10-QPeriod: Q3 FY2002

DEVON ENERGY CORP/DE Quarterly Report for Q3 Ended Sep 30, 2002

Filed November 14, 2002For Securities:DVN

Summary

Devon Energy Corporation (DVN) filed its Form 10-Q for the quarterly period ended September 30, 2002. The company reported net earnings of $62 million ($0.38 per share) for the third quarter of 2002, a decrease from $85 million ($0.65 per share) in the same period of 2001. For the nine-month period ended September 30, 2002, net earnings were $20 million ($0.08 per share), a significant decline from $621 million ($4.79 per share) in the prior year's comparable period. This decline was attributed to lower commodity prices, increased expenses, and a substantial reduction in the carrying value of Canadian oil and gas properties. The company completed the significant acquisition of Mitchell Energy & Development Corp. in January 2002, which contributed to increased production volumes and marketing and midstream revenues. Financially, Devon experienced a substantial increase in total assets to $16.0 billion from $13.2 billion at year-end 2001, driven by the acquisitions. Long-term debt also saw a significant increase to $6.99 billion from $5.94 billion. The company continued to generate positive cash flow from operations, though it decreased compared to the prior year. Strategic divestitures of non-core assets were underway to manage capital and focus on core areas. The company also highlighted ongoing efforts to manage market risks through derivative instruments and hedging activities.

Key Highlights

  • 1Devon Energy reported a net loss from continuing operations for the nine months ended September 30, 2002, amounting to $36 million, a significant drop from a net income of $528 million in the same period of 2001.
  • 2The company completed the acquisition of Mitchell Energy & Development Corp. in January 2002 for a total purchase price of $3.2 billion, funded through a combination of stock issuance and debt.
  • 3Total revenues for the nine months ended September 30, 2002, increased to $3.09 billion, up from $2.20 billion in the prior year, primarily due to increased production from recent acquisitions and higher marketing/midstream revenues.
  • 4Despite revenue growth, profitability was significantly impacted by a $651 million reduction in the carrying value of Canadian oil and gas properties in the second quarter of 2002, reflecting a sharp drop in Canadian gas prices.
  • 5Long-term debt increased substantially to $6.99 billion as of September 30, 2002, from $5.94 billion at year-end 2001, largely to finance acquisitions.
  • 6Net cash provided by operating activities decreased to $1.18 billion for the nine months ended September 30, 2002, compared to $1.46 billion in the corresponding period of 2001, impacted by lower commodity prices and increased expenses.
  • 7The company is actively divesting non-core oil and gas properties, with an estimated $1.4 billion to $1.5 billion in expected proceeds for 2002, to focus on strategic objectives.

Frequently Asked Questions

The significant decrease in net earnings was primarily due to a combination of factors including lower commodity prices for oil and natural gas, increased operating expenses, and a substantial $651 million reduction in the carrying value of Canadian oil and gas properties recorded in the second quarter of 2002 due to a sharp drop in Canadian gas prices. The impact of these factors was partially offset by increased production volumes resulting from the Anderson and Mitchell acquisitions.

The acquisitions significantly increased Devon's asset base and debt levels. Total assets grew to $16.0 billion by September 30, 2002, from $13.2 billion at the end of 2001. Long-term debt also increased substantially to $6.99 billion. While these acquisitions boosted production volumes and marketing/midstream revenues, they also increased interest expenses due to the associated debt financing.

Devon is actively divesting non-core oil and gas properties, targeting $1.4 billion to $1.5 billion in proceeds for 2002. These dispositions are focused on assets outside of their core operating areas or those that do not align with current strategic objectives. This strategy aims to streamline operations and focus capital on core assets. As of October 31, 2002, $1.4 billion in proceeds had already been realized from these sales.

Devon employs various strategies to manage its exposure to commodity price volatility. These include entering into fixed-price physical delivery contracts, price swap contracts, and price collars to secure prices for a portion of its future oil and natural gas production. As of September 30, 2002, significant volumes of oil and natural gas production were subject to these hedging arrangements.