10-KPeriod: FY2007

DEVON ENERGY CORP/DE Annual Report, Year Ended Dec 31, 2007

Filed February 28, 2008For Securities:DVN

Summary

Devon Energy Corporation, as of the filing date of February 28, 2008, is a prominent independent energy company with a strong focus on oil and gas exploration, development, and production, alongside midstream and marketing operations primarily in North America. The company's strategy centers on investing heavily in low-risk North American development projects while strategically allocating capital to high-impact, long-cycle projects for future growth. This approach has driven significant expansion over the years, marked by a substantial increase in proved reserves and per-share production metrics. In 2007, Devon achieved record financial and operational results, including record net earnings, diluted earnings per share, and operating cash flow, alongside record proved reserves. Key operational highlights included a high drilling success rate (98% across 2,440 wells), significant growth in its Barnett Shale operations, and advancements in its deepwater Gulf of Mexico and Canadian oil sands projects. The company is also actively managing its portfolio through divestitures of non-core international assets, primarily in West Africa, to refocus on its core North American and select international growth opportunities. Looking ahead, Devon is focused on continued production growth, capital discipline, and cost management, supported by robust reserve replacement and strategic hedging programs. The company's financial position remains strong, with substantial liquidity and a commitment to returning value to shareholders through dividends and share repurchases.

Financial Highlights

24 data points
Beta

Revenue

$9.97B

Net Income

$3.61B

36.2% Net Margin

EPS (Diluted)

$8.00

Cash & Equivalents

$1.37B

Free Cash Flow

$941.00M

Financial Statements
Beta
Revenue$9.97B
Operating Expenses$6.65B
Operating Income$2.48B
Net Income$3.61B
EPS (Basic)$8.08
EPS (Diluted)$8.00

Key Highlights

  • 1Record net earnings of $3.6 billion and diluted EPS of $8.00 in 2007, a 27% and 26% increase, respectively.
  • 2Total proved reserves reached a record 2.5 billion Boe at year-end 2007, with reserve additions (390 MMBoe) exceeding production (224 MMBoe).
  • 3Achieved a 98% success rate on 2,440 wells drilled in 2007, with 92% being North American development wells.
  • 4Continued strong growth in the Barnett Shale, with production up 33% in 2007.
  • 5Commenced production from the Merganser field in the Gulf of Mexico and made significant progress on deepwater projects like Cascade.
  • 6Completed construction and commenced steam injection at the Jackfish thermal heavy oil project in Alberta, Canada.
  • 7Divested Egyptian operations for $341 million and announced an agreement to sell Gabon operations for $205.5 million, aiming to refocus capital on growth opportunities.
  • 8Ended 2007 with $1.7 billion in cash and short-term investments, indicating strong liquidity.

Frequently Asked Questions

Devon's strategy involved investing the majority of its capital in low-risk exploitation and development projects on its extensive North American property base to ensure reliable production and reserve additions. Complementing this, the company strategically invested in high-impact, long-cycle projects to replenish its future development inventory. The overarching philosophy was to increase value per share by growing oil and gas reserves and production, exercising capital discipline, preserving financial flexibility, maintaining a low unit-cost structure, and improving performance through its marketing and midstream operations.

Devon experienced a record-breaking year in 2007. Production grew by 12% to 224 million Boe. Net earnings rose 27% to $3.6 billion, and diluted earnings per share increased 26% to $8.00. Operating cash flow also increased by 11% to $6.7 billion. The company achieved its highest-ever proved reserves, reaching 2.5 billion Boe, with reserve additions exceeding production for the year. Drilling success was high, with 2,440 wells drilled at a 98% success rate. Key development areas like the Barnett Shale saw significant production growth.

Devon announced plans to divest its operations in Egypt and West Africa (including Equatorial Guinea, Cote d’Ivoire, and Gabon) to reallocate capital towards its North American and deepwater Gulf of Mexico growth opportunities. In 2007, the company completed the sale of its Egyptian operations for $341 million and announced an agreement to sell its Gabon operations for $205.5 million. In international operations outside North America, the company continued to focus on Brazil (Polvo oil development project) and China (Panyu field).

Devon highlighted several key risks, including the volatility of oil, natural gas, and NGL prices, which significantly impacts financial results. The uncertainty and complexity of estimating reserves and the need for ongoing discoveries or acquisitions to avoid declines in reserves and production were also noted. Future exploration and drilling results carry substantial costs and inherent risks. Additionally, competition for leases, materials, people, and capital, as well as the political and economic uncertainties associated with international operations, pose significant risks. Changes in government laws and regulations and the potential for significant environmental costs were also identified.