Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event report): May 5, 2005 (May 4, 2005)
DEVON ENERGY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
 	 	 	 	 	
DELAWARE	 	001-32318	 	73-1567067	
(State or Other Jurisdiction of	 	(Commission File Number)	 	(IRS Employer	
Incorporation or Organization)	 	 	 	Identification Number)	
 	 	 	
20 NORTH BROADWAY, OKLAHOMA CITY, OK	 	73102	
(Address of Principal Executive Offices)	 	(Zip Code)	
Registrant’s telephone number, including area code: (405) 235-3611
     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 	   	o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
 	
 	   	o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
 	
 	   	o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	
 	
 	   	o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

 

TABLE OF CONTENTS

									
Item 2.02 Results of Operations and Financial Condition	
Item 9.01 Financial Statements and Exhibits	
SIGNATURES	
Press Release	

Table of Contents
Item 2.02 Results of Operations and Financial Condition
     Devon Energy Corporation hereby furnishes the information set forth in its Press Release, dated May 4, 2005, announcing first quarter results, a copy of which is attached as Exhibit 99.1. 
Item 9.01 Financial Statements and Exhibits
           (c) Exhibits
                         99.1 Devon Energy Corporation Press Release dated May 4, 2005. 
SIGNATURES
     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 hereto duly authorized.

 	 	DEVON ENERGY CORPORATION	
 	 	 	 	 	
	 	By:	 	      /s/ Danny J. Heatly	
	 	 	 	 	
	 	 	 	Danny J. Heatly	
	 	 	 	Vice President – Accounting	
 	 	 	 	 	
Date: May 5, 2005	 	 	 	 	

 

EXHIBIT 99.1

	 	20 North Broadway
Oklahoma City, Oklahoma 73102-8260	 	Telephone: (405) 235-3611
Fax: (405) 552-4667	
NEWS RELEASE

 	 	 	
Investor contact:	 	Zack Hager	
	 	(405) 552-4526	
 	 	 	
Media contact:	 	Brian Engel	
	 	(405) 228-7750	
DEVON ENERGY EARNS $563 MILLION IN FIRST QUARTER OF 2005;
EARNINGS PER SHARE INCREASE 14 PERCENT
OKLAHOMA CITY – May 4, 2005 – Devon Energy Corporation (NYSE:DVN) today reported net earnings for the quarter ended March 31, 2005, of $563 million, or $1.17 per common share ($1.14 per diluted common share). This is a 14 percent increase over Devon’s first quarter 2004 net earnings of $494 million, or $1.03 per common share ($1.00 per diluted common share). Per-share amounts reflect a two-for-one stock split completed in November 2004.
Canadian Winter Drilling Leads Operating Highlights
     Devon drilled a total of 685 wells in the first quarter, with 56 percent of the wells concentrated in Canada.

•  	The company drilled a total of 384 wells in its Canadian winter drilling program, with an overall success rate of 97 percent. This was the most active winter drilling program in the company’s history. At the peak of activity, Devon was running 64 rigs in Canada.	
 	
•  	In the United States, Devon drilled 47 wells in the Barnett Shale, the largest natural gas field in Texas. Devon is the most active Barnett Shale operator and the largest natural gas producer in the state of Texas.	
 	
•  	In the Gulf of Mexico, Devon commenced drilling an appraisal of its 2002 Cascade discovery on Walker Ridge block 206 in the first quarter. Cascade is one of three discoveries Devon is evaluating in the high potential, lower Tertiary trend. In April, the company also commenced drilling an appraisal of its Jack lower Tertiary discovery and plans to drill an additional appraisal of the St. Malo discovery later in 2005.	
 	
•  	Devon continued development of its Gulf of Mexico Magnolia deepwater field in the first quarter. Two wells have been producing a combined seven thousand Boe per day, net to Devon. The third of eight planned wells is in the final stages of completion. Devon has a 25 percent working interest in Magnolia.	

