8-KOther Events

DEVON ENERGY CORP/DE 8-K Report, Corporate Update (Feb 4, 2009)

Filed February 4, 2009For Securities:DVN

Summary

Devon Energy Corporation (DVN) filed an 8-K on February 4, 2009, providing forward-looking estimates for its 2009 operations. The report emphasizes the significant risks and uncertainties inherent in the oil and gas industry, particularly price volatility, which is expected to continue throughout 2009 with prices anticipated to be lower than in 2008. The company's financial results are heavily influenced by these commodity prices. The filing outlines production estimates, expected price differentials across various operating regions (US Onshore, US Offshore, Canada, International), and detailed projections for marketing and midstream operations, production expenses, DD&A, G&A, and interest expenses. A key concern highlighted is the potential for full cost ceiling writedowns due to volatile oil and gas prices, which led to significant writedowns in Q4 2008. The company also provides its 2009 capital expenditure budget, which ranges from $3.4 billion to $4.0 billion for drilling, development, and facilities.

Key Highlights

  • 1Devon Energy projects combined oil, gas, and NGL production for 2009 to be between 235 and 241 MMBoe, with approximately 97% expected from proved reserves as of December 31, 2008.
  • 2The company anticipates 2009 commodity prices will be noticeably lower than 2008, and expects significant price volatility to persist throughout the year.
  • 3Marketing and midstream operating profit is estimated to be between $375 million and $425 million, with revenues projected between $1.075 billion and $1.425 billion.
  • 4Total capital expenditures for 2009 are estimated to range from $3.4 billion to $4.0 billion, covering drilling, development, facilities, and marketing/midstream assets.
  • 5The company has gas collars in place for 2009 to manage price volatility, with floor prices around $8.25/MMBtu and ceiling prices around $12.05/MMBtu on average.
  • 6Devon expects its 2009 interest expense to be between $330 million and $340 million, assuming a $1 billion increase in total debt.
  • 7Significant potential for full cost ceiling writedowns in 2009 is noted due to volatile oil and gas prices, particularly if quarter-end prices remain near the lower levels seen at December 31, 2008.

Frequently Asked Questions

This 8-K filing serves to provide Devon Energy's forward-looking estimates for its 2009 operations, including production volumes, pricing assumptions, expenses, capital expenditures, and other financial projections. It also details the risks and assumptions underlying these estimates.

Devon Energy expects 2009 oil, gas, and NGL prices to be noticeably lower than those experienced in 2008. The company anticipates continued price volatility throughout the year, which significantly impacts its revenues and financial results.

Devon Energy's total capital expenditure budget for 2009 is estimated to be between $3.4 billion and $4.0 billion. This includes expenditures for drilling, development, facilities, and marketing/midstream assets.

Devon Energy utilizes financial commodity contracts, such as gas collars, to manage price volatility. As of February 3, 2009, these contracts primarily covered gas for 2009, providing a floor and ceiling on realized prices. The company also employs interest rate swaps to mitigate interest rate fluctuations.

The company highlights a significant risk of full cost ceiling writedowns in 2009. This accounting treatment under the full cost method can result in writeoffs if the carrying value of oil and gas properties exceeds a calculated ceiling based on current prices and costs. Given the volatile and declining price environment observed at the end of 2008, writedowns are considered more likely than in recent periods.