8-KFinancial EventsOther Events

DEVON ENERGY CORP/DE 8-K Report, Exit or Disposal Costs (Nov 16, 2009)

Filed November 16, 2009For Securities:DVN

Summary

Devon Energy Corp./DE (DVN) announced a significant strategic repositioning on November 16, 2009, with plans to divest all U.S. Offshore and International assets to focus on its North America Onshore exploration and production portfolio. This strategic shift is expected to be completed throughout 2010, with proceeds earmarked for reinvestment in high-return onshore assets and debt reduction. The company also provided its 2010 forward-looking estimates, which exclude International operations now classified as discontinued. These estimates reflect expected production, pricing, and various operational expenses, along with significant capital expenditure plans focused on North America Onshore and U.S. Offshore development. Investors should note the incurrence of substantial one-time restructuring costs, estimated between $200 million and $275 million, primarily related to employee severance, with a portion recognized in Q4 2009 and the remainder in 2010.

Key Highlights

  • 1Strategic Repositioning: Devon plans to divest all U.S. Offshore and International assets to concentrate on its North America Onshore portfolio.
  • 2Divestiture Timeline: The divestitures are expected to be completed throughout 2010.
  • 3Use of Proceeds: Proceeds from divestitures will be directed towards high-return North America Onshore assets and debt retirement.
  • 4Restructuring Costs: The company anticipates incurring $200 million to $275 million in one-time restructuring costs, including $175 million to $225 million for employee severance.
  • 52010 Forward-Looking Estimates Provided: The report includes detailed estimates for production, pricing, marketing and midstream operations, operating expenses, DD&A, G&A, and interest expense for 2010, excluding International operations.
  • 6Capital Expenditure Focus: Significant capital expenditures are planned, with the majority directed towards North America Onshore development ($3.76 billion - $4.20 billion) and U.S. Offshore ($0.92 billion - $1.02 billion).
  • 7International Operations as Discontinued: Revenues, expenses, and capital related to International operations will be reported as discontinued operations for 2010.

Frequently Asked Questions

Devon Energy is strategically repositioning itself to become a high-growth North American onshore exploration and production company. This involves divesting all of its U.S. Offshore and International assets and reinvesting the proceeds into its North America Onshore portfolio and for debt reduction.

Devon estimates incurring approximately $200 million to $275 million in one-time restructuring costs related to the planned divestitures. This includes $175 million to $225 million for employee severance costs and $25 million to $50 million for contract termination and other costs.

All revenues, expenses, and capital related to the International operations will be reported as discontinued operations in Devon's financial statements for 2010. The U.S. Offshore assets will remain part of continuing operations.

The report provides detailed 2010 estimates for combined oil, gas, and NGL production (229-233 MMBoe), marketing and midstream operating profit ($450-$500 million), lease operating expenses ($1.86-$2.01 billion), DD&A expense ($1.79-$1.91 billion), G&A expenses ($580-$620 million), and interest expense ($375-$415 million). These estimates exclude International operations.