 

Higher Prices Drive Oil and Gas Sales
     Devon’s sales of oil, gas and natural gas liquids increased six percent to $1.9 billion in the quarter ended March 31, 2005. The increase was driven by higher realized prices for all products.
     Combined oil, gas and natural gas liquids production averaged 660 thousand Boe per day in the quarter ended March 31, 2005. This was a six percent decrease from the average rate of 703 thousand Boe per day in 2004. Properties in North America that Devon is divesting accounted for the majority of the first quarter production decline. The divestiture properties produced 27 thousand Boe per day less in the first quarter of 2005 than in the first quarter of 2004. Outside North America, Devon’s share of oil production from the Zafiro field in Equatorial Guinea also declined. In accordance with contract terms, Devon’s share of production from Zafiro was reduced in April 2004. Devon’s Zafiro production was about 17 thousand barrels per day less in the first quarter of 2005 compared to the first quarter of 2004.
     Devon’s realized natural gas prices increased nine percent to $5.50 per thousand cubic feet in the first quarter of 2005, compared with $5.05 per thousand cubic feet in 2004. Average realized oil prices increased 24 percent to $34.47 per barrel in 2005, compared with $27.78 per barrel in 2004. The company’s average realized price for natural gas liquids improved 23 percent in 2005 to $24.30 per barrel, compared with $19.78 per barrel in 2004.
     Marketing and midstream revenues and expenses of $416 million and $331 million, respectively, for 2005 were essentially flat with 2004. This resulted in a marketing and midstream margin of $85 million. In the first quarter of 2005, Devon closed a sale of non-core midstream assets. This sale resulted in a $150 million gain that was recorded in other income.
Higher Costs Reflect Sector Inflation
     Increased levels of activity throughout the exploration and production industry are reflected by rising costs. Devon’s lease operating expenses increased 12 percent to $348 million in the first quarter of 2005. Unit lease operating expenses increased 21 percent to $5.85 per Boe. Increases in ad valorem taxes, well workover expenses, power, fuel and repairs and maintenance costs, in addition to the compounding effect of the weaker U.S. dollar, drove the increase in unit costs.
     Production taxes increased 25 percent to $78 million in the first quarter of 2005. Higher oil and gas revenues and a $9 million retroactive adjustment to prior years’ taxes as a result of recent regulatory rulings contributed to the increase.
     Depreciation, depletion and amortization of oil and gas properties increased less than one percent in 2005, to $541 million. General and administrative expenses decreased 24 percent, to $58 million in 2005.
     Income tax expense was $350 million, or 38 percent of pre-tax earnings in 2005 compared to $282 million, or 36 percent in 2004. Included in 2005 current income taxes are additional taxes for the planned repatriation of foreign earnings and gains on sales of assets. These items are described further in the “Items Excluded from Published Estimates” section of this release.
Page 2

 

Cash Flow Before Balance Sheet Changes Exceeds $1 billion
     Cash flow before balance sheet changes was $1.1 billion in the first quarter of 2005. Cash and marketable securities on hand rose to $2.5 billion as of March 31, 2005. Approximately $1.6 billion of this amount is earmarked for debt repayments through 2006. A reconciliation of cash flow before balance sheet changes, which is a non-GAAP measure, is provided in this release.
     Devon’s net debt to adjusted capitalization was 26 percent at March 31, 2005. This compares to 36 percent at March 31, 2004. Reconciliations of net debt and adjusted capitalization, which are non-GAAP measures, are also provided in this release.
Divestiture Results Exceed Target; Stock Repurchase Program Ahead of Schedule
     Devon issued a separate release today describing the results of its non-core oil and gas properties divestiture program. Purchase and sale agreements have been signed for all of the selected U.S. and Canadian assets offered for sale. Gross and after-tax proceeds from the divestitures are expected at $2.3 billion and $2.0 billion, respectively. After-tax proceeds were originally estimated at $1.0 billion to $1.5 billion.
     In October 2004, Devon commenced a program to repurchase up to 10 percent, or 50 million shares, of its common stock. As of March 31, 2005, Devon had repurchased approximately 18 million shares at a total cost of $746 million. The company now anticipates completing the stock repurchase program by September 30, 2005, approximately six months earlier than previously estimated.
Items Excluded from Published Estimates
     Devon’s reported net earnings include items of income and expense that are typically excluded by securities analysts in their published estimates for the company’s financial results. Such items and their effects upon first quarter 2005 reported earnings were as follows:

•  	A change in fair value of derivative financial instruments not associated with hedges decreased earnings by $52 million pre-tax ($33 million after tax).	
 	
