10-QPeriod: Q3 FY2015

DEVON ENERGY CORP/DE Quarterly Report for Q3 Ended Sep 30, 2015

Filed November 4, 2015For Securities:DVN

Summary

Devon Energy Corp. (DVN) reported a significant net loss for the nine months ended September 30, 2015, primarily driven by substantial asset impairments totaling $15.5 billion, largely a consequence of depressed oil and natural gas prices. While revenue from oil, gas, and NGL sales decreased year-over-year due to lower commodity prices, production volumes showed growth in key U.S. regions like the Eagle Ford and Delaware Basin, and in Canada due to increased bitumen production. The company also benefited from hedging activities, which generated substantial cash flow despite the price downturn. Despite the significant impairments impacting reported earnings, the company's operating cash flow remained robust, covering capital expenditures. Strategic actions taken include continued investment in core asset development, cost reduction initiatives leading to improved operating efficiencies, and a focus on maintaining a strong balance sheet and liquidity. The company also highlighted its strategic positioning through its investment in EnLink Midstream, which provided financial optionality and contributed to cash flow through unit sales and dropdown transactions.

Financial Highlights

47 data points
Beta

Revenue

$3.60B

Net Income

-$3.51B

-97.4% Net Margin

EPS (Diluted)

$-8.64

Total Assets

$34.27B

Cash & Equivalents

$1.79B

Free Cash Flow

$1.44B

Financial Statements
Beta
Revenue$3.60B
Operating Expenses$9.04B
Operating Income-$5.44B
Interest Expense$138.00M
Net Income-$3.51B
EPS (Basic)$-8.64
EPS (Diluted)$-8.64
Shares Outstanding (Basic)406.00M
Shares Outstanding (Diluted)406.00M

Key Highlights

  • 1Significant Net Loss: Reported a net loss of $9.92 billion for the nine months ended September 30, 2015, compared to a net earning of $2.02 billion in the same period of 2014.
  • 2Substantial Asset Impairments: Recognized $15.5 billion in asset impairments, primarily impacting U.S. and Canadian oil and gas assets, and EnLink goodwill and intangible assets, due to declining commodity prices.
  • 3Revenue Decline Due to Prices: Total operating revenues decreased to $10.26 billion for the nine months ended September 30, 2015, from $13.57 billion in the prior year period, driven by lower oil, gas, and NGL prices.
  • 4Production Growth in Key Areas: Despite revenue decline, U.S. oil production saw significant growth, particularly in the Eagle Ford and Delaware Basin, and Canadian bitumen production increased.
  • 5Strong Operating Cash Flow: Operating cash flow was $4.30 billion for the nine months ended September 30, 2015, demonstrating the company's ability to generate cash from operations despite challenging market conditions.
  • 6Hedging Benefits: Commodity derivatives generated substantial cash flow, totaling $1.69 billion in cash settlements for the nine months ended September 30, 2015, offsetting some of the impact of lower commodity prices.
  • 7Strategic Asset Divestitures and EnLink Investment: Continued strategic repositioning through asset divestitures and significant involvement in EnLink Midstream, which provided financial flexibility.

Frequently Asked Questions

The substantial net loss of $9.92 billion was primarily due to significant non-cash asset impairments totaling $15.5 billion. These impairments were a direct result of the sharp decline in oil and natural gas prices during the period, which reduced the carrying value of the company's oil and gas properties and goodwill associated with its midstream segment (EnLink).

Lower commodity prices led to a significant decrease in oil, gas, and NGL sales, with total revenues falling to $10.26 billion for the first nine months of 2015 from $13.57 billion in the same period of 2014. However, the company managed to increase production volumes in key U.S. oil-producing regions like the Eagle Ford and Delaware Basin, and saw growth in Canadian bitumen production, offsetting some of the revenue decline.

Devon Energy reported strong operating cash flow of $4.30 billion for the first nine months of 2015, which was sufficient to fund capital expenditures. The company maintains significant credit availability under its revolving credit facility and has access to its commercial paper program. Management expects its combined sources of capital to be adequate for future capital expenditures and debt repayments, despite forecasting a potential $2 billion negative impact on 2016 operating cash flow if commodity prices remain low and hedges are not renewed favorably.

The asset impairments are non-cash charges that reflect the reduced value of assets on the balance sheet due to lower commodity price expectations. While these impairments significantly impacted reported net earnings (resulting in a large net loss), they did not affect the company's operating cash flow, which continued to be generated from ongoing production activities.