Devon Energy (DVN) 10-Q 6 May 10 2010 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
Share data in Millions	3 Months Ended Mar. 31, 2010	Apr. 30, 2010
Document Type	10-Q
Document Period End Date	2010-03-31
Amendment Flag	false
Entity Registrant Name	Devon Energy Corp/DE
Entity Central Index Key	0001090012
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2,010
Entity Filer Category	Large Accelerated Filer
Document Fiscal Period Focus	Q1
Entity Common Stock, Shares Outstanding (in shares)		446.9

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS (USD $)
In Millions	3 Months Ended Mar. 31, 2010	12 Months Ended Dec. 31, 2009
Current assets:
Cash and cash equivalents	$724	$646
Accounts receivable	1,296	1,208
Derivative financial instruments	733	211
Current assets held for sale	731	657
Other current assets	264	270
Total current assets	3,748	2,992
Property and equipment, at cost, based on the full cost method of accounting for oil and gas properties ($3,266 million and $4,078 million excluded from amortization in 2010 and 2009, respectively)	61,392	60,475
Less accumulated depreciation, depletion and amortization	42,580	41,708
Property and equipment, net	18,812	18,767
Goodwill	6,018	5,930
Long-term assets held for sale	1,409	1,250
Other long-term assets	690	747
Total assets	30,677	29,686
Current liabilities:
Accounts payable - trade	1,199	1,137
Revenues and royalties due to others	546	486
Short-term debt	240	1,432
Current portion of asset retirement obligations	90	95
Current liabilities associated with assets held for sale	303	234
Other current liabilities	730	418
Total current liabilities	3,108	3,802
Long-term debt	5,845	5,847
Asset retirement obligations	1,637	1,418
Liabilities associated with assets held for sale	208	213
Other long-term liabilities	921	937
Deferred income taxes	2,003	1,899
Stockholders' equity:
Common stock of $0.10 par value. Authorized 1.0 billion shares; issued 446.8 million and 446.7 million shares in 2010 and 2009, respectively	45	45
Additional paid-in capital	6,577	6,527
Retained earnings	8,733	7,613
Accumulated other comprehensive earnings	1,600	1,385
Total stockholders' equity	16,955	15,570
Commitments and contingencies (Note 12)
Total liabilities and stockholders' equity	$30,677	$29,686

CONSOLIDATED BALANCE SHEETS (PA

CONSOLIDATED BALANCE SHEETS (PARENTHETICAL) (USD $)
In Millions, except Per Share data	3 Months Ended Mar. 31, 2010	12 Months Ended Dec. 31, 2009
Property and equipment, at cost, based on the full cost method of accounting for oil and gas properties excluded from amortization	$3,266	$4,078
Common stock, par value (in dollars per share)	0.1	0.1
Common stock, shares authorized (in shares)	1,000	1,000
Common stock, shares issued (in shares)	446.8	446.7

CONSOLIDATED STATEMENTS OF OPER

CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, except Per Share data	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Revenues:
Oil, gas and NGL sales	$2,070	$1,375
Net gain on oil and gas derivative financial instruments	620	154
Marketing and midstream revenues	530	371
Total revenues	3,220	1,900
Expenses and other income, net:
Lease operating expenses	414	440
Taxes other than income taxes	101	89
Marketing and midstream operating costs and expenses	397	224
Depreciation, depletion and amortization of oil and gas properties	426	560
Depreciation and amortization of non-oil and gas properties	63	70
Accretion of asset retirement obligations	26	23
General and administrative expenses	138	163
Interest expense	86	83
Change in fair value of other financial instruments	(15)	(5)
Reduction of carrying value of oil and gas properties	0	6,408
Other (income) expense, net	(4)	7
Total expenses and other income, net	1,632	8,062
Earnings (loss) from continuing operations before income taxes	1,588	(6,162)
Income tax expense (benefit):
Current	299	(8)
Deferred	215	(2,272)
Total income tax expense (benefit)	514	(2,280)
Earnings (loss) from continuing operations	1,074	(3,882)
Discontinued operations:
Earnings (loss) from discontinued operations before income taxes	137	(66)
Discontinued operations income tax expense	19	11
Earnings (loss) from discontinued operations	118	(77)
Net earnings (loss)	$1,192	($3,959)
Basic earnings (loss) from continuing operations per share	2.4	-8.74
Basic earnings (loss) from discontinued operations per share	0.27	-0.18
Basic net earnings (loss) per share	2.67	-8.92
Diluted earnings (loss) from continuing operations per share	2.39	-8.74
Diluted earnings (loss) from discontinued operations per share	0.27	-0.18
Diluted net earnings (loss) per share	2.66	-8.92

