the oil and gas producer responded to depressed energy prices with a deep cut of its workforce according to The Wall Street Journal.
During the three-month period ended in March, the Oklahoma City-based company reduced its workforce by 20%, resulting in $234 million in charges. Most of the charges will produce cash payments, with the vast majority in coming quarters. According to FactSet, Devon has 6,600 employees.
The company previously announced that it would cut 20% of its workforce in the first quarter, a move that could save the company up to $500 million a year when combined with other cost cuts. The company also expects to reduce its field-level costs by $300 million to $400 million this year.
Devon reported a first quarter net loss of almost $3.1 billion, or $6.44 cents a share, including a non-cash impairment charge of more than $3 billion due to lower oil and natural gas prices.
The net loss compares to a loss of $3.6 billion, or $8.88 cents a share, one year ago. Revenues slipped to $2.1 billion, down from almost $3.3 billion in the year-ago quarter. Excluding certain items, Devon posted a loss of 53 cents a share.
Total operating revenue tumbled 34% to $2.13 billion. Expenses declined 36% to $5.6 billion.
Analysts polled by Thomson Reuters expected per-share loss of 64 cents and revenue of $2.57 billion.
Devon’s reported oil production averaged 285,000 barrels a day in the first quarter.
“In spite of the challenging industry conditions, Devon achieved another high-quality operating performance in the first quarter as we continued to take the appropriate steps to deliver significant cost reductions and accelerate efficiency gains across our portfolio,” said CEO Dave Hager.
Devon’s first-quarter loss was fueled by a more than $3 billion noncash impairment charge because the oil and natural gas in the ground Devon has yet to produce is worth less than what it was one year ago.
Low oil and natural gas prices continued to weigh on Devon and the rest of the energy sector in the first quarter as oil prices plunged to 15-year lows. Domestic benchmark West Texas Intermediate crude fell to $26.05 a barrel in February before recovering gradually throughout the rest of the quarter.
Company sales prices vary widely based on factors such as quality of oil and access to pipelines and refineries.
Devon’s average sales prices in the first quarter were $20.06 for a barrel of oil and $1.66 for 1,000 cubic feet of natural gas, down from $56.29 for oil and $2.96 for natural gas one year ago. The company’s Canadian oil sold for an average price of $9.18 a barrel, down from $22.87 a year ago.
Devon produced an average of 285,000 barrels of oil per day in the quarter, up from 272,000 per day in the first quarter of 2015 and outpacing the midpoint of previous guidance by 5,000 barrels a day. Devon on Tuesday raised the midpoint of its 2016 total production guidance by 15,000 barrels of oil equivalent per day, or 3 percent, to 629,500 equivalent barrels.
While revenues were down, Devon also lowered its expenses in the first quarter. General and administrative costs were $194 million, down 23 percent from the year-ago period and on pace to save the company about $500 million annually. The cost savings include layoffs of 20 percent of Devon’s workforce, or about 1,000 workers, in January.
Operating costs also were down more than 20 percent from one year ago.
“Looking ahead, our top priority is to maintain a strong balance sheet,” Hager said. “We are balancing capital requirements with cash flow and enhancing our financial strength by utilizing asset sale proceeds to reduce debt. This disciplined financial strategy positions us to take advantage of our world-class resource plays when prices incentivize higher activity levels.”