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DEVON ENERGY CORP/DE - Quarter Report: 2022 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, 2022

or

 

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

 

Commission File Number 001-32318

 

img129271154_0.jpg 

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 20, 2022, 654.8 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 Statements of Comprehensive 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 – Acquisitions and Divestitures

11

 

 

Note 3 – Derivative Financial Instruments

12

 

 

Note 4 – Share-Based Compensation

13

 

 

Note 5 – Restructuring and Transaction Costs

15

 

 

Note 6 – Other, Net

15

 

 

Note 7 – Income Taxes

16

 

 

Note 8 – Net Earnings Per Share

17

 

 

Note 9 – Other Comprehensive Earnings (Loss)

17

 

 

Note 10 – Supplemental Information to Statements of Cash Flows

18

 

 

Note 11 – Accounts Receivable

18

 

 

Note 12 – Property, Plant and Equipment

18

 

 

Note 13 – Debt and Related Expenses

19

 

 

Note 14 – Leases

20

 

 

Note 15 – Asset Retirement Obligations

20

 

 

Note 16 – Stockholders’ Equity

20

 

 

Note 17 – Commitments and Contingencies

21

 

 

Note 18 – Fair Value Measurements

23

Item 2.

 

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

24

 

 

Executive Overview

24

 

 

Results of Operations

26

 

 

Capital Resources, Uses and Liquidity

34

 

 

Critical Accounting Estimates

37

 

 

Non-GAAP Measures

37

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

 

Controls and Procedures

40

 

 

 

 

Part II. Other Information

 

Item 1.

 

Legal Proceedings

41

Item 1A.

 

Risk Factors

41

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 3.

 

Defaults Upon Senior Securities

41

Item 4.

 

Mine Safety Disclosures

41

Item 5.

 

Other Information

41

Item 6.

 

Exhibits

42

 

 

 

 

Signatures

 

 

43

 

2


Table of Contents

 

DEFINITIONS

Unless the context otherwise indicates, references to “us,” “we,” “our,” “ours,” “Devon,” the “Company” and “Registrant” 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:

"2017 Plan" means the Devon Energy Corporation 2017 Long-Term Incentive Plan.

"2022 Plan" means the Devon Energy Corporation 2022 Long-Term Incentive Plan.

“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.

“Catalyst” means Catalyst Midstream Partners, LLC.

“CDM” means Cotton Draw Midstream, L.L.C.

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

“ESG” means environmental, social and governance.

“G&A” means general and administrative expenses.

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

“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.

“Merger” means the merger of Merger Sub with and into WPX, with WPX continuing as the surviving corporation and a wholly-owned subsidiary of the Company, pursuant to the terms of the Merger Agreement.

“Merger Agreement” means that certain Agreement and Plan of Merger, dated September 26, 2020, by and among the Company, Merger Sub and WPX.

“Merger Sub” means East Merger Sub, Inc., a wholly-owned subsidiary of the Company.

“MMBoe” means million Boe.

“MMBtu” means million Btu.

3


Table of Contents

 

“MMcf” means million cubic feet.

“N/M” means not meaningful.

"NCI" means noncontrolling interests.

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

“NYMEX” means New York Mercantile Exchange.

“OPEC” means Organization of the Petroleum Exporting Countries.

“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.

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

“VIE” means variable interest entity.

“WPX” means WPX Energy, Inc.

“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 and adversely from our expectations due to a number of factors, including, but not limited to:

the volatility of oil, gas and NGL prices;
risks relating to the COVID-19 pandemic or other future pandemics;
uncertainties inherent in estimating oil, gas and NGL reserves;
the extent to which we are successful in acquiring and discovering additional reserves;
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;
the uncertainties, costs and risks involved in our operations, including as a result of employee misconduct;
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;
risks related to investors attempting to effect change;
our ability to successfully complete mergers, acquisitions and divestitures;
our ability to pay dividends and make share repurchases; and
any of the other risks and uncertainties discussed in this report, our 2021 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 STATEMENTS OF COMPREHENSIVE EARNINGS

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Oil, gas and NGL sales

 

$

4,100

 

 

$

2,154

 

 

$

7,275

 

 

$

3,911

 

Oil, gas and NGL derivatives

 

 

(170

)

 

 

(703

)

 

 

(853

)

 

 

(1,231

)

Marketing and midstream revenues

 

 

1,696

 

 

 

966

 

 

 

3,016

 

 

 

1,787

 

Total revenues

 

 

5,626

 

 

 

2,417

 

 

 

9,438

 

 

 

4,467

 

Production expenses

 

 

729

 

 

 

513

 

 

 

1,347

 

 

 

971

 

Exploration expenses

 

 

10

 

 

 

3

 

 

 

12

 

 

 

6

 

Marketing and midstream expenses

 

 

1,700

 

 

 

965

 

 

 

3,024

 

 

 

1,807

 

Depreciation, depletion and amortization

 

 

528

 

 

 

536

 

 

 

1,017

 

 

 

1,003

 

Asset dispositions

 

 

(14

)

 

 

(87

)

 

 

(15

)

 

 

(119

)

General and administrative expenses

 

 

84

 

 

 

94

 

 

 

178

 

 

 

201

 

Financing costs, net

 

 

84

 

 

 

80

 

 

 

169

 

 

 

157

 

Restructuring and transaction costs

 

 

 

 

 

23

 

 

 

 

 

 

212

 

Other, net

 

 

10

 

 

 

(14

)

 

 

(51

)

 

 

(43

)

Total expenses

 

 

3,131

 

 

 

2,113

 

 

 

5,681

 

 

 

4,195

 

Earnings before income taxes

 

 

2,495

 

 

 

304

 

 

 

3,757

 

 

 

272

 

Income tax expense (benefit)

 

 

557

 

 

 

43

 

 

 

824

 

 

 

(205

)

Net earnings

 

 

1,938

 

 

 

261

 

 

 

2,933

 

 

 

477

 

Net earnings attributable to noncontrolling interests

 

 

6

 

 

 

5

 

 

 

12

 

 

 

8

 

Net earnings attributable to Devon

 

$

1,932

 

