Newsroom - News Release 

Devon Energy Earns $393 Million in First-Quarter 2012; Oil Production Increases 26 Percent

OKLAHOMA CITY--(BUSINESS WIRE)--May. 2, 2012-- Devon Energy Corporation (NYSE:DVN) today reported net earnings of $393 million for the quarter ended March 31, 2012, or $0.97 per common share ($0.97 per diluted share). This compares with first-quarter 2011 net earnings of $416 million, or $0.97 per common share ($0.97 per diluted share).

Devon’s first-quarter 2012 financial results were impacted by certain items securities analysts typically exclude from their published estimates. Adjusting for these items, the company earned $427 million or $1.05 per diluted share in the first quarter of 2012. The adjusting items are discussed in more detail later in this news release.

Devon’s first-quarter 2012 earnings were significantly affected by unusually wide Canadian oil price differentials. Following the end of the quarter, Canadian oil differentials have begun to normalize.

Strong Oil Growth Drives Record Production

Total production of oil, natural gas and natural gas liquids averaged 694,000 oil-equivalent barrels (Boe) per day in the first quarter of 2012. This is the highest daily production rate in history from the company’s North American onshore properties and represents a 10 percent increase compared to the year-ago quarter. Record production from the company’s cornerstone development properties, including the Permian Basin, Jackfish, Cana-Woodford and Barnett Shale, drove the strong first quarter performance.

Devon’s first quarter liquids production increased for the sixth consecutive quarter to 256,000 Boe per day. This growth was led by a 26 percent year-over-year increase in oil production.

Sales of oil, natural gas and natural gas liquids, before the impact of hedges, increased 3 percent to $1.9 billion in the first quarter of 2012. Cash settlements related to oil and natural gas hedges increased revenues by $158 million or $2.50 per Boe in the first-quarter 2012.

Marketing and midstream operating profit was $112 million in the first quarter of 2012. This was a 7 percent decrease compared with the first-quarter 2011. The decrease was attributable to lower natural gas and natural gas liquids prices.

Permian Basin Activity and Production Growth Lead Operating Highlights

  • Devon continued to aggressively ramp-up activity in the Permian Basin in the first quarter. Since year-end the company has added five operated rigs and now has 21 rigs running in the basin.
  • Permian Basin oil production increased 32 percent over the first-quarter 2011. Liquids production accounted for 76 percent of the 56,000 Boe per day produced in the Permian Basin during the first quarter.
  • Additionally, Devon recently enhanced its leasehold position in the Permian Basin by assembling a 500,000 net acre position in the Cline Shale light-oil play. The company is currently drilling its first horizontal well in the Cline and expects to drill 15 wells in 2012.
  • Also in the Permian, Devon completed 16 operated Bone Spring wells in the first quarter. Initial daily production averaged 580 Boe per day per well.
  • Net production from Devon’s Jackfish 1 and Jackfish 2 oil sands projects in Canada averaged a record 46,000 barrels per day in the first quarter, representing a 55 percent increase over the year-ago quarter. The company’s Jackfish 2 production is now at 21,000 barrels per day and will continue to ramp-up throughout 2012.
  • Construction of Devon’s third Jackfish oil sands project is now approximately 30 percent complete. Jackfish 3 is expected to produce 35,000 barrels per day before royalties for more than 20 years. Plant startup is targeted for late 2014.
  • The company’s Cana-Woodford Shale production averaged a record 271 million cubic feet of natural gas equivalent per day in the first quarter of 2012. Liquids production averaged 13,000 barrels per day, an 80 percent year-over-year increase.
  • Net liquids production from the Barnett Shale increased more than 20 percent compared to the year-ago quarter to 52,500 barrels per day, accounting for 23 percent of total Barnett production. In aggregate, net production reached a record 1.37 billion cubic feet of natural gas equivalent per day in the first quarter.
  • Devon brought seven operated Granite Wash wells online in the first quarter. Initial production from these wells averaged 1,650 Boe per day. The company has an average working interest of 73 percent in these wells.
  • In the first quarter, the company continued to capture acreage in new oil-focused opportunities. Devon has now contracted for or leased 250,000 net acres in an undisclosed position. The company is targeting 500,000 net acres in this play.