CONSOLIDATED STATEMENTS OF COMP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS) (USD $)
In Millions	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Net earnings (loss)	$1,192	($3,959)
Foreign currency translation:
Change in cumulative translation adjustment	222	(161)
Foreign currency translation income tax (expense) benefit	(12)	11
Foreign currency translation total	210	(150)
Pension and postretirement benefit plans:
Recognition of net actuarial loss and prior service cost in earnings	8	12
Pension and postretirement benefit plans income tax expense	(3)	(4)
Pension and postretirement benefit plans total	5	8
Other comprehensive earnings (loss), net of tax	215	(142)
Comprehensive earnings (loss)	$1,407	($4,101)

CONSOLIDATED STATEMENTS OF STOC

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (USD $)
In Millions	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Earnings	Treasury Stock	Total
Balance, at Dec. 31, 2008	$44	$6,257	$10,376	$383	$0	$17,060
Balance, shares, at Dec. 31, 2008	444
Net earnings (loss)			(3,959)			(3,959)
Other comprehensive earnings (loss), net of tax				(142)		(142)
Stock option exercises		4				4
Common stock repurchased					(2)	(2)
Common stock retired		(2)			2	0
Common stock dividends			(70)			(70)
Share-based compensation		49				49
Share-based compensation tax benefits		2				2
Balance, shares, at Mar. 31, 2009	444
Balance, at Mar. 31, 2009	44	6,310	6,347	241	0	12,942
Balance, at Dec. 31, 2009	45	6,527	7,613	1,385	0	15,570
Balance, shares, at Dec. 31, 2009	447
Net earnings (loss)			1,192			1,192
Other comprehensive earnings (loss), net of tax				215		215
Stock option exercises		8				8
Common stock repurchased					(2)	(2)
Common stock retired		(2)			2	0
Common stock dividends			(72)			(72)
Share-based compensation		41				41
Share-based compensation tax benefits		3				3
Balance, shares, at Mar. 31, 2010	447
Balance, at Mar. 31, 2010	$45	$6,577	$8,733	$1,600	$0	$16,955

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Cash flows from operating activities:
Earnings (loss) from continuing operations	$1,074	($3,882)
Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by operating activities:
Depreciation, depletion and amortization	489	630
Deferred income tax expense (benefit)	215	(2,272)
Reduction of carrying value of oil and gas properties	0	6,408
Net unrealized gain on oil and gas derivative financial instruments	(524)	(36)
Other noncash charges	57	63
Net decrease in working capital	50	128
Increase in long-term other assets	(2)	0
Decrease in long-term other liabilities	(18)	(29)
Cash provided by operating activities - continuing operations	1,341	1,010
Cash provided by operating activities - discontinued operations	154	37
Net cash provided by operating activities	1,495	1,047
Cash flows from investing activities:
Proceeds from property and equipment divestitures	1,257	1
Capital expenditures	(1,247)	(1,926)
Redemptions of long-term investments	8	2
Cash provided by (used in) investing activities - continuing operations	18	(1,923)
Cash used in investing activities - discontinued operations	(107)	(107)
Net cash used in investing activities	(89)	(2,030)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt, net of issuance costs	0	1,187
Net commercial paper repayments	(1,192)	(111)
Debt repayments	0	(1)
Proceeds from stock option exercises	8	4
Dividends paid on common stock	(72)	(70)
Excess tax benefits related to share-based compensation	3	2
Net cash (used in) provided by financing activities	(1,253)	1,011
Effect of exchange rate changes on cash	18	(11)
Net increase in cash and cash equivalents	171	17
Cash and cash equivalents at beginning of period (including cash related to assets held for sale)	1,011	384
Cash and cash equivalents at end of period (including cash related to assets held for sale)	$1,182	$401

