Devon Energy Corp (DVN), Range Resources Corp. (RRC): Another Big Texas Oil Play?

The great state of Texas already produces approximately 30% of all oil in the United States. Over the past two years there’s been growing buzz about the Cline shale play in the Texas Permian Basin. Specifically, the Cline may hold 30 billion barrels of recoverable oil. In contrast, the Bakken in the Dakotas holds roughly 7.4 billion (at last check) and the Eagle Ford in Texas holds 853 million barrels. Here are three companies developing Cline shale assets.

Gas shifting to oil

These positive results contrast with other company operations. Of note, Devon Energy Corp (NYSE:DVN)’s foray into Utica shale gas produced virtually nothing and the company wisely moved on. Others note Devon Energy Corp (NYSE:DVN)’s track record for converting untapped reserves into oil for sale underwhelms. Also underwhelming is Devon Energy Corp (NYSE:DVN)’s plans to create a master limited partnership from its midstream operations. As reported by Reuters, the announcement produced yawns from Wall Street. Throw in declining quarterly earnings growth and $12 billion in debt versus $6.5 billion in cash, and it’s no wonder Devon Energy Corp (NYSE:DVN)’s stock currently trades near its five years lows.

The company’s latest presentation forecasts a rosy future of increased production, decreased costs and growing profits.

Which raises the question: Why are insiders selling and not buying? For starters, Range’s capital expenditures exceed cash flow and thus will require some combination of debt or asset sales to fund. Further, Range also depends heavily on natural gas sales and prices remain under pressure. Lastly, while revenues climbed over the past three years, earnings oscillated between profits and losses. None of these bode well for the company.

A turnaround in the making?

An unquestionable oil producer active in the Cline is Apache Corporation (NYSE:APA). Apache Corporation (NYSE:APA) decided that the good ol’ US of A represents a better land to invest in than, I suppose, Argentina. So Apache Corporation (NYSE:APA) has begun identifying and selling $4 billion in assets to repay debt, repurchase shares and “enhance financial flexibility.” I suspect this means improving their ability to develop assets in the Cline and other US plays. One foreign asset not likely going anywhere is Egypt, which produced $1.5 billion in excess cash for the company this past year.