EXHIBIT 99.1
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| | 20 North Broadway
Oklahoma City, Oklahoma 73102-8260 | | Telephone: (405) 235-3611
Fax: (405) 552-4667 |
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NEWS RELEASE
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| Investor contact: | | Zack Hager
(405) 552-4526 |
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| Media contact: | | Brian Engel
(405) 228-7750 |
DEVON ENERGY’S THIRD-QUARTER 2007 EARNINGS CLIMB TO
$1.63 PER SHARE ON 10 PERCENT PRODUCTION GROWTH
OKLAHOMA CITY — November 7, 2007— Devon Energy Corporation (NYSE:DVN) today reported net earnings of $735 million, or $1.65 per common share ($1.63 per diluted common share), for the quarter ended September 30, 2007. This compares with third-quarter 2006 net earnings of $705 million, or $1.59 per common share ($1.57 per diluted common share).
For the nine months ended September 30, 2007, Devon reported net earnings of $2.3 billion, or $5.13 per common share ($5.07 per diluted common share). For the nine months ended September 30, 2006, Devon earned $2.3 billion, or $5.11 per common share ($5.05 per diluted common share).
Securities analysts typically exclude certain items from their published estimates. In aggregate, these items increased Devon’s third-quarter 2007 net earnings by $35 million, or eight cents per diluted share. The adjusting items are discussed in detail later in this news release.
Sixth Consecutive Quarter of Increased Production
Oil and natural gas production from continuing operations increased in the third quarter of 2007 to 56.8 million oil-equivalent barrels (Boe). This was a 10 percent increase over third quarter 2006 production and was driven by organic production growth in each of the company’s producing segments: the United States, Canada and International. The third quarter of 2007 marks the sixth consecutive quarter that Devon has increased oil and gas production from retained properties.
Marketing and Midstream MLP Update
Devon also announced today that it has decided not to proceed at this time with its plans to form a publicly-traded master limited partnership (MLP). The MLP was to own a minority interest in Devon’s U.S. onshore marketing and midstream business. The company cited changing financial market conditions for MLPs as the principal reason for the decision.
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Barnett Shale Milestones Lead Operating Highlights
Devon drilled 599 wells in the third quarter of 2007 with an overall success rate of 98 percent. Following are highlights of third-quarter operations.
| • | | Devon commenced drilling its 1,000th operated horizontal well in the Barnett Shale in north Texas during the third quarter. Horizontal drilling, initiated by Devon about five years ago in the field, has played an important role in unlocking more of the vast potential of the company’s 735,000 net acres in the Barnett Shale. |
| • | | Devon’s net production from the Barnett Shale averaged 856 million cubic feet of natural gas equivalent per day in the third quarter, representing a 32 percent increase over the third quarter of 2006. |
| • | | Devon commenced production from the Merganser field in the deepwater Gulf of Mexico in August. Combined initial production from the two Merganser wells was about 150 million cubic feet of gas per day. Devon has a 50 percent working interest in the field, which produces into the Independence Hub. |
| • | | Devon has sanctioned development of the Cascade project in the deepwater Lower Tertiary trend of the Gulf of Mexico. Cascade is expected to be one of the first two development projects to establish production in the Gulf’s Lower Tertiary trend. |
| • | | Also in the Gulf of Mexico, Devon commenced drilling its first company-operated Lower Tertiary exploratory well in the third quarter. The Chuck well, in 6,500 feet of water, is drilling to a target depth of 31,500 feet. Devon has a 39.5 percent working interest in the Chuck prospect. |
| • | | In east Texas, net production in the company’s Carthage area climbed to a new high in the third quarter, averaging 260 million cubic feet of natural gas equivalent per day. Based on the success of its vertical and horizontal programs, Devon has increased its rig count in Carthage to 13. |
| • | | In Canada, Devon continued an active 5-rig program in the third quarter, drilling 125 new wells in the company’s Lloydminster oil play. The company’s production in Lloydminster has increased by 50 percent over the past 12 months to 34,600 barrels per day. |
| • | | In Brazil, the offshore Polvo project began first production in the third quarter. Three of 10 planned producing wells have now been completed. Gross combined production reached about 9,500 barrels of oil per day from the first three wells. The project is expected to produce up to 50,000 barrels per day at its peak in 2008. Devon has a 60 percent working interest in Polvo. |
Oil and Gas Revenues Increase 12 Percent
Sales of oil, natural gas and natural gas liquids were $2.3 billion in the third quarter of 2007. This was a 12 percent increase compared with the third quarter of 2006. The increase in sales was the result of greater production and higher realized liquids prices, partially offset by lower natural gas prices.
The average realized price for natural gas decreased six percent in the third quarter of 2007 to $5.31 per thousand cubic feet. This compares with $5.63 per thousand cubic feet in the third quarter of 2006. Devon’s average realized oil price increased six percent to $67.41 per barrel in the third quarter of 2007 compared with $63.77 per barrel in the prior-year period. Devon’s realized natural gas liquids price increased 10 percent to $38.34 per barrel from $34.98 per barrel in the third quarter of 2006.
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Marketing and midstream operating profit was $133 million, compared with $112 million in the third quarter of 2006. The 19 percent increase resulted primarily from higher gas processing margins.