Summary of Significant Accounti

Summary of Significant Accounting Policies
	3 Months Ended Mar. 31, 2010
1. Summary of Significant Accounting Policies	1. Summary of Significant Accounting Policies The accompanying unaudited consolidated financial statements and notes of Devon Energy Corporation ("Devon") have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Pursuant to such rules and regulations, 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 should be read in conjunction with the consolidated financial statements and notes included in Devon's 2009 Annual Report on Form 10-K. The unaudited interim consolidated financial statements furnished in this report reflect all adjustments that are, in the opinion of management, necessary to a fair statement of Devon's financial position as of March 31, 2010 and Devon's results of operations and cash flows for the three-month periods ended March 31, 2010 and 2009.

Accounts Receivable

Accounts Receivable
	3 Months Ended Mar. 31, 2010
2. Accounts Receivable	2. Accounts Receivable The components of accounts receivable include the following: March 31, 2010 December 31, 2009 (In millions) Oil, gas and NGL sales $ 835 $ 752 Joint interest billings 157 151 Marketing and midstream revenues 169 188 Production tax credits 128 110 Other 19 19 Gross accounts receivable 1,308 1,220 Allowance for doubtful accounts (12) (12) Net accounts receivable $ 1,296 $ 1,208

Derivative Financial Instrument

Derivative Financial Instruments
	3 Months Ended Mar. 31, 2010
3. Derivative Financial Instruments	3 . Derivative Financial Instruments Devon periodically enters into commodity and interest rate derivative financial instruments. These instruments are used to manage the inherent uncertainty of future revenues due to oil and gas price volatility and to manage Devon's exposure to interest rate volatility. The following table presents the fair values of derivative assets and liabilities included in the accompanying consolidated balance sheets. None of Devon's derivative instruments included in the table have been designated as hedging instruments. Balance Sheet Caption Asset Derivatives Liability Derivatives (In millions) March 31, 2010: Gas price swaps Derivative financial instruments, current $ 659 $ Gas price collars Derivative financial instruments, current 35 Gas basis swaps Othercurrent liabilities 2 Oil price collars Other current liabilities 34 Interest rate swaps Derivative financial instruments, current 39 Interest rate swaps Other long-term assets 130 Total derivatives $ 863 $ 36 Balance Sheet Caption Asset Derivatives Liability Derivatives (In millions) December 31, 2009: Gas price swaps Derivative financial instruments, current $ 169 $ Gas basis swaps Derivative financial instruments, current 3 Oil price collars Other current liabilities 38 Interest rate swaps Derivative financial instruments, current 39 Interest rate swaps Other long-term assets 131 Total derivatives $ 342 $ 38 The following table presents the cash settlements and unrealized gains and losses on fair value changes included in the accompanying consolidated statements of operations associated with these derivative financial instruments. None of Devon's derivative instruments have been designated as hedging instruments. Statement of Operations Caption Three Months Ended March 31, 2010 2009 (In millions) Cash settlements: Gas price swaps Net gain on oil and gas derivative financial instruments $ 98 $ Gas price collars Net gain on oil and gas derivative financial instruments 1 118 Gas basis swaps Net gain on oil and gas derivative financial instruments (3) Interest rate swaps Change in fair value of other financial instruments 16 16 Total cash settlements 112 134 Unrealized gains (losses): Gas price swaps Net gain on oil and gas derivative financial instruments 490 Gas price collars Net gain on oil and gas derivative financial instruments 35 36 Gas basis swaps Net gain on oil and gas derivative financial instruments (5) Oil price collars Net gain on oil and gas derivative financial instruments 4 Interest rate swaps Change in fair value of other financial instruments (1) (11) Total unrealized gains 523 25 Net gain recognized $ 635 $ 159

