EXHIBIT 99.1
| | | | | |
| | 20 North Broadway
Oklahoma City, Oklahoma 73102-8260 | | Telephone: (405) 235-3611
Fax: (405) 552-4667 |
| | | |
| Investor contact: | | Zack Hager |
| | | (405) 552-4526 |
| | | |
| Media contact: | | Brian Engel |
| | | (405) 228-7750 |
DEVON ENERGY’S EARNINGS CLIMB TO $6.34 PER SHARE IN 2006; PROVED RESERVES REACH RECORD 2.4
BILLION BARRELS
OKLAHOMA CITY — February 7, 2007— Devon Energy Corporation (NYSE:DVN) today reported net earnings of $2.8 billion for the year ended December 31, 2006. Earnings per share were $6.42 per common share ($6.34 per diluted common share). In 2005 the company earned $2.9 billion, or $6.38 per common share ($6.26 per diluted common share).
For the quarter ended December 31, 2006, Devon reported net earnings of $582 million, or $1.31 per common share ($1.29 per diluted common share). This compares to reported earnings of $970 million or $2.18 per common share ($2.14 per diluted common share) in the fourth quarter of 2005.
In aggregate, items securities analysts typically exclude from their published estimates reduced reported fourth-quarter 2006 net earnings by $28 million, or seven cents per diluted share. These items include non-cash charges, unrealized gains and other items discussed in detail later in this news release.
“From almost every perspective, 2006 was an outstanding year for Devon,” commented J. Larry Nichols, chairman and chief executive officer. “We invested over $5 billion in exploration and development projects adding more than 400 million barrels of proved reserves. These investments fortified our North American onshore production base and moved our major development projects toward completion in 2007. In addition, our successful production test in the Gulf of Mexico’s Lower Tertiary Trend validated our long-term growth strategy and set the stage to extend Devon’s growth trajectory well into the next decade.”
Oil and Gas Reserves Climb to Record Levels
Capital and Reserve Summary
(detailed tables on pages 12 and 13 and non-GAAP reconciliation on page 17)
| | | | | | | | | |
| | | Year Ended December 31, |
| | | 2006 | | 2005 |
| |
Drill-bit Capital (in millions) | | $ | 5,236 | | | $ | 3,952 | |
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| | | | | | | | | |
Reserve Data (MMBoe) | | | | | | | | |
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| Discoveries and extensions | | | 433 | | | | 400 | |
| Revisions other than price | | | (6 | ) | | | 37 | |
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| Drill-bit and performance reserve additions | | | 427 | | | | 437 | |
| |
1
Devon’s estimated proved reserves at December 31, 2006, were a record 2,376 million oil-equivalent barrels (Boe). This is a 13 percent increase over year-end 2005 estimated proved reserves. Reserve additions from all sources before price revisions were 533 million Boe, more than double the company’s annual oil and gas production of 214 million Boe. During 2006, Devon’s reserve life index (proved reserves divided by annual production) increased from 9.4 years to 11.1 years.
Devon added 427 million Boe through successful drilling (discoveries, extensions and performance revisions) in 2006. The company also acquired 106 million Boe in 2006, primarily through the purchase of Chief’s Barnett Shale natural gas properties. Revisions, largely related to changes in year-end oil and gas prices, reduced 2006 proved reserves by 50 million Boe.
Proved developed reserves were 1,674 million Boe at December 31, 2006, or 70 percent of proved reserves. Year-end reserves comprised 708 million barrels of crude oil, 8.4 trillion cubic feet of natural gas and 275 million barrels of natural gas liquids.
Active Year Yields Many Exploration and Development Achievements
Devon drilled more than 2,400 wells in 2006, with a success rate of 98 percent. Following are highlights from the year’s operations activity.
| • | | Devon dramatically increased its presence in the Barnett Shale in north Texas in 2006 by completing the $2.2 billion acquisition of Chief. The acquired properties include estimated proved reserves of approximately 600 billion cubic feet of natural gas equivalent and leasehold totaling 169,000 net acres with some 2,000 additional drilling locations. |
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| • | | The company’s United States onshore properties, including the Barnett Shale and the Groesbeck and Carthage areas in east Texas, showed strong production growth in 2006. Total fourth-quarter production for the U.S. onshore increased seven percent in 2006 compared with 2005. |
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| • | | Devon and its co-owners conducted a successful production test of the deepwater Jack No. 2 well in the Gulf of Mexico’s Lower Tertiary Trend. During the test, the Jack No. 2 flowed at a sustained rate of 6,000 barrels of oil per day from approximately 40 percent of the total net pay measured in the well. The successful production test was an important milestone in moving the Jack project toward sanctioning and development. Devon has a 25 percent working interest in the Jack prospect. |
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| • | | Also in the Lower Tertiary Trend, the company increased its working interest in the Cascade project from 25 percent to 50 percent. Devon and equal-partner Petrobras plan to develop Cascade using a floating production, storage and offloading vessel. The partners anticipate first production from Cascade in late 2009. |
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| • | | Elsewhere in the Lower Tertiary Trend, Devon and its co-owners announced an oil discovery on the Kaskida prospect. Kaskida is Devon’s fourth discovery in the Lower Tertiary Trend and its first in the Keathley Canyon deepwater lease area. Devon has identified 12 additional exploratory prospects on its acreage in Keathley Canyon. The company believes that Kaskida, in which it has a 20 percent working interest, is the largest of its four Lower Tertiary discoveries to date. |
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| • | | In the fourth quarter of 2006, the company announced a Miocene-aged oil discovery on the Mission Deep prospect in the Gulf of Mexico. The well, in 7,300 feet of water, was drilled to 25,000 feet and encountered more than 250 feet of net oil pay. The company has 15 additional prospects in its deepwater Miocene inventory. Devon has a 50 percent working interest in Mission Deep, which is operated by Anadarko. |
2
| • | | At the 100 percent-owned Jackfish thermal heavy oil project in Canada, facilities construction and drilling continued in 2006. Devon expects to commence steam injection at Jackfish in the second quarter of 2007, with full production of 35,000 barrels per day anticipated by the end of 2008. |
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| • | | Construction and fabrication for the 50 million barrel Polvo oil development project in Brazil continued on schedule throughout 2006. Devon expects first production from Polvo in mid-2007. Devon operates Polvo with a 60 percent working interest. |
African Operations Designated for Divestiture
In the fourth quarter of 2006, Devon announced its intention to divest its assets and terminate operations in Egypt. In accordance with accounting standards, Devon reclassified the assets, liabilities and results of its operations in Egypt as discontinued operations for all accounting periods presented. Therefore, Devon’s annual and quarterly results from continuing operations for all periods presented in this release exclude results attributable to Egypt. Although revenues and expenses for prior periods were reclassified, there was no impact upon previously reported net earnings. Included with the financial information that follows is a table of revenues, expenses and production categories and the amounts reclassified as discontinued operations for each period presented.
Early in the first quarter of 2007, the company announced that it plans to divest its assets and terminate operations in West Africa. Therefore, commencing with reporting for the first quarter of 2007, Devon will also reclassify the assets, liabilities and results of its operations in West Africa as discontinued operations.
Oil, Gas and Liquids Sales Remain Steady
Sales of oil, gas and natural gas liquids increased less than one percent to $8.9 billion in the year ended December 31, 2006, compared with the year ended December 31, 2005. The positive effects of higher realized oil and natural gas liquids prices were largely offset by lower realized natural gas prices and a decline in oil and gas production.
Combined oil, gas and natural gas liquids production averaged 587 thousand Boe per day in 2006. This was four percent less than Devon’s 2005 average daily production of 613 thousand Boe per day. This decrease in 2006 production was driven by property divestitures completed during 2005, partially offset by growth in production from retained properties during 2006.
Devon’s combined production of oil, gas and natural gas liquids production increased throughout 2006. Fourth-quarter production climbed seven percent from 574 thousand Boe per day in 2005 to 613 thousand Boe per day in 2006.
Marketing and midstream operating profit totaled $448 million in 2006, some $2 million less than Devon’s marketing and midstream operating profit for 2005. Marketing and midstream revenues decreased by $100 million while related expenses decreased by $98 million.
