10-QPeriod: Q1 FY2002

DEVON ENERGY CORP/DE Quarterly Report for Q1 Ended Mar 31, 2002

Filed May 15, 2002For Securities:DVN

Summary

Devon Energy Corporation's first quarter 2002 filing shows a significant shift in financial performance compared to the prior year. Net earnings decreased substantially from $400 million in Q1 2001 to $62 million in Q1 2002, primarily due to a sharp decline in oil and gas commodity prices. Despite lower prices, production volumes increased significantly, driven by the acquisitions of Anderson Exploration Ltd. in late 2001 and Mitchell Energy & Development Corp. in January 2002. These acquisitions, funded by substantial debt issuances, dramatically increased the company's asset base and goodwill, but also led to a significant rise in interest expense. The company's balance sheet reflects these changes with a notable increase in property and equipment, goodwill, and long-term debt. Management is actively addressing financial conditions by planning asset sales to optimize its portfolio and manage debt. While the immediate financial results show a challenging quarter, the strategic acquisitions position Devon for potential future growth in key North American gas markets.

Key Highlights

  • 1Net earnings decreased significantly to $62 million in Q1 2002 from $400 million in Q1 2001, largely due to lower commodity prices.
  • 2The company completed the major acquisition of Mitchell Energy & Development Corp. on January 24, 2002, significantly expanding its asset base and goodwill.
  • 3Production volumes increased substantially across oil, gas, and NGLs, driven by the recent acquisitions.
  • 4Average selling prices for oil and natural gas saw a significant decline compared to the prior year's quarter.
  • 5Long-term debt increased substantially, primarily due to funding the recent acquisitions, leading to a significant rise in interest expense.
  • 6The company is planning to sell off non-core assets to generate proceeds estimated between $1.2 billion and $1.5 billion for 2002.
  • 7Devon adopted new accounting pronouncements, including SFAS No. 142 for goodwill, which ceased amortization of goodwill.

Frequently Asked Questions

The primary driver was the substantial decline in average commodity prices for oil, natural gas, and natural gas liquids. While production volumes increased due to recent acquisitions, the lower prices significantly impacted revenue and profitability.

These acquisitions led to a significant increase in total assets, property and equipment, and goodwill on the balance sheet. They also contributed to a substantial rise in long-term debt, which in turn increased interest expense. The acquisitions also boosted production volumes but were also a major factor in the company's increased financial leverage.

Devon is actively pursuing a strategy of divesting non-core assets, with an estimated $1.2 billion to $1.5 billion in sales planned for 2002. The proceeds from these sales are intended to optimize the company's portfolio and help manage its debt levels.

Yes, Devon adopted SFAS No. 142, which requires goodwill to be tested for impairment annually rather than amortized. The company also adopted SFAS No. 133 concerning derivative instruments and hedging activities. The company expects to adopt SFAS No. 143 (Asset Retirement Obligations) in 2003 and SFAS No. 145 (rescinding SFAS No. 4) in 2002, which will change the reporting of debt extinguishment gains and losses.