 

$

256

 

 

$

2,921

 

 

$

469

 

Net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic net earnings per share:

 

$

2.94

 

 

$

0.38

 

 

$

4.42

 

 

$

0.70

 

Diluted net earnings per share:

 

$

2.93

 

 

$

0.38

 

 

$

4.40

 

 

$

0.70

 

Comprehensive earnings:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

1,938

 

 

$

261

 

 

$

2,933

 

 

$

477

 

Other comprehensive earnings, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement plans

 

 

1

 

 

 

3

 

 

 

2

 

 

 

26

 

Other comprehensive earnings, net of tax

 

 

1

 

 

 

3

 

 

 

2

 

 

 

26

 

Comprehensive earnings:

 

$

1,939

 

 

$

264

 

 

$

2,935

 

 

$

503

 

Comprehensive earnings attributable to noncontrolling interests

 

 

6

 

 

 

5

 

 

 

12

 

 

 

8

 

Comprehensive earnings attributable to Devon

 

$

1,933

 

 

$

259

 

 

$

2,923

 

 

$

495

 

 

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

1,938

 

 

$

261

 

 

$

2,933

 

 

$

477

 

Adjustments to reconcile net earnings to net cash from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

528

 

 

 

536

 

 

 

1,017

 

 

 

1,003

 

Leasehold impairments

 

 

7

 

 

 

1

 

 

 

8

 

 

 

2

 

Amortization of liabilities

 

 

(9

)

 

 

(7

)

 

 

(15

)

 

 

(14

)

Total losses on commodity derivatives

 

 

170

 

 

 

703

 

 

 

853

 

 

 

1,231

 

Cash settlements on commodity derivatives

 

 

(472

)

 

 

(367

)

 

 

(816

)

 

 

(599

)

Gains on asset dispositions

 

 

(14

)

 

 

(87

)

 

 

(15

)

 

 

(119

)

Deferred income tax expense (benefit)

 

 

305

 

 

 

24

 

 

 

469

 

 

 

(219

)

Share-based compensation

 

 

23

 

 

 

20

 

 

 

43

 

 

 

61

 

Early retirement of debt

 

 

 

 

 

(10

)

 

 

 

 

 

(30

)

Other

 

 

4

 

 

 

2

 

 

 

(17

)

 

 

2

 

Changes in assets and liabilities, net

 

 

198

 

 

 

17

 

 

 

55

 

 

 

(110

)

Net cash from operating activities

 

 

2,678

 

 

 

1,093

 

 

 

4,515

 

 

 

1,685

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(573

)

 

 

(504

)

 

 

(1,110

)

 

 

(1,003

)

Acquisitions of property and equipment

 

 

(100

)

 

 

(5

)

 

 

(101

)

 

 

(5

)

Divestitures of property and equipment

 

 

9

 

 

 

49

 

 

 

35

 

 

 

64

 

WPX acquired cash

 

 

 

 

 

 

 

 

 

 

 

344

 

Distributions from equity method investments

 

 

15

 

 

 

8

 

 

 

23

 

 

 

18

 

Contributions to equity method investments

 

 

(21

)

 

 

 

 

 

(43

)

 

 

 

Net cash from investing activities

 

 

(670

)

 

 

(452

)

 

 

(1,196

)

 

 

(582

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

 

 

 

(710

)

 

 

 

 

 

(1,243

)

Early retirement of debt

 

 

 

 

 

(32

)

 

 

 

 

 

(59

)

Repurchases of common stock

 

 

(324

)

 

 

 

 

 

(535

)

 

 

 

Dividends paid on common stock

 

 

(830

)

 

 

(229

)

 

 

(1,497

)

 

 

(432

)

Contributions from noncontrolling interests

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Distributions to noncontrolling interests

 

 

(5

)

 

 

(5

)

 

 

(13

)

 

 

(9

)

Acquisition of noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

(24

)

Shares exchanged for tax withholdings and other

 

 

(12

)

 

 

(9

)

 

 

(85

)

 

 

(42

)

Net cash from financing activities

 

 

(1,171

)

 

 

(982

)

 

 

(2,130

)

 

 

(1,806

)

Effect of exchange rate changes on cash

 

 

(5

)

 

 

2

 

 

 

(3

)

 

 

5

 

Net change in cash, cash equivalents and restricted cash

 

 

832

 

 

 

(339

)

 

 

1,186

 

 

 

(698

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

2,625

 

 

 

1,878

 

 

 

2,271

 

 

 

2,237

 

Cash, cash equivalents and restricted cash at end of period

 

$

3,457

 

 

$

1,539

 

 

$

3,457

 

 

$

1,539

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,300

 

 

$

1,348

 

 

$

3,300

 

 

$

1,348

 

Restricted cash

 

 

157

 

 

 

191

 

 

 

157

 

 

 

191

 

Total cash, cash equivalents and restricted cash

 

$

3,457

 

 

$

1,539

 

 

$

3,457

 

 

$

1,539

 

 

See accompanying notes to consolidated financial statements

7


Table of Contents

 

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

June 30, 2022

 

 

December 31, 2021

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash, cash equivalents and restricted cash

 

$

3,457

 

 

$

2,271

 

Accounts receivable

 

 

2,348

 

 

 

1,543

 

Other current assets

 

 

546

 

 

 

435

 

Total current assets

 

 

6,351

 

 

 

4,249

 

Oil and gas property and equipment, based on successful efforts
   accounting, net

 

 

13,588

 

 

 

13,536

 

Other property and equipment, net ($122 million and $111 million related to CDM in 2022 and 2021, respectively)

 

 

1,525

 

 

 

1,472

 

Total property and equipment, net

 

 

15,113

 

 

 

15,008

 

Goodwill

 

 

753

 

 

 

753

 

Right-of-use assets

 

 

236

 

 

 

235

 

Investments

 

 

423

 

 

 

402

 

Other long-term assets

 

 

318

 

 

 

378

 

Total assets

 

$

23,194

 

 

$

21,025

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

668

 

 

$

500

 

Revenues and royalties payable

 

 

2,108

 

 

 

1,456

 