Higher Expenses Reflect High Activity Levels and Resulting Growth
Driven by higher production and activity levels coupled with rising industry costs, expenses in most categories increased in the third quarter of 2007. With the exception of depreciation, depletion and amortization (DD&A) expense, Devon’s expenses in the third quarter of 2007 were generally in line with expectations. DD&A expense associated with oil and gas properties increased to $12.41 per Boe in the third quarter. The higher than expected third quarter DD&A rate was attributable to the impact of unusually low natural gas prices in the Rocky Mountain producing region at September 30, 2007.
African Divestiture Update
In October, Devon completed the sale of its operations in Egypt for an adjusted sales price of $341 million as of the closing date. The company is also in the process of divesting its assets and terminating operations in West Africa. In accordance with accounting standards, Devon has reclassified the assets, liabilities and results of its operations in Egypt and West Africa as discontinued operations for all accounting periods presented in this release. 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.
Cash Flow Before Balance Sheet Changes Increases 15 Percent to $1.8 Billion
Third quarter cash flow before balance sheet changes rose 15 percent to $1.8 billion in 2007. During the third quarter, Devon utilized cash flow to fund $1.6 billion of capital expenditures and returned more than $180 million to shareholders through share repurchases and dividends. The company’s balance sheet continued to strengthen during the third quarter with net debt to adjusted capitalization declining to 19 percent at September 30, 2007. 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 third-quarter 2007 reported earnings were as follows:
| • | | A change in fair value of financial instruments increased third-quarter 2007 earnings by $22 million pre-tax ($14 million after tax). |
| • | | An unrealized loss on natural gas derivative instruments decreased third-quarter 2007 earnings by $6 million pre-tax ($4 million after tax). |
| • | | The decisions to exit Egypt and West Africa generated financial benefits that increased third-quarter 2007 earnings by $48 million pre-tax ($25 million after tax). |
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The following table summarizes the effects of these items on third-quarter 2007 earnings and income taxes.
Summary of Items Typically Excluded by Securities Analysts — Third Quarter 2007
(in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pre-tax | | | | | | | | | | | | | | After-tax | | Cash Flow |
| | | Earnings | | Income Tax Effect | | Earnings | | Before Balance |
| | | Effect | | Current | | Deferred | | Total | | Effect | | Sheet Changes Effect |
| |
| Change in fair value of financial instruments | | $ | 22 | | | | — | | | | 8 | | | | 8 | | | | 14 | | | | — | |
| Unrealized loss on natural gas derivatives | | | (6 | ) | | | — | | | | (2 | ) | | | (2 | ) | | | (4 | ) | | | — | |
| Financial benefits generated by decision to exit Africa | | | 48 | | | | — | | | | 23 | | | | 23 | | | | 25 | | | | — | |
| |
| Totals | | $ | 64 | | | | — | | | | 29 | | | | 29 | | | | 35 | | | | — | |
| |
In aggregate, these items increased third-quarter 2007 net earnings by $35 million, or eight cents per common share (eight cents per diluted share).
Conference Call to be Webcast Today
Devon will discuss its third-quarter 2007 financial and operating results and changes to its full-year 2007 outlook in a conference call webcast today. The webcast will begin at 10 a.m. Central Time (11 a.m. Eastern Time). The webcast may be accessed from Devon’s internet home page at www.devonenergy.com.
This press release includes “forward-looking statements” as defined by the Securities and Exchange Commission. Such statements are those concerning strategic plans, expectations and objectives for future operations. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the company expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Statements regarding future drilling and production are subject to all of the risks and uncertainties normally incident to the exploration for and development and production of oil and gas. These risks include, but are not limited to, inflation or lack of availability of goods and services, environmental risks, drilling risks and regulatory changes. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.
The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. This release may contain certain terms, such as resource potential, reserve potential, probable reserves, possible reserves and exploration target size. The SEC guidelines strictly prohibit us from including these terms in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 10-K, File No. 001-32318, available from us at Devon Energy Corporation, Attn. Investor Relations, 20 North Broadway, Oklahoma City, OK 73102. You can also obtain this form from the SEC by calling 1-800-SEC-0330.
Devon Energy Corporation is an Oklahoma City-based independent energy company engaged in oil and gas exploration and production. Devon is 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 at www.devonenergy.com.
