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DEVON ENERGY CORP/DE - Quarter Report: 2019 June (Form 10-Q)

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-32318

 

DEVON ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

73-1567067

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

identification No.)

 

 

333 West Sheridan Avenue, Oklahoma City, Oklahoma

 

73102-5015

(Address of principal executive offices)

 

(Zip code)

Registrant’s telephone number, including area code: (405) 235-3611

Former name, address and former fiscal year, if changed from last report: Not applicable

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.10 per share

DVN

The New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

Accelerated filer

 

Non-accelerated filer

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  

On July 24, 2019, 404.2 million shares of common stock were outstanding.

 

 


Table of Contents

DEVON ENERGY CORPORATION

FORM 10-Q

TABLE OF CONTENTS

 

Part I. Financial Information

 

Item 1.

 

Financial Statements

6

 

 

Consolidated Comprehensive Statements of Earnings

6

 

 

Consolidated Statements of Cash Flows

7

 

 

Consolidated Balance Sheets

8

 

 

Consolidated Statements of Equity

9

 

 

Notes to Consolidated Financial Statements

10

 

 

Note 1 – Summary of Significant Accounting Policies

10

 

 

Note 2 – Divestitures

11

 

 

Note 3 – Derivative Financial Instruments

12

 

 

Note 4 – Share-Based Compensation

14

 

 

Note 5 – Asset Impairments

15

 

 

Note 6 – Restructuring and Transaction Costs

15

 

 

Note 7 – Income Taxes

16

 

 

Note 8 – Net Earnings (Loss) Per Share From Continuing Operations

17

 

 

Note 9 – Other Comprehensive Earnings (Loss)

18

 

 

Note 10 – Supplemental Information to Statements of Cash Flows

18

 

 

Note 11 – Accounts Receivable

19

 

 

Note 12 – Property, Plant and Equipment

19

 

 

Note 13 – Debt and Related Expenses

19

 

 

Note 14 – Leases

20

 

 

Note 15 – Asset Retirement Obligations

22

 

 

Note 16 – Retirement Plans

23

 

 

Note 17 – Stockholders’ Equity

23

 

 

Note 18 – Discontinued Operations and Assets Held For Sale

24

 

 

Note 19 – Commitments and Contingencies

27

 

 

Note 20 – Fair Value Measurements

28

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

45

Item 4.

 

Controls and Procedures

45

 

 

 

 

Part II. Other Information

 

Item 1.

 

Legal Proceedings

46

Item 1A.

 

Risk Factors

46

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 3.

 

Defaults Upon Senior Securities

46

Item 4.

 

Mine Safety Disclosures

46

Item 5.

 

Other Information

46

Item 6.

 

Exhibits

47

 

 

 

 

Signatures

 

 

48

 

 

 

2

 


Table of Contents

DEFINITIONS

Unless the context otherwise indicates, references to “us,” “we,” “our,” “ours,” “Devon” and the “Company” refer to Devon Energy Corporation and its consolidated subsidiaries. All monetary values, other than per unit and per share amounts, are stated in millions of U.S. dollars unless otherwise specified. In addition, the following are other abbreviations and definitions of certain terms used within this Quarterly Report on Form 10-Q:

“ASC” means Accounting Standards Codification.

“ASR” means an accelerated share-repurchase transaction with a financial institution to repurchase Devon’s common stock.

“ASU” means Accounting Standards Update.

“Bbl” or “Bbls” means barrel or barrels.

“Boe” means barrel of oil equivalent. Gas proved reserves and production are converted to Boe, at the pressure and temperature base standard of each respective state in which the gas is produced, at the rate of six Mcf of gas per Bbl of oil, based upon the approximate relative energy content of gas and oil. NGL proved reserves and production are converted to Boe on a one-to-one basis with oil.

“Btu” means British thermal units, a measure of heating value.

“Canada” means the division of Devon encompassing oil and gas properties located in Canada. On June 27, 2019, all of Devon’s Canadian operating assets and operations were divested. All dollar amounts associated with Canada are in U.S. dollars, unless stated otherwise.

“DD&A” means depreciation, depletion and amortization expenses.

“Devon Plan” means Devon Energy Corporation Incentive Savings Plan.

“E&P” means exploration and production activities.

“EnLink” means EnLink Midstream Partners, LP, a master limited partnership.

“FASB” means Financial Accounting Standards Board.

“G&A” means general and administrative expenses.

“GAAP” means U.S. generally accepted accounting principles.

“General Partner” means EnLink Midstream, LLC, the indirect general partner of EnLink, and, unless the context otherwise indicates, EnLink Midstream Manager, LLC, the managing member of EnLink Midstream, LLC.

“Inside FERC” refers to the publication Inside FERC’s Gas Market Report.

“LOE” means lease operating expenses.

“MBbls” means thousand barrels.

“MBoe” means thousand Boe.

“Mcf” means thousand cubic feet.

“MMBoe” means million Boe.

“MMBtu” means million Btu.

3

 


Table of Contents

“MMcf” means million cubic feet.

“N/M” means not meaningful.

“NGL” or “NGLs” means natural gas liquids.

“NYMEX” means New York Mercantile Exchange.

“OPIS” means Oil Price Information Service.

“SEC” means United States Securities and Exchange Commission.

“Senior Credit Facility” means Devon’s syndicated unsecured revolving line of credit, effective as of October 5, 2018.

“TSR” means total shareholder return.

“Upstream operations” means upstream revenues minus production expenses.

“U.S.” means United States of America.

“WTI” means West Texas Intermediate.

“/Bbl” means per barrel.

“/d” means per day.

“/MMBtu” means per MMBtu.

4

 


Table of Contents

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” as defined by the SEC. Such statements include those concerning strategic plans, our expectations and objectives for future operations, as well as other future events or conditions, and are often identified by use of the words and phrases “expects,” “believes,” “will,” “would,” “could,” “continue,” “may,” “aims,” “likely to be,” “intends,” “forecasts,” “projections,” “estimates,” “plans,” “expectations,” “targets,” “opportunities,” “potential,” “anticipates,” “outlook” and other similar terminology. All statements, other than statements of historical facts, included in this report that address activities, events or developments that Devon 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 our control. Consequently, actual future results could differ materially from our expectations due to a number of factors, including, but not limited to:

 

the volatility of oil, gas and NGL prices;

 

uncertainties inherent in estimating oil, gas and NGL reserves;

 

the extent to which we are successful in acquiring and discovering additional reserves;

 

the uncertainties, costs and risks involved in our operations, including as a result of employee misconduct;

 

regulatory restrictions, compliance costs and other risks relating to governmental regulation, including with respect to environmental matters;

 

risks related to regulatory, social and market efforts to address climate change;

 

risks related to our hedging activities;

 

counterparty credit risks;

 

risks relating to our indebtedness;

 

cyberattack risks;

 

our limited control over third parties who operate some of our oil and gas properties;

 

midstream capacity constraints and potential interruptions in production;

 

the extent to which insurance covers any losses we may experience;

 

competition for assets, materials, people and capital;

 

our ability to successfully complete mergers, acquisitions and divestitures; and

 

any of the other risks and uncertainties discussed in this report, our 2018 Annual Report on Form 10-K and our other filings with the SEC.

All subsequent written and oral forward-looking statements attributable to Devon, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements above. We assume no duty to update or revise our forward-looking statements based on new information, future events or otherwise.

 

 

5

 


Table of Contents

Part I.  Financial Information

Item 1.  Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED COMPREHENSIVE STATEMENTS OF EARNINGS

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

Upstream revenues

 

$

1,191

 

 

$

766

 

 

$

1,654

 

 

$

1,783

 

Marketing revenues

 

 

730

 

 

 

1,156

 

 

 

1,495

 

 

 

2,018

 

Total revenues

 

 

1,921

 

 

 

1,922

 

 

 

3,149

 

 

 

3,801

 

Production expenses

 

 

371

 

 

 

406

 

 

 

736

 

 

 

801

 

Exploration expenses

 

 

7

 

 

 

62

 

 

 

11

 

 

 

83

 

Marketing expenses

 

 

713

 

 

 

1,149

 

 

 

1,463

 

 

 

2,015

 

Depreciation, depletion and amortization

 

 

394

 

 

 

342

 

 

 

774

 

 

 

647

 

Asset impairments

 

 

 

 

 

154

 

 

 

 

 

 

154

 

Asset dispositions

 

 

(1

)

 

 

23

 

 

 

(45

)

 

 

11

 

General and administrative expenses

 

 

114

 

 

 

135

 

 

 

249

 

 

 

310

 

Financing costs, net

 

 

66

 

 

 

64

 

 

 

126

 

 

 

453

 

Restructuring and transaction costs

 

 

12

 

 

 

85

 

 

 

63

 

 

 

85

 

Other expenses

 

 

8

 

 

 

(15

)

 

 

(9

)

 

 

(64

)

Total expenses

 

 

1,684

 

 

 

2,405

 

 

 

3,368

 

 

 

4,495

 

Earnings (loss) from continuing operations before income taxes

 

 

237

 

 

 

(483

)

 

 

(219

)

 

 

(694

)

Income tax expense (benefit)

 

 

71

 

 

 

13

 

 

 

(39

)

 

 

10

 

Net earnings (loss) from continuing operations

 

 

166

 

 

 

(496

)

 

 

(180

)

 

 

(704

)

Net earnings from discontinued operations, net of income tax expense

 

 

329

 

 

 

161

 

 

 

358

 

 

 

216

 

Net earnings (loss)

 

 

495

 

 

 

(335

)

 

 

178

 

 

 

(488

)

Net earnings attributable to noncontrolling interests

 

 

 

 

 

90

 

 

 

 

 

 

134

 

Net earnings (loss) attributable to Devon

 

$

495

 

 

$

(425

)

 

$

178

 

 

$

(622

)

Basic net earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) from continuing operations per share

 

$

0.40

 

 

$

(0.97

)

 

$

(0.43

)

 

$

(1.36

)

Basic earnings from discontinued operations per share

 

 

0.80

 

 

 

0.14

 

 

 

0.85

 

 

 

0.16

 

Basic net earnings (loss) per share

 

$

1.20

 

 

$

(0.83

)

 

$

0.42

 

 

$

(1.20

)

Diluted net earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) from continuing operations per share

 

$

0.40

 

 

$

(0.97

)

 

$

(0.43

)

 

$

(1.36

)

Diluted earnings from discontinued operations per share

 

 

0.79

 

 

 

0.14

 

 

 

0.85

 

 

 

0.16

 

Diluted net earnings (loss) per share

 

$

1.19

 

 

$

(0.83

)

 

$

0.42

 

 

$

(1.20

)

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

495

 

 

$

(335

)

 

$

178

 

 

$

(488

)

Other comprehensive earnings (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation, discontinued operations

 

 

43

 

 

 

(34

)

 

 

78

 

 

 

(82

)

Release of Canadian cumulative translation adjustment,

   discontinued operations

 

 

(1,237

)

 

 

 

 

 

(1,237

)

 

 

 

Pension and postretirement plans

 

 

13

 

 

 

3

 

 

 

15

 

 

 

7

 

Other comprehensive loss, net of tax

 

 

(1,181

)

 

 

(31

)

 

 

(1,144

)

 

 

(75

)

Comprehensive loss

 

$

(686

)

 

$

(366

)

 

$

(966

)

 

$

(563

)

Comprehensive earnings attributable to noncontrolling interests

 

 

 

 

 

90

 

 

 

 

 

 

134

 

Comprehensive loss attributable to Devon

 

$

(686

)

 

$

(456

)

 

$

(966

)

 

$

(697

)

 

See accompanying notes to consolidated financial statements

 

6

 


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

495

 

 

$

(335

)

 

$

178

 

 

$

(488

)

Adjustments to reconcile net earnings (loss) to net cash from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings from discontinued operations, net of income tax expense

 

 

(329

)

 

 

(161

)

 

 

(358

)

 

 

(216

)

Depreciation, depletion and amortization

 

 

394

 

 

 

342

 

 

 

774

 

 

 

647

 

Asset impairments

 

 

 

 

 

154

 

 

 

 

 

 

154

 

Leasehold impairments

 

 

1

 

 

 

53

 

 

 

2

 

 

 

61

 

Accretion on discounted liabilities

 

 

10

 

 

 

9

 

 

 

20

 

 

 

18

 

Total (gains) losses on commodity derivatives

 

 

(140

)

 

 

487

 

 

 

465

 

 

 

600

 

Cash settlements on commodity derivatives

 

 

23

 

 

 

(144

)

 

 

54

 

 

 

(229

)

(Gains) losses on asset dispositions

 

 

(1

)

 

 

23

 

 

 

(45

)

 

 

11

 

Deferred income tax expense (benefit)

 

 

69

 

 

 

 

 

 

(38

)

 

 

(4

)

Share-based compensation

 

 

23

 

 

 

53

 

 

 

69

 

 

 

87

 

Early retirement of debt

 

 

 

 

 

 

 

 

 

 

 

312

 

Other

 

 

2

 

 

 

(20

)

 

 

(12

)

 

 

(65

)

Changes in assets and liabilities, net

 

 

(59

)

 

 

65

 

 

 

(143

)

 

 

71

 

Net cash from operating activities - continuing operations

 

 

488

 

 

 

526

 

 

 

966

 

 

 

959

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(494

)

 

 

(543

)

 

 

(996

)

 

 

(1,105

)

Acquisitions of property and equipment

 

 

(13

)

 

 

(10

)

 

 

(23

)

 

 

(16

)

Divestitures of property and equipment

 

 

28

 

 

 

560

 

 

 

339

 

 

 

607

 

Net cash from investing activities - continuing operations

 

 

(479

)

 

 

7

 

 

 

(680

)

 

 

(514

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of long-term debt principal

 

 

 

 

 

 

 

 

(162

)

 

 

(807

)

Early retirement of debt

 

 

 

 

 

 

 

 

 

 

 

(304

)

Repurchases of common stock

 

 

(187

)

 

 

(428

)

 

 

(1,185

)

 

 

(499

)

Dividends paid on common stock

 

 

(37

)

 

 

(42

)

 

 

(71

)

 

 

(74

)

Shares exchanged for tax withholdings

 

 

(3

)

 

 

(6

)

 

 

(22

)

 

 

(35

)

Net cash from financing activities - continuing operations

 

 

(227

)

 

 

(476

)

 

 

(1,440

)

 

 

(1,719

)

Net change in cash, cash equivalents and restricted cash of continuing operations

 

 

(218

)

 

 

57

 

 

 

(1,154

)

 

 

(1,274

)

Cash flows from discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

 

135

 

 

 

(21

)

 

 

33

 

 

 

350

 

Investing activities

 

 

2,544

 

 

 

(281

)

 

 

2,497

 

 

 

(550

)

Financing activities

 

 

 

 

 

73

 

 

 

(8

)

 

 

103

 

Effect of exchange rate changes on cash

 

 

37

 

 

 

227

 

 

 

39

 

 

 

212

 

Net change in cash, cash equivalents and restricted cash of discontinued operations

 

 

2,716

 

 

 

(2

)

 

 

2,561

 

 

 

115

 

Net change in cash, cash equivalents and restricted cash

 

 

2,498

 

 

 

55

 

 

 

1,407

 

 

 

(1,159

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

1,355

 

 

 

1,470

 

 

 

2,446

 

 

 

2,684

 

Cash, cash equivalents and restricted cash at end of period

 

$

3,853

 

 

$

1,525

 

 

$

3,853

 

 

$

1,525

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,470

 

 

$

1,460

 

 

$

3,470

 

 

$

1,460

 

Cash restricted for discontinued operations

 

 

370

 

 

 

 

 

 

370

 

 

 

 

Restricted cash included in other current assets

 

 

13

 

 

 

28

 

 

 

13

 

 

 

28

 

Cash and cash equivalents included in current assets associated with

   discontinued operations

 

 

 

 

 

37

 

 

 

 

 

 

37

 

Total cash, cash equivalents and restricted cash

 

$

3,853

 

 

$

1,525

 

 

$

3,853

 

 

$

1,525

 

 

See accompanying notes to consolidated financial statements

7

 


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,470

 

 

$

2,414

 

Cash restricted for discontinued operations

 

 

370

 

 

 

 

Accounts receivable

 

 

842

 

 

 

855

 

Current assets associated with discontinued operations

 

 

131

 

 

 

283

 

Other current assets

 

 

354

 

 

 

885

 

Total current assets

 

 

5,167

 

 

 

4,437

 

Oil and gas property and equipment, based on successful efforts

   accounting, net

 

 

8,987

 

 

 

8,982

 

Other property and equipment, net

 

 

1,050

 

 

 

1,044

 

Total property and equipment, net

 

 

10,037

 

 

 

10,026

 

Goodwill

 

 

841

 

 

 

841

 

Right-of-use assets

 

 

273

 

 

 

 

Other long-term assets

 

 

232

 

 

 

276

 

Long-term assets associated with discontinued operations

 

 

99

 

 

 

3,986

 

Total assets

 

$

16,649

 

 

$

19,566

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

522

 

 

$

563

 

Revenues and royalties payable

 

 

772

 

 

 

832

 

Short-term debt

 

 

 

 

 

162

 

Current liabilities associated with discontinued operations

 

 

1,894

 

 

 

338

 

Other current liabilities

 

 

279

 

 

 

331

 

Total current liabilities

 

 

3,467

 

 

 

2,226

 

Long-term debt

 

 

4,294

 

 

 

4,292

 

Lease liabilities

 

 

263

 

 

 

 

Asset retirement obligations

 

 

528

 

 

 

606

 

Other long-term liabilities

 

 

431

 

 

 

442

 

Long-term liabilities associated with discontinued operations

 

 

189

 

 

 

2,285

 

Deferred income taxes

 

 

483

 

 

 

529

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.10 par value. Authorized 1.0 billion shares; issued

   410 million and 450 million shares in 2019 and 2018, respectively

 

 

41

 

 

 

45

 

Additional paid-in capital

 

 

3,352

 

 

 

4,486

 

Retained earnings

 

 

3,738

 

 

 

3,650

 

Accumulated other comprehensive earnings (loss)

 

 

(117

)

 

 

1,027

 

Treasury stock, at cost, 0.7 million and 1.0 million shares in 2019 and 2018,

   respectively

 

 

(20

)

 

 

(22

)

Total stockholders’ equity

 

 

6,994

 

 

 

9,186

 

Total liabilities and stockholders' equity

 

$

16,649

 

 

$

19,566

 

 

See accompanying notes to consolidated financial statements

 

 

 

 


8

 


Table of Contents

 

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Earnings (Loss)

 

 

Stock

 

 

Interests

 

 

Equity

 

 

 

(Unaudited)

 

Three Months Ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2019

 

