UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2012March 31, 2013
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-32318
DEVON ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 73-1567067 | |
(State of other jurisdiction of incorporation or organization) | (I.R.S. Employer identification No.) | |
333 West Sheridan Avenue, Oklahoma City, Oklahoma | 73102-5015 | |
(Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: (405) 235-3611
Former name, address and former fiscal year, if changed from last report: Not applicable
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | þ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No þ
On OctoberApril 24, 2012, 4052013, 406 million shares of common stock were outstanding.
DEVON ENERGY CORPORATION
FORM 10-Q
Part I Financial Information | ||||
3 | ||||
3 | ||||
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7 | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | ||||
Part II Other Information | ||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | ||||
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements regarding our expectations and plans, as well as future events or conditions. Such forward-looking statements are based on our examination of historical operating trends, the information used to prepare our December 31, 20112012 reserve reports and other data in our possession or available from third parties. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control. Consequently, actual future results could differ materially from our expectations due to a number of factors, such as changes in the supply of and demand for oil, natural gas and NGLs and related products and services; exploration or drilling programs; political or regulatory events; general economic and financial market conditions; and other factors discussed in this report.
All subsequent written and oral forward-looking statements attributable to Devon, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements above. We assume no duty to update or revise our forward-looking statements based on new information, future events or otherwise.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED COMPREHENSIVE STATEMENTS OF EARNINGS
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(Unaudited) | ||||||||||||||||
(In millions, except per share amounts) | ||||||||||||||||
Revenues: | ||||||||||||||||
Oil, gas and NGL sales | $ | 1,738 | $ | 2,111 | $ | 5,270 | $ | 6,171 | ||||||||
Oil, gas and NGL derivatives | (295 | ) | 738 | 515 | 986 | |||||||||||
Marketing and midstream revenues | 422 | 653 | 1,136 | 1,712 | ||||||||||||
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Total revenues | 1,865 | 3,502 | 6,921 | 8,869 | ||||||||||||
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Expenses and other, net: | ||||||||||||||||
Lease operating expenses | 513 | 475 | 1,540 | 1,352 | ||||||||||||
Marketing and midstream operating costs and expenses | 313 | 515 | 847 | 1,304 | ||||||||||||
Depreciation, depletion and amortization | 716 | 566 | 2,080 | 1,622 | ||||||||||||
General and administrative expenses | 150 | 138 | 494 | 403 | ||||||||||||
Taxes other than income taxes | 104 | 108 | 306 | 336 | ||||||||||||
Interest expense | 110 | 104 | 296 | 270 | ||||||||||||
Restructuring costs | — | (3 | ) | — | (2 | ) | ||||||||||
Asset impairments | 1,128 | — | 1,128 | — | ||||||||||||
Other, net | (8 | ) | 61 | 46 | 88 | |||||||||||
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Total expenses and other, net | 3,026 | 1,964 | 6,737 | 5,373 | ||||||||||||
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Earnings (loss) from continuing operations before income taxes | (1,161 | ) | 1,538 | 184 | 3,496 | |||||||||||
Current income tax expense (benefit) | (41 | ) | (248 | ) | 8 | (301 | ) | |||||||||
Deferred income tax expense (benefit) | (401 | ) | 746 | 4 | 2,184 | |||||||||||
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Earnings (loss) from continuing operations | (719 | ) | 1,040 | 172 | 1,613 | |||||||||||
Earnings (loss) from discontinued operations, net of tax | — | (2 | ) | (21 | ) | 2,584 | ||||||||||
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Net earnings (loss) | $ | (719 | ) | $ | 1,038 | $ | 151 | $ | 4,197 | |||||||
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Basic net earnings (loss) per share: | ||||||||||||||||
Basic earnings (loss) from continuing operations per share | $ | (1.80 | ) | $ | 2.51 | $ | 0.42 | $ | 3.83 | |||||||
Basic earnings (loss) from discontinued operations per share | — | — | (0.05 | ) | 6.14 | |||||||||||
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Basic net earnings (loss) per share | $ | (1.80 | ) | $ | 2.51 | $ | 0.37 | $ | 9.97 | |||||||
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Diluted net earnings (loss) per share: | ||||||||||||||||
Diluted earnings (loss) from continuing operations per share | $ | (1.80 | ) | $ | 2.50 | $ | 0.42 | $ | 3.82 | |||||||
Diluted earnings (loss) from discontinued operations per share | — | — | (0.05 | ) | 6.11 | |||||||||||
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Diluted net earnings (loss) per share | $ | (1.80 | ) | $ | 2.50 | $ | 0.37 | $ | 9.93 | |||||||
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Comprehensive earnings (loss): | ||||||||||||||||
Net earnings (loss) | $ | (719 | ) | $ | 1,038 | $ | 151 | $ | 4,197 | |||||||
Other comprehensive earnings (loss), net of tax: | ||||||||||||||||
Foreign currency translation | 311 | (615 | ) | 292 | (365 | ) | ||||||||||
Pension and postretirement plans | 3 | 6 | 12 | 17 | ||||||||||||
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Other comprehensive earnings (loss), net of tax | 314 | (609 | ) | 304 | (348 | ) | ||||||||||
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Comprehensive earnings (loss) | $ | (405 | ) | $ | 429 | $ | 455 | $ | 3,849 | |||||||
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Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
(Unaudited) (In millions, except per share amounts) | ||||||||
Revenues: | ||||||||
Oil, gas and NGL sales | $ | 1,804 | $ | 1,915 | ||||
Oil, gas and NGL derivatives | (320 | ) | 145 | |||||
Marketing and midstream revenues | 488 | 437 | ||||||
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Total revenues | 1,972 | 2,497 | ||||||
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Expenses and other, net: | ||||||||
Lease operating expenses | 525 | 514 | ||||||
Marketing and midstream operating costs and expenses | 363 | 325 | ||||||
Depreciation, depletion and amortization | 704 | 680 | ||||||
General and administrative expenses | 150 | 168 | ||||||
Taxes other than income taxes | 113 | 102 | ||||||
Interest expense | 110 | 87 | ||||||
Restructuring costs | 38 | — | ||||||
Asset impairments | 1,913 | — | ||||||
Other, net | 18 | 10 | ||||||
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Total expenses and other, net | 3,934 | 1,886 | ||||||
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Earnings (loss) from continuing operations before income taxes | (1,962 | ) | 611 | |||||
Current income tax expense | — | 18 | ||||||
Deferred income tax expense (benefit) | (623 | ) | 179 | |||||
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Earnings (loss) from continuing operations | (1,339 | ) | 414 | |||||
Loss from discontinued operations, net of tax | — | (21 | ) | |||||
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Net earnings (loss) | $ | (1,339 | ) | $ | 393 | |||
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Basic net earnings (loss) per share: | ||||||||
Basic earnings (loss) from continuing operations per share | $ | (3.34 | ) | $ | 1.03 | |||
Basic loss from discontinued operations per share | — | (0.06 | ) | |||||
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Basic net earnings (loss) per share | $ | (3.34 | ) | $ | 0.97 | |||
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Diluted net earnings (loss) per share: | ||||||||
Diluted earnings (loss) from continuing operations per share | $ | (3.34 | ) | $ | 1.03 | |||
Diluted loss from discontinued operations per share | — | (0.06 | ) | |||||
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Diluted net earnings (loss) per share | $ | (3.34 | ) | $ | 0.97 | |||
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Comprehensive earnings (loss): | ||||||||
Net earnings (loss) | $ | (1,339 | ) | $ | 393 | |||
Other comprehensive earnings (loss), net of tax: | ||||||||
Foreign currency translation | (183 | ) | 152 | |||||
Pension and postretirement plans | 4 | 4 | ||||||
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Other comprehensive earnings (loss), net of tax | (179 | ) | 156 | |||||
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Comprehensive earnings (loss) | $ | (1,518 | ) | $ | 549 | |||
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See accompanying notes to consolidated financial statements.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months | ||||||||
Ended September 30, | ||||||||
2012 | 2011 | |||||||
(Unaudited) | ||||||||
(In millions) | ||||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 151 | $ | 4,197 | ||||
(Earnings) loss from discontinued operations, net of tax | 21 | (2,584 | ) | |||||
Adjustments to reconcile earnings from continuing operations to net cash from operating activities: | ||||||||
Depreciation, depletion and amortization | 2,080 | 1,622 | ||||||
Asset impairments | 1,128 | — | ||||||
Deferred income tax expense | 4 | 2,184 | ||||||
Unrealized change in fair value of financial instruments | 173 | (661 | ) | |||||
Other noncash charges | 136 | 185 | ||||||
Net decrease (increase) in working capital | 48 | (308 | ) | |||||
Decrease (increase) in long-term other assets | (22 | ) | 51 | |||||
Increase (decrease) in long-term other liabilities | 68 | (459 | ) | |||||
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Cash from operating activities – continuing operations | 3,787 | 4,227 | ||||||
Cash from operating activities – discontinued operations | 26 | (13 | ) | |||||
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Net cash from operating activities | 3,813 | 4,214 | ||||||
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Cash flows from investing activities: | ||||||||
Capital expenditures | (6,228 | ) | (5,515 | ) | ||||
Purchases of short-term investments | (2,969 | ) | (5,751 | ) | ||||
Redemptions of short-term investments | 2,308 | 4,665 | ||||||
Proceeds from property and equipment divestitures | 1,397 | 13 | ||||||
Other | 18 | (23 | ) | |||||
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Cash from investing activities—continuing operations | (5,474 | ) | (6,611 | ) | ||||
Cash from investing activities—discontinued operations | 58 | 3,162 | ||||||
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Net cash from investing activities | (5,416 | ) | (3,449 | ) | ||||
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Cash flows from financing activities: | ||||||||
Proceeds from borrowings of long-term debt, net of issuance costs | 2,465 | 2,221 | ||||||
Net short-term borrowings (repayments) | (898 | ) | 3,196 | |||||
Debt repayments | — | (1,760 | ) | |||||
Credit facility borrowings | 750 | — | ||||||
Credit facility repayments | (750 | ) | — | |||||
Proceeds from stock option exercises | 25 | 101 | ||||||
Repurchases of common stock | — | (1,987 | ) | |||||
Dividends paid on common stock | (242 | ) | (209 | ) | ||||
Excess tax benefits related to share-based compensation | 5 | 11 | ||||||
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Net cash from financing activities | 1,355 | 1,573 | ||||||
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Effect of exchange rate changes on cash | 31 | (10 | ) | |||||
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Net change in cash and cash equivalents | (217 | ) | 2,328 | |||||
Cash and cash equivalents at beginning of period | 5,555 | 3,290 | ||||||
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Cash and cash equivalents at end of period | $ | 5,338 | $ | 5,618 | ||||
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Three Months | ||||||||
Ended March 31, | ||||||||
2013 | 2012 | |||||||
(Unaudited) | ||||||||
(In millions) | ||||||||
Cash flows from operating activities: | ||||||||
Net earnings (loss) | $ | (1,339 | ) | $ | 393 | |||
Loss from discontinued operations, net of tax | — | 21 | ||||||
Adjustments to reconcile earnings from continuing operations to net cash from operating activities: | ||||||||
Depreciation, depletion and amortization | 704 | 680 | ||||||
Asset impairments | 1,913 | — | ||||||
Deferred income tax expense (benefit) | (623 | ) | 179 | |||||
Unrealized change in fair value of financial instruments | 419 | 22 | ||||||
Other noncash charges | 83 | 54 | ||||||
Net increase in working capital | (158 | ) | (321 | ) | ||||
Increase in long-term other assets | (6 | ) | (12 | ) | ||||
Increase (decrease) in long-term other liabilities | 9 | (16 | ) | |||||
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Cash from operating activities – continuing operations | 1,002 | 1,000 | ||||||
Cash from operating activities – discontinued operations | — | 26 | ||||||
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Net cash from operating activities | 1,002 | 1,026 | ||||||
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Cash flows from investing activities: | ||||||||
Capital expenditures | (1,926 | ) | (2,088 | ) | ||||
Proceeds from property and equipment divestitures | 29 | — | ||||||
Purchases of short-term investments | (871 | ) | (827 | ) | ||||
Redemptions of short-term investments | 1,988 | 1,048 | ||||||
Other | (2 | ) | (1 | ) | ||||
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Cash from investing activities – continuing operations | (782 | ) | (1,868 | ) | ||||
Cash from investing activities – discontinued operations | — | 58 | ||||||
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Net cash from investing activities | (782 | ) | (1,810 | ) | ||||
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Cash flows from financing activities: | ||||||||
Net short-term borrowings | 508 | 357 | ||||||
Credit facility borrowings | — | 750 | ||||||
Proceeds from stock option exercises | — | 20 | ||||||
Dividends paid on common stock | (81 | ) | (80 | ) | ||||
Excess tax benefits related to share-based compensation | 3 | 1 | ||||||
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Net cash from financing activities | 430 | 1,048 | ||||||
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Effect of exchange rate changes on cash | (12 | ) | 9 | |||||
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Net change in cash and cash equivalents | 638 | 273 | ||||||
Cash and cash equivalents at beginning of period | 4,637 | 5,555 | ||||||
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Cash and cash equivalents at end of period | $ | 5,275 | $ | 5,828 | ||||
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See accompanying notes to consolidated financial statements.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
September 30, | December 31, | |||||||
2012 | 2011 | |||||||
(Unaudited) | ||||||||
(In millions, except share data) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 5,338 | $ | 5,555 | ||||
Short-term investments | 2,164 | 1,503 | ||||||
Accounts receivable | 1,113 | 1,379 | ||||||
Other current assets | 818 | 868 | ||||||
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Total current assets | 9,433 | 9,305 | ||||||
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Property and equipment, at cost: | ||||||||
Oil and gas, based on full cost accounting: | ||||||||
Subject to amortization | 67,345 | 61,696 | ||||||
Not subject to amortization | 3,827 | 3,982 | ||||||
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Total oil and gas | 71,172 | 65,678 | ||||||
Other | 5,643 | 5,098 | ||||||
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Total property and equipment, at cost | 76,815 | 70,776 | ||||||
Less accumulated depreciation, depletion and amortization | (49,669 | ) | (46,002 | ) | ||||
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Property and equipment, net | 27,146 | 24,774 | ||||||
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Goodwill | 6,114 | 6,013 | ||||||
Other long-term assets | 855 | 1,025 | ||||||
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Total assets | $ | 43,548 | $ | 41,117 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,485 | $ | 1,471 | ||||
Revenues and royalties payable | 696 | 678 | ||||||
Short-term debt | 2,780 | 3,811 | ||||||
Other current liabilities | 535 | 778 | ||||||
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Total current liabilities | 5,496 | 6,738 | ||||||
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Long-term debt | 8,455 | 5,969 | ||||||
Asset retirement obligations | 2,009 | 1,496 | ||||||
Other long-term liabilities | 863 | 721 | ||||||
Deferred income taxes | 4,944 | 4,763 | ||||||
Stockholders’ equity: | ||||||||
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 405 million and 404 million shares in 2012 and 2011, respectively | 41 | 40 | ||||||
Additional paid-in capital | 3,644 | 3,507 | ||||||
Retained earnings | 16,217 | 16,308 | ||||||
Accumulated other comprehensive earnings | 1,879 | 1,575 | ||||||
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Total stockholders’ equity | 21,781 | 21,430 | ||||||
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Commitments and contingencies (Note 18) | ||||||||
Total liabilities and stockholders’ equity | $ | 43,548 | $ | 41,117 | ||||
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March 31, | December 31, | |||||||
2013 | 2012 | |||||||
(Unaudited) | ||||||||
(In millions, except share data) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 5,275 | $ | 4,637 | ||||
Short-term investments | 1,226 | 2,343 | ||||||
Accounts receivable | 1,369 | 1,245 | ||||||
Other current assets | 533 | 746 | ||||||
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Total current assets | 8,403 | 8,971 | ||||||
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Property and equipment, at cost: | ||||||||
Oil and gas, based on full cost accounting: | ||||||||
Subject to amortization | 70,431 | 69,410 | ||||||
Not subject to amortization | 3,426 | 3,308 | ||||||
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Total oil and gas | 73,857 | 72,718 | ||||||
Other | 5,792 | 5,630 | ||||||
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Total property and equipment, at cost | 79,649 | 78,348 | ||||||
Less accumulated depreciation, depletion and amortization | (53,267 | ) | (51,032 | ) | ||||
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Property and equipment, net | 26,382 | 27,316 | ||||||
