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Devon Energy Increased First-Quarter 2008 Net Earnings 15 Percent; Growth in Oil and Gas Production Fuels Record Cash Flow of $2.6 Billion
OKLAHOMA CITY, May 7 /PRNewswire-FirstCall/ -- Devon Energy Corporation NYSE: DVN today reported net earnings for the quarter ended March 31, 2008, of $749 million, or $1.68 per common share ($1.66 per diluted common share). This is a 15 percent increase compared with Devon's first-quarter 2007 net earnings of $651 million, or $1.46 per common share ($1.44 per diluted common share). Earnings $2.74 per Share Excluding Items Not Estimated by Analysts First-quarter 2008 reported net earnings of $749 million were impacted by certain items securities analysts typically exclude from their published estimates. Excluding these items, Devon earned $1.2 billion or $2.74 per diluted share. By far the most significant of these items was a non-cash, unrealized loss on oil and natural gas derivative instruments of $780 million pre-tax ($500 million after tax). Increased Production Drives 52 Percent Sales Growth Combined oil, gas and natural gas liquids production from continuing operations averaged 640 thousand oil-equivalent barrels (Boe) per day in the first quarter of 2008. This was a nine percent increase in production from continuing operations compared with the first quarter of 2007. The production growth was concentrated in onshore fields within the United States and Canada. Devon has increased oil and natural gas production from retained properties for eight consecutive quarters. Sales of oil, gas and natural gas liquids increased 52 percent to $3.2 billion in the first quarter of 2008. The combined effects of increased oil and gas production and higher oil, gas and natural gas liquids prices led to the increase in sales. Barnett Shale Production Growth Leads Operating Highlights Devon drilled 646 wells in the first quarter of 2008, with an overall success rate of 97 percent. Following are highlights of operations conducted in the first quarter of 2008:
-- Devon's net production from the Barnett Shale field in north Texas
averaged a record 995 million cubic feet of gas equivalent per day in
the first quarter of 2008. This was 36 percent greater than its
production in the first quarter of 2007. During April, the company's
net Barnett Shale production surpassed one billion cubic feet of gas
equivalent per day. This milestone event occurred approximately
21 months ahead of Devon's original target date.
-- In east Texas in the Groesbeck area, the company initiated production
on three significant horizontal natural gas wells in the first
quarter. Initial daily production from the three horizontal wells
averaged more than 19 million cubic feet of gas equivalent per well.
Devon has 100 percent working interests in two of the wells and
93 percent in the third.
-- In the Gulf of Mexico, Devon continued appraisal and development
operations on its four significant discoveries in the deepwater Lower
Tertiary trend: Cascade, St. Malo, Jack and Kaskida. The company
conducted drilling operations on the St. Malo No. 3 and No. 4 wells in
the quarter. It also commenced drilling the Jack No. 3 appraisal well.
At Cascade, the company is moving forward with development plans and
will begin drilling the first of two producing wells later in 2008.
-- In April, Devon increased its interest in the Kaskida unit by
exercising a preferential right. Devon now has a 26.67 percent working
interest in the 51,800-acre Kaskida unit. Kaskida, discovered in 2006,
is believed to be the largest of the company's four Lower Tertiary
discoveries.
-- In Canada, Devon established significant production from its Jackfish
oil sands project in Alberta during the first quarter of 2008.
First-quarter exit-rate production reached 10,000 barrels per day.
Production from the 100 percent-owned Jackfish project is expected to
ramp up throughout 2008. A peak rate of 35,000 barrels of oil per day
is expected in early 2009.
-- Also in Canada, Devon continued an active drilling program in the
company's Lloydminster oil play, drilling 121 new wells in the first
quarter. The company's production in Lloydminster has increased by
30 percent over the past 12 months to nearly 42,000 Boe per day.
