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Devon Focuses on Share Repurchases, Not Acquisitions

Oklahoma City-based Devon Energy Corp.'s CEO said Wednesday that the best value on the market right now is his own company, which means that instead of making new acquisitions, the producer will instead concentrate on buying back its own shares.

Devon reported net earnings of $653 million, or a record $1.40/share, compared with $502 million ($1.04) in 2Q2004. Per-share amounts reflect a two-for-one stock split completed in November 2004.

"Devon's impressive second quarter results were driven by production growth from our core, North American property base and strong oil and gas prices," said CEO J. Larry Nichols. On Wednesday, Devon launched its second share repurchase program, which "reflects our focus on building value per share and the abundant free cash flow Devon is generating in today's environment."

Nichols told financial analysts during a conference call that the share repurchase program currently offered more value than any acquisition available.

"We have done a lot of acquisitions in the past, but we don't do acquisitions just to do them," Nichols said. "There are always companies and assets out there that you would like to have. But the second hurdle is to make sure the numbers work...that it's accretive to earnings and adds value for the shareholders. At the current time, we think we can add more value by buying our own shares.

"We don't view the acquisition of Devon's shares as any different from buying another company's shares," he said. "At the moment, we've announced our second share buyback and we will use it to reduce debt...If we find an exception to that, we'll do it, but until then, we'll buy back our own shares."

In the second quarter, the company repurchased 21.5 million shares of its common stock for approximately $1 billion, and as of Wednesday, Devon had completed its targeted 50 million share repurchase program first announced in September 2004.

Devon, which has been upping its stake in the Barnett Shale coalbed methane fields, reported record sales of oil, natural gas and liquids in the second quarter, which at $2.1 billion were 13% higher than a year ago, in spite of lower oil and gas production resulting from asset sales in the first half of the year.

Daily oil, gas and natural gas liquids production was 641,000 boe, or 6% lower than the 685,000 boe recorded in 2Q2004. Excluding asset sales, production rose more than 3%, to 610,000 boe/d, compared with 590,000 boe/d in 2Q2004. Devon also drilled 493 gross wells in the quarter, with a 98% success rate. In the United States, Devon's total natural gas production fell to 139.6 Bcf, from 150.3 Bcf, and in Canada, gas output dropped to 66.9 Bcf from 71 Bcf in 2Q2004. The company said asset sales led to the declines.

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