3
Cash Flow Before Balance Sheet Changes Reaches Record Levels
Cash flow before balance sheet changes in 2006 climbed seven percent to a record $6.1 billion. With cash flow, cash on hand and short-term borrowings under the company’s commercial paper facility, Devon funded more than $8.0 billion of capital expenditures, including the $2.2 billion property acquisition of Chief, and repurchased $253 million of common stock. The company ended the year with cash and short-term investments of approximately $1.3 billion.
At December 31, 2006, net debt to adjusted capitalization was 24 percent. Reconciliations of cash flow before balance sheet changes, net debt and adjusted capitalization, which are non-GAAP measures, are provided in this release.
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 full year and fourth quarter of 2006 were as follows:
| • | | A change in fair value of derivative financial instruments decreased full-year earnings by $178 million pre-tax ($114 million after tax) and decreased fourth-quarter earnings by $97 million pre-tax ($62 million after tax). |
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| • | | An unrealized gain on natural gas derivative instruments increased full-year earnings by $37 million pre-tax ($24 million after tax) and increased fourth-quarter earnings by $32 million pre-tax ($21 million after tax). |
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| • | | A reduction in Canadian statutory income tax rates increased full-year after-tax earnings by $243 million. |
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| • | | A new income-based tax in the state of Texas decreased full-year after-tax earnings by $39 million. |
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| • | | A reduction in the carrying value of oil and gas properties reduced full-year earnings by $152 million pre-tax ($129 million after tax). |
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| • | | The decision to exit Egypt generated financial benefits that increased full-year and fourth-quarter earnings by $5 million pre-tax ($13 million after tax). |
The following tables summarize the full-year and fourth-quarter effects of these items on 2006 earnings and income taxes. Included in the tables are the tax effects resulting from an income tax accrual adjustment that did not affect net earnings.
Summary of Items Typically Excluded by Securities Analysts — Full Year 2006
(in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pretax | | | | | | | | | | | | | | After-tax | | Cash Flow Before |
| | | Earnings | | Income Tax Effect | | Earnings | | Balance Sheet |
| | | Effect | | Current | | Deferred | | Total | | Effect | | Changes Effect |
| |
| Change in fair value of financial instruments | | $ | (178 | ) | | | — | | | | (64 | ) | | | (64 | ) | | | (114 | ) | | | — | |
| Unrealized gain on natural gas derivative instruments | | | 37 | | | | — | | | | 13 | | | | 13 | | | | 24 | | | | — | |
| Change in Canadian income tax rate | | | — | | | | — | | | | (243 | ) | | | (243 | ) | | | 243 | | | | — | |
| Texas income-based tax | | | — | | | | — | | | | 39 | | | | 39 | | | | (39 | ) | | | — | |
| Reduction in the carrying value of properties | | | (152 | ) | | | — | | | | (23 | ) | | | (23 | ) | | | (129 | ) | | | — | |
| Financial benefits generated by decision to exit Egypt | | | 5 | | | | — | | | | (8 | ) | | | (8 | ) | | | 13 | | | | — | |
| Income tax accrual adjustment | | | — | | | | (35 | ) | | | 35 | | | | — | | | | — | | | | 35 | |
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| Totals | | $ | (288 | ) | | | (35 | ) | | | (251 | ) | | | (286 | ) | | | (2 | ) | | | 35 | |
| |
4
In aggregate, these items decreased full-year 2006 net earnings by $2 million, or one cent per common share (no effect per diluted share). In addition, a reclassification of deferred tax benefits increased cash flow before balance sheet changes by $35 million.
Summary of Items Typically Excluded by Securities Analysts — Fourth Quarter 2006
(in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pretax | | | | | | | | | | | | | | After-tax | | Cash Flow Before |
| | | Earnings | | Income Tax Effect | | Earnings | | Balance Sheet |
| | | Effect | | Current | | Deferred | | Total | | Effect | | Changes Effect |
| |
| Change in fair value of financial instruments | | $ | (97 | ) | | | — | | | | (35 | ) | | | (35 | ) | | | (62 | ) | | | — | |
| Unrealized gain on natural gas derivatives | | | 32 | | | | — | | | | 11 | | | | 11 | | | | 21 | | | | — | |
| Financial benefits generated by decision to exit Egypt | | | 5 | | | | — | | | | (8 | ) | | | (8 | ) | | | 13 | | | | — | |
| |
| Totals | | $ | (60 | ) | | | — | | | | (32 | ) | | | (32 | ) | | | (28 | ) | | | — | |
| |
In aggregate, these items decreased fourth-quarter 2006 net earnings by $28 million, or six cents per common share (seven cents per diluted share).
Conference Call to be Webcast Today
Devon will discuss its 2006 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 atwww.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.
Devon Energy Corporation is an Oklahoma City-based independent energy company engaged in oil and gas exploration and production. Devon is one of the world’s leading independent oil and gas producers and is included in the S&P 500 Index. For more information about Devon, please visit our website atwww.devonenergy.com.
5
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
PRODUCTION DATA(net of royalties)
All periods exclude properties discontinued in 2006
| | | | | | | | | | | | | | | | | |
| | | Year Ended | | Quarter Ended |
| | | December 31, | | December 31, |
| | | 2006 | | 2005 | | 2006 | | 2005 |
| |
Total Period Production | | | | | | | | | | | | | | | | |
| |
| Natural Gas (Bcf) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 487.5 | | | | 462.7 | | | | 129.5 | | | | 119.1 | |
| U.S. Offshore | | | 78.6 | | | | 92.5 | | | | 21.4 | | | | 15.0 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 566.1 | | | | 555.2 | | | | 150.9 | | | | 134.1 | |
| Canada | | | 240.4 | | | | 261.0 | | | | 57.8 | | | | 61.3 | |
| International | | | 8.1 | | | | 10.8 | | | | 1.8 | | | | 3.2 | |
| |
| Total Natural Gas | | | 814.6 | | | | 827.0 | | | | 210.5 | | | | 198.6 | |
| |
| Oil (MMBbls) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 11.1 | | | | 12.1 | | | | 2.7 | | | | 2.9 | |
| U.S. Offshore | | | 8.5 | | | | 13.4 | | | | 2.0 | | | | 2.3 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 19.6 | | | | 25.5 | | | | 4.7 | | | | 5.2 | |
| Canada | | | 12.8 | | | | 13.1 | | | | 3.4 | | | | 3.3 | |