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Goodwill | 6,017 | 6,079 | ||||||
Other long-term assets | 780 | 960 | ||||||
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Total assets | $ | 41,582 | $ | 43,326 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,409 | $ | 1,451 | ||||
Revenues and royalties payable | 753 | 750 | ||||||
Short-term debt | 4,197 | 3,189 | ||||||
Other current liabilities | 441 | 613 | ||||||
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Total current liabilities | 6,800 | 6,003 | ||||||
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Long-term debt | 7,955 | 8,455 | ||||||
Asset retirement obligations | 2,092 | 1,996 | ||||||
Other long-term liabilities | 873 | 901 | ||||||
Deferred income taxes | 4,154 | 4,693 | ||||||
Stockholders’ equity: | ||||||||
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 406 million shares in 2013 and 2012, respectively | 41 | 41 | ||||||
Additional paid-in capital | 3,717 | 3,688 | ||||||
Retained earnings | 14,358 | 15,778 | ||||||
Accumulated other comprehensive earnings | 1,592 | 1,771 | ||||||
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Total stockholders’ equity | 19,708 | 21,278 | ||||||
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Commitments and contingencies (Note 16) | ||||||||
Total liabilities and stockholders’ equity | $ | 41,582 | $ | 43,326 | ||||
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See accompanying notes to consolidated financial statements.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock | Additional Paid-In | Retained | Accumulated Other Comprehensive | Treasury | Total Stockholders’ | |||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Earnings | Stock | Equity | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||
Nine Months Ended September 30, 2012: | ||||||||||||||||||||||||||||
Balance as of December 31, 2011 | 404 | $ | 40 | $ | 3,507 | $ | 16,308 | $ | 1,575 | $ | — | $ | 21,430 | |||||||||||||||
Net earnings | — | — | — | 151 | — | — | 151 | |||||||||||||||||||||
Other comprehensive earnings, net of tax | — | — | — | — | 304 | — | 304 | |||||||||||||||||||||
Stock option exercises | 1 | 1 | 27 | — | — | (2 | ) | 26 | ||||||||||||||||||||
Common stock repurchased | — | — | — | — | — | (4 | ) | (4 | ) | |||||||||||||||||||
Common stock retired | — | — | (6 | ) | — | — | 6 | — | ||||||||||||||||||||
Common stock dividends | — | — | — | (242 | ) | — | — | (242 | ) | |||||||||||||||||||
Share-based compensation | — | — | 111 | — | — | — | 111 | |||||||||||||||||||||
Share-based compensation tax benefits | — | — | 5 | — | — | — | 5 | |||||||||||||||||||||
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Balance as of September 30, 2012 | 405 | $ | 41 | $ | 3,644 | $ | 16,217 | $ | 1,879 | $ | — | $ | 21,781 | |||||||||||||||
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Nine Months Ended September 30, 2011: | ||||||||||||||||||||||||||||
Balance as of December 31, 2010 | 432 | $ | 43 | $ | 5,601 | $ | 11,882 | $ | 1,760 | $ | (33 | ) | $ | 19,253 | ||||||||||||||
Net earnings | — | — | — | 4,197 | — | — | 4,197 | |||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (348 | ) | — | (348 | ) | |||||||||||||||||||
Stock option exercises | 2 | — | 101 | — | — | — | 101 | |||||||||||||||||||||
Common stock repurchased | — | — | — | — | — | (2,008 | ) | (2,008 | ) | |||||||||||||||||||
Common stock retired | (26 | ) | (2 | ) | (1,991 | ) | — | — | 1,993 | — | ||||||||||||||||||
Common stock dividends | — | — | — | (209 | ) | — | — | (209 | ) | |||||||||||||||||||
Share-based compensation | — | — | 105 | — | — | — | 105 | |||||||||||||||||||||
Share-based compensation tax benefits | — | — | 11 | — | — | — | 11 | |||||||||||||||||||||
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Balance as of September 30, 2011 | 408 | $ | 41 | $ | 3,827 | $ | 15,870 | $ | 1,412 | $ | (48 | ) | $ | 21,102 | ||||||||||||||
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Common Stock | Additional Paid-In | Retained | Accumulated Other Comprehensive | Treasury | Total Stockholders’ | |||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Earnings | Stock | Equity | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||
Three Months Ended March 31, 2013 | ||||||||||||||||||||||||||||
Balance as of December 31, 2012 | 406 | $ | 41 | $ | 3,688 | $ | 15,778 | $ | 1,771 | $ | — | $ | 21,278 | |||||||||||||||
Net loss | — | — | — | (1,339 | ) | — | — | (1,339 | ) | |||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (179 | ) | — | (179 | ) | |||||||||||||||||||
Common stock repurchased | — | — | — | — | — | (6 | ) | (6 | ) | |||||||||||||||||||
Common stock retired | — | — | (6 | ) | — | — | 6 | — | ||||||||||||||||||||
Common stock dividends | — | — | — | (81 | ) | — | — | (81 | ) | |||||||||||||||||||
Share-based compensation | — | — | 32 | — | — | — | 32 | |||||||||||||||||||||
Share-based compensation tax benefits | — | — | 3 | — | — | — | 3 | |||||||||||||||||||||
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Balance as of March 31, 2013 | 406 | $ | 41 | $ | 3,717 | $ | 14,358 | $ | 1,592 | $ | — | $ | 19,708 | |||||||||||||||
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Three Months Ended March 31, 2012 | ||||||||||||||||||||||||||||
Balance as of December 31, 2011 | 404 | $ | 40 | $ | 3,507 | $ | 16,308 | $ | 1,575 | $ | — | $ | 21,430 | |||||||||||||||
Net earnings | — | — | — | 393 | — | — | 393 | |||||||||||||||||||||
Other comprehensive earnings, net of tax | — | — | — | — | 156 | — | 156 | |||||||||||||||||||||
Stock option exercises | — | — | 20 | — | — | — | 20 | |||||||||||||||||||||
Common stock repurchased | — | — | — | — | — | (1 | ) | (1 | ) | |||||||||||||||||||
Common stock retired | — | — | (1 | ) | — | — | 1 | — | ||||||||||||||||||||
Common stock dividends | — | — | — | (80 | ) | — | — | (80 | ) | |||||||||||||||||||
Share-based compensation | — | — | 37 | — | — | — | 37 | |||||||||||||||||||||
Share-based compensation tax benefits | — | — | 1 | — | — | — | 1 | |||||||||||||||||||||
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Balance as of March 31, 2012 | 404 | $ | 40 | $ | 3,564 | $ | 16,621 | $ | 1,731 | $ | — | $ | 21,956 | |||||||||||||||
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See accompanying notes to consolidated financial statements.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
The accompanying unaudited financial statements and notes of Devon Energy Corporation (“Devon”) have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The accompanying financial statements and notes should be read in conjunction with the accompanying financial statements and notes included in Devon’s 20112012 Annual Report on Form 10-K.
The accompanying unaudited interim financial statements furnished in this report reflect all adjustments that are, in the opinion of management, necessary to a fair statement of Devon’s financial position as of September 30, 2012 and Devon’s results of operations and cash flows for the three-month and nine-month periods ended September 30,March 31, 2013 and 2012 and 2011.Devon’s financial position as of March 31, 2013.
2. Derivative Financial Instruments
Objectives and Strategies
Devon periodically enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production. These instruments are used to manage the inherent uncertainty of future revenues due to commodity price volatility and typically include financial price swaps, basis swaps, costless price collars and call options.
Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. Devon periodically enters into foreign exchange forward contracts to manage its exposure to fluctuations in exchange rates.
Devon does not intend to hold or issue derivative financial instruments for speculative trading purposes and has elected not to designate any of its derivative instruments for hedge accounting treatment.
Counterparty Credit Risk
By using derivative financial instruments, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon’s policy to enter into derivative contracts only with investment grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon’s derivative contracts contain provisions that provide for collateral payments, depending on levels of exposure and the credit rating of the counterparty.
As of September 30, 2012,March 31, 2013, Devon held $49 million of cash collateral. Such amount represented the estimated fair value of certain derivative positions in excess of Devon’s credit guidelines. Thedid not hold any collateral is reported in other current liabilities in the accompanying balance sheet.from its counterparties.
Commodity Derivatives
As of September 30, 2012,March 31, 2013, Devon had the following open oil derivative positions. Devon’s oil derivatives settle against the average of the prompt month NYMEX West Texas Intermediate futures price.
Price Swaps | Price Collars | Call Options Sold | Price Swaps | Price Collars | Call Options Sold | |||||||||||||||||||||||||||||||||||||||||||||||||||
Period | Volume (Bbls/d) | Weighted Average Price ($/Bbl) | Volume (Bbls/d) | Weighted Average Floor Price ($/Bbl) | Weighted Average Ceiling Price ($/Bbl) | Volume (Bbls/d) | Weighted Average Price ($/Bbl) | Volume (Bbls/d) | Weighted Average Price ($/Bbl) | Volume (Bbls/d) | Weighted Average Floor Price ($/Bbl) | Weighted Average Ceiling Price ($/Bbl) | Volume (Bbls/d) | Weighted Average Price ($/Bbl) | ||||||||||||||||||||||||||||||||||||||||||
Q4 2012 | 57,000 | $ | 105.47 | 77,000 | $ | 89.72 | $ | 122.39 | 19,500 | $ | 95.00 | |||||||||||||||||||||||||||||||||||||||||||||
Q1-Q4 2 013 | 31,000 | $ | 104.13 | 45,000 | $ | 91.30 | $ | 116.23 | 6,000 | $ | 120.00 | |||||||||||||||||||||||||||||||||||||||||||||
Q2-Q4 2013 | 70,000 | $ | 100.26 | 65,000 | $ | 90.13 | $ | 111.91 | 10,000 | $ | 120.00 | |||||||||||||||||||||||||||||||||||||||||||||
Q1-Q4 2014 | 4,000 | $ | 100.49 | 2,000 | $ | 90.00 | $ | 111.13 | 6,000 | $ | 120.00 | 21,000 | $ | 94.99 | 10,000 | $ | 86.53 | $ | 102.75 | 39,000 | $ | 116.15 | ||||||||||||||||||||||||||||||||||
Q1-Q4 2015 | 500 | $ | 91.00 | — | $ | — | $ | — | 19,000 | $ | 114.74 |
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Basis Swaps | Basis Swaps | |||||||||||||||||||
Period | Index | Volume (Bbls/d) | Weighted Average Differential to WTI ($/Bbl) | Index | Volume (Bbls/d) | Weighted Average Differential to WTI ($/Bbl) | ||||||||||||||
Q4 2012 | Western Canadian Select | 15,000 | $ | (17.29 | ) | |||||||||||||||
Q2-Q4 2013 | Western Canadian Select | 31,169 | $ | (22.03 | ) |
As of September 30, 2012,March 31, 2013, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivativesswaps and collars that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas swaps and collars that settle against the AECO index.
Price Swaps | Price Collars | Call Options Sold | Price Swaps | Price Collars | Call Options Sold | |||||||||||||||||||||||||||||||||||||||||||||||||||
Period | Volume (MMBtu/d) | Weighted Average Price ($/MMBtu) | Volume (MMBtu/d) | Weighted Average Floor Price ($/MMBtu) | Weighted Average Ceiling Price ($/MMBtu) | Volume (MMBtu/d) | Weighted Average Price ($/MMBtu) | Volume (MMBtu/d) | Weighted Average Price ($/MMBtu) | Volume (MMBtu/d) | Weighted Average Floor Price ($/MMBtu) | Weighted Average Ceiling Price ($/MMBtu) | Volume (MMBtu/d) | Weighted Average Price ($/MMBtu) | ||||||||||||||||||||||||||||||||||||||||||
Q4 2012 | 654,239 | $ | 3.92 | 1,323,696 | $ | 3.50 | $ | 4.17 | 487,500 | $ | 6.00 | |||||||||||||||||||||||||||||||||||||||||||||
Q1-Q4 2013 | 185,000 | $ | 4.37 | 94,219 | $ | 3.40 | $ | 4.00 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Q2-Q4 2013 | 987,500 | $ | 4.09 | 749,273 | $ | 3.55 | $ | 4.19 | — | $ | — | |||||||||||||||||||||||||||||||||||||||||||||
Q1-Q4 2014 | 240,000 | $ | 4.09 | — | — | — | 150,000 | $ | 5.00 | 725,000 | $ | 4.39 | 30,000 | $ | 4.00 | $ | 4.55 | 500,000 | $ | 5.00 | ||||||||||||||||||||||||||||||||||||
Q1-Q4 2015 | — | $ | — | — | $ | — | $ | — | 475,000 | $ | 5.11 |
Price Swaps | ||||||||
Period | Volume (MMBtu/d) | Weighted Average Price ($/MMBtu) | ||||||
Q2-Q4 2013 | 28,435 | $ | 3.64 |
As of March 31, 2013, Devon had the following open NGL derivative positions. Devon’s NGL swaps settle against the average of the prompt month OPIS Mont Belvieu, Texas hub.
Price Swaps | ||||||||||||
Period | Product | Volume (Bbls/d) | Weighted Average Price ($/Bbl) | |||||||||
Q2-Q4 2013 | Propane | 1,364 | $ | 40.88 | ||||||||
Q2-Q4 2013 | Ethane | 2,945 | $ | 14.25 |
Basis Swaps | ||||||||||
Period | Pay | Volume (Bbls/d) | Weighted Average Differential to WTI ($/Bbl) | |||||||
Q2-Q4 2013 | Natural Gasoline | 500 | $(6.80) |
Interest Rate Derivatives
As of September 30, 2012,March 31, 2013, Devon had the following open interest rate derivative positions:
Notional | Weighted Average Fixed Rate Received | Variable Rate Paid | Expiration | Weighted Average Fixed Rate Received | Variable Rate Paid | Expiration | ||||||||||||
(In millions) | ||||||||||||||||||
$ 750 | 3.88 | % | Federal funds rate | July 2013 | ||||||||||||||
$750 | 3.88% | Federal funds rate | July 2013 |
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Foreign Currency Derivatives
As of September 30, 2012,March 31, 2013, Devon had the following open foreign currency rate derivative positions:
Forward Contract | Forward Contract | Forward Contract | ||||||||||||||||||||||||
Currency | Contract Type | CAD Notional | Weighted Average Fixed Rate Received | Expiration | Contract Type | CAD Notional | Weighted Average Fixed Rate Received | Expiration | ||||||||||||||||||
(In millions) | (CAD-USD) | (In millions) | (CAD-USD) | |||||||||||||||||||||||
Canadian Dollar | Sell | $ | 755 | 1.02 | December 2012 | Sell | $ | 755 | 0.979 | May 2013 |
Financial Statement Presentation
The following table presents the cash settlements and unrealized gains and losses on fair value changes included in the accompanying comprehensive statements of earnings associated with derivative financial instruments. Cash settlements and unrealized gains and losses on fair value changes associated with Devon’s commodity derivatives are presented in the “Oil, gas and NGL derivatives” caption in the accompanying comprehensive statements of earnings. Cash settlements and unrealized gains and losses on fair value changes associated with Devon’s interest rate and foreign currency derivatives are presented in the “Other, net” caption in the accompanying comprehensive statements of earnings.
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2013 | 2012 | |||||||||||||||||||
(In millions) | (In millions) | |||||||||||||||||||||||
Cash settlements: | ||||||||||||||||||||||||
Commodity derivatives | $ | 243 | $ | 96 | $ | 668 | $ | 241 | $ | 86 | $ | 158 | ||||||||||||
Interest rate derivatives | 10 | 52 | 9 | 73 | 9 | 10 | ||||||||||||||||||
Foreign currency derivatives | (38 | ) | 22 | (29 | ) | 22 | 19 | (11 | ) | |||||||||||||||
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Total cash settlements | 215 | 170 | 648 | 336 | 114 | 157 | ||||||||||||||||||
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Unrealized gains (losses): | ||||||||||||||||||||||||
Commodity derivatives | (406 | ) | (13 | ) | ||||||||||||||||||||
Interest rate derivatives | (9 | ) | (10 | ) | ||||||||||||||||||||
Foreign currency derivatives | (4 | ) | 1 | |||||||||||||||||||||
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Total unrealized losses | (419 | ) | (22 | ) | ||||||||||||||||||||
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Net gain (loss) recognized on comprehensive statements of earnings | $ | (305 | ) | $ | 135 | |||||||||||||||||||
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The following table presents the derivative fair values included in the accompanying balance sheets.
Balance Sheet Caption | March 31, 2013 | December 31, 2012 | ||||||||
(In millions) | ||||||||||
Asset derivatives: | ||||||||||
Commodity derivatives | Other current assets | $ | 91 | $ | 379 | |||||
Commodity derivatives | Other long-term assets | 63 | 22 | |||||||
Interest rate derivatives | Other current assets | 14 | 23 | |||||||
Foreign currency derivatives | Other current assets | — | 1 | |||||||
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Total asset derivatives | $ | 168 | $ | 425 | ||||||
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(In millions) | ||||||||||||||||
Unrealized gains (losses): | ||||||||||||||||
Commodity derivatives | (538 | ) | 642 | (153 | ) | 745 | ||||||||||
Interest rate derivatives | (9 | ) | (55 | ) | (24 | ) | (84 | ) | ||||||||
Foreign currency derivatives | 12 | — | 4 | — | ||||||||||||
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Total unrealized gains (losses) | (535 | ) | 587 | (173 | ) | 661 | ||||||||||
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Net gain (loss) recognized on comprehensive statements of earnings | $ | (320 | ) | $ | 757 | $ | 475 | $ | 997 | |||||||
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The following table presents the derivative fair values included in the accompanying balance sheets.
Balance Sheet Caption | September 30, 2012 | December 31, 2011 | Balance Sheet Caption | March 31, 2013 | December 31, 2012 | |||||||||||||||
(In millions) | ||||||||||||||||||||
Asset derivatives: | ||||||||||||||||||||
Commodity derivatives | Other current assets | $ | 358 | $ | 611 | |||||||||||||||
Commodity derivatives | Other long-term assets | 75 | 17 | |||||||||||||||||
Interest rate derivatives | Other current assets | 28 | 30 | |||||||||||||||||
Interest rate derivatives | Other long-term assets | — | 22 | |||||||||||||||||
Foreign currency derivatives | Other current assets | 4 | — | |||||||||||||||||
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Total asset derivatives | $ | 465 | $ | 680 | ||||||||||||||||
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Liability derivatives: | ||||||||||||||||||||
Commodity derivatives | Other current liabilities | $ | 13 | $ | 82 | Other current liabilities | $ | 79 | $ | 3 | ||||||||||
Commodity derivatives | Other long-term liabilities | 27 | — | Other long-term liabilities | 112 | 29 | ||||||||||||||
Foreign currency derivatives | Other current liabilities | 3 | — | |||||||||||||||||
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Total liability derivatives | Total liability derivatives | $ | 40 | $ | 82 | $ | 194 | $ | 32 | |||||||||||
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3. Restructuring Costs
Office Consolidation
In October 2012, Devon announced plans to consolidate its U.S. personnel into a single operations group centrally located at the company’s headquarters in Oklahoma City. As of March 31, 2013, Devon had substantially completed this initiative and incurred $118 million of restructuring costs associated with the office consolidation.