Cost Containment Efforts Partially Offset Rising Costs

First-quarter 2012 expenses increased compared to the year-ago quarter due to rising oilfield service and supply costs. Compared to the first quarter of 2011, the company’s total pre-tax cash costs increased 5 percent to $13.80 per Boe. The company’s successful cost management efforts and efficient operations partially offset the full impact of industry inflation and a shift towards oil projects. In general, oil projects are more expensive to develop and have higher operating costs than gas production.

Lease operating expenses (LOE) were $514 million in the first quarter. On a unit of production basis, LOE increased 9 percent compared with the first-quarter 2011 and was 2 percent higher than the fourth-quarter 2011. The increase in LOE reflects rising industry costs coupled with increased activity levels in oil-focused basins.

Taxes other than income decreased 6 percent to $102 million in the first quarter of 2012. The year-over-year decrease was driven by lower ad valorem and production taxes.

Interest expense for the first quarter totaled $87 million, a $6 million increase over the first quarter of 2011. Higher average debt balances drove the increase.

First-quarter general and administrative expenses were $168 million, or $2.67 per Boe. This compares with $2.29 per Boe in the first quarter of 2011. Higher personnel costs were the largest contributor to the increase. Devon has increased the size of its workforce to support its expanding exploration and development activity.

Compared with the first-quarter 2011, depreciation, depletion and amortization expense (DD&A) increased 21 percent to $10.78 per Boe. Inflation in industry costs and increased investment in oil-focused projects drove DD&A expense higher.

Balance Sheet and Liquidity Remain Strong

In the first quarter of 2012, Devon generated cash flow before balance sheet changes of $1.4 billion. On a per share basis, this represents a 3 percent increase in cash flow compared to the first-quarter 2011. At March 31, 2012, the company’s cash and short-term investments totaled $7.1 billion, and its net debt to adjusted capitalization was 15 percent.

Devon Adds Oil and Gas Hedges in 2012 and 2013

The strong oil price environment has provided Devon the opportunity to add attractive oil hedges for 2013. The company has entered into various swap and collar contracts to hedge 72,000 barrels per day of oil production. Of this total, 31,000 barrels per day are swapped at a weighted average price of $104 per barrel. The remaining 41,000 barrels per day utilize costless collars with a weighted average ceiling of $117 per barrel and a floor of $91 per barrel. For the remainder of 2012, the company has 109,000 barrels per day of oil production hedged, or roughly 70 percent of forecasted oil production, at a weighted average floor price of $95 per barrel.

The company has also recently bolstered its natural gas hedging position. For the remaining three quarters of 2012, Devon has approximately 1 billion cubic feet per day protected at a weighted average floor price of $4.42 per thousand cubic feet. This represents about 40 percent of Devon’s 2012 forecasted gas production.

Non-GAAP Reconciliations

Pursuant to regulatory disclosure requirements, Devon is required to reconcile non-GAAP financial measures to the related GAAP information (GAAP refers to generally accepted accounting principles). Cash flow before balance sheet changes, net debt and adjusted capitalization are non-GAAP financial measures referenced within this release. Reconciliations of these non-GAAP measures are provided on page 11.

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. The following tables summarize the first-quarter 2012 effects of these items on earnings and cash flow.

         
Quarter Ended March 31, 2012
                  Before-Tax       After-Tax
Net earnings (GAAP)                       $ 393  
Adjustments on asset sales - discontinued operations 16       21
Oil and gas derivatives 13 8
Interest rate and other financial instruments           6         5  
Adjusted earnings (Non-GAAP)                     $ 427  
Diluted share count                         405  
Adjusted diluted earnings per share (Non-GAAP)                   $ 1.05  
 
 
                           
Cash flow before balance sheet changes (Non-GAAP)                 $ 1,356  
Adjustments on asset sales - discontinued operations                   (7 )
Adjusted cash flow before balance sheet changes (Non-GAAP)                 $ 1,349  
 

Conference Call to be Webcast Today

Devon will discuss its first-quarter 2012 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 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 the volatility of oil, natural gas and NGL prices; uncertainties inherent in estimating oil, natural gas and NGL reserves; drilling risks; environmental risks; and political or 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 forward-looking statements in this press release are made as of the date of this press release, even if subsequently made available by Devon on its website or otherwise. Devon does not undertake any obligation to update the forward-looking statements as a result of new information, future events or otherwise.

