Devon Energy Increased First-Quarter 2008 Net Earnings 15 Percent; Growth in Oil and Gas Production Fuels Record Cash Flow of $2.6 BillionDownload
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)
SOURCE Devon Energy Corp.
CONTACT: investors, Zack Hager, +1-405-552-4526, or media, Chip Minty, +1-405-228-8647, both of Devon Energy Corp.