Other current liabilities

 

 

1,318

 

 

 

1,131

 

Total current liabilities

 

 

4,094

 

 

 

3,087

 

Long-term debt

 

 

6,461

 

 

 

6,482

 

Lease liabilities

 

 

259

 

 

 

252

 

Asset retirement obligations

 

 

452

 

 

 

468

 

Other long-term liabilities

 

 

949

 

 

 

1,050

 

Deferred income taxes

 

 

753

 

 

 

287

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.10 par value. Authorized 1.0 billion shares; issued
   
656 million and 663 million shares in 2022 and 2021, respectively

 

 

66

 

 

 

66

 

Additional paid-in capital

 

 

7,060

 

 

 

7,636

 

Retained earnings

 

 

3,107

 

 

 

1,692

 

Accumulated other comprehensive loss

 

 

(130

)

 

 

(132

)

Treasury stock, at cost, 0.2 million shares in 2022

 

 

(13

)

 

 

 

Total stockholders’ equity attributable to Devon

 

 

10,090

 

 

 

9,262

 

Noncontrolling interests

 

 

136

 

 

 

137

 

Total equity

 

 

10,226

 

 

 

9,399

 

Total liabilities and equity

 

$

23,194

 

 

$

21,025

 

 

See accompanying notes to consolidated financial statements

 

 

 

 

 

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Table of Contents

 

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Earnings

 

 

Treasury

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

(Loss)

 

 

Stock

 

 

Interests

 

 

Equity

 

 

 

(Unaudited)

 

Three Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2022

 

 

661

 

 

$

66

 

 

$

7,371

 

 

$

2,013

 

 

$

(131

)

 

$

(19

)

 

$

135

 

 

$

9,435

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

1,932

 

 

 

 

 

 

 

 

 

6

 

 

 

1,938

 

Other comprehensive earnings, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Restricted stock grants, net of cancellations

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Common stock repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(329

)

 

 

 

 

 

(329

)

Common stock retired

 

 

(5

)

 

 

(1

)

 

 

(334

)

 

 

 

 

 

 

 

 

335

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(838

)

 

 

 

 

 

 

 

 

 

 

 

(838

)

Share-based compensation

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5

)

 

 

(5

)

Balance as of June 30, 2022

 

 

656

 

 

$

66

 

 

$

7,060

 

 

$

3,107

 

 

$

(130

)

 

$

(13

)

 

$

136

 

 

$

10,226

 

Three Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2021

 

 

675

 

 

$

67

 

 

$

8,172

 

 

$

218

 

 

$

(104

)

 

$

 

 

$

133

 

 

$

8,486

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

256

 

 

 

 

 

 

 

 

 

5

 

 

 

261

 

Other comprehensive earnings, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Restricted stock grants, net of cancellations

 

 

2

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Common stock retired

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(231

)

 

 

 

 

 

 

 

 

 

 

 

(231

)

Share-based compensation

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

(4

)

Balance as of June 30, 2021

 

 

677

 

 

$

68

 

 

$

8,189

 

 

$

243

 

 

$

(101

)

 

$

 

 

$

136

 

 

$

8,535

 

Six Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2021

 

 

663

 

 

$

66

 

 

$

7,636

 

 

$

1,692

 

 

$

(132

)

 

$

 

 

$

137

 

 

$

9,399

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

2,921

 

 

 

 

 

 

 

 

 

12

 

 

 

2,933

 

Other comprehensive earnings, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Restricted stock grants, net of cancellations

 

 

2

 

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Common stock repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(634

)

 

 

 

 

 

(634

)

Common stock retired

 

 

(10

)

 

 

(1

)

 

 

(620

)

 

 

 

 

 

 

 

 

621

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(1,506

)

 

 

 

 

 

 

 

 

 

 

 

(1,506

)

Share-based compensation

 

 

1

 

 

 

 

 

 

43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

(13

)

Balance as of June 30, 2022

 

 

656

 

 

$

66

 

 

$

7,060

 

 

$

3,107

 

 

$

(130

)

 

$

(13

)

 

$

136

 

 

$

10,226

 

Six Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2020

 

 

382

 

 

$

38

 

 

$

2,766

 

 

$

208

 

 

$

(127

)

 

$

 

 

$

134

 

 

$

3,019

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

469

 

 

 

 

 

 

 

 

 

8

 

 

 

477

 

Other comprehensive earnings, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26

 

 

 

 

 

 

 

 

 

26

 

Restricted stock grants, net of cancellations

 

 

6

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40

)

 

 

 

 

 

(40

)

Common stock retired

 

 

(2

)

 

 

 

 

 

(40

)

 

 

 

 

 

 

 

 

40

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(434

)

 

 

 

 

 

 

 

 

 

 

 

(434

)

Common stock issued

 

 

290

 

 

 

29

 

 

 

5,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,432

 

Share-based compensation

 

 

1

 

 

 

 

 

 

61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

61

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

(8

)

Balance as of June 30, 2021

 

 

677

 

 

$

68

 

 

$

8,189

 

 

$

243

 

 

$

(101

)

 

$

 

 

$

136

 

 

$

8,535

 

 

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 2021 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, 2022 and 2021 and Devon’s financial position as of June 30, 2022.

Devon and WPX completed an all-stock merger of equals on January 7, 2021. On the closing date of the Merger, each share of WPX common stock was automatically converted into the right to receive 0.5165 of a share of Devon common stock. The transaction has been accounted for using the acquisition method of accounting, with Devon being treated as the accounting acquirer. See Note 2 for further discussion.

Restricted Cash

As of June 30, 2022, Devon classified approximately $140 million of cash as restricted cash on the consolidated balance sheets for obligations retained related to the Barnett Shale assets and the Canadian business. Cash payments for these charges related to the Barnett assets and Canada business total approximately $10 million per quarter.

