e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2007
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 001-32318
Devon Energy Corporation
(Exact Name of Registrant as Specified in its Charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
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73-1567067
(I.R.S. Employer
Identification Number) |
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20 North Broadway |
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Oklahoma City, Oklahoma
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73102-8260 |
(Address of Principal Executive Offices)
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(Zip Code) |
Registrants telephone number, including area code:
(405) 235-3611
Former name, former address and former fiscal year, if changed from last report.
Not applicable
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares outstanding of Registrants common stock, par value $0.10, as of March
31, 2007, was 444,814,000.
[This page intentionally left blank.]
2
DEVON ENERGY CORPORATION
Index to Form 10-Q Quarterly Report
to the Securities and Exchange Commission
3
DEFINITIONS
As used in this document:
Bbl or Bbls means barrel or barrels.
Bcf means billion cubic feet.
Boe means barrel of oil equivalent, determined by using the ratio of one Bbl of oil or NGLs
to six Mcf of gas.
MMBbls means million barrels.
MMBoe means million Boe.
Mcf means thousand cubic feet.
NGL or NGLs means natural gas liquids.
Oil includes crude oil and condensate.
SEC means United States Securities and Exchange Commission.
Domestic means the properties of Devon in the onshore continental United States and the
offshore Gulf of Mexico.
United States Onshore means the properties of Devon in the continental United States.
United States Offshore means the properties of Devon in the Gulf of Mexico.
Canada means the division of Devon encompassing oil and gas properties located in Canada.
International means the division of Devon encompassing oil and gas properties that lie
outside the United States and Canada.
4
PART I. Financial Information
Item 1. Financial Statements
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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March 31, |
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December 31, |
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2007 |
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2006 |
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(Unaudited) |
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(In millions, except share data) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
615 |
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|
692 |
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Short-term investments, at fair value |
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275 |
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|
574 |
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Accounts receivable |
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1,361 |
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1,324 |
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Deferred income taxes |
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66 |
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|
102 |
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Current assets held for sale |
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252 |
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232 |
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Other current assets |
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167 |
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288 |
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Total current assets |
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2,736 |
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3,212 |
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Property and equipment, at cost, based on the full cost method of
accounting for oil and gas properties ($3,276 and $3,293 excluded
from amortization in 2007 and 2006, respectively) |
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41,536 |
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39,585 |
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Less accumulated depreciation, depletion and amortization |
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17,128 |
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16,429 |
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24,408 |
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23,156 |
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Investment in Chevron Corporation common stock, at fair value |
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1,049 |
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1,043 |
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Goodwill |
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5,741 |
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5,706 |
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Assets held for sale |
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1,680 |
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1,619 |
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Other assets |
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364 |
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327 |
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Total assets |
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$ |
35,978 |
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35,063 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable trade |
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$ |
1,236 |
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1,154 |
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Revenues and royalties due to others |
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476 |
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522 |
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Income taxes payable |
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192 |
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82 |
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Short-term debt |
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1,857 |
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2,205 |
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Accrued interest payable |
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81 |
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|
114 |
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Current portion of asset retirement obligation, at fair value |
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55 |
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53 |
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Current liabilities associated with assets held for sale |
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222 |
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173 |
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Accrued expenses and other current liabilities |
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321 |
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342 |
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Total current liabilities |
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4,440 |
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4,645 |
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Debentures exchangeable into shares of Chevron Corporation common
stock |
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732 |
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|
727 |
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Other long-term debt |
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4,839 |
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4,841 |
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Financial instruments, at fair value |
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309 |
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|
302 |
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Asset retirement obligation, at fair value |
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1,152 |
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|
804 |
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Liabilities associated with assets held for sale |
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450 |
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|
429 |
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Other liabilities |
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630 |
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|
583 |
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Deferred income taxes |
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5,270 |
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5,290 |
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Stockholders equity: |
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Preferred stock of $1.00 par value. Authorized 4,500,000 shares;
issued 1,500,000 ($150 million aggregate liquidation value) |
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1 |
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1 |
|
Common stock of $0.10 par value. Authorized 800,000,000 shares;
issued 444,814,000 in 2007 and 444,040,000 in 2006 |
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44 |
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44 |
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Additional paid-in capital |
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6,897 |
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6,840 |
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Retained earnings |
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10,055 |
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9,114 |
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Accumulated other comprehensive income |
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1,159 |
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1,444 |
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Treasury stock, at cost: 11,000 shares in 2006 |
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(1 |
) |
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Total stockholders equity |
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18,156 |
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17,442 |
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Commitments and contingencies (Note 6) |
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Total liabilities and stockholders equity |
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$ |
35,978 |
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35,063 |
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See accompanying notes to consolidated financial statements.
5
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended |
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March 31, |
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2007 |
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2006 |
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(Unaudited) |
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(In millions, except per share |
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amounts) |
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Revenues: |
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Oil sales |
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$ |
691 |
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|
508 |
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Gas sales |
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1,226 |
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1,358 |
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NGL sales |
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177 |
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176 |
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Marketing and midstream revenues |
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379 |
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458 |
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Total revenues |
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2,473 |
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2,500 |
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Expenses and other income, net: |
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Lease operating expenses |
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430 |
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|
331 |
|
Production taxes |
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80 |
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|
83 |
|
Marketing and midstream operating costs and expenses |
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270 |
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338 |
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Depreciation, depletion and amortization of oil and gas properties |
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587 |
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|
443 |
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Depreciation and amortization of non-oil and gas properties |
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46 |
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41 |
|
Accretion of asset retirement obligation |
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18 |
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|
|
10 |
|
General and administrative expenses |
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119 |
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|
90 |
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Interest expense |
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110 |
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101 |
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Change in fair value of financial instruments |
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1 |
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12 |
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Other income, net |
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(26 |
) |
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(29 |
) |
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Total expenses and other income, net |
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1,635 |
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|
1,420 |
|
Earnings from continuing operations before income tax expense |
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|
838 |
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1,080 |
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Income tax expense: |
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Current |
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189 |
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|
224 |
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Deferred |
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75 |
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|
140 |
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|
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Total income tax expense |
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|
264 |
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|
364 |
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|
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Earnings from continuing operations |
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|
574 |
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|
716 |
|
Discontinued operations: |
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Earnings from discontinued operations before income tax expense |
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|
137 |
|
|
|
47 |
|
Income tax expense |
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|
60 |
|
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|
63 |
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Earnings (loss) from discontinued operations |
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77 |
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(16 |
) |
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|
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|
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Net earnings |
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|
651 |
|
|
|
700 |
|
Preferred stock dividends |
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|
2 |
|
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2 |
|
|
|
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|
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|
Net earnings applicable to common stockholders |
|
$ |
649 |
|
|
|
698 |
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Basic net earnings per share: |
|
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Earnings from continuing operations |
|
$ |
1.29 |
|
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|
1.61 |
|
Earnings (loss) from discontinued operations |
|
|
0.17 |
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|
|
(0.03 |
) |
|
|
|
|
|
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Net earnings |
|
$ |
1.46 |
|
|
|
1.58 |
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Diluted net earnings per share: |
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|
|
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|
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Earnings from continuing operations |
|
$ |
1.27 |
|
|
|
1.59 |
|
Earnings (loss) from discontinued operations |
|
|
0.17 |
|
|
|
(0.03 |
) |
|
|
|
|
|
|
|
Net earnings |
|
$ |
1.44 |
|
|
|
1.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
444 |
|
|
|
442 |
|
|
|
|
|
|
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|
Diluted |
|
|
450 |
|
|
|
449 |
|
|
|
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|
See accompanying notes to consolidated financial statements.
