10-QPeriod: Q1 FY2004

DEVON ENERGY CORP/DE Quarterly Report for Q1 Ended Mar 31, 2004

Filed May 7, 2004For Securities:DVN

Summary

Devon Energy Corp. reported strong first-quarter 2004 results, with net earnings of $494 million, or $2.00 per diluted share, a significant increase from the prior year. This performance was driven by substantial growth in both production and natural gas prices, largely attributable to the April 2003 Ocean merger. The company also saw a robust increase in cash flow from operations, which rose to $1.2 billion from $0.8 billion in the prior year's first quarter. This strong operational cash flow enabled significant debt reduction, capital expenditures, and an increase in cash on hand. Devon has also proactively managed its financial structure, repaying a $635 million term loan and securing a larger, five-year revolving credit facility. The company demonstrated effective operational execution with high success rates in exploration and development wells. These positive financial and operational trends indicate a company effectively leveraging its assets and executing its growth strategy.

Key Highlights

  • 1Net earnings for Q1 2004 were $494 million ($2.00/share), up significantly from Q1 2003's $420 million ($2.57/share, excluding accounting change).
  • 2Cash flow from operations increased 50% to $1.2 billion in Q1 2004, up from $0.8 billion in Q1 2003.
  • 3Total revenues increased by 34% to $1.821 billion in Q1 2004, driven by higher production (+44%) and gas prices (+4%), with the Ocean merger being a primary driver of production growth.
  • 4Production saw substantial increases: Oil +129% (21 MMBbls), Gas +23% (222 Bcf), and NGLs +20% (6 MMBbls) in Q1 2004 compared to Q1 2003.
  • 5Devon repaid $211 million in long-term debt and added $208 million to cash on hand during Q1 2004, also repaying a $635 million term loan and securing a $1.5 billion revolving credit facility in April 2004.
  • 6Exploration wells had an 85% success rate (85 of 107), and development wells had a 95% success rate (516 of 516) in Q1 2004.
  • 7Lease operating expenses and DD&A increased significantly, largely due to the Ocean merger and higher production volumes.

Frequently Asked Questions

The primary drivers for the increase in net earnings were higher production volumes and increased natural gas prices. The significant expansion of production was largely a result of the April 2003 Ocean merger.

Devon generated strong operating cash flow ($1.2 billion), which allowed it to fund capital expenditures ($890 million), retire $211 million in long-term debt, and increase its cash reserves by $208 million. Furthermore, in April 2004, Devon repaid a $635 million term loan and established a larger $1.5 billion revolving credit facility.

The April 2003 Ocean merger had a substantial impact, driving a significant portion of the increase in production volumes for oil, gas, and NGLs. It also contributed to increased operating expenses, including lease operating expenses and DD&A, as well as general and administrative expenses.

Devon mitigates commodity price risk through hedging activities, including price collars and fixed-price swap and delivery contracts for a portion of its oil and natural gas production. The company's policy is to only enter into derivative contracts with investment-grade counterparties and not for speculative trading purposes.