10-QPeriod: Q3 FY2008

DEVON ENERGY CORP/DE Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 6, 2008For Securities:DVN

Summary

Devon Energy Corporation's Q3 2008 10-Q filing reveals a significant increase in net earnings, driven by higher oil and natural gas prices and increased production volumes, particularly from its U.S. onshore operations. The company also benefited from strong performance in its marketing and midstream segments. Despite these positive operational results, the company's financial position was influenced by a notable shift in its asset portfolio, including the completion of its African divestiture program, which generated substantial gains. Financially, Devon experienced a substantial increase in operating cash flow, which was used to reduce debt, repurchase shares, and pay dividends. The company also addressed liquidity by securing new credit facilities. While commodity prices showed volatility, particularly a sharp decline towards the end of the quarter, Devon's hedging strategies and strong balance sheet provided resilience. The company highlighted its ability to manage market risks and maintain financial strength amidst a challenging economic environment.

Financial Highlights

24 data points
Beta

Revenue

$5.98B

Net Income

$2.62B

43.8% Net Margin

EPS (Diluted)

$5.88

Cash & Equivalents

$1.20B

Free Cash Flow

$681.00M

Financial Statements
Beta
Revenue$5.98B
Operating Expenses$2.24B
Operating Income$3.75B
Net Income$2.62B
EPS (Basic)$5.93
EPS (Diluted)$5.88

Key Highlights

  • 1Net earnings increased significantly by 260% for the three months and 105% for the nine months ended September 30, 2008, compared to the same periods in 2007, largely due to higher commodity prices and increased production.
  • 2Net cash provided by operating activities reached a record $8.2 billion for the first nine months of 2008, a 60% increase over 2007, driven by strong operational performance.
  • 3The company completed its African divestiture program, generating over $3.0 billion in sales proceeds and approximately $0.8 billion in after-tax gains.
  • 4Devon utilized strong cash flows and divestiture proceeds to repay $2.5 billion in debt and repurchase $665 million of common stock in the first nine months of 2008.
  • 5The company secured new credit facilities, including a $700 million 364-day facility, to enhance liquidity and support near-term capital expenditures.
  • 6Despite sharp declines in oil and natural gas prices late in the quarter, the company reported strong financial discipline and maintained access to capital markets.
  • 7Hurricane Ike and Gustav caused uninsured losses, impacting facilities and transportation systems, but the company recognized a $14 million loss related to repairable damages and increased its asset retirement obligation by $82 million for destroyed platforms.

Frequently Asked Questions

Devon Energy's earnings growth was primarily driven by a significant increase in the realized prices for oil and natural gas, alongside a 3% increase in production volumes for the third quarter. The company also benefited from strong performance in its marketing and midstream operations and substantial gains from its African divestitures.

Devon Energy actively managed its debt by repaying $2.5 billion in commercial paper and credit facility borrowings using proceeds from asset sales and operating cash flow. The company also fully redeemed its exchangeable debentures for $1.0 billion. Additionally, it repurchased $665 million of common stock and redeemed $150 million of preferred stock.

While Devon Energy acknowledged the sharp decline in oil and natural gas prices at the end of the quarter, the company stated it does not expect to be significantly impacted due to its financially strong position, substantial available capacity under credit facilities, and strong operating cash flow. Their hedging strategies and conservative debt levels also contribute to resilience.

Devon Energy reclassified $124 million of its auction rate securities from short-term to long-term investments due to continued auction failures and the lack of an active market. While not considered impaired and expected to mature at par, this reclassification indicates reduced liquidity for these specific assets.