6
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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Three Months Ended |
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March 31, |
|
|
|
2007 |
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2006 |
|
|
|
(Unaudited) |
|
|
|
(In millions) |
|
Net earnings |
|
$ |
651 |
|
|
|
700 |
|
Foreign currency translation: |
|
|
|
|
|
|
|
|
Change in cumulative translation adjustment |
|
|
83 |
|
|
|
(9 |
) |
Income taxes |
|
|
(6 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
Total |
|
|
77 |
|
|
|
(8 |
) |
|
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|
|
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Derivative
financial instruments reclassification adjustment for realized gains included in net earnings |
|
|
(1 |
) |
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(1 |
) |
|
|
|
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|
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|
Pension and postretirement benefit plans: |
|
|
|
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|
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Recognition of net actuarial loss in net earnings |
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|
4 |
|
|
|
|
|
Income taxes |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
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Investment in Chevron Corporation common stock (Note 1): |
|
|
|
|
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Unrealized holding gain |
|
|
|
|
|
|
17 |
|
Income taxes |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax |
|
|
79 |
|
|
|
2 |
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
730 |
|
|
|
702 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
7
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
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Accumulated |
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|
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Additional |
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Other |
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Total |
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Preferred |
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|
Common Stock |
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|
Paid-In |
|
|
Retained |
|
|
Comprehensive |
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Treasury |
|
|
Stockholders |
|
|
|
Stock |
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|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income |
|
|
Stock |
|
|
Equity |
|
|
|
(Unaudited) |
|
|
|
(In millions) |
|
Three Months Ended March 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006 |
|
$ |
1 |
|
|
|
444 |
|
|
$ |
44 |
|
|
|
6,840 |
|
|
|
9,114 |
|
|
|
1,444 |
|
|
|
(1 |
) |
|
|
17,442 |
|
Adoption of FASB Statement No. 159 (Note 1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364 |
|
|
|
(364 |
) |
|
|
|
|
|
|
|
|
Adoption of FASB Interpretation No. 48 (Note 1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
(10 |
) |
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
651 |
|
|
|
|
|
|
|
|
|
|
|
651 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
79 |
|
Stock option exercises |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23 |
|
Common stock retired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62 |
) |
|
|
|
|
|
|
|
|
|
|
(62 |
) |
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
Excess tax benefits on share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2007 |
|
$ |
1 |
|
|
|
445 |
|
|
$ |
44 |
|
|
|
6,897 |
|
|
|
10,055 |
|
|
|
1,159 |
|
|
|
|
|
|
|
18,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2005 |
|
$ |
1 |
|
|
|
443 |
|
|
$ |
44 |
|
|
|
6,928 |
|
|
|
6,477 |
|
|
|
1,414 |
|
|
|
(2 |
) |
|
|
14,862 |
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700 |
|
|
|
|
|
|
|
|
|
|
|
700 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
Stock option exercises |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
Restricted stock grants, net of cancellations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
Common stock repurchased |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(253 |
) |
|
|
(253 |
) |
Common stock retired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(238 |
) |
|
|
|
|
|
|
|
|
|
|
238 |
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
|
(49 |
) |
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
Excess tax benefits on share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2006 |
|
$ |
1 |
|
|
|
440 |
|
|
$ |
44 |
|
|
|
6,733 |
|
|
|
7,126 |
|
|
|
1,416 |
|
|
|
(18 |
) |
|
|
15,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
8
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(Unaudited) |
|
|
|
(In Millions) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
651 |
|
|
|
700 |
|
(Earnings) loss from discontinued operations, net of tax |
|
|
(77 |
) |
|
|
16 |
|
Adjustments to reconcile net earnings from continuing operations
to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
633 |
|
|
|
484 |
|
Deferred income tax expense |
|
|
75 |
|
|
|
140 |
|
Net gain on sales of non-oil and gas property and equipment |
|
|
|
|
|
|
(5 |
) |
Other noncash charges |
|
|
75 |
|
|
|
39 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(29 |
) |
|
|
241 |
|
Other current assets |
|
|
(10 |
) |
|
|
(10 |
) |
Long-term other assets |
|
|
(25 |
) |
|
|
4 |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
20 |
|
|
|
(162 |
) |
Income taxes payable |
|
|
207 |
|
|
|
80 |
|
Other current liabilities |
|
|
(118 |
) |
|
|
(160 |
) |
Long-term other liabilities |
|
|
(2 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
Cash provided by operating activities continuing operations |
|
|
1,400 |
|
|
|
1,361 |
|
Cash provided by operating activities discontinued operations |
|
|
117 |
|
|
|
161 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,517 |
|
|
|
1,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sales of property and equipment |
|
|
25 |
|
|
|
19 |
|
Capital expenditures |
|
|
(1,484 |
) |
|
|
(1,249 |
) |
Purchases of short-term investments |
|
|
(424 |
) |
|
|
(495 |
) |
Sales of short-term investments |
|
|
723 |
|
|
|
441 |
|
|
|
|
|
|
|
|
Cash used in investing activities continuing operations |
|
|
(1,160 |
) |
|
|
(1,284 |
) |
Cash used in investing activities discontinued operations |
|
|
(53 |
) |
|
|
(68 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,213 |
) |
|
|
(1,352 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net commercial paper repayments, net of issuance costs |
|
|
(348 |
) |
|
|
|
|
Debt repayments, including current maturities |
|
|
|
|
|
|
(3 |
) |
Proceeds from stock option exercises |
|
|
23 |
|
|
|
20 |
|
Repurchases of common stock |
|
|
|
|
|
|
(253 |
) |
Excess tax benefits related to share-based compensation |
|
|
5 |
|
|
|
4 |
|
Dividends paid on common stock |
|
|
(62 |
) |
|
|
(49 |
) |
Dividends paid on preferred stock |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(384 |
) |
|
|
(283 |
) |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(78 |
) |
|
|
(112 |
) |
Cash and cash equivalents at beginning of period (including cash
related to assets held for sale) |
|
|
756 |
|
|
|
1,606 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period (including cash related
to assets held for sale) |
|
$ |
678 |
|
|
|
1,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow data: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
162 |
|
|
|
159 |
|
Income taxes (received) paid |
|
$ |
(24 |
) |
|
|
160 |
|
See accompanying notes to consolidated financial statements.
9
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
The accompanying consolidated financial statements and notes thereto of Devon Energy
Corporation (Devon) have been prepared pursuant to the rules and regulations of the United States
Securities and Exchange Commission. Accordingly, certain disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted in the United
States of America have been omitted. The accompanying consolidated financial statements and notes
thereto should be read in conjunction with the consolidated financial statements and notes thereto
included in Devons 2006 Annual Report on Form 10-K.
In the opinion of Devons management, all adjustments (all of which are normal and recurring)
that have been made are necessary to fairly state the consolidated financial position of Devon and
its subsidiaries as of March 31, 2007, and the results of their operations and their cash flows for
the three-month periods ended March 31, 2007 and 2006.
Certain prior period amounts have been reclassified to conform to the current period
presentation.
Net Earnings Per Common Share
The following table reconciles earnings from continuing operations and common shares
outstanding used in the calculations of basic and diluted earnings per share for the three-month
periods ended March 31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
Earnings |
|
|
Weighted |
|
|
|
|
|
|
Applicable to |
|
|
Average |
|
|
Net |
|
|
|
Common |
|
|
Common Shares |
|
|
Earnings |
|
|
|
Stockholders |
|
|
Outstanding |
|
|
per Share |
|
|
|
(In millions, except per share amounts) |
|
Three Months Ended March 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
574 |
|
|
|
|
|
|
|
|
|
Less preferred stock dividends |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
572 |
|
|
|
444 |
|
|
$ |
1.29 |
|
Dilutive effect of potential common shares issuable
upon the exercise of outstanding stock options |
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
572 |
|
|
|
450 |
|
|
$ |
1.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
716 |
|
|
|
|
|
|
|
|
|
Less preferred stock dividends |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
714 |
|
|
|
442 |
|
|
$ |
1.61 |
|
Dilutive effect of potential common shares issuable
upon the exercise of outstanding stock options |
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
714 |
|
|
|
449 |
|
|
$ |
1.59 |
|
|
|
|
|
|
|
|
|
|
|
Certain options to purchase shares of Devons common stock were excluded from the dilution
calculations because the options were antidilutive. During the first quarter of 2007 and 2006, 4.2
million shares and 2.6 million shares, respectively, were excluded from the diluted earnings per
share calculations.
Short-term Investments and Other Marketable Securities Change in Accounting Principle
Devon owns approximately 14.2 million shares of Chevron Corporation (Chevron) common stock.
These shares are held in connection with debt owed by Devon that contains an exchange option. This
exchange option allows the debt holders, prior to the debts maturity, to exchange the debt for the
shares of Chevron common stock owned by Devon.
10
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The shares of Chevron common stock and the exchange option embedded in the debt have always
been recorded on Devons balance sheet at fair value. However, pursuant to accounting rules prior
to January 1, 2007, only the change in fair value of the embedded option has historically been
included in Devons results of operations. Conversely, the change in fair value of the Chevron
common stock has not been included in Devons results of operations, but instead has been recorded
directly to stockholders equity as part of accumulated other comprehensive income.
Effective January 1, 2007, Devon adopted Statement of Financial Accounting Standards No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of
FASB Statement No. 115. Statement No. 159 allows a company the option to value its financial assets
and liabilities, on an instrument by instrument basis, at fair value, and include the change in
fair value of such assets and liabilities in its results of operations. Devon chose to apply the
provisions of Statement No. 159 to its shares of Chevron common stock. Accordingly, beginning with
the first quarter of 2007, the change in fair value of the Chevron common stock owned by Devon,
along with the change in fair value of the related exchange option, will both be included in
Devons results of operations.
In the first quarter of 2007, the change in fair value of financial instruments caption on
Devons statements of operations includes an unrealized gain of $6 million related to the Chevron
common stock, and an unrealized loss of $8 million related to the embedded option. In the first
quarter of 2006, prior to adopting Statement No. 159, an unrealized loss of $14 million related to
the change in fair value of the embedded option was included in the change in fair value of
financial instruments caption on Devons statements of operations.
As of December 31, 2006, $364 million of after-tax unrealized gains related to Devons
investment in the Chevron common stock was included in accumulated other comprehensive income. This
is the amount of unrealized gains that, prior to Devons adoption of Statement No. 159, had not
been recorded in Devons historical results of operations. Upon the adoption of Statement No. 159
as of January 1, 2007, this $364 million of unrealized gains was reclassified on Devons balance
sheet from accumulated other comprehensive income to retained earnings.
In conjunction with the adoption of Statement No. 159, Devon also adopted on January 1, 2007
Statement of Financial Accounting Standards No. 157, Fair Value Measurements. Statement No. 157
provides a common definition of fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements, but does not require any new fair value
measurements. The adoption of Statement No. 157 had no impact on Devons financial statements, but
it did result in additional required disclosures as set forth in Note 7.