 

417

 

 

$

42

 

 

$

3,518

 

 

$

3,280

 

 

$

1,064

 

 

$

(47

)

 

$

 

 

$

7,857

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

495

 

 

 

 

 

 

 

 

 

 

 

 

495

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,181

)

 

 

 

 

 

 

 

 

(1,181

)

Common stock repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(164

)

 

 

 

 

 

(164

)

Common stock retired

 

 

(7

)

 

 

(1

)

 

 

(190

)

 

 

 

 

 

 

 

 

191

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(37

)

 

 

 

 

 

 

 

 

 

 

 

(37

)

Share-based compensation

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

Balance as of June 30, 2019

 

 

410

 

 

$

41

 

 

$

3,352

 

 

$

3,738

 

 

$

(117

)

 

$

(20

)

 

$

 

 

$

6,994

 

Three Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2018

 

 

526

 

 

$

53

 

 

$

7,269

 

 

$

473

 

 

$

1,122

 

 

$

(12

)

 

$

4,820

 

 

$

13,725

 

Net earnings (loss)

 

 

 

 

 

 

 

 

 

 

 

(425

)

 

 

 

 

 

 

 

 

90

 

 

 

(335

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31

)

 

 

 

 

 

 

 

 

(31

)

Common stock repurchased

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(444

)

 

 

 

 

 

(445

)

Common stock retired

 

 

(11

)

 

 

(1

)

 

 

(433

)

 

 

 

 

 

 

 

 

434

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(42

)

 

 

 

 

 

 

 

 

 

 

 

(42

)

Share-based compensation

 

 

 

 

 

 

 

 

53

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

53

 

Subsidiary equity transactions

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

41

 

 

 

40

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(117

)

 

 

(117

)

Balance as of June 30, 2018

 

 

515

 

 

$

51

 

 

$

6,888

 

 

$

6

 

 

$

1,091

 

 

$

(22

)

 

$

4,834

 

 

$

12,848

 

Six Months Ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2018

 

 

450

 

 

$

45

 

 

$

4,486

 

 

$

3,650

 

 

$

1,027

 

 

$

(22

)

 

$

 

 

$

9,186

 

Effect of adoption of lease accounting

 

 

 

 

 

 

 

 

 

 

 

(19

)

 

 

 

 

 

 

 

 

 

 

 

(19

)

Net earnings

 

 

 

 

 

 

 

 

 

 

 

178

 

 

 

 

 

 

 

 

 

 

 

 

178

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,144

)

 

 

 

 

 

 

 

 

(1,144

)

Restricted stock grants, net of cancellations

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,206

)

 

 

 

 

 

(1,206

)

Common stock retired

 

 

(43

)

 

 

(4

)

 

 

(1,204

)

 

 

 

 

 

 

 

 

1,208

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(71

)

 

 

 

 

 

 

 

 

 

 

 

(71

)

Share-based compensation

 

 

 

 

 

 

 

 

70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

70

 

Balance as of June 30, 2019

 

 

410

 

 

$

41

 

 

$

3,352

 

 

$

3,738

 

 

$

(117

)

 

$

(20

)

 

$

 

 

$

6,994

 

Six Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2017

 

 

525

 

 

$

53

 

 

$

7,333

 

 

$

702

 

 

$

1,166

 

 

$

 

 

$

4,850

 

 

$

14,104

 

Net earnings (loss)

 

 

 

 

 

 

 

 

 

 

 

(622

)

 

 

 

 

 

 

 

 

134

 

 

 

(488

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(75

)

 

 

 

 

 

 

 

 

(75

)

Restricted stock grants, net of cancellations

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock repurchased

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(555

)

 

 

 

 

 

(556

)

Common stock retired

 

 

(14

)

 

 

(1

)

 

 

(532

)

 

 

 

 

 

 

 

 

533

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(74

)

 

 

 

 

 

 

 

 

 

 

 

(74

)

Share-based compensation

 

 

1

 

 

 

 

 

 

89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

89

 

Subsidiary equity transactions

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

69

 

 

 

67

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(219

)

 

 

(219

)

Balance as of June 30, 2018

 

 

515

 

 

$

51

 

 

$

6,888

 

 

$

6

 

 

$

1,091

 

 

$

(22

)

 

$

4,834

 

 

$

12,848

 

 

 

See accompanying notes to consolidated financial statements

 

9

 


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.

Summary of Significant Accounting Policies

The accompanying unaudited interim financial statements and notes of Devon have been prepared pursuant to the rules and regulations of the SEC. Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. The accompanying unaudited interim financial statements and notes should be read in conjunction with the financial statements and notes included in Devon’s 2018 Annual Report on Form 10-K.

The accompanying unaudited interim financial statements in this report reflect all adjustments that are, in the opinion of management, necessary for a fair statement of Devon’s results of operations and cash flows for the three-month and six-month periods ended June 30, 2019 and 2018 and Devon’s financial position as of June 30, 2019. As further discussed in Note 18, Devon sold its Canadian operations on June 27, 2019 and its ownership interests in EnLink and the General Partner on July 18, 2018. Activity relating to Devon’s Canadian operations and EnLink and the General Partner are classified as discontinued operations within Devon’s consolidated comprehensive statements of earnings and consolidated statements of cash flows. The associated assets and liabilities of Devon’s Canadian operations are presented as assets and liabilities associated with discontinued operations on the consolidated balance sheets.

 

Segment Information

 

Subsequent to the sale of Devon’s Canadian business in 2019 discussed in Note 18, Devon’s oil and gas exploration and production activities are solely focused in the U.S. For financial reporting purposes, Devon aggregates its U.S. operating segments into one reporting segment due to the similar nature of its business. With the reclassification of Devon’s Canadian operations to discontinued operations and assets and liabilities associated with discontinued operations, Devon now has one reporting segment, which is reflected in the consolidated financial statements.

 

The following table presents revenue from contracts with customers that are disaggregated based on the type of good.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Oil

 

$

753

 

 

$

808

 

 

$

1,414

 

 

$

1,485

 

Gas

 

 

147

 

 

 

207

 

 

 

380

 

 

 

462

 

NGL

 

 

151

 

 

 

238

 

 

 

325

 

 

 

436

 

Oil, gas and NGL revenues from

   contracts with customers

 

 

1,051

 

 

 

1,253

 

 

 

2,119

 

 

 

2,383

 

Oil, gas and NGL derivatives

 

 

140

 

 

 

(487

)

 

 

(465

)

 

 

(600

)

Upstream revenues

 

 

1,191

 

 

 

766

 

 

 

1,654

 

 

 

1,783

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

 

394

 

 

 

766

 

 

 

750

 

 

 

1,297

 

Gas

 

 

172

 

 

 

160

 

 

 

390

 

 

 

315

 

NGL

 

 

164

 

 

 

230

 

 

 

355

 

 

 

406

 

Total marketing revenues from

   contracts with customers

 

 

730

 

 

 

1,156

 

 

 

1,495

 

 

 

2,018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

1,921

 

 

$

1,922

 

 

$

3,149

 

 

$

3,801

 

 

Recently Adopted Accounting Standards

 

In January 2019, Devon adopted ASU 2016-02, Leases (Topic 842), using the modified retrospective method. See Note 14 for further discussion regarding Devon’s adoption of the leases standard.

10

 


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The SEC released Final Rule No. 33 -10532, Disclosure Update and Simplification, which amends various SEC disclosure requirements determined to be redundant, duplicative, overlapping, outdated or superseded as part of the SEC’s ongoing disclosure effectiveness initiative. The rule was effective November 5, 2018. The rule amended numerous SEC rules, items and forms covering a diverse group of topics. Devon has implemented these required changes which generally reduced or eliminated disclosures. Devon adopted the requirement of presenting current and comparative quarterly stockholders’ equity roll forwards in the first quarter of 2019.

The SEC released Final Rule Release No. 33-10618, FAST Act Modernization and Simplification of Regulation S-K, which amends Regulation S-K to modernize and simplify certain disclosure requirements in a manner that reduces costs and burdens on registrants while continuing to provide all material information to investors. The rule became effective May 2, 2019. The rule amended numerous SEC rules, items and forms covering a diverse group of topics, primarily focusing on reducing or eliminating disclosures. Other than presentation, this adoption did not have a material impact on Devon’s consolidated financial statements.

Issued Accounting Standards Not Yet Adopted

The FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement. This ASU will eliminate, add and modify certain disclosure requirements for fair value measurement. The ASU is effective for annual and interim periods beginning January 1, 2020, with early adoption permitted for either the entire standard or only the provisions that eliminate or modify requirements. The ASU requires the additional disclosure requirements to be adopted using a retrospective approach. Devon is currently evaluating the provisions of this ASU and assessing the impact it may have on its disclosures in the notes to the consolidated financial statements.

 

The FASB issued ASU 2018-15, Intangibles, Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU will require a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. This ASU is effective for annual and interim periods beginning January 1, 2020, with early adoption permitted. Entities have the option to adopt the ASU using either a retrospective approach or a prospective approach applied to all implementation costs incurred after the date of the adoption. Devon is currently evaluating the provisions of this ASU and assessing the impact it may have on its consolidated financial statements.

 

2.Divestitures

 

In February 2019, Devon announced its intent to separate its Canadian business and Barnett Shale assets from the Company, based on authorizations provided by its Board of Directors. On June 27, 2019, Devon completed the sale of all of its operating assets and operations in Canada to Canadian Natural Resources Limited for proceeds, net of purchase price adjustments, of $2.6 billion ($3.4 billion Canadian dollars), and recognized a pre-tax gain of $189 million ($460 million, net of tax). As a part of the transaction, $436 million of asset retirement obligations were assumed by Canadian Natural Resources Limited. In aggregate, the total estimated proved reserves associated with these assets were approximately 400 MMBoe, or 21% of total proved reserves. In conjunction with the Canadian divestiture, Devon recognized $273 million of restructuring and asset impairment related charges. These costs relate to personnel, office lease abandonment and a firm transportation agreement abandonment. Additional information on these discontinued operations can be found in Note 18.

Devon is evaluating multiple methods of separation for the Barnett Shale assets, including a potential sale, potential mergers or spin-off. As of June 30, 2019, Devon does not currently have any indications that it would recognize an impairment upon separating its Barnett Shale assets as they are long-lived assets that are held for use. This conclusion is based on probability-weighted computations applied to the separation methods currently under evaluation. As of June 30, 2019, Devon’s carrying value of its Barnett Shale net assets (property and equipment, asset retirement obligations and estimated allocated goodwill) was approximately $1.4 billion. Should Devon enter into a transaction that causes Devon to cease having control, such as a cash sale or exchange for a noncontrolling interest in another entity or combination thereof, Devon would recognize a gain or loss based on the value of the proceeds and/or equity interests as compared to the carrying value. Devon anticipates reporting all information for its Barnett Shale assets as discontinued operations in 2019 when all the requisite criteria are met for such financial statement presentation.

In the first quarter of 2019, Devon received proceeds of approximately $300 million and recognized a $44 million net gain on asset dispositions, primarily from sales of non-core assets in the Permian Basin. In aggregate, the total estimated proved reserves associated with these divested assets were approximately 25 MMBoe, or less than 2% of total U.S. proved reserves. As of December

11


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

31, 2018, assets and liabilities associated with these divested assets were classified as held for sale in the accompanying consolidated balance sheet.

During the second quarter of 2018, Devon sold a portion of its Barnett Shale assets, primarily located in Johnson County for $553 million. Estimated proved reserves associated with these assets were approximately 10% of total proved reserves. The transaction resulted in an adjustment to Devon’s capitalized costs with no gain recognized in the consolidated statement of earnings. In conjunction with the divestiture, Devon settled certain gas processing contracts and recognized an approximately $40 million settlement expense, which is included in asset dispositions within the consolidated statement of earnings.

 

3.Derivative Financial Instruments

Objectives and Strategies

Devon enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production to hedge future prices received. Additionally, Devon periodically enters into derivative financial instruments with respect to a portion of its oil, gas and NGL marketing activities. These commodity derivative financial instruments include financial price swaps, basis swaps and costless price collars. Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. As of June 30, 2019, Devon did not have any open interest rate swap contracts.

Devon does not intend to hold or issue derivative financial instruments for speculative trading purposes and has elected not to designate any of its derivative instruments for hedge accounting treatment.

Counterparty Credit Risk

By using derivative financial instruments, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon’s policy to enter into derivative contracts only with investment-grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon’s derivative contracts generally contain provisions that provide for collateral payments if Devon’s or its counterparty’s credit rating falls below certain credit rating levels.

Commodity Derivatives

As of June 30, 2019, Devon had the following open oil derivative positions. The first two tables present Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The third table presents Devon’s oil derivatives that settle against the respective indices noted within the table.

 

 

 

Price Swaps

 

 

Price Collars

 

Period

 

Volume

(Bbls/d)

 

 

Weighted

Average

Price ($/Bbl)

 

 

Volume

(Bbls/d)

 

 

Weighted

Average Floor

Price ($/Bbl)

 

 

Weighted

Average

Ceiling Price

($/Bbl)

 

Q3-Q4 2019

 

 

41,100

 

 

$

60.76

 

 

 

79,750

 

 

$

54.89

 

 

$

64.92

 

Q1-Q4 2020

 

 

3,238

 

 

$

60.13

 

 

 

22,432

 

 

$

52.92

 

 

$

63.03

 

 

 

 

Three-Way Price Collars

 

Period

 

Volume

(Bbls/d)

 

 

Weighted

Average Floor Sold

Price ($/Bbl)

 

 

Weighted

Average Floor Purchased

Price ($/Bbl)

 

 

Weighted

Average

Ceiling Price

($/Bbl)

 

Q3-Q4 2019

 

 

5,000

 

 

$

50.00

 

 

$

63.00

 

 

$

74.80

 

12


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

 

 

Oil Basis Swaps

 

Period

 

Index

 

Volume

(Bbls/d)

 

 

Weighted Average

Differential to WTI

($/Bbl)

 

Q3-Q4 2019

 

Midland Sweet

 

 

28,000

 

 

$

(0.46

)

Q3-Q4 2019

 

Argus LLS

 

 

7,500

 

 

$

5.18

 

Q3-Q4 2019

 

Argus MEH

 

 

26,000

 

 

$

3.33

 

Q3-Q4 2019

 

NYMEX Roll

 

 

38,000

 

 

$

0.45

 

Q1-Q4 2020

 

Argus MEH

 

 

9,000

 

 

$

3.44

 

Q1-Q4 2020

 

NYMEX Roll

 

 

42,000

 

 

$

0.32

 

 

As of June 30, 2019, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.

 

 

 

Price Swaps

 

 

Price Collars

 

Period

 

Volume (MMBtu/d)

 

 

Weighted Average Price ($/MMBtu)

 

 

Volume (MMBtu/d)

 

 

Weighted Average Floor Price ($/MMBtu)

 

 

Weighted Average

Ceiling Price ($/MMBtu)

 

Q3-Q4 2019

 

 

257,800

 

 

$

2.80

 

 

 

200,500

 

 

$

2.63

 

 

$

3.02

 

Q1-Q4 2020

 

 

81,409

 

 

$

2.77

 

 

 

42,557

 

 

$

2.73

 

 

$

3.03

 

 

 

 

Natural Gas Basis Swaps

 

Period

 

Index

 

Volume

(MMBtu/d)

 

 

Weighted Average

Differential to

Henry Hub

($/MMBtu)

 

Q3-Q4 2019

 

Panhandle Eastern Pipe Line

 

 

20,000

 

 

$

(0.56

)

Q3-Q4 2019

 

El Paso Natural Gas

 

 

130,000

 

 

$

(1.46

)

Q3-Q4 2019

 

Houston Ship Channel

 

 

162,500

 

 

$

0.01

 

Q1-Q4 2020

 

Panhandle Eastern Pipe Line

 

 

30,000

 

 

$

(0.47

)

Q1-Q4 2020

 

El Paso Natural Gas

 

 

40,000

 

 

$

(0.67

)

Q1-Q4 2020

 

Houston Ship Channel

 

 

10,000

 

 

$

0.02

 

 

 

As of June 30, 2019, Devon had the following open NGL derivative positions. Devon’s NGL positions settle against the average of the prompt month OPIS Mont Belvieu, Texas index.

 

 

 

 

 

Price Swaps

 

Period

 

Product

 

Volume (Bbls/d)

 

 

Weighted Average Price ($/Bbl)

 

Q3-Q4 2019

 

Ethane

 

 

1,000

 

 

$

11.55

 

Q3-Q4 2019

 

Natural Gasoline

 

 

4,500

 

 

$

55.93

 

Q3-Q4 2019

 

Normal Butane

 

 

4,000

 

 

$

33.69

 

Q3-Q4 2019

 

Propane

 

 

8,500

 

 

$

30.01

 

Q1-Q4 2020

 

Propane

 

 

2,500

 

 

$

27.29

 

 

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Financial Statement Presentation

The following table presents the net gains and losses by derivative financial instrument type followed by the corresponding individual consolidated comprehensive statements of earnings caption.

 

 

Three Months

Ended June 30,

 

 

Six Months

Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Commodity derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream revenues

 

$

140

 

 

$

(487

)

 

$

(465

)

 

$

(600

)

Marketing revenues

 

 

 

 

 

(1

)

 

 

1

 

 

 

(1

)

Interest rate derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

19

 

 

 

 

 

 

65

 

Net gains (losses) recognized

 

$

140

 

 

$

(469

)

 

$

(464

)

 

$

(536

)

 

The following table presents the derivative fair values by derivative financial instrument type followed by the corresponding individual consolidated balance sheet caption.

 

 

June 30, 2019

 

 

December 31, 2018

 

Commodity derivative assets:

 

 

 

 

 

 

 

 

Other current assets

 

$

117

 

 

$

634

 

Other long-term assets

 

 

10

 

 

 

40

 

Total derivative assets

 

$

127

 

 

$

674

 

Commodity derivative liabilities:

 

 

 

 

 

 

 

 

Other current liabilities

 

$

7

 

 

$

32

 

Other long-term liabilities

 

 

 

 

 

1

 

Total derivative liabilities

 

$

7

 

 

$

33

 

 

4.Share-Based Compensation

 

The table below presents the share-based compensation expense included in Devon’s accompanying consolidated comprehensive statements of earnings. The vesting for certain share-based awards was accelerated in conjunction with the reduction of workforce described in Note 6 and is included in restructuring and transaction costs in the accompanying consolidated comprehensive statements of earnings.

