8-KOther Events

DEVON ENERGY CORP/DE 8-K Report, Corporate Update (Aug 2, 2006)

Filed August 2, 2006For Securities:DVN

Summary

Devon Energy Corp. (DVN) filed an 8-K on August 2, 2006, to update its 2006 forward-looking estimates, particularly concerning production, revenue, and expenses. The company revised its total 2006 production estimate upward to 218 MMBoe from 217 MMBoe, primarily due to an accelerated payout under the Azeri-Chirag-Gunashli oil development project. This update also reflects adjustments in marketing and midstream revenues and expenses, driven by higher NGL prices, and an increase in production taxes due to a new tax in China. Additionally, the DD&A rate and expense were revised upwards, influenced by foreign currency fluctuations and inflationary pressures on future development costs. The filing also details updated capital expenditure plans, with a total budget between $4.745 billion and $4.940 billion for drilling, development, and facilities. It highlights significant investments across various geographic segments, with the U.S. Onshore and Canada representing the largest portions. The company also reaffirms its liquidity position, expecting operating cash flow and working capital to fund anticipated expenditures, with capacity under its credit facility available for unforeseen needs. The dividend payment policy is expected to continue, and the previously announced share repurchase program remains suspended following the Chief acquisition.

Key Highlights

  • 1Total 2006 production estimate increased to 218 MMBoe from 217 MMBoe, driven by accelerated payout on the Azeri-Chirag-Gunashli project.
  • 2Marketing and midstream revenues revised to $1.77-$2.00 billion and expenses to $1.35-$1.56 billion due to higher NGL prices.
  • 3Production taxes estimate increased to 3.6%-4.0% of revenues, impacted by a new 'Special Petroleum Gain' tax in China.
  • 4DD&A expense estimate increased to $2.25-$2.33 billion, with the per Boe rate rising to $10.30-$10.70 due to currency and inflation.
  • 5Total capital expenditures for drilling, development, and facilities are projected between $4.745 billion and $4.940 billion.
  • 6Significant capital allocation includes $2.29-$2.38 billion for U.S. Onshore, $1.33-$1.38 billion for Canada, and $0.525-$0.555 billion for U.S. Offshore.
  • 7Company expects sufficient liquidity from operating cash flow and working capital to fund 2006 capital expenditures, with available credit facility capacity.

Frequently Asked Questions

The primary reason for the upward revision of the 2006 production estimate to 218 MMBoe is that Devon now expects to reach payout under the production sharing contract for the Azeri-Chirag-Gunashli oil development project within the next six months. This will result in an increase to Devon's share of production.

Devon now estimates marketing and midstream revenues to be between $1.77 billion and $2.00 billion, and expenses between $1.35 billion and $1.56 billion. This adjustment is primarily due to higher estimates for both the absolute and relative prices of Natural Gas Liquids (NGLs).

Yes, the estimate for production taxes has been revised to be between 3.6% and 4.0% of consolidated oil, natural gas, and NGL revenues. This increase is attributed to a new 'Special Petroleum Gain' tax implemented in China effective March 26, 2006, which is based on higher oil prices.

Devon expects its 2006 capital expenditures for drilling and development efforts, plus related facilities, to total between $4.745 billion and $4.940 billion. This budget includes significant allocations for both proved reserve development and exploration activities across its key geographic regions.