Income Taxes Change in Accounting Principle
Devon and its subsidiaries are subject to current income taxes assessed by the federal and
various state jurisdictions in the United States and other foreign jurisdictions. In addition,
Devon accounts for deferred income taxes related to these jurisdictions using the asset and
liability method. Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying
amounts of assets and liabilities and their respective tax bases. Deferred tax assets are also
recognized for the future tax benefits attributable to the expected utilization of existing tax net
operating loss carryforwards and other types of carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences and carryforwards are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
At March 31, 2007, undistributed earnings of foreign subsidiaries included in continuing
operations were determined to be permanently reinvested. Therefore, no U.S. deferred income taxes
were provided on such amounts at March 31, 2007. If it becomes apparent that some or all of the
undistributed earnings will be distributed, Devon would then record taxes on those earnings.
In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48,
Accounting for
Uncertainty in Income Taxesan interpretation of FASB Statement No. 109. Interpretation No. 48
prescribes a
11
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
threshold for recognizing the financial statement effects of a tax position when it is
more likely than not, based on the technical merits, that the position will be sustained upon
examination by a taxing authority. Recognized tax positions are initially and subsequently measured
as the largest amount of tax benefit that is more likely than not of being realized upon ultimate
settlement with a taxing authority. Liabilities for unrecognized tax benefits related to such tax
positions are included in other long-term liabilities unless the tax position is expected to be
settled within the upcoming year, in which case the liabilities are included in accrued expenses
and other current liabilities. Interest and penalties related to unrecognized tax benefits are
included in income tax expense.
On January 1, 2007, Devon adopted Interpretation No. 48 and recorded a $10 million reduction
to the January 1, 2007 balance of retained earnings related to unrecognized tax benefits. The $10
million includes $8 million for related interest and penalties. An additional $2 million of
liabilities were recorded with a corresponding increase to goodwill.
As a result of the adoption of Interpretation No. 48, certain liabilities included in income
taxes payable and deferred income taxes were reclassified to other current and long-term
liabilities in the accompanying balance sheet. The total $12 million increase in liabilities
included a $15 million increase to long-term liabilities, partially offset by a $3 million
reduction to current liabilities.
As of January 1, 2007, Devons unrecognized tax benefits were $114 million. This amount
included $82 million that, if recognized, would affect Devons effective income tax rate.
Included below is a summary of the tax years, by jurisdiction, that remain subject to
examination by taxing authorities.
|
|
|
Jurisdiction |
|
Tax Years Open |
U.S. federal |
|
2002-2006 |
Various U.S. states |
|
2001-2006 |
Canada federal |
|
2000-2006 |
Various Canadian provinces |
|
2000-2006 |
Various other foreign jurisdictions |
|
1997-2006 |
Devon is currently in the final stages of the administrative review process for certain open
tax years. In addition, certain statute of limitation expirations are scheduled to occur in the
next twelve months. Due to these factors, Devon anticipates it is reasonably possible that
liabilities for certain tax positions will decrease between $15 million and $25 million within the
next twelve months.
Recently Issued Accounting Standards Not Yet Adopted
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of
FASB Statements No. 87, 88, 106, and 132(R). Statement No. 158 requires the measurement of plan
assets and benefit obligations as of the date of the employers fiscal year-end, beginning with
fiscal years ending after December 15, 2008. The Statement provides two alternatives to transition
to a fiscal year-end measurement date. Devon has not yet adopted this requirement, but Devon does
not expect such adoption to have a material effect on its results of operations, financial
condition, liquidity or compliance with debt covenants.
2. Property and Equipment and Asset Retirement Obligations (ARO)
On November 14, 2006, Devon announced that it intends to divest its operations in Egypt. Also,
on January 23, 2007, Devon announced that it intends to divest its operations in West Africa. See
Note 10 for more discussion regarding these planned divestitures.
12
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Asset Retirement Obligations
The following is a summary of the changes in Devons ARO for the first three months of 2007
and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In millions) |
|
Asset retirement obligation as of beginning of period |
|
$ |
857 |
|
|
|
636 |
|
Liabilities incurred |
|
|
28 |
|
|
|
13 |
|
Liabilities settled |
|
|
(12 |
) |
|
|
(9 |
) |
Revision of estimated obligation |
|
|
311 |
|
|
|
|
|
Accretion expense on discounted obligation |
|
|
18 |
|
|
|
10 |
|
Foreign currency translation adjustment |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligation as of end of period |
|
|
1,207 |
|
|
|
650 |
|
Less current portion |
|
|
55 |
|
|
|
51 |
|
|
|
|
|
|
|
|
Asset retirement obligation, long-term |
|
$ |
1,152 |
|
|
|
599 |
|
|
|
|
|
|
|
|
During the first quarter of 2007, Devon recognized a $311 million increase to its ARO. The
primary factors causing the fair value increase were an overall increase in abandonment cost
estimates, an overall decrease in estimated reserve lives and an increase in the assumed inflation
rate. The effects of these factors were partially offset by the effect of an increase in the
discount rate used to present value the obligations.
3. Debt
Credit Facility
In April 2007, Devon extended the maturity of its existing $2.5 billion five-year, syndicated,
unsecured revolving line of credit (the Senior Credit Facility) from April 7, 2011 to April 7,
2012.
The Senior Credit Facility contains only one material financial covenant. This covenant
requires Devon to maintain a ratio of total funded debt to total capitalization, as defined in the
credit agreement, of no more than 65%. As of March 31, 2007, Devon was in compliance with this
covenant. Devons debt-to-capitalization ratio at March 31, 2007, as calculated pursuant to the
terms of the agreement, was 25.6%.
As of March 31, 2007, there were no borrowings under the Senior Credit Facility. The available
capacity under the Senior Credit Facility as of March 31, 2007, net of $1.46 billion of outstanding
commercial paper and $285 million of outstanding letters of credit, was approximately $755 million.
13
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Retirement Plans
Net Periodic Benefit Cost and Other Comprehensive Income
The following table presents the components of net periodic benefit cost and other
comprehensive income for Devons pension and other post retirement benefit plans for the quarters
ended March 31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
(In millions) |
|
Net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
8 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
Interest cost |
|
|
11 |
|
|
|
10 |
|
|
|
1 |
|
|
|
1 |
|
Expected return on plan assets |
|
|
(12 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
Net actuarial loss |
|
|
4 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
11 |
|
|
|
8 |
|
|
|
1 |
|
|
|
1 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of net actuarial loss in net
periodic benefit cost |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized |
|
$ |
7 |
|
|
|
8 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Stockholders Equity
Stock Repurchases
On August 3, 2005, Devon announced a stock repurchase program to repurchase up to 50 million
shares of its common stock. As of May 1, 2007, Devon has repurchased 6.5 million shares under this
program for $387 million, or $59.80 per share. This program was suspended in 2006 as a result of
the Chief acquisition. In conjunction with the sales of Egypt and West Africa (see Note 9), Devon
expects to resume this repurchase program in late 2007 by using a portion of the sale proceeds to
repurchase common stock. Although this program expires at the end of 2007, it could be extended if
necessary.
Dividends
Dividends on Devons common stock were paid in the first quarters of 2007 and 2006 at per
share rates of $0.14 and $0.1125, respectively.
6. Commitments and Contingencies
Devon is party to various legal actions arising in the normal course of business. Matters that
are probable of unfavorable outcome to Devon and which can be reasonably estimated are accrued.
Such accruals are based on information known about the matters, Devons estimates of the outcomes
of such matters and its experience in contesting, litigating and settling similar matters. None of
the actions are believed by management to involve future amounts that would be material to Devons
financial position or results of operations after consideration of recorded accruals although
actual amounts could differ materially from managements estimate.
Environmental Matters
Devon is subject to certain laws and regulations relating to environmental remediation
activities associated with past operations, such as the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA) and similar state statutes. In response to liabilities
associated with these activities, accruals have been
14
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
established when reasonable estimates are possible. Such accruals primarily include estimated
costs associated with remediation. Devon has not used discounting in determining its accrued
liabilities for environmental remediation, and no material claims for possible recovery from third
party insurers or other parties related to environmental costs have been recognized in Devons
consolidated financial statements. Devon adjusts the accruals when new remediation responsibilities
are discovered and probable costs become estimable, or when current remediation estimates must be
adjusted to reflect new information.
Certain of Devons subsidiaries acquired in past mergers are involved in matters in which it
has been alleged that such subsidiaries are potentially responsible parties (PRPs) under CERCLA
or similar state legislation with respect to various waste disposal areas owned or operated by
third parties. As of March 31, 2007, Devons consolidated balance sheet included $5 million of
non-current accrued liabilities, reflected in Other liabilities, related to these and other
environmental remediation liabilities. Devon does not currently believe there is a reasonable
possibility of incurring additional material costs in excess of the current accruals recognized for
such environmental remediation activities. With respect to the sites in which Devon subsidiaries
are PRPs, Devons conclusion is based in large part on (i) Devons participation in consent decrees
with both other PRPs and the Environmental Protection Agency, which provide for performing the
scope of work required for remediation and contain covenants not to sue as protection to the PRPs,
(ii) participation in groups as a de minimis PRP, and (iii) the availability of other defenses to
liability. As a result, Devons monetary exposure is not expected to be material.