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

G&A

 

$

44

 

 

$

59

 

Exploration expenses

 

 

1

 

 

 

2

 

Restructuring and transaction costs

 

 

24

 

 

 

26

 

Total

 

$

69

 

 

$

87

 

Related income tax benefit

 

$

10

 

 

$

 

 

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Under its approved long-term incentive plan, Devon granted share-based awards to certain employees in the first six months of 2019. The following table presents a summary of Devon’s unvested restricted stock awards and units, performance-based restricted stock awards and performance share units granted under the plan.

 

 

 

Restricted Stock

 

 

Performance-Based

 

 

Performance

 

 

 

Awards and Units

 

 

Restricted Stock Awards

 

 

Share Units

 

 

 

Awards and

Units

 

 

Weighted

Average

Grant-Date

Fair Value

 

 

Awards

 

 

Weighted

Average

Grant-Date

Fair Value

 

 

Units

 

 

 

 

 

Weighted

Average

Grant-Date

Fair Value

 

 

 

(Thousands, except fair value data)

 

Unvested at 12/31/18

 

 

5,963

 

 

$

35.47

 

 

 

302

 

 

$

35.93

 

 

 

2,868

 

 

 

 

 

$

30.14

 

Granted

 

 

4,383

 

 

$

25.49

 

 

 

 

 

$

 

 

 

741

 

 

 

 

 

$

28.97

 

Vested

 

 

(4,295

)

 

$

33.60

 

 

 

(141

)

 

$

37.48

 

 

 

(145

)

 

 

 

 

$

37.23

 

Forfeited

 

 

(557

)

 

$

27.16

 

 

 

 

 

$

 

 

 

(1,276

)

 

 

 

 

$

11.34

 

Unvested at 6/30/19

 

 

5,494

 

 

$

29.80

 

 

 

161

 

 

$

34.56

 

 

 

2,188

 

 

(1

)

 

$

40.25

 

 

(1)

A maximum of 4.4 million common shares could be awarded based upon Devon’s final TSR ranking.

The following table presents the assumptions related to the performance share units granted in 2019, as indicated in the previous summary table.

 

 

 

2019

 

Grant-date fair value

 

$

28.43

 

 

 

$

29.53

 

Risk-free interest rate

 

2.48%

 

Volatility factor

 

39.1%

 

Contractual term (years)

 

2.89

 

 

The following table presents a summary of the unrecognized compensation cost and the related weighted average recognition period associated with unvested awards and units as of June 30, 2019.

 

 

 

 

 

 

 

Performance-Based

 

 

 

 

 

 

 

Restricted Stock

 

 

Restricted Stock

 

 

Performance

 

 

 

Awards and Units

 

 

Awards

 

 

Share Units

 

Unrecognized compensation cost

 

$

116

 

 

$

 

 

$

25

 

Weighted average period for recognition (years)

 

 

2.8

 

 

 

1.9

 

 

 

1.7

 

 

5.Asset Impairments

Unproved Impairments

During the first six months of 2018, Devon impaired certain non-core acreage in the U.S. that it no longer intends to pursue for exploration opportunities, resulting in unproved impairments of $61 million. Unproved impairments are included in exploration expenses in the consolidated comprehensive statements of earnings.

Asset Impairments

During the second quarter of 2018, Devon recognized $109 million of proved asset impairments relating to U.S. non-core assets no longer in its development plans and approximately $45 million of non-oil and gas asset impairments.

6.Restructuring and Transaction Costs

During the first quarter of 2019, Devon announced workforce reductions and other initiatives designed to enhance its operational focus and cost structure in conjunction with the portfolio transformation announcement further discussed in Note 2. As a result, Devon recognized $63 million of restructuring expenses during the first six months of 2019. Of these expenses, $24 million resulted from

15


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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

accelerated vesting of share-based grants, which are noncash charges. Additionally, $5 million resulted from settlements of defined retirement benefits.

During the second quarter of 2018, Devon recognized $85 million in personnel related restructuring expenses related to workforce reductions. Of these expenses, $26 million resulted from accelerated vesting of share-based grants, which are noncash charges. Additionally, $15 million resulted from estimated settlements of defined retirement benefits.

Devon anticipates recognizing additional restructuring charges in 2019 primarily when the separation of its Barnett Shale assets is completed.

The following table summarizes Devon’s restructuring liabilities.

 

 

Other

 

 

Other

 

 

 

 

 

 

 

Current

 

 

Long-term

 

 

 

 

 

 

 

Liabilities

 

 

Liabilities

 

 

Total

 

Balance as of December 31, 2018

 

$

39

 

 

$

3

 

 

$

42

 

Changes related to 2019 workforce reductions

 

 

23

 

 

 

 

 

 

23

 

Changes related to prior years' restructurings

 

 

(23

)

 

 

(2

)

 

 

(25

)

Balance as of June 30, 2019

 

$

39

 

 

$

1

 

 

$

40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2017

 

$

17

 

 

$

17

 

 

$

34

 

Changes related to prior years' restructurings

 

 

42

 

 

 

(7

)

 

 

35

 

Balance as of June 30, 2018

 

$

59

 

 

$

10

 

 

$

69

 

 

7.Income Taxes

The following table presents Devon’s total income tax expense (benefit) and a reconciliation of its effective income tax rate to the U.S. statutory income tax rate.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Current income tax expense (benefit)

 

$

2

 

 

$

13

 

 

$

(1

)

 

$

14

 

Deferred income tax expense (benefit)

 

 

69

 

 

 

 

 

 

(38

)

 

 

(4

)

Total income tax expense (benefit)

 

$

71

 

 

$

13

 

 

$

(39

)

 

$

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. statutory income tax rate

 

 

21

%

 

 

21

%

 

 

21

%

 

 

21

%

State income taxes

 

 

8

%

 

 

(1

%)

 

 

4

%

 

 

(1

%)

Other

 

 

1

%

 

 

3

%

 

 

(7

%)

 

 

(2

%)

Deferred tax asset valuation allowance

 

 

%

 

 

(26

%)

 

 

%

 

 

(19

%)

Effective income tax rate

 

 

30

%

 

 

(3

%)

 

 

18

%

 

 

(1

%)

 

Devon estimates its annual effective income tax rate to record its quarterly provision for income taxes in the various jurisdictions in which it operates. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur.

In the second quarter of 2019, the deferred tax asset representing Devon’s U.S. state net operating loss that is subject to a valuation allowance increased by $11 million from the first quarter of 2019. The corresponding increase in the valuation allowance against the state net operating loss resulted in a deferred tax expense, which is included within state income taxes in the table above.

In the table above, the “other” effect is primarily composed of permanent differences for which dollar amounts do not increase or decrease in relation to the change in pre-tax earnings. Generally, such items have an insignificant impact on Devon’s effective income tax rate. However, these items had a more noticeable impact to the rate in the first six months of 2019 due to the low relative net loss during the period.

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Through the first six months of 2018, Devon maintained a 100% valuation allowance against its U.S. deferred tax assets resulting from prior year cumulative financial losses, oil and gas impairments, and significant net operating losses for U.S. federal and state income tax. However, upon closing the EnLink divestiture in the third quarter of 2018, Devon reassessed its position and determined that a full valuation allowance against its U.S. deferred tax assets was no longer necessary, maintaining only valuation allowances against certain deferred tax assets, including certain tax credits and state net operating losses.

On June 27, 2019, Devon completed the sale of all of its Canadian operating assets. Devon’s foreign earnings have not been considered indefinitely reinvested since the announcement of the plan to separate the assets in the first quarter of 2019. As the separation took the form of an asset sale and Devon has retained certain non-operating obligations to be settled over time, Devon has not recorded a deferred tax asset or corresponding valuation allowance related to its Canadian investment.

As the sale of all of its Canadian operating assets closed during the second quarter of 2019, Devon has recorded materially all tax impacts related to the Canadian business in discontinued operations. Additional information on these discontinued operations can be found in Note 18.

 

8.

Net Earnings (Loss) Per Share from Continuing Operations

The following table reconciles net earnings (loss) from continuing operations and weighted-average common shares outstanding used in the calculations of basic and diluted net earnings (loss) per share from continuing operations.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net earnings (loss) from continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss) from continuing operations

 

$

166

 

 

$

(496

)

 

$

(180

)

 

$

(704

)

Attributable to participating securities

 

 

(2

)

 

 

(1

)

 

 

(1

)

 

 

(1

)

Basic and diluted earnings (loss) from continuing operations

 

$

164

 

 

$

(497

)

 

$

(181

)

 

$

(705

)

Common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding - total

 

 

415

 

 

 

521

 

 

 

425

 

 

 

524

 

Attributable to participating securities

 

 

(6

)

 

 

(6

)

 

 

(6

)

 

 

(6

)

Common shares outstanding - basic

 

 

409

 

 

 

515

 

 

 

419

 

 

 

518

 

Dilutive effect of potential common shares issuable

 

 

2

 

 

 

 

 

 

 

 

 

 

Common shares outstanding - diluted

 

 

411

 

 

 

515

 

 

 

419

 

 

 

518

 

Net earnings (loss) per share from continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.40

 

 

$

(0.97

)

 

$

(0.43

)

 

$

(1.36

)

Diluted

 

$

0.40

 

 

$

(0.97

)

 

$

(0.43

)

 

$

(1.36

)

Antidilutive options (1)

 

 

1

 

 

 

2

 

 

 

1

 

 

 

2

 

 

(1)

Amounts represent options to purchase shares of Devon’s common stock that are excluded from the diluted net earnings per share calculations because the options are antidilutive.

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

9.

Other Comprehensive Earnings (Loss)

Components of other comprehensive earnings consist of the following:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Foreign currency translation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning accumulated foreign currency translation and other

 

$

1,194

 

 

$

1,261

 

 

$

1,159

 

 

$

1,309

 

Change in cumulative translation adjustment

 

 

43

 

 

 

(36

)

 

 

78

 

 

 

(96

)

Release of Canadian cumulative translation adjustment (1)

 

 

(1,237

)

 

 

 

 

 

(1,237

)

 

 

 

Income tax benefit

 

 

 

 

 

2

 

 

 

 

 

 

14

 

Ending accumulated foreign currency translation

 

 

 

 

 

1,227

 

 

 

 

 

 

1,227

 

Pension and postretirement benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning accumulated pension and postretirement benefits

 

 

(130

)

 

 

(139

)

 

 

(132

)

 

 

(143

)

Recognition of net actuarial loss and prior service cost in earnings (2)

 

 

17

 

 

 

3

 

 

 

20

 

 

 

7

 

Income tax expense

 

 

(4

)

 

 

 

 

 

(5

)

 

 

 

Ending accumulated pension and postretirement benefits

 

 

(117

)

 

 

(136

)

 

 

(117

)

 

 

(136

)

Accumulated other comprehensive earnings (loss), net of tax

 

$

(117

)

 

$

1,091

 

 

$

(117

)

 

$

1,091

 

 

(1)

In conjunction with the sale of all of its Canadian operating assets, Devon released the cumulative translation adjustment as part of its gain on the disposition of its Canadian business. See Note 18 for additional details.

(2)

These accumulated other comprehensive earnings components are included in the computation of net periodic benefit cost, which is a component of other expenses in the accompanying consolidated comprehensive statements of earnings. See Note 16 for additional details.

 

 

10.

Supplemental Information to Statements of Cash Flows

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Changes in assets and liabilities, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$

60

 

 

$

(131

)

 

$

31

 

 

$

(162

)

Other current assets

 

 

(5

)

 

 

6

 

 

 

7

 

 

 

(95

)

Other long-term assets

 

 

(6

)

 

 

(25

)

 

 

(15

)

 

 

(66

)

Accounts payable

 

 

15

 

 

 

73

 

 

 

(21

)

 

 

93

 

Revenues and royalties payable

 

 

(68

)

 

 

139

 

 

 

(60

)

 

 

210

 

Other current liabilities

 

 

(67

)

 

 

4

 

 

 

(90

)

 

 

95

 

Other long-term liabilities

 

 

12

 

 

 

(1

)

 

 

5

 

 

 

(4

)

Total

 

$

(59

)

 

$

65

 

 

$

(143

)

 

$

71

 

Supplementary cash flow data - total operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid (net of capitalized interest)

 

$

108

 

 

$

138

 

 

$

161

 

 

$

214

 

Income taxes paid (refunded)

 

$

10

 

 

$

(7

)

 

$

16

 

 

$

(6

)

 

 

18


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

11.

Accounts Receivable

Components of accounts receivable include the following:

 

 

 

June 30, 2019

 

 

December 31, 2018

 

Oil, gas and NGL sales

 

$

368

 

 

$

413

 

Joint interest billings

 

 

198

 

 

 

150

 

Marketing revenues

 

 

255

 

 

 

284

 

Other

 

 

27

 

 

 

15

 

Gross accounts receivable

 

 

848

 

 

 

862

 

Allowance for doubtful accounts

 

 

(6

)

 

 

(7

)

Net accounts receivable

 

$

842

 

 

$

855

 

 

12.Property, Plant and Equipment

 

The following table presents the aggregate capitalized costs related to Devon’s oil and gas and non-oil and gas activities.

 

 

 

June 30, 2019

 

 

December 31, 2018

 

Property and equipment:

 

 

 

 

 

 

 

 

Proved

 

$

41,155

 

 

$

40,378

 

Unproved and properties under development

 

 

770

 

 

 

833

 

Total oil and gas

 

 

41,925

 

 

 

41,211

 

Less accumulated DD&A

 

 

(32,938

)

 

 

(32,229

)

Oil and gas property and equipment, net

 

 

8,987

 

 

 

8,982

 

Other property and equipment

 

 

1,735

 

 

 

1,707

 

Less accumulated DD&A

 

 

(685

)

 

 

(663

)

Other property and equipment, net

 

 

1,050

 

 

 

1,044

 

Property and equipment, net

 

$

10,037

 

 

$

10,026

 

 

 

13.

A summary of debt is as follows:

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

6.30% due January 15, 2019

 

$

 

 

$

162

 

5.85% due December 15, 2025

 

 

485

 

 

 

485

 

7.50% due September 15, 2027

 

 

73

 

 

 

73

 

7.875% due September 30, 2031 (1)

 

 

675

 

 

 

675

 

7.95% due April 15, 2032 (1)

 

 

366

 

 

 

366

 

5.60% due July 15, 2041

 

 

1,250

 

 

 

1,250

 

4.75% due May 15, 2042

 

 

750

 

 

 

750

 

5.00% due June 15, 2045

 

 

750

 

 

 

750

 

Net discount on debentures and notes

 

 

(20

)

 

 

(21

)

Debt issuance costs

 

 

(35

)

 

 

(36

)

Total debt

 

 

4,294

 

 

 

4,454

 

Less amount classified as short-term debt

 

 

 

 

 

162

 

Total long-term debt

 

$

4,294

 

 

$

4,292

 

 

 

(1)

These senior notes were included in the 2018 tender offer repurchases discussed below.


19


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Credit Lines

Devon has a $3.0 billion Senior Credit Facility. As of June 30, 2019, Devon had no outstanding borrowings under the Senior Credit Facility and had issued $3 million in outstanding letters of credit under this facility. The Senior Credit Facility contains only one material financial covenant. This covenant requires Devon’s ratio of total funded debt to total capitalization, as defined in the credit agreement, to be no greater than 65%. Under the terms of the credit agreement, total capitalization is adjusted to add back noncash financial write-downs such as impairments. As of June 30, 2019, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 23.4%.

 

In connection with the closing of the sale of its Canadian business, Devon reallocated and terminated all Canadian commitments under the Senior Credit Facility in accordance with the terms of the credit agreement governing the Senior Credit Facility. The termination of the Canadian subfacility was effective as of June 27, 2019, and such termination did not decrease the $3.0 billion in total revolving commitments under, or otherwise modify the terms of, the Senior Credit Facility.

Retirement of Senior Notes

In January 2019, Devon repaid the $162 million of 6.30% senior notes at maturity.

In the first quarter of 2018, Devon completed tender offers to repurchase $807 million in aggregate principal amount of debt securities, using cash on hand. This included $384 million of the 7.875% senior notes due September 30, 2031 and $423 million of the 7.95% senior notes due April 15, 2032. Devon recognized a $312 million loss on early retirement of debt, consisting of $304 million in cash retirement costs and $8 million of noncash charges. These costs, along with other charges associated with retiring the debt, are included in net financing costs in the consolidated comprehensive statements of earnings.

Net Financing Costs

The following schedule includes the components of net financing costs.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Interest based on debt outstanding

 

$

65

 

 

$

68

 

 

$

130

 

 

$

151

 

Early retirement of debt

 

 

 

 

 

 

 

 

 

 

 

312

 

Other

 

 

1

 

 

 

(4

)

 

 

(4

)

 

 

(10

)

Total net financing costs

 

$

66

 

 

$

64

 

 

$

126

 

 

$

453

 

 

14.Leases

 

Devon adopted ASU No. 2016-02, Leases (Topic 842), as of January 1, 2019, using the modified retrospective transition approach. ASC 842 supersedes the previous lease accounting requirements in ASC 840 and requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. ASC 842 establishes a right-of-use model that requires a lessee to recognize a right-of-use asset and lease liability on the balance sheet for all leases with a term longer than 12 months. At adoption, using the modified retrospective transition approach, Devon recorded right-of-use lease assets of $394 million and lease liabilities of $380 million. Additionally, Devon recorded a $24 million before tax, $19 million net of tax, cumulative-effect adjustment to reduce retained earnings. Comparative periods have been presented in accordance with ASC Topic 840 and do not include any retrospective adjustments to reflect the adoption of Topic 842. Excluding land easements and rights-of-way, all leases that existed at January 1, 2019 or were entered into or modified thereafter, are accounted for under Topic 842. Devon elected the practical expedient provided in the standard that allows the new guidance to be applied prospectively to all new or modified land easements and rights-of-way. Devon also elected a policy not to recognize right-of-use assets and lease liabilities related to short-term leases with terms of 12 months or less. Additionally, Devon elected to account for lease components separately from the nonlease components.

 

Devon made certain significant assumptions and judgments in determining its right-of-use asset and lease liability balances. First is the determination of whether a contract contains a lease. Devon considered the presence of an identified asset that is physically distinct, and for which the supplier does not have substantive substitution rights and whether Devon has the right to control the underlying asset. Second, Devon assessed lease terms and considered whether Devon is reasonably certain to extend leases or exercise purchase options. Certain of Devon’s leases include one or more options to renew, with renewal terms that can extend the lease term for additional years. Certain leases also include options to purchase the leased property. For options to renew or purchase that Devon

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

is reasonably certain to exercise, these costs are recognized as part of the right-of-use assets and lease liabilities. Third, significant judgments have been made in determining discount rates. Devon estimates discount rates using market rates that approximate collateralized borrowings over the remaining term of Devon’s lease payments.

