10-QPeriod: Q3 FY2012

DEVON ENERGY CORP/DE Quarterly Report for Q3 Ended Sep 30, 2012

Filed November 7, 2012For Securities:DVN

Summary

Devon Energy Corp./DE (DVN) reported a significant loss for the third quarter of 2012, primarily driven by non-cash asset impairments totaling $1.1 billion and unfavorable changes in commodity derivative fair values. The company's revenues also saw a substantial decline compared to the prior year's third quarter and the nine-month period, largely due to lower realized prices for oil, gas, and NGLs, as well as reduced marketing and midstream revenues. Despite the headline loss, operational highlights include a 3% increase in total production during the third quarter and a 5% increase for the nine-month period, led by strong growth in oil production. The company also successfully executed two significant joint ventures in the Permian Basin with Sinopec and Sumitomo, bringing in substantial cash and future funding for exploration and development. While liquidity remains strong, supported by cash on hand and available credit facilities, the company faces ongoing challenges related to commodity price volatility and increasing operating expenses.

Financial Highlights

42 data points
Beta

Revenue

$1.86B

Net Income

-$719.00M

-38.6% Net Margin

EPS (Diluted)

$-1.80

Total Assets

$43.55B

Cash & Equivalents

$5.34B

Free Cash Flow

$1.36B

Financial Statements
Beta
Revenue$1.86B
Operating Expenses$3.03B
Operating Income-$719.00M
Interest Expense$110.00M
Net Income-$719.00M
EPS (Basic)$-1.80
EPS (Diluted)$-1.80
Shares Outstanding (Basic)400.00M
Shares Outstanding (Diluted)400.00M

Key Highlights

  • 1Reported a net loss of $719 million ($1.80 per diluted share) for Q3 2012, largely due to $1.1 billion in asset impairments.
  • 2Total production increased by 3% in Q3 2012 and 5% for the nine months ended September 30, 2012, with oil production up 14% and 22% respectively.
  • 3Realized prices for oil, gas, and NGLs (excluding hedges) decreased significantly, down 20% in Q3 and 19% for the nine months.
  • 4Completed two major joint ventures in the Permian Basin (Sinopec and Sumitomo) generating approximately $1.3 billion in cash and significant future funding commitments.
  • 5Lease Operating Expenses (LOE) per Boe increased by 5% in Q3 and 8% for the nine months, attributed to higher costs in liquids-rich production.
  • 6Capital expenditures for the nine months totaled $6.2 billion, an increase from the prior year, with a significant portion allocated to exploratory projects and acquisitions.
  • 7The company maintained compliance with its debt-to-capitalization covenant (24.7% at September 30, 2012) with available credit facilities providing liquidity.

Frequently Asked Questions

The primary driver of the net loss in the third quarter of 2012 was a significant non-cash asset impairment charge of $1.1 billion, predominantly related to U.S. oil and gas properties and midstream assets. This was compounded by unfavorable changes in the fair value of commodity derivatives.

Devon Energy experienced production growth, with total production increasing by 3% in the third quarter and 5% for the nine-month period ended September 30, 2012. Notably, oil production saw robust growth, increasing by 14% in the third quarter and 22% over the nine-month period, driven by development in the Permian Basin and Canadian oil sands projects.

The company reported significantly lower realized prices for oil, gas, and NGLs in 2012 compared to 2011, with a 20% decrease in combined Boe price during the third quarter. This decline, along with lower marketing and midstream revenues, contributed to reduced earnings. The company continues to use derivative instruments to manage price volatility and has noted that depressed natural gas and NGL prices could lead to further impairments if they persist.

Devon Energy completed two major joint ventures in the Permian Basin. In September 2012, they closed a $1.4 billion joint venture with Sumitomo Corporation, granting Sumitomo a 30% interest in the Cline and Midland-Wolfcamp shale plays. Earlier in the year, in April 2012, they completed a joint venture with Sinopec, where Sinopec paid $900 million for a 33.3% interest in five exploration plays and committed to fund approximately $1.6 billion in future costs.