| International | | | 22.6 | | | | 23.4 | | | | 7.2 | | | | 5.4 | |
| |
| Total Oil | | | 55.0 | | | | 62.0 | | | | 15.3 | | | | 13.9 | |
| |
| Natural Gas Liquids (MMBbls) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 18.1 | | | | 17.3 | | | | 4.7 | | | | 4.3 | |
| U.S. Offshore | | | 0.5 | | | | 0.8 | | | | 0.1 | | | | 0.0 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 18.6 | | | | 18.1 | | | | 4.8 | | | | 4.3 | |
| Canada | | | 4.7 | | | | 5.3 | | | | 1.1 | | | | 1.4 | |
| International | | | — | | | | 0.3 | | | | — | | | | 0.1 | |
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| Total Natural Gas Liquids | | | 23.3 | | | | 23.7 | | | | 5.9 | | | | 5.8 | |
| |
| Oil Equivalent (MMBoe) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 110.5 | | | | 106.6 | | | | 29.1 | | | | 27.1 | |
| U.S. Offshore | | | 22.0 | | | | 29.6 | | | | 5.6 | | | | 4.8 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 132.5 | | | | 136.2 | | | | 34.7 | | | | 31.9 | |
| Canada | | | 57.6 | | | | 61.9 | | | | 14.2 | | | | 14.9 | |
| International | | | 23.9 | | | | 25.5 | | | | 7.5 | | | | 6.0 | |
| |
| Total Oil Equivalent | | | 214.0 | | | | 223.6 | | | | 56.4 | | | | 52.8 | |
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| | | | | | | | | | | | | | | | | |
Average Daily Production | | | | | | | | | | | | | | | | |
| |
| Natural Gas (MMcf) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 1,335.6 | | | | 1,267.6 | | | | 1,407.5 | | | | 1,295.0 | |
| U.S. Offshore | | | 215.4 | | | | 253.5 | | | | 232.8 | | | | 163.1 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 1,551.0 | | | | 1,521.1 | | | | 1,640.3 | | | | 1,458.1 | |
| Canada | | | 658.7 | | | | 715.1 | | | | 627.9 | | | | 665.9 | |
| International | | | 22.1 | | | | 29.5 | | | | 19.5 | | | | 34.2 | |
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| Total Natural Gas | | | 2,231.8 | | | | 2,265.7 | | | | 2,287.7 | | | | 2,158.2 | |
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| Oil (MBbls) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 30.5 | | | | 33.2 | | | | 29.9 | | | | 31.6 | |
| U.S. Offshore | | | 23.1 | | | | 36.6 | | | | 21.2 | | | | 25.0 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 53.6 | | | | 69.8 | | | | 51.1 | | | | 56.6 | |
| Canada | | | 35.2 | | | | 36.0 | | | | 37.1 | | | | 35.8 | |
| International | | | 61.8 | | | | 64.3 | | | | 78.2 | | | | 58.2 | |
| |
| Total Oil | | | 150.6 | | | | 170.1 | | | | 166.4 | | | | 150.6 | |
| |
| Natural Gas Liquids (MBbls) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 49.6 | | | | 47.5 | | | | 51.4 | | | | 46.9 | |
| U.S. Offshore | | | 1.4 | | | | 2.2 | | | | 1.2 | | | | 0.4 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 51.0 | | | | 49.7 | | | | 52.6 | | | | 47.3 | |
| Canada | | | 12.9 | | | | 14.5 | | | | 12.2 | | | | 15.3 | |
| International | | | — | | | | 0.9 | | | | — | | | | 0.8 | |
| |
| Total Natural Gas Liquids | | | 63.9 | | | | 65.1 | | | | 64.8 | | | | 63.4 | |
| |
| Oil Equivalent (MBoe) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 302.7 | | | | 292.0 | | | | 315.9 | | | | 294.3 | |
| U.S. Offshore | | | 60.4 | | | | 81.0 | | | | 61.2 | | | | 52.5 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 363.1 | | | | 373.0 | | | | 377.1 | | | | 346.8 | |
| Canada | | | 157.9 | | | | 169.7 | | | | 153.9 | | | | 162.1 | |
| International | | | 65.5 | | | | 70.0 | | | | 81.5 | | | | 64.7 | |
| |
| Total Oil Equivalent | | | 586.5 | | | | 612.7 | | | | 612.5 | | | | 573.6 | |
| |
6
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
FULL-YEAR PRODUCTION DATA — RETAINED PROPERTIES
Both periods exclude properties divested in 2005 and discontinued in 2006
| | | | | | | | | | | | | |
| | | Year Ended | | |
| | | December 31, | | YOY |
| | | 2006 | | 2005 | | % Change |
| | | |
Total Period Production | | | | | | | | | | | | |
| Natural Gas (Bcf) | | | | | | | | | | | | |
| U.S. Onshore | | | 487.5 | | | | 455.2 | | | | 7 | % |
| U.S. Offshore | | | 78.6 | | | | 80.3 | | | | -2 | % |
| | | | | | | | | | | | | |
| Total U.S. | | | 566.1 | | | | 535.5 | | | | 6 | % |
| Canada | | | 240.4 | | | | 246.6 | | | | -3 | % |
| International | | | 8.1 | | | | 10.8 | | | | -25 | % |
| | | |
| Total Natural Gas | | | 814.6 | | | | 792.9 | | | | 3 | % |
| | | |
| Oil (MMBbls) | | | | | | | | | | | | |
| U.S. Onshore | | | 11.1 | | | | 11.6 | | | | -4 | % |
| U.S. Offshore | | | 8.5 | | | | 10.7 | | | | -21 | % |
| | | | | | | | | | | | | |
| Total U.S. | | | 19.6 | | | | 22.3 | | | | -12 | % |
| Canada | | | 12.8 | | | | 12.4 | | | | 3 | % |
| International | | | 22.6 | | | | 23.4 | | | | -3 | % |
| | | |
| Total Oil | | | 55.0 | | | | 58.1 | | | | -5 | % |
| | | |
| Natural Gas Liquids (MMBbls) | | | | | | | | | | | | |
| U.S. Onshore | | | 18.1 | | | | 17.1 | | | | 6 | % |
| U.S. Offshore | | | 0.5 | | | | 0.6 | | | | -17 | % |
| | | | | | | | | | | | | |
| Total U.S. | | | 18.6 | | | | 17.7 | | | | 5 | % |
| Canada | | | 4.7 | | | | 5.1 | | | | -8 | % |
| International | | | — | | | | 0.3 | | | | -100 | % |
| | | |
| Total Natural Gas Liquids | | | 23.3 | | | | 23.1 | | | | 1 | % |
| | | |
| Oil Equivalent (MMBoe) | | | | | | | | | | | | |
| U.S. Onshore | | | 110.5 | | | | 104.5 | | | | 6 | % |
| U.S. Offshore | | | 22.0 | | | | 24.8 | | | | -11 | % |
| | | | | | | | | | | | | |
| Total U.S. | | | 132.5 | | | | 129.3 | | | | 2 | % |
| Canada | | | 57.6 | | | | 58.6 | | | | -2 | % |
| International | | | 23.9 | | | | 25.5 | | | | -6 | % |
| | | |
| Total Oil Equivalent | | | 214.0 | | | | 213.4 | | | | 0 | % |
| | | |
| | | | | | | | | | | | | |
Average Daily Production | | | | | | | | | | | | |
| Natural Gas (MMcf) | | | | | | | | | | | | |
| U.S. Onshore | | | 1,335.6 | | | | 1,247.1 | | | | 7 | % |
| U.S. Offshore | | | 215.4 | | | | 220.1 | | | | -2 | % |
| | | | | | | | | | | | | |
| Total U.S. | | | 1,551.0 | | | | 1,467.2 | | | | 6 | % |
| Canada | | | 658.7 | | | | 675.5 | | | | -2 | % |
| International | | | 22.1 | | | | 29.5 | | | | -25 | % |
| | | |
| Total Natural Gas | | | 2,231.8 | | | | 2,172.2 | | | | 3 | % |
| | | |
| Oil (MBbls) | | | | | | | | | | | | |
| U.S. Onshore | | | 30.5 | | | | 31.8 | | | | -4 | % |
| U.S. Offshore | | | 23.1 | | | | 29.4 | | | | -21 | % |
| | | | | | | | | | | | | |
| Total U.S. | | | 53.6 | | | | 61.2 | | | | -12 | % |
| Canada | | | 35.2 | | | | 33.9 | | | | 4 | % |
| International | | | 61.8 | | | | 64.3 | | | | -4 | % |
| | | |
| Total Oil | | | 150.6 | | | | 159.4 | | | | -6 | % |
| | | |
| Natural Gas Liquids (MBbls) | | | | | | | | | | | | |