 

Variable Interest Entity

Cotton Draw Midstream, L.L.C. (“CDM”) is a joint venture entity formed by Devon and an affiliate of QL Capital Partners, LP. CDM provides gathering, compression and dehydration services for natural gas production in the Cotton Draw area of the Delaware Basin. Devon holds a controlling interest in CDM and the portions of CDM’s net earnings and equity not attributable to Devon’s controlling interest are shown separately as noncontrolling interests in the accompanying consolidated statements of comprehensive earnings and consolidated balance sheets. CDM is considered a VIE to Devon. The assets of CDM cannot be used by Devon for general corporate purposes and are included in, and disclosed parenthetically, on Devon's consolidated balance sheets. The carrying amount of liabilities related to CDM for which the creditors do not have recourse to Devon's assets are also included in, and disclosed parenthetically, if material, on Devon's consolidated balance sheets.

 

Investments

In conjunction with the Merger, Devon acquired an interest in Catalyst, which is a joint venture established among WPX, an affiliate of Howard Energy Partners, LLC (“HEP”) and certain other investors, to develop oil gathering and natural gas processing infrastructure in the Stateline area of the Delaware Basin. Under the terms of the arrangement, Devon and a holding company owned by the other joint venture investors each have a 50% voting interest in the joint venture legal entity, and HEP serves as the operator. Through 2038, Devon’s production from 50,000 net acres in the Stateline area of the Delaware Basin has been dedicated to Catalyst subject to fixed-fee oil gathering and natural gas processing agreements. The agreements do not include any minimum volume commitments. Devon accounts for the investment in Catalyst as an equity method investment.

Devon's investment in Catalyst is shown within investments on the consolidated balance sheets and Devon's share of Catalyst earnings are reflected as a component of other, net in the accompanying consolidated statements of comprehensive earnings.

 

 

 

 

 

Carrying Amount

 

Investments

 

% Interest

 

June 30, 2022

 

 

December 31, 2021

 

Catalyst

 

50%

 

$

354

 

 

$

368

 

Other

 

Various

 

 

69

 

 

 

34

 

      Total

 

 

 

$

423

 

 

$

402

 

 

10


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

 

Disaggregation of Revenue

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

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Oil

 

$

2,970

 

 

$

1,686

 

 

$

5,376

 

 

$

3,017

 

Gas

 

 

557

 

 

 

188

 

 

 

864

 

 

 

390

 

NGL

 

 

573

 

 

 

280

 

 

 

1,035

 

 

 

504

 

Oil, gas and NGL sales

 

 

4,100

 

 

 

2,154

 

 

 

7,275

 

 

 

3,911

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

 

952

 

 

 

610

 

 

 

1,728

 

 

 

1,109

 

Gas

 

 

322

 

 

 

134

 

 

 

531

 

 

 

281

 

NGL

 

 

422

 

 

 

222

 

 

 

757

 

 

 

397

 

Marketing and midstream revenues

 

 

1,696

 

 

 

966

 

 

 

3,016

 

 

 

1,787

 

Total revenues from contracts with customers

 

$

5,796

 

 

$

3,120

 

 

$

10,291

 

 

$

5,698

 

 

2. Acquisitions and Divestitures

WPX Merger

On January 7, 2021, Devon and WPX completed an all-stock merger of equals. WPX was an oil and gas exploration and production company with assets in the Delaware Basin in Texas and New Mexico and the Williston Basin in North Dakota. On the closing date of the Merger, each share of WPX common stock was automatically converted into the right to receive 0.5165 of a share of Devon common stock. No fractional shares of Devon’s common stock were issued in the Merger, and holders of WPX common stock instead received cash in lieu of fractional shares of Devon common stock, if any. Based on the closing price of Devon’s common stock on January 7, 2021, the total value of Devon common stock issued to holders of WPX common stock as part of this transaction was approximately $5.4 billion. The Merger was structured as a tax-free reorganization for United States federal income tax purposes. The final allocation of the total purchase price of WPX to the identifiable assets acquired and the liabilities assumed was finalized at December 31, 2021.

 

Acquisitions

In July 2022, Devon completed its acquisition of producing properties and leasehold interests located in the Williston Basin for cash consideration of approximately $830 million, net of purchase price adjustments. In the second quarter of 2022, Devon paid an $87 million cash deposit related to this acquisition, which is included within other current assets in the June 30, 2022 consolidated balance sheet and within acquisitions of property and equipment in the consolidated statement of cash flows.

 

Divestitures

In the first quarter of 2021, Devon completed the sale of non-core assets in the Rockies for proceeds of $9 million, net of purchase price adjustments, and recognized a $35 million gain related to the sale. Devon received $4 million in contingent earnout payments related to this transaction in the first quarter of 2022 with the potential for up to an additional $4 million in the future. The total estimated proved reserves associated with these divested assets was approximately 3 MMBoe.

 

Contingent Earnout Payments

Devon is entitled to contingent earnout payments associated with the sale of its Barnett Shale assets in 2020 with upside participation beginning at a $2.75 Henry Hub natural gas price or a $50 WTI oil price. The contingent payment period commenced on January 1, 2021 and has a term of four years. Devon received $65 million in contingent earnout payments related to this transaction in the first quarter of 2022 and could receive up to an additional $195 million in contingent earnout payments for the remaining performance periods depending on future commodity prices. The valuation of the future contingent earnout payments included within other current assets and other long-term assets in the June 30, 2022 consolidated balance sheet was approximately $65 million and $60 million, respectively. The value was derived utilizing a Monte Carlo valuation model and qualifies as a level 3 fair value measurement.

11


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

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, costless price collars and call options. Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. As of June 30, 2022, 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. As of June 30, 2022, Devon neither held cash collateral of its counterparties nor posted cash collateral to its counterparties. Given Devon's current credit ratings and the terms of the underlying contracts, Devon is not currently required to post collateral to its counterparties with respect to its open derivative positions, and we would not be required to post any such collateral as a result of any change to the amount of Devon's net liability for such positions.