Other Current Assets

Other Current Assets
	3 Months Ended Mar. 31, 2010
4. Other Current Assets	4. Other Current Assets The components of other current assets include the following: March 31, 2010 December 31, 2009 (In millions) Inventories $ 180 $ 182 Prepaid assets 39 33 Income taxes receivable 21 53 Other 24 2 Other current assets $ 264 $ 270

Property and Equipment

Property and Equipment
	3 Months Ended Mar. 31, 2010
5. Property and Equipment	5. Property and Equipment Divestitures In November 2009, Devon announced plans to reposition itself strategically as a high-growth, North American onshore exploration and production company. As part of this strategic repositioning, Devon is bringing forward the value of its offshore assets by divesting them. During the first quarter of 2010, Devon sold its interests in the Jack, St. Malo and Cascade Lower Tertiary projects in the deepwater Gulf of Mexico for $1.3 billion ($1.1 billion after taxes). These divestitures involved oil and gas properties with no proved reserves, current production or revenues. Devon used the proceeds from these divestitures to repay commercial paper borrowings. On March 10, 2010, Devon entered into agreements to sell all of its remaining assets in the deepwater Gulf of Mexico, Brazil and Azerbaijan to BP for $7.0 billion. In addition, BP will assume Devon's leases of the Seadrill West Sirius and Transocean Deepwater Discovery drilling rigs for the duration of the contract terms. Devon closed the deepwater Gulf of Mexico transaction in April 2010. Devon expects to close the Azerbaijan and Brazil transactions before the end of 2010. On April 9, 2010, Devon entered into an agreement to sell all its shallow-water Gulf of Mexico assets for $1.05 billion (approximately $840 million after taxes). Devon expects to close this transaction in the second quarter of 2010. On April 30, 2010, Devon entered into an agreement to sell its producing Panyu field located offshore China for $515 million (approximately $370 million after taxes). Devon expects to close this transaction in the second quarter of 2010. Under full cost accounting rules, sales or other dispositions of oil and gas properties are generally accounted for as adjustments to capitalized costs, with no recognition of gain or loss. However, if not recognizing a gain or loss on the disposition would otherwise significantly alter the relationship between a cost center's capitalized costs and proved reserves, then a gain or loss must be recognized. The Gulf of Mexico divestitures discussed above will not significantly alter such relationship for Devon's United States cost center. Therefore, Devon will not recognize a gain in connection with the Gulf of Mexico divestitures. Because the Azerbaijan, Brazil and China divestitures will ultimately involve a complete disposition of a cost center, Devon expects to record gains when such transactions close. Oil Sands Joint Venture In conjunction with the announced divestitures to BP, Devon also announced a heavy oil joint venture to operate and develop BP's Kirby oil sands leases in Alberta, Canada. Devon will acquire 50 percent of BP's interest in the Kirby oil sands leases for $500 million. Devon expects to close this transaction in the second quarter of 2010. Devon will also fund $150 million of capital costs on BP's behalf. The majority of these costs are expected to be paid during 2011 and 2012.

Goodwill

Goodwill
	3 Months Ended Mar. 31, 2010
6. Goodwill	6. Goodwill During the first three months of 2010, Devon's Canadian goodwill increased $88 million. This increase was entirely due to foreign currency translation.