African Divestitures Total $3 Billion In 2006 and 2007, Devon announced it would divest its assets in Africa and terminate its African operations. In April 2008, Devon announced an agreement to sell its operations in Equatorial Guinea for $2.2 billion. To date, the company has announced sales agreements for its assets in six African countries with aggregate divestiture proceeds of more than $3 billion, before taxes. Devon expects to complete all of the announced transactions around mid-2008. In accordance with accounting standards, Devon has classified the assets, liabilities and results of its operations in Africa as discontinued operations for all accounting periods presented in this release. Included with this release is a table of revenues, expenses and production categories and amounts reclassified as discontinued operations for each period presented. Marketing and Midstream Profit Climbs 59 Percent Marketing and midstream operating profit was $173 million in the quarter ended March 31, 2008, compared with $109 million in the same period in 2007. The 59 percent increase was largely attributable to higher natural gas and natural gas liquids prices. Rising Expenses Reflect Higher Production and Activity Levels Lease operating expenses (LOE) in the first quarter of 2008 increased to $506 million. On a unit of production basis, first-quarter 2008 LOE was $8.69 per Boe, or seven percent higher than the first quarter of 2007. The increase in unit LOE in the 2008 quarter reflects higher Canadian exchange rates, higher transportation costs and generally higher expenditures for oilfield services and supplies. Depreciation, depletion and amortization (DD&A) of oil and gas properties increased to $737 million in the first quarter of 2008. Unit DD&A increased 14 percent to $12.64 per Boe. As expected, first-quarter general and administrative expenses (G&A) increased to $148 million. Higher employee-related costs were the largest contributor to the quarterly increase in G&A. Devon has increased the size of its workforce to support expanding levels of large-scale exploration and development projects. Interest expense for the first quarter of 2008 decreased to $102 million. This is seven percent less than first-quarter 2007 interest expense of $110 million. Cash Flow at Record Level; Balance Sheet Strengthened First-quarter cash flow before balance sheet changes reached a record $2.6 billion in 2008. This was a 74 percent increase compared with the first quarter of 2007. The company funded $2.0 billion of capital expenditures in the first quarter of 2008 and paid common and preferred dividends totaling $73 million. This resulted in free cash flow of nearly $600 million in the quarter. Cash on hand at March 31, 2008, increased to approximately $1.9 billion. A reconciliation of cash flow before balance sheet changes and free cash flow is provided later in this release. Accounting for Derivative Instruments Devon accounts for derivative instruments using mark-to-market accounting. As a result, Devon recognizes in earnings for each reporting period the unrealized changes in the fair values of its derivative instruments. A first-quarter unrealized loss on derivative instruments was the result of rising natural gas prices during the quarter. The company could record unrealized gains or losses on oil and natural gas derivative instruments in subsequent quarters dependent upon the direction of commodity prices. Items Excluded from Published Earnings Estimates Devon's reported net earnings include items of income and expense that are typically excluded by securities analysts in their published estimates of the company's financial results. These items and their effects upon reported earnings for the first quarter of 2008 were as follows: -- A change in fair value of non-oil and gas derivative financial
instruments decreased first-quarter earnings by $16 million pre-tax
($10 million after tax).
-- An unrealized loss on oil and natural gas derivative financial
instruments decreased first-quarter earnings by $780 million pre-tax
($500 million after tax).
-- A reduction in Canadian statutory income tax rates increased
first-quarter after-tax earnings by $7 million.
-- The decisions to exit Africa generated financial benefits that
increased first-quarter earnings by $ 34 million pre-tax
($17 million after tax).
The following tables summarize the effects of these items on first-quarter earnings and income taxes.
