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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION

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From: Dennis Roth	8/2/2007 8:36:56 AM
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Unique resource base showing better than expected growth - Goldman Sachs - August 02, 2007 What's changed Devon reported 2Q 2007 adjusted EPS of $1.73 versus our estimate of $1.66 and the First Call consensus estimate of $1.46. Production was 618 MBOE/d versus our estimate of 589 MBOE/d. Operating cash flow was $1.76 billion versus our estimate of $1.51 billion. Management indicated it expects 2007 production to be at the top end of its guidance range. Implications Devon's exposure to the Barnett Shale, Lower Tertiary exploration and development in the deepwater Gulf of Mexico, and in-situ Canadian oil sands puts the company in the unique position of showing near- and medium-term growth from the most desirable resource areas in North America. We believe Devon is on track to exceed its production guidance for the year, and we believe Barnett Shale production could approach 1 Bcf/d in 2008 as opposed to 2009. The continued Barnett rampup and 2H 2007 Gulf of Mexico exploration results are likely catalysts for Devon shares. Valuation Devon trades at discount to large E&Ps. The company trades at 4.9x 2008 EV/debt-adjusted cash flow versus 4.9x-5.5x for other large-cap peers that have diversified sources of production. Devon is Not Rated. Key risks Commodity price volatility, drilling results, cost pressures and government pronouncements are key risks

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