Other Current Liabilities

Other Current Liabilities
	3 Months Ended Mar. 31, 2010
7. Other Current Liabilities	7. Other Current Liabilities The components of other current liabilities include the following: March 31, 2010 December 31, 2009 (In millions) Income taxes payable $ 283 $ 40 Deferred income taxes 176 Accrued interest 67 120 Restructuring costs 61 61 Derivative financial instruments 36 38 Other 107 159 Other current liabilities $ 730 $ 418

Debt

Debt
	3 Months Ended Mar. 31, 2010
8. Debt	8. Debt Commercial Paper During the first quarter of 2010, Devon repaid $1.2 billion of commercial paper borrowings primarily with proceeds received from Gulf of Mexico property divestitures. As of March 31, 2010, Devon's average borrowing rate on its $240 million of commercial paper debt was 0.22%. In early May 2010, Devon reduced the maximum allowed borrowings under its commercial paper program from $2.85 billion to approximately $2.2 billion. Credit Lines As of March 31, 2010, Devon had two revolving lines of credit that could be accessed to provide liquidity as needed. The following schedule summarizes the capacity of Devon's credit facilities by maturity date, as well as its available capacity as of March 31, 2010 (in millions). Senior Credit Facility: April 7, 2012 maturity $ 500 April 7, 2013 maturity 2,150 Total Senior Credit Facility 2,650 Short-Term Facility November 2, 2010 maturity 700 Total credit facilities 3,350 Less: Outstanding credit facility borrowings Outstanding commercial paper borrowings 240 Outstanding letters of credit 88 Total available capacity $ 3,022 In early May 2010, Devon cancelled the Short-Term Facility prior to its maturity date. Devon incurred no cost to cancel the facility and will avoid paying the facility fee that pertains to the cancellation period. The Senior Credit Facility and Short-Term Facility contain only one material financial covenant. This covenant requires Devon's ratio of total funded debt to total capitalization to be less than 65%. The credit agreement contains definitions of total funded debt and total capitalization that include adjustments to the respective amounts reported in the consolidated financial statements. Also, total capitalization is adjusted to add back noncash financial writedowns such as full cost ceiling impairments or goodwill impairments. As of March 31, 2010, Devon was in compliance with this covenant. Devon's debt-to-capitalization ratio at March 31, 2010, as calculated pursuant to the terms of the agreement, was 17.1%.

Asset Retirement Obligations

Asset Retirement Obligations
	3 Months Ended Mar. 31, 2010
9. Asset Retirement Obligations	9. Asset Retirement Obligations The schedule below summarizes changes in Devon's asset retirement obligations. Three Months Ended March 31, 2010 2009 (In millions) Asset retirement obligations as of beginning of period $ 1,513 $ 1,387 Liabilities incurred 16 8 Liabilities settled (47) (26) Revision of estimated obligation 205 22 Liabilities assumed by others (8) Accretion expense on discounted obligation 26 23 Foreign currency translation adjustment 22 (17) Asset retirement obligations as of end of period 1,727 1,397 Less current portion 90 157 Asset retirement obligations, long-term $ 1,637 $ 1,240 During the first quarter of 2010 and 2009, Devon recognized revisions to its asset retirement obligations totaling $205 million and $22 million, respectively. The primary factors causing the 2010 and 2009 increases were an overall increase in abandonment cost estimates and a decrease in the discount rate used to present value the obligations.