Commodity Derivatives

As of June 30, 2022, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The second 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 2022

 

 

35,000

 

 

$

44.61

 

 

 

36,500

 

 

$

57.96

 

 

$

78.08

 

 

Q1-Q4 2023

 

 

 

 

$

 

 

 

6,193

 

 

$

61.32

 

 

$

97.65

 

 

 

 

 

Oil Basis Swaps

 

Period

 

Index

 

Volume
(Bbls/d)

 

 

Weighted Average
Differential to WTI
($/Bbl)

 

Q3-Q4 2022

 

BRENT

 

 

1,000

 

 

$

(7.75

)

Q3-Q4 2022

 

NYMEX Roll

 

 

29,000

 

 

$

0.45

 

Q1-Q4 2023

 

Midland Sweet

 

 

12,296

 

 

$

0.52

 

 

12


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

As of June 30, 2022, 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 and the end of month NYMEX index. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.

 

 

 

Price Swaps (1)

 

 

Price Collars (2)

 

Period

 

Volume (MMBtu/d)

 

 

Weighted Average Price ($/MMBtu)

 

 

Volume (MMBtu/d)

 

 

Weighted Average Floor Price ($/MMBtu)

 

 

Weighted Average
Ceiling Price ($/MMBtu)

 

Q3-Q4 2022

 

 

117,500

 

 

$

3.08

 

 

 

193,000

 

 

$

3.05

 

 

$

4.55

 

Q1-Q4 2023

 

 

8,658

 

 

$

5.24

 

 

 

96,436

 

 

$

3.55

 

 

$

7.63

 

 

(1)
Related to the 2022 open positions, 17,500 MMBtu/d settle against the Inside FERC first of month Henry Hub index at an average price of $5.25 and 100,000 MMBtu/d settle against the end of month NYMEX index at an average price of $2.70. All 2023 open positions settle against the Inside FERC first of month Henry Hub index.
(2)
Price collars settle against the Inside FERC first of month Henry Hub Index.

 

 

 

Natural Gas Basis Swaps

 

Period

 

Index

 

Volume
(MMBtu/d)

 

 

Weighted Average
Differential to
Henry Hub
($/MMBtu)

 

Q3-Q4 2022

 

El Paso Natural Gas

 

 

50,000

 

 

$

(0.85

)

Q3-Q4 2022

 

Houston Ship Channel

 

 

40,000

 

 

$

(0.15

)

Q3-Q4 2022

 

WAHA

 

 

70,000

 

 

$

(0.57

)

Q1-Q4 2023

 

El Paso Natural Gas

 

 

125,000

 

 

$

(1.59

)

Q1-Q4 2023

 

Houston Ship Channel

 

 

50,000

 

 

$

(0.13

)

Q1-Q4 2023

 

WAHA

 

 

70,000

 

 

$

(0.51

)

Q1-Q4 2024

 

WAHA

 

 

40,000

 

 

$

(0.51

)

 

As of June 30, 2022, Devon did not have any open NGL positions.

Financial Statement Presentation

All derivative financial instruments are recognized at their current fair value as either assets or liabilities in the consolidated balance sheets. Amounts related to contracts allowed to be netted upon payment subject to a master netting arrangement with the same counterparty are reported on a net basis in the consolidated balance sheets. The tables below present a summary of these positions as of June 30, 2022 and December 31, 2021.

 

June 30, 2022

 

 

December 31, 2021

 

 

 

 

Gross Fair Value

 

 

Amounts Netted

 

 

Net Fair Value

 

 

Gross Fair Value

 

 

Amounts Netted

 

 

Net Fair Value

 

 

Balance Sheet Classification

Commodity derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term derivative asset

$

37

 

 

$

(26

)

 

$

11

 

 

$

6

 

 

$

(4

)

 

$

2

 

 

Other current assets

Long-term derivative asset

 

31

 

 

 

(1

)

 

 

30

 

 

 

6

 

 

 

 

 

 

6

 

 

Other long-term assets

Short-term derivative liability

 

(672

)

 

 

26

 

 

 

(646

)

 

 

(579

)

 

 

4

 

 

 

(575

)

 

Other current liabilities

Long-term derivative liability

 

(2

)

 

 

1

 

 

 

(1

)

 

 

(2

)

 

 

 

 

 

(2

)

 

Other long-term liabilities

Total derivative liability

$

(606

)

 

$

 

 

$

(606

)

 

$

(569

)

 

$

 

 

$

(569

)

 

 

 

4.
Share-Based Compensation

In the second quarter of 2022, Devon's stockholders approved the 2022 Plan. The 2022 Plan replaces the 2017 Plan. From the effective date of the 2022 Plan, no further awards may be made under the 2017 Plan; however, awards previously granted will continue to be governed by the terms of the respective award documents. The 2022 Plan authorizes the grant of nonqualified and incentive stock options, restricted stock awards or units and stock appreciation rights to eligible employees. Restricted stock awards or restricted stock units granted under the 2022 Plan may be subject to performance-based conditions. The 2022 Plan also authorizes the grant of nonqualified stock options, restricted stock awards or units and stock appreciation rights to non-employee directors. To

13


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

calculate the number of shares that may be granted in awards under the 2022 Plan, options and stock appreciation rights represent one share and other awards represent 1.74 shares.

The table below presents the share-based compensation expense included in Devon’s accompanying consolidated statements of comprehensive earnings. The vesting for certain share-based awards was accelerated in 2021 in conjunction with the reduction of workforce described in Note 5 and is included in restructuring and transaction costs in the accompanying consolidated statements of comprehensive earnings.

 

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

G&A

 

$

42

 

 

$

40

 

Exploration expenses

 

 

1

 

 

 

 

Restructuring and transaction costs

 

 

 

 

 

21

 

Total

 

$

43

 

 

$

61

 

Related income tax benefit

 

$

26

 

 

$

 

 

 

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

 

 

 

Restricted Stock Awards & Units

 

 

Performance Share Units

 

 

 

Awards/Units

 

 

Weighted
Average
Grant-Date
Fair Value

 

 

Units

 

 

Weighted
Average
Grant-Date
Fair Value

 

 

 

(Thousands, except fair value data)

 

Unvested at 12/31/21

 

 

7,656

 

 

$

22.15

 

 

 

2,076

 

 

$

24.12

 

Granted

 

 

1,296

 

 

$

52.98

 

 

 

964

 

 

$

44.05

 

Vested

 

 

(3,104

)

 

$

23.00

 

 

 

(1,194

)

 

$

28.91

 

Forfeited

 

 

(59

)

 

$

33.03

 

 

 

(5

)

 

$

68.68

 

Unvested at 6/30/22

 

 

5,789

 

 

$

28.49

 

 

 

1,841

 

(1)

$

31.33

 

 

(1)
A maximum of 3.7 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 2022, as indicated in the previous summary table. The grants in the previous summary table also include the impact of performance share units granted in a prior year that vested higher than 100% of target due to Devon's TSR performance compared to our peers.