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DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
PRODUCTION DATA(net of royalties)
All periods exclude discontinued operations from Egypt and West Africa
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
| | | 2007 | | 2006 | | 2007 | | 2006 |
| |
Total Period Production | | | | | | | | | | | | | | | | |
| |
| Natural Gas (Bcf) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 144.2 | | | | 127.2 | | | | 407.8 | | | | 358.0 | |
| U.S. Offshore | | | 19.9 | | | | 22.2 | | | | 57.3 | | | | 57.2 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 164.1 | | | | 149.4 | | | | 465.1 | | | | 415.2 | |
| Canada | | | 57.9 | | | | 60.9 | | | | 170.3 | | | | 182.7 | |
| International | | | 0.5 | | | | 0.3 | | | | 1.3 | | | | 1.5 | |
| |
| Total Natural Gas | | | 222.5 | | | | 210.6 | | | | 636.7 | | | | 599.4 | |
| |
| Oil (MMBbls) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 2.8 | | | | 2.8 | | | | 8.4 | | | | 8.4 | |
| U.S. Offshore | | | 2.1 | | | | 2.0 | | | | 5.8 | | | | 6.5 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 4.9 | | | | 4.8 | | | | 14.2 | | | | 14.9 | |
| Canada | | | 4.2 | | | | 3.2 | | | | 11.7 | | | | 9.4 | |
| International | | | 4.3 | | | | 2.9 | | | | 15.2 | | | | 6.1 | |
| |
| Total Oil | | | 13.4 | | | | 10.9 | | | | 41.1 | | | | 30.4 | |
| |
| Natural Gas Liquids (MMBbls) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 5.1 | | | | 4.5 | | | | 15.0 | | | | 13.4 | |
| U.S. Offshore | | | 0.2 | | | | 0.1 | | | | 0.6 | | | | 0.4 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 5.3 | | | | 4.6 | | | | 15.6 | | | | 13.8 | |
| Canada | | | 1.0 | | | | 1.2 | | | | 3.2 | | | | 3.6 | |
| International | | | — | | | | — | | | | — | | | | — | |
| |
| Total Natural Gas Liquids | | | 6.3 | | | | 5.8 | | | | 18.8 | | | | 17.4 | |
| |
| Oil Equivalent (MMBoe) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 31.9 | | | | 28.5 | | | | 91.4 | | | | 81.4 | |
| U.S. Offshore | | | 5.7 | | | | 5.9 | | | | 16.0 | | | | 16.4 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 37.6 | | | | 34.4 | | | | 107.4 | | | | 97.8 | |
| Canada | | | 14.8 | | | | 14.5 | | | | 43.2 | | | | 43.5 | |
| International | | | 4.4 | | | | 2.9 | | | | 15.4 | | | | 6.4 | |
| |
| Total Oil Equivalent | | | 56.8 | | | | 51.8 | | | | 166.0 | | | | 147.7 | |
| |
Average Daily Production | | | | | | | | | | | | | | | | |
| |
| Natural Gas (MMcf) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 1,567.4 | | | | 1,382.8 | | | | 1,493.7 | | | | 1,311.3 | |
| U.S. Offshore | | | 215.8 | | | | 241.0 | | | | 210.0 | | | | 209.5 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 1,783.2 | | | | 1,623.8 | | | | 1,703.7 | | | | 1,520.8 | |
| Canada | | | 629.5 | | | | 662.1 | | | | 623.6 | | | | 669.2 | |
| International | | | 5.4 | | | | 3.1 | | | | 4.7 | | | | 5.8 | |
| |
| Total Natural Gas | | | 2,418.1 | | | | 2,289.0 | | | | 2,332.0 | | | | 2,195.8 | |
| |
| Oil (MBbls) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 30.0 | | | | 30.1 | | | | 30.7 | | | | 30.7 | |
| U.S. Offshore | | | 23.3 | | | | 22.3 | | | | 21.5 | | | | 23.8 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 53.3 | | | | 52.4 | | | | 52.2 | | | | 54.5 | |
| Canada | | | 45.5 | | | | 34.4 | | | | 42.9 | | | | 34.6 | |
| International | | | 47.1 | | | | 31.8 | | | | 55.5 | | | | 22.2 | |
| |
| Total Oil | | | 145.9 | | | | 118.6 | | | | 150.6 | | | | 111.3 | |
| |
| Natural Gas Liquids (MBbls) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 55.1 | | | | 48.9 | | | | 54.9 | | | | 49.0 | |
| U.S. Offshore | | | 2.9 | | | | 1.7 | | | | 2.2 | | | | 1.4 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 58.0 | | | | 50.6 | | | | 57.1 | | | | 50.4 | |
| Canada | | | 10.7 | | | | 12.7 | | | | 11.6 | | | | 13.2 | |
| International | | | — | | | | — | | | | — | | | | — | |
| |
| Total Natural Gas Liquids | | | 68.7 | | | | 63.3 | | | | 68.7 | | | | 63.6 | |
| |
| Oil Equivalent (MBoe) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | | 346.4 | | | | 309.4 | | | | 334.6 | | | | 298.3 | |
| U.S. Offshore | | | 62.1 | | | | 64.2 | | | | 58.6 | | | | 60.1 | |
| | | | | | | | | | | | | | | | | |
| Total U.S. | | | 408.5 | | | | 373.6 | | | | 393.2 | | | | 358.4 | |
| Canada | | | 161.2 | | | | 157.4 | | | | 158.4 | | | | 159.3 | |
| International | | | 48.0 | | | | 32.4 | | | | 56.3 | | | | 23.2 | |
| |
| Total Oil Equivalent | | | 617.7 | | | | 563.4 | | | | 607.9 | | | | 540.9 | |