Retirement Plans

Retirement Plans
	3 Months Ended Mar. 31, 2010
10. Retirement Plans	10. Retirement Plans Net Periodic Benefit Cost and Other Comprehensive Earnings The following table presents the components of net periodic benefit cost and other comprehensive earnings for Devon's pension and other post retirement benefit plans. Pension Benefits Other Postretirement Benefits Three Months Ended March 31, Three Months Ended March 31, 2010 2009 2010 2009 Net periodic benefit cost: Service cost $ 8 $ 11 $ $ Interest cost 14 14 1 1 Expected return on plan assets (9) (9) Amortization of prior service cost 1 1 Net actuarial loss 7 11 Net periodic benefit cost 21 28 1 1 Other comprehensive earnings: Recognition of prior service cost in net periodic benefit cost (1) (1) Recognition of net actuarial loss in net periodic benefit cost (7) (11) Total recognized $ 13 $ 16 $ 1 $ 1

Stockholders' Equity

Stockholders' Equity
	3 Months Ended Mar. 31, 2010
11. Stockholders' Equity	11. Stockholders' Equity Dividends Devon paid common stock dividends of $72 million and $70 million (quarterly rates of $0.16 per share) in the first quarter of 2010 and 2009, respectively.

Commitments and Contingencies

Commitments and Contingencies
	3 Months Ended Mar. 31, 2010
12. Commitments and Contingencies	12. 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 that can be reasonably estimated are accrued. Such accruals are based on information known about the matters, Devon's 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 Devon's financial position or results of operations after consideration of recorded accruals. However, actual amounts could differ materially from management's 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 and similar state statutes. In response to liabilities associated with these activities, loss accruals primarily consist of estimated uninsured costs associated with remediation. Devon's monetary exposure for environmental matters is not expected to be material. Royalty Matters Numerous natural 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 NGLs produced and sold from federal and Indian-owned or controlled lands. Devon does not currently believe that it is subject to material exposure with respect to such royalty matters. Other Matters Devon is involved in other various routine legal proceedings incidental to its business. However, to Devon's knowledge as of the date of this report, neither Devon nor its property is subject to any material pending legal proceedings. Commitments At the end of 2009, Devon's commitments included $1.4 billion that related to long-term contracts for three deepwater drilling rigs. This total includes $1.2 billion related to two contracts to be assumed by BP in connection withthe associated divestiture transactionsas discussed in Note 5. At the end of 2009, Devon's commitments also included $0.4 billion that related to leases of floating, production, storage and offloading facilities being used in the Gulf of Mexico, Brazil and China. Devon's commitments for these leases will be assumed by the buyers of Devon's assets in these locations when the associated divestiture transactions close.

Fair Value Measurements

Fair Value Measurements
	3 Months Ended Mar. 31, 2010
13. Fair Value Measurements	13. Fair Value Measurements The following tables provide carrying value and fair value measurement information for Devon's financial assets and liabilities. Fair Value Measurements Using: Carrying Amount Total Fair Value Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (In millions) March 31, 2010 assets (liabilities): Gas price swaps $ 659 $ 659 $ $ 659 $ Gas price collars $ 35 $ 35 $ $ 35 $ Gas basis swaps $ (2) $ (2) $ $ (2) $ Oil price collars $ (34) $ (34) $ $ (34) $ Interest rate swaps $ 169 $ 169 $ $ 169 $ Debt $ (6,085) $ (6,985) $ (240) $ (6,745) $ Long-term investments $ 107 $ 107 $ $ $ 107 December 31, 2009 assets (liabilities): Gas price swaps $ 169 $ 169 $ $ 169 $ Gas basis swaps $ 3 $ 3 $ $ 3 $ Oil price collars $ (38) $ (38) $ $ (38) $ Interest rate swaps $ 170 $ 170 $ $ 170 $ Debt $ (7,279) $ (8,214) $ (1,432) $ (6,782) $ Long-term investments $ 115 $ 115 $ $ $ 115

Restructuring Costs

Restructuring Costs
	3 Months Ended Mar. 31, 2010
14. Restructuring Costs	14. Restructuring Costs In the fourth quarter of 2009, Devon recognized $153 million of estimated employee severance costs associated with the planned divestitures of its offshore assets that was announced in November 2009. This amount was based on estimates of the number of employees that will ultimately be impacted by the divestitures and includes $63 million related to accelerated vesting of share-based grants. Of the $153 million total, $105 million relates to Devon's U.S. Offshore operations and the remainder relates to its International discontinued operations. Devon's estimate of employee severance costs recognized in the fourth quarter of 2009 was based upon certain key estimates that could change as properties are sold. These estimates include the number of impacted employees, the number of employees offered comparable positions with the buyers and the date of separation for impacted employees. As discussed in Note 5, Devon has only closed a limited number of divestiture transactions, which did not impact a significant number of employees. As a result, Devon did not revise its estimate of employee severance costs during the first quarter of 2010.