 

 

 

2022

 

Grant-date fair value

 

$

68.68

 

Risk-free interest rate

 

 

1.81

%

Volatility factor

 

 

70.1

%

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, 2022.

 

 

 

Restricted Stock

 

 

Performance

 

 

 

Awards/Units

 

 

Share Units

 

Unrecognized compensation cost

 

$

109

 

 

$

27

 

Weighted average period for recognition (years)

 

 

2.7

 

 

 

1.9

 

 

14


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

5. Restructuring and Transaction Costs

The following table summarizes Devon’s restructuring and transaction costs.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Restructuring costs

 

$

 

 

$

23

 

 

$

 

 

$

166

 

Transaction costs

 

 

 

 

 

 

 

 

 

 

 

46

 

Total costs

 

$

 

 

$

23

 

 

$

 

 

$

212

 

 

In conjunction with the Merger closing, Devon recognized $166 million of restructuring expenses during the first six months of 2021 related to employee severance and termination benefits, settlements and curtailments from defined retirement benefits and contract terminations. Of these expenses, $40 million and $21 million resulted from settlements and curtailments of defined retirement benefits and accelerated vesting of share-based grants, respectively, which were non-cash charges. Additionally, in conjunction with the Merger closing, Devon recognized $46 million of transaction costs primarily comprised of bank, legal and accounting fees.

The following table summarizes Devon’s restructuring liabilities.

 

 

 

Other

 

 

Other

 

 

 

 

 

 

Current

 

 

Long-term

 

 

 

 

 

 

Liabilities

 

 

Liabilities

 

 

Total

 

Balance as of December 31, 2021

 

$

38

 

 

$

111

 

 

$

149

 

Changes related to prior years' restructurings

 

 

(10

)

 

 

(12

)

 

 

(22

)

Balance as of June 30, 2022

 

$

28

 

 

$

99

 

 

$

127

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2020

 

$

35

 

 

$

137

 

 

$

172

 

Changes related to prior years' restructurings

 

 

48

 

 

 

(15

)

 

 

33

 

Balance as of June 30, 2021

 

$

83

 

 

$

122

 

 

$

205

 

 

6. Other, Net

The following table summarizes Devon's other expenses (income) presented in the accompanying consolidated comprehensive statement of earnings.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Estimated future obligation under a performance guarantee

 

$

 

 

$

(18

)

 

$

(96

)

 

$

(18

)

Ukraine charitable pledge

 

 

 

 

 

 

 

 

20

 

 

 

 

Asset retirement obligation accretion

 

 

6

 

 

 

7

 

 

 

13

 

 

 

14

 

Severance and other non-income tax refunds

 

 

 

 

 

(3

)

 

 

(3

)

 

 

(39

)

Other

 

 

4

 

 

 

 

 

 

15

 

 

 

 

Total

 

$

10

 

 

$

(14

)

 

$

(51

)

 

$

(43

)

 

The first six months of 2022 includes a $96 million benefit related to the revision of a future obligation under a performance guarantee liability for previously divested assets. Due to improved commodity prices and market conditions, the purchaser of these assets was able to fully satisfy a $35 million obligation due in the first quarter of 2022. Further, during the first quarter of 2022, Devon also reduced the estimated future exposure of the performance guarantee by $61 million based on probability-weighted cash flows for the remainder of the contract term of four years. Additionally, the first six months of 2021 included an $18 million benefit related to the revision of a future obligation under a performance guarantee liability for which the purchaser of these assets was able to partially satisfy an obligation.

 

The first six months of 2022 also includes a $20 million pledge for humanitarian relief for the Ukrainian people and surrounding countries supporting refugees.

 

During the first six months of 2021, Devon received severance and other non-income tax refunds of $39 million.

15


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Earnings before income taxes

 

$

2,495

 

 

$

304

 

 

$

3,757

 

 

$

272

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current income tax expense

 

$

252

 

 

$

19

 

 

$

355

 

 

$

14

 

Deferred income tax expense (benefit)

 

 

305

 

 

 

24

 

 

 

469

 

 

 

(219

)

Total income tax expense (benefit)

 

$

557

 

 

$

43

 

 

$

824

 

 

$

(205

)

 

U.S. statutory income tax rate

 

 

21

%

 

 

21

%

 

 

21

%

 

 

21

%

State income taxes

 

 

1

%

 

 

0

%

 

 

1

%

 

 

1

%

Subsidiary reorganization

 

 

0

%

 

 

6

%

 

 

0

%

 

 

7

%

Deferred tax asset valuation allowance

 

 

0

%

 

 

(19

%)

 

 

0

%

 

 

(116

%)

Other

 

 

0

%

 

 

6

%

 

 

0

%

 

 

12

%

Effective income tax rate

 

 

22

%

 

 

14

%

 

 

22

%

 

 

(75

%)

 

Prior to December 31, 2021, Devon maintained a valuation allowance against all U.S. federal deferred tax assets. Devon recognized approximately $250 million of deferred tax liabilities to account for the Merger. The recognition of these deferred tax liabilities caused a decrease to Devon’s net deferred tax assets and a corresponding decrease to the valuation allowance Devon had recognized on its U.S. federal deferred tax assets in the first quarter of 2021.

Due to significant increases in commodity pricing and projections of future income, in the fourth quarter of 2021, Devon reassessed its evaluation of the realizability of deferred tax assets in future years and determined that a U.S. federal valuation allowance was no longer necessary at December 31, 2021.

In the fourth quarter of 2020, Devon recorded a deferred tax asset representing the deductible outside basis difference in its investment in a consolidated subsidiary. In the second quarter of 2021, Devon realized this deferred tax asset, increasing its U.S. federal net operating loss carryforwards by $1.8 billion.