 

Devon’s right-of-use operating lease assets are for certain leases related to real estate, drilling rigs and other equipment related to the exploration, development and production of oil and gas. Devon’s right-of-use financing lease assets are related to real estate. Certain of Devon’s lease agreements include variable payments based on usage or rental payments adjusted periodically for inflation. Devon’s lease agreements do not contain any material residual value guarantees or restrictive covenants.  

 

The following table presents Devon’s right-of-use assets and lease liabilities as of June 30, 2019.

 

 

 

Finance

 

 

Operating

 

 

Total

 

Right-of-use assets

 

$

209

 

 

$

64

 

 

$

273

 

Lease liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Current lease liabilities (1)

 

$

7

 

 

$

39

 

 

$

46

 

Long-term lease liabilities

 

 

239

 

 

 

24

 

 

 

263

 

Total lease liabilities

 

$

246

 

 

$

63

 

 

$

309

 

 

(1)

Current lease liabilities are included in other current liabilities on the consolidated balance sheets.

 

The following table presents Devon’s total lease cost.

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

June 30, 2019

 

Operating lease cost

Property, plant and equipment; G&A

 

$

12

 

 

$

25

 

Short-term lease cost (1)

Property, plant and equipment; G&A

 

 

21

 

 

 

45

 

Financing lease cost:

 

 

 

 

 

 

 

 

 

Amortization of right-of-use assets

DD&A

 

 

6

 

 

 

12

 

Interest on lease liabilities

Net financing costs

 

 

2

 

 

 

5

 

Variable lease cost

G&A

 

 

 

 

 

1

 

Lease income

G&A

 

 

(1

)

 

 

(2

)

Net lease cost

 

 

$

40

 

 

$

86

 

 

(1)

Short-term lease cost excludes leases with terms of one month or less.

 

The following table presents Devon’s additional lease information for the three and six months ended June 30, 2019.

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2019

 

 

June 30, 2019

 

 

 

Finance

 

 

Operating

 

 

Finance

 

 

Operating

 

Cash outflows for lease liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows

 

$

1

 

 

$

 

 

$

3

 

 

$

1

 

Investing cash flows

 

$

 

 

$

12

 

 

$

 

 

$

27

 

Right-of-use assets obtained in exchange for new

   lease liabilities

 

$

 

 

$

1

 

 

$

 

 

$

1

 

Weighted average remaining lease term (years)

 

 

8.5

 

 

 

1.9

 

 

 

8.5

 

 

 

1.9

 

Weighted average discount rate

 

 

4.2

%

 

 

3.2

%

 

 

4.2

%

 

 

3.2

%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

The following table presents Devon’s maturity analysis as of June 30, 2019 for leases expiring in each of the next 5 years and thereafter.

 

 

Finance

 

 

Operating

 

 

Total (1)

 

2019

 

$

3

 

 

$

22

 

 

$

25

 

2020

 

 

7

 

 

 

32

 

 

 

39

 

2021

 

 

7

 

 

 

8

 

 

 

15

 

2022

 

 

8

 

 

 

1

 

 

 

9

 

2023

 

 

8

 

 

 

1

 

 

 

9

 

Thereafter

 

 

306

 

 

 

1

 

 

 

307

 

Total lease payments

 

 

339

 

 

 

65

 

 

 

404

 

Less: interest

 

 

(93

)

 

 

(2

)

 

 

(95

)

Present value of lease liabilities

 

$

246

 

 

$

63

 

 

$

309

 

 

(1)

Under previous lease accounting standard, ASC 840, Devon’s lease obligations as of December 31, 2018 expiring in each of the next 5 years and thereafter were $61 million for 2019, $48 million for 2020, $18 million for 2021, $9 million for 2022, $8 million for 2023 and $33 million thereafter.

 

Devon rents or subleases certain real estate to third parties. The following table presents Devon’s expected lease income as of June 30, 2019 for each of the next 5 years and thereafter.

 

 

 

 

Operating

 

 

 

Lease Income (1)

 

2019

 

$

3

 

2020

 

 

6

 

2021

 

 

7

 

2022

 

 

7

 

2023

 

 

7

 

Thereafter

 

 

53

 

Total

 

$

83

 

 

(1)

Included in operating lease income is approximately $30 million related to leases which have been executed but not yet commenced.

 

15.

Asset Retirement Obligations

 

The following table presents the changes in Devon’s asset retirement obligations.

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Asset retirement obligations as of beginning of period

 

$

623

 

 

$

704

 

Liabilities incurred

 

 

8

 

 

 

17

 

Liabilities settled and divested

 

 

(40

)

 

 

(58

)

Revision of estimated obligation

 

 

(63

)

 

 

 

Accretion expense on discounted obligation

 

 

15

 

 

 

18

 

Asset retirement obligations as of end of period

 

 

543

 

 

 

681

 

Less current portion

 

 

15

 

 

 

18

 

Asset retirement obligations, long-term

 

$

528

 

 

$

663

 

 

During the first six months of 2019, Devon reduced its asset retirement obligations by $63 million, primarily due to changes in the future cost estimates and retirement dates for its oil and gas assets.

 

During the second quarter of 2018, Devon reduced its asset retirement obligations by $34 million for those obligations that were assumed by purchasers of certain Barnett Shale assets. For additional information, see Note 2.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

16.

Retirement Plans

 

The following table presents the components of net periodic benefit cost for Devon’s pension benefits plan. There was $1 million of net periodic benefit credit for postretirement benefit plans for all periods presented below.

 

 

 

Pension Benefits

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Service cost

 

$

2

 

 

$

3

 

 

$

3

 

 

$

5

 

Interest cost

 

 

8

 

 

 

10

 

 

 

17

 

 

 

20

 

Expected return on plan assets

 

 

(9

)

 

 

(14

)

 

 

(19

)

 

 

(27

)

Amortization of prior service cost (1)

 

 

 

 

 

1

 

 

 

1

 

 

 

1

 

Net actuarial loss (1)

 

 

3

 

 

 

3

 

 

 

6

 

 

 

7

 

Net periodic benefit cost (2)

 

$

4

 

 

$

3

 

 

$

8

 

 

$

6

 

 

(1)

These net periodic benefit costs were reclassified out of other comprehensive earnings.

(2)

The service cost component of net periodic benefit cost is included in G&A expense and the remaining components of net periodic benefit costs are included in other expenses in the accompanying consolidated comprehensive statements of earnings.

 

17.

Stockholders’ Equity

Share Repurchase Program

In March 2018, Devon announced a share repurchase program to buy up to $1.0 billion of its common stock. In June 2018, in conjunction with the announced divestiture of its investment in EnLink and the General Partner, Devon increased its program by an additional $3.0 billion. In February 2019, Devon’s Board of Directors authorized an expansion of the share repurchase program by an additional $1.0 billion, bringing the total to $5.0 billion. The share repurchase program expires December 31, 2019.

The table below provides information regarding purchases of Devon’s common stock that were made during 2018 and the first six months of 2019 (shares in thousands).  

 

 

Total Number of

Shares Purchased

 

 

Dollar Value of

Shares Purchased

 

 

Average Price Paid

per Share

 

First quarter 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Open-Market

 

 

2,561

 

 

$

82

 

 

$

32.19

 

Second quarter 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Open-Market

 

 

11,154

 

 

 

439

 

 

 

39.35

 

Third quarter 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Open-Market

 

 

16,492

 

 

 

712

 

 

 

43.13

 

ASR

 

 

24,330

 

 

 

1,000

 

 

 

41.10

 

Total

 

 

40,822

 

 

 

1,712

 

 

 

41.92

 

Fourth quarter 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Open-Market

 

 

23,612

 

 

 

745

 

 

 

31.57

 

First quarter 2019:

 

 

 

 

 

 

 

 

 

 

 

 

Open-Market

 

 

36,141

 

 

 

1,024

 

 

 

28.33

 

Second quarter 2019:

 

 

 

 

 

 

 

 

 

 

 

 

Open-Market

 

 

5,911

 

 

 

159

 

 

 

27.01

 

Total inception-to-date

 

 

120,201

 

 

$

4,161

 

 

$

34.62

 

 

Dividends

 

The table below summarizes the dividends Devon paid on its common stock.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

Amounts

 

 

Rate Per Share

 

Quarter Ended 2019:

 

 

 

 

 

 

 

First quarter

$

34

 

 

$

0.08

 

Second quarter

 

37

 

 

$

0.09

 

Total year-to-date

$

71

 

 

 

 

 

Quarter Ended 2018:

 

 

 

 

 

 

 

First quarter

$

32

 

 

$

0.06

 

Second quarter

 

42

 

 

$

0.08

 

Total year-to-date

$

74

 

 

 

 

 

Devon raised its quarterly dividend by 12.5%, to $0.09 per share, beginning in the second quarter of 2019. In the second quarter of 2018, Devon increased the quarterly dividend rate from $0.06 to $0.08 per share.

 

18.

Discontinued Operations and Assets Held For Sale

 

 

Canada

 

On May 29, 2019, Devon announced it had entered into an agreement to sell all of its operating assets and operations in Canada to Canadian Natural Resources Limited. Devon concluded that the transaction was a strategic shift and met the requirements of assets held for sale and discontinued operations upon the authorization to enter the agreement by Devon’s Board of Directors. As part of its assessment, Devon considered the following: 1) Devon is exiting its entire heavy oil and Canadian operations; 2) Devon’s Canadian operations is a separate reportable segment and is a component of Devon’s business; and 3) the transaction resulted in a material reduction in total assets, revenues, net earnings and total proved reserves. As a result, Devon has classified the results of operations and cash flows related to its Canadian operations as discontinued operations on its consolidated financial statements. Additionally, Devon ceased depreciation and amortization for all plant, property and equipment and intangible assets classified as assets held for sale on the date the sales agreement was approved by the Board of Directors.

 

On June 27, 2019, Devon completed the sale of its Canadian business for $2.6 billion ($3.4 billion Canadian dollars), net of purchase price adjustments, and recognized a pre-tax gain of $189 million ($460 million net of tax, primarily due to a significant deferred tax benefit). Current (cash) income tax associated with the sale was approximately $110 million. The disposition of all of Devon’s Canadian operating assets resulted in Devon releasing its historical cumulative foreign currency translation adjustment of $1.2 billion from accumulated other comprehensive earnings to be included within the gain computation. The historical cumulative foreign currency translation portion of the gain is not taxable. Additionally, $370 million of the Canadian cash balance is restricted for funding certain tax and other obligations related to the Canadian business and is classified as cash restricted for discontinued operations on the consolidated balance sheets.

 

In conjunction with the sale of Devon’s Canadian business, Devon recognized $273 million of restructuring and asset impairment related charges. Canadian Natural Resources Limited has reimbursed Devon for approximately $50 million of these restructuring costs, under the terms of the disposition agreement. Along with certain tax obligations, these costs will be funded with the restricted cash described above. These charges consist of $154 million related to a firm transportation agreement abandonment and $55 million related to office lease abandonment and related asset impairment charges. Cash payments for the abandonment charges total approximately $6 million per quarter. Additionally, there are $64 million of employee related costs, including approximately $40 million of noncash accelerated vesting of employee stock awards. As mentioned above, Canadian Natural Resources Limited reimbursed the Company for approximately $50 million of these costs pursuant to the disposition agreement and Devon expects to fund the remaining costs in the second half of 2019.

 

Prior to the second quarter of 2019, Devon’s Canadian business maintained a valuation allowance against certain capital loss carryforwards and net operating losses. As a result of the sale of all of Devon’s Canadian operating assets and the lack of future forecasted income, all but approximately $34 million of the Canadian deferred tax assets have been offset with a valuation allowance.

 

As announced on June 27, 2019, Devon utilized a portion of the sales proceeds to early retire its $500 million of the 4.00% senior notes due July 15, 2021 and $1.0 billion of the 3.25% senior notes due May 15, 2022. Devon expects to recognize a loss on the early retirement of these notes in the third quarter of 2019 consisting of $52 million in cash retirement costs and $6 million of noncash charges.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

EnLink

 

On June 6, 2018, Devon announced that it had entered into an agreement to sell its aggregate ownership interests in EnLink and the General Partner for $3.125 billion. Upon entering into the agreement to sell its ownership interest in June 2018, Devon concluded that the transaction was a strategic shift and met the requirements of assets held for sale and discontinued operations. As a result, Devon classified the results of operations and cash flows related to EnLink and the General Partner as discontinued operations on its consolidated financial statements.

 

On July 18, 2018, Devon completed the sale of its aggregate ownership interests in EnLink and the General Partner for $3.125 billion and recognized a gain of approximately $2.6 billion ($2.2 billion after-tax). Current (cash) income tax associated with the transaction was approximately $12 million. The vast majority of the tax effect relates to deferred tax expense offset by the valuation allowance adjustment.

 

As part of the sale agreement, Devon extended its fixed-fee gathering and processing contracts with respect to the Bridgeport and Cana plants with EnLink through 2029. Although the agreements were extended to 2029, the minimum volume commitments for the Bridgeport and Cana plants expired at the end of 2018. Devon has minimum volume commitments for gathering and processing of 77-128 MMcf/d with EnLink at the Chisholm plant through early 2021.

 

Prior to the divestment of Devon’s aggregate ownership of EnLink and the General Partner, certain activity between Devon and EnLink were eliminated in consolidation. Subsequent to the divestment, all activity related to EnLink represent third-party transactions and are no longer eliminated in consolidation.

 

During the first six months of 2019, Devon had net outflows of approximately $280 million with EnLink, which primarily related to gathering and processing expenses. These net outflows represent gross cash amounts and not net working interest amounts.

 

 


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The following table presents the amounts reported in the consolidated comprehensive statements of earnings as discontinued operations.

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

Canada

 

 

EnLink

 

 

Total

 

 

Canada

 

 

EnLink

 

 

Total

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream revenues

 

$

388

 

 

$

 

 

$

388

 

 

$

635

 

 

$

 

 

$

635

 

Marketing and midstream revenues

 

 

12

 

 

 

 

 

 

12

 

 

 

38

 

 

 

 

 

 

38

 

Total revenues

 

 

400

 

 

 

 

 

 

400

 

 

 

673

 

 

 

 

 

 

673

 

Production expenses

 

 

153

 

 

 

 

 

 

153

 

 

 

294

 

 

 

 

 

 

294

 

Exploration expenses

 

 

4

 

 

 

 

 

 

4

 

 

 

13

 

 

 

 

 

 

13

 

Marketing and midstream expenses

 

 

9

 

 

 

 

 

 

9

 

 

 

18

 

 

 

 

 

 

18

 

Depreciation, depletion and amortization

 

 

49

 

 

 

 

 

 

49

 

 

 

128

 

 

 

 

 

 

128

 

Asset impairments

 

 

37

 

 

 

 

 

 

37

 

 

 

37

 

 

 

 

 

 

37

 

Asset dispositions

 

 

(189

)

 

 

 

 

 

(189

)

 

 

(189

)

 

 

 

 

 

(189

)

General and administrative expenses

 

 

13

 

 

 

 

 

 

13

 

 

 

31

 

 

 

 

 

 

31

 

Financing costs, net

 

 

13

 

 

 

 

 

 

13

 

 

 

26

 

 

 

 

 

 

26

 

Restructuring and transaction costs

 

 

236

 

 

 

 

 

 

236

 

 

 

239

 

 

 

 

 

 

239

 

Other expenses

 

 

31

 

 

 

 

 

 

31

 

 

 

3

 

 

 

 

 

 

3

 

Total expenses

 

 

356

 

 

 

 

 

 

356

 

 

 

600

 

 

 

 

 

 

600

 

Earnings from discontinued operations before income taxes

 

 

44

 

 

 

 

 

 

44

 

 

 

73

 

 

 

 

 

 

73

 

Income tax benefit

 

 

(285

)

 

 

 

 

 

(285

)

 

 

(285

)

 

 

 

 

 

(285

)

Net earnings from discontinued operations, net of tax

 

$

329

 

 

$

 

 

$

329

 

 

$

358

 

 

$

 

 

$

358

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream revenues

 

$

303

 

 

$

 

 

$

303

 

 

$

605

 

 

$

 

 

$

605

 

Marketing and midstream revenues

 

 

24

 

 

 

1,595

 

 

 

1,619

 

 

 

41

 

 

 

3,207

 

 

 

3,248

 

Total revenues

 

 

327

 

 

 

1,595

 

 

 

1,922

 

 

 

646

 

 

 

3,207

 

 

 

3,853

 

Production expenses

 

 

166

 

 

 

 

 

 

166

 

 

 

314

 

 

 

 

 

 

314

 

Exploration expenses

 

 

6

 

 

 

 

 

 

6

 

 

 

18

 

 

 

 

 

 

18

 

Marketing and midstream expenses

 

 

11

 

 

 

1,269

 

 

 

1,280

 

 

 

18

 

 

 

2,610

 

 

 

2,628

 

Depreciation, depletion and amortization

 

 

78

 

 

 

106

 

 

 

184

 

 

 

172

 

 

 

244

 

 

 

416

 

General and administrative expenses

 

 

18

 

 

 

31

 

 

 

49

 

 

 

42

 

 

 

58

 

 

 

100

 

Financing costs, net

 

 

(2

)

 

 

45

 

 

 

43

 

 

 

(4

)

 

 

89

 

 

 

85

 

Restructuring and transaction costs

 

 

9

 

 

 

 

 

 

9

 

 

 

9

 

 

 

 

 

 

9

 

Other expenses

 

 

39

 

 

 

(5

)

 

 

34

 

 

 

109

 

 

 

(7

)

 

 

102

 

Total expenses

 

 

325

 

 

 

1,446

 

 

 

1,771

 

 

 

678

 

 

 

2,994

 

 

 

3,672

 

Earnings (loss) from discontinued operations before income taxes

 

 

2

 

 

 

149

 

 

 

151

 

 

 

(32

)

 

 

213

 

 

 

181

 

Income tax expense (benefit)

 

 

(20

)

 

 

10

 

 

 

(10

)

 

 

(51

)

 

 

16

 

 

 

(35

)

Net earnings from discontinued operations, net of tax

 

 

22

 

 

 

139

 

 

 

161

 

 

 

19

 

 

 

197

 

 

 

216

 

Net earnings attributable to noncontrolling interests

 

 

 

 

 

90

 

 

 

90

 

 

 

 

 

 

134

 

 

 

134

 

Net earnings from discontinued operations, attributable to Devon

 

$

22

 

 

$

49

 

 

$

71

 

 

$

19

 

 

$

63

 

 

$

82

 

 

The following table presents the carrying amounts of the assets and liabilities associated with discontinued operations on the consolidated balance sheets. The assets and liabilities associated with discontinued operations at June 30, 2019 and December 31, 2018 are primarily related to the divestiture of Devon’s Canadian business. Included within assets and liabilities associated with discontinued operations at December 31, 2018 are $197 million of assets and $69 million of liabilities related to the divestiture of non-core upstream Permian Basin assets which closed in January 2019 as further discussed in Note 2.

