DEVON ENERGY CORP/DE - Quarter Report: 2022 June (Form 10-Q)
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
DEVON ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware |
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73-1567067 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer identification No.) |
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333 West Sheridan Avenue, Oklahoma City, Oklahoma |
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73102-5015 |
(Address of principal executive offices) |
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(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 |
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☑ |
Accelerated filer |
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☐ |
Non-accelerated filer |
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☐ |
Smaller reporting company |
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☐ |
Emerging growth company |
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☐ |
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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.
DEVON ENERGY CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Part I. Financial Information |
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Item 1. |
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Note 10 – Supplemental Information to Statements of Cash Flows |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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24 |
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26 |
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34 |
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37 |
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37 |
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Item 3. |
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40 |
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Item 4. |
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40 |
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Part II. Other Information |
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Item 1. |
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41 |
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Item 1A. |
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41 |
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Item 2. |
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41 |
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Item 3. |
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41 |
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Item 4. |
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41 |
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Item 5. |
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41 |
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Item 6. |
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42 |
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43 |
2
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
“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
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:
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
Part I. Financial Information
Item 1. Financial Statements
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
|
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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(Unaudited) |
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Oil, gas and NGL sales |
|
$ |
4,100 |
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$ |
2,154 |
|
|
$ |
7,275 |
|
|
$ |
3,911 |
|
Oil, gas and NGL derivatives |
|
|
(170 |
) |
|
|
(703 |
) |
|
|
(853 |
) |
|
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(1,231 |
) |
Marketing and midstream revenues |
|
|
1,696 |
|
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|
966 |
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|
|
3,016 |
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|
|
1,787 |
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Total revenues |
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|
5,626 |
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|
|
2,417 |
|
|
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9,438 |
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|
|
4,467 |
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Production expenses |
|
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729 |
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|
|
513 |
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|
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1,347 |
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|
|
971 |
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Exploration expenses |
|
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10 |
|
|
|
3 |
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|
|
12 |
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|
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6 |
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Marketing and midstream expenses |
|
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1,700 |
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965 |
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|
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3,024 |
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|
|
1,807 |
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Depreciation, depletion and amortization |
|
|
528 |
|
|
|
536 |
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1,017 |
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|
1,003 |
|
Asset dispositions |
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(14 |
) |
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(87 |
) |
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(15 |
) |
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(119 |
) |
General and administrative expenses |
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84 |
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94 |
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178 |
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201 |
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Financing costs, net |
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84 |
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80 |
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|
169 |
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157 |
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Restructuring and transaction costs |
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— |
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23 |
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— |
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212 |
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Other, net |
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10 |
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(14 |
) |
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(51 |
) |
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(43 |
) |
Total expenses |
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3,131 |
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2,113 |
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5,681 |
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4,195 |
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Earnings before income taxes |
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2,495 |
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304 |
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3,757 |
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272 |
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Income tax expense (benefit) |
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557 |
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43 |
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824 |
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(205 |
) |
Net earnings |
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1,938 |
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261 |
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2,933 |
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477 |
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Net earnings attributable to noncontrolling interests |
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6 |
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5 |
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12 |
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8 |
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Net earnings attributable to Devon |
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$ |
1,932 |
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$ |
256 |
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$ |
2,921 |
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$ |
469 |
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Net earnings per share: |
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Basic net earnings per share: |
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$ |
2.94 |
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$ |
0.38 |
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$ |
4.42 |
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$ |
0.70 |
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Diluted net earnings per share: |
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$ |
2.93 |
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$ |
0.38 |
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$ |
4.40 |
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$ |
0.70 |
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Comprehensive earnings: |
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Net earnings |
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$ |
1,938 |
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$ |
261 |
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$ |
2,933 |
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$ |
477 |
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Other comprehensive earnings, net of tax: |
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Pension and postretirement plans |
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1 |
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3 |
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2 |
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26 |
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Other comprehensive earnings, net of tax |
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1 |
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3 |
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2 |
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26 |
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Comprehensive earnings: |
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$ |
1,939 |
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$ |
264 |
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$ |
2,935 |
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$ |
503 |
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Comprehensive earnings attributable to noncontrolling interests |
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6 |
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5 |
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12 |
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8 |
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Comprehensive earnings attributable to Devon |
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$ |
1,933 |
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$ |
259 |
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$ |
2,923 |
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$ |
495 |
|
See accompanying notes to consolidated financial statements
6
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
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Three Months Ended June 30, |
|
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Six Months Ended June 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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(Unaudited) |
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Cash flows from operating activities: |
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Net earnings |
|
$ |
1,938 |
|
|
$ |
261 |
|
|
$ |
2,933 |
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$ |
477 |
|
Adjustments to reconcile net earnings to net cash from operating activities: |
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Depreciation, depletion and amortization |
|
|
528 |
|
|
|
536 |
|
|
|
1,017 |
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|
|
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
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 |
|
|
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 |
|
|
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
8
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
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
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
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
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 |
|
|
Weighted |
|
|
Volume |
|
|
Weighted |
|
|
Weighted |
|
|
|||||
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 |
|
|
Weighted Average |
|
||
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
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 |
|
|||||
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 |
|
|
|
Natural Gas Basis Swaps |
|
|||||||
Period |
|
Index |
|
Volume |
|
|
Weighted Average |
|
||
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 |
) |
|
|
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
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 |
|
|
Units |
|
|
Weighted |
|
||||
|
|
(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 |
|
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
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
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
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
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 |
) |
17
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
|
|
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 |
) |
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 |
|
18
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
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
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.
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.
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 , 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 |
|
|
Dollar Value of |
|
|
Average Price Paid |
|
|||
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
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: |