Oil prices have bounced around quite a bit this year. WTI, the primary U.S. benchmark price, rose to over $85 per barrel at one point. However, it's currently down modestly for the year and was recently just below $70 a barrel.

Crude oil pricing has a significant impact on the cash flows of oil producers like Devon Energy (DVN 0.16%). Here's a look at whether the current oil price affects the buy thesis for the oil stock.

Offsetting the oil price decline

Devon Energy generated $1.7 billion in operating cash flow during the third quarter, an 8% increase from the previous quarter. That uptick came even though the company realized an average of $74.26 per barrel of oil sold during the period, down from $78.95 in the previous quarter. Devon offset the decline in oil prices by producing more oil and gas (its companywide production rose 4%), thanks to the strength of its Delaware Basin position across Texas and New Mexico and its acquisition of Grayson Mill Energy, which closed right near the end of September. The company also benefited from a 7% decline in production costs.

The timing of the Grayson Mill Energy deal is worth noting. The company didn't get the full benefit of that deal, which it expects will be highly accretive to its cash flow. Devon bought that company at a double-digit free cash flow yield. In addition, it expects to capture savings from cost synergies and benefit from Grayson Mill's midstream assets in the Williston Basin region of North Dakota and Montana, which provides options to capture higher pricing for its production in the area.

So, while lower oil prices will act as a headwind for Devon, rising production, falling costs, and the accretive Grayson Mill Energy deal will help cushion the blow.

Dirt cheap, and doing something about it

Devon Energy expects to produce a lot of cash flow next year, even if oil prices continue to fall. It can generate about $1.5 billion in free cash at $60 oil and more than $2.5 billion if oil averages $70 a barrel. Given its current market cap, Devon trades at a 5% free cash flow yield at $60 oil and 9% if oil averages $70 a barrel. That's much cheaper than the broader market, which trades at a low-single-digit free cash flow yield.

The company's relatively attractive valuation is driving it to use more of its excess free cash flow to repurchase shares. Devon produced $786 million in free cash flow during the third quarter. The company used its excess cash (free cash flow and balance sheet cash) to pay its quarterly dividend, retire $472 million of debt at maturity, and repurchase $295 million of its stock. Devon elected not to pay a variable dividend in the quarter, -- which used to be its hallmark -- opting instead to strengthen its balance sheet following the Grayson Mill Energy deal and repurchase shares.

Going forward, Devon expects to return 70% of its free cash flow to investors (retaining the other 30% to strengthen its balance sheet). Paying a growing fixed dividend remains its top priority. After that, given its currently attractive valuation, it intends to prioritize repurchasing its shares over paying a variable dividend.

Devon has now repurchased $3 billion of stock since launching its current program in late 2021. In conjunction with the Grayson Mill Energy deal, the oil company boosted its share repurchase authorization to $5 billion, which it expects to complete by the middle of 2026. That bigger buyback showcases its conviction that buying back its shares is a wise use of capital in the current environment.

Devon is still a deal below $70 a barrel

Devon Energy expects to continue producing a gusher of free cash flow over the next year, even if oil prices continue to weaken. Because of that, it will still trade at a relatively attractive value even if oil falls below $60. That's why it's prioritizing repurchasing shares at the moment. So, if you're seeking a value play in the oil patch, Devon still looks like an attractive buy, even with crude prices slipping below $70 a barrel.