Devon Corp.’s oil and natural gas production will grow in the “bottom end” of the forecasted 2-4% range this year, CEO J. Larry Nichols said Wednesday. However, the producer will hold significant cash reserves, which Nichols said will likely be used to repurchase stock and “revisit” the dividend.

“Last year we were at the high end of production growth, and I think we will come in at a range this year of 251-256 MMboe, at the low end of the range,” Nichols said. The CEO, speaking at the Lehman Brothers CEO Energy/Power Conference, added that organic growth last year grew 23%, and this year, will reach as high as 9 MMboe.

About 87% of Devon’s production is in North America, and current output is 684,500 boe/d, with 60% in natural gas and 40% in liquids.

Although output will be lower, earnings and cash flow will be much higher than anticipated because of higher commodity prices. In the first six months of 2004, reported net earnings were $996 million, and earnings per share were $4.02. Devon spent about $1.2 billion for exploration and development in the first half of the year, drilling 1,021 wells with a 95% success rate.

For the full year, Devon is forecasting cash flow to be “north of $4.5 billion.” Nichols said the company already has repaid $1 billion in debt this year, and it expects to have a cash balance of about $2 billion by the end of the year. Devon’s net debt to capital at the end of 2003 was 39%, however, by the end of this year, it should be “below $30.”

“We’re right at a turning point where we’ll have debt back to where we want it,” Nichols said. “We said when we got to this point, we would look for alternative uses for the cash. And we don’t see acquisitions as an attractive place to be right now.”

The “best acquisitions,” he said, “are to buy our own stock.” On Sept. 28, when Devon holds its annual analyst conference, he said the company will make an announcement of what it wants to do with its extra cash. However, he added, “stock repurchases are high on our list.”

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