 

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

 

June 30, 2019

 

 

December 31, 2018

 

Accounts receivable

 

$

111

 

 

$

37

 

Other current assets

 

 

20

 

 

 

246

 

Current assets associated with discontinued operations

 

 

131

 

 

 

283

 

Oil and gas property and equipment, based on

   successful efforts accounting, net

 

 

 

 

 

3,829

 

Other property and equipment, net

 

 

 

 

 

78

 

Other long-term assets

 

 

99

 

 

 

79

 

Long-term assets associated with discontinued operations

 

 

99

 

 

 

3,986

 

Total assets associated with discontinued operations

 

$

230

 

 

$

4,269

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

97

 

 

$

101

 

Revenues and royalties payable

 

 

16

 

 

 

67

 

Short-term debt (1)

 

 

1,494

 

 

 

 

Other current liabilities

 

 

287

 

 

 

170

 

Current liabilities associated with discontinued operations

 

 

1,894

 

 

 

338

 

Long-term debt (1)

 

 

 

 

 

1,493

 

Asset retirement obligations

 

 

 

 

 

424

 

Other long-term liabilities

 

 

189

 

 

 

20

 

Deferred income taxes

 

 

 

 

 

348

 

Long-term liabilities associated with discontinued operations

 

 

189

 

 

 

2,285

 

Total liabilities associated with discontinued operations

 

$

2,083

 

 

$

2,623

 

 

 

(1)

Includes the $500 million 4.00% Senior Notes due July 15, 2021 and $1.0 billion 3.25% Senior Notes due May 15, 2022 that were retired early in July 2019 utilizing a portion of the proceeds from the sale of Devon’s Canadian business.

 

19.

Commitments and Contingencies

Devon is party to various legal actions arising in the normal course of business. Matters that are probable of unfavorable outcome to Devon and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, Devon’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. None of the actions are believed by management to likely involve future amounts that would be material to Devon’s financial position or results of operations after consideration of recorded accruals. Actual amounts could differ materially from management’s estimates.

Royalty Matters

Numerous oil and natural gas producers and related parties, including Devon, have been named in various lawsuits alleging royalty underpayments. Devon is currently named as a defendant in a number of such lawsuits, including some lawsuits in which the plaintiffs seek to certify classes of similarly situated plaintiffs. Among the allegations typically asserted in these suits are claims that Devon used below-market prices, made improper deductions, used improper measurement techniques and entered into gas purchase and processing arrangements with affiliates that resulted in underpayment of royalties in connection with oil, natural gas and NGLs produced and sold. Devon is also involved in governmental agency proceedings and royalty audits and is subject to related contracts and regulatory controls in the ordinary course of business, some that may lead to additional royalty claims. Devon does not currently believe that it is subject to material exposure with respect to such royalty matters.

Environmental Matters

Devon is subject to certain laws and regulations relating to environmental remediation activities associated with past operations, such as the Comprehensive Environmental Response, Compensation, and Liability Act and similar state statutes. In response to liabilities associated with these activities, loss accruals primarily consist of estimated uninsured remediation costs. Devon’s monetary exposure for environmental matters is not expected to be material.

Beginning in 2013, various parishes in Louisiana filed suit against more than 100 oil and gas companies, including Devon, alleging that the companies’ operations and activities in certain fields violated the State and Local Coastal Resource Management Act of 1978, as amended, and caused substantial environmental contamination, subsidence and other environmental damages to land and

27


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

water bodies located in the coastal zone of Louisiana. The plaintiffs seek, among other things, the payment of the costs necessary to clear, re-vegetate and otherwise restore the allegedly impacted areas. Although Devon cannot predict the ultimate outcome of these matters, Devon is vigorously defending against these claims.

Other Matters

Devon is involved in other various legal proceedings incidental to its business. However, to Devon’s knowledge, there were no material pending legal proceedings to which Devon is a party or to which any of its property is subject.

 

20.

Fair Value Measurements

The following table provides carrying value and fair value measurement information for certain of Devon’s financial assets and liabilities. The carrying values of cash, cash restricted for discontinued operations, accounts receivable, other current receivables, accounts payable, other current payables, accrued expenses and lease liabilities included in the accompanying consolidated balance sheets approximated fair value at June 30, 2019 and December 31, 2018, as applicable. Therefore, such financial assets and liabilities are not presented in the following table.

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using:

 

 

 

Carrying

 

 

Total Fair

 

 

Level 1

 

 

Level 2

 

 

 

Amount

 

 

Value

 

 

Inputs

 

 

Inputs

 

June 30, 2019 assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

2,784

 

 

$

2,784

 

 

$

2,784

 

 

$

 

Commodity derivatives

 

$

127

 

 

$

127

 

 

$

 

 

$

127

 

Commodity derivatives

 

$

(7

)

 

$

(7

)

 

$

 

 

$

(7

)

Debt

 

$

(4,294

)

 

$

(5,311

)

 

$

 

 

$

(5,311

)

December 31, 2018 assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

1,505

 

 

$

1,505

 

 

$

1,405

 

 

$

100

 

Commodity derivatives

 

$

674

 

 

$

674

 

 

$

 

 

$

674

 

Commodity derivatives

 

$

(33

)

 

$

(33

)

 

$

 

 

$

(33

)

Debt

 

$

(4,454

)

 

$

(4,494

)

 

$

 

 

$

(4,494

)

 

The following methods and assumptions were used to estimate the fair values in the table above.

Level 1 Fair Value Measurements

Cash equivalents – Amounts consist primarily of money market investments and the fair value approximates the carrying value.

Level 2 Fair Value Measurements

 

Cash equivalents – Amounts primarily consist of Canadian agency and provincial securities investments. The fair value approximates the carrying value.

 

Commodity derivatives – The fair value of commodity derivatives is estimated using internal discounted cash flow calculations based upon forward curves and data obtained from independent third parties for contracts with similar terms or data obtained from counterparties to the agreements.

 

Debt – Devon’s debt instruments do not actively trade in an established market. The fair values of its debt are estimated based on rates available for debt with similar terms and maturity.

 

 

28


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis addresses material changes in our results of operations for the three-month and six-month periods ended June 30, 2019 compared to previous periods and in our financial condition and liquidity since December 31, 2018. For information regarding our critical accounting policies and estimates, see our 2018 Annual Report on Form 10-K under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Overview of 2019 Results

Key components of our sequential quarter financial performance are summarized below.

 

 

Q2 2019 (4)

 

 

Q1 2019 (4)

 

 

Change

 

Net earnings (loss) from continuing operations

 

$

166

 

 

$

(346

)

 

 

+148

%

Net earnings (loss) from continuing operations per diluted share

 

$

0.40

 

 

$

(0.81

)

 

 

+149

%

Core earnings from continuing operations (1)

 

$

97

 

 

$

139

 

 

 

- 30

%

Core earnings from continuing operations per diluted share (1)

 

$

0.23

 

 

$

0.32

 

 

 

- 27

%

New Devon production (MBoe/d) (2)

 

 

321

 

 

 

308

 

 

 

+4

%

Realized price per Boe (3)

 

$

27.24

 

 

$

28.58

 

 

 

- 5

%

Operating cash flow from continuing operations

 

$

488

 

 

$

478

 

 

 

+2

%

Capitalized expenditures, including acquisitions

 

$

530

 

 

$

481

 

 

 

+10

%

Cash and cash equivalents

 

$

3,470

 

 

$

1,327

 

 

 

+161

%

Total debt - continuing operations

 

$

4,294

 

 

$

4,292

 

 

 

+0

%

 

(1)

Core earnings and core earnings per diluted share are financial measures not prepared in accordance with GAAP. For a description of core earnings and core earnings per diluted share, as well as reconciliations to the comparable GAAP measures, see “Non-GAAP Measures” in this Item 2.

(2)

New Devon production excludes production associated with Barnett Shale assets as well as other divested U.S. non-core assets.

(3)

Excludes any impact of oil, gas and NGL derivatives.

(4)

Except for balance sheet amounts, which are presented as of period end.

 

We have made significant progress in our transition to “New Devon” - a U.S. oil growth company. We closed on the sale of our Canadian operations and are making progress in separating our Barnett Shale assets from the Company. We are using the proceeds from the separation of these assets to maintain target debt levels as well as return cash to our shareholders. As we continue to execute on our strategic objectives of funding high-return projects, generating free cash flow, maintaining financial strength and returning cash to shareholders, we have already achieved the following accomplishments in 2019.

 

 

Closed on the sale of our Canadian business for $2.6 billion ($3.4 billion Canadian dollars) in June 2019.

 

Increased Delaware Basin and Powder River Basin production 38% through the second quarter of 2019 compared to the fourth quarter of 2018.

 

We retired $1.7 billion of senior notes, reducing annualized financing costs by $60 million.

 

Initiated workforce and other cost reduction initiatives targeting $200 million of annualized savings by the end of 2019.

 

Improved capital efficiency by 16% during the first six months of 2019 compared to the same period in 2018, driven primarily by drilling and completion efficiencies.

 

Repurchased $4.4 billion of our $5.0 billion share repurchase program, representing a 24% reduction in outstanding shares since the program’s inception.

 

Increased our quarterly common stock dividend 12.5% to $0.09 per share beginning in the second quarter of 2019.

We exited the second quarter of 2019 with liquidity comprised of $3.8 billion of cash, inclusive of $370 million of cash restricted for discontinued operations, and $3.0 billion of available credit under our Senior Credit Facility. After completing the $1.5 billion of early retirement of debt in July 2019, we have no outstanding debt maturities until 2025. We currently have approximately 75% of our expected oil and gas production protected with hedges for the remainder of 2019. These contracts consist of collars and swaps based off the WTI oil benchmark and the Henry Hub natural gas index. Additionally, we have entered into regional basis swaps in an effort to protect price realizations across our portfolio.

 

 


29


Table of Contents

Results of Operations – Q2 2019 vs. Q1 2019

 

The following graphs, discussion and analysis are intended to provide an understanding of our results of operations and current financial condition. Specifically, the graph below shows the change in net earnings from the three months ended March 31, 2019 to the three months ended June 30, 2019. The material changes are further discussed by category on the following pages.

 

* Other includes asset dispositions, restructuring and transaction costs and other expenses.

The graph below presents the drivers of the upstream operations change presented above, with additional details and discussion of the drivers following the graph.

 

 


 

30


Table of Contents

 

Upstream Operations

Field-Level Cash Margin

The table below presents the field-level cash margin for each of our operating areas. Field-level cash margin is computed as oil, gas and NGL revenues less production expenses and is not prepared in accordance with GAAP. A reconciliation to the comparable GAAP measures is found in “Non-GAAP Measures” in this Item 2.

 

 

 

Q2 2019

 

 

$ per BOE

 

 

Q1 2019

 

 

$ per BOE

 

Field-level cash margin (non-GAAP)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delaware Basin

 

$

267

 

 

$

24.46

 

 

$

234

 

 

$

24.39

 

STACK

 

 

177

 

 

$

15.77

 

 

 

203

 

 

$

18.27

 

Powder River Basin

 

 

60

 

 

$

31.79

 

 

 

50

 

 

$

27.02

 

Eagle Ford

 

 

120

 

 

$

26.63

 

 

 

129

 

 

$

28.53

 

Other

 

 

15

 

 

$

22.67

 

 

 

13

 

 

$

21.39

 

New Devon

 

 

639

 

 

$

21.88

 

 

 

629

 

 

$

22.71

 

U.S. divest assets

 

 

41

 

 

$

4.38

 

 

 

74

 

 

$

7.62

 

Total

 

$

680

 

 

$

17.63

 

 

$

703

 

 

$

18.80

 

 

 

Production Volumes

 

 

Q2 2019

 

 

% of Total

 

 

Q1 2019

 

 

Change

 

Oil (MBbls/d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delaware Basin

 

 

67

 

 

 

46

%

 

 

60

 

 

 

+12

%

STACK

 

 

31

 

 

 

21

%

 

 

32

 

 

 

- 4

%

Powder River Basin

 

 

15

 

 

 

11

%

 

 

15

 

 

 

- 1

%

Eagle Ford

 

 

23

 

 

 

16

%

 

 

25

 

 

 

- 4

%

Other

 

 

6

 

 

 

4

%

 

 

6

 

 

 

+0

%

New Devon

 

 

142

 

 

 

98

%

 

 

138

 

 

 

+3

%

U.S. divest assets

 

 

3

 

 

 

2

%

 

 

4

 

 

 

- 35

%

Total

 

 

145

 

 

 

100

%

 

 

142

 

 

 

+2

%

 

 

 

Q2 2019

 

 

% of Total

 

 

Q1 2019

 

 

Change

 

Gas (MMcf/d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delaware Basin

 

 

158

 

 

 

16

%

 

 

146

 

 

 

+9

%

STACK

 

 

313

 

 

 

32

%

 

 

333

 

 

 

- 6

%

Powder River Basin

 

 

22

 

 

 

2

%

 

 

18

 

 

 

+20

%

Eagle Ford

 

 

81

 

 

 

8

%

 

 

83

 

 

 

- 3

%

Other

 

 

1

 

 

 

0

%

 

 

1

 

 

 

+1

%

New Devon

 

 

575

 

 

 

58

%

 

 

581

 

 

 

- 1

%

U.S. divest assets

 

 

423

 

 

 

42

%

 

 

439

 

 

 

- 4

%

Total

 

 

998

 

 

 

100

%

 

 

1,020

 

 

 

- 2

%

 

 

 

 

Q2 2019

 

 

% of Total

 

 

Q1 2019

 

 

Change

 

NGLs (MBbls/d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delaware Basin

 

 

27

 

 

 

24

%

 

 

23

 

 

 

+16

%

STACK

 

 

40

 

 

 

36

%

 

 

35

 

 

 

+14

%

Powder River Basin

 

 

2

 

 

 

1

%

 

 

2

 

 

 

+2

%

Eagle Ford

 

 

12

 

 

 

11

%

 

 

12

 

 

 

+7

%

Other

 

 

1

 

 

 

1

%

 

 

1

 

 

 

+5

%

New Devon

 

 

82

 

 

 

73

%

 

 

73

 

 

 

+13

%

U.S. divest assets

 

 

30

 

 

 

27

%

 

 

31

 

 

 

- 2

%

Total

 

 

112

 

 

 

100

%

 

 

104

 

 

 

+9

%

 

 

 

Q2 2019

 

 

% of Total

 

 

Q1 2019

 

 

Change

 

Combined (MBoe/d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delaware Basin

 

 

120

 

 

 

28

%

 

 

107

 

 

 

+12

%

STACK

 

 

124

 

 

 

29

%

 

 

123

 

 

 

+0

%

Powder River Basin

 

 

21

 

 

 

5

%

 

 

21

 

 

 

+2

%

Eagle Ford

 

 

49

 

 

 

12

%

 

 

50

 

 

 

- 1

%

Other

 

 

7

 

 

 

2

%

 

 

7

 

 

 

- 1

%

New Devon

 

 

321

 

 

 

76

%

 

 

308

 

 

 

+4

%

U.S. divest assets

 

 

103

 

 

 

24

%

 

 

108

 

 

 

- 4

%

Total

 

 

424

 

 

 

100

%

 

 

416

 

 

 

+2

%

 

Continued growth in the Delaware Basin drove production increases for New Devon in the second quarter of 2019 compared to the first quarter of 2019. These production gains were slightly offset by lower production volumes associated with the U.S. divest assets.

Field Prices

 

 

Q2 2019

 

 

Realization

 

 

Q1 2019

 

 

Change

 

Oil (per Bbl)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WTI index

 

$

59.85

 

 

 

 

 

 

$

54.88

 

 

 

+9

%

Realized price, unhedged

 

$

57.09

 

 

 

95%

 

 

$

51.83

 

 

 

+10

%

Cash settlements

 

$

(0.41

)

 

 

 

 

 

$

3.63

 

 

 

 

 

Realized price, with hedges

 

$

56.68

 

 

 

95%

 

 

$

55.46

 

 

 

+2

%

 

 

 

Q2 2019

 

 

Realization

 

 

Q1 2019

 

 

Change

 

Gas (per Mcf)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Henry Hub index

 

$

2.64

 

 

 

 

 

 

$

3.15

 

 

 

- 16

%

Realized price, unhedged

 

$

1.61

 

 

 

61%

 

 

$

2.53

 

 

 

- 36

%

Cash settlements

 

$

0.20

 

 

 

 

 

 

$

(0.17

)

 

 

 

 

Realized price, with hedges

 

$

1.81

 

 

 

69%

 

 

$

2.36

 

 

 

- 23

%

 

 

 

Q2 2019

 

 

Realization

 

 

Q1 2019

 

 

Change

 

NGLs (per Bbl)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mont Belvieu blended index (1)

 

$

19.05

 

 

 

 

 

 

$

22.94

 

 

 

- 17

%

Realized price, unhedged

 

$

14.79

 

 

 

78%

 

 

$

18.64

 

 

 

- 21

%

Cash settlements

 

$

1.03

 

 

 

 

 

 

$

0.48

 

 

 

 

 

Realized price, with hedges

 

$

15.82

 

 

 

83%

 

 

$

19.12

 

 

 

- 17

%

(1)Based upon composition of our NGL barrel.

 

 

 

 

31


Table of Contents

 

 

 

Q2 2019

 

 

Q1 2019

 

 

Change

 

Combined (per Boe)

 

 

 

 

 

 

 

 

 

 

 

 

Realized price, unhedged

 

$

27.24

 

 

$

28.58

 

 

 

- 5

%

Cash settlements

 

$

0.60

 

 

$

0.93

 

 

 

 

 

Realized price, with hedges

 

$

27.84

 

 

$

29.51

 

 

 

- 6

%

 

Realized oil, gas and NGL prices decreased primarily due to lower Henry Hub and Mont Belvieu index prices and widening natural gas differentials in the Permian Basin and STACK which are partially mitigated by our regional natural gas basis swaps. These decreases were slightly offset by a 9% improvement in the WTI index price.

Hedging

 

 

Q2 2019

 

 

Q1 2019

 

 

Change

 

 

 

Q

 

 

 

 

 

 

 

 

 

Oil

 

$

(6

)

 

$

46

 

 

 

N/M

 

Natural gas

 

 

18

 

 

 

(16

)

 

 

N/M

 

NGL

 

 

11

 

 

 

4

 

 

 

N/M

 

Total cash settlements

 

 

23

 

 

 

34

 

 

 

N/M

 

Valuation changes

 

 

117

 

 

 

(639

)

 

 

N/M

 

Total

 

$

140

 

 

$

(605

)

 

 

N/M

 

 

Cash settlements as presented in the tables above represent realized gains or losses related to the instruments described in Note 3 in “Part I. Financial Information – Item 1. Financial Statements” in this report.  