Reduction of Carrying Value of

Reduction of Carrying Value of Oil and Gas Properties
	3 Months Ended Mar. 31, 2010
15. Reduction of Carrying Value of Oil and Gas Properties	15. Reduction of Carrying Value of Oil and Gas Properties In the first quarter of 2009, Devon reduced the carrying value of its United States oil and gas properties $6.4 billion, or $4.1 billion after taxes, due to a full cost ceiling limitation. The reduction resulted from a significant decrease in the full cost ceiling compared to the immediately preceding quarter due to the effects of declining natural gas prices subsequent to December 31, 2008.

Discontinued Operations

Discontinued Operations
	3 Months Ended Mar. 31, 2010
16. Discontinued Operations	16. Discontinued Operations Revenues related to Devon's discontinued operations totaled $212 million and $128 million in the three months ended March 31, 2010 and March 31, 2009, respectively. The following table presents the main classes of assets and liabilities associated with Devon's discontinued operations. March 31, December 31, 2010 2009 (In millions) Cash and cash equivalents $ 458 $ 365 Accounts receivable 122 165 Other current assets 151 127 Current assets $ 731 $ 657 Property and equipment, net $ 1,260 $ 1,099 Goodwill 68 68 Other long-term assets 81 83 Total long-term assets $ 1,409 $ 1,250 Accounts payable $ 209 $ 158 Other current liabilities 94 76 Current liabilities $ 303 $ 234 Asset retirement obligations $ 102 $ 109 Deferred income taxes 102 101 Other liabilities 4 3 Long-term liabilities $ 208 $ 213 Reductions of Carrying Value of Oil and Gas Properties In the first quarter of 2009, Devon reduced the carrying values of its Brazilian and other International oil and gas properties, which are now held for sale, $109 million due to full cost ceiling limitations. The Brazilian reduction of $103 million, which had no related tax benefit, resulted largely from an exploratory well drilled at the BM-BAR-3 block in the offshore Barreirinhas Basin. After drilling this well in the first quarter of 2009, Devon concluded that the well did not have adequate reserves for commercial viability. As a result, the seismic, leasehold and drilling costs associated with this well contributed to the reduction recognized in the first quarter of 2009.

Earnings

Earnings (Loss) Per Share
	3 Months Ended Mar. 31, 2010
17. Earnings (Loss) Per Share	17. Earnings (Loss) Per Share The following table reconciles earnings (loss) from continuing operations and common shares outstanding used in the calculations of basic and diluted earnings (loss) per share for the three-month periods ended March 31, 2010 and 2009. Because a net loss from continuing operations was generated during the three-month period ended March 31, 2009, the dilutive shares produce an antidilutive net loss per share result. Therefore, the diluted loss per share from continuing operations reported in the accompanying 2009 consolidated statement of operations is the same as the basic loss per share amount. Earnings (Loss) Common Shares Earnings (Loss) per Share (In millions, except per share amounts) Three Months Ended March 31, 2010: Earnings from continuing operations $ 1,074 447 Attributable to participating securities (13) (6) Basic earnings per share 1,061 441 $ 2.40 Dilutive effect of potential common shares issuable upon the exercise of outstanding stock options 2 Diluted earnings per share $ 1,061 443 $ 2.39 Three Months Ended March 31, 2009: Loss from continuing operations $ (3,882) 444 Attributable to participating securities 48 (5) Basic and diluted loss per share $ (3,834) 439 $ (8.74) Certain options to purchase shares of Devon's common stock are excluded from the dilution calculations because the options are antidilutive. These excluded options totaled 1.7 million and 8.9 million during the three-month periods ended March 31, 2010 and 2009, respectively.

