No. of Recommendations: 6
I've own DVN for a long time, riding it high and riding it down. I recently (starting last year) started to rebuild a more substantial position in it due to attractive valuation, disciplined investment and dividend strategy, and an overall thesis that energy is currently underappreciated in the market. I am not knowledgeable about the different assets they hold relative to other exploration companies and how to assess their potential or quality, but I have seen them long enough to understand their strategy approach. They aren't really competitors or comparable to large integrated firms like XOM, CVX, or OXY. They are much more small scale operator with flexibility to turn on additional production based on pricing. My understanding is they hold attractive assets placed at different points on the cost curve and so have a good ability to take advantage of shifts in pricing.
Oil is volatile enough in pricing that no operator can really be insulated from that, but they seem like an operator that is good and improving in their discipline. They introduced (one of the first), a large variable dividend policy which kept them disciplined about returning cash to shareholders rather than holding it internally which might have tempted them into making undisciplined investments because they happen to have cash. Around the end of last year, the management signaled that they think their shares are undervalued enough that instead of continuing their large routine variable dividend approach, they are going to shift to share repurchases.
That assessment is part of why I decided to increase my holdings, combined with the fact that (I hope) the giant gravitational pull of investment dollars into AI has left valuations in places like energy so low. That has got to reverse at some point no? In the meantime, they continue to pay out a good dividend and continue to use excess capital for stock repurchases. All sound strategic approaches I think to managing through the current environment.