Divestiture of Offshore Assets
In the fourth quarter of 2009, Devon announced plans to divest its offshore assets. As of September 30, 2012,March 31, 2013, Devon had divested all of its U.S. Offshore and International assets and incurred $202$196 million of restructuring costs associated with the divestitures.
Financial Statement Presentation
The schedule below summarizes restructuring costs presented in the accompanying comprehensive statements of earnings. Restructuring costsearnings related to Devon’s discontinued operations totaled $(2) million in the first nine months ended September 30, 2011. These costs primarily related to cash severance and share-based awards and are not included in the schedule below.office consolidation. There were no costs related to discontinued operationsthe offshore divestitures in the ninethree months ended September 30, 2012.March 31, 2013 and 2012, respectively.
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2013 | 2012 | |||||||||||||||||||
(In millions) | (In millions) | |||||||||||||||||||||||
Lease obligations | $ | — | $ | (3 | ) | $ | — | $ | (5 | ) | ||||||||||||||
Lease obligations and other | $ | 29 | $ | — | ||||||||||||||||||||
Asset impairments | — | — | — | 2 | 9 | — | ||||||||||||||||||
Other | — | — | — | 1 | ||||||||||||||||||||
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Restructuring costs | $ | — | $ | (3 | ) | $ | — | $ | (2 | ) | $ | 38 | $ | — | ||||||||||
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In the three months ended March 31, 2013, Devon incurred $23 million of restructuring costs related to office space that is subject to non-cancellable operating lease agreements that Devon ceased using as a part of the office consolidation. Devon also recognized $9 million of asset impairment charges for leasehold improvements and furniture associated with the office consolidation.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
The schedule below summarizes Devon’s restructuring liabilities. Devon’s restructuring liabilities for cash severance related to its discontinued operations totaled $2 million at September 30, 2011 and are not included in the schedule below.
Other Current Liabilities | Other Long-Term Liabilities | Total | ||||||||||
(In millions) | ||||||||||||
Balance as of December 31, 2011 | $ | 29 | $ | 16 | $ | 45 | ||||||
Lease obligations settled | (9 | ) | (3 | ) | (12 | ) | ||||||
Cash severance settled | (7 | ) | — | (7 | ) | |||||||
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Balance as of September 30, 2012 | $ | 13 | $ | 13 | $ | 26 | ||||||
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Balance as of December 31, 2010 | $ | 31 | $ | 51 | $ | 82 | ||||||
Lease obligations settled | (1 | ) | (10 | ) | (11 | ) | ||||||
Cash severance settled | (13 | ) | — | (13 | ) | |||||||
Other | 2 | (6 | ) | (4 | ) | |||||||
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Balance as of September 30, 2011 | $ | 19 | $ | 35 | $ | 54 | ||||||
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Consolidation of U.S. Operations
In October 2012, Devon announced plans to consolidate its U.S. personnel into a single operations group centrally located at the company’s corporate headquarters in Oklahoma City. As a result, Devon will close its office in Houston and transfer operational responsibilities for assets in South Texas, East Texas and Louisiana to Oklahoma City. Devon expects to relocate a number of employees from Houston to Oklahoma City. This initiative is expected to be substantially complete by the end of the first quarter 2013.
Other Current Liabilities | Other Long-Term Liabilities | Total | ||||||||||
(In millions) | ||||||||||||
Balance as of December 31, 2011 | $ | 29 | $ | 16 | $ | 45 | ||||||
Lease obligations—Offshore | (2 | ) | (1 | ) | (3 | ) | ||||||
Employee severance—Offshore | (2 | ) | — | (2 | ) | |||||||
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Balance as March 31, 2012 | $ | 25 | $ | 15 | $ | 40 | ||||||
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Balance as of December 31, 2012 | $ | 52 | $ | 9 | $ | 61 | ||||||
Lease obligations and other—Office consolidation | 11 | 9 | 20 | |||||||||
Employee severance—Office consolidation | (9 | ) | — | (9 | ) | |||||||
Lease obligations—Offshore | (1 | ) | — | (1 | ) | |||||||
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Balance as of March 31, 2013 | $ | 53 | $ | 18 | $ | 71 | ||||||
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4. Other, net
The components of other, net in the accompanying comprehensive statements of earnings include the following:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(In millions) | ||||||||||||||||
Accretion of asset retirement obligations | $ | 27 | $ | 23 | $ | 82 | $ | 69 | ||||||||
Interest rate derivatives | (1 | ) | 3 | 15 | 11 | |||||||||||
Foreign currency derivatives | 26 | (22 | ) | 25 | (22 | ) | ||||||||||
Foreign exchange loss (gain) | (28 | ) | 53 | (26 | ) | 39 | ||||||||||
Interest income | (8 | ) | (8 | ) | (24 | ) | (14 | ) | ||||||||
Other | (24 | ) | 12 | (26 | ) | 5 | ||||||||||
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Other, net | $ | (8 | ) | $ | 61 | $ | 46 | $ | 88 | |||||||
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Accretion of asset retirement obligations | $ | 28 | $ | 27 | ||||
Foreign currency derivatives | (15 | ) | 10 | |||||
Foreign exchange loss (gain) | 17 | (14 | ) | |||||
Interest income | (8 | ) | (7 | ) | ||||
Other | (4 | ) | (6 | ) | ||||
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Other, net | $ | 18 | $ | 10 | ||||
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5. Earnings (Loss) Per Share
The following table reconciles earnings (loss) from continuing operations and common shares outstanding used in the calculations of basic and diluted earnings per share.
Earnings (loss) | Common Shares | Earnings (loss) per Share | ||||||||||
(In millions, except per share amounts) | ||||||||||||
Three Months Ended September 30, 2012: | ||||||||||||
Loss from continuing operations | $ | (719 | ) | 405 | ||||||||
Attributable to participating securities | (1 | ) | (5 | ) | ||||||||
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Basic and diluted loss per share | $ | (720 | ) | 400 | $ | (1.80 | ) | |||||
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Three Months Ended September 30, 2011: | ||||||||||||
Earnings from continuing operations | $ | 1,040 | 414 | |||||||||
Attributable to participating securities | (11 | ) | (4 | ) | ||||||||
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Basic earnings per share | 1,029 | 410 | $ | 2.51 | ||||||||
Dilutive effect of potential common shares issuable | — | 1 | ||||||||||
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| |||||||||
Diluted earnings per share | $ | 1,029 | 411 | $ | 2.50 | |||||||
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| |||||||||
Nine Months Ended September 30, 2012: | ||||||||||||
Earnings from continuing operations | $ | 172 | 404 | |||||||||
Attributable to participating securities | (2 | ) | (4 | ) | ||||||||
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| |||||||||
Basic earnings per share | 170 | 400 | $ | 0.42 | ||||||||
Dilutive effect of potential common shares issuable | — | 1 | ||||||||||
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Diluted earnings per share | $ | 170 | 401 | $ | 0.42 | |||||||
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Nine Months Ended September 30, 2011: | ||||||||||||
Earnings from continuing operations | $ | 1,613 | 421 | |||||||||
Attributable to participating securities | (16 | ) | (4 | ) | ||||||||
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| |||||||||
Basic earnings per share | 1,597 | 417 | $ | 3.83 | ||||||||
Dilutive effect of potential common shares issuable | — | 1 | ||||||||||
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Diluted earnings per share | $ | 1,597 | 418 | $ | 3.82 | |||||||
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Earnings (loss) | Common Shares | Earnings (loss) per Share | ||||||||||
(In millions, except per share amounts) | ||||||||||||
Three Months Ended March 31, 2013: | ||||||||||||
Loss from continuing operations | $ | (1,339 | ) | 406 | ||||||||
Attributable to participating securities | (1 | ) | (4 | ) | ||||||||
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| |||||||||
Basic and diluted loss per share | $ | (1,340 | ) | 402 | $ | (3.34 | ) | |||||
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Earnings (loss) | Common Shares | Earnings (loss) per Share | ||||||||||
(In millions, except per share amounts) | ||||||||||||
Three Months Ended March 31, 2012: | ||||||||||||
Earnings from continuing operations | $ | 414 | 404 | |||||||||
Attributable to participating securities | (4 | ) | (4 | ) | ||||||||
|
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| |||||||||
Basic earnings per share | 410 | 400 | $ | 1.03 | ||||||||
Dilutive effect of potential common shares issuable | — | 1 | ||||||||||
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| |||||||||
Diluted earnings per share | $ | 410 | 401 | $ | 1.03 | |||||||
|
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Certain options to purchase shares of Devon’s common stock are excluded from the dilution calculation because the options are antidilutive. During the three-month and nine-month periods ended September 30, 2012, 9.0These excluded options totaled 7.7 million shares and 8.96.4 million shares respectively, were excluded from the diluted earnings per share calculations. Duringduring the three-month and nine-month periods ended September 30, 2011, 5.3 million sharesMarch 31, 2013 and 3.1 million shares, respectively, were excluded from the diluted earnings per share calculations.2012, respectively.
6. Other Comprehensive Earnings
Components of other comprehensive earnings consist of the following:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(In millions) | ||||||||||||||||
Foreign currency translation: | ||||||||||||||||
Beginning accumulated foreign currency translation | $ | 1,783 | $ | 2,243 | $ | 1,802 | $ | 1,993 | ||||||||
Change in cumulative translation adjustment | 325 | (644 | ) | 305 | (382 | ) | ||||||||||
Income tax benefit (expense) | (14 | ) | 29 | (13 | ) | 17 | ||||||||||
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Ending accumulated foreign currency translation | 2,094 | 1,628 | 2,094 | 1,628 | ||||||||||||
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|
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Foreign currency translation: | ||||||||
Beginning accumulated foreign currency translation | $ | 1,996 | $ | 1,802 | ||||
Change in cumulative translation adjustment | (191 | ) | 159 | |||||
Income tax benefit (expense) | 8 | (7 | ) | |||||
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| |||||
Ending accumulated foreign currency translation | 1,813 | 1,954 | ||||||
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| |||||
Pension and postretirement benefit plans: | ||||||||
Beginning accumulated pension and postretirement benefits | (225 | ) | (227 | ) | ||||
Recognition of net actuarial loss and prior service cost in earnings (1) | 6 | 7 | ||||||
Income tax expense | (2 | ) | (3 | ) | ||||
|
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| |||||
Ending accumulated pension and postretirement benefits | (221 | ) | (223 | ) | ||||
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| |||||
Accumulated other comprehensive earnings, net of tax | $ | 1,592 | $ | 1,731 | ||||
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|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(In millions) | ||||||||||||||||
Pension and postretirement benefit plans: | ||||||||||||||||
Beginning accumulated pension and postretirement benefits | (218 | ) | (222 | ) | (227 | ) | (233 | ) | ||||||||
Recognition of net actuarial loss and prior service cost in earnings | 6 | 9 | 19 | 26 | ||||||||||||
Income tax expense | (3 | ) | (3 | ) | (7 | ) | (9 | ) | ||||||||
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Ending accumulated pension and postretirement benefits | (215 | ) | (216 | ) | (215 | ) | (216 | ) | ||||||||
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Accumulated other comprehensive earnings, net of tax | $ | 1,879 | $ | 1,412 | $ | 1,879 | $ | 1,412 | ||||||||
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7. Supplemental Information to Statements of Cash Flows
Nine Months Ended September 30, | ||||||||
2012 | 2011 | |||||||
(In millions) | ||||||||
Net change in working capital: | ||||||||
Decrease (increase) in accounts receivable | $ | 275 | $ | (118 | ) | |||
Increase in other current assets | (234 | ) | (149 | ) | ||||
Increase in accounts payable | 77 | 58 | ||||||
Increase (decrease) in revenues and royalties payable | (34 | ) | 121 | |||||
Decrease in other current liabilities | (36 | ) | (220 | ) | ||||
|
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| |||||
Net decrease (increase) in working capital | $ | 48 | $ | (308 | ) | |||
|
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| |||||
Supplementary cash flow data – total operations: | ||||||||
Interest paid (net of capitalized interest) | $ | 260 | $ | 298 | ||||
Income taxes paid (received) | $ | 88 | $ | (113 | ) |
8. Short-Term Investments
The components of short-term investments include the following:
September 30, 2012 | December 31, 2011 | |||||||
(In millions) | ||||||||
Canadian treasury, agency and provincial securities | $ | 1,684 | $ | 1,155 | ||||
U.S. treasuries | 480 | 201 | ||||||
Other | — | 147 | ||||||
|
|
|
| |||||
Short-term investments | $ | 2,164 | $ | 1,503 | ||||
|
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|
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(1) | These accumulated other comprehensive earnings components are included in the computation of net periodic benefit cost which, is a component of general and administrative expenses on the accompanying comprehensive statements of earnings (see retirement plans footnote for additional details). |
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
7. Supplemental Information to Statements of Cash Flows
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Net change in working capital: | ||||||||
Change in accounts receivable | $ | (122 | ) | $ | 280 | |||
Change in other current assets | (1 | ) | (53 | ) | ||||
Change in accounts payable | 83 | (226 | ) | |||||
Change in revenues and royalties payable | 3 | (169 | ) | |||||
Change in income taxes payable | 9 | (16 | ) | |||||
Change in other current liabilities | (130 | ) | (137 | ) | ||||
|
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| |||||
Net increase in working capital | $ | (158 | ) | $ | (321 | ) | ||
|
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| |||||
Interest paid (net of capitalized interest) | $ | 139 | $ | 136 | ||||
Income taxes paid (received) | $ | (11 | ) | $ | 33 |
8. Short-Term Investments
The components of short-term investments include the following:
March 31, 2013 | December 31, 2012 | |||||||
(In millions) | ||||||||
Canadian treasury, agency and provincial securities | $ | 1,177 | $ | 1,865 | ||||
U.S. treasuries | — | 429 | ||||||
Other | 49 | 49 | ||||||
|
|
|
| |||||
Short-term investments | $ | 1,226 | $ | 2,343 | ||||
|
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|
|
9. Accounts Receivable
The components of accounts receivable include the following:
September 30, 2012 | December 31, 2011 | |||||||
(In millions) | ||||||||
Oil, gas and NGL sales | $ | 713 | $ | 928 | ||||
Joint interest billings | 207 | 247 | ||||||
Marketing and midstream revenues | 137 | 174 | ||||||
Other | 66 | 39 | ||||||
|
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| |||||
Gross accounts receivable | 1,123 | 1,388 | ||||||
Allowance for doubtful accounts | (10 | ) | (9 | ) | ||||
|
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|
| |||||
Net accounts receivable | $ | 1,113 | $ | 1,379 | ||||
|
|
|
|
10. Other Current Assets
The components of other current assets include the following:
September 30, 2012 | December 31, 2011 | |||||||
(In millions) | ||||||||
Derivative financial instruments | $ | 390 | $ | 641 | ||||
Inventories | 185 | 102 | ||||||
Income taxes receivable | 137 | 35 | ||||||
Current assets held for sale | — | 21 | ||||||
Other | 106 | 69 | ||||||
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| |||||
Other current assets | $ | 818 | $ | 868 | ||||
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|
11. Property and Equipment
Sinopec Transaction
In April 2012, Devon closed its joint venture transaction with Sinopec International Petroleum Exploration & Production Corporation. Pursuant to the agreement, Sinopec paid approximately $900 million in cash and received a 33.3% interest in five of Devon’s new ventures exploration plays in the U.S. at closing of the transaction. Additionally, Sinopec is required to fund approximately $1.6 billion of Devon’s share of future exploration, development and drilling costs associated with these plays. Devon recognized the cash proceeds received at closing as a reduction to U.S. oil and gas property and equipment. No gain or loss was recognized.
Sumitomo Transaction
In September 2012, Devon closed its joint venture transaction with Sumitomo Corporation. At closing, Sumitomo paid approximately $400 million in cash and received a 30% interest in the Cline and Midland-Wolfcamp shale plays in Texas. Additionally, Sumitomo is required to fund approximately $1.0 billion of Devon’s share of future exploration, development and drilling costs associated with these plays. Devon recognized the cash proceeds received at closing as a reduction to U.S. oil and gas property and equipment. No gain or loss was recognized.
March 31, 2013 | December 31, 2012 | |||||||
(In millions) | ||||||||
Oil, gas and NGL sales | $ | 849 | $ | 752 | ||||
Joint interest billings | 331 | 270 | ||||||
Marketing and midstream revenues | 160 | 161 | ||||||
Other | 39 | 72 | ||||||
|
|
|
| |||||
Gross accounts receivable | 1,379 | 1,255 | ||||||
Allowance for doubtful accounts | (10 | ) | (10 | ) | ||||
|
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|
| |||||
Net accounts receivable | $ | 1,369 | $ | 1,245 | ||||
|
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|
|
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
10. Property and Equipment
Asset Impairments
In the thirdfirst quarter of 2012,2013, Devon recognized asset impairments related to its U.S. oil and gas property and equipment and its U.S. midstream assets as presented below.
September 30, 2012 | ||||||||
Gross | Net of Taxes | |||||||
(In millions) | ||||||||
U.S. oil and gas assets | $ | 1,106 | $ | 705 | ||||
Midstream assets | 22 | 14 | ||||||
|
|
|
| |||||
Total asset impairments | $ | 1,128 | $ | 719 | ||||
|
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|
|
U.S. Oil and Gas Impairment
Three Months Ended March 31, 2013 | ||||||||
Gross | Net of Taxes | |||||||
(In millions) | ||||||||
U.S. oil and gas assets | $ | 1,110 | $ | 707 | ||||
Canada oil and gas assets | 803 | 601 | ||||||
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| |||||
Total asset impairments | $ | 1,913 | $ | 1,308 | ||||
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|
Under the full-cost method of accounting, capitalized costs of oil and gas properties, net of accumulated DD&A and deferred income taxes, may not exceed the full cost “ceiling” at the end of each quarter. The ceiling is calculated separately for each country and is based on the present value of estimated future net cash flows from proved oil and gas reserves, discounted at 10 percent per annum, net of related tax effects. Estimated future net cash flows are calculated using end-of-period costs and an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months.