•  	A loss on oil hedges associated with divestiture properties that no longer qualify for hedge accounting decreased earnings by $39 million pre-tax ($25 million after tax).	
 	
•  	A gain on the sale of marketing and midstream assets increased earnings by $150 million pre-tax ($98 million after tax).	
 	
•  	Current tax expense resulting from the planned repatriation of foreign earnings under The American Jobs Creation Act of 2004 decreased earnings by $32 million.	
     The following table summarizes the effects of these items on earnings and income taxes. Included in the table are the tax effects of oil and gas property divestitures that had no effect on net earnings.
Page 3

 

(in millions) 

 	 	Pretax	 	 	 	 	 	 	 	 	 	 	 	 	 	 	After-tax	 	 	Cash Flow Before	 	
 	 	Earnings	 	 	Income Tax Effect	 	 	Earnings	 	 	Balance Sheet	 	
 	 	Effect	 	 	Current	 	 	Deferred	 	 	Total	 	 	Effect	 	 	Changes Effect	 	
 	
Change in fair value of derivative financial instruments	 	$	(52	)	 	 	—	 	 	 	(19	)	 	 	(19	)	 	 	(33	)	 	 	—	 	
Gain on sale of certain non-oil and gas assets	 	 	150	 	 	 	52	 	 	 	—	 	 	 	52	 	 	 	98	 	 	 	(52	)	
Loss on hedges for divestiture properties	 	 	(39	)	 	 	(14	)	 	 	—	 	 	 	(14	)	 	 	(25	)	 	 	(25	)	
Effects of $500 million repatriation of Canadian earnings	 	 	—	 	 	 	32	 	 	 	—	 	 	 	32	 	 	 	(32	)	 	 	(32	)	
Effects of oil and gas property divestitures	 	 	—	 	 	 	32	 	 	 	(32	)	 	 	—	 	 	 	—	 	 	 	(32	)	
 	
Totals	 	$	59	 	 	 	102	 	 	 	(51	)	 	 	51	 	 	 	8	 	 	 	(141	)	
 	
     In aggregate, these items increased 2005 net earnings by $8 million, or two cents per common share (two cents per diluted share). These items and their associated tax effects decreased cash flow before balance sheet changes by $141 million.
Conference Call to be Webcast Today
     Devon will discuss its first quarter 2005 financial and operating results in a conference call webcast today. The webcast will begin at 10 a.m. Central Time (11 a.m. Eastern Time). The webcast may be accessed from Devon’s internet home page at www.devonenergy.com
This press release includes “forward-looking statements” as defined by the Securities and Exchange Commission. Such statements are those concerning strategic plans, expectations and objectives for future operations. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the company expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Statements regarding future production are subject to all of the risks and uncertainties normally incident to the exploration for and development and production of oil and gas. These risks include, but are not limited to, inflation or lack of availability of goods and services, environmental risks, drilling risks and regulatory changes. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.
     Devon Energy Corporation is an Oklahoma City-based independent energy company engaged in oil and gas exploration, production and property acquisitions. Devon is the largest U.S.-based independent oil and gas producer and is included in the S&P 500 Index. For more information about Devon, please visit our website at www.devonenergy.com .
Page 4

 

PRODUCTION DATA
(net of royalties)

 	 	Quarter Ended	 	
 	 	March 31,	
 	 	2005	 	 	2004	 	
 	
Total Period Production	 	 	 	 	 	 	 	 	
 	
Natural Gas (Bcf)	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	115.8	 	 	 	118.8	 	
U.S. Offshore	 	 	29.1	 	 	 	33.1	 	
 	 	 	 	 	 	 	