| U.S. Onshore | | | 49.6 | | | | 46.6 | | | | 6 | % |
| U.S. Offshore | | | 1.4 | | | | 1.7 | | | | -18 | % |
| | | | | | | | | | | | | |
| Total U.S. | | | 51.0 | | | | 48.3 | | | | 6 | % |
| Canada | | | 12.9 | | | | 14.0 | | | | -8 | % |
| International | | | — | | | | 0.9 | | | | -100 | % |
| | | |
| Total Natural Gas Liquids | | | 63.9 | | | | 63.2 | | | | 1 | % |
| | | |
| Oil Equivalent (MBoe) | | | | | | | | | | | | |
| U.S. Onshore | | | 302.7 | | | | 286.3 | | | | 6 | % |
| U.S. Offshore | | | 60.4 | | | | 67.6 | | | | -11 | % |
| | | | | | | | | | | | | |
| Total U.S. | | | 363.1 | | | | 353.9 | | | | 3 | % |
| Canada | | | 157.9 | | | | 160.7 | | | | -2 | % |
| International | | | 65.5 | | | | 70.0 | | | | -6 | % |
| | | |
| Total Oil Equivalent | | | 586.5 | | | | 584.6 | | | | 0 | % |
| | | |
7
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
REALIZED PRICE DATA
(average realized prices)
| | | | | | | | | | | | | | | | | |
| | | Year Ended | | Quarter Ended |
| | | December 31, | | December 31, |
| | | 2006 | | 2005 | | 2006 | | 2005 |
| |
Realized Prices | | | | | | | | | | | | | | | | |
| |
| Natural Gas ($/Mcf) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | $ | 5.90 | | | $ | 6.90 | | | $ | 5.59 | | | $ | 9.41 | |
| U.S. Offshore | | $ | 7.24 | | | $ | 7.95 | | | $ | 6.72 | | | $ | 11.15 | |
| Total U.S. | | $ | 6.09 | | | $ | 7.08 | | | $ | 5.75 | | | $ | 9.61 | |
| Canada | | $ | 6.05 | | | $ | 6.95 | | | $ | 5.78 | | | $ | 9.36 | |
| International | | $ | 3.95 | | | $ | 3.75 | | | $ | 3.11 | | | $ | 2.74 | |
| |
| Total Natural Gas | | $ | 6.06 | | | $ | 6.99 | | | $ | 5.74 | | | $ | 9.42 | |
| |
| Oil ($/Bbl) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | $ | 60.70 | | | $ | 51.23 | | | $ | 54.50 | | | $ | 55.58 | |
| U.S. Offshore | | $ | 64.24 | | | $ | 32.96 | | | $ | 57.35 | | | $ | 31.08 | |
| Total U.S. | | $ | 62.23 | | | $ | 41.64 | | | $ | 55.68 | | | $ | 44.75 | |
| Canada | | $ | 46.94 | | | $ | 26.88 | | | $ | 41.08 | | | $ | 26.09 | |
| International | | $ | 61.36 | | | $ | 40.26 | | | $ | 56.58 | | | $ | 41.25 | |
| |
| Total Oil | | $ | 58.30 | | | $ | 38.00 | | | $ | 52.85 | | | $ | 38.96 | |
| |
| Natural Gas Liquids ($/Bbl) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | $ | 29.26 | | | $ | 26.50 | | | $ | 27.57 | | | $ | 31.16 | |
| U.S. Offshore | | $ | 35.43 | | | $ | 30.61 | | | $ | 28.38 | | | $ | 47.72 | |
| Total U.S. | | $ | 29.42 | | | $ | 26.68 | | | $ | 27.59 | | | $ | 31.29 | |
| Canada | | $ | 42.67 | | | $ | 37.19 | | | $ | 37.78 | | | $ | 41.13 | |
| International | | $ | — | | | $ | 22.81 | | | $ | — | | | $ | 21.07 | |
| |
| Total Natural Gas Liquids | | $ | 32.10 | | | $ | 28.96 | | | $ | 29.51 | | | $ | 33.53 | |
| |
| Oil Equivalent ($/Boe) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | $ | 36.94 | | | $ | 40.10 | | | $ | 34.57 | | | $ | 52.34 | |
| U.S. Offshore | | $ | 51.23 | | | $ | 40.58 | | | $ | 45.96 | | | $ | 49.73 | |
| Total U.S. | | $ | 39.31 | | | $ | 40.21 | | | $ | 36.42 | | | $ | 51.94 | |
| Canada | | $ | 39.21 | | | $ | 38.17 | | | $ | 36.45 | | | $ | 48.10 | |
| International | | $ | 59.24 | | | $ | 38.80 | | | $ | 55.07 | | | $ | 38.81 | |
| |
| Total Oil Equivalent | | $ | 41.51 | | | $ | 39.48 | | | $ | 38.91 | | | $ | 49.38 | |
| |
BENCHMARK PRICES
(average prices)
| | | | | | | | | | | | | | | | | |
| | | Year Ended | | Quarter Ended |
| | | December 31, | | December 31, |
| | | 2006 | | 2005 | | 2006 | | 2005 |
| |
Benchmark Prices | | | | | | | | | | | | | | | | |
| |
| Natural Gas ($/Mcf) — Henry Hub | | $ | 7.24 | | | $ | 8.64 | | | $ | 6.56 | | | $ | 13.00 | |
| Oil ($/Bbl) — West Texas Intermediate (Cushing) | | $ | 66.22 | | | $ | 56.57 | | | $ | 60.19 | | | $ | 60.00 | |
| |
PRICE DIFFERENTIALS, EXCLUDING EFFECTS OF HEDGES
(average floating price differentials from benchmark prices)
| | | | | | | | | | | | | | | | | |
| | | Year Ended | | Quarter Ended |
| | | December 31, | | December 31, |
| | | 2006 | | 2005 | | 2006 | | 2005 |
| |
Price Differentials | | | | | | | | | | | | | | | | |
| |
| Natural Gas ($/Mcf) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | $ | (1.41 | ) | | $ | (1.71 | ) | | $ | (1.21 | ) | | $ | (3.54 | ) |
| U.S. Offshore | | $ | 0.00 | | | $ | (0.42 | ) | | $ | 0.16 | | | $ | (0.50 | ) |
| Total U.S. | | $ | (1.22 | ) | | $ | (1.50 | ) | | $ | (1.02 | ) | | $ | (3.20 | ) |
| Canada | | $ | (1.02 | ) | | $ | (1.46 | ) | | $ | (0.61 | ) | | $ | (3.26 | ) |
| International | | $ | (1.15 | ) | | $ | (3.90 | ) | | $ | (1.90 | ) | | $ | (9.94 | ) |
| |
| Total Natural Gas | | $ | (1.16 | ) | | $ | (1.50 | ) | | $ | (0.91 | ) | | $ | (3.29 | ) |
| |
| Oil ($/Bbl) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | $ | (5.52 | ) | | $ | (4.85 | ) | | $ | (5.69 | ) | | $ | (4.42 | ) |
| U.S. Offshore | | $ | (1.96 | ) | | $ | (5.45 | ) | | $ | (2.84 | ) | | $ | (4.85 | ) |
| Total U.S. | | $ | (3.99 | ) | | $ | (5.16 | ) | | $ | (4.51 | ) | | $ | (4.61 | ) |
| Canada | | $ | (19.28 | ) | | $ | (15.48 | ) | | $ | (19.11 | ) | | $ | (19.64 | ) |
| International | | $ | (4.86 | ) | | $ | (7.27 | ) | | $ | (3.61 | ) | | $ | (7.87 | ) |
| |
| Total Oil | | $ | (7.92 | ) | | $ | (8.14 | ) | | $ | (7.34 | ) | | $ | (9.44 | ) |
| |
8
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
| | | | | | | | | | | | | | | | | |
| | | Year Ended | | Quarter Ended |
| | | December 31, | | December 31, |
| | | 2006 | | 2005 | | 2006 | | 2005 |
| |
Revenues | | | | | | | | | | | | | | | | |
| |
| Oil sales | | $ | 3,205 | | | $ | 2,359 | | | $ | 809 | | | $ | 540 | |
| Gas sales | | | 4,932 | | | | 5,784 | | | | 1,207 | | | | 1,871 | |
| Natural gas liquids sales | | | 749 | | | | 687 | | | | 177 | | | | 195 | |
| Marketing & midstream revenues | | | 1,692 | | | | 1,792 | | | | 416 | | | | 582 | |
| |
| Total revenues | | | 10,578 | | | | 10,622 | | | | 2,609 | | | | 3,188 | |
| |
Expenses and other income, net | | | | | | | | | | | | | | | | |
| |
| Lease operating expenses | | | 1,488 | | | | 1,324 | | | | 412 | | | | 334 | |
| Production taxes | | | 341 | | | | 335 | | | | 80 | | | | 101 | |
| Marketing & midstream operating costs and expenses | | | 1,244 | | | | 1,342 | | | | 314 | | | | 421 | |
| Depreciation, depletion and amortization of oil and gas properties | | | 2,266 | | | | 1,981 | | | | 634 | | | | 492 | |
| Depreciation and amortization of non-oil and gas properties | | | 176 | | | | 160 | | | | 47 | | | | 41 | |
| Accretion of asset retirement obligation | | | 49 | | | | 43 | | | | 13 | | | | 9 | |
| General & administrative expenses | | | 397 | | | | 291 | | | | 113 | | | | 85 | |