The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC's definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves. This release may contain certain terms, such as resource potential and exploration target size. These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized. The SEC guidelines strictly prohibit us from including these estimates in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 10-K for the fiscal year ended December 31, 2011, available from us at Devon Energy Corporation, Attn. Investor Relations, 333 West Sheridan, Oklahoma City, OK 73102. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or from the SEC’s website at www.sec.gov.

Devon Energy Corporation is an Oklahoma City-based independent energy company engaged in oil and gas exploration and production. Devon is a leading 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 www.devonenergy.com.

       
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
 
PRODUCTION (net of royalties) Quarter Ended
Excludes discontinued operations March 31,
            2012       2011
Total Period Production                  
Natural Gas (Bcf)      
  United States 188.5 176.8
  Canada         50.7       51.2
  Total Natural Gas         239.2       228.0
Oil (MMBbls)

 

United States 5.0 3.6

 

Canada         7.9       6.5
  Total Oil         12.9       10.1
Natural Gas Liquids (MMBbls)

 

United States 9.3 7.6

 

Canada         1.0       0.9
  Total Natural Gas Liquids         10.3       8.5
Oil Equivalent (MMBoe)

 

United States 45.7 40.7

 

Canada         17.4       15.9
  Total Oil Equivalent         63.1       56.6
                     
Average Daily Production                  
Natural Gas (MMcf)
U.S. 2,071.8 1,964.1
  Canada         556.4       568.9
  Total Natural Gas         2,628.2       2,533.0
Oil (MBbls)
United States 54.7 40.7
  Canada         87.3       71.9
  Total Oil         142.0       112.6
Natural Gas Liquids (MBbls)
United States 102.1 84.1
  Canada         11.4       9.9
  Total Natural Gas Liquids         113.5       94.0
Oil Equivalent (MBoe)
United States 502.2 452.2
  Canada         191.4       176.6
  Total Oil Equivalent         693.6       628.8
       
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
 
BENCHMARK PRICES Quarter Ended
(average prices) March 31,
              2012         2011
Natural Gas ($/Mcf) – Henry Hub $ 2.72       $ 4.11
Oil ($/Bbl) – West Texas Intermediate (Cushing)         $ 102.87       $ 94.11
                         
Quarter Ended March 31, 2012 Oil Gas NGLs Total
          (Per Bbl)       (Per Mcf)       (Per Bbl)       (Per Boe)
United States $ 99.35 $ 2.28 $ 33.37 $ 27.03
Canada       $ 62.29         $ 2.54       $ 54.18       $ 39.00
Realized price without hedges $ 76.58 $ 2.34 $ 35.46 $ 30.33
Cash settlements       $ (0.44 )       $ 0.68       $ 0.03       $ 2.50
Realized price, including cash settlements       $ 76.14         $ 3.02       $ 35.49       $ 32.83
                         
Quarter Ended March 31, 2011 Oil Gas NGLs Total
          (Per Bbl)       (Per Mcf)       (Per Bbl)       (Per Boe)
United States $ 88.73 $ 3.50 $ 35.41 $ 29.77
Canada       $ 60.86         $ 4.03       $ 54.18       $ 40.78
Realized price without hedges $ 70.95 $ 3.62 $ 37.39 $ 32.86
Cash settlements       $ (0.48 )       $ 0.39       $ 0.06       $ 1.52
Realized price, including cash settlements       $ 70.47         $ 4.01       $ 37.45       $ 34.38
                 
CAPITAL EXPENDITURES (in millions)
Quarter Ended March 31, 2012
          United States       Canada       Total
Capital Expenditures                        
  Exploration $ 210 145 $ 355
  Development         939       318         1,257
Exploration and development capital $ 1,149 463 $ 1,612
Capitalized G&A 90
Capitalized interest 10
Midstream capital 111
  Other capital                         124
Total Continuing Operations                       $ 1,947
  Discontinued operations                         12
Total Operations                       $ 1,959
         