Total U.S.	 	 	144.9	 	 	 	151.9	 	
Canada	 	 	66.2	 	 	 	67.3	 	
International	 	 	2.7	 	 	 	3.0	 	
 	
Total Natural Gas	 	 	213.8	 	 	 	222.2	 	
 	
Oil (MMBbls)	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	3.3	 	 	 	3.7	 	
U.S. Offshore	 	 	4.5	 	 	 	5.0	 	
 	 	 	 	 	 	 	
Total U.S.	 	 	7.8	 	 	 	8.7	 	
Canada	 	 	3.2	 	 	 	3.4	 	
International	 	 	6.8	 	 	 	8.8	 	
 	
Total Oil	 	 	17.8	 	 	 	20.9	 	
 	
Natural Gas Liquids (MMBbls)	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	4.4	 	 	 	4.4	 	
U.S. Offshore	 	 	0.2	 	 	 	0.3	 	
 	 	 	 	 	 	 	
Total U.S.	 	 	4.6	 	 	 	4.7	 	
Canada	 	 	1.3	 	 	 	1.2	 	
International	 	 	0.1	 	 	 	0.1	 	
 	
Total Natural Gas Liquids	 	 	6.0	 	 	 	6.0	 	
 	
Oil Equivalent (MMBoe)	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	27.0	 	 	 	27.9	 	
U.S. Offshore	 	 	9.6	 	 	 	10.8	 	
 	 	 	 	 	 	 	
Total U.S.	 	 	36.6	 	 	 	38.7	 	
Canada	 	 	15.5	 	 	 	15.9	 	
International	 	 	7.3	 	 	 	9.4	 	
 	
Total Oil Equivalent	 	 	59.4	 	 	 	64.0	 	

Average Daily Production	 	 	 	 	 	 	 	 	
 	
Natural Gas (MMcf)	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	1,285.9	 	 	 	1,305.6	 	
U.S. Offshore	 	 	323.6	 	 	 	363.3	 	
 	 	 	 	 	 	 	
Total U.S.	 	 	1,609.5	 	 	 	1,668.9	 	
Canada	 	 	735.4	 	 	 	739.4	 	
International	 	 	30.2	 	 	 	33.1	 	
 	
Total Natural Gas	 	 	2,375.1	 	 	 	2,441.4	 	
 	
Oil (MBbls)	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	37.0	 	 	 	40.4	 	
U.S. Offshore	 	 	49.4	 	 	 	54.9	 	
 	 	 	 	 	 	 	
Total U.S.	 	 	86.4	 	 	 	95.3	 	
Canada	 	 	36.1	 	 	 	37.8	 	
International	 	 	75.6	 	 	 	96.6	 	
 	
Total Oil	 	 	198.1	 	 	 	229.7	 	
 	
Natural Gas Liquids (MBbls)	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	49.1	 	 	 	48.4	 	
U.S. Offshore	 	 	2.6	 	 	 	3.4	 	
 	 	 	 	 	 	 	
Total U.S.	 	 	51.7	 	 	 	51.8	 	
Canada	 	 	13.9	 	 	 	13.5	 	
International	 	 	0.8	 	 	 	0.9	 	
 	
Total Natural Gas Liquids	 	 	66.4	 	 	 	66.2	 	
 	
Oil Equivalent (MBoe)	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	300.4	 	 	 	306.4	 	
U.S. Offshore	 	 	105.9	 	 	 	118.9	 	
 	 	 	 	 	 	 	
Total U.S.	 	 	406.3	 	 	 	425.3	 	
Canada	 	 	172.5	 	 	 	174.5	 	
International	 	 	81.5	 	 	 	103.0	 	
 	
Total Oil Equivalent	 	 	660.3	 	 	 	702.8	 	
 	
Page 5

 

REALIZED PRICE DATA
(average realized prices)

