10-Q/APeriod: Q2 FY2001

DEVON ENERGY CORP/DE Quarterly Report (Amendment) for Q2 Ended Jun 30, 2001

Filed December 18, 2001For Securities:DVN

Summary

Devon Energy Corporation's (DVN) second-quarter 2001 filing shows a significant increase in total assets, driven by substantial growth in cash and cash equivalents and property and equipment. This expansion reflects continued investment in its core oil and gas operations. The company also reported strong revenue growth, particularly in natural gas sales, which outpaced oil sales, indicating a favorable market shift or strategic focus towards gas. Financially, Devon Energy demonstrated robust performance with net earnings applicable to common shareholders increasing significantly compared to the prior year period, driven by higher revenues and effective cost management. The company also made progress in adopting new accounting standards for derivative instruments (SFAS No. 133/138), recording adjustments for fair value of derivatives. A key strategic development is the announced acquisition of Mitchell Energy & Development Corporation, which is expected to significantly bolster Devon's reserve base and midstream assets, signaling a period of aggressive growth and consolidation.

Key Highlights

  • 1Total assets grew substantially to $7.80 billion by June 30, 2001, from $6.86 billion at the end of 2000, with cash and cash equivalents more than doubling.
  • 2Total revenues increased significantly to $725.2 million for Q2 2001 and $1.75 billion for the first six months, up from $648.5 million and $1.21 billion respectively in the prior year, primarily driven by strong natural gas sales.
  • 3Net earnings applicable to common shareholders showed robust growth, reaching $134.0 million in Q2 2001 and $531.8 million for the first six months, compared to $150.9 million and $253.7 million in the respective prior year periods (note: Q2 2001 earnings per share show a slight decrease on a per-share basis due to increased shares outstanding).
  • 4The company adopted SFAS No. 133 and 138, recording significant adjustments for the fair value of derivative instruments, including a $49.5 million gain related to embedded options in debentures.
  • 5Devon Energy announced a significant acquisition of Mitchell Energy & Development Corporation for cash and stock, which will add approximately 2.5 trillion cubic feet of gas equivalent in reserves and substantial midstream assets.
  • 6The company recorded a $76.9 million charge for the impairment of oil and gas properties related to discontinuing operations in Malaysia, Qatar, and Brazil.
  • 7A new $1 billion stock repurchase program was authorized, with $7.8 million spent in Q2 2001 on repurchasing shares.

Frequently Asked Questions

Devon adopted SFAS No. 133 and 138 effective January 1, 2001. This required all derivative instruments to be recorded on the balance sheet at their fair values. The company recorded a cumulative-effect adjustment of a $36.6 million after-tax loss in accumulated other comprehensive loss for cash-flow hedging instruments and a $49.5 million after-tax gain to net earnings related to derivative instruments that do not qualify as hedges, primarily an embedded option in debentures exchangeable into Chevron stock.

The pending acquisition of Mitchell Energy & Development Corporation is a major strategic move for Devon. It is expected to significantly expand Devon's U.S. reserve base by adding an estimated 2.5 trillion cubic feet of gas equivalent and also acquire substantial midstream assets, including natural gas processing plants and pipelines, valued between $800 million and $1 billion.

For the six months ended June 30, 2001, gas sales revenue significantly increased to $1.17 billion from $568.3 million in the prior year, while oil sales revenue decreased to $488.6 million from $544.9 million. This indicates a strategic shift or a more favorable market for natural gas, leading to higher production and sales volumes or prices for gas.

Devon recorded a $76.9 million charge in the second quarter of 2001 due to the impairment of oil and gas properties. This charge resulted from the company's decision to discontinue operations in Malaysia, Qatar, and certain properties in Brazil.