10-QPeriod: Q1 FY2015

DEVON ENERGY CORP/DE Quarterly Report for Q1 Ended Mar 31, 2015

Filed May 6, 2015For Securities:DVN

Summary

Devon Energy Corporation (DVN) reported a significant net loss of $3.599 billion for the first quarter of 2015, primarily driven by a substantial asset impairment charge of $5.460 billion. This was a sharp contrast to the $324 million net earnings recorded in the same period of the prior year. The decline in net earnings reflects the challenging commodity price environment, with realized prices for oil and NGLs decreasing significantly compared to the first quarter of 2014. Despite the reported net loss, the company's operating cash flow remained robust, increasing by 17% to $1.648 billion, partly due to a large collection of income tax receivables. Capital expenditures were reduced by 73% year-over-year, indicating a strategic response to lower commodity prices. The company also strengthened its financial position through the sale of EnLink units, raising $569 million in proceeds. Devon's management highlighted its strategic positioning and hedging strategies as measures to navigate the current market conditions, while emphasizing that the impairments, though large, did not impact cash flow or liquidity.

Financial Highlights

45 data points
Beta

Revenue

$3.27B

Net Income

-$3.60B

-110.2% Net Margin

EPS (Diluted)

$-8.88

Total Assets

$45.27B

Cash & Equivalents

$1.86B

Free Cash Flow

$1.24B

Financial Statements
Beta
Revenue$3.27B
Operating Expenses$8.76B
Operating Income-$5.50B
Interest Expense$119.00M
Net Income-$3.60B
EPS (Basic)$-8.88
EPS (Diluted)$-8.88
Shares Outstanding (Basic)406.00M
Shares Outstanding (Diluted)406.00M

Key Highlights

  • 1Reported a net loss of $3.599 billion for Q1 2015, a significant reversal from $324 million net earnings in Q1 2014.
  • 2Recorded a substantial asset impairment charge of $5.460 billion, primarily related to U.S. oil and gas assets, due to declining commodity prices.
  • 3Operating cash flow increased by 17% to $1.648 billion, benefiting from a $425 million collection of income tax receivables.
  • 4Capital expenditures were drastically reduced by 73% to $2.121 billion, reflecting a strategic response to the volatile commodity price environment.
  • 5Generated $569 million in net proceeds from the sale of EnLink common units, enhancing liquidity.
  • 6Realized prices for oil, gas, and NGLs decreased significantly, with combined per Boe price falling 47% to $21.74 compared to the prior year.
  • 7Despite the net loss, the company maintained a strong liquidity position, with a debt-to-capitalization ratio of 21.6% and $3.0 billion available under its senior credit facility.

Frequently Asked Questions

The primary driver of the significant net loss of $3.599 billion in the first quarter of 2015 was a substantial asset impairment charge of $5.460 billion. This impairment was recognized due to declining commodity prices, which reduced the carrying value of the company's U.S. oil and gas assets below their recoverable amount, as assessed under the full cost accounting method.

The sharp decline in commodity prices significantly impacted Devon's revenue. Oil, gas, and NGL sales decreased due to lower prices, which more than offset the increase in sales volumes driven by higher production in areas like the Eagle Ford and Permian Basin. The realized price per Boe (Barrels of Oil Equivalent) fell by 47% to $21.74 in the first quarter of 2015 compared to the same period in 2014.

Devon is responding to the lower commodity prices by strategically reducing capital expenditures, which were down 73% year-over-year. The company is also utilizing hedging strategies to protect against price volatility, with over half of its projected oil production for 2015 hedged at an average price of $91 per barrel. Furthermore, Devon has enhanced its financial flexibility by selling EnLink units, raising capital and improving liquidity.

The asset impairment charge, while large in magnitude, is a non-cash expense. Therefore, it does not directly impact Devon's cash flow or liquidity. The company's operating cash flow remained strong, and it has sufficient liquidity to fund its operations and capital program.