Royalty Matters
Numerous gas producers and related parties, including Devon, have been named in various
lawsuits alleging violation of the federal False Claims Act. The suits allege that the producers
and related parties used below-market prices, improper deductions, improper measurement techniques
and transactions with affiliates which resulted in underpayment of royalties in connection with
natural gas and natural gas liquids produced and sold from federal and Indian owned or controlled
lands. The principal suit in which Devon is a defendant is United States ex rel. Wright v. Chevron
USA, Inc. et al. (the Wright case). The suit was originally filed in August 1996 in the United
States District Court for the Eastern District of Texas, but was consolidated in October 2000 with
the other suits for pre-trial proceedings in the United States District Court for the District of
Wyoming. On July 10, 2003, the District of Wyoming remanded the Wright case back to the Eastern
District of Texas to resume proceedings. Trial is set for November 2007. Devon believes that it has
acted reasonably, has legitimate and strong defenses to all allegations in the suit, and has paid
royalties in good faith. Devon does not currently believe that it is subject to material exposure
in association with this lawsuit and no liability has been recorded in connection therewith.
In 1995, the United States Congress passed the Deep Water Royalty Relief Act. The intent of
this legislation was to encourage deep water exploration in the Gulf of Mexico by providing relief
from the obligation to pay royalties on certain federal leases. Deep water leases issued in certain
years by the Minerals Management Service (the MMS) have contained price thresholds, such that if
the market prices for oil or natural gas exceeded the thresholds for a given year, royalty relief
would not be granted for that year. Deep water leases issued in 1998 and 1999 did not include price
thresholds. The MMS in 2006 informed Devon and other oil and gas companies that the omission of
price thresholds from these leases was an error on its part and was not its intention. Accordingly,
the MMS invited Devon and the other affected oil and gas producers to renegotiate the terms and
conditions of the 1998 and 1999 leases to add price threshold provisions to the lease agreements
for periods after October 1, 2006. Devon has since had several discussions with MMS representatives
on this issue, but has not yet entered into renegotiated leases.
The U.S. House of Representatives in January 2007 passed legislation that would require
companies to renegotiate the 1998 and 1999 leases as a condition of securing future federal leases.
If this legislation were to become law, it would require price thresholds to be effective in the
renegotiated 1998 and 1999 leases effective October 1, 2006. Although Devon has not yet signed
renegotiated leases, it has accrued through March 31, 2007 approximately $11 million for royalties
that would be due if price thresholds were added to its 1998 and 1999 leases effective October 1,
2006.
15
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Equatorial Guinea Investigation
The SEC has been conducting an inquiry into payments made to the government of Equatorial
Guinea and to officials and persons affiliated with officials of the government of Equatorial
Guinea. On August 9, 2005, Devon received a subpoena issued by the SEC pursuant to a formal order
of investigation. Devon has cooperated fully with the SECs requests for information in this
inquiry. After responding in 2005 to such requests for information, Devon has not been contacted by
the SEC. In the event that Devon receives any further inquiries, Devon will work with the SEC in
connection with its investigation.
Hurricane Contingencies
Historically, Devon maintained a comprehensive insurance program that included coverage for
physical damage to its offshore facilities caused by hurricanes. Devons historical insurance
program also included substantial business interruption coverage which Devon is utilizing to
recover costs associated with the suspended production related to hurricanes that struck the Gulf
of Mexico in the third quarter of 2005. Under the terms of this insurance program, Devon was
entitled to be reimbursed for the portion of production suspended longer than forty-five days,
subject to upper limits to oil and natural gas prices. Also, the terms of the insurance include a
standard, per-event deductible of $1 million for offshore losses as well as a $15 million aggregate
annual deductible.
Based on current estimates of physical damage and the anticipated length of time Devon will
have production suspended, Devon expects its policy recoveries will exceed repair costs and
deductible amounts. This expectation is based upon several variables, including the $467 million
received in the third quarter of 2006 as a full settlement of the amount due from Devons primary
insurers. As of March 31, 2007, $171 million of these proceeds had been utilized as reimbursement
of past repair costs and deductible amounts. The remaining proceeds of $296 million will be
utilized as reimbursement of Devons anticipated future repair costs. Devon has not yet received
any settlements related to claims filed with its secondary insurers.
Should Devons total policy recoveries, including the partial settlements already received
from Devons primary insurers, exceed all repair costs and deductible amounts, such excess will be
recognized as other income in the statement of operations in the period in which such determination
can be made.
The policy underlying the insurance program terms described above expired on August 31, 2006.
During the third quarter of 2006, Devon was able to re-establish a comprehensive insurance program
that includes business interruption and physical damage coverage for its business. However, due to
significant changes in the marketplace, Devon was only able to obtain a de minimis amount of
coverage for any damage that may be caused by named windstorms in the Gulf of Mexico. Devon has not
experienced any losses covered by this new insurance arrangement through March 31, 2007.
Other Matters
Devon is involved in other various routine legal proceedings incidental to its business.
However, to Devons knowledge as of the date of this report, there were no other material pending
legal proceedings to which Devon is a party or to which any of its property is subject.
16
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Fair Value Measurements
Certain of Devons assets and liabilities are reported at fair value in the accompanying
balance sheets. The following table provides fair value measurement information for such assets and
liabilities as of March 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using: |
|
|
|
|
|
|
Quoted |
|
Significant |
|
|
|
|
|
|
|
|
Prices in |
|
Other |
|
Significant |
|
|
|
|
|
|
Active |
|
Observable |
|
Unobservable |
|
|
Total Fair |
|
Markets |
|
Inputs |
|
Inputs |
|
|
Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
|
(In millions) |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
275 |
|
|
|
275 |
|
|
|
|
|
|
|
|
|
Investment in Chevron common stock |
|
$ |
1,049 |
|
|
|
1,049 |
|
|
|
|
|
|
|
|
|
Financial instruments |
|
$ |
6 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments |
|
$ |
314 |
|
|
|
|
|
|
|
314 |
|
|
|
|
|
Asset retirement obligation (ARO) |
|
$ |
1,207 |
|
|
|
|
|
|
|
|
|
|
|
1,207 |
|
Statement No. 157 (see Note 1) establishes a fair value hierarchy that prioritizes the inputs
to valuation techniques used to measure fair value. As presented in the table above, this
hierarchy consists of three broad levels. Level 1 inputs on the hierarchy consist of unadjusted
quoted prices in active markets for identical assets and liabilities and have the highest priority.
Level 3 inputs have the lowest priority.
Devon uses appropriate valuation techniques based on the available inputs to measure the
fair values of its assets and liabilities. When available, Devon measures fair value using Level 1
inputs because they generally provide the most reliable evidence of fair value. Devon owes debt
that has an embedded exchange option. Because the exchange option is not actively traded in an
established market, its fair value is measured using Level 2 inputs. Devon also has certain
commodity and interest-rate derivative financial instruments which are measured using Level 2
inputs, such as forward commodity price curves or interest-rate yield curves. Devon only uses Level
3 inputs to measure the fair value of its ARO. A reconciliation of the beginning and ending
balances of Devons ARO, including a revision of the fair value in the first quarter of 2007, is
presented in Note 2.
8. Change in Fair Value of Financial Instruments
The components of change in fair value of financial instruments include the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In millions) |
|
Option embedded in exchangeable debentures |
|
$ |
8 |
|
|
|
14 |
|
Investment in Chevron common stock (Note 1) |
|
|
(6 |
) |
|
|
|
|
Interest rate swaps |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
1 |
|
|
|
12 |
|
|
|
|
|
|
|
|
17
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Other Income
The components of other income include the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In millions) |
|
Interest and dividend income |
|
$ |
21 |
|
|
|
28 |
|
Net gain on sales of non-oil and gas property and equipment |
|
|
|
|
|
|
5 |
|
Other |
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
26 |
|
|
|
29 |
|
|
|
|
|
|
|
|
10. Discontinued Operations
Egypt and West Africa
On November 14, 2006, Devon announced its plans to divest its operations in Egypt. On January
23, 2007, Devon announced its plans to divest its operations in West Africa. Pursuant to accounting
rules for discontinued operations, Devon has classified all 2007 and prior period amounts related
to its operations in Egypt and West Africa as discontinued operations. As of March 31, 2007, Devon
has not recorded any gain or loss associated with these planned sales.
On April 18, 2007, Devon announced that it had agreed to sell its Egyptian operations for $375
million effective January 1, 2007. Devon estimates that after-tax proceeds will be approximately
$300 million. The transaction is expected to close in the third quarter of 2007. Had the
transaction closed on January 1, 2007, Devon would have recognized a gain, after taxes, of
approximately $60 million. The gain ultimately recorded when the transaction closes will depend on
the carrying values of Devons Egyptian assets and liabilities at the closing date, as well as the
effect of purchase price adjustments between the effective date of January 1, 2007 and the actual
closing date.
Devon has recently opened data rooms for the West African assets and expects to receive bids
on these properties in the third quarter of 2007.
Revenues related to Devons operations in Egypt and West Africa totaled $175 million and $218
million in the first quarters of 2007 and 2006, respectively.
18
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the main classes of assets and liabilities associated with
Devons operations in Egypt and West Africa as of March 31, 2007 and December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In millions) |
|
Assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
63 |
|
|
|
64 |
|
Accounts receivable |
|
|
117 |
|
|
|
101 |
|
Other current assets |
|
|
72 |
|
|
|
67 |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
252 |
|
|
|
232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term assets property and equipment, net of
accumulated depreciation, depletion and amortization |
|
$ |
1,680 |
|
|
|
1,619 |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable trade |
|
$ |
60 |
|
|
|
48 |
|
Income taxes payable |
|
|
152 |
|
|
|
115 |
|
Current portion of asset retirement obligation |
|
|
8 |
|
|
|
8 |
|
Accrued expenses and other current liabilities |
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
222 |
|
|
|
173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligation, long-term |
|
$ |
44 |
|
|
|
38 |
|
Deferred income taxes |
|
|
390 |
|
|
|
375 |
|
Other liabilities |
|
|
16 |
|
|
|
16 |
|
|
|
|
|
|
|
|
Long-term liabilities |
|
$ |
450 |
|
|
|
429 |
|
|
|
|
|
|
|
|
Reduction of Carrying Value
Devon has commitments to drill four wells in Nigeria. The first two wells were unsuccessful.
