10-KPeriod: FY2006

DEVON ENERGY CORP/DE Annual Report, Year Ended Dec 31, 2006

Filed February 28, 2007For Securities:DVN

Summary

Devon Energy Corp./DE (DVN) reported its 2006 fiscal year results, showcasing strong performance across key operational and financial metrics. The company highlighted record proved reserves, a significant increase in oil, natural gas, and NGL production primarily driven by successful drilling activities and strategic acquisitions like Chief. Devon also demonstrated robust cash flow generation, enabling continued investment in high-impact growth projects, particularly in the deepwater Gulf of Mexico and North American unconventional plays, while also managing its debt and returning capital to shareholders through dividends and stock repurchases. Despite facing industry-wide inflationary pressures on operating costs, Devon maintained a disciplined approach to capital allocation and operational efficiency.

Key Highlights

  • 1Record proved reserves of 2.4 billion Boe at year-end 2006, up from 2.1 billion Boe in 2005, driven by drilling, extensions, revisions, and acquisitions.
  • 2Net earnings of $2.8 billion and diluted EPS of $6.34, reflecting strong operational execution and favorable commodity prices.
  • 3Net cash provided by operating activities reached $6.0 billion, supporting significant capital expenditures and debt reduction.
  • 4Capital expenditures totaled $7.7 billion, including the $2.2 billion acquisition of Chief's oil and gas assets, which significantly boosted Barnett Shale acreage and reserves.
  • 5The company announced plans to divest its Egyptian and West African operations to focus on core North American and deepwater Gulf of Mexico growth opportunities.
  • 6Average realized prices increased for oil (up 53% to $58.30/Bbl) but decreased for natural gas (down 13% to $6.06/Mcf) in 2006 compared to 2005.
  • 7Devon maintained a strong balance sheet with total assets of $35.1 billion and stockholders' equity of $17.4 billion as of December 31, 2006.

Frequently Asked Questions

Devon Energy identified several key risk factors, including the volatility of oil, natural gas, and NGL prices, the uncertainty in estimating reserves, the need for continuous discovery or acquisition of new reserves to offset depletion, the uncertainty and costs associated with future exploration and drilling results, intense industry competition for leases and resources, and the political and economic risks associated with international operations.

In 2006, Devon's total production decreased by 4% to 214 MMBoe, primarily due to asset divestitures and hurricane-related impacts. However, estimated proved reserves reached a record 2.4 billion Boe, an increase of approximately 13% from the previous year, attributed to successful drilling, reserve extensions, performance revisions, and acquisitions.

Devon allocated significant capital to exploration and development activities, including a major acquisition in the Barnett Shale. The company also announced plans to divest non-core Egyptian and West African assets to redeploy capital towards higher-growth opportunities in North America and the deepwater Gulf of Mexico, aiming to enhance shareholder value through strategic portfolio management.

Devon generated strong operating cash flow of $6.0 billion, which was used to fund capital expenditures, repay debt, and repurchase common stock. The company maintained a solid balance sheet with ample liquidity, supported by its revolving credit facility and commercial paper program. Plans were in place to use proceeds from asset sales to further strengthen its financial position.