01—Abstract
Summary
Summary of the 10-K/A filed August 18, 2010. Cited figures are marked; the original filing is the authoritative source.
This Form 10-K/A (Amendment No. 1) for Devon Energy Corporation's fiscal year ended December 31, 2009 does not restate Devon's financial statements or update its operating results.
It was filed solely to revise Exhibits 99.1, 99.2 and 99.3, the third-party reserve audit and evaluation reports, in response to SEC staff comments on the original 10-K filed February 25, 2010. The revisions removed a use restriction limiting the reports to Devon, added benchmark and weighted average pricing information that had been omitted, added a statement that the auditor's estimates are within 10%a of Devon's, and changed one methodology reference. Investors should read this amendment together with the original report, which contains the financial statements and operating disclosures.
The exhibits give third-party support for Devon's year-end 2009 proved reserves. LaRoche Petroleum Consultants audited properties representing about 93% of reserves in Devon's Central, Western and Southern Divisions, or about 64% of corporate reserves, and found Devon's estimates reasonable in the aggregate and within 10%. Ryder Scott evaluated Gulf of Mexico Offshore Division properties, about 3% of Devon's continuing-operations proved reserves, with 92.0 MMBOE of proved reserves, a future net income of about $1.32 billionb, and a 10% discounted future net income of about $967 million.
AJM audited more than 91% of Devon Canada's proved reserves, about 25% of corporate proved reserves, and found its estimates varied by about 2%. The reports use SEC year-end 2009 pricing based on the 12-month average first-day-of-month benchmarks: WTI crude at $61.18c per barrel, Henry Hub gas at $3.87 per MMBtu, and Mont Belvieu NGLs at $28.89 per barrel. Because these are SEC-mandated constant-price estimates, the values are not forecasts, and the reports caution that actual future prices, costs, taxes and regulations may differ significantly.
02—Key points
Key Highlights
- The amendment is narrow: it changes only Exhibits 99.1, 99.2 and 99.3 (third-party reserve reports), with no changes to Devon's financial statements, MD&A or other disclosures.
- LaRoche Petroleum Consultants audited properties covering about 93% of reserves in Devon's Central, Western and Southern Divisions, and about 64% of Devon's aggregate corporate reserves, finding estimates reasonable in aggregate and within 10%.
- Ryder Scott's review of Gulf of Mexico Offshore Division properties covered about 92.0 MMBOE of proved reserves (about 3% of continuing-operations proved reserves), with a 10% discounted future net income of about $966.9 million.
- AJM Petroleum Consultants audited more than 91% of Devon Canada's proved reserves (about 25% of corporate proved reserves) and reported a variance of about 2% from Devon Canada's estimates.
- Year-end 2009 SEC pricing benchmarks were WTI crude at $61.18/bbl, Henry Hub gas at $3.87/MMBtu and Mont Belvieu NGLs at $28.89/bbl, with weighted average realized prices of about $43.29/bbl for oil and $3.53/Mcf for gas in the AJM report.
- The revisions were made in response to SEC staff comments, removing a restriction that limited the reports' use to Devon and adding required pricing and accuracy disclosures to the reserve reports.
- Reserve estimates are constant-price, SEC-mandated figures based on deterministic methods, and the reports caution that actual recovery, prices and costs may differ significantly.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2009filed August 18, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $8.02B$13.86B | −42.2% |
| Operating Expenses | $12.54B$18.02B | −30.4% |
| Operating Income | -$2.75B-$3.04B | +9.4% |
| Interest Expense | $437.00M$426.00M | +2.6% |
| Net Income | -$2.48B-$2.15B | −15.4% |
| EPS (Basic) | $-5.58$-4.85 | −15.1% |
| EPS (Diluted) | $-5.58$-4.85 | −15.1% |
05—Questions
Frequently Asked Questions
Why did Devon file this 10-K/A, and does it change its 2009 financial results?
Devon filed Amendment No. 1 to respond to SEC staff comments on the original 10-K filed February 25, 2010. It revises only Exhibits 99.1, 99.2 and 99.3, the third-party reserve reports, and makes no changes to the financial statements or other disclosures. It also includes updated consents from the engineering firms and new officer certifications.
What specific changes were made to the reserve audit exhibits?
The original exhibits limited their use to Devon Energy Corporation, and that limitation was removed. Omitted benchmark and weighted average prices were added. The LaRoche report now states that its estimates and Devon's are within 10% of each other. One phrase was changed from generally accepted petroleum engineering and evaluation principles to methods and procedures.
How much of Devon's reserves were independently reviewed, and what did the reviewers conclude?
LaRoche audited properties representing about 64% of Devon's aggregate corporate reserves and about 93% of the reserves in the three U.S. divisions it covered. AJM audited more than 91% of Devon Canada's proved reserves, which is about 25% of corporate proved reserves. Ryder Scott covered Gulf of Mexico properties representing about 3% of continuing-operations reserves. All three firms concluded that Devon's estimates were reasonable in the aggregate, with the auditors' figures within the 10% tolerance or, for AJM, a variance of about 2%.
What do the reserve reports imply about value, and how should investors interpret them?
The Ryder Scott Gulf report shows future net income of about $1.32 billion and a 10% discounted value of about $967 million for its properties. These figures use year-end 2009 SEC constant prices and costs, not forecasts or fair market values. The reports state that actual prices, costs, taxes, regulations and recovery could differ significantly from these estimates, so they are a standardized measure rather than a market valuation.
06—Continue