The U.S. oil and gas impairmentimpairments resulted primarily from a declinedeclines in the U.S. and Canada full cost ceiling.ceilings since December 31, 2012. The lower ceiling valuevalues resulted primarily from decreases in the 12-month average trailing prices for natural gasoil, bitumen and NGLs, which have reduced proved reserve values.
Additionally, if natural gas and NGL prices remain depressed,If pricing conditions do not improve, Devon may incur a full cost ceiling impairment related to its oil and gas property and equipment in the fourth quarterfuture quarters of 2012.2013.
Midstream Impairment
Due to declining natural gas production resulting from low natural gas and NGL prices, Devon determined that the carrying amounts of certain of its midstream facilities located in south and east Texas were not recoverable from estimated future cash flows. Consequently, the assets were written down to their estimated fair values, which were determined using discounted cash flow models. The fair value of Devon’s midstream assets is considered a Level 3 fair value measurement.
12.11. Goodwill
During the first ninethree months of 2012,2013, Devon’s Canadian goodwill increased $101decreased $62 million entirely due to foreign currency translation.
13. Accounts Payable
Included in accounts payable at September 30, 2012, are liabilities of $51 million representing the amount by which checks issued, but not presented to Devon’s banks for collection, exceed balances in applicable bank accounts. Changes in these liabilities are reflected in cash flows from financing activities.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
14.12. Debt
Long-Term Debt
In May 2012, Devon issued $2.5 billion of senior notes that are unsecured and unsubordinated obligations of Devon. Devon used the net proceeds to repay outstanding commercial paper and credit facility borrowings. The schedule below summarizes the key terms of these notes ($ in millions).
1.875% due May 15, 2017 | $ | 750 | ||
3.25% due May 15, 2022 | 1,000 | |||
4.75% due May 15, 2042 | 750 | |||
Discount and issuance costs | (35 | ) | ||
|
| |||
Net proceeds | $ | 2,465 | ||
|
|
Commercial Paper
As of September 30, 2012,March 31, 2013, Devon had $2.8$3.7 billion of outstanding commercial paper at an average rate of 0.370.35 percent.
Credit Lines
Devon previously maintainedhas a $2.19 billion syndicated, unsecured revolving line of credit. As of September 30, 2012, there were no borrowings under this line of credit. Devon terminated this line of credit and established a new $3.0 billion syndicated, unsecured revolving line of credit (the “Senior Credit Facility”) on October 24, 2012.. As of March 31, 2013 there were no borrowings under the Senior Credit Facility. The Senior Credit Facility will mature on October 24, 2017. However, prior to the maturity date, Devon has the option to extend the maturity for up to two additional one-year periods, subject to the approval of the lenders.
The terminated line of credit and the Senior Credit Facility each containcontains only one material financial covenant. This covenant requires Devon’s ratio of total funded debt to total capitalization, as defined in the credit agreement, to be no greater than 65 percent. As of September 30, 2012,March 31, 2013, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 24.726.3 percent.
15. Asset Retirement Obligations
The schedule below summarizes changes in Devon’s asset retirement obligations.
Nine Months Ended September 30, | ||||||||
2012 | 2011 | |||||||
(In millions) | ||||||||
Asset retirement obligations as of beginning of period | $ | 1,563 | $ | 1,497 | ||||
Liabilities incurred | 60 | 38 | ||||||
Liabilities settled | (75 | ) | (56 | ) | ||||
Revision of estimated obligation | 411 | 19 | ||||||
Accretion expense on discounted obligation | 82 | 69 | ||||||
Foreign currency translation adjustment | 35 | (41 | ) | |||||
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| |||||
Asset retirement obligations as of end of period | 2,076 | 1,526 | ||||||
Less current portion | 67 | 66 | ||||||
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|
| |||||
Asset retirement obligations, long-term | $ | 2,009 | $ | 1,460 | ||||
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|
During the first nine months of 2012, Devon recognized revisions to its asset retirement obligations totaling $411 million. The primary factor contributing to this revision was an overall increase in abandonment cost estimates for certain of its production operations facilities.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
16.13. Asset Retirement Obligations
The schedule below summarizes changes in Devon’s asset retirement obligations.
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Asset retirement obligations as of beginning of period | $ | 2,095 | $ | 1,563 | ||||
Liabilities incurred | 43 | 21 | ||||||
Liabilities settled | (28 | ) | (15 | ) | ||||
Revision of estimated obligation | 63 | 399 | ||||||
Liabilities assumed by others | (4 | ) | (1 | ) | ||||
Accretion expense on discounted obligation | 28 | 27 | ||||||
Foreign currency translation adjustment | (26 | ) | 14 | |||||
|
|
|
| |||||
Asset retirement obligations as of end of period | 2,171 | 2,008 | ||||||
Less current portion | 79 | 64 | ||||||
|
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|
| |||||
Asset retirement obligations, long-term | $ | 2,092 | $ | 1,944 | ||||
|
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|
|
14. Retirement Plans
The following table presents the components of net periodic benefit cost for Devon’s pension and postretirement benefit plans.
Pension Benefits | Postretirement Benefits | Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||
(In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Service cost | $ | 11 | $ | 10 | $ | 32 | $ | 28 | $ | 1 | $ | — | $ | 1 | $ | 1 | $ | 9 | $ | 11 | $ | — | $ | — | ||||||||||||||||||||||||
Interest cost | 15 | 15 | 45 | 45 | — | — | 1 | 1 | 13 | 15 | — | 1 | ||||||||||||||||||||||||||||||||||||
Expected return on plan assets | (16 | ) | (11 | ) | (48 | ) | (32 | ) | — | — | — | — | (15 | ) | (16 | ) | — | — | ||||||||||||||||||||||||||||||
Amortization of prior service cost | 1 | 1 | 3 | 3 | — | — | (1 | ) | (1 | ) | 1 | 1 | — | — | ||||||||||||||||||||||||||||||||||
Net actuarial loss | 6 | 8 | 18 | 24 | (1 | ) | — | (1 | ) | — | 5 | 6 | — | — | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Net periodic benefit cost | $ | 17 | $ | 23 | $ | 50 | $ | 68 | $ | — | $ | — | $ | — | $ | 1 | $ | 13 | $ | 17 | $ | — | $ | 1 | ||||||||||||||||||||||||
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(1) | These net periodic benefit costs were reclassified out of comprehensive earnings in the current period. |
(2) | Net periodic benefit cost is a component of general and administrative expenses on the accompanying comprehensive statements of earnings. |
17.15. Stockholders’ Equity
In the second quarter of 2012, Devon’s stockholders adopted the 2012 amendment to the 2009 Long-Term Incentive Plan (“2009 Plan Amendment”), which expires June 2, 2019. The 2009 Plan Amendment increases the number of shares authorized for issuance from 21.5 million shares to 47 million shares. To calculate shares issued under the 2009 Long-Term Incentive Plan subsequent to the 2009 Plan Amendment, options and stock appreciation rights represent one share and other awards represent 2.38 shares.
Dividends
Devon paid common stock dividends of $242$81 million and $209$80 million in the first ninethree months of 20122013 and 2011,2012, respectively. The quarterly cash dividend was $0.16$0.20 per share in the first quarterfor both periods. In March 2013, Devon announced an increase of 2011. Devon increased theits quarterly cash dividend rate to $0.17$0.22 per share that will begin in the second quarter of 2011 and further increased the dividend rate to $0.20 per share in the first quarter of 2012.2013.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
18.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
16. Commitments and Contingencies
Devon is party to various legal actions arising in the normal course of business. Matters that are probable of unfavorable outcome to Devon and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, Devon’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. None of the actions are believed by management to involve future amounts that would be material to Devon’s financial position or results of operations after consideration of recorded accruals. Actual amounts could differ materially from management’s estimates.
Royalty Matters
Numerous natural gas producers and related parties, including Devon, have been named in various lawsuits alleging royalty underpayments. The suits allege that the producers and related parties used below-market prices, made improper deductions, used improper measurement techniques and entered into gas purchase and processing arrangements with affiliates that resulted in underpayment of royalties in connection with natural gas and NGLs produced and sold. Devon’s largest exposure for such matters relates to royalties in the states of Oklahoma and New Mexico. Devon does not currently believe that it is subject to material exposure with respect to such royalty matters.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Environmental Matters
Devon is subject to certain laws and regulations relating to environmental remediation activities associated with past operations, such as the Comprehensive Environmental Response, Compensation, and Liability Act and similar state statutes. In response to liabilities associated with these activities, loss accruals primarily consist of estimated uninsured remediation costs. Devon’s monetary exposure for environmental matters is not expected to be material.
Chief Redemption Matters
In 2006, Devon acquired Chief Holdings LLC (“Chief”) from the owners of Chief, including Trevor Rees-Jones, the majority owner of Chief. In 2008, a former owner of Chief filed a petition against Rees-Jones, as the former majority owner of Chief, and Devon, as Chief’s successor pursuant to the 2006 acquisition. The petition claimed, among other things, violations of the Texas Securities Act, fraud and breaches of Rees-Jones’ fiduciary responsibility to the former owner in connection with Chief’s 2004 redemption of the owner’s minority ownership stake in Chief.
On June 20, 2011, a court issued a judgment against Rees-Jones for $196 million, of which $133 million of the judgment was also issued against Devon. Both Rees-Jones and Devon are appealing the judgment. If the appeal is unsuccessful, Devon can and will seek full payment of the judgment and any related interest, costs and expenses from Rees-Jones pursuant to an existing indemnification agreement between Rees-Jones, certain other parties and Devon. Devon does not expect to have any net exposure as a result of the judgment. However, because Devon doesdid not have a legal right of set off with respect to the judgment, Devon hasjudgment. Therefore, it had recorded in the accompanying September 30, 2012 and December 31, 2011, balance sheets both a $133 million long-term liability relating to the judgment with an offsetting $133 million long-term receivable relating to its right to be indemnified by Rees-Jones and certain other parties pursuant to the indemnification agreement.
The plaintiffs and Rees-Jones have settled all claims related to the 2004 redemption. Under the terms of the settlement, Rees-Jones and Devon received full releases for all of the plaintiffs’ claims with Rees-Jones funding all settlement payments. Consequently, Devon reversed the previously recorded liability and asset in the first quarter of 2013.
Other Matters
Devon is involved in other various routine legal proceedings incidental to its business. However, to Devon’s knowledge, there were no other material pending legal proceedings to which Devon is a party or to which any of its property is subject.
19.DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
17. Fair Value Measurements
The following tables provide carrying value and fair value measurement information for certain of Devon’s financial assets and liabilities. The carrying values of cash, accounts receivable, other current receivables, accounts payable, other payables and accrued expenses included in the accompanying balance sheets approximated fair value at September 30, 2012March 31, 2013 and December 31, 2011.2012. Therefore, such financial assets and liabilities are not presented in the following tables.
Fair Value Measurements Using: | ||||||||||||||||||||
Carrying Amount | Total Fair Value | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | ||||||||||||||||
(In millions) | ||||||||||||||||||||
September 30, 2012 assets (liabilities): | ||||||||||||||||||||
Cash equivalents | $ | 4,952 | $ | 4,952 | $ | 527 | $ | 4,425 | $ | — | ||||||||||
Short-term investments | $ | 2,164 | $ | 2,164 | $ | 480 | $ | 1,684 | $ | — | ||||||||||
Long-term investments | $ | 64 | $ | 64 | $ | — | $ | — | $ | 64 | ||||||||||
Commodity derivatives | $ | 433 | $ | 433 | $ | — | $ | 433 | $ | — | ||||||||||
Commodity derivatives | $ | (40 | ) | $ | (40 | ) | $ | — | $ | (40 | ) | $ | — | |||||||
Interest rate derivatives | $ | 28 | $ | 28 | $ | — | $ | 28 | $ | — | ||||||||||
Foreign currency derivatives | $ | 4 | $ | 4 | $ | — | $ | 4 | $ | — | ||||||||||
Debt | $ | (11,235 | ) | $ | (13,134 | ) | $ | — | $ | (13,130 | ) | $ | (4 | ) |
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Fair Value Measurements Using: | Fair Value Measurements Using: | |||||||||||||||||||||||||||||||||||||||
Carrying Amount | Total Fair Value | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Carrying | Total Fair | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||
(In millions) | Amount | Value | Inputs | Inputs | Inputs | |||||||||||||||||||||||||||||||||||
December 31, 2011 assets (liabilities): | ||||||||||||||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||||||
March 31, 2013 assets (liabilities): | ||||||||||||||||||||||||||||||||||||||||
Cash equivalents | $ | 5,123 | $ | 5,123 | $ | 929 | $ | 4,194 | $ | — | $ | 4,653 | $ | 4,653 | $ | 609 | $ | 4,044 | $ | — | ||||||||||||||||||||
Short-term investments | $ | 1,503 | $ | 1,503 | $ | 201 | $ | 1,302 | $ | — | $ | 1,226 | $ | 1,226 | $ | — | $ | 1,226 | $ | — | ||||||||||||||||||||
Long-term investments | $ | 84 | $ | 84 | $ | — | $ | — | $ | 84 | $ | 63 | $ | 63 | $ | — | $ | — | $ | 63 | ||||||||||||||||||||
Commodity derivatives | $ | 628 | $ | 628 | $ | — | $ | 628 | $ | — | $ | 154 | $ | 154 | $ | — | $ | 154 | $ | — | ||||||||||||||||||||
Commodity derivatives | $ | (82 | ) | $ | (82 | ) | $ | — | $ | (82 | ) | $ | — | $ | (191 | ) | $ | (191 | ) | $ | — | $ | (191 | ) | $ | — | ||||||||||||||
Interest rate derivatives | $ | 52 | $ | 52 | $ | — | $ | 52 | $ | — | $ | 14 | $ | 14 | $ | — | $ | 14 | $ | — | ||||||||||||||||||||
Foreign currency derivatives | $ | (3 | ) | $ | (3 | ) | $ | — | $ | (3 | ) | $ | — | |||||||||||||||||||||||||||
Debt | $ | (9,780 | ) | $ | (11,380 | ) | $ | — | $ | (11,295 | ) | $ | (85 | ) | $ | (12,152 | ) | $ | (13,423 | ) | $ | — | $ | (13,423 | ) | $ | — | |||||||||||||
December 31, 2012 assets (liabilities): | ||||||||||||||||||||||||||||||||||||||||
Cash equivalents | $ | 4,149 | $ | 4,149 | $ | 200 | $ | 3,949 | $ | — | ||||||||||||||||||||||||||||||
Short-term investments | $ | 2,343 | $ | 2,343 | $ | 429 | $ | 1,914 | $ | — | ||||||||||||||||||||||||||||||
Long-term investments | $ | 64 | $ | 64 | $ | — | $ | — | $ | 64 | ||||||||||||||||||||||||||||||
Commodity derivatives | $ | 401 | $ | 401 | $ | — | $ | 401 | $ | — | ||||||||||||||||||||||||||||||
Commodity derivatives | $ | (32 | ) | $ | (32 | ) | $ | — | $ | (32 | ) | $ | — | |||||||||||||||||||||||||||
Interest rate derivatives | $ | 23 | $ | 23 | $ | — | $ | 23 | $ | — | ||||||||||||||||||||||||||||||
Foreign currency derivatives | $ | 1 | $ | 1 | $ | — | $ | 1 | $ | — | ||||||||||||||||||||||||||||||
Debt | $ | (11,644 | ) | $ | (13,435 | ) | $ | — | $ | (13,435 | ) | $ | — |
The following methods and assumptions were used to estimate the fair values in the tables above.
Level 1 Fair Value Measurements
Cash equivalents and short-term investments— Amounts consist primarily of U.S. and Canadian treasury securities and money market investments. The fair value approximates the carrying value.
Level 2 Fair Value Measurements
Cash equivalents and short-term investments— Amounts consist primarily of Canadian agency and provincial securities and commercial paper investments. The fair value is based upon data from independent third parties, which approximateapproximates the carrying value.
Commodity, interest rate and foreign currency derivatives— The fair values of commodity, interest rate and foreign currency derivatives are estimated using internal discounted cash flow calculations based upon forward curves and data obtained from independent third parties for contracts with similar terms or data obtained from counterparties to the agreements.
Debt — Devon’s debt instruments do not actively trade in an established market. The fair values of its fixed-rate debt are estimated based on rates available for debt with similar terms and maturity. The fair values of Devon’s variable-rate commercial paper and credit facility borrowings are the carrying values.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Level 3 Fair Value Measurements
Long-term investments — Devon’s long-term investments presented in the tables above consisted entirely of auction rate securities. Due to auction failures and the lack of an active market for Devon’s auction rate securities, quoted market prices for these securities were not available. Therefore, Devon used valuation techniques that rely on unobservable inputs to estimate the fair values of its long-term auction rate securities. These inputs were based on continued receipts of principal at par, the collection of all accrued interest to date, the probability of full repayment of the securities considering the U.S. government guarantees substantially all of the underlying student loans, and the AAA credit rating of the securities. As a result of using these inputs, Devon concluded the estimated fair values of its long-term auction rate securities approximated the par values as of September 30, 2012March 31, 2013 and December 31, 2011.2012.
