10-QPeriod: Q2 FY2015

DEVON ENERGY CORP/DE Quarterly Report for Q2 Ended Jun 30, 2015

Filed August 5, 2015For Securities:DVN

Summary

Devon Energy Corporation's (DVN) Q2 2015 10-Q filing reveals a significant net loss attributable to common shareholders of $2.82 billion, or $6.94 per diluted share, primarily driven by a substantial asset impairment charge of $4.17 billion. This impairment charge, detailed in Note 5, was a direct result of declining oil, gas, and NGL prices, which lowered the "full cost ceiling" for U.S. oil and gas assets. Despite this reported net loss, the company's "core earnings" (a non-GAAP measure excluding impairments and derivative fair value changes) were $320 million, or $0.78 per share, indicating operational resilience. Operationally, Devon reported a 25% increase in oil production and a 41% increase in retained oil production volumes, primarily from its Eagle Ford, Permian Basin, and Rockies assets, as well as the Jackfish 3 coming online. However, realized commodity prices saw a significant decline of 41-44% compared to the prior year's comparable periods, heavily impacting revenues. The company has taken steps to mitigate price volatility through hedging strategies. Furthermore, Devon continues to refine its portfolio, evidenced by the sale of EnLink units and the drop-down of assets to EnLink, which contributed to a strong operating cash flow of $2.75 billion for the first six months of 2015, despite the challenging commodity price environment.

Financial Highlights

46 data points
Beta

Revenue

$3.39B

Net Income

-$2.82B

-83.0% Net Margin

EPS (Diluted)

$-6.94

Total Assets

$40.53B

Cash & Equivalents

$1.73B

Free Cash Flow

$1.09B

Financial Statements
Beta
Revenue$3.39B
Operating Expenses$7.76B
Operating Income-$4.36B
Interest Expense$126.00M
Net Income-$2.82B
EPS (Basic)$-6.94
EPS (Diluted)$-6.94
Shares Outstanding (Basic)406.00M
Shares Outstanding (Diluted)406.00M

Key Highlights

  • 1Reported a significant net loss of $2.82 billion ($6.94/share) for the quarter, largely due to a $4.17 billion asset impairment charge related to declining commodity prices.
  • 2Core earnings (a non-GAAP measure) were $320 million ($0.78/share) for the quarter, excluding impairments and derivative fair value changes, indicating underlying operational performance.
  • 3Total oil production increased by 25% year-over-year for retained properties, driven by growth in the Eagle Ford, Permian Basin, and Rockies regions.
  • 4Realized commodity prices declined significantly, with oil prices down 45% and natural gas prices down 49% compared to the prior year's quarter.
  • 5Generated $2.75 billion in operating cash flow for the first six months of 2015, which funded the majority of capital expenditures.
  • 6Managed liquidity through a $3.0 billion revolving credit facility, with $170 million in commercial paper outstanding as of June 30, 2015.
  • 7Completed an underwritten secondary public offering of EnLink common units, raising approximately $654 million net.

Frequently Asked Questions

The primary reason for the significant net loss of $2.82 billion is a substantial asset impairment charge of $4.17 billion. This charge was recognized because declining commodity prices for oil, gas, and NGLs led to a reduction in the "full cost ceiling" for the company's U.S. oil and gas assets, requiring them to be written down.

Despite the reported net loss driven by the impairment, the company's 'core earnings' (a non-GAAP measure that excludes items like asset impairments and derivative fair value changes) were $320 million for the quarter. This indicates that the core operations are still generating positive results, though significantly impacted by lower commodity prices compared to the previous year.

The filing indicates that downward pressure on crude oil, natural gas, and NGL prices continued into the first half of 2015. The company expects the industry to remain challenged by lower commodity prices. To mitigate price volatility, Devon has hedged a portion of its projected oil and gas production for the remainder of 2015.

Devon reported strong operating cash flow of $2.75 billion for the first six months of 2015, which largely funded its capital expenditures. The company also has access to a $3.0 billion revolving credit facility and has completed equity offerings related to its EnLink midstream business, providing additional liquidity and financial flexibility. Capital expenditures for 2015 were planned to be lower than in 2014 in response to commodity prices.