Summary of Items Typically Excluded by Securities Analysts - First
Quarter 2008
(in millions)
After Cash Flow
Pre-tax tax Before Balance
Earnings Income Tax Effect Earnings Sheet Changes
Effect Current Deferred Total Effect Effect
Change in
fair value
of non-oil
and gas
derivative
instruments $(16) - (6) (6) (10) -
Unrealized
loss on
oil and gas
derivative
financial
instruments (780) - (280) (280) (500) -
Change in
Canadian
income tax - - (7) (7) 7
Financial
benefits of
decision to
exit Africa 34 - 17 17 17 -
Totals $(762) - (276) (276) (486) -
In aggregate, these items decreased first-quarter 2008 net earnings by $486 million, or $1.09 per common share ($1.08 per diluted share). Conference Call to be Webcast Today Devon will discuss its first-quarter 2008 financial and operating results in a conference call webcast today. The webcast will begin at 10 a.m. Central Time (11 a.m. Eastern Time). The webcast may be accessed from Devon's internet home page at http://www.devonenergy.com. This press release includes "forward-looking statements" as defined by the Securities and Exchange Commission. Such statements are those concerning strategic plans, expectations and objectives for future operations. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the company expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Statements regarding future drilling and production are subject to all of the risks and uncertainties normally incident to the exploration for and development and production of oil and gas. These risks include, but are not limited to, inflation or lack of availability of goods and services, environmental risks, drilling risks and regulatory changes. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. This release may contain certain terms, such as resource potential, reserve potential, probable reserves, possible reserves and exploration target size. The SEC guidelines strictly prohibit us from including these terms in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 10-K, File No. 001-32318, available from us at Devon Energy Corporation, Attn. Investor Relations, 20 North Broadway, Oklahoma City, OK 73102. You can also obtain this form from the SEC by calling 1-800-SEC-0330. Devon Energy Corporation is an Oklahoma City-based independent energy company engaged in oil and gas exploration and production. Devon is the largest U.S.-based independent oil and gas producer and is included in the S&P 500 Index. For more information about Devon, please visit our website at http://www.devonenergy.com.
DEVON ENERGY CORPORATION
UNAUDITED FINANCIAL AND OPERATIONAL INFORMATION
PRODUCTION (net of royalties) Quarter Ended
Excludes discontinued operations March 31,
2008 2007
Total Period Production
Natural Gas (Bcf)
U.S. Onshore 152.6 127.6
U.S. Offshore 18.3 18.6
Total U.S. 170.9 146.2
Canada 51.6 55.4
International 0.5 0.3
Total Natural Gas 223.0 201.9
Oil (MMBbls)
U.S. Onshore 2.8 2.8
U.S. Offshore 1.8 1.7
Total U.S. 4.6 4.5
Canada 4.7 3.5
International 4.9 5.3
Total Oil 14.2 13.3
Natural Gas Liquids (MMBbls)
U.S. Onshore 5.8 4.8
U.S. Offshore 0.2 0.1
Total U.S. 6.0 4.9
Canada 1.0 1.1
International - -
Total Natural Gas Liquids 7.0 6.0
Oil Equivalent (MMBoe)
U.S. Onshore 34.0 28.9
U.S. Offshore 5.0 4.9
Total U.S. 39.0 33.8
Canada 14.3 13.8
International 5.0 5.3
Total Oil Equivalent 58.3 52.9
Average Daily Production
Natural Gas (MMcf)
U.S. Onshore 1,676.4 1,418.5
U.S. Offshore 201.2 206.4
Total U.S. 1,877.6 1,624.9
Canada 567.4 615.0
International 6.0 3.0
Total Natural Gas 2,451.0 2,242.9
Oil (MBbls)
U.S. Onshore 30.9 30.7
U.S. Offshore 19.9 19.1
Total U.S. 50.8 49.8
Canada 51.4 39.0
International 53.4 58.6
Total Oil 155.6 147.4
Natural Gas Liquids (MBbls)
U.S. Onshore 63.4 53.2