Debt — Devon’s Level 3 debt consisted of a non-interest bearing promissory note. Due to the lack of an active market, quoted marked prices for this note, or similar notes, were not available. Therefore, Devon used valuation techniques that relyrelied on unobservable inputs to estimate the fair value of its promissory note. The fair value of this debt iswas estimated using internal discounted cash flow calculations based upon estimated future payment schedules and a 3.125%3.125 percent interest rate.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Included below is a summary of the changes in Devon’s Level 3 fair value measurements during the first ninethree months of 20122013 and 2011.
Nine Months Ended September 30, | ||||||||
2012 | 2011 | |||||||
(In millions) | ||||||||
Long-term investments balance at beginning of period | $ | 84 | $ | 94 | ||||
Redemptions of principal | (20 | ) | (10 | ) | ||||
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| |||||
Long-term investments balance at end of period | $ | 64 | $ | 84 | ||||
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Nine Months Ended September 30, | ||||||||
2012 | 2011 | |||||||
(In millions) | ||||||||
Debt balance at beginning of period | $ | (85 | ) | $ | (144 | ) | ||
Foreign exchange translation adjustment | (2 | ) | 3 | |||||
Accretion of promissory note | — | (4 | ) | |||||
Redemptions of principal | 83 | 53 | ||||||
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| |||||
Debt balance at end of period | $ | (4 | ) | $ | (92 | ) | ||
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20. Discontinued Operations
In March 2012, Devon received $71 million upon closing the divestiture of its operations in Angola, which completed Devon’s offshore divestiture program that was announced in November 2009. In aggregate, Devon’s U.S. and International offshore divestitures generated total proceeds of $10.1 billion, or approximately $8 billion after-tax, assuming repatriation of a substantial portion of the foreign proceeds under current U.S. tax law.
Revenues related to Devon’s discontinued operations totaled $43 million in the nine months ended September 30, 2011. Devon did not have revenues related to its discontinued operations during the second or third quarter of 2011 or the first nine months of 2012. Earnings (loss) from discontinued operations before income taxes totaled $(16) million in the nine months ended September 30, 2012 and $2.6 billion for the first nine months of 2011, respectively. Devon did not have any earnings in the third quarter of 2012 or 2011. Earnings (loss) from discontinued operations in 2012 and 2011 were primarily due to Devon’s International divestiture transactions.
The following table presents the main classes of assets and liabilities associated with Devon’s discontinued operations at December 31, 2011. Devon did not have assets or liabilities held for sale at September 30, 2012.
December 31, 2011 | ||||
(In millions) | ||||
Other current assets | $ | 21 | ||
Property and equipment, net | 132 | |||
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| |||
Total assets | $ | 153 | ||
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Accounts payable | $ | 20 | ||
Other current liabilities | 28 | |||
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| |||
Total liabilities | $ | 48 | ||
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Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Long-term investments balance at beginning of period | $ | 64 | $ | 84 | ||||
Redemptions of principal | (1 | ) | — | |||||
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| |||||
Long-term investments balance at end of period | $ | 63 | $ | 84 | ||||
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| |||||
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Debt balance at beginning of period | $ | — | $ | (85 | ) | |||
Foreign exchange translation adjustment | — | (2 | ) | |||||
Redemptions of principal | — | 50 | ||||||
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| |||||
Debt balance at end of period | $ | — | $ | (37 | ) | |||
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
21.18. Segment Information
Devon manages its operations through distinct operating segments, which are defined primarily by geographic areas. For financial reporting purposes, Devon aggregates its U.S. operating segments into one reporting segment due to the similar nature of the businesses. However, Devon’s Canadian operating segment is reported as a separate reporting segment primarily due to the significant differences between the U.S. and Canadian regulatory environments. Devon’s segments are all primarily engaged in oil and gas producing activities. Revenues are all from external customers.
U.S. | Canada | Total | ||||||||||
(In millions) | ||||||||||||
Three Months Ended September 30, 2012: | ||||||||||||
Oil, gas and NGL sales | $ | 1,144 | $ | 594 | $ | 1,738 | ||||||
Oil, gas and NGL derivatives | $ | (290 | ) | $ | (5 | ) | $ | (295 | ) | |||
Marketing and midstream revenues | $ | 415 | $ | 7 | $ | 422 | ||||||
Depreciation, depletion and amortization | $ | 478 | $ | 238 | $ | 716 | ||||||
Interest expense | $ | 94 | $ | 16 | $ | 110 | ||||||
Asset impairments | $ | 1,128 | $ | — | $ | 1,128 | ||||||
Earnings (loss) from continuing operations before income taxes | $ | (1,169 | ) | $ | 8 | $ | (1,161 | ) | ||||
Income tax expense (benefit) | $ | (438 | ) | $ | (4 | ) | $ | (442 | ) | |||
Earnings (loss) earnings from continuing operations | $ | (731 | ) | $ | 12 | $ | (719 | ) | ||||
Capital expenditures | $ | 1,598 | $ | 382 | $ | 1,980 | ||||||
Three Months Ended September 30, 2011: | ||||||||||||
Oil, gas and NGL sales | $ | 1,406 | $ | 705 | $ | 2,111 | ||||||
Oil, gas and NGL derivatives | $ | 738 | $ | — | $ | 738 | ||||||
Marketing and midstream revenues | $ | 586 | $ | 67 | $ | 653 | ||||||
Depreciation, depletion and amortization | $ | 359 | $ | 207 | $ | 566 | ||||||
Interest expense | $ | 60 | $ | 44 | $ | 104 | ||||||
Earnings from continuing operations before income taxes | $ | 1,379 | $ | 159 | $ | 1,538 | ||||||
Income tax expense | $ | 458 | $ | 40 | $ | 498 | ||||||
Earnings from continuing operations | $ | 921 | $ | 119 | $ | 1,040 | ||||||
Capital expenditures | $ | 1,556 | $ | 394 | $ | 1,950 | ||||||
Nine Months Ended September 30, 2012: | ||||||||||||
Oil, gas and NGL sales | $ | 3,394 | $ | 1,876 | $ | 5,270 | ||||||
Oil, gas and NGL derivatives | $ | 520 | $ | (5 | ) | $ | 515 | |||||
Marketing and midstream revenues | $ | 1,064 | $ | 72 | $ | 1,136 | ||||||
Depreciation, depletion and amortization | $ | 1,348 | $ | 732 | $ | 2,080 | ||||||
Interest expense | $ | 249 | $ | 47 | $ | 296 | ||||||
Asset impairments | $ | 1,128 | $ | — | $ | 1,128 | ||||||
Earnings from continuing operations before income taxes | $ | 91 | $ | 93 | $ | 184 | ||||||
Income tax expense | $ | 6 | $ | 6 | $ | 12 | ||||||
Earnings from continuing operations | $ | 85 | $ | 87 | $ | 172 | ||||||
Property and equipment, net | $ | 18,306 | $ | 8,840 | $ | 27,146 | ||||||
Total assets | $ | 24,425 | $ | 19,123 | $ | 43,548 | ||||||
Capital expenditures (1) | $ | 5,129 | $ | 1,565 | $ | 6,694 |
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
U.S. | Canada | Total | ||||||||||
(In millions) | ||||||||||||
Nine Months Ended September 30, 2011: | ||||||||||||
Oil, gas and NGL sales | $ | 4,056 | $ | 2,115 | $ | 6,171 | ||||||
Oil, gas and NGL derivatives | $ | 986 | $ | — | $ | 986 | ||||||
Marketing and midstream revenues | $ | 1,563 | $ | 149 | $ | 1,712 | ||||||
Depreciation, depletion and amortization | $ | 1,027 | $ | 595 | $ | 1,622 | ||||||
Interest expense | $ | 137 | $ | 133 | $ | 270 | ||||||
Earnings from continuing operations before income taxes | $ | 2,965 | $ | 531 | $ | 3,496 | ||||||
Income tax expense | $ | 1,748 | $ | 135 | $ | 1,883 | ||||||
Earnings from continuing operations | $ | 1,217 | $ | 396 | $ | 1,613 | ||||||
Property and equipment, net | $ | 15,639 | $ | 7,531 | $ | 23,170 | ||||||
Total continuing assets (2) | $ | 21,903 | $ | 17,826 | $ | 39,729 | ||||||
Capital expenditures | $ | 4,310 | $ | 1,274 | $ | 5,584 |
U.S. | Canada | Total | ||||||||||
(In millions) | ||||||||||||
Three Months Ended March 31, 2013: | ||||||||||||
Oil, gas and NGL sales | $ | 1,290 | $ | 514 | $ | 1,804 | ||||||
Oil, gas and NGL derivatives | $ | (295 | ) | $ | (25 | ) | $ | (320 | ) | |||
Marketing and midstream revenues | $ | 438 | $ | 50 | $ | 488 | ||||||
Depreciation, depletion and amortization | $ | 469 | $ | 235 | $ | 704 | ||||||
Interest expense | $ | 96 | $ | 14 | $ | 110 | ||||||
Asset impairments | $ | 1,110 | $ | 803 | $ | 1,913 | ||||||
Loss from continuing operations before income taxes | $ | (1,087 | ) | $ | (875 | ) | $ | (1,962 | ) | |||
Income tax benefit | $ | (395 | ) | $ | (228 | ) | $ | (623 | ) | |||
Loss from continuing operations | $ | (692 | ) | $ | (647 | ) | $ | (1,339 | ) | |||
Property and equipment, net | $ | 18,082 | $ | 8,300 | $ | 26,382 | ||||||
Total assets | $ | 23,614 | $ | 17,968 | $ | 41,582 | ||||||
Capital expenditures | $ | 1,254 | $ | 584 | $ | 1,838 | ||||||
Three Months Ended March 31, 2012: | ||||||||||||
Oil, gas and NGL sales | $ | 1,236 | $ | 679 | $ | 1,915 | ||||||
Oil, gas and NGL derivatives | $ | 145 | $ | — | $ | 145 | ||||||
Marketing and midstream revenues | $ | 399 | $ | 38 | $ | 437 | ||||||
Depreciation, depletion and amortization | $ | 431 | $ | 249 | $ | 680 | ||||||
Interest expense | $ | 71 | $ | 16 | $ | 87 | ||||||
Earnings from continuing operations before income taxes | $ | 533 | $ | 78 | $ | 611 | ||||||
Income tax expense | $ | 185 | $ | 12 | $ | 197 | ||||||
Earnings from continuing operations | $ | 348 | $ | 66 | $ | 414 | ||||||
Property and equipment, net | $ | 18,103 | $ | 8,458 | $ | 26,561 | ||||||
Total assets | $ | 23,842 | $ | 18,763 | $ | 42,605 | ||||||
Capital expenditures | $ | 1,436 | $ | 510 | $ | 1,946 |
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis addresses material changes in our results of operations and capital resources and uses for the three-month and nine-month periodsperiod ended September 30, 2012,March 31, 2013, compared to the three-month and nine-month periodsperiod ended September 30, 2011,March 31, 2012, and in our financial condition and liquidity since December 31, 20112012. For information regarding our critical accounting policies and should be read in conjunction with “Item 1. Consolidated Financial Statements” of this report andestimates, see our 2012 Annual Report on Form 10-K under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2011 Annual Report on Form 10-K.Operations.”
Overview of 20122013 Results
During the third quarter of 2012, our continuing operations incurred a net loss of $719 million, or $1.80 per diluted share, due to noncash asset impairments and commodity derivative fair value changes. During the first nine months of 2012 our continuing operations generated earnings of $172 million, or $0.42 per diluted share. This compares to net earnings of $1.0 billion, or $2.50 per diluted share, and $1.6 billion, or $3.82 per diluted share for the third quarter and first nine months of 2011, respectively. Key components of our financial performance are summarized below:below, which exclude amounts from our discontinued operations.
Total production rose by 3% and 5% during the third quarter and first nine months of 2012, respectively. Our production growth was driven by oil production, which climbed 14% to 143 MBbls per day in the third quarter of 2012 in spite of the scheduled shut-down for facilities maintenance at our Jackfish 1 oil sands project.
Three Months Ended March 31, | ||||||||||||
2013 | 2012 | Change | ||||||||||
($ in millions, except per share amounts) | ||||||||||||
Net earnings (loss) | $ | (1,339 | ) | $ | 414 | -423 | % | |||||
Adjusted earnings (1) | $ | 270 | $ | 427 | -37 | % | ||||||
Earnings (loss) per share | $ | (3.34 | ) | $ | 1.03 | -426 | % | |||||
Adjusted earnings per share (1) | $ | 0.66 | $ | 1.05 | -37 | % | ||||||
Production (MBoe/d) | 686.9 | 693.6 | -1 | % | ||||||||
Realized price per Boe | $ | 29.18 | $ | 30.33 | -4 | % | ||||||
Operating margin per Boe(2) | $ | 18.06 | $ | 20.80 | -13 | % | ||||||
Operating cash flow | $ | 1,002 | $ | 1,000 | +0 | % | ||||||
Adjusted operating cash flow (1) | $ | 1,157 | $ | 1,349 | -14 | % | ||||||
Capitalized costs | $ | 1,838 | $ | 1,946 | -6 | % | ||||||
Shareholder distributions | $ | 81 | $ | 80 | +1 | % |
The combined realized price without hedges for oil, gas and NGLs decreased 20% to $27.85 per Boe and 19% to $28.14 per Boe in the third quarter and first nine months of 2012, respectively.
(1) | Adjusted earnings, adjusted earnings per share and adjusted operating cash flow are financial measures not prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). For a description of adjusted earnings, adjusted earnings per share and adjusted operating cash flow as well as reconciliations to the comparable GAAP measures, see “Non-GAAP Measures” in this Item 2. |
(2) | Computed as revenues from commodity sales, commodity derivatives settlements, and marketing and midstream operations, less expenses for lease operations, marketing and midstream operations, general and administration, taxes other than income taxes and interest, with the result divided by total production. |
Fair value changes and cash settlements on oil, gas and NGL derivatives resulted in aOur net loss of $295 million and a net gain of $515 million in the third quarter and first nine months of 2012, respectively, and a net gain of $738 million and $986 million in the third quarter and first nine months of 2011, respectively.
Marketing and midstream operating profit decreased 21% to $109 million and 29% to $289 million in the third quarter and first nine months of 2012, respectively.
LOE increased 5% and 8% to $8.22 per Boe in the third quarter and first nine months of 2012, respectively.
Noncash asset impairments were $1.1 billion in the third quarter of 2012, or $719 million net of income taxes.
Operating cash flow decreased 10% to $3.8 billion for the first nine months of 2012.
Capital spending, net of divestiture proceeds, totaled approximately $4.8 billion in the first ninethree months of 2012.
Third Quarter Operational Developments
Permian Basin oil production increased 35 percent over2013 resulted from noncash asset impairments, which reduced our earnings by $1.9 billion ($1.3 billion after tax). Excluding the third quarterasset impairments and other items typically excluded by securities analysts, our adjusted earnings were $270 million, or $0.66 per diluted share. This compares to adjusted earnings of 2011. Oil production accounted for nearly 60 percent of our 65,000 Boe$427 million, or $1.05 per day produceddiluted share, in the Permian during the third quarter. In the Bone Springfirst three months 2012. Earnings were lower in 2013 primarily because of lower oil and Delaware plays in the Permian Basin, we added 25 new wells to production in the third quarter 2012. Initial 30-day production from these wells averaged 575 Boe per day. Also in the Permian, we brought five Midland-Wolfcamp Shale wells online in the third quarter with initial 30-day production averaging 560 Boe per day.NGL prices.
In September, we closed our $1.4 billion joint venture agreement with Sumitomo covering 650,000 net acres in the Permian Basin. Our two new exploration joint ventures in 2012 have delivered almost $4 billion in value.
In Canada, net production from our Jackfish projects averaged 44,000 barrels per day in the third quarter. This represents a 24 percent increase in oil production over the year-ago quarter. Construction of our third Jackfish oil sands project is now approximately 45 percent complete, with plant startup expected by year-end 2014.
Our third quarter activity in the Mississippian Lime play in Oklahoma was highlighted by the increase in activity to 13 operated rigs. Results from the Mississippian play continue to support our target economics.
We brought seven operated Granite Wash wells online in the third quarter. The average 30-day production rate from these wells was 1,065 Boe per day.
Our Cana-Woodford Shale production averaged 283 MMcf per day in the third quarter 2012. Third-quarter liquids production increased 64 percent compared to the prior-year quarter to 13,000 barrels per day.
Net production in the Barnett Shale totaled 1.4 Bcf per day in the third quarter. Liquids production increased 11 percent compared to the third quarter of 2011 to 51,000 barrels per day.