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DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
REALIZED PRICE DATA
(average realized prices)
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
| | | 2007 | | 2006 | | 2007 | | 2006 |
| |
Realized Prices | | | | | | | | | | | | | | | | |
| |
| Natural Gas ($/Mcf) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | $ | 5.12 | | | $ | 5.53 | | | $ | 5.70 | | | $ | 6.01 | |
| U.S. Offshore | | $ | 6.43 | | | $ | 6.86 | | | $ | 7.14 | | | $ | 7.44 | |
| Total U.S. | | $ | 5.28 | | | $ | 5.73 | | | $ | 5.88 | | | $ | 6.21 | |
| Canada | | $ | 5.40 | | | $ | 5.40 | | | $ | 6.16 | | | $ | 6.14 | |
| International | | $ | 6.61 | | | $ | 5.11 | | | $ | 5.73 | | | $ | 6.34 | |
| |
| Total Natural Gas | | $ | 5.31 | | | $ | 5.63 | | | $ | 5.95 | | | $ | 6.19 | |
| |
| Oil ($/Bbl) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | $ | 69.95 | | | $ | 65.83 | | | $ | 60.60 | | | $ | 62.74 | |
| U.S. Offshore | | $ | 77.36 | | | $ | 71.56 | | | $ | 66.45 | | | $ | 66.30 | |
| Total U.S. | | $ | 73.19 | | | $ | 68.27 | | | $ | 63.01 | | | $ | 64.30 | |
| Canada | | $ | 53.40 | | | $ | 54.85 | | | $ | 48.01 | | | $ | 49.06 | |
| International | | $ | 74.43 | | | $ | 66.00 | | | $ | 66.10 | | | $ | 63.59 | |
| |
| Total Oil | | $ | 67.41 | | | $ | 63.77 | | | $ | 59.88 | | | $ | 59.43 | |
| |
| Natural Gas Liquids ($/Bbl) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | $ | 36.77 | | | $ | 32.41 | | | $ | 32.65 | | | $ | 29.85 | |
| U.S. Offshore | | $ | 36.92 | | | $ | 32.39 | | | $ | 33.39 | | | $ | 37.52 | |
| Total U.S. | | $ | 36.78 | | | $ | 32.41 | | | $ | 32.68 | | | $ | 30.06 | |
| Canada | | $ | 46.77 | | | $ | 45.23 | | | $ | 42.36 | | | $ | 44.20 | |
| International | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| |
| Total Natural Gas Liquids | | $ | 38.34 | | | $ | 34.98 | | | $ | 34.31 | | | $ | 32.99 | |
| |
| Oil Equivalent ($/Boe) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | $ | 35.08 | | | $ | 36.25 | | | $ | 36.36 | | | $ | 37.79 | |
| U.S. Offshore | | $ | 53.04 | | | $ | 51.49 | | | $ | 51.12 | | | $ | 53.03 | |
| Total U.S. | | $ | 37.81 | | | $ | 38.86 | | | $ | 38.56 | | | $ | 40.34 | |
| Canada | | $ | 39.28 | | | $ | 38.34 | | | $ | 40.33 | | | $ | 40.11 | |
| International | | $ | 73.77 | | | $ | 65.42 | | | $ | 65.66 | | | $ | 62.53 | |
| |
| Total Oil Equivalent | | $ | 40.99 | | | $ | 40.24 | | | $ | 41.53 | | | $ | 41.23 | |
| |
BENCHMARK PRICES
(average prices)
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
| | | 2007 | | 2006 | | 2007 | | 2006 |
| |
Benchmark Prices | | | | | | | | | | | | | | | | |
| |
| Natural Gas ($/Mcf) — Henry Hub | | $ | 6.16 | | | $ | 6.58 | | | $ | 6.83 | | | $ | 7.47 | |
| Oil ($/Bbl) — West Texas Intermediate (Cushing) | | $ | 75.21 | | | $ | 70.62 | | | $ | 66.21 | | | $ | 68.22 | |
| |
PRICE DIFFERENTIALS, EXCLUDING EFFECTS OF HEDGES
(average floating price differentials from benchmark prices)
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
| | | 2007 | | 2006 | | 2007 | | 2006 |
| |
Price Differentials | | | | | | | | | | | | | | | | |
| |
| Natural Gas ($/Mcf) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | $ | (1.09 | ) | | $ | (1.08 | ) | | $ | (1.13 | ) | | $ | (1.46 | ) |
| U.S. Offshore | | $ | 0.27 | | | $ | 0.28 | | | $ | 0.31 | | | $ | (0.03 | ) |
| Total U.S. | | $ | (0.92 | ) | | $ | (0.88 | ) | | $ | (0.95 | ) | | $ | (1.26 | ) |
| Canada | | $ | (0.64 | ) | | $ | (1.04 | ) | | $ | (0.50 | ) | | $ | (1.16 | ) |
| International | | $ | 0.45 | | | $ | (1.47 | ) | | $ | (1.10 | ) | | $ | (1.13 | ) |
| |
| Total Natural Gas | | $ | (0.85 | ) | | $ | (0.92 | ) | | $ | (0.83 | ) | | $ | (1.23 | ) |
| |
| Oil ($/Bbl) | | | | | | | | | | | | | | | | |
| U.S. Onshore | | $ | (5.26 | ) | | $ | (4.79 | ) | | $ | (5.61 | ) | | $ | (5.48 | ) |
| U.S. Offshore | | $ | 2.15 | | | $ | 0.94 | | | $ | 0.24 | | | $ | (1.92 | ) |
| Total U.S. | | $ | (2.02 | ) | | $ | (2.35 | ) | | $ | (3.20 | ) | | $ | (3.92 | ) |
| Canada | | $ | (21.81 | ) | | $ | (15.77 | ) | | $ | (18.20 | ) | | $ | (19.16 | ) |
| International | | $ | (0.78 | ) | | $ | (4.62 | ) | | $ | (0.11 | ) | | $ | (4.63 | ) |
| |
| Total Oil | | $ | (7.80 | ) | | $ | (6.85 | ) | | $ | (6.33 | ) | | $ | (8.79 | ) |
| |
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DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
| | | 2007 | | 2006 | | 2007 | | 2006 |
| |
Revenues | | | | | | | | | | | | | | | | |
| |