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
 
CONSOLIDATED STATEMENTS OF OPERATIONS Quarter Ended
(in millions, except per share amounts) March 31,
            2012           2011  
Revenues                
  Oil, gas, and NGL sales $ 1,915   $ 1,860
Oil, gas, and NGL derivatives 145 (168 )
  Marketing and midstream revenues         437           455  
  Total revenues         2,497           2,147  
Expenses and other, net                
Lease operating expenses 514 424
Marketing and midstream operating costs and expenses 325 333
Depreciation, depletion and amortization 680 506
General and administrative expenses 168 130
Taxes other than income taxes 102 108
Interest expense 87 81
Restructuring costs - (5 )
  Other, net         10           (10 )
  Total expenses and other, net         1,886           1,567  
Earnings from continuing operations before income taxes 611 580
Current income tax expense (benefit) 18 (89 )
  Deferred income tax expense         179           280  
Earnings from continuing operations         414           389  
Earnings (loss) from discontinued operations, net of income tax expense         (21 )         27  
Net earnings       $ 393         $ 416  
 
Basic net earnings per share
Basic earnings from continuing operations per share $ 1.03 $ 0.91
  Basic earnings (loss) from discontinued operations per share         (0.06 )         0.06  
  Basic net earnings per share       $ 0.97         $ 0.97  
 
Diluted net earnings per share
Diluted earnings from continuing operations per share $ 1.03 $ 0.91
  Diluted earnings (loss) from discontinued operations per share         (0.06 )         0.06  
  Diluted net earnings per share       $ 0.97         $ 0.97  
 
Weighted average common shares outstanding
Basic 404 428
Diluted 405 430
           

DEVON ENERGY CORPORATION

FINANCIAL AND OPERATIONAL INFORMATION

 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions) Quarter Ended March 31,
            2012           2011  
Cash Flows From Operating Activities                
  Net earnings $ 393 $ 416
Earnings from discontinued operations, net of tax 21 (27 )
Adjustments to reconcile earnings from continuing operations
to net cash provided by operating activities:
Depreciation, depletion and amortization 680 506
Deferred income tax expense 179 280
Unrealized change in fair value of financial instruments 22 253
  Other noncash charges         54           36  
Net cash from operating activities before balance sheet changes 1,349 1,464
Net increase in working capital (321 ) (171 )
Increase in long-term other assets (12 ) (4 )
  Decrease in long-term other liabilities         (16 )         (23 )
Cash from operating activities - continuing operations 1,000 1,266
  Cash from operating activities - discontinued operations         26           (6 )
Net cash from operating activities         1,026           1,260  
                   
Cash Flows From Investing Activities                
Capital expenditures (2,088 ) (1,827 )
Purchases of short-term investments (827 ) (1,636 )
Redemptions of short-term investments 1,048 145
  Other         (1 )         (4 )
Cash from investing activities - continuing operations (1,868 ) (3,322 )
  Cash from investing activities - discontinued operations         58           (52 )
Net cash from investing activities         (1,810 )         (3,374 )
                   
Cash Flows From Financing Activities                
Net commercial paper borrowings 357 1,197
Credit facility borrowings 750 -
Proceeds from stock option exercises 20 88
Repurchases of common stock - (706 )
Dividends paid on common stock (80 ) (68 )
  Excess tax benefits related to share-based compensation         1           9  
Net cash from financing activities         1,048           520  
 
Effect of exchange rate changes on cash         9           20  
Net increase (decrease) in cash and cash equivalents 273 (1,574 )
Cash and cash equivalents at beginning of period         5,555           3,290  
Cash and cash equivalents at end of period       $ 5,828         $ 1,716  
           