Segment Information

Segment Information
	3 Months Ended Mar. 31, 2010
18. Segment Information	18. Segment Information Devon manages its operations through seven distinct operating segments, or divisions, which are defined primarily by geographic areas. For financial reporting purposes, Devon aggregates its United States divisions into one reporting segment due to the similar nature of the business. However, Devon's Canadian and International divisions are reported as separate reporting segments primarily due to significant differences in the respective regulatory environments. Following is certain financial information regarding Devon's reporting segments. The revenues reported are all from external customers. U.S. Canada International Total (In millions) As of March 31, 2010: Current assets $ 1,955 $ 1,062 $ 731 $ 3,748 Property and equipment, net 12,750 6,062 18,812 Goodwill 3,046 2,972 6,018 Other assets 622 68 1,409 2,099 Total assets $ 18,373 $ 10,164 $ 2,140 $ 30,677 Current liabilities $ 2,171 $ 634 $ 303 $ 3,108 Long-term debt 2,864 2,981 5,845 Asset retirement obligations 814 823 1,637 Other liabilities 875 46 208 1,129 Deferred income taxes 919 1,084 2,003 Stockholders' equity 10,730 4,596 1,629 16,955 Total liabilities and stockholders' equity $ 18,373 $ 10,164 $ 2,140 $ 30,677 U.S. Canada Total (In millions) Three Months Ended March 31, 2010: Revenues: Oil, gas and NGL sales $ 1,370 $ 700 $ 2,070 Net gain (loss) on oil and gas derivative financial instruments 625 (5) 620 Marketing and midstream revenues 496 34 530 Total revenues 2,491 729 3,220 Expenses and other income, net: Lease operating expenses 224 190 414 Taxes other than income taxes 90 11 101 Marketing and midstream operating costs and expenses 369 28 397 Depreciation, depletion and amortization of oil and gas properties 261 165 426 Depreciation and amortization of non-oil and gas properties 56 7 63 Accretion of asset retirement obligations 13 13 26 General and administrative expenses 108 30 138 Interest expense 30 56 86 Change in fair value of other financial instruments (15) (15) Other income, net (3) (1) (4) Total expenses and other income, net 1,133 499 1,632 Earnings from continuing operations before income taxes 1,358 230 1,588 Income tax expense (benefit): Current 214 85 299 Deferred 235 (20) 215 Total income tax expense 449 65 514 Earnings from continuing operations $ 909 $ 165 $ 1,074 Capital expenditures, before revision of future asset retirement obligations $ 1,033 $ 370 $ 1,403 Revision of future asset retirement obligations 83 122 205 Capital expenditures $ 1,116 $ 492 $ 1,608 U.S. Canada Total (In millions) Three Months Ended Marc

Supplemental Information to Sta

Supplemental Information to Statements of Cash Flows
	3 Months Ended Mar. 31, 2010
19. Supplemental Information to Statements of Cash Flows	19. Supplemental Information to Statements of Cash Flows Information related to Devon's cash flows is presented below. Three Months Ended March 31, 2010 2009 (In millions) Net decrease (increase) in working capital: (Increase) decrease in accounts receivable $ (78) $ 201 (Increase) decrease in other current assets (2) 194 Decrease in accounts payable (29) (27) Increase (decrease) in revenues and royalties due to others 58 (115) Increase (decrease) in income taxes payable 269 (3) Decrease in other current liabilities (168) (122) Net decrease in working capital $ 50 $ 128 Supplementary cash flow data continuing and discontinued operations: Interest paid net of capitalized interest $ 137 $ 98 Income taxes paid (received) $ 50 $ (177)