After drilling the second unsuccessful well in the first quarter of 2006, Devon determined that the
capitalized costs related to these two wells should be impaired. Devons first quarter 2006
earnings from discontinued operations include an $85 million impairment of its investment in
Nigeria equal to the costs to drill the two dry holes and a proportionate share of block-related
costs. There was no tax benefit related to this impairment.
11. Segment Information
Following is certain financial information regarding Devons reporting segments. The revenues
reported are all from external customers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
Canada |
|
|
International |
|
|
Total |
|
|
|
(In millions) |
|
As of March 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
1,187 |
|
|
|
564 |
|
|
|
985 |
|
|
|
2,736 |
|
Property and equipment, net of accumulated
depreciation, depletion and amortization |
|
|
15,975 |
|
|
|
7,395 |
|
|
|
1,038 |
|
|
|
24,408 |
|
Goodwill |
|
|
3,053 |
|
|
|
2,620 |
|
|
|
68 |
|
|
|
5,741 |
|
Other assets |
|
|
1,311 |
|
|
|
56 |
|
|
|
1,726 |
|
|
|
3,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
21,526 |
|
|
|
10,635 |
|
|
|
3,817 |
|
|
|
35,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
3,361 |
|
|
|
608 |
|
|
|
471 |
|
|
|
4,440 |
|
Long-term debt |
|
|
2,597 |
|
|
|
2,974 |
|
|
|
|
|
|
|
5,571 |
|
Asset retirement obligation, long-term |
|
|
602 |
|
|
|
480 |
|
|
|
70 |
|
|
|
1,152 |
|
Other liabilities |
|
|
908 |
|
|
|
27 |
|
|
|
454 |
|
|
|
1,389 |
|
Deferred income taxes |
|
|
3,361 |
|
|
|
1,839 |
|
|
|
70 |
|
|
|
5,270 |
|
Stockholders equity |
|
|
10,697 |
|
|
|
4,707 |
|
|
|
2,752 |
|
|
|
18,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
21,526 |
|
|
|
10,635 |
|
|
|
3,817 |
|
|
|
35,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
Canada |
|
|
International |
|
|
Total |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Three Months Ended March 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil sales |
|
$ |
234 |
|
|
|
153 |
|
|
|
304 |
|
|
|
691 |
|
Gas sales |
|
|
869 |
|
|
|
356 |
|
|
|
1 |
|
|
|
1,226 |
|
NGL sales |
|
|
136 |
|
|
|
41 |
|
|
|
|
|
|
|
177 |
|
Marketing and midstream revenues |
|
|
371 |
|
|
|
8 |
|
|
|
|
|
|
|
379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,610 |
|
|
|
558 |
|
|
|
305 |
|
|
|
2,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses and other income, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
248 |
|
|
|
143 |
|
|
|
39 |
|
|
|
430 |
|
Production taxes |
|
|
56 |
|
|
|
1 |
|
|
|
23 |
|
|
|
80 |
|
Marketing and midstream operating costs and
expenses |
|
|
266 |
|
|
|
4 |
|
|
|
|
|
|
|
270 |
|
Depreciation, depletion and amortization of oil and
gas properties |
|
|
371 |
|
|
|
160 |
|
|
|
56 |
|
|
|
587 |
|
Depreciation and amortization of non-oil and gas
properties |
|
|
41 |
|
|
|
5 |
|
|
|
|
|
|
|
46 |
|
Accretion of asset retirement obligation |
|
|
10 |
|
|
|
7 |
|
|
|
1 |
|
|
|
18 |
|
General and administrative expenses |
|
|
92 |
|
|
|
25 |
|
|
|
2 |
|
|
|
119 |
|
Interest expense |
|
|
59 |
|
|
|
51 |
|
|
|
|
|
|
|
110 |
|
Change in fair value of financial instruments |
|
|
2 |
|
|
|
(1 |
) |
|
|
|
|
|
|
1 |
|
Other income, net |
|
|
(12 |
) |
|
|
(3 |
) |
|
|
(11 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses and other income, net |
|
|
1,133 |
|
|
|
392 |
|
|
|
110 |
|
|
|
1,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income tax
expense |
|
|
477 |
|
|
|
166 |
|
|
|
195 |
|
|
|
838 |
|
Income tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
67 |
|
|
|
62 |
|
|
|
60 |
|
|
|
189 |
|
Deferred |
|
|
86 |
|
|
|
(1 |
) |
|
|
(10 |
) |
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense |
|
|
153 |
|
|
|
61 |
|
|
|
50 |
|
|
|
264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
|
324 |
|
|
|
105 |
|
|
|
145 |
|
|
|
574 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations before income
tax expense |
|
|
|
|
|
|
|
|
|
|
137 |
|
|
|
137 |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
60 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations |
|
|
|
|
|
|
|
|
|
|
77 |
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
324 |
|
|
|
105 |
|
|
|
222 |
|
|
|
651 |
|
Preferred stock dividends |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings applicable to common stockholders |
|
$ |
322 |
|
|
|
105 |
|
|
|
222 |
|
|
|
649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, before revision of future ARO |
|
$ |
943 |
|
|
|
469 |
|
|
|
111 |
|
|
|
1,523 |
|
Revision of future ARO |
|
|
210 |
|
|
|
99 |
|
|
|
2 |
|
|
|
311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, continuing operations |
|
$ |
1,153 |
|
|
|
568 |
|
|
|
113 |
|
|
|
1,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
Canada |
|
|
International |
|
|
Total |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Three Months Ended March 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil sales |
|
$ |
294 |
|
|
|
122 |
|
|
|
92 |
|
|
|
508 |
|
Gas sales |
|
|
919 |
|
|
|
435 |
|
|
|
4 |
|
|
|
1,358 |
|
NGL sales |
|
|
124 |
|
|
|
52 |
|
|
|
|
|
|
|
176 |
|
Marketing and midstream revenues |
|
|
451 |
|
|
|
7 |
|
|
|
|
|
|
|
458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,788 |
|
|
|
616 |
|
|
|
96 |
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses and other income, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
196 |
|
|
|
124 |
|
|
|
11 |
|
|
|
331 |
|
Production taxes |
|
|
66 |
|
|
|
2 |
|
|
|
15 |
|
|
|
83 |
|
Marketing and midstream operating costs and
expenses |
|
|
335 |
|
|
|
3 |
|
|
|
|
|
|
|
338 |
|
Depreciation, depletion and amortization of oil and
gas properties |
|
|
281 |
|
|
|
150 |
|
|
|
12 |
|
|
|
443 |
|
Depreciation and amortization of non-oil and gas
properties |
|
|
37 |
|
|
|
4 |
|
|
|
|
|
|
|
41 |
|
Accretion of asset retirement obligation |
|
|
6 |
|
|
|
4 |
|
|
|
|
|
|
|
10 |
|
General and administrative expenses |
|
|
70 |
|
|
|
21 |
|
|
|
(1 |
) |
|
|
90 |
|
Interest expense |
|
|
42 |
|
|
|
59 |
|
|
|
|
|
|
|
101 |
|
Change in fair value of financial instruments |
|
|
14 |
|
|
|
(2 |
) |
|
|
|
|
|
|
12 |
|
Other income, net |
|
|
(16 |
) |
|
|
(6 |
) |
|
|
(7 |
) |
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses and other income, net |
|
|
1,031 |
|
|
|
359 |
|
|
|
30 |
|
|
|
1,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income tax
expense |
|
|
757 |
|
|
|
257 |
|
|
|
66 |
|
|
|
1,080 |
|
Income tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
154 |
|
|
|
51 |
|
|
|
19 |
|
|
|
224 |
|
Deferred |
|
|
101 |
|
|
|
43 |
|
|
|
(4 |
) |
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense |
|
|
255 |
|
|
|
94 |
|
|
|
15 |
|
|
|
364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
|
502 |
|
|
|
163 |
|
|
|
51 |
|
|
|
716 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations before income
tax expense |
|
|
|
|
|
|
|
|
|
|
47 |
|
|
|
47 |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
63 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
(16 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
502 |
|
|
|
163 |
|
|
|
35 |
|
|
|
700 |
|
Preferred stock dividends |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings applicable to common stockholders |
|
$ |
500 |
|
|
|
163 |
|
|
|
35 |
|
|
|
698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, continuing operations |
|
$ |
732 |
|
|
|
646 |
|
|
|
99 |
|
|
|
1,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion addresses material changes in our results of operations for the three
months ended March 31, 2007, compared to the three months ended March 31, 2006, and in our
financial condition since December 31, 2006. It is presumed that readers have read or have access
to our 2006 Annual Report on Form 10-K which includes disclosures regarding critical accounting
policies as part of Managements Discussion and Analysis of Financial Condition and Results of
Operations. Unless otherwise stated, all dollar amounts are expressed in U.S. dollars.