| Oil sales | | $ | 905 | | | $ | 696 | | | $ | 2,461 | | | $ | 1,806 | |
| Gas sales | | | 1,182 | | | | 1,186 | | | | 3,788 | | | | 3,709 | |
| Natural gas liquids sales | | | 242 | | | | 204 | | | | 643 | | | | 573 | |
| Marketing & midstream revenues | | | 434 | | | | 413 | | | | 1,273 | | | | 1,261 | |
| |
| Total revenues | | | 2,763 | | | | 2,499 | | | | 8,165 | | | | 7,349 | |
| |
Expenses and other income, net | | | | | | | | | | | | | | | | |
| |
| Lease operating expenses | | | 457 | | | | 363 | | | | 1,326 | | | | 1,036 | |
| Production taxes | | | 85 | | | | 92 | | | | 255 | | | | 261 | |
| Marketing & midstream operating costs and expenses | | | 301 | | | | 301 | | | | 912 | | | | 924 | |
| Depreciation, depletion and amortization of oil and gas properties | | | 705 | | | | 547 | | | | 1,937 | | | | 1,480 | |
| Depreciation and amortization of non-oil and gas properties | | | 51 | | | | 43 | | | | 146 | | | | 127 | |
| Accretion of asset retirement obligation | | | 19 | | | | 12 | | | | 55 | | | | 35 | |
| General & administrative expenses | | | 126 | | | | 104 | | | | 358 | | | | 284 | |
| Interest expense | | | 108 | | | | 112 | | | | 325 | | | | 315 | |
| Change in fair value of financial instruments | | | (22 | ) | | | 22 | | | | (31 | ) | | | 81 | |
| Reduction of carrying value of oil and gas properties | | | — | | | | 20 | | | | — | | | | 36 | |
| Other income, net | | | (28 | ) | | | (28 | ) | | | (71 | ) | | | (86 | ) |
| |
| Total expenses and other income, net | | | 1,802 | | | | 1,588 | | | | 5,212 | | | | 4,493 | |
| |
| Earnings from continuing operations before income tax expense | | | 961 | | | | 911 | | | | 2,953 | | | | 2,856 | |
| |
Income tax expense | | | | | | | | | | | | | | | | |
| |
| Current | | | 96 | | | | 147 | | | | 459 | | | | 471 | |
| Deferred | | | 221 | | | | 111 | | | | 452 | | | | 253 | |
| |
| Total income tax expense | | | 317 | | | | 258 | | | | 911 | | | | 724 | |
| |
Earnings from continuing operations | | | 644 | | | | 653 | | | | 2,042 | | | | 2,132 | |
| |
Discontinued operations | | | | | | | | | | | | | | | | |
| |
| Earnings from discontinued operations before income tax expense | | | 177 | | | | 112 | | | | 442 | | | | 337 | |
| Income tax expense | | | 86 | | | | 60 | | | | 194 | | | | 205 | |
| |
Earnings from discontinuing operations | | | 91 | | | | 52 | | | | 248 | | | | 132 | |
| |
Net earnings | | | 735 | | | | 705 | | | | 2,290 | | | | 2,264 | |
| Preferred stock dividends | | | 2 | | | | 2 | | | | 7 | | | | 7 | |
| |
Net earnings applicable to common stockholders | | $ | 733 | | | $ | 703 | | | $ | 2,283 | | | $ | 2,257 | |
| |
Net earnings per weighted average common shares outstanding | | | | | | | | | | | | | | | | |
| Basic | | $ | 1.65 | | | $ | 1.59 | | | $ | 5.13 | | | $ | 5.11 | |
| Diluted | | $ | 1.63 | | | $ | 1.57 | | | $ | 5.07 | | | $ | 5.05 | |
| Basic weighted average shares outstanding | | | 445 | | | | 441 | | | | 445 | | | | 441 | |
| Diluted weighted average shares outstanding | | | 450 | | | | 447 | | | | 450 | | | | 447 | |
Page 7 of 12
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(in millions)
| | | | | | | | | |
| | | September 30, | | December 31, |
| | | 2007 | | 2006 |
| |
| | | | | | | (Audited) |
| |
Assets | | | | | | | | |
| |
| Current assets | | | | | | | | |
| |
| Cash and cash equivalents | | $ | 1,392 | | | $ | 692 | |
| Short-term investments, at fair value | | | 341 | | | | 574 | |
| Accounts receivable | | | 1,435 | | | | 1,324 | |
| Current assets held for sale | | | 176 | | | | 232 | |
| Other current assets | | | 340 | | | | 390 | |
| |
| Total current assets | | | 3,684 | | | | 3,212 | |
| |
| Property and equipment, at cost, based on the full cost method of accounting for oil and gas properties ($3,371 and $3,293 excluded from amortization in 2007 and 2006, respectively) | | | 46,546 | | | | 39,585 | |
| Less accumulated depreciation, depletion and amortization | | | 19,561 | | | | 16,429 | |
| |
| Net property and equipment | | | 26,985 | | | | 23,156 | |
| |
| Investment in Chevron Corporation common stock, at fair value | | | 1,327 | | | | 1,043 | |
| Goodwill | | | 6,150 | | | | 5,706 | |
| Assets held for sale | | | 1,707 | | | | 1,619 | |
| Other assets | | | 418 | | | | 327 | |
| |
Total Assets | | $ | 40,271 | | | $ | 35,063 | |
| |
Liabilities and Stockholders’ Equity | | | | | | | | |
| |
| Current liabilities | | | | | | | | |
| |
| Accounts payable — trade | | $ | 1,268 | | | $ | 1,154 | |