| Interest expense | | | 421 | | | | 533 | | | | 106 | | | | 105 | |
| Effects of changes in foreign currency exchange rates | | | — | | | | (2 | ) | | | 1 | | | | 2 | |
| Change in fair value of derivative financial instruments | | | 178 | | | | 94 | | | | 97 | | | | (74 | ) |
| Reduction of carrying value of oil and gas properties | | | 121 | | | | 212 | | | | — | | | | 212 | |
| Other income, net | | | (115 | ) | | | (196 | ) | | | (30 | ) | | | (17 | ) |
| |
| Total expenses and other income, net | | | 6,566 | | | | 6,117 | | | | 1,787 | | | | 1,711 | |
| |
Earnings from continuing operations before income tax expense | | | 4,012 | | | | 4,505 | | | | 822 | | | | 1,477 | |
| |
Income tax expense | | | | | | | | | | | | | | | | |
| |
| Current | | | 819 | | | | 1,218 | | | | 104 | | | | 397 | |
| Deferred | | | 370 | | | | 388 | | | | 159 | | | | 117 | |
| |
| Total income tax expense | | | 1,189 | | | | 1,606 | | | | 263 | | | | 514 | |
| |
Earnings from continuing operations | | | 2,823 | | | | 2,899 | | | | 559 | | | | 963 | |
| |
Discontinued operations | | | | | | | | | | | | | | | | |
| |
| Results of discontinued operations before income taxes | | | 22 | | | | 46 | | | | 19 | | | | 12 | |
| Income tax (benefit) expense | | | (1 | ) | | | 15 | | | | (4 | ) | | | 5 | |
| |
Net results of discontinued operations | | | 23 | | | | 31 | | | | 23 | | | | 7 | |
| |
Net earnings | | | 2,846 | | | | 2,930 | | | | 582 | | | | 970 | |
| Preferred stock dividends | | | 10 | | | | 10 | | | | 3 | | | | 3 | |
| |
Net earnings applicable to common stockholders | | $ | 2,836 | | | $ | 2,920 | | | $ | 579 | | | $ | 967 | |
| |
Net earnings per weighted average common shares outstanding | | | | | | | | | | | | | | | | |
| Basic | | $ | 6.42 | | | $ | 6.38 | | | $ | 1.31 | | | $ | 2.18 | |
| Diluted | | $ | 6.34 | | | $ | 6.26 | | | $ | 1.29 | | | $ | 2.14 | |
| Basic weighted average shares outstanding | | | 442 | | | | 458 | | | | 443 | | | | 443 | |
| Diluted weighted average shares outstanding | | | 448 | | | | 470 | | | | 448 | | | | 451 | |
9
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(in millions)
| | | | | | | | | |
| | | December 31, | | December 31, |
| | | 2006 | | 2005 |
| |
Assets | | | | | | | | |
| |
| Current assets | | | | | | | | |
| |
| Cash and cash equivalents | | $ | 739 | | | $ | 1,593 | |
| Short-term investments | | | 574 | | | | 680 | |
| Accounts receivable | | | 1,393 | | | | 1,565 | |
| Deferred income taxes | | | 102 | | | | 158 | |
| Current assets held for sale | | | 81 | | | | 66 | |
| Other current assets | | | 323 | | | | 144 | |
| |
| Total current assets | | | 3,212 | | | | 4,206 | |
| |
| Property and equipment, at cost, based on the full cost method of accounting for oil and gas properties ($3,674 and $2,704 excluded from amortization in 2006 and 2005, respectively) | | | 41,889 | | | | 33,824 | |
| Less accumulated depreciation, depletion and amortization | | | 17,294 | | | | 14,913 | |
| |
| Net property and equipment | | | 24,595 | | | | 18,911 | |
| |
| Investment in Chevron Corporation common stock, at fair value | | | 1,043 | | | | 805 | |
| Goodwill | | | 5,706 | | | | 5,705 | |
| Assets of held for sale | | | 185 | | | | 217 | |
| Other assets | | | 322 | | | | 429 | |
| |
Total Assets | | $ | 35,063 | | | $ | 30,273 | |
| |
Liabilities and Stockholders’ Equity | | | | | | | | |
| |
| Current liabilities | | | | | | | | |
| |
| Accounts payable: | | | | | | | | |
| Trade | | $ | 1,190 | | | $ | 928 | |
| Revenues and royalties due to others | | | 529 | | | | 666 | |
| Income taxes payable | | | 197 | | | | 293 | |
| Current portion of long-term debt | | | 2,205 | | | | 662 | |
| Accrued interest payable | | | 114 | | | | 127 | |
| Fair value of derivative financial instruments | | | 6 | | | | 18 | |
| Current portion of asset retirement obligation | | | 61 | | | | 50 | |
| Current liabilities associated with assets held for sale | | | 5 | | | | 19 | |
| Accrued expenses and other current liabilities | | | 338 | | | | 171 | |
| |
| Total current liabilities | | | 4,645 | | | | 2,934 | |
| |
| Debentures exchangeable into shares of Chevron Corporation common stock | | | 727 | | | | 709 | |
| Other long-term debt | | | 4,841 | | | | 5,248 | |
| Fair value of derivative financial instruments | | | 302 | | | | 125 | |
| Asset retirement obligation, long-term | | | 833 | | | | 610 | |
| Liabilities associated with assets held for sale | | | 25 | | | | 40 | |
| Other liabilities | | | 598 | | | | 371 | |
| Deferred income taxes | | | 5,650 | | | | 5,374 | |
| |
| Stockholders’ equity | | | | | | | | |
| |
| Preferred stock | | | 1 | | | | 1 | |
| Common stock | | | 44 | | | | 44 | |
| Additional paid-in capital | | | 6,840 | | | | 6,928 | |
| Retained earnings | | | 9,114 | | | | 6,477 | |
| Accumulated other comprehensive income | | | 1,444 | | | | 1,414 | |
| Treasury stock | | | (1 | ) | | | (2 | ) |
| |
Stockholders’ Equity | | | 17,442 | | | | 14,862 | |
| |
Total Liabilities & Stockholders’ Equity | | $ | 35,063 | | | $ | 30,273 | |
| |
Common Shares Outstanding | | | 444 | | | | 443 | |
| |
10
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| | | | | | | | | |
| | | Year Ended December 31, |
| | | 2006 | | 2005 |
| |
Cash Flows From Operating Activities | | | | | | | | |
| |
| Net earnings | | $ | 2,846 | | | $ | 2,930 | |
| Less income from discontinued operations, net of tax | | | (23 | ) | | | (31 | ) |
| Adjustments to reconcile net earnings to net cash provided by operating activities | | | | | | | | |
| Depreciation, depletion and amortization | | | 2,442 | | | | 2,141 | |
| Deferred income tax expense | | | 370 | | | | 388 | |
| Net gain on sales of non-oil and gas property and equipment | | | (5 | ) | | | (150 | ) |
| Reduction of carrying value of oil and gas properties | | | 121 | | | | 212 | |
| Other non-cash charges | | | 270 | | | | 128 | |
| |
| | | | 6,021 | | | | 5,618 | |
| | | | | | | | | |
| Changes in assets and liabilities: | | | | | | | | |
| (Increase) decrease in: | | | | | | | | |
| Accounts receivable | | | 212 | | | | (279 | ) |
| Other current assets | | | (37 | ) | | | (17 | ) |
| Long-term other assets | | | (66 | ) | | | 48 | |
| Increase (decrease) in: | | | | | | | | |
| Accounts payable | | | (183 | ) | | | 255 | |
| Income taxes payable | | | (231 | ) | | | 69 | |
| Debt, including current maturities | | | — | | | | (67 | ) |
| Accrued interest and expenses | | | 78 | | | | (34 | ) |
| Long-term other liabilities | | | 142 | | | | (79 | ) |
| |