In the table above, the "other" effect for 2021 is composed primarily of permanent differences related to costs incurred in connection with the Merger. Such items represent $18 million of income tax expense in the first six months of 2021.

Pursuant to the tax sharing agreement with The Williams Companies, Inc. ("Williams") assumed in the Merger, Devon has remained responsible for the tax from audit adjustments related to the WPX business for periods prior to WPX’s spin-off from Williams on December 31, 2011. The 2011 consolidated tax filing by Williams was audited by the Internal Revenue Service (“IRS”) during which the IRS proposed adjustments related to the WPX business. After a lengthy appeals process, these matters were effectively settled with the IRS during the second quarter of 2022 upon review and approval by the Joint Committee on Taxation. Accordingly, Devon believes these matters have now been effectively settled with no material impacts to Devon.

16


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

8.
Net Earnings Per Share

The following table reconciles net earnings and weighted-average common shares outstanding used in the calculations of basic and diluted net earnings per share.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net earnings:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

1,932

 

 

$

256

 

 

$

2,921

 

 

$

469

 

Attributable to participating securities

 

 

(17

)

 

 

(3

)

 

 

(33

)

 

 

(5

)

Basic and diluted earnings

 

$

1,915

 

 

$

253

 

 

$

2,888

 

 

$

464

 

Common shares:

 

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding - total

 

 

658

 

 

 

677

 

 

 

661

 

 

 

666

 

Attributable to participating securities

 

 

(6

)

 

 

(6

)

 

 

(7

)

 

 

(6

)

Common shares outstanding - basic

 

 

652

 

 

 

671

 

 

 

654

 

 

 

660

 

Dilutive effect of potential common shares issuable

 

 

2

 

 

 

2

 

 

 

2

 

 

 

2

 

Common shares outstanding - diluted

 

 

654

 

 

 

673

 

 

 

656

 

 

 

662

 

Net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.94

 

 

$

0.38

 

 

$

4.42

 

 

$

0.70

 

Diluted

 

$

2.93

 

 

$

0.38

 

 

$

4.40

 

 

$

0.70

 

 

9. Other Comprehensive Earnings (Loss)

Components of other comprehensive earnings (loss) consist of the following:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Pension and postretirement benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

Beginning accumulated pension and postretirement benefits

 

$

(131

)

 

$

(104

)

 

$

(132

)

 

$

(127

)

Recognition of net actuarial loss and prior service cost in earnings (1)

 

 

2

 

 

 

 

 

 

3

 

 

 

1

 

Settlement of pension benefits (2)

 

 

 

 

 

3

 

 

 

 

 

 

18

 

Other (3)

 

 

 

 

 

 

 

 

 

 

 

7

 

Income tax expense

 

 

(1

)

 

 

 

 

 

(1

)

 

 

 

Accumulated other comprehensive loss, net of tax

 

$

(130

)

 

$

(101

)

 

$

(130

)

 

$

(101

)

 

(1)
Recognition of net actuarial loss and prior service cost are included in the computation of net periodic benefit cost, which is a component of other, net in the accompanying consolidated statements of comprehensive earnings.
(2)
The Merger triggered settlement payments to certain plan participants, and the expense associated with this settlement is recognized as a component of restructuring and transaction costs in the accompanying consolidated statements of comprehensive earnings.
(3)
Other includes a remeasurement of the pension obligation due to the Merger, which was partially offset by a change in mortality assumption.

17


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

10.
Supplemental Information to Statements of Cash Flows

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Changes in assets and liabilities, net:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$

(346

)

 

$

(100

)

 

$

(803

)

 

$

(163

)

Other current assets

 

 

(85

)

 

 

88

 

 

 

(21

)

 

 

78

 

Other long-term assets

 

 

9

 

 

 

(14

)

 

 

75

 

 

 

(24

)

Accounts payable and revenues and royalties payable

 

 

540

 

 

 

72

 

 

 

787

 

 

 

88

 

Other current liabilities

 

 

93

 

 

 

52

 

 

 

101

 

 

 

19

 

Other long-term liabilities

 

 

(13

)

 

 

(81

)

 

 

(84

)

 

 

(108

)

Total

 

$

198

 

 

$

17

 

 

$

55

 

 

$

(110

)

Supplementary cash flow data:

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$

85

 

 

$

105

 

 

$

185

 

 

$

219

 

Income taxes paid (refunded)

 

$

133

 

 

$

(106

)

 

$

110

 

 

$

(112

)

 

11.
Accounts Receivable

Components of accounts receivable include the following:

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Oil, gas and NGL sales

 

$

1,520

 

 

$

984

 

Joint interest billings

 

 

192

 

 

 

158

 

Marketing and midstream revenues

 

 

602

 

 

 

370

 

Other

 

 

42

 

 

 

38

 

Gross accounts receivable

 

 

2,356

 

 

 

1,550

 

Allowance for doubtful accounts

 

 

(8

)

 

 

(7

)

Net accounts receivable

 

$

2,348

 

 

$

1,543

 

 

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, 2022

 

 

December 31, 2021

 

Property and equipment:

 

 

 

 

 

 

Proved

 

$

39,216

 

 

$

38,051

 

Unproved and properties under development

 

 

937

 

 

 

1,081

 

Total oil and gas

 

 

40,153

 

 

 

39,132

 

Less accumulated DD&A

 

 

(26,565

)

 

 

(25,596

)

Oil and gas property and equipment, net

 

 

13,588

 

 

 

13,536

 

Other property and equipment

 

 

2,224

 

 

 

2,139

 

Less accumulated DD&A

 

 

(699

)

 

 

(667

)

Other property and equipment, net (1)

 

 

1,525

 

 

 

1,472

 

Property and equipment, net

 

$

15,113

 

 

$

15,008

 

 

(1)
$122 million and $111 million related to CDM in 2022 and 2021, respectively.

18


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

13.

See below for a summary of debt instruments and balances. The notes and debentures are senior, unsecured obligations of Devon.