U.S. Offshore 1.9 1.4
Total U.S. 65.3 54.6
Canada 10.9 12.3
International - -
Total Natural Gas Liquids 76.2 66.9
Oil Equivalent (MBoe)
U.S. Onshore 373.7 320.3
U.S. Offshore 55.3 54.9
Total U.S. 429.0 375.2
Canada 156.9 153.8
International 54.4 59.2
Total Oil Equivalent 640.3 588.2
DEVON ENERGY CORPORATION
UNAUDITED FINANCIAL AND OPERATIONAL INFORMATION
BENCHMARK PRICES Quarter Ended
(average prices) March 31,
2008 2007
Natural Gas ($/Mcf) - Henry Hub $8.03 $6.77
Oil ($/Bbl) - West Texas Intermediate
(Cushing) $97.67 $58.33
REALIZED PRICES
(Excludes the effects of unrealized gains (losses) from hedging)
Quarter Ended
March 31, 2008 Oil Gas NGLs Total
(Per Bbl) (Per Mcf) (Per Bbl) (Per Boe)
U.S. Onshore $93.61 $7.05 $44.72 $46.97
U.S. Offshore $98.95 $8.78 $49.65 $69.23
Total U.S. $95.70 $7.24 $44.86 $49.84
Canada $72.68 $7.53 $62.67 $55.42
International $96.08 $8.41 $- $95.24
Realized price without
hedges $88.23 $7.31 $47.40 $55.07
Cash settlements $- $(0.04) $- $(0.14)
Realized price, including
cash settlements $88.23 $7.27 $47.40 $54.93
Quarter Ended
March 31, 2007 Oil Gas NGLs Total
(Per Bbl) (Per Mcf) (Per Bbl) (Per Boe)
U.S. Onshore $51.04 $5.92 $27.54 $35.69
U.S. Offshore $54.13 $7.19 $29.51 $46.60
Total U.S. $52.22 $6.08 $27.59 $37.29
Canada $43.51 $6.43 $37.03 $39.71
International $57.72 $3.21 $- $57.40
Realized price without
hedges $52.11 $6.17 $29.33 $39.94
Cash settlements $- $0.06 $- $0.22
Realized price, including
cash settlements $52.11 $6.23 $29.33 $40.16
CAPITAL EXPENDITURES (in millions)
Quarter Ended
March 31, 2008
U.S. U.S.
Onshore Offshore Canada International Total
Capital Expenditures
Exploration $53 145 131 71 $400
Development 865 88 332 59 1,344
Exploration and
development
capital $918 233 463 130 $1,744
Capitalized G&A 99
Capitalized
interest 20
Discontinued
operations 14
Midstream capital 99
Other capital 16
Total Capital
Expenditures $1,992
DEVON ENERGY CORPORATION
UNAUDITED FINANCIAL AND OPERATIONAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS Quarter Ended
(in millions, except per share amounts) March 31,
2008 2007
Revenues
Oil sales $1,250 $691
Gas sales 1,630 1,246
NGL sales 328 177
Net loss on oil and gas derivative
financial instruments (788) (20)
Marketing and midstream revenues 555 379
Total revenues 2,975 2,473
Expenses and other income, net
Lease operating expenses 506 430
Production taxes 134 80
Marketing and midstream operating
costs and expenses 382 270
Depreciation, depletion and
amortization of oil and gas properties 737 587
Depreciation and amortization of non-
oil and gas properties 57 46
Accretion of asset retirement
obligation 22 18
General and administrative expenses 148 119
Interest expense 102 110
Change in fair value of non-oil and
gas derivative financial instruments 16 1
Other income, net (21) (26)
Total expenses and other income, net 2,083 1,635
Earnings from continuing operations
before income tax expense 892 838
Income tax expense
Current 103 189
Deferred 138 75
Total income tax expense 241 264
Earnings from continuing operations 651 574
Discontinued operations
Earnings from discontinued operations
before income tax expense 189 137
Income tax expense 91 60
Earnings from discontinued
operations 98 77
Net earnings 749 651
Preferred stock dividends 2 2
Net earnings applicable to common stockholders $747 $649
Basic net earnings per share
Earnings from continuing operations $1.46 $1.29
Earnings from discontinued operations 0.22 0.17
Net earnings $1.68 $1.46
Diluted net earnings per share
Earnings from continuing operations $1.44 $1.27
Earnings from discontinued operations 0.22 0.17
Net earnings $1.66 $1.44
Weighted average common shares outstanding
Basic 445 444
Diluted 449 450
DEVON ENERGY CORPORATION