 

In addition to cash settlements, we also recognize fair value changes on our oil, gas and NGL derivative instruments in each reporting period. The changes in fair value resulted from new positions and settlements that occurred during each period, as well as the relationship between contract prices and the associated forward curves.

 

Production Expenses

 

 

Q2 2019

 

 

Q1 2019

 

 

Change

 

LOE

 

$

133

 

 

$

132

 

 

 

+1

%

Gathering, processing & transportation

 

 

161

 

 

 

159

 

 

 

+1

%

Production taxes

 

 

66

 

 

 

64

 

 

 

+3

%

Property taxes

 

 

11

 

 

 

10

 

 

 

+10

%

Total

 

$

371

 

 

$

365

 

 

 

+2

%

Per Boe:

 

 

 

 

 

 

 

 

 

 

 

 

LOE

 

$

3.44

 

 

$

3.55

 

 

 

- 3

%

Gathering, processing &

   transportation

 

$

4.17

 

 

$

4.26

 

 

 

- 2

%

Percent of oil, gas and NGL sales:

 

 

 

 

 

 

 

 

 

 

 

 

Production taxes

 

 

6.3

%

 

 

6.0

%

 

 

+4

%

 

General and Administrative Expenses

 

 

 

Q2 2019

 

 

Q1 2019

 

 

Change

 

Labor and benefits

 

$

92

 

 

$

103

 

 

 

- 11

%

Non-labor

 

 

40

 

 

 

49

 

 

 

- 18

%

Reimbursed G&A

 

 

(18

)

 

 

(17

)

 

 

- 6

%

Total Devon

 

$

114

 

 

$

135

 

 

 

- 16

%

 

Labor and benefits and non-labor expenses decreased primarily as a result of the workforce reduction and cost savings initiatives that were initiated during the first quarter of 2019.

Other

 

 

 

Q2 2019

 

 

Q1 2019

 

 

Change

 

Asset dispositions

 

$

(1

)

 

$

(44

)

 

 

+98

%

Restructuring

 

 

12

 

 

 

51

 

 

 

- 75

%

Other

 

 

8

 

 

 

(17

)

 

 

+146

%

Total

 

$

19

 

 

$

(10

)

 

 

+288

%

We recognized gains in conjunction with certain of our U.S. asset dispositions in 2019. For further discussion, see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

During the first six months of 2019, we recognized restructuring and transaction costs primarily as a result of our workforce reductions. See Note 6 in “Part I. Financial Information – Item 1. Financial Statements” in this report for additional information.

 

Income Taxes

 

 

 

Q2 2019

 

 

Q1 2019

 

Current expense (benefit)

 

$

2

 

 

$

(3

)

Deferred expense (benefit)

 

 

69

 

 

 

(107

)

Total expense (benefit)

 

$

71

 

 

$

(110

)

Effective income tax rate

 

 

30

%

 

 

24

%

 

For discussion on income taxes, see Note 7 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

 

Discontinued Operations - Canada

 

 

 

Q2 2019

 

 

Q1 2019

 

Upstream revenues

 

$

388

 

 

$

247

 

Production expenses

 

$

153

 

 

$

141

 

Asset dispositions

 

$

(189

)

 

$

 

Asset impairments

 

$

37

 

 

$

 

Restructuring and transaction costs

 

$

236

 

 

$

3

 

Net earnings

 

$

329

 

 

$

29

 

Production (MBoe/d)

 

 

97

 

 

 

113

 

Realized price, unhedged (per Boe)

 

$

43.03

 

 

$

34.42

 

 

Canada revenues increased in the second quarter of 2019 compared to the first quarter of 2019 due to increased realized prices partially offset by lower production volumes. Canadian production decreased during the second quarter of 2019 compared to the first quarter of 2019 primarily due to scheduled turnaround at the Jackfish 2 facility and recording four less days of production due to the divestiture close date.

 

In conjunction with the sale of our Canadian business during the second quarter of 2019, we recognized a pre-tax gain of $189 million as well as restructuring and transaction costs and related asset impairment charges of $273 million. For a discussion on discontinued operations, see Note 18 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

 

32


Table of Contents

Results of Operations –2019 vs. 2018

 

The following graphs, discussion and analysis are intended to provide an understanding of our results of operations and current financial condition. To facilitate the review, these numbers are being presented before consideration of earnings attributable to noncontrolling interests.

 

Q2 2019 vs. Q2 2018

 

The graph below shows the change in net earnings from the three months ended June 30, 2018 to the three months ended June 30, 2019. The material changes are further discussed by category below. Further analysis of the upstream operations change has been provided within a supplemental section to our results of operations beginning on page 34.

 

* Other includes asset dispositions, restructuring and transaction costs and other expenses.

Net earnings increased $830 million during the second quarter of 2019 compared to the second quarter of 2018. The increase primarily related to a $460 million increase in upstream operations, a $228 million change in other items and a $168 million increase in discontinued operations. Upstream operations increased primarily due to a $627 million gain on valuation changes and cash settlements for commodity derivatives, partially offset by a $229 million lower field price effect primarily related to our oil and NGL production. Other items increased primarily due to $154 million of asset impairments and $85 million of restructuring charges recognized in the second quarter of 2018. During the second quarter of 2019, earnings from discontinued operations increased due to recognizing a gain on the disposition of our Canadian business partially offset by related restructuring and asset impairment charges as further discussed in Note 18 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

 

June 30, 2019 YTD vs. June 30, 2018 YTD

 

The graph below shows the change in net earnings from the six months ended June 30, 2018 to the six months ended June 30, 2019. The material changes are further discussed by category below. Further analysis of the upstream operations change has been provided within a supplemental section to our results of operations beginning on page 34.

* Other includes asset dispositions, restructuring and transaction costs and other expenses.

33


Table of Contents

Net earnings increased $666 million during the six months ended 2019 compared to the same period in 2018. The increase primarily related to a $327 million decrease in financing costs, a $177 million change in other items, a $142 million increase in discontinued operations, a $72 million decrease in exploration expense, partially offset by a $127 million increase in DD&A. Financing costs decreased primarily from $312 million of early retirement costs associated with our $800 million debt retirement in 2018. Other items decreased due to $154 million of asset impairments recognized in 2018 and an approximately $45 million gain recognized during 2019. During the second quarter of 2019, earnings from discontinued operations increased due to recognizing a gain on the disposition of our Canadian business partially offset by related restructuring and asset impairment charges further discussed in Note 18 in “Part I. Financial Information – Item 1. Financial Statements” in this report. Exploration expense decreased due to unproved asset impairments of $61 million during 2018.

 

Upstream Operations

The supplemental graphs and charts below present the drivers and details of the upstream operations changes discussed in the previous section.

 

Q2 2019 vs. Q2 2018

June 30, 2019 YTD vs. June 30, 2018 YTD

 


34


Table of Contents

Field-Level Cash Margin

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2019

 

 

$ per BOE

 

 

2018

 

 

$ per BOE

 

 

2019

 

 

$ per BOE

 

 

2018

 

 

$ per BOE

 

Field-level cash margin (non-GAAP)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delaware Basin

$

267

 

 

$

24.46

 

 

$

222

 

 

$

32.11

 

 

$

501

 

 

$

24.43

 

 

$

387

 

 

$

31.23

 

STACK

 

177

 

 

$

15.77

 

 

 

247

 

 

$

21.66

 

 

 

380

 

 

$

17.01

 

 

 

481

 

 

$

21.39

 

Powder River Basin

 

60

 

 

$

31.79

 

 

 

62

 

 

$

42.23

 

 

 

110

 

 

$

29.44

 

 

 

125

 

 

$

40.49

 

Eagle Ford

 

120

 

 

$

26.63

 

 

 

181

 

 

$

36.95

 

 

 

249

 

 

$

27.58

 

 

 

312

 

 

$

36.17

 

Other

 

15

 

 

$

22.67

 

 

 

24

 

 

$

33.87

 

 

 

28

 

 

$

22.03

 

 

 

41

 

 

$

33.30

 

New Devon

 

639

 

 

$

21.88

 

 

 

736

 

 

$

28.99

 

 

 

1,268

 

 

$

22.29

 

 

 

1,346

 

 

$

28.15

 

U.S. divest assets

 

41

 

 

$

4.38

 

 

 

111

 

 

$

8.05

 

 

 

115

 

 

$

6.03

 

 

 

236

 

 

$

8.25

 

Total

$

680

 

 

$

17.63

 

 

$

847

 

 

$

21.60

 

 

$

1,383

 

 

$

18.21

 

 

$

1,582

 

 

$

20.71

 

Production Volumes

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

% of Total

 

 

2018

 

 

Change

 

 

2019

 

 

% of Total

 

 

2018

 

 

Change

 

Oil (MBbls/d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delaware Basin

 

 

67

 

 

 

46

%

 

 

45

 

 

 

+49

%

 

 

63

 

 

 

44

%

 

 

39

 

 

 

+60

%

STACK

 

 

31

 

 

 

21

%

 

 

34

 

 

 

- 8

%

 

 

32

 

 

 

22

%

 

 

34

 

 

 

- 6

%

Powder River Basin

 

 

15

 

 

 

11

%

 

 

13

 

 

 

+19

%

 

 

15

 

 

 

11

%

 

 

14

 

 

 

+12

%

Eagle Ford

 

 

23

 

 

 

16

%

 

 

28

 

 

 

- 17

%

 

 

24

 

 

 

17

%

 

 

26

 

 

 

- 6

%

Other

 

 

6

 

 

 

4

%

 

 

6

 

 

 

- 4

%

 

 

6

 

 

 

4

%

 

 

6

 

 

 

- 6

%

New Devon

 

 

142

 

 

 

98

%

 

 

126

 

 

 

+13

%

 

 

140

 

 

 

98

%

 

 

119

 

 

 

+18

%

U.S. divest assets

 

 

3

 

 

 

2

%

 

 

10

 

 

 

- 75

%

 

 

3

 

 

 

2

%

 

 

10

 

 

 

- 69

%

Total

 

 

145

 

 

 

100

%

 

 

136

 

 

 

+7

%

 

 

143

 

 

 

100

%

 

 

129

 

 

 

+11

%

Gas (MMcf/d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delaware Basin

 

 

158

 

 

 

16

%

 

 

94

 

 

 

+68

%

 

 

152

 

 

 

15

%

 

 

94

 

 

 

+61

%

STACK

 

 

313

 

 

 

32

%

 

 

329

 

 

 

- 5

%

 

 

323

 

 

 

32

%

 

 

327

 

 

 

- 1

%

Powder River Basin

 

 

22

 

 

 

2

%

 

 

13

 

 

 

+75

%

 

 

20

 

 

 

2

%

 

 

12

 

 

 

+66

%

Eagle Ford

 

 

81

 

 

 

8

%

 

 

74

 

 

 

+9

%

 

 

82

 

 

 

8

%

 

 

69

 

 

 

+19

%

Other

 

 

1

 

 

 

0

%

 

 

3

 

 

 

- 56

%

 

 

1

 

 

 

0

%

 

 

1

 

 

 

+2

%

New Devon

 

 

575

 

 

 

58

%

 

 

513

 

 

 

+12

%

 

 

578

 

 

 

57

%

 

 

503

 

 

 

+15

%

U.S. divest assets

 

 

423

 

 

 

42

%

 

 

603

 

 

 

- 30

%

 

 

431

 

 

 

43

%

 

 

637

 

 

 

- 32

%

Total

 

 

998

 

 

 

100

%

 

 

1,116

 

 

 

- 11

%

 

 

1,009

 

 

 

100

%

 

 

1,140

 

 

 

- 12

%

NGLs (MBbls/d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delaware Basin

 

 

27

 

 

 

24

%

 

 

15

 

 

 

+74

%

 

 

25

 

 

 

23

%

 

 

13

 

 

 

+88

%

STACK

 

 

40

 

 

 

36

%

 

 

37

 

 

 

+10

%

 

 

38

 

 

 

35

%

 

 

36

 

 

 

+6

%

Powder River Basin

 

 

2

 

 

 

1

%

 

 

1

 

 

 

+60

%

 

 

2

 

 

 

2

%

 

 

1

 

 

 

+52

%

Eagle Ford

 

 

12

 

 

 

11

%

 

 

13

 

 

 

- 6

%

 

 

12

 

 

 

11

%

 

 

11

 

 

 

+14

%

Other

 

 

1

 

 

 

1

%

 

 

2

 

 

 

- 43

%

 

 

1

 

 

 

1

%

 

 

1

 

 

 

+11

%

New Devon

 

 

82

 

 

 

73

%

 

 

68

 

 

 

+22

%

 

 

78

 

 

 

72

%

 

 

62

 

 

 

+26

%

U.S. divest assets

 

 

30

 

 

 

27

%

 

 

41

 

 

 

- 27

%

 

 

30

 

 

 

28

%

 

 

41

 

 

 

- 27

%

Total

 

 

112

 

 

 

100

%

 

 

109

 

 

 

+3

%

 

 

108

 

 

 

100

%

 

 

103

 

 

 

+5

%

Combined (MBoe/d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delaware Basin

 

 

120

 

 

 

28

%

 

 

76

 

 

 

+58

%

 

 

113

 

 

 

27

%

 

 

68

 

 

 

+66

%

STACK

 

 

124

 

 

 

29

%

 

 

125

 

 

 

- 1

%

 

 

123

 

 

 

29

%

 

 

124

 

 

 

- 1

%

Powder River Basin

 

 

21

 

 

 

5

%

 

 

16

 

 

 

+29

%

 

 

21

 

 

 

5

%

 

 

17

 

 

 

+21

%

Eagle Ford

 

 

49

 

 

 

12

%

 

 

54

 

 

 

- 8

%

 

 

50

 

 

 

12

%

 

 

48

 

 

 

+5

%

Other

 

 

7

 

 

 

2

%

 

 

8

 

 

 

- 6

%

 

 

7

 

 

 

2

%

 

 

7

 

 

 

+0

%

New Devon

 

 

321

 

 

 

76

%

 

 

279

 

 

 

+15

%

 

 

314

 

 

 

75

%

 

 

264

 

 

 

+19

%

U.S. divest assets

 

 

103

 

 

 

24

%

 

 

151

 

 

 

- 32

%

 

 

105

 

 

 

25

%

 

 

158

 

 

 

- 33

%

Total

 

 

424

 

 

 

100

%

 

 

430

 

 

 

- 2

%

 

 

419

 

 

 

100

%

 

 

422

 

 

 

- 1

%

35


Table of Contents

Strong performance in the Delaware Basin and Powder River Basin drove production growth for New Devon during the three and six months ended 2019 compared to the three and six months ended 2018. These production gains were offset by lower production volumes associated with our U.S. divested assets.

Field Prices

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

Realization

 

 

2018

 

 

Change

 

 

2019

 

 

Realization

 

 

2018

 

 

Change

 

Oil (per Bbl)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WTI index

 

$

59.85

 

 

 

 

 

 

$

67.83

 

 

 

- 12

%

 

$

57.36

 

 

 

 

 

 

$

65.38

 

 

 

- 12

%

Realized price, unhedged

 

$

57.09

 

 

95%

 

 

$

65.41

 

 

 

- 13

%

 

$

54.50

 

 

95%

 

 

$

63.71

 

 

 

- 14

%

Cash settlements

 

$

(0.41

)

 

 

 

 

 

$

(11.43

)

 

 

 

 

 

$

1.58

 

 

 

 

 

 

$

(10.32

)

 

 

 

 

Realized price, with hedges

 

$

56.68

 

 

95%

 

 

$

53.98

 

 

 

+5

%

 

$

56.08

 

 

98%

 

 

$

53.39

 

 

 

+5

%

Gas (per Mcf)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Henry Hub index

 

$

2.64

 

 

 

 

 

 

$

2.80

 

 

 

- 6

%

 

$

2.90

 

 

 

 

 

 

$

2.90

 

 

 

- 0

%

Realized price, unhedged

 

$

1.61

 

 

61%

 

 

$

2.03

 

 

 

- 20

%

 

$

2.08

 

 

72%

 

 

$

2.23

 

 

 

- 7

%

Cash settlements

 

$

0.20

 

 

 

 

 

 

$

0.13

 

 

 

 

 

 

$

0.01

 

 

 

 

 

 

$

0.16

 

 

 

 

 

Realized price, with hedges

 

$

1.81

 

 

69%

 

 

$

2.16

 

 

 

- 16

%

 

$

2.09

 

 

72%

 

 

$

2.39

 

 

 

- 13

%

NGLs (per Bbl)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mont Belvieu blended index (1)

 

$

19.05

 

 

 

 

 

 

$

28.05

 

 

 

- 32

%

 

$

21.00

 

 

 

 

 

 

$

26.97

 

 

 

- 22

%

Realized price, unhedged

 

$

14.79

 

 

78%

 

 

$

24.10

 

 

 

- 39

%

 

$

16.62

 

 

79%

 

 

$

23.38

 

 

 

- 29

%

Cash settlements

 

$

1.03

 

 

 

 

 

 

$

(1.66

)

 

 

 

 

 

$

0.77

 

 

 

 

 

 

$

(1.13

)

 

 

 

 

Realized price, with hedges

 

$

15.82

 

 

83%

 

 

$

22.44

 

 

 

- 29

%

 

$

17.39

 

 

83%

 

 

$

22.25

 

 

 

- 22

%

Combined (per Boe)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized price, unhedged

 

$

27.24

 

 

 

 

 

 

$

31.97

 

 

 

- 15

%

 

$

27.90

 

 

 

 

 

 

$

31.20

 

 

 

- 11

%

Cash settlements

 

$

0.60

 

 

 

 

 

 

$

(3.67

)

 

 

 

 

 

$

0.76

 

 

 

 

 

 

$

(3.01

)

 

 

 

 

Total

 

$

27.84

 

 

 

 

 

 

$

28.30

 

 

 

- 2

%

 

$

28.66

 

 

 

 

 

 

$

28.19

 

 

 

+2

%

 

 

(1)

Based upon composition of our NGL barrel.

