8-KOther Events

DEVON ENERGY CORP/DE 8-K Report (Dec 11, 2002)

Filed December 11, 2002For Securities:DVN

Summary

This SEC filing by Devon Energy Corp. on December 11, 2002, provides forward-looking estimates for the year 2003, focusing on production, pricing, expenses, and capital expenditures. The company anticipates total oil, gas, and NGL production to be between 178.1 and 186.9 million barrels of oil equivalent (MMBoe). A significant portion of this production (approximately 91-96%) is expected to come from reserves classified as 'proved' as of December 31, 2002. The company also outlines its strategies for managing price volatility through various hedging instruments, including costless price collars and fixed-price contracts for a portion of its oil and gas production. The filing details projected production volumes and expected price differentials from benchmark indices like NYMEX for oil and Henry Hub for natural gas across its key geographic segments: the United States, Canada, and International. It also provides detailed breakdowns of expected operating expenses, depreciation, depletion, and amortization (DD&A), general and administrative (G&A) expenses, and interest expenses. A notable point is the anticipated adoption of SFAS No. 143 in 2003, which will introduce accounting for asset retirement obligations and may impact DD&A and accretion expenses. Finally, the report outlines a substantial capital expenditure budget for 2003, projected between $1.4 billion and $1.6 billion for drilling and development, with additional expenditures for marketing and midstream assets.

Key Highlights

  • 1Devon Energy projects total 2003 production of 178.1 to 186.9 MMBoe, with 92% from proved reserves.
  • 2The company utilizes costless price collars and fixed-price contracts to mitigate price volatility for oil and natural gas.
  • 3Projected 2003 oil production is 35.4 to 37.2 MMBbls, with significant portions allocated to the United States (19.1-20.1 MMBbls) and Canada (13.5-14.2 MMBbls).
  • 4Estimated 2003 natural gas production is forecasted between 731 and 767 Bcf, with the majority (472-495 Bcf) from the United States.
  • 5Marketing and midstream revenues are projected between $971 million and $1,031 million for 2003.
  • 6A 2003 capital expenditures budget of $1.4 billion to $1.6 billion is planned for drilling and development, with significant allocations to both low and higher risk/reward projects.
  • 7Devon expects to adopt SFAS No. 143 effective January 1, 2003, concerning asset retirement obligations, the full financial impact of which is still under assessment.

Frequently Asked Questions

Devon Energy's revenues are primarily driven by the sales, processing, and transportation of oil, natural gas, and natural gas liquids (NGLs). To manage price volatility, the company has entered into costless price collars and fixed-price physical delivery contracts for a portion of its 2003 oil and gas production. These instruments are designed to set floor and ceiling prices or fix prices to mitigate the impact of fluctuating market conditions.

Devon Energy anticipates capital expenditures for drilling and development efforts to range between $1.4 billion and $1.6 billion in 2003. This budget includes significant allocations for projects related to proved reserves, lower risk/reward projects (such as development drilling), and higher risk/reward projects (including exploratory drilling). Additionally, the company plans to spend between $150 million and $170 million on marketing and midstream assets.

SFAS No. 143 is an accounting standard concerning Asset Retirement Obligations. Devon Energy is required to adopt this standard effective January 1, 2003. This will involve recognizing liabilities for legal obligations to retire tangible long-lived assets, such as producing well sites and processing plants. The adoption is expected to result in accretion expense and impact the capitalization and amortization of asset retirement costs, potentially affecting Depreciation, Depletion, and Amortization (DD&A) expense. However, the exact financial impact on DD&A and accretion expense for 2003 is still being assessed by the company.

Devon Energy has a mix of fixed-rate and floating-rate debt. The company estimates its fixed-rate debt interest expense for 2003 to be approximately $472 million, based on an average balance of $6.5 billion. For its floating-rate debt, which includes credit facilities based on LIBOR and commercial paper, the company has used interest rate swap agreements to fix the rates on certain portions of its debt. Devon expects its total 2003 interest expense, including fees and swap effects, to be between $512 million and $522 million.