Oklahoma City-based Devon Energy Corp. has raised its full-year oil production outlook following first quarter results in which Permian Basin wells set an all-time record and a Midcontinent project came online ahead of plan.

The increased production outlook, said CEO Dave Hager, follows strong year-to-date results and the “confidence” management has in the Permian’s Delaware sub-basin and Oklahoma’s STACK, i.e., Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties.

“Devon delivered oil production at the high end of guidance and accelerated efficiency gains across the portfolio in the first quarter,” Hager said.

“Our performance was highlighted by commencing production on the highest-rate wells in the 100-year history of the Delaware Basin and efficiencies at our STACK Showboat project, which resulted in savings of $1.5 million per well and first production 40 days ahead of plan.”

More production is surging as costs are falling, he said. “We expect per-unit lease operating expense to decline 5-10% by year-end,” with general and administrative expenses expected to fall by $175 million a year.

Overall, total production averaged 544,000 boe/d in the first quarter, with oil accounting for 46% of total volumes. U.S. resource plays averaged 413,000 boe/d, with the strongest performance in the Delaware and STACK assets, where combined oil production increased 16%. U.S. oil production was at the top end of guidance, averaging 122,000 b/d.

The updated midpoint of 2018 guidance implies an estimated growth rate of 16%, versus previous guidance of 14%.

Bountiful Boundary Raider

In the Delaware, new well activity was headlined by two massive Boundary Raider wells that achieved a combined 24-hour initial production rate of about 24,000 boe/d, 80% oil. The wells considered the “highest-rate wells brought online in the history of the Delaware Basin,” according to Devon.

In the STACK, production also ramped up for 12 high-rate wells that averaged initial 30-day rates of 3,500 boe/d, 55% oil weighted.  The most prolific STACK wells for the quarter belonged to the four wells from the Coyote development that delivered average 30-day rates of 4,400 boe/d.

Devon’s upstream capital was $664 million in the first quarter, 2% above the guidance range, which the company said was driven by efficiencies achieved at the STACK Showboat project, where first production was achieved 40 days ahead of plan, resulting in an acceleration of capital spend.

“The efficiencies at Showboat were driven by a 30% improvement in drilling time and the doubling of completion stages per day compared to prior activity in the area,” said management. Overall, the operating improvements delivered estimated cost savings of $1.5 million/well in the Showboat development.

With the better-than-expected efficiencies compressing cycle times across development projects and pulling forward activity, Devon now expects its capital to trend toward the high end of its 2018 guidance of $2.2-2.4 billion.

U.S. upstream revenue improved 36% sequentially to total $1 billion in the first quarter. Canadian upstream revenue totaled $302 million, as Devon benefited from Western Canadian Select (WCS) basis swaps on about half of its  estimated Canadian oil production, generating cash settlements of $97 million.

The midstream business generated a 42% increase year/year in operating profits of $277 million, lifted by Devon’s 64% interest in EnLink Midstream’s general partner and 23% stake in the limited partner. In aggregate, the ownership in EnLink has a market value of about $3 billion and is projected to generate cash distributions of $270 million in 2018, according to Devon.

In line with recent chatter about Canadian AECO natural gas prices and Permian crude oil basis differentials, Devon now has about 60% of its expected oil and gas production protected for the remainder of 2018.

Additionally, Devon has entered into regional basis swaps “in an effort to protect price realizations across its portfolio in the U.S. and Canada…”

Production expenses totaled $543 million, or $11.08/boe in the quarter, in line with guidance. Per-unit production expenses are expected to decline by 5-10% year/year in 2018, with growth in high-margin and low-cost production in the Delaware and STACK, management said.

Devon continues to target asset sales of more than $5 billion, and in the first quarter sold some Barnett Shale properties in North Texas for $553 million. In a separate Barnett transaction, Devon formed a partnership with DowDupont in April allowing Devon to monetize half its working interest across 116 gross undrilled locations for a $75 million payment spread over the next five years. With the agreement, Devon also would drill and operate up to 24 wells per year, with volumes dedicated to EnLink.

Overall, the two Barnett transactions, combined with other recent asset sales, have increased total divestiture proceeds over the past year to $1.1 billion.

In the first three months, operating cash flow totaled $804 million, an 11% sequential increase. Devon reported a net loss in 1Q2018 of $197 million (minus 38 cents/share), versus year-ago profits of $303 million (58 cents). The loss was attributed to a $312 million charge (minus 32 cents/share) related to the early retirement of debt. Adjusting for the one-time charge and other items, core earnings in 1Q2018 were $108 million (20 cents/share), which exceeded Wall Street consensus.

Devon began a $1 billion share repurchase plan early this year, and at the end of April had repurchased 6.2 million shares for $204 million at an average price of $33/share. Repurchases are expected to be completed by the end of the year.

The board also has approved a 33% increase to the quarterly common stock dividend to 8 cents/share, up 2 cents, effective in the second quarter.