| Revenues and royalties due to others | | | 529 | | | | 522 | |
| Income taxes payable | | | 187 | | | | 82 | |
| Short-term debt | | | 2,076 | | | | 2,205 | |
| Accrued interest payable | | | 191 | | | | 114 | |
| Current liabilities associated with assets held for sale | | | 190 | | | | 173 | |
| Accrued expenses and other current liabilities | | | 325 | | | | 395 | |
| |
| Total current liabilities | | | 4,766 | | | | 4,645 | |
| |
| Debentures exchangeable into shares of Chevron Corporation common stock | | | 638 | | | | 727 | |
| Other long-term debt | | | 5,235 | | | | 4,841 | |
| Financial instruments, at fair value | | | 495 | | | | 302 | |
| Asset retirement obligation, at fair value | | | 1,246 | | | | 804 | |
| Liabilities associated with assets held for sale | | | 445 | | | | 429 | |
| Other liabilities | | | 622 | | | | 583 | |
| Deferred income taxes | | | 5,992 | | | | 5,290 | |
| |
| Stockholders’ equity | | | | | | | | |
| |
| Preferred stock | | | 1 | | | | 1 | |
| Common stock | | | 45 | | | | 44 | |
| Additional paid-in capital | | | 6,883 | | | | 6,840 | |
| Retained earnings | | | 11,564 | | | | 9,114 | |
| Accumulated other comprehensive income | | | 2,339 | | | | 1,444 | |
| Treasury stock | | | — | | | | (1 | ) |
| |
Stockholders’ Equity | | | 20,832 | | | | 17,442 | |
| |
Total Liabilities & Stockholders’ Equity | | $ | 40,271 | | | $ | 35,063 | |
| |
Common Shares Outstanding | | | 445 | | | | 444 | |
| |
Page 8 of 12
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| | | | | | | | | |
| | | Nine Months Ended |
| | | September 30, |
| | | 2007 | | 2006 |
| |
Cash Flows From Operating Activities | | | | | | | | |
| |
| Net earnings | | $ | 2,290 | | | $ | 2,264 | |
| Earnings from discontinued operations, net of tax | | | (248 | ) | | | (132 | ) |
| Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities: | | | | | | | | |
| Depreciation, depletion and amortization | | | 2,083 | | | | 1,607 | |
| Deferred income tax expense | | | 452 | | | | 253 | |
| Net gain on sales of non-oil and gas property and equipment | | | (1 | ) | | | (5 | ) |
| Reduction of carrying value of oil and gas properties | | | — | | | | 36 | |
| Other non-cash charges | | | 125 | | | | 163 | |
| Changes in assets and liabilities: | | | | | | | | |
| (Increase) decrease in: | | | | | | | | |
| Accounts receivable | | | (12 | ) | | | 206 | |
| Other current assets | | | (65 | ) | | | (45 | ) |
| Long-term other assets | | | (53 | ) | | | (37 | ) |
| Increase (decrease) in: | | | | | | | | |
| Accounts payable | | | 111 | | | | (59 | ) |
| Income taxes payable | | | 139 | | | | (34 | ) |
| Other current liabilities | | | (78 | ) | | | 197 | |
| Long-term other liabilities | | | (4 | ) | | | (1 | ) |
| |
| Cash provided by operating activities — continuing operations | | | 4,739 | | | | 4,413 | |
| Cash provided by operating activities — discontinued operations | | | 370 | | | | 469 | |
| |
Net cash provided by operating activities | | | 5,109 | | | | 4,882 | |
| |
| | | | | | | | | |
Cash Flows From Investing Activities | | | | | | | | |
| |
| Proceeds from sales of property and equipment | | | 39 | | | | 36 | |
| Capital expenditures, including acquisitions of businesses | | | (4,477 | ) | | | (5,959 | ) |
| Purchases of short-term investments | | | (659 | ) | | | (1,868 | ) |
| Sales of short-term investments | | | 892 | | | | 2,424 | |
| |
| Cash used in investing activities — continuing operations | | | (4,205 | ) | | | (5,367 | ) |
| Cash used in investing activities — discontinued operations | | | (153 | ) | | | (187 | ) |
| |
Net cash used in investing activities | | | (4,358 | ) | | | (5,554 | ) |
| |
| | | | | | | | | |
Cash Flows From Financing Activities | | | | | | | | |
| |
| Net senior credit facility borrowings, net of issuance costs | | | 400 | | | | — | |
| Net commercial paper (repayments) borrowings, net of issuance costs | | | (129 | ) | | | 1,439 | |
| Principal payments on debt, including current maturities | | | (166 | ) | | | (860 | ) |
| Proceeds from exercise of stock options | | | 71 | | | | 53 | |
| Repurchase of common stock | | | (133 | ) | | | (253 | ) |
| Excess tax benefits related to share-based compensation | | | 20 | | | | 14 | |
| Dividends paid on common stock | | | (186 | ) | | | (148 | ) |
| Dividends paid on preferred stock | | | (7 | ) | | | (7 | ) |
| |
Net cash (used in) provided by financing activities | | | (130 | ) | | | 238 | |
| |
| | | | | | | | | |
