Kurt Wulff (McDep Associates) submits:
Contrarian Buy-recommended Devon Energy (DVN) offers unlevered appreciation potential of 43% to a McDep Ratio of 1.0 where stock price would equal estimated Net Present Value of a share. Second quarter results released on August 4 displayed a positive uptick in oil production. New volumes come from the Permian Basin, a traditional area of operation where the company has quietly been expanding its lease holdings.
Today’s oil price and new technology are fueling yet another West Texas oil boom. Management talks of the “Avalon Shale” as a new area of interest joining traditional formations like Bone Springs. Oil is also growing along with natural gas from the Cana Shale in Oklahoma. Reserves in that rapidly expanding resource may multiply further if early results from a denser drilling pattern are confirmed. Meanwhile, a high level of cash flow matched with adjusted reserve life supports estimated NPV in an industry context.