Results of Operations
Production, Prices and Revenues
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
FY2012 | FY2011 | Change (1) | FY2012 | FY2011 | Change (1) | |||||||||||||||||||
Oil (MBbls/d) | ||||||||||||||||||||||||
U.S. | 59 | 47 | +26 | % | 56 | 45 | +27 | % | ||||||||||||||||
Canada | 84 | 78 | +7 | % | 88 | 74 | +19 | % | ||||||||||||||||
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Total | 143 | 125 | +14 | % | 144 | 119 | +22 | % | ||||||||||||||||
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Gas (MMcf/d) | ||||||||||||||||||||||||
U.S. | 2,067 | 2,028 | +2 | % | 2,063 | 2,007 | +3 | % | ||||||||||||||||
Canada | 487 | 580 | -16 | % | 521 | 587 | -11 | % | ||||||||||||||||
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Total | 2,554 | 2,608 | -2 | % | 2,584 | 2,594 | -0 | % | ||||||||||||||||
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NGLs (MBbls/d) | ||||||||||||||||||||||||
U.S. | 101 | 91 | +11 | % | 98 | 89 | +10 | % | ||||||||||||||||
Canada | 9 | 10 | -9 | % | 11 | 10 | +9 | % | ||||||||||||||||
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Total | 110 | 101 | +9 | % | 109 | 99 | +10 | % | ||||||||||||||||
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Combined (MBoe/d) (2) | ||||||||||||||||||||||||
U.S. | 504 | 476 | +6 | % | 498 | 468 | +6 | % | ||||||||||||||||
Canada | 174 | 185 | -6 | % | 186 | 182 | +2 | % | ||||||||||||||||
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Total | 678 | 661 | +3 | % | 684 | 650 | +5 | % | ||||||||||||||||
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Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||
2013 | 2012 | Change | ||||||||||||||||||||||||||||||||||
Oil (MBbls/d) | ||||||||||||||||||||||||||||||||||||
U.S. | 67.5 | 54.7 | +23 | % | ||||||||||||||||||||||||||||||||
Canada | 40.5 | 41.2 | -2 | % | ||||||||||||||||||||||||||||||||
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Total | 108.0 | 95.9 | +13 | % | ||||||||||||||||||||||||||||||||
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Bitumen (MBbls/d) | ||||||||||||||||||||||||||||||||||||
Canada | 54.3 | 46.1 | +18 | % | ||||||||||||||||||||||||||||||||
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Gas (MMcf/d) | ||||||||||||||||||||||||||||||||||||
U.S. | 1,968.9 | 2,071.8 | -5 | % | ||||||||||||||||||||||||||||||||
Canada | 455.1 | 556.4 | -18 | % | ||||||||||||||||||||||||||||||||
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Total | 2,424.0 | 2,628.2 | -8 | % | ||||||||||||||||||||||||||||||||
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NGLs (MBbls/d) | ||||||||||||||||||||||||||||||||||||
U.S. | 110.4 | 102.1 | +8 | % | ||||||||||||||||||||||||||||||||
Canada | 10.1 | 11.4 | -11 | % | ||||||||||||||||||||||||||||||||
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Total | 120.5 | 113.5 | +6 | % | ||||||||||||||||||||||||||||||||
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Combined (MBoe/d) | ||||||||||||||||||||||||||||||||||||
U.S. | 506.1 | 502.2 | +1 | % | ||||||||||||||||||||||||||||||||
Canada | 180.8 | 191.4 | -6 | % | ||||||||||||||||||||||||||||||||
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Total | 686.9 | 693.6 | -1 | % | ||||||||||||||||||||||||||||||||
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Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||
FY2012 (1) | FY2011 (1) | Change | FY2012 (1) | FY2011 (1) | Change | 2013(1) | 2012(1) | Change | ||||||||||||||||||||||||||||
Oil (per Bbl) | ||||||||||||||||||||||||||||||||||||
U.S. | $ | 84.84 | $ | 86.30 | -2 | % | $ | 90.79 | $ | 91.18 | -0 | % | $ | 87.45 | $ | 99.35 | -12 | % | ||||||||||||||||||
Canada | $ | 58.75 | $ | 61.70 | -5 | % | $ | 58.56 | $ | 65.30 | -10 | % | $ | 57.12 | $ | 74.92 | -24 | % | ||||||||||||||||||
Total | $ | 69.53 | $ | 70.89 | -2 | % | $ | 71.19 | $ | 75.04 | -5 | % | $ | 76.08 | $ | 88.86 | -14 | % | ||||||||||||||||||
Bitumen (per Bbl) | ||||||||||||||||||||||||||||||||||||
Canada | $ | 28.42 | $ | 50.99 | -44 | % | ||||||||||||||||||||||||||||||
Gas (per Mcf) | ||||||||||||||||||||||||||||||||||||
U.S. | $ | 2.37 | $ | 3.71 | -36 | % | $ | 2.12 | $ | 3.64 | -42 | % | $ | 2.81 | $ | 2.28 | +23 | % | ||||||||||||||||||
Canada | $ | 2.31 | $ | 3.93 | -41 | % | $ | 2.26 | $ | 4.01 | -44 | % | $ | 3.02 | $ | 2.54 | +19 | % | ||||||||||||||||||
Total | $ | 2.36 | $ | 3.76 | -37 | % | $ | 2.15 | $ | 3.73 | -42 | % | $ | 2.85 | $ | 2.34 | +22 | % | ||||||||||||||||||
NGLs (per Bbl) | ||||||||||||||||||||||||||||||||||||
U.S. | $ | 25.07 | $ | 40.95 | -39 | % | $ | 29.31 | $ | 39.05 | -25 | % | $ | 26.28 | $ | 33.37 | -21 | % | ||||||||||||||||||
Canada | $ | 46.41 | $ | 54.85 | -15 | % | $ | 48.92 | $ | 55.92 | -13 | % | $ | 47.33 | $ | 54.18 | -13 | % | ||||||||||||||||||
Total | $ | 26.86 | $ | 42.35 | -37 | % | $ | 31.27 | $ | 40.74 | -23 | % | $ | 28.04 | $ | 35.46 | -21 | % | ||||||||||||||||||
Combined (per Boe) | ||||||||||||||||||||||||||||||||||||
U.S. | $ | 24.64 | $ | 32.11 | -23 | % | $ | 24.86 | $ | 31.73 | -22 | % | $ | 28.32 | $ | 27.03 | +5 | % | ||||||||||||||||||
Canada | $ | 37.14 | $ | 41.42 | -10 | % | $ | 36.93 | $ | 42.61 | -13 | % | $ | 31.59 | $ | 39.00 | -19 | % | ||||||||||||||||||
Total | $ | 27.85 | $ | 34.72 | -20 | % | $ | 28.14 | $ | 34.78 | -19 | % | $ | 29.18 | $ | 30.33 | -4 | % |
(1) | The prices presented exclude any effects due to oil, gas and NGL derivatives. |
The volume and price changes in the tables above caused the following changes to our oil, gas and NGL sales between the three months ended September 30, 2012March 31, 2013 and 2011.2012.
Three Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
Oil | Gas | NGLs | Total | Oil | Bitumen | Gas | NGLs | Total | ||||||||||||||||||||||||||||
(In millions) | (In millions) | |||||||||||||||||||||||||||||||||||
2011 sales | $ | 816 | $ | 902 | $ | 393 | $ | 2,111 | ||||||||||||||||||||||||||||
2012 sales | $ | 776 | $ | 214 | $ | 559 | $ | 366 | $ | 1,915 | ||||||||||||||||||||||||||
Change due to volumes | 114 | (19 | ) | 35 | 130 | 88 | 35 | (49 | ) | 18 | 92 | |||||||||||||||||||||||||
Change due to prices | (18 | ) | (329 | ) | (156 | ) | (503 | ) | (125 | ) | (109 | ) | 111 | (80 | ) | (203 | ) | |||||||||||||||||||
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2012 sales | $ | 912 | $ | 554 | $ | 272 | $ | 1,738 | ||||||||||||||||||||||||||||
2013 sales | $ | 739 | $ | 140 | $ | 621 | $ | 304 | $ | 1,804 | ||||||||||||||||||||||||||
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The volume and price changesUpstream sales increased $92 million due to an 11 percent increase in our liquids production, partially offset by an 8 percent decline in our gas production in the tables above caused the following changes tofirst three months of 2013. As a result of continued development of our oil gas andproperties, primarily in the Permian Basin, oil sales increased $88 million. Bitumen sales increased $35 million due to development of our Jackfish thermal heavy oil projects in Canada. Additionally, our NGL sales between the nine months ended September 30, 2012 and 2011.
Nine Months Ended September 30, | ||||||||||||||||
Oil | Gas | NGLs | Total | |||||||||||||
(In millions) | ||||||||||||||||
2011 sales | $ | 2,432 | $ | 2,639 | $ | 1,100 | $ | 6,171 | ||||||||
Change due to volumes | 537 | (1 | ) | 111 | 647 | |||||||||||
Change due to prices | (152 | ) | (1,115 | ) | (281 | ) | (1,548 | ) | ||||||||
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2012 sales | $ | 2,817 | $ | 1,523 | $ | 930 | $ | 5,270 | ||||||||
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Oil Sales
Oil sales increased $114$18 million and $537 million during the third quarter and first nine months of 2012, respectively,primarily as a result of 14 percent and 22 percent production increases, respectively. The increases were primarily due to continued development of our Permian Basin properties and Jackfish thermal heavy oil projects.
Oil sales decreased $18 million and $152 million during the third quarter and first nine months of 2012, respectively, as a result of 2 percent and 5 percent decreases, respectively, in our realized price without hedges. The largest contributor to the price decreases in each period was the widening differential to the NYMEX West Texas Intermediate index price attributable to our Canadian oil production.
Gas Sales
Gas sales decreased $329 million and $1.1 billion in the third quarter and first nine months of 2012, respectively, as a result of 37 percent and 42 percent decreases, respectively, in our realized price without hedges. These decreases were largely due to the broad deterioration of gas prices in the North American market.
Gas sales decreased $19 million during the third quarter due to a 2 percent decrease in production and decreased $1 million during the first nine months of 2012 as a result of a slight decrease in production. Our gas production has remained somewhat steady as a result of the continued development activities in the liquids-rich gas portions of our Barnett and Cana-Woodford Shales. Production gains from development in these liquids-rich regions were partially offset by natural declines in our operating areas that produce dry gas.
NGL Sales
NGL sales decreased $156 million and $281 million in the third quarter and first nine months of 2012, respectively, as a result of 37 percent and 23 percent decreases, respectively, in our realized price without hedges. The lower prices were largely due to decreases in NGL prices at the Mont Belvieu, Texas hub.
NGL sales increased $35 million and $111 million in the third quarter and first nine months of 2012, respectively, as a result of 9 percent and 10 percent production increases, respectively. The increases in production were primarily due to continued drilling in the liquids-rich gas portions of the Cana-Woodford and Barnett Shales and the Permian Basin. These increases were partially offset by decreases in our gas production, which resulted in a $49 million decline in sales.
Production information for our key properties is summarized below:
Upstream sales decreased $203 million during the first three months of 2013 due to a 4 percent decrease in our realized price without hedges. Our liquids sales were the most significantly impacted with a $314 million decrease in sales due to prices. The largest contributors to the lower liquids prices were a decrease in the average NYMEX West Texas Intermediate
index price along with wider bitumen differentials and lower NGL prices at the Mont Belvieu, Texas hub. The lower realized prices in our liquids were partially offset by higher realized gas prices, which resulted in additional sales of $111 million. The change in our gas price was largely due to fluctuations of the North American regional index prices upon which our gas sales are based.
Oil, Gas and NGL Derivatives
A summary of our open commodity derivative positions is included in Note 2 to the financial statements included in “Item 1. Consolidated Financial Statements” of this report. The following tables provide financial information associated with our oil, gas and NGL hedges.commodity derivatives. The first table presents the cash settlements and unrealized gains and losses that are recognized as components of our revenues. The subsequent tables present our oil, bitumen, gas and NGL prices with, and without, the effects of the cash settlements. The prices do not include the effects of unrealized gains and losses.
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
FY2012 | FY2011 | FY2012 | FY2011 | 2013 | 2012 | |||||||||||||||||||
(In millions) | (In millions) | |||||||||||||||||||||||
Cash settlements: | ||||||||||||||||||||||||
Gas derivatives | $ | 156 | $ | 97 | $ | 530 | $ | 262 | $ | 53 | $ | 163 | ||||||||||||
Oil derivatives | 86 | (2 | ) | 137 | (23 | ) | 32 | (6 | ) | |||||||||||||||
NGL derivatives | 1 | 1 | 1 | 2 | 1 | 1 | ||||||||||||||||||
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Total cash settlements | 243 | 96 | 668 | 241 | 86 | 158 | ||||||||||||||||||
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Unrealized gains (losses) on fair value changes: | ||||||||||||||||||||||||
Gas derivatives | (207 | ) | 157 | (391 | ) | 149 | (256 | ) | 96 | |||||||||||||||
Oil derivatives | (331 | ) | 482 | 239 | 592 | (147 | ) | (109 | ) | |||||||||||||||
NGL derivatives | — | 3 | (1 | ) | 4 | (3 | ) | — | ||||||||||||||||
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Total unrealized gains (losses) on fair value changes | (538 | ) | 642 | (153 | ) | 745 | ||||||||||||||||||
Total unrealized losses on fair value changes | (406 | ) | (13 | ) | ||||||||||||||||||||
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Oil, gas and NGL derivatives | $ | (295 | ) | $ | 738 | $ | 515 | $ | 986 | $ | (320 | ) | $ | 145 | ||||||||||
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Three Months Ended March 31, 2013 | ||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2012 | Oil | Bitumen | Gas | NGLs | Boe | |||||||||||||||||||||||||||||||
Oil (Per Bbl) | Gas (Per Mcf) | NGLs (Per Bbl) | Boe (Per Boe) | (Per Bbl) | (Per Bbl) | (Per Mcf) | (Per Bbl) | (Per Boe) | ||||||||||||||||||||||||||||
Realized price without hedges | $ | 69.53 | $ | 2.36 | $ | 26.86 | $ | 27.85 | $ | 76.08 | $ | 28.42 | $ | 2.85 | $ | 28.04 | $ | 29.18 | ||||||||||||||||||
Cash settlements of hedges | 6.58 | 0.66 | 0.03 | 3.89 | ||||||||||||||||||||||||||||||||
Cash settlements of hedges(1) | 3.29 | — | 0.24 | 0.13 | 1.39 | |||||||||||||||||||||||||||||||
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Realized price, including cash settlements | $ | 76.11 | $ | 3.02 | $ | 26.89 | $ | 31.74 | $ | 79.37 | $ | 28.42 | $ | 3.09 | $ | 28.17 | $ | 30.57 | ||||||||||||||||||
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Three Months Ended March, 2012 | ||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2011 | Oil | Bitumen | Gas | NGLs | Boe | |||||||||||||||||||||||||||||||
Oil (Per Bbl) | Gas (Per Mcf) | NGLs (Per Bbl) | Boe (Per Boe) | (Per Bbl) | (Per Bbl) | (Per Mcf) | (Per Bbl) | (Per Boe) | ||||||||||||||||||||||||||||
Realized price without hedges | $ | 70.89 | $ | 3.76 | $ | 42.35 | $ | 34.72 | $ | 88.86 | $ | 50.99 | $ | 2.34 | $ | 35.46 | $ | 30.33 | ||||||||||||||||||
Cash settlements of hedges | (0.13 | ) | 0.40 | 0.09 | 1.58 | (0.64 | ) | — | 0.68 | 0.03 | 2.50 | |||||||||||||||||||||||||
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Realized price, including cash settlements | $ | 70.76 | $ | 4.16 | $ | 42.44 | $ | 36.30 | $ | 88.22 | $ | 50.99 | $ | 3.02 | $ | 35.49 | $ | 32.83 | ||||||||||||||||||
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Nine Months Ended September 30, 2012 | ||||||||||||||||||||||||||||||||||||
Oil (Per Bbl) | Gas (Per Mcf) | NGLs (Per Bbl) | Boe (Per Boe) | |||||||||||||||||||||||||||||||||
Realized price without hedges | $ | 71.19 | $ | 2.15 | $ | 31.27 | $ | 28.14 | ||||||||||||||||||||||||||||
Cash settlements of hedges | 3.47 | 0.75 | 0.02 | 3.56 | ||||||||||||||||||||||||||||||||
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Realized price, including cash settlements | $ | 74.66 | $ | 2.90 | $ | 31.29 | $ | 31.70 | ||||||||||||||||||||||||||||
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Nine Months Ended September 30, 2011 | ||||||||||||||||||||||||||||||||||||
Oil (Per Bbl) | Gas (Per Mcf) | NGLs (Per Bbl) | Boe (Per Boe) | |||||||||||||||||||||||||||||||||
Realized price without hedges | $ | 75.04 | $ | 3.73 | $ | 40.74 | $ | 34.78 | ||||||||||||||||||||||||||||
Cash settlements of hedges | (0.70 | ) | 0.37 | 0.07 | 1.35 | |||||||||||||||||||||||||||||||
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Realized price, including cash settlements | $ | 74.34 | $ | 4.10 | $ | 40.81 | $ | 36.13 | ||||||||||||||||||||||||||||
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(1) | Cash settlements of oil hedges include settlements from our Western Canadian Select basis swaps presented in Note 2 to the financial statements included in “Item 1. Consolidated Financial Statements” of this report. |
Cash settlements presented in the tables above represent realized gains or losses related to various commodity derivatives. A summary of our open commodity derivative positions is included in Note 2 to the financial statements included in “Item 1. Consolidated Financial Statements” of this report.
In addition to cash settlements, we also recognize unrealized changes in the fair values of our oil, gas and NGL derivative instrumentscommodity derivatives in each reporting period. The changes in fair value resultedresult from new positions and settlements that occurredoccur during each period, as well as the relationships between contract prices and the associated forward curves. Including the cash settlements discussed above, our oil, gas and NGLcommodity derivatives incurred a net loss of $295$320 million and generated a net gain of $738$145 million in the third quarter of 2012 and 2011, respectively. Including the cash settlements discussed above, our oil, gas and NGL derivatives generated a net gain of $515 million and $986 million induring the first ninethree months of 2013 and 2012, and 2011, respectively.
Marketing and Midstream Revenues and Operating Costs and Expenses
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
FY2012 | FY2011 | Change (1) | FY2012 | FY2011 | Change (1) | |||||||||||||||||||
($ in millions) | ||||||||||||||||||||||||
Marketing and midstream: | ||||||||||||||||||||||||
Revenues | $ | 422 | $ | 653 | -35 | % | $ | 1,136 | $ | 1,712 | -34 | % | ||||||||||||
Operating Costs and expenses | 313 | 515 | -39 | % | 847 | 1,304 | -35 | % | ||||||||||||||||
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Operating Profit | $ | 109 | $ | 138 | -21 | % | $ | 289 | $ | 408 | -29 | % | ||||||||||||
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Three Months Ended March 31, | ||||||||||||
2013 | 2012 | Change | ||||||||||
($ in millions) | ||||||||||||
Revenues | $ | 488 | $ | 437 | +12 | % | ||||||
Operating costs and expenses | 363 | 325 | +12 | % | ||||||||
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Operating profit | $ | 125 | $ | 112 | +12 | % | ||||||
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During the third quarter and first ninethree months of 2012,2013, marketing and midstream operating profit decreased $29increased $13 million and $119 million, respectively, primarily due to higher gas prices and lower gas and NGL prices.operating expenses.