| Effect of exchange rate changes on cash | | | 44 | | | | 24 | |
| Net increase (decrease) in cash and cash equivalents | | | 665 | | | | (410 | ) |
| Cash and cash equivalents at beginning of period (including assets held for sale) | | | 756 | | | | 1,606 | |
| |
| Cash and cash equivalents at end of period (including assets held for sale) | | $ | 1,421 | | | $ | 1,196 | |
| |
| | | | | | | | | |
Supplementary cash flow data: | | | | | | | | |
| Interest paid (net of capitalized interest) | | $ | 226 | | | $ | 349 | |
| Income taxes paid | | $ | 293 | | | $ | 581 | |
Page 9 of 12
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
DRILLING ACTIVITY
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
| | | 2007 | | 2006 | | 2007 | | 2006 |
| |
Exploration Wells Drilled | | | | | | | | | | | | | | | | |
| |
| U.S. | | | 5 | | | | 23 | | | | 32 | | | | 62 | |
| Canada | | | 19 | | | | 13 | | | | 83 | | | | 109 | |
| International | | | — | | | | — | | | | 1 | | | | 2 | |
| |
| Total | | | 24 | | | | 36 | | | | 116 | | | | 173 | |
| |
Exploration Wells Success Rate | | | | | | | | | | | | | | | | |
| |
| U.S. | | | 60 | % | | | 83 | % | | | 78 | % | | | 87 | % |
| Canada | | | 100 | % | | | 100 | % | | | 96 | % | | | 99 | % |
| International | | | — | | | | — | | | | 0 | % | | | 0 | % |
| |
| Total | | | 92 | % | | | 89 | % | | | 91 | % | | | 93 | % |
| |
Development Wells Drilled | | | | | | | | | | | | | | | | |
| |
| U.S. | | | 422 | | | | 458 | | | | 1,046 | | | | 1,113 | |
| Canada | | | 139 | | | | 237 | | | | 445 | | | | 619 | |
| International | | | 14 | | | | 4 | | | | 23 | | | | 18 | |
| |
| Total | | | 575 | | | | 699 | | | | 1,514 | | | | 1,750 | |
| |
Development Wells Success Rate | | | | | | | | | | | | | | | | |
| |
| U.S. | | | 98 | % | | | 100 | % | | | 98 | % | | | 99 | % |
| Canada | | | 100 | % | | | 99 | % | | | 100 | % | | | 99 | % |
| International | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| |
| Total | | | 98 | % | | | 99 | % | | | 98 | % | | | 99 | % |
| |
Total Wells Drilled | | | | | | | | | | | | | | | | |
| |
| U.S. | | | 427 | | | | 481 | | | | 1,078 | | | | 1,175 | |
| Canada | | | 158 | | | | 250 | | | | 528 | | | | 728 | |
| International | | | 14 | | | | 4 | | | | 24 | | | | 20 | |
| |
| Total | | | 599 | | | | 735 | | | | 1,630 | | | | 1,923 | |
| |
Total Wells Success Rate | | | | | | | | | | | | | | | | |
| |
| U.S. | | | 97 | % | | | 99 | % | | | 97 | % | | | 98 | % |
| Canada | | | 100 | % | | | 99 | % | | | 99 | % | | | 99 | % |
| International | | | 100 | % | | | 100 | % | | | 96 | % | | | 90 | % |
| |
| Total | | | 98 | % | | | 99 | % | | | 98 | % | | | 98 | % |
| |
COMPANY OPERATED RIGS
| | | | | | | | | |
| | | September 30, |
| | | 2007 | | 2006 |
| |
Number of Company Operated Rigs Running | | | | | | | | |
| |
| U.S. | | | 76 | | | | 60 | |
| Canada | | | 12 | | | | 7 | |
| International | | | 1 | | | | — | |
| |
| Total | | | 89 | | | | 67 | |
| |
CAPITAL EXPENDITURES DATA(in millions)
Quarter Ended September 30, 2007
| | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Onshore | | U.S. Offshore | | Canada | | International | | Devon Total |
| |
Capital Expenditures | | | | | | | | | | | | | | | | | | | | |
| |
| Exploration | | $ | 79 | | | | 93 | | | | 30 | | | | 14 | | | $ | 216 | |
| Development | | | 762 | | | | 66 | | | | 222 | | | | 86 | | | | 1,136 | |
| |
| Exploration and development capital | | $ | 841 | | | | 159 | | | | 252 | | | | 100 | | | $ | 1,352 | |
| Capitalized G&A | | | | | | | | | | | | | | | | | | | 84 | |
| Capitalized interest | | | | | | | | | | | | | | | | | | | 16 | |
| Discontinued operations | | | | | | | | | | | | | | | | | | | 32 | |
| Property acquisitions | | | | | | | | | | | | | | | | | | | 5 | |
| Midstream capital | | | | | | | | | | | | | | | | | | | 105 | |
| Other capital | | | | | | | | | | | | | | | | | | | 24 | |
| |
Total capital expenditures | | | | | | | | | | | | | | | | | | $ | 1,618 | |
| |
Page 10 of 12
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
CAPITAL EXPENDITURES DATA(in millions)
Nine Months Ended September 30, 2007
| | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Onshore | | U.S. Offshore | | Canada | | International | | Devon Total |
| |
Capital Expenditures | | | | | | | | | | | | | | | | | | | | |
| |
| Exploration | | $ | 178 | | | | 211 | | | | 95 | | | | 59 | | | $ | 543 | |
| Development | | | 2,135 | | | | 187 | | | | 743 | | | | 228 | | | | 3,293 | |
| |