| Cash provided by operating activities — continuing operations | | | 5,936 | | | | 5,514 | |
| Cash provided by operating activities — discontinued operations | | | 57 | | | | 98 | |
| |
Net cash provided by operating activities | | $ | 5,993 | | | $ | 5,612 | |
| |
| | | | | | | | | |
Cash Flows From Investing Activities | | | | | | | | |
| |
| Proceeds from sales of property and equipment | | $ | 40 | | | $ | 2,151 | |
| Capital expenditures | | | (7,551 | ) | | | (4,026 | ) |
| Purchases of short-term investments | | | (2,395 | ) | | | (4,020 | ) |
| Sales of short-term investments | | | 2,501 | | | | 4,307 | |
| |
| Cash used in investing activities — continuing operations | | | (7,405 | ) | | | (1,588 | ) |
| Cash used in investing activities — discontinued operations | | | (44 | ) | | | (64 | ) |
| |
Net cash used in investing activities | | $ | (7,449 | ) | | $ | (1,652 | ) |
| |
| | | | | | | | | |
Cash Flows From Financing Activities | | | | | | | | |
| |
| Proceeds from borrowings of debt, net of issuance costs | | $ | 1,808 | | | $ | — | |
| Principal payments on debt, including current maturities | | | (862 | ) | | | (1,258 | ) |
| Proceeds from exercise of stock options | | | 73 | | | | 124 | |
| Repurchase of common stock | | | (253 | ) | | | (2,263 | ) |
| Excess tax benefits related to share-based compensation | | | 36 | | | | — | |
| Dividends paid on common stock | | | (199 | ) | | | (136 | ) |
| Dividends paid on preferred stock | | | (10 | ) | | | (10 | ) |
| |
Net cash provided by (used in) financing activities | | $ | 593 | | | $ | (3,543 | ) |
| |
| | | | | | | | | |
| Effect of exchange rate changes on cash | | $ | 13 | | | $ | 37 | |
| Net (decrease) increase in cash and cash equivalents | | | (850 | ) | | | 454 | |
| Cash and cash equivalents at beginning of year (including discontinued operations) | | | 1,606 | | | | 1,152 | |
| |
| Cash and cash equivalents at end of year (including discontinued operations) | | $ | 756 | | | $ | 1,606 | |
| |
11
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
RESERVE RECONCILIATION
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total | | Total U.S. |
| | | Oil | | Gas | | NGLs | | Total | | Oil | | Gas | | NGLs | | Total |
| | | (MMBbls) | | (Bcf) | | (MMBbls) | | (MMBoe) | | (MMBbls) | | (Bcf) | | (MMBbls) | | (MMBoe) |
| |
As of December 31, 2005: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Proved developed | | | 355 | | | | 6,111 | | | | 216 | | | | 1,589 | | | | 150 | | | | 4,343 | | | | 175 | | | | 1,049 | |
| Proved undeveloped | | | 285 | | | | 1,185 | | | | 30 | | | | 513 | | | | 23 | | | | 821 | | | | 22 | | | | 183 | |
| |
Total proved | | | 640 | | | | 7,296 | | | | 246 | | | | 2,102 | | | | 173 | | | | 5,164 | | | | 197 | | | | 1,232 | |
| |
| Production | | | (55 | ) | | | (815 | ) | | | (23 | ) | | | (214 | ) | | | (19 | ) | | | (566 | ) | | | (19 | ) | | | (132 | ) |
| Discoveries and extensions | | | 139 | | | | 1,491 | | | | 45 | | | | 433 | | | | 16 | | | | 1,298 | | | | 43 | | | | 274 | |
| Divestitures | | | — | | | | (5 | ) | | | — | | | | (1 | ) | | | — | | | | — | | | | — | | | | — | |
| Acquisitions | | | — | | | | 584 | | | | 9 | | | | 106 | | | | — | | | | 580 | | | | 9 | | | | 105 | |
| Revisions due to prices | | | (21 | ) | | | (89 | ) | | | (7 | ) | | | (44 | ) | | | — | | | | (110 | ) | | | (3 | ) | | | (22 | ) |
| Revisions other than price | | | 5 | | | | (106 | ) | | | 5 | | | | (6 | ) | | | — | | | | (11 | ) | | | 6 | | | | 5 | |
As of December 31, 2006: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Proved developed | | | 358 | | | | 6,518 | | | | 229 | | | | 1,674 | | | | 147 | | | | 4,916 | | | | 196 | | | | 1,163 | |
| Proved undeveloped | | | 350 | | | | 1,838 | | | | 46 | | | | 702 | | | | 23 | | | | 1,439 | | | | 37 | | | | 299 | |
| |
Total proved | | | 708 | | | | 8,356 | | | | 275 | | | | 2,376 | | | | 170 | | | | 6,355 | | | | 233 | | | | 1,462 | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Onshore | | U.S. Offshore |
| | | Oil | | Gas | | NGLs | | Total | | Oil | | Gas | | NGLs | | Total |
| | | (MMBbls) | | (Bcf) | | (MMBbls) | | (MMBoe) | | (MMBbls) | | (Bcf) | | (MMBbls) | | (MMBoe) |
| |
As of December 31, 2005: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Proved developed | | | 121 | | | | 4,110 | | | | 173 | | | | 979 | | | | 29 | | | | 233 | | | | 2 | | | | 70 | |
| Proved undeveloped | | | 8 | | | | 651 | | | | 20 | | | | 137 | | | | 15 | | | | 170 | | | | 2 | | | | 46 | |
| |
Total proved | | | 129 | | | | 4,761 | | | | 193 | | | | 1,116 | | | | 44 | | | | 403 | | | | 4 | | | | 116 | |
| |
| Production | | | (11 | ) | | | (487 | ) | | | (18 | ) | | | (110 | ) | | | (8 | ) | | | (79 | ) | | | (1 | ) | | | (22 | ) |
| Discoveries and extensions | | | 11 | | | | 1,270 | | | | 43 | | | | 265 | | | | 5 | | | | 28 | | | | — | | | | 9 | |
| Divestitures | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Acquisitions | | | — | | | | 580 | | | | 9 | | | | 105 | | | | — | | | | — | | | | — | | | | — | |
| Revisions due to prices | | | — | | | | (107 | ) | | | (3 | ) | | | (21 | ) | | | — | | | | (3 | ) | | | — | | | | (1 | ) |
| Revisions other than price | | | (2 | ) | | | (38 | ) | | | 6 | | | | (2 | ) | | | 2 | | | | 27 | | | | — | | | | 7 | |
As of December 31, 2006: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Proved developed | | | 116 | | | | 4,672 | | | | 194 | | | | 1,089 | | | | 31 | | | | 244 | | | | 2 | | | | 74 | |
| Proved undeveloped | | | 11 | | | | 1,307 | | | | 36 | | | | 264 | | | | 12 | | | | 132 | | | | 1 | | | | 35 | |
| |
Total proved | | | 127 | | | | 5,979 | | | | 230 | | | | 1,353 | | | | 43 | | | | 376 | | | | 3 | | | | 109 | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Canada | | International |
| | | Oil | | Gas | | NGLs | | Total | | Oil | | Gas | | NGLs | | Total |
| | | (MMBbls) | | (Bcf) | | (MMBbls) | | (MMBoe) | | (MMBbls) | | (Bcf) | | (MMBbls) | | (MMBoe) |
| |
As of December 31, 2005: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Proved developed | | | 103 | | | | 1,708 | | | | 41 | | | | 429 | | | | 102 | | | | 60 | | | | — | | | | 111 | |
| Proved undeveloped | | | 150 | | | | 298 | | | | 8 | | | | 207 | | | | 112 | | | | 66 | | | | — | | | | 123 | |
| |
Total proved | | | 253 | | | | 2,006 | | | | 49 | | | | 636 | | | | 214 | | | | 126 | | | | — | | | | 234 | |
| |
| Production | | | (13 | ) | | | (241 | ) | | | (4 | ) | | | (58 | ) | | | (23 | ) | | | (8 | ) | | | — | | | | (24 | ) |
| Discoveries and extensions | | | 109 | | | | 193 | | | | 2 | | | | 145 | | | | 14 | | | | — | | | | — | | | | 14 | |