 	 	Quarter Ended	 	
 	 	March 31,	
 	 	2005	 	 	2004	 	
 	
Realized Prices	 	 	 	 	 	 	 	 	
 	
Natural Gas ($/Mcf)	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	5.17	 	 	 	4.89	 	
U.S. Offshore	 	$	6.56	 	 	 	6.02	 	
Total U.S.	 	$	5.45	 	 	 	5.14	 	
Canada	 	$	5.68	 	 	 	4.92	 	
International	 	$	3.83	 	 	 	3.14	 	
 	
Total Natural Gas	 	$	5.50	 	 	 	5.05	 	
 	
Oil ($/Bbl)	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	43.48	 	 	 	29.32	 	
U.S. Offshore	 	$	32.84	 	 	 	30.41	 	
Total U.S.	 	$	37.39	 	 	 	29.95	 	
Canada	 	$	23.91	 	 	 	23.03	 	
International	 	$	36.16	 	 	 	27.51	 	
 	
Total Oil	 	$	34.47	 	 	 	27.78	 	
 	
Natural Gas Liquids ($/Bbl)	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	21.96	 	 	 	18.09	 	
U.S. Offshore	 	$	26.14	 	 	 	21.84	 	
Total U.S.	 	$	22.17	 	 	 	18.34	 	
Canada	 	$	31.98	 	 	 	25.25	 	
International	 	$	28.13	 	 	 	21.06	 	
 	
Total Natural Gas Liquids	 	$	24.30	 	 	 	19.78	 	
 	
Oil Equivalent ($/Boe)	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	31.06	 	 	 	27.58	 	
U.S. Offshore	 	$	35.99	 	 	 	33.08	 	
Total U.S.	 	$	32.35	 	 	 	29.12	 	
Canada	 	$	31.78	 	 	 	27.78	 	
International	 	$	35.26	 	 	 	26.99	 	
 	
Total Oil Equivalent	 	$	32.56	 	 	 	28.47	 	
 	
BENCHMARK PRICES
(average prices)

 	 	Quarter Ended	 	
 	 	March 31,	
 	 	2005	 	 	2004	 	
 	
Benchmark Prices	 	 	 	 	 	 	 	 	
 	
Natural Gas ($/Mcf) – Henry Hub	 	$	6.27	 	 	 	5.69	 	
Oil ($/Bbl) – West Texas Intermediate (Cushing)	 	$	49.90	 	 	 	35.12	 	
 	
PRICE DIFFERENTIALS, EXCLUDING EFFECTS OF HEDGES
(average floating price differentials from benchmark prices)

 	 	Quarter Ended	 	
 	 	March 31,	
 	 	2005	 	 	2004	 	
 	
Price Differentials	 	 	 	 	 	 	 	 	
 	
Natural Gas ($/Mcf)	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	(1.09	)	 	 	(0.80	)	
U.S. Offshore	 	$	0.29	 	 	 	0.34	 	
Total U.S.	 	$	(0.82	)	 	 	(0.55	)	
Canada	 	$	(0.43	)	 	 	(0.62	)	
International	 	$	(1.46	)	 	 	(2.55	)	
 	
Total Natural Gas	 	$	(0.70	)	 	 	(0.60	)	
 	
Oil ($/Bbl)	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	(4.66	)	 	 	(2.07	)	
U.S. Offshore	 	$	(4.80	)	 	 	(0.79	)	
Total U.S.	 	$	(4.74	)	 	 	(1.33	)	
Canada	 	$	(13.10	)	 	 	(6.65	)	
International	 	$	(7.95	)	 	 	(5.36	)	
 	
Total Oil	 	$	(7.49	)	 	 	(3.90	)	
 	
Page 6

 

CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)

 	 	Quarter Ended	 	
 	 	March 31,	
 	 	2005	 	 	2004	 	
 	
Revenues	 	 	 	 	 	 	 	 	
 	
Oil sales	 	$	615	 	 	 	581	 	
Gas sales	 	 	1,175	 	 	 	1,121	 	
Natural gas liquids sales	 	 	145	 	 	 	119	 	
Marketing & midstream revenues	 	 	416	 	 	 	417	 	
 	
