8-KFinancial EventsExhibits & Filings

DEVON ENERGY CORP/DE 8-K Report, Material Impairment (Jan 13, 2006)

Filed January 13, 2006For Securities:DVN

Summary

Devon Energy Corporation has filed an 8-K report detailing a significant non-cash charge against its fourth quarter 2005 earnings. The company expects to record a charge of approximately $215 million pre-tax ($165 million after tax) due to the impairment of certain international assets, specifically in Angola and Brazil. This impairment reflects a reassessment of the value of exploration and development activities and acquired assets in these regions. The company emphasizes that these are estimates and final reported results for the fiscal year 2005 may differ. The impairment in Angola amounts to $170 million pre-tax ($120 million after tax), while the Brazilian impairment is $45 million pre-tax ($45 million after tax). The Brazilian impairment is notably related to past acquisitions and exploration costs that did not align with recent successes in other projects. Investors should note that there is no tax benefit associated with the Brazilian impairment. This filing signals a notable adjustment to the company's asset valuation and could impact its reported profitability for the period.

Key Highlights

  • 1Devon Energy expects a non-cash charge of approximately $215 million ($165 million after tax) impacting Q4 2005 earnings.
  • 2The charge is related to the impairment of certain international assets.
  • 3Impairments are specifically identified in Angola ($170 million pre-tax) and Brazil ($45 million pre-tax).
  • 4The Brazilian impairment is linked to prior acquisitions and exploration costs not yielding expected results, despite recent successes elsewhere.
  • 5The company acknowledges that final 2005 year-end results may differ from these estimates.
  • 6There is no tax benefit associated with the Brazilian impairment.

Frequently Asked Questions

The primary reason is a non-cash charge of approximately $215 million ($165 million after tax) due to the impairment of certain international assets, specifically in Angola and Brazil.

The impairment in Angola is estimated at $170 million pre-tax ($120 million after tax), and the impairment in Brazil is estimated at $45 million pre-tax ($45 million after tax).

The impairment in Brazil relates to the purchase price allocated to certain oil and gas assets acquired through mergers and acquisitions, as well as exploration costs that were not successful or related to the company's recent successes in other projects.

While there is a tax benefit associated with the Angolan impairment ($50 million after tax), there is no tax benefit related to the Brazilian impairment.