Lease Operating Expenses (“LOE”)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
FY2012 | FY2011 | Change (1) | FY2012 | FY2011 | Change (1) | |||||||||||||||||||
LOE ($ in millions): | ||||||||||||||||||||||||
U.S. | $ | 263 | $ | 236 | +11 | % | $ | 774 | $ | 668 | +16 | % | ||||||||||||
Canada | 250 | 239 | +5 | % | 766 | 684 | +12 | % | ||||||||||||||||
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Total | $ | 513 | $ | 475 | +8 | % | $ | 1,540 | $ | 1,352 | +14 | % | ||||||||||||
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LOE per Boe: | ||||||||||||||||||||||||
U.S. | $ | 5.65 | $ | 5.38 | +5 | % | $ | 5.67 | $ | 5.23 | +8 | % | ||||||||||||
Canada | $ | 15.65 | $ | 14.06 | +11 | % | $ | 15.08 | $ | 13.78 | +9 | % | ||||||||||||
Total | $ | 8.22 | $ | 7.81 | +5 | % | $ | 8.22 | $ | 7.62 | +8 | % |
Three Months Ended March 31, | ||||||||||||
2013 | 2012 | Change | ||||||||||
LOE ($ in millions): | ||||||||||||
U.S. | $ | 288 | $ | 252 | +14 | % | ||||||
Canada | 237 | 262 | -9 | % | ||||||||
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Total | $ | 525 | $ | 514 | +2 | % | ||||||
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LOE per Boe: | ||||||||||||
U.S. | $ | 6.32 | $ | 5.52 | +14 | % | ||||||
Canada | $ | 14.59 | $ | 15.04 | -3 | % | ||||||
Total | $ | 8.49 | $ | 8.15 | +4 | % |
LOE increased $0.41 per Boe and $0.60$0.34 per Boe during the third quarter and first ninethree months of 2012, respectively.2013. The largest contributor to the higher unit cost is related to our liquids production growth, particularly at our Jackfish thermal heavy oil projects in Canada and in the Permian Basin in the U.S. Such projects generally require a higher cost to produce per unit than our gas projects. We also experienced upward pressures on costs in certain operating areas, which also contributed to the higher LOE per Boe.
Depreciation, Depletion and Amortization (“DD&A”)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
FY2012 | FY2011 | Change (1) | FY2012 | FY2011 | Change (1) | |||||||||||||||||||
DD&A ($ in millions): | ||||||||||||||||||||||||
Oil & gas properties | $ | 642 | $ | 504 | +27 | % | $ | 1,870 | $ | 1,431 | +31 | % | ||||||||||||
Other properties | 74 | 62 | +17 | % | 210 | 191 | +10 | % | ||||||||||||||||
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Total | $ | 716 | $ | 566 | +26 | % | $ | 2,080 | $ | 1,622 | +28 | % | ||||||||||||
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Three Months Ended March 31, | ||||||||||||
2013 | 2012 | Change | ||||||||||
DD&A ($ in millions): | ||||||||||||
Oil & gas properties | $ | 627 | $ | 616 | +2 | % | ||||||
Other properties | 77 | 64 | +21 | % | ||||||||
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Total | $ | 704 | $ | 680 | +3 | % | ||||||
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DD&A per Boe: | ||||||||||||
Oil & gas properties | $ | 10.13 | $ | 9.77 | +4 | % | ||||||
Other properties | 1.25 | 1.01 | +24 | % | ||||||||
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Total | $ | 11.38 | $ | 10.78 | +6 | % | ||||||
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DD&A per Boe: Oil & gas properties Other properties Total Three Months Ended September 30, Nine Months Ended September 30, FY2012 FY2011 Change (1) FY2012 FY2011 Change (1) $ 10.29 $ 8.29 +24 % $ 9.98 $ 8.07 +24 % 1.17 1.03 +14 % 1.12 1.07 +4 % $ 11.46 $ 9.32 +23 % $ 11.10 $ 9.14 +21 %
Oil and gas property DD&A increased during the third quarter and first ninethree months of 20122013 largely due to increases in thehigher DD&A rates. The largest contributor to the higher rates, wereresulting from our oil and gas drilling and development activities subsequent to the endand construction of the third quarter of 2011.our new headquarters in Oklahoma City.
General and Administrative Expenses (“G&A”)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
FY2012 | FY2011 | Change (1) | FY2012 | FY2011 | Change (1) | |||||||||||||||||||
($ in millions) | ||||||||||||||||||||||||
Gross G&A | $ | 281 | $ | 253 | +11 | % | $ | 865 | $ | 736 | +18 | % | ||||||||||||
Capitalized G&A | (99 | ) | (85 | ) | +16 | % | (282 | ) | (247 | ) | +14 | % | ||||||||||||
Reimbursed G&A | (32 | ) | (30 | ) | +7 | % | (89 | ) | (86 | ) | +3 | % | ||||||||||||
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Net G&A | $ | 150 | $ | 138 | +9 | % | $ | 494 | $ | 403 | +23 | % | ||||||||||||
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Net G&A per Boe | $ | 2.40 | $ | 2.27 | +6 | % | $ | 2.64 | $ | 2.27 | +16 | % | ||||||||||||
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Three Months Ended March 31, | ||||||||||||
2013 | 2012 | Change | ||||||||||
($ in millions) | ||||||||||||
Gross G&A | $ | 283 | $ | 288 | -2 | % | ||||||
Capitalized G&A | (99 | ) | (91 | ) | +9 | % | ||||||
Reimbursed G&A | (34 | ) | (29 | ) | +17 | % | ||||||
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Net G&A | $ | 150 | $ | 168 | -11 | % | ||||||
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Net G&A per Boe | $ | 2.43 | $ | 2.67 | -9 | % | ||||||
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Net G&A and net G&A per Boe increaseddecreased during 2012the first three months of 2013 largely due to higherlower employee compensation and benefits. Employee costs increased primarily from an expansion of our workforce as part of growing production operations at certain of our key areas, including Jackfish, the Permianbenefits and the Cana-Woodford shale.higher capitalized G&A.
Taxes Other Than Income Taxes
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
FY2012 | FY2011 | Change (1) | FY2012 | FY2011 | Change (1) | |||||||||||||||||||
($ in millions) | ||||||||||||||||||||||||
Production | $ | 60 | $ | 63 | -4 | % | $ | 164 | $ | 187 | -12 | % | ||||||||||||
Ad valorem and other | 44 | 45 | -3 | % | 142 | 149 | -5 | % | ||||||||||||||||
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Taxes other than income taxes | $ | 104 | $ | 108 | -4 | % | $ | 306 | $ | 336 | -9 | % | ||||||||||||
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Percentage of oil, gas and NGL revenue: | ||||||||||||||||||||||||
Production | 3.45 | % | 2.97 | % | +16 | % | 3.12 | % | 3.03 | % | +3 | % | ||||||||||||
Ad valorem and other | 2.50 | % | 2.13 | % | +18 | % | 2.68 | % | 2.41 | % | +12 | % | ||||||||||||
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Total | 5.95 | % | 5.10 | % | +17 | % | 5.80 | % | 5.44 | % | +7 | % | ||||||||||||
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Three Months Ended March 31, | ||||||||||||
2013 | 2012 | Change | ||||||||||
($ in millions) | ||||||||||||
Production | $ | 60 | $ | 53 | +14 | % | ||||||
Ad valorem and other | 53 | 49 | +8 | % | ||||||||
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Taxes other than income taxes | $ | 113 | $ | 102 | +11 | % | ||||||
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Percentage of oil, gas and NGL revenue: | ||||||||||||
Production | 3.35 | % | 2.77 | % | +21 | % | ||||||
Ad valorem and other | 2.92 | % | 2.56 | % | +14 | % | ||||||
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Total | 6.27 | % | 5.33 | % | +18 | % | ||||||
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Taxes other than income taxes as a percentage of our oil, gas and NGL revenuesrevenue increased in both 2012 periods primarily due to lower Canadian revenues with no associated production taxes as well as ad valorem and other taxes whichthat do not change in direct correlation with oil, gas and NGL revenues.
Interest Expense
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||
FY2012 | FY2011 | Change (1) | FY2012 | FY2011 | Change (1) | 2013 | 2012 | Change | ||||||||||||||||||||||||||||
($ in millions) | ($ in millions) | |||||||||||||||||||||||||||||||||||
Interest based on debt outstanding | $ | 117 | $ | 120 | -3 | % | $ | 324 | $ | 318 | +2 | % | $ | 118 | $ | 99 | +19 | % | ||||||||||||||||||
Capitalized interest | (9 | ) | (19 | ) | -52 | % | (38 | ) | (56 | ) | -32 | % | (11 | ) | (16 | ) | -35 | % | ||||||||||||||||||
Other | 2 | 3 | -18 | % | 10 | 8 | +20 | % | 3 | 4 | -27 | % | ||||||||||||||||||||||||
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Interest expense | $ | 110 | $ | 104 | +6 | % | $ | 296 | $ | 270 | +10 | % | $ | 110 | $ | 87 | +27 | % | ||||||||||||||||||
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Interest based onexpense increased primarily due to additional debt outstanding remained relatively flat in 2012 as a result ofborrowings and lower capitalized interest, partially offset by lower weighted average interest rates offset by additional debt borrowings.rates. Borrowings were primarily used to fund capital expenditures in excess of our operating cash flowflow.
Restructuring Costs
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Lease obligations and other | $ | 29 | $ | — | ||||
Asset impairments | 9 | — | ||||||
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Restructuring costs | $ | 38 | $ | — | ||||
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In the three months ended March 31, 2013, we incurred $38 million of restructuring costs associated with the consolidation of our U.S. personnel into one location in Oklahoma City. This amount includes $23 million related to office space that is subject to non-cancellable operating lease agreements that we ceased using as a part of the office consolidation. We also recognized $9 million of asset impairment charges for leasehold improvements and divestiture proceeds.furniture associated with the office consolidation.
Asset Impairments
In the third quarter of 2012, we recognized asset impairments related to our U.S. oil and gas property and equipment and our U.S. midstream assets as presented below.
September 30, 2012 | ||||||||
Gross | Net of Taxes | |||||||
(In millions) | ||||||||
U.S. oil and gas assets | $ | 1,106 | $ | 705 | ||||
Midstream assets | 22 | 14 | ||||||
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Total asset impairments | $ | 1,128 | $ | 719 | ||||
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U.S. Oil and Gas Impairment
Three Months Ended March 31, 2013 | ||||||||
Gross | Net of Taxes | |||||||
(In millions) | ||||||||
U.S. oil and gas assets | $ | 1,110 | $ | 707 | ||||
Canada oil and gas assets | 803 | 601 | ||||||
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Total asset impairments | $ | 1,913 | $ | 1,308 | ||||
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Under the full-cost method of accounting, capitalized costs of oil and gas properties are subject to a quarterly full cost ceiling test, which is discussed in Note 1110 to the financial statements under “Item 1. Consolidated Financial Statements” of this report.
The U.S. oil and gas impairmentimpairments resulted primarily from a declinedeclines in the U.S. and Canada full cost ceiling.ceilings since December 31, 2012. The lower ceiling valuevalues resulted primarily from decreases in the 12-month average trailing prices for natural gasoil, bitumen and NGLs, which have reduced proved reserve values.
Additionally, if natural gas and NGL prices remain depressed,If pricing conditions do not improve, we may incur a full cost ceiling impairmentimpairments related to our oil and gas property and equipment in the fourth quarterfuture quarters of 2012.2013.
Midstream Impairment
Due to declining natural gas production resulting from low natural gas and NGL prices, we determined that the carrying amounts of certain of its midstream facilities located in south and east Texas were not recoverable from estimated future cash flows. Consequently, the assets were written down to their estimated fair values, which were determined using discounted cash flow models.
Other, net
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
FY2012 | FY2011 | FY2012 | FY2011 | |||||||||||||
(In millions) | ||||||||||||||||
Accretion of asset retirement obligations | $ | 27 | $ | 23 | $ | 82 | $ | 69 | ||||||||
Interest rate derivatives | (1 | ) | 3 | 15 | 11 | |||||||||||
Foreign currency derivatives | 26 | (22 | ) | 25 | (22 | ) | ||||||||||
Foreign exchange loss (gain) | (28 | ) | 53 | (26 | ) | 39 | ||||||||||
Interest income | (8 | ) | (8 | ) | (24 | ) | (14 | ) | ||||||||
Other | (24 | ) | 12 | (26 | ) | 5 | ||||||||||
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Other, net | $ | (8 | ) | $ | 61 | $ | 46 | $ | 88 | |||||||
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Income Taxes
The following table presents our total income tax expense (benefit) and a reconciliation of our effective income tax rate to the U.S. statutory income tax rate.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
FY2012 | FY2011 | FY2012 | FY2011 | |||||||||||||
Total income tax expense (benefit) (in millions) | $ | (442 | ) | $ | 498 | $ | 12 | $ | 1,883 | |||||||
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U.S. statutory income tax rate | (35 | %) | 35 | % | 35 | % | 35 | % | ||||||||
State income taxes | (1 | %) | 1 | % | (1 | %) | 1 | % | ||||||||
Taxation on Canadian operations | (1 | %) | (1 | %) | (14 | %) | (2 | %) | ||||||||
Assumed repatriations | — | — | — | 21 | % | |||||||||||
Other | (1 | %) | (3 | %) | (13 | %) | (1 | %) | ||||||||
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Effective income tax rate | (38 | %) | 32 | % | 7 | % | 54 | % | ||||||||
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In the table above, the “other” effect is primarily comprised of permanent tax differences for which the dollar amounts do not increase or decrease as our pre-tax earnings do. Generally, such items typically have an insignificant impact on our effective income tax rate. However, these items have a more noticeable impact to our rate for the nine months ended September 30, 2012 because of the relatively low pre-tax earnings for that period.
Earnings (Loss) From Discontinued Operations
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
FY2012 | FY2011 | FY2012 | FY2011 | |||||||||||||
(In millions) | ||||||||||||||||
Operating earnings (loss) | $ | — | $ | (4 | ) | $ | — | $ | 38 | |||||||
Gain (loss) on sale of oil and gas properties | — | — | (16 | ) | 2,546 | |||||||||||
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Earnings (loss) before income taxes | — | (4 | ) | (16 | ) | 2,584 | ||||||||||
Income tax expense (benefit) | — | (2 | ) | 5 | — | |||||||||||
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Earnings (loss) from discontinued operations | $ | — | $ | (2 | ) | $ | (21 | ) | $ | 2,584 | ||||||
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Earnings decreased in 2012 primarily as a result of the $2.5 billion gain ($2.5 billion after-tax) recognized from the divestiture of our Brazil operations in the second quarter of 2011.
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Total income tax expense (benefit) (in millions) | $ | (623 | ) | $ | 197 | |||
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U.S. statutory income tax rate | (35 | %) | 35 | % | ||||
State income taxes | (1 | %) | 1 | % | ||||
Taxation on Canadian operations | 4 | % | (3 | %) | ||||
Other | — | (1 | %) | |||||
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Effective income tax rate | (32 | %) | 32 | % | ||||
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Capital Resources, Uses and Liquidity
Sources and Uses of Cash
The following table presents the major source and use categories of our cash and cash equivalents.short-term investments.
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2012 | 2011 | 2013 | 2012 | |||||||||||||
(In millions) | (In millions) | |||||||||||||||
Operating cash flow – continuing operations | $ | 3,787 | $ | 4,227 | $ | 1,002 | $ | 1,000 | ||||||||
Debt activity, net | 1,567 | 3,657 | 508 | 1,107 | ||||||||||||
Divestitures of property and equipment | 1,468 | 3,264 | 29 | 71 | ||||||||||||
Capital expenditures | (6,228 | ) | (5,515 | ) | (1,926 | ) | (2,088 | ) | ||||||||
Short-term investment activity, net | (661 | ) | (1,086 | ) | ||||||||||||
Common stock repurchases and dividends | (242 | ) | (2,196 | ) | ||||||||||||
Shareholder distributions | (81 | ) | (80 | ) | ||||||||||||
Other | 92 | (23 | ) | (11 | ) | 42 | ||||||||||
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Net change in cash and cash equivalents | $ | (217 | ) | $ | 2,328 | |||||||||||
Net change in cash and short-term investments | $ | (479 | ) | $ | 52 | |||||||||||
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Cash and cash equivalents at end of period | $ | 5,338 | $ | 5,618 | ||||||||||||
Cash and short-term investments at end of period | $ | 6,501 | $ | 7,110 | ||||||||||||
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Short-term investments at end of period | $ | 2,164 | $ | 1,231 | ||||||||||||
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Operating Cash Flow – Continuing Operations
Net cash provided by operating activities (“operating cash flow”) was our primary source of capital in the first ninethree months of 2012.2013. Our operating cash flow decreased approximately 10 percent during 2012 primarily duewas comparable to lower commodity prices and higher expenses, partially offset by additional cash flow from our production growth.the first three months of 2012.