 

 

 

June 30, 2022

 

 

December 31, 2021

 

8.25% due August 1, 2023

 

$

242

 

 

$

242

 

5.25% due September 15, 2024

 

 

472

 

 

 

472

 

5.85% due December 15, 2025

 

 

485

 

 

 

485

 

7.50% due September 15, 2027

 

 

73

 

 

 

73

 

5.25% due October 15, 2027

 

 

390

 

 

 

390

 

5.875% due June 15, 2028

 

 

325

 

 

 

325

 

4.50% due January 15, 2030

 

 

585

 

 

 

585

 

7.875% due September 30, 2031

 

 

675

 

 

 

675

 

7.95% due April 15, 2032

 

 

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 premium on debentures and notes

 

 

126

 

 

 

149

 

Debt issuance costs

 

 

(28

)

 

 

(30

)

Total long-term debt

 

$

6,461

 

 

$

6,482

 

 

Retirement of Senior Notes

In the first six months of 2021, Devon redeemed $43 million of the 6.00% senior notes due 2022, $175 million of the 5.875% senior notes due 2028, $315 million of the 4.50% senior notes due 2030, $210 million of the 5.35% senior notes due 2027 and $500 million of the 5.75% senior notes due 2026. In the first six months of 2021, Devon recognized $30 million of gains on early retirement of debt, consisting of $89 million of non-cash premium accelerations, partially offset by $59 million of cash retirement costs. The gain on early retirement is included in net financing costs in the consolidated comprehensive statements of earnings.

 

Credit Lines

Devon has a $3.0 billion Senior Credit Facility. As of June 30, 2022, Devon had no outstanding borrowings under the Senior Credit Facility and had issued $2 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 non-cash financial write-downs such as impairments. As of June 30, 2022, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 23.9%.

Net Financing Costs

The following schedule includes the components of net financing costs.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Interest based on debt outstanding

 

$

93

 

 

$

98

 

 

$

185

 

 

$

203

 

Gain on early retirement of debt

 

 

 

 

 

(10

)

 

 

 

 

 

(30

)

Interest income

 

 

(2

)

 

 

 

 

 

(3

)

 

 

(1

)

Other

 

 

(7

)

 

 

(8

)

 

 

(13

)

 

 

(15

)

Total net financing costs

 

$

84

 

 

$

80

 

 

$

169

 

 

$

157

 

 

19


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

14. Leases

The following table presents Devon’s right-of-use assets and lease liabilities as of June 30, 2022 and December 31, 2021.

 

 

 

June 30, 2022

 

 

December 31, 2021

 

 

 

Finance

 

 

Operating

 

 

Total

 

 

Finance

 

 

Operating

 

 

Total

 

Right-of-use assets

 

$

207

 

 

$

29

 

 

$

236

 

 

$

211

 

 

$

24

 

 

$

235

 

Lease liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current lease liabilities (1)

 

$

8

 

 

$

18

 

 

$

26

 

 

$

8

 

 

$

18

 

 

$

26

 

Long-term lease liabilities

 

 

248

 

 

 

11

 

 

 

259

 

 

 

247

 

 

 

5

 

 

 

252

 

Total lease liabilities

 

$

256

 

 

$

29

 

 

$

285

 

 

$

255

 

 

$

23

 

 

$

278

 

 

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

 

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.

15.
Asset Retirement Obligations

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

 

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

Asset retirement obligations as of beginning of period

 

$

485

 

 

$

369

 

Assumed WPX obligations

 

 

 

 

 

98

 

Liabilities incurred

 

 

15

 

 

 

20

 

Liabilities settled and divested

 

 

(9

)

 

 

(47

)

Revision of estimated obligation

 

 

(35

)

 

 

11

 

Accretion expense on discounted obligation

 

 

13

 

 

 

14

 

Asset retirement obligations as of end of period

 

 

469

 

 

 

465

 

Less current portion

 

 

17

 

 

 

15

 

Asset retirement obligations, long-term

 

$

452

 

 

$

450

 

 

During the first six months of 2022, Devon reduced its asset retirement obligations by $35 million primarily due to extended retirement dates for oil and gas assets, partially offset by inflation-driven increases to current settlement costs.

16.
Stockholders’ Equity

Share Repurchases

In November 2021, Devon authorized a share repurchase program of $1.0 billion with a December 31, 2022 expiration date. In February 2022, the Board of Directors authorized an expansion of the share repurchase program to $1.6 billion, and in May 2022, authorized a further expansion to $2.0 billion and extended the expiration date to May 4, 2023. The table below provides information regarding purchases of Devon’s common stock under the $2.0 billion share repurchase program (shares in thousands).

 

 

 

Total Number of
Shares Purchased

 

 

Dollar Value of
Shares Purchased

 

 

Average Price Paid
per Share

 

2021:

 

 

 

 

 

 

 

 

 

Fourth quarter

 

 

13,983

 

 

$

589

 

 

$

42.15

 

2022:

 

 

 

 

 

 

 

 

 

First quarter

 

 

3,979

 

 

$

230

 

 

$

57.74

 

Second quarter

 

 

5,052

 

 

 

318

 

 

$

63.07

 

Total plan

 

 

23,014

 

 

$

1,137

 

 

$

49.44

 

 

20


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

Dividends

Upon completion of the Merger, Devon continued its commitment to pay a quarterly dividend at a fixed rate and instituted a variable quarterly dividend, which is dependent on quarterly cash flows, among other factors. Devon raised its fixed quarterly dividend by 45%, to $0.16 per share, beginning in the first quarter of 2022 and again by 13%, to $0.18 per share, beginning in the third quarter of 2022. The following table summarizes Devon’s fixed and variable dividends for the first six months of 2022 and 2021, respectively.

 

 

Fixed

 

 

Variable

 

 

Total

 

 

Rate Per Share

 

2022:

 

 

 

 

 

 

 

 

 

 

 

First quarter

$

109

 

 

$

558

 

 

$

667

 

 

$

1.00

 

Second quarter

 

105

 

 

 

725

 

 

 

830

 

 

$

1.27

 

Total year-to-date

$

214

 

 

$

1,283

 

 

$

1,497

 

 

 

 

2021: