Devon Energy (DVN) didn't hide its need to address balance sheet concerns in its call with analysts last week. In fact, the company listed many measures to do so, but one thing that was absent was its plan to issue nearly $1.3 billion in equity to cover costs. That announcement came a few hours after Wednesday's call, and after the market closed.
"Devon's top priority in 2016 is to protect the balance sheet," CEO David Hager said in the company's earnings release on Tuesday. "We are tailoring activity to current market conditions and are prepared to adjust capital plans throughout the year to ensure we balance capital investment with cash inflows."
One of those adjustments appears to have come only a few hours later.
During the call, Devon Energy discussed plans to divest $2 billion to $3 billion of non-core assets and to decrease its dividend to save $300 million. It also detailed its workforce reduction plan, which Real Money reported on last month. Plans to issue common stock were not announced.
In fact, when asked by a Credit Suisse analyst about the possibility of issuing more equity -- as it had in its recent acquisitions of Felix Energy and assets in the Powder River Basin -- CEO David Hager offered the following:
"We're focused on the asset sales, on the dividend reduction. I'm not going take anything off the table as far as a possibility, but we think we've taken some very significant steps to really increase the financial strength of the company with the actions we talked about today."
Perhaps something changed in the hours between the call and the press release which announced the offering? Devon Energy did not immediately respond to requests to comment but representatives for the company told Reuters that the final decision came later that afternoon.
"Net proceeds from the offering are expected to be used for general corporate purposes, including bolstering the Company's liquidity position, reducing indebtedness and funding the Company's capital program," the company said in a statement released on Wednesday afternoon.
Liquidity concerns among energy companies should be of little surprise to investors. Ratings agencies have cut the credit ratings of many to below investment grade, as persistently low energy prices have weighed on companies' ability to service their debt. (Devon Energy still has investment grade ratings by Standard & Poor's and Fitch and is being reviewed by Moody's, the company said during the call.)
What should come as a surprise to investors is that the CEO made no mention of the offering -- or potential of an offering during the call. Furthermore, Hager even made statements which suggested that the financial plans it announced during the call were sufficient to improve its liquidity position.
For example, Hager opened with the following statements:
"Devon is in the advantageous position of having no long-cycle projects, minimal long-term contracts, and nearly all of our acreage is held by production. These favorable attributes allow us to prudently adjust our 2016 capital program to balance cash flows and to protect our balance sheet."
And then:
"Our capital program in 2016 is designed to maximize cash flow and operational continuity, with activity directed toward the lowest risk and highest impact opportunities in each of Devon's core areas."
And finally:
"Bottom line, our advantaged capital structure provides us a significant amount of financial strength and flexibility."
What a difference a few hours makes.