| Divestitures | | | — | | | | (5 | ) | | | — | | | | (1 | ) | | | — | | | | — | | | | — | | | | — | |
| Acquisitions | | | — | | | | 4 | | | | — | | | | 1 | | | | — | | | | — | | | | — | | | | — | |
| Revisions due to prices | | | (19 | ) | | | 23 | | | | (4 | ) | | | (20 | ) | | | (2 | ) | | | (2 | ) | | | — | | | | (2 | ) |
| Revisions other than price | | | (1 | ) | | | (84 | ) | | | (1 | ) | | | (16 | ) | | | 6 | | | | (11 | ) | | | — | | | | 5 | |
As of December 31, 2006: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Proved developed | | | 112 | | | | 1,560 | | | | 33 | | | | 405 | | | | 99 | | | | 42 | | | | — | | | | 106 | |
| Proved undeveloped | | | 217 | | | | 336 | | | | 9 | | | | 282 | | | | 110 | | | | 63 | | | | — | | | | 121 | |
| |
Total proved | | | 329 | | | | 1,896 | | | | 42 | | | | 687 | | | | 209 | | | | 105 | | | | — | | | | 227 | |
| |
12
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
COSTS INCURRED
(in millions)
| | | | | | | | | | | | | | | | | |
| | | Total | | Total U.S. |
| | | Year Ended December 31, | | Year Ended December 31, |
| | | 2006 | | 2005 | | 2006 | | 2005 |
| |
Property Acquisition Costs: | | | | | | | | | | | | | | | | |
| |
| Total proved | | $ | 1,113 | | | $ | 54 | | | $ | 1,066 | | | $ | 5 | |
| |
| Total unproved | | $ | 1,485 | | | $ | 347 | | | $ | 1,366 | | | $ | 106 | |
| |
| Exploration and Development Costs | | $ | 5,124 | | | $ | 3,677 | | | $ | 3,105 | | | $ | 2,019 | |
| |
Costs Incurred | | $ | 7,722 | | | $ | 4,078 | | | $ | 5,537 | | | $ | 2,130 | |
| |
| | | | | | | | | | | | | | | | | |
| | | U.S. Onshore | | U.S. Offshore |
| | | Year Ended December 31, | | Year Ended December 31, |
| | | 2006 | | 2005 | | 2006 | | 2005 |
| |
Property Acquisition Costs: | | | | | | | | | | | | | | | | |
| |
| Total proved | | $ | 1,066 | | | $ | 3 | | | $ | — | | | $ | 2 | |
| |
| Total unproved | | $ | 1,311 | | | $ | 86 | | | $ | 55 | | | $ | 20 | |
| |
| Exploration and Development Costs | | $ | 2,479 | | | $ | 1,554 | | | $ | 626 | | | $ | 465 | |
| |
Costs Incurred | | $ | 4,856 | | | $ | 1,643 | | | $ | 681 | | | $ | 487 | |
| |
| | | | | | | | | | | | | | | | | |
| | | Canada | | International |
| | | Year Ended December 31, | | Year Ended December 31, |
| | | 2006 | | 2005 | | 2006 | | 2005 |
| |
Property Acquisition Costs: | | | | | | | | | | | | | | | | |
| |
| Total proved | | $ | 23 | | | $ | 49 | | | $ | 24 | | | $ | — | |
| |
| Total unproved | | $ | 70 | | | $ | 239 | | | $ | 49 | | | $ | 2 | |
| |
| Exploration and Development Costs | | $ | 1,461 | | | $ | 1,381 | | | $ | 558 | | | $ | 277 | |
| |
Costs Incurred | | $ | 1,554 | | | $ | 1,669 | | | $ | 631 | | | $ | 279 | |
| |
Devon capitalizes certain general and administrative expenses which are related to property acquisition, exploration and development activities. Such capitalized expenses, which are included in the costs shown in the preceding tables, were $269 million and $188 million in the years 2006 and 2005, respectively. In addition, Devon capitalizes certain interest expenses which are related to property development activities. Such capitalized expenses, which are also included in the costs shown in the preceding tables, were $70 million in each of the years 2006 and 2005.
CAPITAL EXPENDITURES DATA
(in millions)
| | | | | | | | | |
| | | Year Ended | | Quarter Ended |
| | | December 31, 2006 | | December 31, 2006 |
| |
Capital Expenditures | | | | | | | | |
| |
Drill-bit capital(1) | | $ | 5,236 | | | $ | 1,433 | |
| Chief acquisition | | | 2,210 | | | | 2 | |
| Other acquisitions of proved properties | | | 88 | | | | 33 | |
| Marketing & midstream | | | 376 | | | | 129 | |
| Other | | | 183 | | | | 60 | |
| |
| Total | | $ | 8,093 | | | $ | 1,657 | |
| |
| | |
| (1) | | Drill-bit capital, a Non-GAAP measure, is defined on page 17. |
13
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
DRILLING ACTIVITY
| | | | | | | | | |
| | | Year Ended |
| | | December 31, |
| | | 2006 | | 2005 |
| |
Total Wells Drilled | | | | | | | | |
| |
| U.S. | | | 1,550 | | | | 1,298 | |
| Canada | | | 877 | | | | 1,020 | |
| International | | | 41 | | | | 44 | |
| |
| Total | | | 2,468 | | | | 2,362 | |
| |
Total Wells Success Rate | | | | | | | | |
| |
| U.S. | | | 98 | % | | | 98 | % |
| Canada | | | 99 | % | | | 98 | % |
| International | | | 88 | % | | | 82 | % |
| |
| Total | | | 98 | % | | | 97 | % |
| |
COMPANY OPERATED RIGS
| | | | | | | | | |
| | | December 31, |
| | | 2006 | | 2005 |
| |
Number of Company Operated Rigs Running | | | | | | | | |
| |
| U.S. | | | 58 | | | | 53 | |
| Canada | | | 11 | | | | 16 | |
| International | | | 2 | | | | 3 | |
| |
| Total | | | 71 | | | | 72 | |
| |
14
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
DETAIL OF RECLASSIFICATION FOR DISCONTINUED
OPERATIONS IN EGYPT
| | | | | | | | | | | | | | | | | |
| | | Year Ended | | Quarter Ended |
| | | December 31, | | December 31, |
| | | 2006 | | 2005 | | 2006 | | 2005 |
| |
Production from Discontinued Operations | | | | | | | | | | | | | | | | |
| |
| Oil (MMBbls) | | | 1.9 | | | | 2.4 | | | | 0.6 | | | | 0.5 | |
| Natural Gas (Bcf) | | | — | | | | — | | | | — | | | | — | |
| Natural Gas Liquids (MMBbls) | | | — | | | | — | | | | — | | | | — | |
| |
| Total Oil Equivalent (MMBoe) | | | 1.9 | | | | 2.4 | | | | 0.6 | | | | 0.5 | |
| |
STATEMENT OF DISCONTINUED OPERATIONS DATA
(US$ in millions)
| | | | | | | | | | | | | | | | | |
| | | Year Ended | | Quarter Ended |
| | | December 31, | | December 31, |
| | | 2006 | | 2005 | | 2006 | | 2005 |
| |
Revenues | | | | | | | | | | | | | | | | |
| |
| Oil sales | | $ | 118 | | | $ | 119 | | | $ | 32 | | | $ | 30 | |
| |
Expenses and other income, net | | | | | | | | | | | | | | | | |
| |
| Lease operating expenses | | | 23 | | | | 21 | | | | 7 | | | | 6 | |
| Depreciation, depletion and amortization of oil and gas properties | | | 41 | | | | 50 | | | | 6 | | | | 12 | |
| Depreciation and amortization of non-oil and gas properties | | | 1 | | | | 1 | | | | — | | | | — | |
| Accretion of asset retirement obligation | | | — | | | | 1 | | | | — | | | | — | |
| Reduction of carrying value of oil and gas properties | | | 31 | | | | — | | | | — | | | | — | |
| |
| Total expenses and other income, net | | | 96 | | | | 73 | | | | 13 | | | | 18 | |
| |
Earnings before income tax expense | | | 22 | | | | 46 | | | | 19 | | | | 12 | |
| |
Income tax (benefit) expense | | | | | | | | | | | | | | | | |
| |
| Current | | | 15 | | | | 20 | | | | (4 | ) | | | 9 | |
| Deferred | | | (16 | ) | | | (5 | ) | | | — | | | | (4 | ) |
| |
| Total income tax (benefit) expense | | | (1 | ) | | | 15 | | | | (4 | ) | | | 5 | |
