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Devon Energy (DVN) to Boost Returns by Reducing Workforce


Devon Energy Corporation DVN decided to reduce its current workforce by 9% or 300 workers with an objective to streamline its operations, improve returns and boost margins, per a media report. The layoffs will begin in the next few weeks and impact all areas of the company’s operations, including its headquarters.

Devon Energy expects the decision to cut down its existing workforce to result in savings within $150-$200 million in 2020.

In 2016, Devon Energy announced plans to reduce its workforce by nearly 1,000 to cope with the low commodity price environment. The reduction of workforce helped the company to lower operating expenses and allowed it to remain financially flexible.

Devon’s Initiatives to Transform

Devon Energy is planning to transform itself by divesting more than $5 billion of its non-core assets in the next three years under its Vision 2020 initiative. The company has already announced to sell its non-core assets worth $1 billion.

The strategy to divest the non-core assets is actually helping Devon Energy to concentrate on its high-margin oil production region. The company will in turn utilize the cash flow to lower its existing debts levels, and work to increase shareholders’ value through share buybacks and dividend growth.

In 2018, Devon Energy plans to lower $1 billion of its outstanding debt to strengthen its balance sheet and lower interest expenses. The company also made an announcement of repurchasing $1.0 billion shares of its common stock over the next year to increase the value of its existing shareholders.

Job Cuts to Lower Costs

Devon Energy is not the only player in the Oil and Energy sector taking the difficult call to cut down on existing workforce for lowering operating costs. At the beginning of this year, Chesapeake Energy Corporation CHK and Hess Corporation HES also decided to cut down their workforce to reduce costs and improve profitability.

Price Movement

The decision to cut down workforce had a positive impact on Devon’s share. The company gained 6.8% in intraday trading compared with its industry’s rally of 0.0%.

Zacks Rank

Devon Energy has a Zacks Rank#5 (Strong Sell). A better-ranked stock in the same industry worth considering is Northern Oil and Gas Inc. NOG, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Northern Oil and Gas reported an average positive earnings surprise of 175% in the last four quarters. Its 2018 earnings estimate moved up 110% to 42 cents in the last 60 days.

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