10-QPeriod: Q1 FY2003

DEVON ENERGY CORP/DE Quarterly Report for Q1 Ended Mar 31, 2003

Filed May 13, 2003For Securities:DVN

Summary

Devon Energy Corporation reported a significant increase in net earnings for the first quarter of 2003, reaching $436 million ($2.76 per share), a substantial rise from $62 million ($0.41 per share) in the prior year's comparable quarter. This strong performance was driven by a substantial increase in oil, natural gas, and natural gas liquids (NGLs) prices, which more than offset a decrease in production volumes primarily due to property divestitures in 2002. The company also announced the completion of its merger with Ocean Energy Inc. on April 25, 2003, a significant transaction that is expected to expand its development projects and exploration prospects, particularly in the deepwater Gulf of Mexico and internationally. This merger, while completed after the reporting period, significantly shapes the company's future outlook. Devon's strong operational performance and strategic growth initiatives position it favorably, though investors should note the impact of commodity price volatility and ongoing integration efforts.

Key Highlights

  • 1Net earnings surged to $436 million ($2.76/share) in Q1 2003, a significant improvement from $62 million ($0.41/share) in Q1 2002, driven by higher commodity prices.
  • 2Total revenues more than doubled to $1.67 billion in Q1 2003, up from $903 million in Q1 2002, due to higher oil, gas, and NGL prices and increased marketing/midstream revenue.
  • 3The company completed a major merger with Ocean Energy Inc. on April 25, 2003, which closed after the reporting period but is expected to enhance its development and exploration capabilities.
  • 4Capital expenditures for Q1 2003 were $512 million, a significant decrease from $2.2 billion in Q1 2002, with the prior year's figure heavily influenced by the Mitchell acquisition.
  • 5Devon adopted new accounting standard SFAS No. 143 for Asset Retirement Obligations, resulting in a cumulative effect adjustment and the establishment of a new liability and asset on the balance sheet.
  • 6Cash flow from operations increased significantly to $827 million in Q1 2003 from $368 million in Q1 2002, underscoring strong operational performance.
  • 7The company maintains substantial unused credit facilities, indicating strong liquidity and financial flexibility.

Frequently Asked Questions

The primary drivers were a significant increase in the average prices for oil, natural gas, and natural gas liquids (NGLs). These higher commodity prices led to a substantial increase in revenues and, consequently, net earnings. The company also saw growth in marketing and midstream revenues.

The merger with Ocean Energy Inc. is a significant strategic move that closed shortly after the reporting period. It is expected to significantly expand Devon's development projects and exploration prospects, particularly in the deepwater Gulf of Mexico and internationally. While it did not impact the Q1 2003 financial results, it is a key factor for future growth and strategy.

Effective January 1, 2003, Devon adopted SFAS No. 143, which requires companies to recognize liabilities for asset retirement obligations. This adoption resulted in a cumulative effect adjustment increasing net earnings by $16 million and establishing a new asset retirement obligation of $469 million and a corresponding increase in property and equipment on the balance sheet as of March 31, 2003.

Devon Energy reported strong operating cash flow of $827 million in Q1 2003, which is expected to exceed planned capital expenditures and other cash requirements for the year. The company also has substantial unused revolving credit facilities, providing significant financial flexibility. Devon intends to use excess cash to fund debt maturities and may consider other alternatives.