Overview
The following summarizes our performance for the first quarter of 2007 compared to the first
quarter of 2006:
|
|
|
Net earnings for the quarter decreased 7% to $651 million |
|
|
|
|
Earnings per share decreased 7% to $1.44 per diluted share |
|
|
|
|
Net cash provided by operating activities remained consistent at $1.5 billion |
|
|
|
|
Production increased 12% to 588 thousand barrels per day |
|
|
|
|
Combined realized price for oil, gas and NGLs decreased 8% to $39.56 |
|
|
|
|
Marketing and midstream operating profit decreased 9% to $109 million |
|
|
|
|
Per unit operating costs increased 10% to $9.65 per Boe |
|
|
|
|
Capital expenditures for oil and gas exploration and development activities were $1.4
billion during the first quarter of 2007. |
On November 14, 2006, we announced our plans to divest our operations in Egypt. On January 23,
2007, we announced our plans to divest our operations in West Africa. Pursuant to accounting rules
for discontinued operations, we have classified all 2007 and prior period amounts related to our
operations in Egypt and West Africa as discontinued operations. As of March 31, 2007, we have not
recorded any gain or loss associated with these planned sales.
On April 18, 2007, we announced that we had agreed to sell our Egyptian operations for $375
million effective January 1, 2007. We estimate that after-tax proceeds will be approximately $300
million. The transaction is expected to close in the third quarter of 2007. Had the transaction
closed on January 1, 2007, Devon would have recognized a gain, after taxes, of approximately $60
million. The gain ultimately recorded when the transaction closes will depend on the carrying
values of our Egyptian assets and liabilities at the closing date, as well as the effect of
purchase price adjustments between the effective date of January 1, 2007 and the actual closing
date.
We have recently opened data rooms for the West African assets and expect to receive bids on
these properties in the third quarter of 2007.
A more complete overview and discussion of full-year expectations can be found in Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations in our 2006
Annual Report on Form 10-K.
Results of Operations
Revenues
The quarterly comparisons of production and price changes are shown in the following tables.
The amounts for all periods presented exclude our Egyptian and West African operations. Unless
otherwise stated, all dollar amounts are expressed in U.S. dollars.
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Three Months Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Change (2) |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MMBbls) |
|
|
13 |
|
|
|
10 |
|
|
|
+35 |
% |
Gas (Bcf) |
|
|
202 |
|
|
|
190 |
|
|
|
+6 |
% |
NGLs (MMBbls) |
|
|
6 |
|
|
|
6 |
|
|
|
+3 |
% |
Oil, Gas and
NGLs (MMBoe)
(1) |
|
|
53 |
|
|
|
47 |
|
|
|
+12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Prices |
|
|
|
|
|
|
|
|
|
|
|
|
Oil (Per Bbl) |
|
$ |
52.11 |
|
|
|
51.70 |
|
|
|
+1 |
% |
Gas (Per Mcf) |
|
$ |
6.07 |
|
|
|
7.16 |
|
|
|
-15 |
% |
NGLs (Per Bbl) |
|
$ |
29.33 |
|
|
|
30.18 |
|
|
|
-3 |
% |
Oil, Gas and
NGLs (Per Boe)
(1) |
|
$ |
39.56 |
|
|
|
43.20 |
|
|
|
-8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues ($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
$ |
691 |
|
|
|
508 |
|
|
|
+36 |
% |
Gas |
|
|
1,226 |
|
|
|
1,358 |
|
|
|
-10 |
% |
NGLs |
|
|
177 |
|
|
|
176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, Gas and NGLs |
|
$ |
2,094 |
|
|
|
2,042 |
|
|
|
+3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
|
Three Months Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Change (2) |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MMBbls) |
|
|
4 |
|
|
|
5 |
|
|
|
-10 |
% |
Gas (Bcf) |
|
|
146 |
|
|
|
130 |
|
|
|
+13 |
% |
NGLs (MMBbls) |
|
|
5 |
|
|
|
5 |
|
|
|
+7 |
% |
Oil, Gas and
NGLs (MMBoe)
(1) |
|
|
34 |
|
|
|
31 |
|
|
|
+8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Prices |
|
|
|
|
|
|
|
|
|
|
|
|
Oil (Per Bbl) |
|
$ |
52.22 |
|
|
|
58.70 |
|
|
|
-11 |
% |
Gas (Per Mcf) |
|
$ |
5.94 |
|
|
|
7.07 |
|
|
|
-16 |
% |
NGLs (Per Bbl) |
|
$ |
27.59 |
|
|
|
26.89 |
|
|
|
+3 |
% |
Oil, Gas and
NGLs (Per Boe)
(1) |
|
$ |
36.68 |
|
|
|
42.72 |
|
|
|
-14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues ($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
$ |
234 |
|
|
|
294 |
|
|
|
-20 |
% |
Gas |
|
|
869 |
|
|
|
919 |
|
|
|
-5 |
% |
NGLs |
|
|
136 |
|
|
|
124 |
|
|
|
+9 |
% |
|
|
|
|
|
|
|
|
|
|
|
Oil, Gas and NGLs |
|
$ |
1,239 |
|
|
|
1,337 |
|
|
|
-7 |
% |
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
|
Three Months Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Change (2) |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MMBbls) |
|
|
4 |
|
|
|
3 |
|
|
|
+9 |
% |
Gas (Bcf) |
|
|
56 |
|
|
|
59 |
|
|
|
-6 |
% |
NGLs (MMBbls) |
|
|
1 |
|
|
|
1 |
|
|
|
-9 |
% |
Oil, Gas and
NGLs (MMBoe)
(1) |
|
|
14 |
|
|
|
14 |
|
|
|
-3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Prices |
|
|
|
|
|
|
|
|
|
|
|
|
Oil (Per Bbl) |
|
$ |
43.51 |
|
|
|
38.14 |
|
|
|
+14 |
% |
Gas (Per Mcf) |
|
$ |
6.43 |
|
|
|
7.37 |
|
|
|
-13 |
% |
NGLs (Per Bbl) |
|
$ |
37.03 |
|
|
|
42.56 |
|
|
|
-13 |
% |
Oil, Gas and
NGLs (Per Boe)
(1) |
|
$ |
39.71 |
|
|
|
42.73 |
|
|
|
-7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues ($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
$ |
153 |
|
|
|
122 |
|
|
|
+25 |
% |
Gas |
|
|
356 |
|
|
|
435 |
|
|
|
-18 |
% |
NGLs |
|
|
41 |
|
|
|
52 |
|
|
|
-21 |
% |
|
|
|
|
|
|
|
|
|
|
|
Oil, Gas and NGLs |
|
$ |
550 |
|
|
|
609 |
|
|
|
-10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
Three Months Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Change (2) |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MMBbls) |
|
|
5 |
|
|
|
2 |
|
|
|
+227 |
% |
Gas (Bcf) |
|
|
|
|
|
|
1 |
|
|
|
-57 |
% |
NGLs (MMBbls) |
|
|
|
|
|
|
|
|
|
|
N/M |
|
Oil, Gas and
NGLs (MMBoe)
(1) |
|
|
5 |
|
|
|
2 |
|
|
|
+210 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Prices |
|
|
|
|
|
|
|
|
|
|
|
|
Oil (Per Bbl) |
|
$ |
57.72 |
|
|
|
56.95 |
|
|
|
+1 |
% |
Gas (Per Mcf) |
|
$ |
3.21 |
|
|
|
6.07 |
|
|
|
-47 |
% |
NGLs (Per Bbl) |
|
$ |
|
|
|
|
|
|
|
|
N/M |
|
Oil, Gas and
NGLs (Per Boe)
(1) |
|
$ |
57.40 |
|
|
|
55.69 |
|
|
|
+3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues ($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
$ |
304 |
|
|
|
92 |
|
|
|
+231 |
% |
Gas |
|
|
1 |
|
|
|
4 |
|
|
|
-78 |
% |
NGLs |
|
|
|
|
|
|
|
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
Oil, Gas and NGLs |
|
$ |
305 |
|
|
|
96 |
|
|
|
+219 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Gas volumes are converted to Boe or MMBoe at the rate of six Mcf of gas per barrel
of oil, based upon the approximate relative energy content of natural gas and oil, which rate
is not necessarily indicative of the relationship of oil and gas prices. NGL volumes are
converted to Boe on a one-to-one basis with oil. |
|
(2) |
|
All percentage changes included in this table are based on actual figures and are
not calculated using the rounded figures included in this table. |
|
N/M |
|
Not meaningful. |
The 2007 average sales prices per unit of production shown in the preceding tables include the
effect of our financial hedging activities. There were no financial hedging activities in the first
three months of 2006. Included below is a comparison of our average sales prices with and without
the effect of hedges for the three-months ended March 31, 2007. The average gas sales price with
the effect of hedges includes both the effect due to unrealized losses and the effect due to cash
settlements on our hedging contracts. Excluding a $32 million unrealized loss for the first quarter
of 2007, our average realized gas sales price would have been $6.23.