| |
Earnings from discontinued operations | | $ | 23 | | | $ | 31 | | | $ | 23 | | | $ | 7 | |
| |
RESERVE DATA FOR EGYPT
| | | | | | | | | | | | | | | | | |
| | | Oil | | Gas | | NGLs | | Total |
| | | (MMBbls) | | (Bcf) | | (MMBbls) | | (MMboe) |
| |
As of December 31, 2005: | | | | | | | | | | | | | | | | |
| |
| Proved developed | | | 10 | | | | — | | | | — | | | | 10 | |
| Proved undeveloped | | | — | | | | — | | | | — | | | | — | |
| |
Total proved | | | 10 | | | | — | | | | — | | | | 10 | |
| |
As of December 31, 2006: | | | | | | | | | | | | | | | | |
| |
| Proved developed | | | 8 | | | | — | | | | — | | | | 8 | |
| Proved undeveloped | | | — | | | | — | | | | — | | | | — | |
| |
Total proved | | | 8 | | | | — | | | | — | | | | 8 | |
| |
15
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
(in millions)
| | | | | | | | | | | | | | | | | |
| | | Year Ended | | Quarter Ended |
| | | December 31, | | December 31, |
| | | 2006 | | 2005 | | 2006 | | 2005 |
| |
Net Cash Provided By Operating Activities (GAAP) | | $ | 5,993 | | | $ | 5,612 | | | $ | 1,111 | | | $ | 1,960 | |
| Changes in assets and liabilities — continuing operations | | | 84 | | | | 103 | | | | 423 | | | | (202 | ) |
| Changes in assets and liabilities — discontinued operations | | | 14 | | | | (20 | ) | | | (5 | ) | | | (19 | ) |
| |
| Cash flow before balance sheet changes (Non-GAAP) | | $ | 6,091 | | | $ | 5,695 | | | $ | 1,529 | | | $ | 1,739 | |
| |
Devon believes that using net debt, defined as debt less cash, short-term investments and the market value of Chevron common stock, for the calculation of “net debt to adjusted capitalization” provides a better measure than using debt. Devon believes that because cash and short-term investments can be used to repay indebtedness, netting cash and short-term investments against debt provides a clearer picture of the future demands on cash to repay debt. Included in Devon’s indebtedness are $727 million of debentures exchangeable into 14.2 million shares of Chevron common stock owned outright by Devon. As of December 31, 2006, the market value of the shares ($1.0 billion) exceeded the related debt obligation. Devon believes deducting the market value of the stock provides a clearer picture of future demands on cash to repay debt. This methodology is also utilized by various lenders, rating agencies and securities analysts as a measure of Devon’s indebtedness.
RECONCILIATION TO GAAP INFORMATION
(in millions)
| | | | | | | | | |
| | | December 31, |
| | | 2006 | | 2005 |
| |
| Total debt (GAAP) | | $ | 7,773 | | | | 6,619 | |
| Adjustments: | | | | | | | | |
| Cash and short-term investments | | | (1,313 | ) | | | (2,273 | ) |
| Market value of Chevron Corporation common stock | | | (1,043 | ) | | | (805 | ) |
| |
| Net Debt (Non-GAAP) | | $ | 5,417 | | | | 3,541 | |
| |
| | | | | | | | | |
Total Capitalization | | | | | | | | |
| |
| Total debt | | $ | 7,773 | | | | 6,619 | |
| Stockholders’ equity | | | 17,442 | | | | 14,862 | |
| |
| Total Capitalization (GAAP) | | $ | 25,215 | | | | 21,481 | |
| |
| | | | | | | | | |
Adjusted Capitalization | | | | | | | | |
| Net debt | | $ | 5,417 | | | | 3,541 | |
| Stockholders’ equity | | | 17,442 | | | | 14,862 | |
| |
| Adjusted Capitalization (Non-GAAP) | | $ | 22,859 | | | | 18,403 | |
| |
16
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
Drill-bit capital is defined as costs incurred less proved acquisition costs, unproved acquisition costs resulting from business combinations and other significant similar transactions, and the net difference of accrued future asset retirement costs less actual cash retirement expenditures. Drill-bit capital is a non-GAAP measure. Devon believes drill-bit capital is relevant because it provides additional insight into costs associated with current year drilling, facilities and unproved acreage acquisitions unrelated to business combinations and other significant similar transactions. It should be noted that the actual costs of reserves added through Devon’s drilling program will differ, sometimes significantly, from the direct comparison of capital spent and reserves added in any given period due to the timing of capital expenditures and reserve bookings. This methodology is also utilized by certain securities analysts as a measure of Devon’s performance.
RECONCILIATION TO GAAP INFORMATION
(in millions)
| | | | | | | | | | | | | | | | | |
| | | Total | | Total U.S. |
| | | Year Ended December 31, | | Year Ended December 31, |
| | | 2006 | | 2005 | | 2006 | | 2005 |
| |
Costs Incurred (GAAP) | | $ | 7,722 | | | $ | 4,078 | | | $ | 5,537 | | | $ | 2,130 | |
| |
| Less: | | | | | | | | | | | | | | | | |
| Proved acquisition costs | | | 1,113 | | | | 54 | | | | 1,066 | | | | 5 | |
| Unproved portion of Chief acquisition | | | 1,185 | | | | — | | | | 1,185 | | | | — | |
| Accrued asset retirement costs | | | 250 | | | | 113 | | | | 78 | | | | 70 | |
| Plus: Actual retirement expenditures | | | 62 | | | | 41 | | | | 41 | | | | 22 | |
| |
| Drill-bit capital (Non-GAAP) | | $ | 5,236 | | | $ | 3,952 | | | $ | 3,249 | | | $ | 2,077 | |
| |
| | | | | | | | | | | | | | | | | |
| | | U.S. Onshore | | U.S. Offshore |
| | | Year Ended December 31, | | Year Ended December 31, |
| | | 2006 | | 2005 | | 2006 | | 2005 |
| |
Costs Incurred (GAAP) | | $ | 4,856 | | | $ | 1,643 | | | $ | 681 | | | $ | 487 | |
| |
| Less: | | | | | | | | | | | | | | | | |
| Proved acquisition costs | | | 1,066 | | | | 3 | | | | — | | | | 2 | |
| Unproved portion of Chief acquisition | | | 1,185 | | | | — | | | | — | | | | — | |
| Accrued asset retirement costs | | | 36 | | | | 23 | | | | 42 | | | | 47 | |
| Plus: Actual retirement expenditures | | | 6 | | | | 5 | | | | 35 | | | | 17 | |
| |
| Drill-bit capital (Non-GAAP) | | $ | 2,575 | | | $ | 1,622 | | | $ | 674 | | | $ | 455 | |
| |
| | | | | | | | | | | | | | | | | |
| | | Canada | | International |
| | | Year Ended December 31, | | Year Ended December 31, |
| | | 2006 | | 2005 | | 2006 | | 2005 |
| |
Costs Incurred (GAAP) | | $ | 1,554 | | | $ | 1,669 | | | $ | 631 | | | $ | 279 | |
| |
| Less: | | | | | | | | | | | | | | | | |
| Proved acquisition costs | | | 23 | | | | 49 | | | | 24 | | | | — | |
| Unproved portion of Chief acquisition | | | — | | | | — | | | | — | | | | — | |
| Accrued asset retirement costs | | | 107 | | | | 37 | | | | 65 | | | | 6 | |
| Plus: Actual retirement expenditures | | | 18 | | | | 16 | | | | 3 | | | | 3 | |
| |
| Drill-bit capital (Non-GAAP) | | $ | 1,442 | | | $ | 1,599 | | | $ | 545 | | | $ | 276 | |
| |
17
