10-QPeriod: Q1 FY2001

DEVON ENERGY CORP/DE Quarterly Report for Q1 Ended Mar 31, 2001

Filed May 14, 2001For Securities:DVN

Summary

Devon Energy Corporation reported a significant increase in net earnings for the first quarter of 2001, reaching $400.3 million, or $3.08 per share, a substantial rise from $105.2 million, or $0.81 per share, in the same period of the prior year. This surge was primarily driven by a dramatic increase in natural gas prices, which rose by 180%, and an overall increase in production, contributing to a 83% increase in total revenues to $1,023.6 million. The company's balance sheet shows a strong liquidity position, with cash and cash equivalents more than doubling to $609.7 million from $228.1 million at the end of 2000. The adoption of new accounting standards for derivative instruments (SFAS No. 133) impacted the financial statements, leading to a gain recognized on certain derivatives and a change in how they are presented on the balance sheet. Despite increased operating expenses, the company demonstrated robust cash flow from operations, which was used to fund significant capital expenditures and reduce debt. Investors should note the substantial increase in gas revenues, the impact of commodity price volatility, and the company's proactive debt management.

Key Highlights

  • 1Net earnings dramatically increased to $400.3 million ($3.08/share) in Q1 2001, up from $105.2 million ($0.81/share) in Q1 2000, driven by higher natural gas prices and production.
  • 2Total revenues surged by 83% to $1,023.6 million, primarily due to a 201% increase in gas sales, reflecting significantly higher natural gas prices.
  • 3Cash and cash equivalents more than doubled, reaching $609.7 million as of March 31, 2001, indicating improved liquidity.
  • 4Capital expenditures totaled $345.9 million for the quarter, with the majority allocated to the acquisition, drilling, and development of oil and gas properties.
  • 5Adoption of SFAS No. 133 resulted in derivatives being recorded at fair value, impacting the balance sheet and net earnings through changes in fair value and a cumulative effect adjustment.
  • 6Interest expense decreased by 14% to $34.5 million due to a lower average debt balance, achieved through debt repayments funded by operating cash flow.
  • 7Production costs, particularly production taxes, increased significantly (129%) due to higher revenues, though not proportionally, due to regional tax rate differences.

Frequently Asked Questions

The primary driver behind the substantial earnings increase was the significant rise in natural gas prices, which saw a 180% increase compared to the prior year's first quarter. This, coupled with an overall increase in production, led to a dramatic uplift in gas revenues and consequently, net earnings.

The adoption of SFAS No. 133, effective January 1, 2001, requires all derivative instruments to be recorded on the balance sheet at their fair value. This led to a cumulative-effect-type adjustment to net earnings for a gain related to derivatives not qualifying as hedges, and changes in the fair value of derivatives are now reflected on the balance sheet and statement of operations, impacting comprehensive earnings.

Devon Energy demonstrates a strong liquidity position, with cash and cash equivalents significantly increasing to $609.7 million. The company generated robust operating cash flow, which was used to fund capital expenditures, reduce long-term debt by over $55 million, and increase cash reserves. As of April 30, 2001, the company had approximately $933 million available under its $1 billion credit facilities, indicating ample financial flexibility.

The company is involved in routine legal actions and environmental remediation matters. While specific accruals are recorded for estimated costs, management does not currently believe that any of these matters will result in future amounts material to the company's financial position or results of operations, after considering recorded accruals and potential defenses, such as the 'petroleum exclusion' under CERCLA for environmental liabilities.