Devon Energy Corp. increased 2016 production guidance by 3% and may add up to seven rigs across the Permian and Anadarko basins by year’s end as cost reduction efforts improved the bottom line and onshore resource plays once again topped expectations.

The North American onshore powerhouse now expects to reduce overhead costs this year by nearly $1 billion, CEO Dave Hager said during a conference call Wednesday. Overhead costs declined 31% while lease operating expenses (LOE) fell by 26%, driven by improved infrastructure in the the top two U.S. plays: Permian’s Delaware sub-basin and the Anadarko’s stacked reservoirs.

“Production from our U.S. resource plays once again exceeded guidance expectations, and we were able to deliver this outperformance with dramatically lower costs,” Hager told analysts during a conference call Wednesday.

The Oklahoma City-based independent expects full-year 2016 upstream capital spend to be $1.1-1.3 billion, an increase of $200 million from earlier guidance. Incremental capital is be deployed in the Delaware and in Oklahoma’s Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties (STACK).

There’s the “potential to add as many as seven operated rigs between these prolific plays in the second half of 2016,” Hager said. “The additional capital investment is expected to deliver incremental production in early 2017.”

Devon helped its bottom line from a year ago by completing a divestiture program in July that was better than anticipated (see Shale Daily, July 14). Total divestitures reached $3.2 billion, surpassing the top end of its $2-3 billion guidance range.

With an earlier-than-expected completion of the asset sales program, Devon updated its 3Q2016 and full-year production guidance for the retained assets. The most significant change to previous guidance is a decision to retain select assets in the Permian’s Midland sub-basin, which had been on the market.

Operations chief Tony Vaughn said during the conference call that the legacy Midland assets had “extremely low declines” and were expected to produce 15,000 boe/d in the second half of 2016.

By retaining the Midland portfolio and other minor operating interests, Devon raised the midpoint of 2016 guidance by 3%, or 18,000 boe/d. Most of the production is going to be oil-weighted, where 2016 guidance at the midpoint was increased by 4% or 10,000 b/d.

The company’s U.S. resource plays, primarily the STACK and Delaware, Powder River Basin and Barnett Shale, produced on average 419,000 boe/d in 2Q2016. In the STACK and Delaware alone, aggregate production increased 27% year/year. Light oil output from U.S. resource plays, the highest margin product, averaged 110,000 b/d, which exceeded the top end of guidance by 2,000 b/d.

In Canada, production from Devon’s heavy-oil projects averaged 121,000 b/d net in the quarter, 24% higher from a year earlier, even though scheduled maintenance at the Jackfish 2 facility curtailed production by 11,000 b/d.

Based on overall results to date, Devon has raised its estimated 2016 upstream capital spending budget by $200 million to between $1.1 billion and $1.3 billion, with the potential to add as many as seven rigs in the U.S. onshore. Devon only operated two rigs across North America between April and June, both in the STACK.

The Oklahoma City-based independent posted a quarterly loss of $1.57 billion (minus $3.04/share), but it was sharply down from 2Q2015, when losses totaled $2.92 billion (minus $6.94). Revenue year/year fell by 27% to $2.49 billion. Excluding one-time writedowns, restructuring and other expenses, adjusted earnings were $33 million (6 cents/share). Wall Street had forecast an adjusted earnings loss of 19 cents/share on revenue of $2.33 billion.

Production in 2Q2016 fell by 5% from a year ago to 644,000 boe/d net, with 545,000 boe/d from core assets, where investment is be directed going forward. Production from core assets exceeded the mid-point of guidance by 6,000 boe/d, driven entirely by U.S. resource plays.

Because of operating cost performance achieved year-to-date and the asset sales, Devon reduced its full-year LOE outlook by $150 million to $1.6-1.7 billion. Devon is now on track to reduce LOE and production taxes by nearly $600 million from 2015. The company also realized substantial general and administrative (G&A) cost savings in 2Q2016, with expenses 30% better than a year ago at $147 million, driven mostly by reduced staff. G&A this year now is seen declining by $600-650 million.

Accrued upstream capital spending, which accounts for activity that was incurred in 2Q2016, amounted to $221 million, $29 million below the low end of the guidance range.

Devon exited the second quarter with $1.7 billion of cash on hand. Pro forma for the recent asset sales, cash balances should increase to $4.6 billion; the company had not borrowed against its $3 billion senior credit facility. Consolidated debt was $12.7 billion at the end of the June. Adjusted for asset sales, net debt declined to $4.7 billion.