10-QPeriod: Q1 FY2010

DEVON ENERGY CORP/DE Quarterly Report for Q1 Ended Mar 31, 2010

Filed May 6, 2010For Securities:DVN

Summary

Devon Energy Corp. reported a significant turnaround in the first quarter of 2010 compared to the same period in 2009. The company shifted from a substantial net loss to a strong net profit, primarily driven by higher commodity prices and effective management of derivative instruments. Total revenues surged by 69.5%, reaching $3.22 billion, compared to $1.90 billion in the prior year. This performance was bolstered by substantial gains from oil and gas derivative financial instruments, which contributed $620 million in the current quarter versus $154 million in Q1 2009. The company also saw a notable increase in operating cash flow, rising by 43% to $1.5 billion, indicating improved operational efficiency and financial health. Operationally, Devon continued its strategic repositioning by divesting offshore assets. Significant progress was made with announced divestiture transactions totaling $9.9 billion (pre-tax), expected to exceed $10 billion post-tax, with proceeds intended for debt reduction, reinvestment in North American onshore opportunities, and share repurchases. The company also advanced its Kirby oil sands joint venture with BP. Despite a slight decrease in production volumes, the substantial increase in realized commodity prices, particularly for oil and NGLs, drove revenue growth. The company demonstrated robust liquidity with $3.02 billion in available capacity under its credit facilities.

Financial Highlights

39 data points
Beta

Revenue

$3.22B

Net Income

$1.19B

37.0% Net Margin

EPS (Diluted)

$2.66

Total Assets

$30.68B

Cash & Equivalents

$1.18B

Free Cash Flow

$248.00M

Financial Statements
Beta
Revenue$3.22B
Operating Expenses$1.63B
Operating Income$1.07B
Net Income$1.19B
EPS (Basic)$2.67
EPS (Diluted)$2.66

Key Highlights

  • 1Net earnings swung from a loss of $3.96 billion in Q1 2009 to a profit of $1.19 billion in Q1 2010.
  • 2Total revenues increased significantly by 69.5% to $3.22 billion in Q1 2010, up from $1.90 billion in Q1 2009.
  • 3Net gain on oil and gas derivative financial instruments rose to $620 million in Q1 2010, compared to $154 million in Q1 2009.
  • 4Operating cash flow increased by 43% to $1.5 billion in Q1 2010.
  • 5The company is actively divesting offshore assets, with announced transactions totaling $9.9 billion (pre-tax).
  • 6Capital expenditures decreased to $1.25 billion in Q1 2010 from $1.93 billion in Q1 2009, reflecting strategic adjustments.
  • 7The company announced a $3.5 billion share repurchase program in May 2010.

Frequently Asked Questions

The significant improvement in profitability was driven by a combination of factors. Higher commodity prices for oil, gas, and NGLs led to substantially increased revenues. Additionally, gains from oil and gas derivative financial instruments were much higher in Q1 2010 compared to Q1 2009. The company also benefited from the absence of a large impairment charge on oil and gas properties that negatively impacted Q1 2009 results.

Devon is executing a strategic divestiture of its offshore assets, with announced transactions totaling approximately $9.9 billion before taxes, expected to exceed $10 billion after taxes. As of the filing date, the company had closed some Gulf of Mexico transactions and expected to close others in Brazil and Azerbaijan by the end of 2010. The proceeds are earmarked for reducing debt, funding North American onshore opportunities, and repurchasing company shares.

Devon's liquidity is robust. Operating cash flow increased significantly to $1.5 billion in Q1 2010. The company also has substantial availability under its credit facilities, totaling $3.02 billion as of March 31, 2010 (and $2.56 billion after canceling a short-term facility in early May 2010). The company also expects significant cash inflows from its ongoing offshore divestitures, which will further bolster its financial resources.

Derivative financial instruments, primarily gas price swaps, collars, and basis swaps, and oil price collars, had a substantial positive impact on Devon's Q1 2010 results, contributing a net gain of $620 million. This is a significant increase from the $154 million gain recorded in Q1 2009. These instruments help manage commodity price volatility, and their fair value changes are recognized in the income statement.