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
 
CONSOLIDATED BALANCE SHEETS
(in millions) March 31, December 31,
              2012           2011  
Assets                
Current assets:
  Cash and cash equivalents $ 5,828 $ 5,555
Short-term investments 1,282 1,503
Accounts receivable 1,107 1,379
  Other current assets         861           868  
  Total current assets         9,078           9,305  
Property and equipment, at cost:
Oil and gas, based on full cost accounting:
  Subject to amortization 64,272 61,696
    Not subject to amortization         3,896           3,982  
Total oil and gas 68,168 65,678
  Other         5,341           5,098  
Total property and equipment, at cost 73,509 70,776
Less accumulated depreciation, depletion and amortization         (46,948 )         (46,002 )
    Property and equipment, net         26,561           24,774  
Goodwill 6,067 6,013
Other long-term assets         899           1,025  
Total Assets       $ 42,605         $ 41,117  
Liabilities and Stockholders' Equity                
Current liabilities:
Accounts payable $ 1,079 $ 1,471
Revenues and royalties payable 513 678
Short-term debt 4,120 3,811
  Other current liabilities         550           778  
  Total current liabilities         6,262           6,738  
Long-term debt 6,719 5,969
Asset retirement obligations 1,944 1,496
Other long-term liabilities 752 721
Deferred income taxes         4,972           4,763  
Stockholders' equity:                
Common stock 40 40
Additional paid-in capital 3,564 3,507
Retained earnings 16,621 16,308
  Accumulated other comprehensive earnings         1,731           1,575  
Total Stockholders' Equity         21,956           21,430  
Total Liabilities and Stockholders' Equity       $ 42,605         $ 41,117  
Common Shares Outstanding         404           404  
     
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
 
COMPANY OPERATED RIGS Quarter Ended
  March 31,
          2012       2011
Number of Company Operated Rigs Running                
United States

67

      70
  Canada       3       5
  Total      

70

      75
                 
KEY OPERATING STATISTICS BY REGION
 
Quarter Ended March 31, 2012 Avg. Production Operated Rigs at Gross Wells
          (MBOED)       March 31, 2012       Drilled
Barnett Shale 229.1 12 95
Canadian Oilsands - Jackfish / Pike 46.1 1 8
Cana-Woodford Shale 45.1 16 44
Granite Wash 18.6 3 16
Gulf Coast / East Texas 65.7

6

11
Lloydminster 38.8 - 49
Permian Basin 56.3 20 63
Rocky Mountains 62.6 4 7
Other       131.3      

8

      44
  Total       693.6      

70

      337
 

DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION

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 is a Non-GAAP financial measure. 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. Cash flow before balance sheet changes is also used by certain securities analysts as a measure of Devon’s financial results.

       
RECONCILIATION TO GAAP INFORMATION Quarter Ended
(in millions) March 31,
              2012           2011
Net Cash Provided By Operating Activities (GAAP)         $ 1,026         $ 1,260
  Changes in assets and liabilities - continuing operations 349       198
  Changes in assets and liabilities - discontinued operations           (19 )         30
Cash flow before balance sheet changes (Non-GAAP)         $ 1,356         $ 1,488
 

Devon believes that using net debt for the calculation of “net debt to adjusted capitalization” provides a better measure than using debt. Devon defines net debt as debt less cash, cash equivalents and short-term investments. Devon believes that netting these sources of cash against debt provides a clearer picture of the future demands on cash to repay debt.

           
RECONCILIATION TO GAAP INFORMATION
(in millions)
  March 31,
            2012         2011
Total debt (GAAP) $ 10,839 $ 6,803
Adjustments:
  Cash and short-term investments         7,110         3,352
  Net debt (Non-GAAP)       $ 3,729       $ 3,451
                   
Total debt $ 10,839 $ 6,803
Stockholders' equity         21,956         19,229
  Total capitalization (GAAP)       $ 32,795       $ 26,032
                   
Net debt $ 3,729 $ 3,451
Stockholders' equity         21,956         19,229
  Adjusted capitalization (Non-GAAP)       $ 25,685       $ 22,680

Source: Devon Energy Corporation

Devon Energy Corporation
Investor Contacts
Shea Snyder, 405-552-4782
or
Scott Coody, 405-552-4735
or
Media Contact
Chip Minty, 405-228-8647

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U.S.:

Chip Minty
Manager, Media Relations
405.228.8647
chip.minty@dvn.com 

 

Canada:

Nadine Barber
Manager, Public Affairs and Corporate Communications
403-232-7695
nadine.barber@dvn.com