| Exploration and development capital | | $ | 2,313 | | | | 398 | | | | 838 | | | | 287 | | | $ | 3,836 | |
| Capitalized G&A | | | | | | | | | | | | | | | | | | | 230 | |
| Capitalized interest | | | | | | | | | | | | | | | | | | | 47 | |
| Discontinued operations | | | | | | | | | | | | | | | | | | | 139 | |
| Property acquisitions | | | | | | | | | | | | | | | | | | | 17 | |
| Midstream capital | | | | | | | | | | | | | | | | | | | 273 | |
| Other capital | | | | | | | | | | | | | | | | | | | 82 | |
| |
Total capital expenditures | | | | | | | | | | | | | | | | | | $ | 4,624 | |
| |
DETAIL OF RECLASSIFICATION FOR DISCONTINUED
OPERATIONS IN EGYPT AND WEST AFRICA
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
| | | 2007 | | 2006 | | 2007 | | 2006 |
| |
Production from Discontinued Operations | | | | | | | | | | | | | | | | |
| |
| Oil (MMBbls) | | | 2.6 | | | | 3.3 | | | | 8.9 | | | | 10.7 | |
| Natural Gas (Bcf) | | | 1.2 | | | | 1.5 | | | | 3.8 | | | | 4.7 | |
| |
| Total Oil Equivalent (MMBoe) | | | 2.9 | | | | 3.5 | | | | 9.6 | | | | 11.4 | |
| |
STATEMENTS OF DISCONTINUED OPERATIONS DATA
(in millions)
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
| | | 2007 | | 2006 | | 2007 | | 2006 |
| |
Revenues | | | | | | | | | | | | | | | | |
| |
| Oil sales | | $ | 196 | | | $ | 214 | | | $ | 571 | | | $ | 676 | |
| Gas sales | | | 4 | | | | 5 | | | | 12 | | | | 16 | |
| Marketing & midstream revenues | | | 6 | | | | 4 | | | | 13 | | | | 15 | |
| |
| Total revenues | | | 206 | | | | 223 | | | | 596 | | | | 707 | |
| |
Expenses and other income, net | | | | | | | | | | | | | | | | |
| |
| Lease operating expenses | | | 20 | | | | 19 | | | | 59 | | | | 57 | |
| Marketing & midstream operating costs and expenses | | | 2 | | | | 2 | | | | 5 | | | | 6 | |
| Depreciation, depletion and amortization of oil and gas properties | | | 2 | | | | 57 | | | | 20 | | | | 187 | |
| Depreciation, depletion and amortization of non-oil and gas properties | | | — | | | | 1 | | | | — | | | | 2 | |
| Accretion of asset retirement obligation | | | 1 | | | | 1 | | | | 3 | | | | 2 | |
| Reduction of carrying value of oil and gas properties | | | 4 | | | | 31 | | | | 67 | | | | 116 | |
| |
| Total expenses and other income, net | | | 29 | | | | 111 | | | | 154 | | | | 370 | |
| |
Earnings before income tax expense | | | 177 | | | | 112 | | | | 442 | | | | 337 | |
| |
Income tax (benefit) expense | | | | | | | | | | | | | | | | |
| |
| Current | | | 69 | | | | 85 | | | | 184 | | | | 262 | |
| Deferred | | | 17 | | | | (25 | ) | | | 10 | | | | (57 | ) |
| |
| Total income tax expense | | | 86 | | | | 60 | | | | 194 | | | | 205 | |
| |
Earnings from discontinued operations | | $ | 91 | | | $ | 52 | | | $ | 248 | | | $ | 132 | |
| |
Page 11 of 12
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)
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
| | | 2007 | | 2006 | | 2007 | | 2006 |
| |
Net Cash Provided By Operating Activities (GAAP) | | $ | 1,760 | | | $ | 2,064 | | | $ | 5,109 | | | $ | 4,882 | |
| |
| Changes in assets and liabilities — continuing operations | | | 65 | | | | (406 | ) | | | (37 | ) | | | (232 | ) |
| Changes in assets and liabilities — discontinued operations | | | (59 | ) | | | (121 | ) | | | (23 | ) | | | (88 | ) |
| |
| Cash flow before balance sheet changes (Non-GAAP) | | $ | 1,766 | | | $ | 1,537 | | | $ | 5,049 | | | $ | 4,562 | |
| |
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 $638 million of debentures exchangeable into shares of Chevron common stock owned outright by Devon. As of September 30, 2007, the market value of the shares ($1.3 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)
| | | | | | | | | |
| | | September 30, |
| | | 2007 | | 2006 |
| |
| Total debt (GAAP) | | $ | 7,949 | | | $ | 7,401 | |
| Adjustments: | | | | | | | | |
| Cash and short-term investments | | | 1,733 | | | | 1,279 | |
| Market value of Chevron Corporation common stock | | | 1,327 | | | | 920 | |
| |
| Net Debt (Non-GAAP) | | $ | 4,889 | | | $ | 5,202 | |
| |
| | | | | | | | | |
Total Capitalization | | | | | | | | |
| |
| Total debt | | $ | 7,949 | | | $ | 7,401 | |
| Stockholders’ equity | | | 20,832 | | | | 17,217 | |
| |
| Total Capitalization (GAAP) | | $ | 28,781 | | | $ | 24,618 | |
| |
| | | | | | | | | |
Adjusted Capitalization | | | | | | | | |
| |
| Net debt | | $ | 4,889 | | | $ | 5,202 | |
| Stockholders’ equity | | | 20,832 | | | | 17,217 | |
| |
| Adjusted Capitalization (Non-GAAP) | | $ | 25,721 | | | $ | 22,419 | |
| |
Page 12 of 12
