10-QPeriod: Q2 FY2002

DEVON ENERGY CORP/DE Quarterly Report for Q2 Ended Jun 30, 2002

Filed August 13, 2002For Securities:DVN

Summary

Devon Energy Corporation's (DVN) Q2 2002 10-Q filing reveals a significant shift in financial performance compared to the prior year. The company reported a net loss of $104 million for the second quarter of 2002, a stark contrast to the $136 million net earnings in the same period of 2001. This downturn is largely attributable to a substantial decline in oil, natural gas, and NGL prices, coupled with increased operational expenses and a significant $651 million reduction in the carrying value of Canadian oil and gas properties due to pricing ceilings. Despite these challenges, production volumes, particularly in gas and NGLs, saw considerable increases, driven by the recent acquisitions of Mitchell Energy & Development Corp. and Anderson Exploration Ltd. The company's balance sheet shows a notable increase in assets, largely due to these acquisitions, with property and equipment growing significantly. Long-term debt also saw a substantial rise, reflecting the financing utilized for these business combinations. Management is actively managing its capital structure, including debt repayment and property divestitures, to optimize liquidity and financial flexibility. The company's focus remains on core operating areas while strategically divesting non-core assets to strengthen its financial position.

Key Highlights

  • 1Net loss of $104 million for Q2 2002, compared to a net income of $136 million in Q2 2001.
  • 2Significant decline in average realized prices for oil (-3%), natural gas (-31%), and NGLs (-31%) in Q2 2002 compared to Q2 2001.
  • 3A $651 million reduction in the carrying value of Canadian oil and gas properties was recorded due to a sharp drop in Canadian gas prices and full cost ceiling limitations.
  • 4Total revenues increased significantly to $1,165 million in Q2 2002 from $699 million in Q2 2001, driven by increased production and marketing/midstream revenues, largely from the Mitchell and Anderson acquisitions.
  • 5Property and equipment (net of accumulated depreciation) increased substantially to $11.1 billion as of June 30, 2002, from $8.9 billion as of December 31, 2001, reflecting acquisition-related asset growth.
  • 6Long-term debt increased significantly to $7.4 billion as of June 30, 2002, from $5.9 billion as of December 31, 2001, due to debt financing for acquisitions.
  • 7The company is actively divesting non-core oil and gas properties, aiming for proceeds between $1.3 billion and $1.6 billion in 2002.

Frequently Asked Questions

The primary reasons for the net loss of $104 million in the second quarter of 2002, compared to a net income in the prior year, are the significant decline in commodity prices (oil, natural gas, and NGLs), increased operating expenses, and a substantial $651 million reduction in the carrying value of Canadian oil and gas properties due to pricing limitations under the full cost accounting method.

These acquisitions have significantly increased Devon's asset base, particularly property and equipment, and have driven up revenues from increased production and marketing/midstream operations. However, they also led to a substantial increase in long-term debt to finance the transactions and integration-related expenses. The acquired assets contributed to higher operating costs and depreciation, depletion, and amortization expenses.

Devon is actively managing its debt levels by repaying portions of its term loan and by divesting non-core oil and gas properties. The company anticipates substantial proceeds from these property sales, which will be used to reduce debt and enhance liquidity. Additionally, Devon has renewed its credit facilities and maintains access to commercial paper for short-term funding needs.

Devon employs a hedging strategy that includes fixed-price physical delivery contracts, price swaps, and costless price collars for a portion of its projected oil and natural gas production. These instruments are designed to mitigate the impact of price fluctuations on its revenues and operating cash flow, though they do not eliminate the exposure entirely.