10-QPeriod: Q3 FY2013

DEVON ENERGY CORP/DE Quarterly Report for Q3 Ended Sep 30, 2013

Filed November 6, 2013For Securities:DVN

Summary

Devon Energy Corp./DE (DVN) reported strong revenue growth in the third quarter of 2013 compared to the prior year, driven by significant increases in oil and NGL production and higher commodity prices. Total revenues rose to $2.72 billion from $1.87 billion year-over-year. Despite this top-line growth, the company reported a net loss of $227 million for the nine months ended September 30, 2013, compared to a net earning of $151 million in the same period of 2012. This loss was largely influenced by substantial non-cash asset impairments totaling $1.96 billion in the first nine months of 2013, primarily related to U.S. and Canadian oil and gas assets. Operationally, the company saw a 2% increase in production volumes for the first nine months of 2013, with a notable 18% rise in oil production. The average realized price per Boe also increased by 20% year-over-year. Cash flow from operating activities remained robust, totaling $3.999 billion for the nine-month period. However, capital expenditures were significant at $5.219 billion, leading to a substantial cash flow deficit funded by divestitures and debt management. The company announced a significant midstream asset combination with Crosstex Energy, Inc. in October 2013, which is expected to create a new publicly traded midstream business.

Financial Highlights

40 data points
Beta

Revenue

$2.71B

Net Income

$429.00M

15.8% Net Margin

EPS (Diluted)

$1.05

Total Assets

$40.85B

Cash & Equivalents

$4.32B

Free Cash Flow

$1.60B

Financial Statements
Beta
Revenue$2.71B
Operating Expenses$1.98B
Operating Income$733.00M
Interest Expense$104.00M
Net Income$429.00M
EPS (Basic)$1.06
EPS (Diluted)$1.05
Shares Outstanding (Basic)402.00M
Shares Outstanding (Diluted)403.00M

Key Highlights

  • 1Revenue increased by 46% to $2.72 billion in Q3 2013 compared to $1.87 billion in Q3 2012, driven by higher oil, gas, and NGL sales.
  • 2Net loss for the nine months ended September 30, 2013, was $227 million, a significant decrease from a net earning of $151 million in the same period of 2012.
  • 3Significant non-cash asset impairments of $1.96 billion were recorded in the first nine months of 2013, impacting profitability.
  • 4Oil production saw a substantial increase of 18% for the nine months ended September 30, 2013, compared to the prior year, while total production saw a modest 1% increase.
  • 5Operating cash flow was strong at $3.999 billion for the nine months ended September 30, 2013, but capital expenditures of $5.219 billion led to a cash flow deficit.
  • 6The company announced a pending combination of substantially all its U.S. midstream assets with Crosstex Energy, Inc. to form a new midstream business.
  • 7Devon Energy's debt-to-capitalization ratio remained healthy at 22.4% as of September 30, 2013, well within its covenant limit of 65%.

Frequently Asked Questions

Devon Energy's revenue in Q3 2013 was primarily driven by increased sales of oil, natural gas, and natural gas liquids (NGLs). This was supported by a 21% increase in total oil production and a 32% increase in the realized price per barrel of oil compared to the same quarter in the prior year. Higher utilization at their Mont Belvieu, Texas fractionator facility also contributed to increased marketing and midstream revenues.

The net loss of $227 million for the first nine months of 2013 was primarily due to significant non-cash asset impairments totaling $1.96 billion. These impairments were mainly related to U.S. and Canadian oil and gas assets, influenced by decreases in the 12-month average trailing prices for oil, bitumen, and NGLs, which reduced proved reserve values. While revenues grew, these large non-cash charges heavily impacted the bottom line.

The announced combination of Devon Energy's U.S. midstream assets with Crosstex Energy is a strategic move to create a new, larger, publicly traded midstream business. This transaction will allow Devon to contribute its midstream assets and cash in exchange for a controlling interest in the new entities, potentially unlocking value and allowing Devon to focus more on its core upstream operations.

Devon Energy maintains a strong liquidity position with approximately $4.3 billion in cash at the end of Q3 2013. They have access to a $3.0 billion revolving credit facility and a commercial paper program. The company's debt-to-capitalization ratio was a healthy 22.4%, well below the covenant limit of 65%, indicating strong financial leverage management. They are also strategically managing foreign cash, with plans to repatriate more funds to the U.S. in a tax-efficient manner.