Total revenues	 	 	2,351	 	 	 	2,238	 	
 	
Expenses	 	 	 	 	 	 	 	 	
 	
Lease operating expenses	 	 	348	 	 	 	310	 	
Production taxes	 	 	78	 	 	 	62	 	
Marketing & midstream operating costs and expenses	 	 	331	 	 	 	332	 	
Depreciation, depletion and amortization of oil and gas properties	 	 	541	 	 	 	538	 	
Depreciation and amortization of non-oil and gas properties	 	 	38	 	 	 	34	 	
Accretion of asset retirement obligation	 	 	12	 	 	 	11	 	
General & administrative expenses	 	 	58	 	 	 	77	 	
Interest expense	 	 	118	 	 	 	118	 	
Effects of changes in foreign currency exchange rates	 	 	—	 	 	 	6	 	
Change in fair value of derivative financial instruments	 	 	52	 	 	 	(4	)	
Other income, net	 	 	(138	)	 	 	(22	)	
 	
Total expenses	 	 	1,438	 	 	 	1,462	 	
 	
Earnings before income tax expense	 	 	913	 	 	 	776	 	
 	
Income Tax Expense (Benefit)	 	 	 	 	 	 	 	 	
 	
Current	 	 	352	 	 	 	203	 	
Deferred	 	 	(2	)	 	 	79	 	
 	
Total income tax expense	 	 	350	 	 	 	282	 	
 	
Net earnings	 	 	563	 	 	 	494	 	
 	
Preferred stock dividends	 	 	2	 	 	 	2	 	
 	
Net earnings applicable to common stockholders	 	$	561	 	 	 	492	 	
 	
Net earnings per weighted average common share outstanding	 	 	 	 	 	 	 	 	
Basic	 	$	1.17	 	 	 	1.03	 	
Diluted	 	$	1.14	 	 	 	1.00	 	
Basic weighted average shares outstanding	 	 	480	 	 	 	478	 	
Diluted weighted average shares outstanding	 	 	496	 	 	 	493	 	
Page 7

 

CONSOLIDATED BALANCE SHEETS
(in millions)

 	 	March 31,	 	 	December 31,	 	
 	 	2005	 	 	2004	 	
 	 	 	 	 	 	(Audited)	 	
 	
Assets	 	 	 	 	 	 	 	 	
 	
Current assets	 	 	 	 	 	 	 	 	
 	
Cash and cash equivalents	 	$	1,499	 	 	 	1,152	 	
Short-term investments	 	 	1,033	 	 	 	967	 	
Accounts receivable	 	 	1,364	 	 	 	1,320	 	
Fair value of derivative financial instruments	 	 	—	 	 	 	1	 	
Deferred income taxes	 	 	317	 	 	 	289	 	
Other current assets	 	 	152	 	 	 	143	 	
 	
Total current assets	 	 	4,365	 	 	 	3,872	 	
 	
Property and equipment, at cost	 	 	32,795	 	 	 	32,114	 	
Less accumulated depreciation, depletion and amortization	 	 	13,316	 	 	 	12,768	 	
 	
Net property and equipment	 	 	19,479	 	 	 	19,346	 	
 	
Investment in ChevronTexaco Corporation common stock, at fair value	 	 	827	 	 	 	745	 	
Fair value of derivative financial instruments	 	 	—	 	 	 	8	 	
Goodwill	 	 	5,624	 	 	 	5,637	 	
Other assets	 	 	381	 	 	 	417	 	
 	