During the first ninethree months of 2012,2013, our operating cash flow funded approximately 8050 percent of our cash payments for capital expenditures, net of divestiture proceeds.expenditures. Leveraging our liquidity, we used cash balances and short-term debt to fund the remainder of our cash-based capital expenditures. This cash flow deficit was largely expected as we have allocated approximately 25% of our 2012 capital expenditure budget to exploratory projects and leasehold acquisitions that are not yet generating production revenues.
Debt Activity, Net
During the first ninethree months of 2013, we utilized net commercial paper borrowings of $508 million to fund capital expenditures in excess of our operating cash flow. During the first three months of 2012, we increased our debtutilized net credit facility and commercial paper borrowings by $1.6of $1.1 billion as a result of issuing $2.5 billion of long-term debt partially offset by the repayment of approximately $0.9 billion of outstanding short-term debt. The additional debt borrowings were primarily used to fund capital expenditures in excess of our operating cash flow.
During the first nine months of 2011, we utilized commercial paper borrowings of $3.2 billion and received $0.5 billion from new debt issuances, net of debt maturities, to fund capital expenditures and common share repurchases.
Divestitures of Property and Equipment
During the third quarter of 2012, we closed our joint venture transaction with Sumitomo Corporation. At closing, Sumitomo paid approximately $400 million and received a 30% interest in the Cline and Midland-Wolfcamp shale plays in Texas. Additionally, Sumitomo is funding approximately $1.0 billion of our share of future exploration, development and drilling costs associated with these plays. Also during the third quarter of 2012, we sold our West Johnson County Plant in north Texas for approximately $90 million.
During the second quarter of 2012, we closed our joint venture transaction with Sinopec. Sinopec paid approximately $900 million in cash and received a 33.3% interest in five of our new ventures exploration plays in the U.S. Sinopec is also funding approximately $1.6 billion of our share of future exploration, development and drilling costs associated with these plays.
In the first quarter of 2012, we received $71 million from the divestiture of our Angola operations.
During the second quarter of 2011, we completed the divestiture of our operations in Brazil, generating $3.3 billion in net proceeds.
Capital Expenditures
The amounts in the table below reflect cash payments for capital expenditures, including cash paid for capital expenditures incurred in prior periods.
Nine Months Ended September 30, | ||||||||
2012 | 2011 | |||||||
(In millions) | ||||||||
U.S. | $ | 4,401 | $ | 3,665 | ||||
Canada | 1,157 | 1,224 | ||||||
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Total oil and gas | 5,558 | 4,889 | ||||||
Midstream | 341 | 244 | ||||||
Other | 329 | 382 | ||||||
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Total continuing operations | $ | 6,228 | $ | 5,515 | ||||
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Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
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Development | $ | 1,328 | $ | 1,409 | ||||
Exploration | 228 | 381 | ||||||
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Subtotal | 1,556 | 1,790 | ||||||
Capitalized G&A and interest | 108 | 99 | ||||||
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Total oil and gas | 1,664 | 1,889 | ||||||
Midstream | 219 | 114 | ||||||
Corporate and other | 43 | 85 | ||||||
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Total capital expenditures | $ | 1,926 | $ | 2,088 | ||||
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Our capital expenditures consist of amounts related to our oil and gas exploration and development operations, our midstream operations and other corporate activities. The vast majority of our capital expenditures are for the acquisition, drilling and development of oil and gas properties, which totaled $5.6$1.7 billion and $4.9$1.9 billion in the first ninethree months of 20122013 and 2011,2012, respectively. The 14% growth12% decline in exploration and development capital spending in the first ninethree months of 20122013 was primarily due to increased new ventures exploratory activityutilization of the drilling carries in 2013 from our Sinopec and unproved leasehold acquisitions.Sumitomo joint venture arrangements.
Capital expenditures for our midstream operations are primarily for the construction and expansion of natural gas processing plants, natural gas gathering systems and oil transportation facilities.pipelines. Our midstream capital expenditures are largely impacted by oil and gas drilling activities. The higher 2013 midstream expenditures primarily relate to our Access Pipeline in Canada.
Short-term Investment Activity, NetShareholder distributions
During the first nine months of 2012 and 2011, we had net short-term investment purchases totaling $0.7 billion and $1.1 billion, respectively. The 2012 purchases were primarily related to the investment of a portion of our joint venture proceeds into marketable securities. The 2011 purchases were primarily related to the investment of a portion of the International offshore divestiture proceeds into marketable securities.
Common Stock Repurchases and Dividends
In connection with our offshore divestitures noted above, we conducted a $3.5 billion share repurchase program, which we completed in the fourth quarter of 2011. Since the third quarter of 2011, we have increased our quarterly dividend rate 18%.
The following table summarizes our repurchases and our common stock dividends (amounts and shares in millions) during the first ninethree months of 20122013 and 2011.2012. In the first quarter of 2013, we announced a 10% increase for our quarterly dividend to $0.22 per share beginning in the second quarter of 2013.
2012 | 2011 | |||||||||||||||||||||||
Amount | Shares | Per Share | Amount | Shares | Per Share | |||||||||||||||||||
Repurchases | $ | — | — | $ | — | $ | 1,987 | 25.6 | $ | 77.61 | ||||||||||||||
Dividends | $ | 242 | N/A | $ | 0.20 | $ | 209 | N/A | $ | 0.17 |
Dividends Three Months Ended March 31, 2013 2012 Amount Per Share Amount Per Share $ 81 $ 0.20 $ 80 $ 0.20
Liquidity
Historically, our primary sources of capital and liquidity have been our operating cash flow, asset divestiture proceeds and cash on hand. Additionally, we maintain revolving lines of credit and a commercial paper program, which can be accessed as needed to supplement operating cash flow and cash balances. Other available sources of capital and liquidity include debt and equity securities that can be issued pursuant to our shelf registration statement filed with the SEC. We estimate the combination of these sources of capital will be adequate to fund future capital expenditures, debt repayments and other contractual commitments. The following sections discuss changes to our liquidity subsequent to filing our 20112012 Annual Report on Form 10-K.
Operating Cash Flow
Our operating cash flow is sensitive to many variables, the most volatile of which are the prices of the oil, gas and NGLs we produce. We expect operating cash flow to continue to be our primary source of liquidity. To mitigate some of the risk inherent in prices, we have utilized various derivative financial instruments to set minimum and maximum prices on a portion of our 20122013 production. The key terms to our open oil, gas and NGL derivative financial instruments as of September 30, 2012March 31, 2013 are presented in Note 2 to the financial statements under “Item 1. Consolidated Financial Statements” of this report.
Credit Availability
As of October 24, 2012,March 31, 2013, we had $2.9 billion of available capacity under our syndicated, unsecured revolving line of credit (the “Senior Credit Facility”) and $3.2, net of letters of credit outstanding. We also have access to $5.0 billion of short-term credit under our commercial paper program. At March 31, 2013, we had $3.7 billion of commercial paper borrowings outstanding. Our Senior Credit Facility matures on October 24, 2017. However, prior to the maturity date, we have the option to extend the maturity for up to two additional one-year periods, subject to the approval of the lenders.
The Senior Credit Facility contains only one material financial covenant. This covenant requires us to maintain a ratio of total funded debt to total capitalization, as defined in the credit agreement, to be no greater than 65 percent. As of September 30, 2012,March 31, 2013, we were in compliance with this covenant with a debt-to-capitalization ratio of 24.726.3 percent.
AlthoughAt March 31, 2013, we ended the third quarterheld approximately $6.5 billion of 2012 with approximately $7.5cash and short-term investments. Included in this total was $6.1 billion of cash and short-term investments the vast majority of this amount consists of proceeds from our International offshore divestitures that are held by certain of our foreign subsidiaries. We do not currently expectBased on planned investments to repatriate such amounts to thedevelop and grow our Canadian business, forecasts for our U.S. If we were to repatriate a portion or all of the cash and short-term investments held by these foreign subsidiaries, we would be required to accrue and pay current income taxesCanadian operations, favorable borrowing conditions in accordance with current U.S. tax law. With these proceeds remaining outside of the U.S., we expectand existing U.S. income tax laws pertaining to continue using commercial paper and credit facility borrowings in the U.S. to supplement our U.S. operating cash flow. We do not expect near-term increases in such borrowings will have a material effect on our overall liquidity or financial condition.
Capital Expenditures
Werepatriations of foreign earnings, we previously disclosed that we expected our 2012 capital expenditureshad no current expectations to range from $6.2repatriate the $6.1 billion to $6.8 billion. During 2012,the U.S. However, due to our recent activity levels and evolving tax attributes, we expandedexpect that our new ventures explorationnet operating losses for U.S. income tax purposes can be used in conjunction with our foreign tax credits to partially offset current income taxes otherwise due upon repatriating a portion of our foreign cash to the U.S. Therefore, we now expect to repatriate approximately $2 billion to the U.S. Additionally, as we progress through 2013 and gain additional clarity on our current and expected tax attributes, we believe we could repatriate another sizeable amount of cash to the U.S. in a tax-efficient manner in 2013 or 2014. We anticipate using any repatriated funds to repay outstanding commercial paper borrowings.
Non-GAAP Measures
We make reference to “adjusted earnings,” “adjusted earnings per share” and “adjusted cash flow” in “Overview of 2013 Results” in this Item 2 that are not required by or presented in accordance with GAAP. These non-GAAP measures should not be considered as alternatives to GAAP measures. Adjusted earnings represents net earnings excluding certain non-cash or non-recurring items that are typically excluded by securities analysts in their published estimates of our financial results. Adjusted cash flow represents cash flow from operating activities targeting oilexcluding certain balance sheet changes and liquids-rich opportunities. As a result, we increasednon-recurring items that are typically excluded by securities analysts in their published estimates of our total estimated 2012 capital expendituresfinancial results. We believe these non-GAAP measures facilitate comparisons of our performance to earnings and cash flow estimates published by approximately $1.7 billion.securities analysts. We also believe these non-GAAP measures can facilitate comparisons of our performance between periods and to the performance of our peers. The amounts below exclude any amounts from our discontinued operations.
Adjusted Earnings and Adjusted Earnings Per Share
Below are reconciliations of our adjusted earnings and earnings per share to their comparable GAAP measures.
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
(In millions, except per share amounts) | ||||||||
Net earnings (loss) (GAAP) | $ | (1,339 | ) | $ | 414 | |||
Adjustments (net of taxes): | ||||||||
Asset impairments | 1,308 | — | ||||||
Oil, gas and NGL derivatives | 269 | 8 | ||||||
Restructuring costs | 24 | — | ||||||
Interest rate and other financial instruments | 8 | 5 | ||||||
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Adjusted earnings (Non-GAAP) | $ | 270 | $ | 427 | ||||
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Earnings (loss) per share (GAAP) | $ | (3.34 | ) | $ | 1.02 | |||
Adjustments (net of taxes): | ||||||||
Asset impairments | 3.25 | — | ||||||
Oil, gas and NGL derivatives | 0.67 | 0.02 | ||||||
Restructuring costs | 0.06 | — | ||||||
Interest rate and other financial instruments | 0.02 | 0.01 | ||||||
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Adjusted earnings per share (Non-GAAP) | $ | 0.66 | $ | 1.05 | ||||
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Adjusted Cash Flow
Below is a reconciliation of our adjusted operating cash flow to its comparable GAAP measure.
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Operating cash flow (GAAP) | $ | 1,002 | $ | 1,000 | ||||
Adjustments (net of taxes): | ||||||||
Changes in assets and liabilities | 155 | 349 | ||||||
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Adjusted operating cash flow (Non-GAAP) | $ | 1,157 | $ | 1,349 | ||||
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Item 3.Quantitative and Qualitative Disclosures About Market Risk
Commodity Price Risk
We have commodity derivatives that pertain to a portion of our production for the last threenine months of 2012,2013, as well as 20132014 and 2014.2015. The key terms to our open oil, gas and NGL derivative financial instruments as of September 30, 2012March 31, 2013 are presented in Note 2 to the financial statements under “Item 1. Consolidated Financial Statements” of this report.
The fair values of our commodity derivatives are largely determined by estimates of the forward curves of the relevant price indices. At September 30, 2012,March 31, 2013, a 10 percent change in the forward curves associated with our commodity derivative instruments would have changed our net asset positions by the following amounts:
10% Increase | 10% Decrease | 10% Increase | 10% Decrease | |||||||||||||
(In millions) | (In millions) | |||||||||||||||
Gain/(loss): | ||||||||||||||||
Gain (loss): | ||||||||||||||||
Gas derivatives | $ | (347 | ) | $ | 322 | |||||||||||
Oil derivatives | $ | (310 | ) | $ | 317 | $ | (378 | ) | $ | 367 | ||||||
Gas derivatives | $ | (131 | ) | $ | 124 | |||||||||||
NGL derivatives | $ | (3 | ) | $ | 3 |
Interest Rate Risk
At September 30, 2012,March 31, 2013, we had total debt outstanding of $11.2$12.2 billion. Our long-term debt of $8.4Of this amount, $8.5 billion bears fixed interest rates averaging 5.4 percent. The remaining $2.8$3.7 billion of commercial paper borrowings bears interest at fixed rates whichthat averaged 0.370.35 percent. Such borrowings typically have maturity rates between 1 and 90 days.
As of September 30, 2012,March 31, 2013, we had open interest rate swap positions that are presented in Note 2 to the financial statements under “Item 1. Consolidated Financial Statements” of this report. The fair values of our interest rate swaps are largely determined by estimates of the forward curves of the Federal Funds rate. A 10 percent change in these forward curves would not have materially impacted our balance sheet at September 30, 2012.March 31, 2013.
Foreign Currency Risk
Our net assets, net earnings and cash flows from our Canadian subsidiaries are based on the U.S. dollar equivalent of such amounts measured in the Canadian dollar functional currency. Assets and liabilities of the Canadian subsidiaries are translated to U.S. dollars using the applicable exchange rate as of the end of a reporting period. Revenues, expenses and cash flow are translated using an average exchange rate during the reporting period. A 10 percent unfavorable change in the Canadian-to-U.S. dollar exchange rate would not materially impact our September 30, 2012March 31, 2013 balance sheet.
Our non-Canadian foreign subsidiaries have a U.S. dollar functional currency. However, one of these foreign subsidiaries holds Canadian-dollar cash and engages in short-term intercompany loans with Canadian subsidiaries that are sometimes based in Canadian dollars. Additionally, at September 30, 2012,March 31, 2013, we held foreign currency exchange forward contracts to hedge exposures to fluctuations in exchange rates on the Canadian-dollar cash and intercompany loans. The increase or decrease in the value of the forward contracts is offset by the increase or decrease to the U.S. dollar equivalent of the Canadian-dollar cash. The value of the intercompany loans increases or decreases from the remeasurement of the loans into the U.S. dollar functional currency. Based on the amount of the intercompany loans as of September 30, 2012,March 31, 2013, a 10 percent change in the foreign currency exchange rates would not have materially impacted our balance sheet.
Item 4.Controls and Procedures
Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information relating to Devon, including its consolidated subsidiaries, is made known to the officers who certify Devon’s financial reports and to other members of senior management and the Board of Directors.
Based on their evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of September 30, 2012,March 31, 2013, to ensure that the information required to be disclosed by Devon in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
There have been no material changes to the information included in Item 3. “Legal Proceedings” in our 20112012 Annual Report on Form 10-K.
There have been no material changes to the information included in Item 1A. “Risk Factors” in our 20112012 Annual Report on Form 10-K.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding purchases of our common stock that were made by us during the third quarterfirst three months of 2012.2013.
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | ||||||
July 1 – July 31 | 2,962 | $ | 57.71 | |||||
August 1 – August 31 | 32,165 | $ | 59.16 | |||||
September 1 – September 30 | 33,566 | $ | 59.41 | |||||
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| |||||||
Total | 68,693 | $ | 59.22 | |||||
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Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | ||||||
January 1 – January 31 | 34,168 | $ | 54.59 | |||||
February 1 – February 28 | 24,595 | $ | 58.57 | |||||
March 1 – March 31 | 38,823 | $ | 56.99 | |||||
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| |||||||
Total | 97,586 | $ | 56.55 | |||||
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(1) | Share repurchases represent shares received by us from employees and directors for the payment of personal income tax withholding on restricted stock vesting and stock option exercises. |
Under the Devon Canada Corporation Savings Plan (the “Canadian Plan”), eligible Canadian employees may purchase shares of our common stock through an investment in the Canadian Plan, which is administered by an independent trustee, Sun Life Assurance Company of Canada. Eligible Canadian employees purchased approximately 6,2003,600 shares of our common stock in the thirdfirst quarter of 2012,2013, at then-prevailing stock prices, that they held through their ownership in the Canadian Plan. We acquired the shares sold under the Canadian Plan through open-market purchases. These shares and any interest in the Canadian Plan were offered and sold in reliance on the exemptions for offers and sales of securities made outside of the U.S., including under Regulation S for offers and sales of securities to employees pursuant to an employee benefit plan established and administered in accordance with the law of a country other than the U.S.
Item 3.Defaults Upon Senior Securities
None.Not applicable.
Item 4.Mine Safety Disclosures
None.Not applicable.
None.Not applicable.
(a) Exhibits required by Item 601 of Regulation S-K are as follows:
Exhibit | Description | |
10.1 | Devon Energy Corporation 2013 Amendment (Effective as of March 6, 2013) to the Devon Energy Corporation 2009 Long-Term Plan (as Amended and Restated Effective June 6, 2012). | |
31.1 | Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DEVON ENERGY CORPORATION | ||||||
Date: | / | |||||
Jeffrey A. Agosta | ||||||
Executive Vice President and Chief Financial Officer |
INDEX TO EXHIBITS
Exhibit | Description | |
10.1 | Devon Energy Corporation 2013 Amendment (Effective as of March 6, 2013) to the Devon Energy Corporation 2009 Long-Term Plan (as Amended and Restated Effective June 6, 2012). | |
31.1 | Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
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