 

Hedging

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Cash settlements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil derivatives

 

$

(6

)

 

$

(142

)

 

$

40

 

 

$

(240

)

Gas derivatives

 

 

18

 

 

 

14

 

 

 

2

 

 

 

32

 

NGL derivatives

 

 

11

 

 

 

(16

)

 

 

15

 

 

 

(21

)

Total cash settlements

 

 

23

 

 

 

(144

)

 

 

57

 

 

 

(229

)

Valuation changes

 

 

117

 

 

 

(343

)

 

 

(522

)

 

 

(371

)

Oil, gas and NGL derivatives

 

$

140

 

 

$

(487

)

 

$

(465

)

 

$

(600

)

 

Production Expenses

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

Change

 

 

2019

 

 

2018

 

 

Change

 

LOE

 

$

133

 

 

$

154

 

 

 

- 14

%

 

$

265

 

 

$

302

 

 

 

- 12

%

Gathering, processing & transportation

 

 

161

 

 

 

180

 

 

 

- 11

%

 

 

320

 

 

 

362

 

 

 

- 12

%

Production taxes

 

 

66

 

 

 

64

 

 

 

+3

%

 

 

130

 

 

 

121

 

 

 

+7

%

Property taxes

 

 

11

 

 

 

8

 

 

 

+29

%

 

 

21

 

 

 

16

 

 

 

+30

%

Total

 

$

371

 

 

$

406

 

 

 

- 8

%

 

$

736

 

 

$

801

 

 

 

- 8

%

Per Boe:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOE

 

$

3.44

 

 

$

3.93

 

 

 

- 12

%

 

$

3.49

 

 

$

3.94

 

 

 

- 11

%

Gathering, processing & transportation

 

$

4.17

 

 

$

4.60

 

 

 

- 9

%

 

$

4.21

 

 

$

4.73

 

 

 

- 11

%

Percent of oil, gas and NGL sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production taxes

 

 

6.3

%

 

 

5.1

%

 

 

+23

%

 

 

6.2

%

 

 

5.1

%

 

 

+21

%

36


Table of Contents

 

LOE decreased for the three month and six month periods of 2019 compared to the same periods in 2018 primarily due to the impact of our U.S. non-core asset divestitures. Gathering, processing and transportation decreased in the three month and six month periods of 2019 compared to the same time periods of 2018 primarily due to the expiration of the EnLink Bridgeport minimum volume commitment at the end of 2018. Production taxes increased, on an absolute dollar basis and as a percentage of oil, gas and NGL sales, primarily due to the increase in Oklahoma severance tax rates that became effective in the third quarter of 2018.

 

Discontinued Operations – Canada

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Upstream revenues

 

$

388

 

 

$

303

 

 

$

635

 

 

$

605

 

Production expenses

 

$

153

 

 

$

166

 

 

$

294

 

 

$

314

 

Asset dispositions

 

$

(189

)

 

$

 

 

$

(189

)

 

$

 

Asset impairments

 

$

37

 

 

$

 

 

$

37

 

 

$

 

Restructuring and transaction costs

 

$

236

 

 

$

9

 

 

$

239

 

 

$

9

 

Net earnings

 

$

329

 

 

$

22

 

 

$

358

 

 

$

19

 

Production (MBoe/d)

 

 

97

 

 

 

111

 

 

 

105

 

 

 

121

 

Realized price, unhedged (per Boe)

 

$

43.03

 

 

$

31.17

 

 

$

38.41

 

 

$

24.84

 

 

Canadian production was lower during the second quarter of 2019 compared to the second quarter of 2018 as a result of less days of production due to the divestiture close date. Canadian production was lower during the six months ended 2019 compared to the six months ended 2018 primarily as a result of higher royalties.

 

In conjunction with the sale of our Canadian business during the second quarter of 2019, we recognized a pre-tax gain on the sale of our Canadian business of $189 million and restructuring and transaction costs and related asset impairment charges of $273 million. For additional details on discontinued operations financial results, see Note 18 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

 

 

 

 

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Table of Contents

Capital Resources, Uses and Liquidity

Sources and Uses of Cash

The following table presents the major changes in cash and cash equivalents for the six months ended June 30, 2019 and 2018.

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating cash flow from continuing operations

 

$

488

 

 

$

526

 

 

$

966

 

 

$

959

 

Divestitures of property and equipment

 

 

28

 

 

 

560

 

 

 

339

 

 

 

607

 

Capital expenditures

 

 

(494

)

 

 

(543

)

 

 

(996

)

 

 

(1,105

)

Acquisitions of property and equipment

 

 

(13

)

 

 

(10

)

 

 

(23

)

 

 

(16

)

Debt activity, net

 

 

 

 

 

 

 

 

(162

)

 

 

(1,111

)

Repurchases of common stock

 

 

(187

)

 

 

(428

)

 

 

(1,185

)

 

 

(499

)

Common stock dividends

 

 

(37

)

 

 

(42

)

 

 

(71

)

 

 

(74

)

Other

 

 

(3

)

 

 

(6

)

 

 

(22

)

 

 

(35

)

Net change in cash, cash equivalents and restricted cash

   from discontinued operations

 

 

2,716

 

 

 

(2

)

 

 

2,561

 

 

 

115

 

Net change in cash, cash equivalents and restricted cash

 

$

2,498

 

 

$

55

 

 

$

1,407

 

 

$

(1,159

)

Cash, cash equivalents and restricted cash at end of period

 

$

3,853

 

 

$

1,525

 

 

$

3,853

 

 

$

1,525

 

 

Operating Cash Flow

 

As presented in the table above, net cash provided by operating activities continued to be a significant source of capital and liquidity. Operating cash flow nearly funded all of our capital expenditures during the first three months and six months of 2019. We utilized available cash balances and divestiture proceeds to supplement our operating cash flows and fund other investing and financing cash uses.

Divestitures of Property and Equipment

During the first six months of 2019, we sold non-core U.S. assets for approximately $339 million, net of customary purchase price adjustments. During the first six months of 2018, we sold non-core U.S. assets, including certain Barnett Shale assets, for $607 million. For additional information, please see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Capital Expenditures and Acquisitions of Property and Equipment

The amounts in the table below reflect cash payments for capital expenditures, including cash paid for capital expenditures incurred in prior periods.

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Delaware Basin

 

$

245

 

 

$

157

 

 

$

470

 

 

$

332

 

STACK

 

 

101

 

 

 

225

 

 

 

237

 

 

 

429

 

Powder River Basin

 

 

60

 

 

 

30

 

 

 

116

 

 

 

78

 

Eagle Ford

 

 

53

 

 

 

72

 

 

 

108

 

 

 

128

 

Other

 

 

17

 

 

 

56

 

 

 

40

 

 

 

111

 

Total oil and gas

 

 

476

 

 

 

540

 

 

 

971

 

 

 

1,078

 

Corporate and other

 

 

18

 

 

 

3

 

 

 

25

 

 

 

27

 

Total capital expenditures

 

$

494

 

 

$

543

 

 

$

996

 

 

$

1,105

 

Acquisitions

 

$

13

 

 

$

10

 

 

$

23

 

 

$

16

 

 

Capital expenditures consist of amounts related to our oil and gas exploration and development operations and other corporate activities. Our capital program is designed to operate within or near operating cash flow and maintain significant flexibility. Our capital investment program is driven by a disciplined allocation process focused on returns. Our capital expenditures are lower in 2019 primarily due to our decreased spending in the STACK, partially offset by increased capital investment in higher margin assets in the Delaware and Powder River Basin.

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Table of Contents

 

Debt Activity

During the first six months of 2019, our debt decreased $162 million due to the repayment of our 6.30% senior notes at maturity.

During the first six months of 2018, our debt decreased approximately $800 million due to completed tender offers of certain long-term debt. In conjunction with the tender offers, we recognized a $312 million loss on the early retirement of debt, including $304 million of cash retirement costs and fees. For additional information, see Note 13 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Shareholder Distributions and Stock Activity

The following table summarizes our common stock dividends during the first six months of 2019 and 2018. Beginning with the second quarter of 2019, we increased our quarterly dividend to $0.09 per share.

 

Amounts

 

 

Rate Per Share

 

Quarter Ended 2019:

 

 

 

 

 

 

 

First quarter

$

34

 

 

$

0.08

 

Second quarter

 

37

 

 

$

0.09

 

Total year-to-date

$

71

 

 

 

 

 

Quarter Ended 2018:

 

 

 

 

 

 

 

First quarter

$

32

 

 

$

0.06

 

Second quarter

 

42

 

 

$

0.08

 

Total year-to-date

$

74

 

 

 

 

 

We repurchased 42.1 million shares of common stock for $1.2 billion in the first six months of 2019 and 13.7 million shares of common stock for $521 million in the first six months of 2018 under a share repurchase program authorized by our Board of Directors. For additional information, see Note 17 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Cash Flows from Discontinued Operations

All cash flows in the following table relate to activities of our divested Canadian operations and our aggregate ownership interests in EnLink and the General Partner, which were divested in June 2019 and July 2018, respectively.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Settlements of intercompany foreign denominated assets/liabilities

 

$

(32

)

 

$

(244

)

 

$

(31

)

 

$

(243

)

Other

 

 

167

 

 

 

223

 

 

 

64

 

 

 

593

 

Operating activities

 

 

135

 

 

 

(21

)

 

 

33

 

 

 

350

 

Divestitures of property and equipment

 

 

2,601

 

 

 

 

 

 

2,601

 

 

 

1

 

Capital expenditures and other

 

 

(57

)

 

 

(281

)

 

 

(104

)

 

 

(551

)

Investing activities

 

 

2,544

 

 

 

(281

)

 

 

2,497

 

 

 

(550

)

Debt activity, net

 

 

 

 

 

158

 

 

 

 

 

 

280

 

Distributions to noncontrolling interests

 

 

 

 

 

(115

)

 

 

 

 

 

(217

)

Other

 

 

 

 

 

30

 

 

 

(8

)

 

 

40

 

Financing activities

 

 

 

 

 

73

 

 

 

(8

)

 

 

103

 

Settlements of intercompany foreign denominated assets/liabilities

 

 

32

 

 

 

244

 

 

 

31

 

 

 

243

 

Other

 

 

5

 

 

 

(17

)

 

 

8

 

 

 

(31

)

Effect of exchange rate changes on cash

 

 

37

 

 

 

227

 

 

 

39

 

 

 

212

 

Net change in cash, cash equivalents and restricted cash of

   discontinued operations

 

$

2,716

 

 

$

(2

)

 

$

2,561

 

 

$

115

 

Foreign currency denominated intercompany loan activity during the first six months of 2019 and 2018 resulted in a realized loss of $31 million and $243 million, respectively, as a result of the strengthening of the U.S. dollar in relation to the Canadian dollar. There was an offset in the effect of exchange rate changes on cash line in the above table, resulting in no impact to the net change in cash, cash equivalents and restricted cash.

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Table of Contents

Other operating cash flow from the first three and six months of 2019 decreased from the same periods in 2018 as a result of the divestiture of our aggregate ownership interests in EnLink and the General Partner in July 2018. In addition, operating cash flow was negatively affected in the first quarter of 2019 primarily due to realization impacts associated with the widening Canadian differentials in the fourth quarter of 2018.

On June 27, 2019, Devon completed the sale of all its operating assets and operations in Canada for proceeds of $2.6 billion. For additional information, see Note 2 and Note 18 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

In July 2019, we retired $1.5 billion of senior notes prior to maturity. These senior notes were reclassified to liabilities associated with discontinued operations on the consolidated balance sheets. For additional information, see Note 18 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Devon received $134 million in distributions from EnLink and the General Partner during the first six months of 2018. Distributions to noncontrolling interests in the table above exclude the distributions EnLink and the General Partner paid to Devon, which have been eliminated in consolidation.

Liquidity

The business of exploring for, developing and producing oil and natural gas is capital intensive. Because oil, natural gas and NGL reserves are a depleting resource, we, like all upstream operators, must continually make capital investments to grow and even sustain production. Generally, our capital investments are focused on drilling and completing new wells and maintaining production from existing wells. At opportunistic times, we also acquire operations and properties from other operators or land owners to enhance our existing portfolio of assets.

 

Historically, our primary sources of capital funding and liquidity have been our operating cash flow, cash on hand and asset divestiture proceeds. Additionally, we maintain a commercial paper program, supported by our revolving line of credit, which can be accessed as needed to supplement operating cash flow and cash balances. If needed, we can also issue debt and equity securities, including through transactions under our shelf registration statement filed with the SEC. In February 2019, we announced plans to separate our Canadian and Barnett Shale assets and operations. In June 2019, we closed on the sale of our Canadian business and expect to complete the separation of our Barnet Shale assets by the end of 2019. We plan to use the proceeds from these transactions for debt repayments and return cash to shareholders. We estimate the combination of our sources of capital will continue to be adequate to fund our planned capital requirements as discussed in this section.

 

Operating Cash Flow

Key inputs into determining our planned capital investment is the amount of cash we hold and operating cash flow we expect to generate over the next one to three or more years. At the end of the second quarter of 2019, we held approximately $3.8 billion of cash, inclusive of $370 million of cash restricted for discontinued operations. Our operating cash flow forecasts are sensitive to many variables and include a measure of uncertainty as the actual results of these variables may differ from our expectations.

Commodity Prices – The most uncertain and volatile variables for our operating cash flow are the prices of the oil, gas and NGLs we produce and sell. Prices are determined primarily by prevailing market conditions. Regional and worldwide economic activity, weather and other substantially variable factors influence market conditions for these products. These factors, which are difficult to predict, create volatility in prices and are beyond our control.

To mitigate some of the risk inherent in prices, we utilize various derivative financial instruments to protect a portion of our production against downside price risk. We target hedging approximately 50% of our production in a manner that systematically places hedges for several quarters in advance, allowing us to maintain a disciplined risk management program as it relates to commodity price volatility. We supplement the systematic hedging program with discretionary hedges that take advantage of favorable market conditions. The key terms to our oil, gas and NGL derivative financial instruments as of June 30, 2019 are presented in Note 3 in “Item 8. Financial Statements and Supplementary Data” of this report.

Operating Expenses – Commodity prices can also affect our operating cash flow through an indirect effect on operating expenses. Significant commodity price decreases can lead to a decrease in drilling and development activities. As a result, the demand and cost for people, services, equipment and materials may also decrease, causing a positive impact on our cash flow as the prices paid for services and equipment decline. However, the inverse is also generally true during periods of rising commodity prices.

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Table of Contents

For 2019, we are aggressively optimizing our cost structure in conjunction with our Canadian and planned Barnett Shale asset divestitures, as we focus on our remaining four U.S. oil plays, align our workforce with the retained business and reduce outstanding debt. We anticipate the planned $780 million reduction of annualized costs will occur over three years, with roughly 70% of the savings delivered by the end of 2019. Approximately 40% of the reduced costs relate to our capital programs and the remainder relates to our operating expenses, including G&A, interest expense and production expenses.

Credit Losses – Our operating cash flow is also exposed to credit risk in a variety of ways. This includes the credit risk related to customers who purchase our oil, gas and NGL production, the collection of receivables from our joint-interest partners for their proportionate share of expenditures made on projects we operate and counterparties to our derivative financial contracts. We utilize a variety of mechanisms to limit our exposure to the credit risks of our customers, partners and counterparties. Such mechanisms include, under certain conditions, requiring letters of credit, prepayments or collateral postings.

 

Divestitures of Property and Equipment

 

In February 2019, we announced the separation of our Canadian and Barnett Shale businesses. In June 2019, we completed the sale of our Canadian operations for $2.6 billion ($3.4 billion Canadian dollars) and are progressing on the separation of our Barnett Shale assets. For additional information, see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Capital Expenditures

Our exploration and development budget for the remainder of 2019 is expected to range from $0.8 billion to $0.9 billion, excluding capital associated with our Barnett Shale assets.

Credit Availability

As of June 30, 2019, we had approximately $3.0 billion of available borrowings under our Senior Credit Facility. This credit facility supports our $3.0 billion of short-term credit under our commercial paper program. At June 30, 2019, there were no borrowings under our commercial paper program, and we were in compliance with the facility’s financial covenant. In connection with the closing of the sale of our Canadian business, we reallocated and terminated all Canadian commitments under the Senior Credit Facility in accordance with the terms of the credit agreement governing the Senior Credit Facility. The termination of the Canadian subfacility was effective as of June 27, 2019, and such termination did not decrease the $3.0 billion in total revolving commitments under, or otherwise modify the terms of, the Senior Credit Facility.

Debt Ratings

We receive debt ratings from the major ratings agencies in the U.S. In determining our debt ratings, the agencies consider a number of qualitative and quantitative items including, but not limited to, commodity pricing levels, our liquidity, asset quality, reserve mix, debt levels, cost structure, planned asset sales and production growth opportunities. Our credit rating from Standard and Poor’s Financial Services is BBB with a negative outlook. Our credit rating from Fitch is BBB+ with a negative outlook. Our credit rating from Moody’s Investor Service is Ba1 with a positive outlook. Any rating downgrades may result in additional letters of credit or cash collateral being posted under certain contractual arrangements.

Share Repurchase Program

In February 2019, our Board of Directors authorized an expansion of our pre-existing share repurchase program by an additional $1.0 billion to $5.0 billion. The share repurchase program expires December 31, 2019. Through July 31, 2019, we had executed $4.4 billion of the authorized program.

 


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Table of Contents

Critical Accounting Estimates

On June 27, 2019, we divested all of our Canadian operating assets. Our foreign earnings have not been considered indefinitely reinvested since the announcement of the plan to separate the assets in the first quarter of 2019. For additional information see Note 7 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

For additional information regarding our critical accounting policies and estimates, see our 2018 Annual Report on Form 10-K.

Non-GAAP Measures

We make reference to “core earnings (loss) attributable to Devon” and “core earnings (loss) per share attributable to Devon” in “Overview of 2019 Results” in this Item 2 that are not required by or presented in accordance with GAAP. These non-GAAP measures are not alternatives to GAAP measures and should not be considered in isolation or as a substitute for analysis of our results reported under GAAP. Core earnings (loss) attributable to Devon, as well as the per share amount, represent net earnings excluding certain noncash and other items that are typically excluded by securities analysts in their published estimates of our financial results. For more information on the results of discontinued operations for our Canadian operations and for EnLink and the General Partner, see Note 18 in “Part I. Financial Information – Item 1. Financial Statements” in this report. Our non-GAAP measures are typically used as a quarterly performance measure. Amounts excluded relate to asset dispositions, noncash asset impairments (including noncash unproved asset impairments), deferred tax asset valuation allowance, costs associated with early retirement of debt, fair value changes in derivative financial instruments and foreign currency, settlements related to minimum volume contract commitments, restructuring and transaction costs associated with the workforce reductions in 2019 and 2018 and restructuring and transaction costs associated with the divestment of our Canadian operations in 2019.

We believe these non-GAAP measures facilitate comparisons of our performance to earnings estimates published by securities analysts. We also believe these non-GAAP measures can facilitate comparisons of our performance between periods and to the performance of our peers.

Below are reconciliations of our core earnings and core earnings per share attributable to Devon to their comparable GAAP measures.