Total Assets	 	$	30,676	 	 	 	30,025	 	
 	
Liabilities and Stockholders’ Equity	 	 	 	 	 	 	 	 	
 	
Current liabilities	 	 	 	 	 	 	 	 	
 	
Accounts payable:	 	 	 	 	 	 	 	 	
Trade	 	$	937	 	 	 	715	 	
Revenues and royalties due to others	 	 	451	 	 	 	487	 	
Income taxes payable	 	 	428	 	 	 	223	 	
Current portion of long-term debt	 	 	932	 	 	 	933	 	
Accrued interest payable	 	 	97	 	 	 	139	 	
Fair value of derivative financial instruments	 	 	562	 	 	 	399	 	
Current portion of asset retirement obligation	 	 	68	 	 	 	46	 	
Accrued expenses and other current liabilities	 	 	285	 	 	 	158	 	
 	
Total current liabilities	 	 	3,760	 	 	 	3,100	 	
 	
Debentures exchangeable into shares of ChevronTexaco Corporation common stock	 	 	696	 	 	 	692	 	
Other long-term debt	 	 	6,312	 	 	 	6,339	 	
Fair value of derivative financial instruments	 	 	129	 	 	 	72	 	
Asset retirement obligation, long-term	 	 	685	 	 	 	693	 	
Other liabilities	 	 	379	 	 	 	366	 	
Deferred income taxes	 	 	5,081	 	 	 	5,089	 	
 	
Stockholders’ equity	 	 	 	 	 	 	 	 	
 	
Preferred stock	 	 	1	 	 	 	1	 	
Common stock	 	 	47	 	 	 	48	 	
Additional paid-in capital	 	 	8,588	 	 	 	9,087	 	
Retained earnings	 	 	4,218	 	 	 	3,693	 	
Accumulated other comprehensive income	 	 	858	 	 	 	930	 	
Deferred compensation and other	 	 	(78	)	 	 	(85	)	
 	
Stockholders’ Equity	 	 	13,634	 	 	 	13,674	 	
 	
Total Liabilities & Stockholders’ Equity	 	$	30,676	 	 	 	30,025	 	
 	
Common Shares Outstanding	 	 	474	 	 	 	484	 	
 	
Page 8

 

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)

 	 	Quarter Ended March 31,	 	
 	 	2005	 	 	2004	 	
 	
Cash Flows From Operating Activities	 	 	 	 	 	 	 	 	
 	
Earnings	 	$	563	 	 	 	494	 	
Adjustments to reconcile earnings to net cash provided by operating activities:	 	 	 	 	 	 	 	 	
Depreciation, depletion and amortization	 	 	579	 	 	 	572	 	
Accretion of asset retirement obligation	 	 	12	 	 	 	11	 	
Accretion of discounts on long-term debt, net	 	 	3	 	 	 	4	 	
Effects of changes in foreign currency exchange rates	 	 	—	 	 	 	6	 	
Change in fair value of derivative financial instruments	 	 	52	 	 	 	(4	)	
Deferred income tax (benefit) expense	 	 	(2	)	 	 	79	 	
Gain on sale of assets	 	 	(150	)	 	 	(4	)	
Other	 	 	12	 	 	 	8	 	
 	
 	 	 	1,069	 	 	 	1,166	 	
Changes in assets and liabilities, net of acquisitions of businesses:	 	 	 	 	 	 	 	 	
(Increase) decrease in:	 	 	 	 	 	 	 	 	
Accounts receivable	 	 	(44	)	 	 	(117	)	
Other current assets	 	 	(8	)	 	 	3	 	
Long-term other assets	 	 	32	 	 	 	—	 	
Increase (decrease) in:	 	 	 	 	 	 	 	 	
Accounts payable	 	 	51	 	 	 	102	 	
Income taxes payable	 	 	205	 	 	 	194	 	
Accrued interest and expenses	 	 	82	 	 	 	(112	)	
Long-term other liabilities	 	 	1	 	 	 	(13	)	
 	
Net cash provided by operating activities	 	 	1,388	 	 	 	1,223	 	

 	
Cash Flows From Investing Activities	 	 	 	 	 	 	 	 	
 	
Proceeds from sales of property and equipment	 	 	432	 	 	 	11	 	
Capital expenditures	 	 	(867	)	 	 	(890	)	
Purchases of short-term investments	 	 	(1,147	)	 	 	(731	)	
Sales of short-term investments	 	 	1,081	 	 	 	693	 	
 	