UNAUDITED FINANCIAL AND OPERATIONAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(in millions) March 31, December 31,
2008 2007
Assets (Audited)
Current assets
Cash and cash equivalents $1,875 $1,364
Short-term investments, at fair value 23 372
Accounts receivable 2,090 1,779
Deferred income taxes 325 44
Current assets held for sale 112 120
Other current assets 232 235
Total current assets 4,657 3,914
Property and equipment, at cost, based on
the full cost method of accounting for oil
and gas properties ($3,492 and $3,417
excluded from amortization in 2008 and
2007, respectively) 49,816 48,473
Less accumulated depreciation, depletion
and amortization 20,883 20,394
Net property and equipment 28,933 28,079
Investment in Chevron Corporation common
stock, at fair value 1,211 1,324
Goodwill 6,054 6,172
Long-term assets held for sale 1,531 1,512
Other long-term assets 599 455
Total Assets $42,985 $41,456
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable - trade $1,440 $1,360
Revenues and royalties due to others 695 578
Short-term debt 1,446 1,004
Derivative financial instruments, at
fair value 775 -
Current portion of asset retirement
obligation, at fair value 68 82
Current liabilities associated with
assets held for sale 173 145
Accrued expenses and other current
liabilities 398 488
Total current liabilities 4,995 3,657
Debentures exchangeable into shares of
Chevron Corporation common stock 620 641
Other long-term debt 5,751 6,283
Derivative financial instruments, at fair value 376 488
Asset retirement obligation, at fair value 1,377 1,236
Long-term liabilities associated with assets
held for sale 428 404
Other long-term liabilities 701 699
Deferred income taxes 6,339 6,042
Stockholders' equity
Preferred stock 1 1
Common stock 45 44
Additional paid-in capital 6,820 6,743
Retained earnings 13,489 12,813
Accumulated other comprehensive income 2,043 2,405
Total Stockholders' Equity 22,398 22,006
Total Liabilities and Stockholders' Equity $42,985 $41,456
Common Shares Outstanding 446 444
DEVON ENERGY CORPORATION
UNAUDITED FINANCIAL AND OPERATIONAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions) Quarter Ended March 31,
2008 2007
Cash Flows From Operating Activities
Net earnings $749 $651
Earnings from discontinued
operations, net of tax (98) (77)
Adjustments to reconcile net
earnings from continuing operations
to net cash provided by operating activities:
Depreciation, depletion and
amortization 794 633
Deferred income tax expense 138 75
Net unrealized loss on oil and
gas derivative financial instruments 780 32
Other noncash charges 74 43
Changes in assets and liabilities:
Increase in:
Accounts receivable (328) (29)
Other current assets (39) (10)
Long-term other assets (11) (25)
Increase (decrease) in:
Accounts payable 38 66
Revenues and royalties due to others 119 (46)
Other current liabilities (167) 89
Long-term other liabilities 21 (2)
Cash provided by operating
activities - continuing operations 2,070 1,400
Cash provided by operating
activities - discontinued operations 185 117
Net cash provided by operating activities 2,255 1,517
Cash Flows From Investing Activities
Proceeds from sales of property and
equipment 105 25
Capital expenditures (1,862) (1,484)
Purchases of short-term investments (50) (424)
Sales of short-term investments 270 723
Cash used in investing activities -
continuing operations (1,537) (1,160)
Cash used in investing activities -
discontinued operations (24) (53)
Net cash used in investing activities (1,561) (1,213)
Cash Flows From Financing Activities
Credit facility repayments (1,450) -
Credit facility borrowings 920 -
Net commercial paper borrowings
(repayments) 442 (348)
Principal payments on debt (41) -
Proceeds from stock options exercises 74 23