24
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, 2007 |
|
|
With |
|
Without |
|
|
Hedges |
|
Hedges |
Oil (per Bbl) |
|
$ |
52.11 |
|
|
|
52.11 |
|
Gas (per Mcf) |
|
$ |
6.07 |
|
|
|
6.17 |
|
NGLs (per Bbl) |
|
$ |
29.33 |
|
|
|
29.33 |
|
Oil, Gas and NGLs (per Boe) |
|
$ |
39.56 |
|
|
|
39.94 |
|
The following table details the effects of changes in volumes and prices on our oil, gas and
NGL revenues in the first three months ended March 31, 2007 and March 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
|
Gas |
|
|
NGL |
|
|
Total |
|
|
|
(In millions) |
|
2006 revenues |
|
$ |
508 |
|
|
|
1,358 |
|
|
|
176 |
|
|
|
2,042 |
|
Changes due to volumes |
|
|
178 |
|
|
|
87 |
|
|
|
6 |
|
|
|
271 |
|
Changes due to prices |
|
|
5 |
|
|
|
(187 |
) |
|
|
(5 |
) |
|
|
(187 |
) |
Changes due to unrealized hedge losses |
|
|
|
|
|
|
(32 |
) |
|
|
|
|
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 revenues |
|
$ |
691 |
|
|
|
1,226 |
|
|
|
177 |
|
|
|
2,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Revenues
Oil revenues increased $178 million due to a three million barrel increase in production. This
production increase was primarily due to us achieving payout of certain carried interests in
Azerbaijan in the last half of 2006.
Gas Revenues
A 12 Bcf increase in production caused gas revenues to increase by $87 million. As compared to
the first quarter of 2006, we restored ten Bcf of production during the last nine months of 2006
related to the 2005 hurricane season. Also, the June 2006 acquisition of the oil and gas assets of
Chief Holdings LLC contributed six Bcf of increased production. These increases and the effects of
new drilling and development in our North American properties were partially offset by natural
production declines.
A decline in our average realized price caused gas revenues to decrease $187 million in the
first quarter of 2007. The decrease was primarily due to a decrease in the average NYMEX Henry Hub
index price and other North American regional index prices. Also, gas revenues decreased $32
million due to an unrealized decline in the fair value of our outstanding hedges in the first
quarter of 2007. The fair value decrease resulted from changes in NYMEX future prices.
Marketing and Midstream Revenues and Operating Costs and Expenses
The following table details the changes in our marketing and midstream revenues and operating
costs and expenses between the first three months ended 2006 and the first three months ended 2007.
The changes due to prices in the table represent the effect on both revenues and expenses due to
changes in the market prices for natural gas and NGLs.
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
Expenses |
|
|
|
(In millions) |
|
2006 marketing & midstream |
|
$ |
458 |
|
|
|
338 |
|
Changes due to volumes |
|
|
(24 |
) |
|
|
(20 |
) |
Changes due to prices |
|
|
(55 |
) |
|
|
(48 |
) |
|
|
|
|
|
|
|
2007 marketing & midstream |
|
$ |
379 |
|
|
|
270 |
|
|
|
|
|
|
|
|
Volume decreases in our third party gas pipeline, gas sales and NGL marketing activities
caused both revenues and expenses to decrease in 2007. These decreases resulted primarily from the
expiration of Barnett Shale-area gas purchase contracts with third parties that we were not able to
renew.
25
Oil, Gas and NGL Production and Operating Expenses
The details of the changes in oil, gas and NGL production and operating expenses are shown in
the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Change (1) |
|
Production and operating expenses ($ in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
$ |
430 |
|
|
|
331 |
|
|
|
+30 |
% |
Production taxes |
|
|
80 |
|
|
|
83 |
|
|
|
-3 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total production and operating expenses |
|
$ |
510 |
|
|
|
414 |
|
|
|
+24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production and operating expenses per Boe: |
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
$ |
8.13 |
|
|
|
6.99 |
|
|
|
+16 |
% |
Production taxes |
|
|
1.52 |
|
|
|
1.75 |
|
|
|
-13 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total production and operating expenses per Boe |
|
$ |
9.65 |
|
|
|
8.74 |
|
|
|
+10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All percentage changes included in this table are based on actual figures and are
not calculated using the rounded figures included in this table. |
Lease operating expenses increased $99 million in the first quarter of 2007 largely due to the
continued effects of higher commodity prices. Commodity price increases in 2005 and the first half
of 2006 contributed to industry-wide inflationary pressures on materials and personnel costs. In
addition, consideration of higher commodity prices contributed to our decision to perform more well
workovers and maintenance projects to maintain or improve production volumes. Lease operating
expenses also increased $35 million due to the June 2006 Chief acquisition and the payouts of our
carried interests in Azerbaijan in the last half of 2006.
The following table details the changes in production taxes between the first three months of
2006 and the first three months of 2007.
|
|
|
|
|
|
|
(In millions) |
|
2006 production taxes |
|
$ |
83 |
|
Change due to revenues |
|
|
2 |
|
Change due to rate |
|
|
(5 |
) |
|
|
|
|
2007 production taxes |
|
$ |
80 |
|
|
|
|
|
Depreciation, Depletion and Amortization (DD&A) of Oil and Gas Properties
The following table details the changes in DD&A of oil and gas properties between the first
three months of 2006 and the first three months of 2007.
|
|
|
|
|
|
|
(In millions) |
|
2006 DD&A |
|
$ |
443 |
|
Change due to volumes |
|
|
53 |
|
Change due to rate |
|
|
91 |
|
|
|
|
|
2007 DD&A |
|
$ |
587 |
|
|
|
|
|
Oil and gas property related DD&A increased $91 million in 2007 due to an increase in the DD&A
rate from $9.38 per Boe in 2006 to $11.09 per Boe in 2007. The largest contributor to the rate
increase was inflationary pressure on both the costs incurred during 2006 and 2007 as well as the
estimated development costs to be spent in future periods on proved undeveloped reserves. Rising
estimates for future asset retirement obligations also caused the rate to increase. Other factors
contributing to the rate increase include the June 2006 Chief acquisition and the transfer of
previously unproved costs to the depletable base as a result of drilling activities subsequent to
the first quarter of 2006.
26
General and Administrative (G&A) Expenses
The following schedule includes the components of G&A expenses for the first quarters of 2007
and 2006.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In millions) |
|
Gross G&A |
|
$ |
212 |
|
|
|
167 |
|
Capitalized G&A |
|
|
(64 |
) |
|
|
(50 |
) |
Reimbursed G&A |
|
|
(29 |
) |
|
|
(27 |
) |
|
|
|
|
|
|
|
Net G&A |
|
$ |
119 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Gross G&A increased $45 million in the first quarter of 2007 compared to the same period of
2006. Higher employee compensation and benefits costs caused gross G&A to increase $34 million. The
$14 million increase in capitalized G&A is also due to higher employee compensation and benefits.
Interest Expense
The following schedule includes the components of interest expense for the first quarters of
2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In millions) |
|
Interest based on debt outstanding |
|
$ |
128 |
|
|
|
115 |
|
Capitalized interest |
|
|
(23 |
) |
|
|
(16 |
) |
Other |
|
|
5 |
|
|
|
2 |
|
|
|
|
|
|
|
|
Total |
|
$ |
110 |
|
|
|
101 |
|
|
|
|
|
|
|
|
Interest based on debt outstanding increased in the first quarter of 2007 primarily due to the
net effect of commercial paper borrowings related to the June 2006 acquisition of the Chief
properties. This increase was partially offset by debt repayments in 2006.
Change in Fair Value of Financial Instruments
The following schedule includes the components of the change in fair value of financial
instruments for the first quarters of 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In millions) |
|
Option embedded in exchangeable debentures |
|
$ |
8 |
|
|
|
14 |
|
Investment in Chevron common stock |
|
|
(6 |
) |
|
|
|
|
Interest rate swaps |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
1 |
|
|
|
12 |
|
|
|
|
|
|
|
|
The change in the fair value of the embedded option relates to the debentures exchangeable
into shares of Chevron common stock. These expenses were caused primarily by increases in the
price of Chevrons common stock.
As discussed in Note 1 to our financial statements, effective January 1, 2007 as a result of
our adoption of Statement No. 159, we began recognizing unrealized gains and losses on our
investment in Chevron common stock in net earnings rather than as part of other comprehensive
income. The change in the fair value of our investment in Chevron common stock resulted from the
increase in the price of Chevrons common stock during the first quarter of 2007.
27
Other Income, net
The following schedule includes the components of other income for the first quarters of 2007
and 2006.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In millions) |
|
Interest and dividend income |
|
$ |
21 |
|
|
|
28 |
|
Net gain on sales of non-oil and gas property and equipment |
|
|
|
|
|
|
5 |
|
Other |
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
26 |
|
|
|
29 |
|
|
|
|
|
|
|
|
The decrease in interest and dividend income in the first quarter of 2007 was primarily due to
a decrease in interest-bearing cash and short-term investment balances subsequent to the June 2006
Chief acquisition.
Income Taxes
During interim periods, income tax expense is generally based on the estimated effective
income tax rate that is expected for the entire fiscal year. The estimated effective tax rate was
32% in the first quarter of 2007 and 34% in the first quarter of 2006, respectively. The 2007 and
2006 rates were lower than the U.S. statutory federal rate of 35% primarily due to the effects of
certain U.S. and Canadian deductions. The 2007 rate was further lowered due to the increase in
revenues generated in Azerbaijan, whose statutory tax rate is 25%.
Earnings from Discontinued Operations
On November 14, 2006, we announced our plans to divest our operations in Egypt. On January 23,
2007, we announced our plans to divest our operations in West Africa. Pursuant to accounting rules
for discontinued operations, we have classified all 2007 and prior period amounts related to our
operations in Egypt and West Africa as discontinued operations. As of March 31, 2007, we have not
recorded any gain or loss associated with these planned sales.