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Table of Contents

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

Before tax

 

 

After tax

 

 

After Noncontrolling Interests

 

 

Per Diluted Share

 

 

Before tax

 

 

After tax

 

 

After Noncontrolling Interests

 

 

Per Diluted Share

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) attributable to Devon (GAAP)

$

237

 

 

$

166

 

 

$

166

 

 

$

0.40

 

 

$

(219

)

 

$

(180

)

 

$

(180

)

 

$

(0.43

)

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset dispositions

 

(1

)

 

 

(1

)

 

 

(1

)

 

 

(0.00

)

 

 

(45

)

 

 

(35

)

 

 

(35

)

 

 

(0.08

)

Asset and exploration impairments

 

2

 

 

 

2

 

 

 

2

 

 

 

0.00

 

 

 

2

 

 

 

2

 

 

 

2

 

 

 

0.00

 

Deferred tax asset valuation allowance

 

 

 

 

11

 

 

 

11

 

 

 

0.03

 

 

 

 

 

 

(2

)

 

 

(2

)

 

 

(0.01

)

Fair value changes in financial instruments

 

(117

)

 

 

(91

)

 

 

(91

)

 

 

(0.22

)

 

 

522

 

 

 

402

 

 

 

402

 

 

 

0.95

 

Restructuring and transaction costs

 

12

 

 

 

10

 

 

 

10

 

 

 

0.02

 

 

 

63

 

 

 

49

 

 

 

49

 

 

 

0.12

 

Core earnings attributable to

   Devon (Non-GAAP)

$

133

 

 

$

97

 

 

$

97

 

 

$

0.23

 

 

$

323

 

 

$

236

 

 

$

236

 

 

$

0.55

 

Discontinued Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings attributable to Devon (GAAP)

$

44

 

 

$

329

 

 

$

329

 

 

$

0.79

 

 

$

73

 

 

$

358

 

 

$

358

 

 

$

0.85

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of Canadian operations

 

(189

)

 

 

(460

)

 

 

(460

)

 

 

(1.12

)

 

 

(189

)

 

 

(460

)

 

 

(460

)

 

 

(1.10

)

Asset and exploration impairments

 

37

 

 

 

27

 

 

 

27

 

 

 

0.07

 

 

 

37

 

 

 

27

 

 

 

27

 

 

 

0.07

 

Deferred tax asset valuation allowance

 

 

 

 

32

 

 

 

32

 

 

 

0.08

 

 

 

 

 

 

27

 

 

 

27

 

 

 

0.06

 

Fair value changes in financial instruments and

   foreign currency

 

(20

)

 

 

(17

)

 

 

(17

)

 

 

(0.04

)

 

 

(23

)

 

 

(23

)

 

 

(23

)

 

 

(0.06

)

Restructuring and transaction costs

 

236

 

 

 

172

 

 

 

172

 

 

 

0.42

 

 

 

239

 

 

 

174

 

 

 

174

 

 

 

0.42

 

Core earnings attributable to

   Devon (Non-GAAP)

$

108

 

 

$

83

 

 

$

83

 

 

$

0.20

 

 

$

137

 

 

$

103

 

 

$

103

 

 

$

0.24

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) attributable to Devon (GAAP)

$

281

 

 

$

495

 

 

$

495

 

 

$

1.19

 

 

$

(146

)

 

$

178

 

 

$

178

 

 

$

0.42

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

(104

)

 

 

(69

)

 

 

(69

)

 

 

(0.17

)

 

 

542

 

 

 

416

 

 

 

416

 

 

 

0.98

 

Discontinued Operations

 

64

 

 

 

(246

)

 

 

(246

)

 

 

(0.59

)

 

 

64

 

 

 

(255

)

 

 

(255

)

 

 

(0.61

)

Core earnings attributable to Devon (Non-GAAP)

$

241

 

 

$

180

 

 

$

180

 

 

$

0.43

 

 

$

460

 

 

$

339

 

 

$

339

 

 

$

0.79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss attributable to Devon (GAAP)

$

(483

)

 

$

(496

)

 

$

(496

)

 

$

(0.97

)

 

$

(694

)

 

$

(704

)

 

$

(704

)

 

$

(1.36

)

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset dispositions

 

23

 

 

 

18

 

 

 

18

 

 

 

0.03

 

 

 

11

 

 

 

9

 

 

 

9

 

 

 

0.02

 

Asset and exploration impairments

 

207

 

 

 

159

 

 

 

159

 

 

 

0.31

 

 

 

217

 

 

 

166

 

 

 

166

 

 

 

0.32

 

Deferred tax asset valuation allowance

 

 

 

 

123

 

 

 

123

 

 

 

0.24

 

 

 

 

 

 

131

 

 

 

131

 

 

 

0.25

 

Early retirement of debt

 

 

 

 

 

 

 

 

 

 

 

 

 

312

 

 

 

240

 

 

 

240

 

 

 

0.46

 

Fair value changes in financial instruments

 

322

 

 

 

249

 

 

 

249

 

 

 

0.48

 

 

 

307

 

 

 

238

 

 

 

238

 

 

 

0.45

 

Restructuring and transaction costs

 

85

 

 

 

65

 

 

 

65

 

 

 

0.13

 

 

 

85

 

 

 

65

 

 

 

65

 

 

 

0.13

 

Core earnings attributable to

   Devon (Non-GAAP)

$

154

 

 

$

118

 

 

$

118

 

 

$

0.22

 

 

$

238

 

 

$

145

 

 

$

145

 

 

$

0.27

 

Discontinued Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings attributable to Devon (GAAP)

$

151

 

 

$

161

 

 

$

71

 

 

$

0.14

 

 

$

181

 

 

$

216

 

 

$

82

 

 

$

0.16

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax asset valuation allowance

 

 

 

 

(50

)

 

 

(50

)

 

 

(0.10

)

 

 

 

 

 

(52

)

 

 

(52

)

 

 

(0.10

)

Fair value changes in financial

   instruments and foreign currency

 

66

 

 

 

51

 

 

 

45

 

 

 

0.10

 

 

 

144

 

 

 

124

 

 

 

117

 

 

 

0.22

 

EnLink minimum volume commitments

 

(48

)

 

 

(39

)

 

 

(14

)

 

 

(0.03

)

 

 

(48

)

 

 

(39

)

 

 

(14

)

 

 

(0.02

)

Restructuring and transaction costs

 

9

 

 

 

7

 

 

 

7

 

 

$

0.01

 

 

 

9

 

 

 

7

 

 

 

7

 

 

$

0.01

 

Core earnings attributable to

   Devon (Non-GAAP)

$

178

 

 

$

130

 

 

$

59

 

 

$

0.12

 

 

$

286

 

 

$

256

 

 

$

140

 

 

$

0.27

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss attributable to Devon (GAAP)

$

(332

)

 

$

(335

)

 

$

(425

)

 

$

(0.83

)

 

$

(513

)

 

$

(488

)

 

$

(622

)

 

$

(1.20

)

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

637

 

 

 

614

 

 

 

614

 

 

 

1.19

 

 

 

932

 

 

 

849

 

 

 

849

 

 

 

1.63

 

Discontinued Operations

 

27

 

 

 

(31

)

 

 

(12

)

 

 

(0.02

)

 

 

105

 

 

 

40

 

 

 

58

 

 

 

0.11

 

Core earnings attributable to

   Devon (Non-GAAP)

$

332

 

 

$

248

 

 

$

177

 

 

$

0.34

 

 

$

524

 

 

$

401

 

 

$

285

 

 

$

0.54

 

43


Table of Contents

EBITDAX and Field-Level Cash Margin

To assess the performance of our assets, we use EBITDAX and Field-Level Cash Margin. We compute EBITDAX as net earnings from continuing operations before income tax expense; financing costs, net; exploration expenses; depreciation, depletion and amortization; asset impairments; asset disposition gains and losses; non-cash share-based compensation; non-cash valuation changes for derivatives and financial instruments; restructuring and transaction costs; accretion on discounted liabilities; and other items not related to our normal operations. Field-Level Cash Margin is computed as oil, gas and NGL revenues less production expenses. Production expenses consist of lease operating, gathering, processing and transportation expenses, as well as production and property taxes.

We exclude financing costs from EBITDAX to assess our operating results without regard to our financing methods or capital structure. Exploration expenses and asset disposition gains and losses are excluded from EBITDAX because they are not indicators of operating efficiency for a given reporting period. DD&A and impairments are excluded from EBITDAX because capital expenditures are evaluated at the time capital costs are incurred. We exclude share-based compensation, valuation changes, restructuring and transaction costs, accretion on discounted liabilities and other items from EBITDAX because they are not considered a measure of asset operating performance.

We believe EBITDAX and Field-Level Cash Margin provide information useful in assessing our operating and financial performance across periods. EBITDAX and Field-Level Cash Margin as defined by Devon may not be comparable to similarly titled measures used by other companies and should be considered in conjunction with net earnings from continuing operations.

Below are reconciliations of net earnings from continuing operations to EBITDAX and a further reconciliation to Field-Level Cash Margin. We have excluded the EBITDAX and Field-Level Cash Margin for our U.S. divested assets, Canada (which has been reclassified as discontinued operations on our consolidated comprehensive statements of earnings) and the Barnett Shale to compute Adjusted EBITDAX and Adjusted Field-Level Cash Margin for New Devon. We use Adjusted EBITDAX and Adjusted Field-Level Cash Margin to assess the performance of our portfolio of upstream assets on a “same-store” basis across periods.

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net earnings (loss) from continuing operations (GAAP)

$

166

 

 

$

(496

)

 

$

(180

)

 

$

(704

)

Financing costs, net

 

66

 

 

 

64

 

 

 

126

 

 

 

453

 

Income tax expense (benefit)

 

71

 

 

 

13

 

 

 

(39

)

 

 

10

 

Exploration expenses

 

7

 

 

 

62

 

 

 

11

 

 

 

83

 

Depreciation, depletion and amortization

 

394

 

 

 

342

 

 

 

774

 

 

 

647

 

Asset impairments

 

 

 

 

154

 

 

 

 

 

 

154

 

Asset dispositions

 

(1

)

 

 

23

 

 

 

(45

)

 

 

11

 

Share-based compensation

 

21

 

 

 

26

 

 

 

44

 

 

 

59

 

Derivative and financial instrument non-cash valuation changes

 

(117

)

 

 

322

 

 

 

522

 

 

 

307

 

Restructuring and transaction costs

 

12

 

 

 

85

 

 

 

63

 

 

 

85

 

Accretion on discounted liabilities and other

 

8

 

 

 

6

 

 

 

(9

)

 

 

 

EBITDAX (non-GAAP)

 

627

 

 

 

601

 

 

 

1,267

 

 

 

1,105

 

Marketing revenues and expenses, net

 

(17

)

 

 

(7

)

 

 

(32

)

 

 

(3

)

Commodity derivative cash settlements

 

(23

)

 

 

144

 

 

 

(57

)

 

 

229

 

General and administration expenses, cash-based

 

93

 

 

 

109

 

 

 

205

 

 

 

251

 

Field-level cash margin (non-GAAP)

$

680

 

 

$

847

 

 

$

1,383

 

 

$

1,582

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDAX (non-GAAP)

$

627

 

 

$

601

 

 

$

1,267

 

 

$

1,105

 

EBITDAX, U.S. divested assets

 

(2

)

 

 

(38

)

 

 

(8

)

 

 

(78

)

EBITDAX, Barnett Shale

 

(39

)

 

 

(73

)

 

 

(107

)

 

 

(158

)

Adjusted EBITDAX (non-GAAP)

$

586

 

 

$

490

 

 

$

1,152

 

 

$

869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Field-level cash margin (non-GAAP)

$

680

 

 

$

847

 

 

$

1,383

 

 

$

1,582

 

Field-level cash margin, U.S. divested assets

 

(2

)

 

 

(38

)

 

 

(8

)

 

 

(78

)

Field-level cash margin, Barnett Shale

 

(39

)

 

 

(73

)

 

 

(107

)

 

 

(158

)

Adjusted field-level cash margin (non-GAAP)

$

639

 

 

$

736

 

 

$

1,268

 

 

$

1,346

 

 

44


Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Commodity Price Risk

As of June 30, 2019, we have commodity derivatives that pertain to a portion of our estimated production for the last six months of 2019, as well as for 2020. The key terms to our open oil, gas and NGL derivative financial instruments are presented in Note 3 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

The fair values of our commodity derivatives are largely determined by the forward curves of the relevant price indices. At June 30, 2019, a 10% change in the forward curves associated with our commodity derivative instruments would have changed our net positions by approximately $180 million.

Interest Rate Risk

As of June 30, 2019, we had total debt of $5.8 billion. All of this debt was based on fixed interest rates averaging 5.4%. Total debt is inclusive of the $1.5 billion of debt that was reclassified to liabilities associated with discontinued operations at June 30, 2019 and retired early in July 2019. See Note 18 in “Part I. Financial Information – Item 1. Financial Statements” in this report for additional information.

Foreign Currency Risk

Devon has certain Canadian dollar obligations resulting from its divestment of its Canadian operations which are to be paid with the cash restricted for discontinued operations. These balances are remeasured using the applicable exchange rate as of the end of the reporting period. A 10% unfavorable change in the Canadian-to-U.S. dollar exchange rate would not have materially impacted our June 30, 2019 balance sheet for these items. See Note 18 in “Part I. Financial Information – Item 1. Financial Statements” in this report for additional information.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to Devon, including its consolidated subsidiaries, is made known to the officers who certify Devon’s financial reports and to other members of senior management and the Board of Directors.

Based on their evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of June 30, 2019 to ensure that the information required to be disclosed by Devon in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

Changes in Internal Control Over Financial Reporting

We implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new lease accounting standard on our financial statements to facilitate its adoption in the first quarter of 2019. There were no significant changes to our internal control over financial reporting due to the adoption of the new lease accounting standard. There were no other changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

45


Table of Contents

PART II. Other Information

We are involved in various legal proceedings incidental to our business. However, to our knowledge as of the date of this report, there were no material pending legal proceedings to which we are a party or to which any of our property is subject.

On April 4, 2019, Devon Energy Production Company, L.P., a wholly-owned subsidiary of the Company (“DEPCO”), agreed to settle its previously disclosed negotiations with the EPA relating to certain alleged Clean Air Act violations at its Beaver Creek Gas Plant located near Riverton, Wyoming by executing an agreed order with the EPA. The order included a penalty of $150,000 and was approved by the regional EPA judicial officer on June 12, 2019. Moreover, in connection with the resolution of this matter with the EPA, DEPCO entered into a consent decree on May 9, 2019 with respect to the same matter with the Wyoming Department of Environmental Quality, which also included a separate penalty of $150,000.

 

Please see our 2018 Annual Report on Form 10-K for additional information.

Item 1A. Risk Factors

There have been no material changes to the information included in Item 1A. “Risk Factors” in our 2018 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information regarding purchases of our common stock that were made by us during the second quarter of 2019 (shares in thousands).

Period

 

Total Number of

Shares Purchased (1)

 

 

Average Price

Paid per Share

 

 

Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs (2)

 

 

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)

 

April 1 - April 30

 

 

78

 

 

$

31.34

 

 

 

 

 

$

998

 

May 1 - May 31

 

 

242

 

 

$

26.20

 

 

 

220

 

 

$

993

 

June 1 - June 30

 

 

5,699

 

 

$

27.05

 

 

 

5,691

 

 

$

839

 

Total

 

 

6,019

 

 

$

27.07

 

 

 

5,911

 

 

 

 

 

 

 

(1)

In addition to shares purchased under the share repurchase program described below, these amounts also included 108,000 shares received by us from employees for the payment of personal income tax withholding on vesting transactions.

 

(2)

On March 7, 2018, we announced a $1.0 billion share repurchase program. On June 6, 2018, we announced the expansion of this program to $4.0 billion. On February 19, 2019, we announced a further expansion to $5.0 billion with a December 31, 2019 expiration date. As of June 30, 2019, we had repurchased 120.2 million common shares for $4.2 billion, or $34.62 per share, under our share repurchases program. Future purchases under the program will be made in open market, private transactions or through the use of ASR programs.

 

Under the Devon Plan, eligible employees made purchases of shares of our common stock through an investment in the Devon Stock Fund, which is administered by an independent trustee. Eligible employees purchased approximately 8,800 shares of our common stock in the second quarter of 2019, at then-prevailing stock prices, that they held through their ownership in the Stock Fund. We acquired the shares of our common stock sold under the Devon Plan through open-market purchases.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

46


Table of Contents

Item 6. Exhibits

 

Exhibit

Number

 

Description

 

 

2.1

 

Agreement of Purchase and Sale, dated as of May 28, 2019, among Devon Canada Corporation, Devon Canada Crude Marketing Corporation and Canadian Natural Resources Limited (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed May 31, 2019; File No. 001-32318).

 

 

4.1

 

Assignment and Assumption Agreement, dated as of June 19, 2019, by and between Devon Financing Company, L.L.C. and Devon Energy Corporation, relating to that certain Indenture, dated as of October 3, 2001, by and among Devon Financing Company, L.L.C. (f/k/a Devon Financing Company, U.L.C.), as issuer, Devon Energy Corporation, as guarantor, and The Bank of New York Mellon Trust Company, N.A., as successor to The Chase Manhattan Bank, as trustee, and the 7.875% Debentures due 2031 issued thereunder.

 

 

10.1

 

Amendment 2019-1, executed June 19, 2019, to the Devon Energy Corporation Defined Contribution Restoration Plan (as amended and restated effective January 1, 2012).*

 

 

10.2

 

Amendment 2019-1, executed June 19, 2019, to the Devon Energy Corporation Supplemental Contribution Plan (as amended and restated effective January 1, 2012).*

 

 

10.3

 

Amendment 2019-1, executed June 19, 2019, to the Devon Energy Corporation Supplemental Executive Retirement Plan (as amended and restated effective January 1, 2012).*

 

 

10.4

 

Amendment 2019-1, executed June 19, 2019, to the Devon Energy Corporation Incentive Savings Plan (as amended and restated effective January 1, 2018).*

 

 

31.1

 

Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

31.2

 

Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

32.1

 

Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

32.2

 

Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

101.INS

 

XBRL Instance Document – the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document.

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document.

 

 

101.LAB

 

XBRL Taxonomy Extension Labels Linkbase Document.

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document.

 

______________

* Indicates management contract or compensatory plan or arrangement.

 

47


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

DEVON ENERGY CORPORATION

 

 

 

Date: August 7, 2019

 

 

 

/s/ Jeremy D. Humphers

 

 

 

 

Jeremy D. Humphers

 

 

 

 

Senior Vice President and Chief Accounting Officer

 

 

48