Repurchases of common stock (64) -
Dividends paid on common and
preferred stock (73) (64)
Excess tax benefits related to
share-based compensation 27 5
Net cash used in financing activities (165) (384)
Effect of exchange rate changes on cash (19) 2
Net increase (decrease) in cash and
cash equivalents 510 (78)
Cash and cash equivalents at
beginning of period (including
assets held for sale) 1,373 756
Cash and cash equivalents at end of
period (including assets held for sale) $1,883 $678
Supplementary cash flow data:
Interest paid (net of capitalized
interest) $136 $138
Income taxes paid (received) -
continuing and discontinued operations $83 $(24)
DEVON ENERGY CORPORATION
UNAUDITED FINANCIAL AND OPERATIONAL INFORMATION
DRILLING ACTIVITY Quarter Ended
March 31,
2008 2007
Exploration Wells Drilled
U.S. 9 22
Canada 51 55
International 6 1
Total 66 78
Exploration Wells Success Rate
U.S. 56% 77%
Canada 96% 100%
International 0% 0%
Total 82% 92%
Development Wells Drilled
U.S. 372 264
Canada 198 252
International 10 3
Total 580 519
Development Wells Success Rate
U.S. 98% 98%
Canada 100% 100%
International 90% 100%
Total 99% 99%
Total Wells Drilled
U.S. 381 286
Canada 249 307
International 16 4
Total 646 597
Total Wells Success Rate
U.S. 97% 97%
Canada 99% 100%
International 56% 75%
Total 97% 98%
COMPANY OPERATED RIGS Quarter Ended
March 31,
2008 2007
Number of Company Operated Rigs
Running
U.S. 72 65
Canada 2 5
International 2 -
Total 76 70
DEVON ENERGY CORPORATION
UNAUDITED FINANCIAL AND OPERATIONAL INFORMATION
PRODUCTION FROM DISCONTINUED OPERATIONS Quarter Ended
March 31,
2008 2007
Total Period Production
Oil (MMBbls) 2.1 3.1
Natural Gas (Bcf) 1.1 1.4
Total Oil Equivalent (MMBoe) 2.3 3.3
STATEMENTS OF DISCONTINUED OPERATIONS Quarter Ended
(in millions) March 31,
2008 2007
Revenues
Oil sales $196 $170
Gas sales 4 4
Marketing and midstream revenues 5 1
Total revenues 205 175
Expenses and other income, net
Lease operating expenses 14 20
Marketing and midstream operating
costs and expenses 1 1
Depreciation, depletion and
amortization of oil and gas properties - 16
Accretion of asset retirement obligation 1 1
Total expenses and other income, net 16 38
Earnings before income tax expense 189 137
Income tax expense
Current 67 44
Deferred 24 16
Total income tax expense 91 60
Earnings from discontinued operations $98 $77
NON-GAAP FINANCIAL MEASURES The United States Securities and Exchange Commission has adopted disclosure requirements for public companies such as Devon concerning Non-GAAP financial measures. (GAAP refers to generally accepted accounting principles.) The company must reconcile the Non-GAAP financial measure to related GAAP information. Cash flow before balance sheet changes and free cash flow are Non-GAAP financial measures. Devon believes cash flow before balance sheet changes is relevant because it is a measure of cash available to fund the company's capital expenditures, dividends and to service its debt. Devon believes free cash flow is relevant because it is a measure of cash available to service debt. Cash flow before balance sheet changes and free cash flow are also used by certain securities analysts as a measure of Devon's financial results.
DEVON ENERGY CORPORATION
UNAUDITED FINANCIAL AND OPERATIONAL INFORMATION
RECONCILIATION TO GAAP INFORMATION Quarter Ended
(in millions) March 31,
2008 2007
Net Cash Provided By Operating
Activities (GAAP) $2,255 $1,517
Changes in assets and liabilities -
continuing operations 367 (43)
Changes in assets and liabilities -
discontinued operations (63) (6)
Cash flow before balance sheet changes
(Non-GAAP) $2,559 $1,468
Less:
Capital expenditures 1,992 1,578
Free cash flow (Non-GAAP) $567 $(110)
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