Following are the components of earnings from discontinued operations in the first quarter of
2007 and the first quarter of 2006.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In millions) |
|
Earnings from discontinued operations before income taxes |
|
$ |
137 |
|
|
|
47 |
|
Income tax expense |
|
|
60 |
|
|
|
63 |
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations |
|
$ |
77 |
|
|
|
(16 |
) |
|
|
|
|
|
|
|
Earnings from discontinued operations in 2006 include an $85 million impairment of our
investment in Nigeria equal to the costs to drill two dry holes and a proportionate share of
block-related costs. There was no tax benefit related to this impairment.
28
Capital Resources, Uses and Liquidity
The following discussion of liquidity and capital resources should be read in conjunction with
the consolidated statements of cash flows included in Part 1, Item 1.
Sources and Uses of Cash
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In millions) |
|
Sources of cash and cash equivalents: |
|
|
|
|
|
|
|
|
Operating cash flow continuing operations |
|
$ |
1,400 |
|
|
|
1,361 |
|
Sales of property and equipment |
|
|
25 |
|
|
|
19 |
|
Stock option exercises |
|
|
23 |
|
|
|
20 |
|
Net decrease in short-term investments |
|
|
299 |
|
|
|
|
|
Other |
|
|
5 |
|
|
|
4 |
|
|
|
|
|
|
|
|
Total sources of cash and cash equivalents |
|
|
1,752 |
|
|
|
1,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uses of cash and cash equivalents: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(1,484 |
) |
|
|
(1,249 |
) |
Net commercial paper repayments |
|
|
(348 |
) |
|
|
|
|
Debt repayments |
|
|
|
|
|
|
(3 |
) |
Repurchases of common stock |
|
|
|
|
|
|
(253 |
) |
Dividends |
|
|
(64 |
) |
|
|
(51 |
) |
Net increase in short-term investments |
|
|
|
|
|
|
(54 |
) |
|
|
|
|
|
|
|
Total uses of cash and cash equivalents |
|
|
(1,896 |
) |
|
|
(1,610 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease from continuing operations |
|
|
(144 |
) |
|
|
(206 |
) |
Increase from discontinued operations |
|
|
64 |
|
|
|
93 |
|
Effect of foreign exchange rates |
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
$ |
(78 |
) |
|
|
(112 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
678 |
|
|
|
1,494 |
|
|
|
|
|
|
|
|
Short-term investments at end of period |
|
$ |
275 |
|
|
|
734 |
|
|
|
|
|
|
|
|
Operating Cash Flow Continuing Operations
Net cash provided by operating activities (operating cash flow) continued to be the primary
source of capital and liquidity in the first quarter of 2007. Changes in operating cash flow are
largely due to the same factors that affect our net earnings, with the exception of those earnings
changes due to such noncash expenses as DD&A, financial instrument fair value changes, property
impairments and deferred income tax expense. As a result, our operating cash flow increased
slightly in 2007 primarily due to the increase in earnings, excluding noncash expenses, as
discussed in the Results of Operations section of this report.
Capital Expenditures
Our 2007 operating cash flow was used to fund substantially all of our capital expenditures.
The majority of our expenditures are for the acquisition, drilling or development of oil and gas
properties, which totaled $1.4 billion in the first quarter of 2007.
Repurchases of Common Stock
During the first quarter of 2006, we repurchased 4.2 million shares for $253 million, or
$59.61 per share, under the program announced in August 2005.
29
Dividends
Our common stock dividends were $62 million and $49 million in the first quarters of 2007 and
2006, respectively. We also paid $2 million of preferred stock dividends in each quarter. The 2007
increase in common stock dividends was primarily related to a 25% increase in the dividend rate in
the first quarter of 2007.
Changes in Short-Term Investments
To maximize our income on available cash balances, we invest in highly liquid, short-term
investments. The purchase and sale of these short-term investments will cause cash and cash
equivalents to decrease and increase, respectively. Short-term investment balances decreased $299
million in the first quarter of 2007 primarily to fund a portion of our capital expenditures and
net commercial paper repayments. Short-term investment balances increased $54 million during the
first quarter of 2006.
Liquidity
As discussed in our 2006 Annual Report on Form 10-K, our primary source of capital and
liquidity has been our operating cash flow. Additionally, we maintain a revolving line of credit
and a commercial paper program which can be accessed as needed to supplement operating cash flow.
Other available sources of capital and liquidity include the issuance of equity securities and
long-term debt. Another major source of near-term liquidity will be proceeds from the sales of our
operations in Egypt and West Africa.
Operating Cash Flow
Our operating cash flow remained consistent with the 2006 quarter at $1.5 billion. We expect
operating cash flow to continue to be our primary source of liquidity. Our operating cash flow is
sensitive to many variables, the most volatile of which is pricing of the oil, natural gas and NGLs
produced. To mitigate some of the risk inherent in prices, we have utilized price collars to set
minimum and maximum prices on a portion of our production. We have also utilized various price swap
contracts and fixed-price physical delivery contracts. Based on contracts currently in place,
approximately 5% of our estimated 2007 natural gas production from continuing operations (3% of our
total Boe production from continuing operations) is subject to either price collars, swaps or
fixed-price contracts.
Credit Lines
In April 2007, we extended the maturity of our existing $2.5 billion five-year, syndicated,
unsecured revolving line of credit (the Senior Credit Facility) from April 7, 2011 to April 7,
2012. As of March 31, 2007, there were no borrowings under the Senior Credit Facility. The
available capacity under the Senior Credit Facility as of March 31, 2007, net of $1.46 billion of
outstanding commercial paper and $285 million of outstanding letters of credit, was approximately
$755 million.
The Senior Credit Facility contains only one material financial covenant. This covenant
requires Devon to maintain a ratio of total funded debt to total capitalization of no more than
65%. As of March 31, 2007, our ratio as calculated pursuant to this covenant was 25.6%.
Commercial Paper
As of March 31, 2007, our $1.5 billion of outstanding commercial paper had an average interest
rate of 5.39%.
Debt Ratings
As of March 31, 2007, we are not aware of any potential ratings downgrades contemplated by the
rating agencies.
Recently Issued Accounting Standards Not Yet Adopted
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of
FASB Statements
30
No. 87,
88, 106, and 132(R). Statement No. 158 requires the measurement of plan
assets and benefit obligations as of the date of the employers fiscal year-end, beginning with
fiscal years ending after December 15, 2008. The Statement provides two alternatives to transition
to a fiscal year-end measurement date. We have not yet adopted this requirement, but we do not
expect such adoption to have a material effect on our results of operations, financial condition,
liquidity or compliance with debt covenants.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the information included in Item 7A. Quantitative and
Qualitative Disclosures About Market Risk in our 2006 Annual Report on Form 10-K.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information
relating to Devon, including its consolidated subsidiaries, is made known to the officers who
certify Devons financial reports and to other members of senior management and the Board of
Directors.
Based on their evaluation, Devons principal executive and principal financial officers have
concluded that Devons disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) were effective as of March 31, 2007 to ensure
that the information required to be disclosed by Devon in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in the SEC rules and forms.
Changes in Internal Control Over Financial Reporting
There was no change in Devons internal control over financial reporting during the first quarter
of 2007 that has materially affected, or is reasonably likely to materially affect, Devons
internal control over financial reporting.
31
Part II. Other Information
Item 1. Legal Proceedings
There have been no material changes to the information included in Item 3. Legal Proceedings
in our 2006 Annual Report on Form 10-K.
Item 1A. Risk Factors
There have been no material changes to the information included in Item 1A. Risk Factors in
our 2006 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 3, 2005, we announced that our Board of Directors had authorized the repurchase of
up to 50 million shares of our common stock. As of the end of the first quarter of 2007, 43.5
million shares remain available for purchase under this program. We suspended this stock repurchase
program during the second quarter of 2006 in conjunction with our acquisition of Chief. In
conjunction with the sales of our Egyptian and West African assets in 2007, we expect to resume
this program in late 2007 by using a portion of the sale proceeds to repurchase common stock.
Although this program expires at the end of 2007, it could be extended if necessary.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
(a) Exhibits required by Item 601 of Regulation S-K are as follows:
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Exhibit No. |
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Description |
31.1
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Certification of J. Larry Nichols, Chief Executive
Officer of Registrant, pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. |
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31.2
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Certification of Danny J. Heatly, Vice President
Accounting and Chief Accounting Officer of Registrant,
pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1
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Certification of J. Larry Nichols, Chief Executive
Officer of Registrant, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
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32.2
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Certification of Danny J. Heatly, Vice President
Accounting and Chief Accounting Officer of Registrant,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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DEVON ENERGY CORPORATION |
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Date: May 2, 2007
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/s/ Danny J. Heatly |
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Danny J. Heatly |
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Vice President Accounting and |
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Chief Accounting Officer |
33
INDEX TO EXHIBITS
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Exhibit No. |
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Description |
31.1
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Certification of J. Larry Nichols, Chief Executive Officer of
Registrant, pursuant to Rule 13a-14(a)/15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2
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Certification of Danny J. Heatly, Vice President Accounting
and Chief Accounting Officer of Registrant, pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
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32.1
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Certification of J. Larry Nichols, Chief Executive Officer of
Registrant, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2
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Certification of Danny J. Heatly, Vice President Accounting
and Chief Accounting Officer of Registrant, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |