8-KOther Events

DEVON ENERGY CORP/DE 8-K Report, Corporate Update (Aug 1, 2007)

Filed August 1, 2007For Securities:DVN

Summary

Devon Energy Corporation (DVN) filed an 8-K on August 1, 2007, to update its forward-looking estimates for the fiscal year 2007. The report indicates an upward revision for total oil, gas, and NGL production, projecting to be at the high end of their previously estimated range. This positive revision is attributed to better-than-anticipated performance in core areas during the first half of the year. Key financial adjustments include an increase in marketing and midstream operating profit, an upward revision in lease operating expenses due to higher transportation costs and increased workover activity, and an increase in the DD&A rate and expense due to inflationary pressures. The company also anticipates a higher interest expense due to delayed closings of asset divestitures in Egypt and West Africa. Despite these increased expenses, Devon expects its combined capital resources to be adequate to fund anticipated expenditures.

Key Highlights

  • 1Devon Energy is updating its 2007 forward-looking estimates, projecting total oil, gas, and NGL production towards the high end of its previously stated range (219-221 MMBoe) due to strong first-half performance.
  • 2Marketing and midstream operating profit is now projected to be between $420 million and $460 million, an increase from the prior estimate.
  • 3Lease operating expenses are revised upward to $1.77-$1.83 billion due to higher transportation costs, increased workover activity, and rising industry prices for oilfield services.
  • 4Depreciation, Depletion, and Amortization (DD&A) for oil and gas properties is expected to be between $11.40-$11.80 per Boe, leading to a higher total expense projection of $2.52-$2.61 billion.
  • 5Interest expense is now projected to be between $430 million and $440 million, up from the previous estimate, primarily due to delays in the divestiture of Egyptian and West African assets.
  • 6Total capital expenditures for drilling, development, and facilities are estimated to be between $4.87 billion and $5.27 billion.
  • 7Divestitures of Egyptian and West African operations are delayed and now expected to close in the third and fourth quarters of 2007, respectively, with associated revenues and expenses to be reported as discontinued operations.

Frequently Asked Questions

The upward revision is primarily due to better-than-anticipated performance in several of Devon's core operating areas during the first half of 2007.

The delayed sales will result in higher projected interest expenses for 2007, as the company anticipates higher outstanding commercial paper balances for a longer period. Revenues, expenses, and capital related to these operations will continue to be reported as discontinued operations.

The company notes that the full cost ceiling calculation uses current prices and costs held constant indefinitely, which may not reflect true fair value. While it's not possible to predict writedowns due to price volatility, any writedowns resulting from this calculation due to price fluctuations should not be seen as an absolute indicator of reduced reserve value.

Devon expects to fund its 2007 cash uses, including capital expenditures, debt retirement, and stock repurchases, through a combination of operating cash flow and proceeds from asset sales. They also have available capacity under their commercial paper program and credit facilities, with a new $1 billion facility expected to close in early August 2007.