Net cash used in investing activities	 	 	(501	)	 	 	(917	)	

 	
Cash Flows From Financing Activities	 	 	 	 	 	 	 	 	
 	
Principal payments on long-term debt	 	 	—	 	 	 	(211	)	
Issuance of common stock, net of issuance costs	 	 	57	 	 	 	108	 	
Repurchase of common stock	 	 	(557	)	 	 	—	 	
Dividends paid on common stock	 	 	(36	)	 	 	(24	)	
Dividends paid on preferred stock	 	 	(2	)	 	 	(2	)	
 	
Net cash used in financing activities	 	 	(538	)	 	 	(129	)	

Effect of exchange rate changes on cash	 	 	(2	)	 	 	(7	)	
Net increase in cash and cash equivalents	 	 	347	 	 	 	170	 	
Cash and cash equivalents at beginning of period	 	 	1,152	 	 	 	932	 	
 	
Cash and cash equivalents at end of period	 	$	1,499	 	 	 	1,102	 	
 	
Page 9

 

DRILLING ACTIVITY

 	 	Quarter Ended	 	
 	 	March 31,	 	
 	 	2005	 	 	2004	 	
 	
Exploration Wells Drilled	 	 	 	 	 	 	 	 	
 	
U.S.	 	 	12	 	 	 	6	 	
Canada	 	 	117	 	 	 	99	 	
International	 	 	—	 	 	 	2	 	
 	
Total	 	 	129	 	 	 	107	 	
 	
Exploration Wells Success Rate	 	 	 	 	 	 	 	 	
 	
U.S.	 	 	67	%	 	 	17	%	
Canada	 	 	91	%	 	 	90	%	
International	 	 	—	 	 	 	50	%	
 	
Total	 	 	89	%	 	 	85	%	
 	
Development Wells Drilled	 	 	 	 	 	 	 	 	
 	
U.S.	 	 	280	 	 	 	277	 	
Canada	 	 	267	 	 	 	224	 	
International	 	 	9	 	 	 	15	 	
 	
Total	 	 	556	 	 	 	516	 	
 	
Development Wells Success Rate	 	 	 	 	 	 	 	 	
 	
U.S.	 	 	99	%	 	 	98	%	
Canada	 	 	99	%	 	 	91	%	
International	 	 	100	%	 	 	100	%	
 	
Total	 	 	99	%	 	 	95	%	
 	
Total Wells Drilled	 	 	 	 	 	 	 	 	
 	
U.S.	 	 	292	 	 	 	283	 	
Canada	 	 	384	 	 	 	323	 	
International	 	 	9	 	 	 	17	 	
 	
Total	 	 	685	 	 	 	623	 	
 	
Total Wells Success Rate	 	 	 	 	 	 	 	 	
 	
U.S.	 	 	97	%	 	 	96	%	
Canada	 	 	97	%	 	 	90	%	
International	 	 	100	%	 	 	94	%	
 	
Total	 	 	97	%	 	 	93	%	
 	
COMPANY OPERATED RIGS

 	 	March 31,	 	
 	 	2005	 	 	2004	 	
 	
Number of Company Operated Rigs Running	 	 	 	 	 	 	 	 	
 	
U.S.	 	 	54	 	 	 	47	 	
Canada	 	 	7	 	 	 	13	 	
International	 	 	2	 	 	 	2	 	
 	
Total	 	 	63	 	 	 	62	 	
 	
CAPITAL EXPENDITURES DATA
(in millions)

 	 	Quarter Ended	 	
 	 	March 31,	 	
 	 	2005	 	 	2004	 	
 	
Capital Expenditures	 	 	 	 	 	 	 	 	
 	
U.S. Onshore	 	$	333	 	 	 	212	 	
U.S. Offshore	 	 	106	 	 	 	71	 	
 	
Total U.S.	 	 	439	 	 	 	283	 	
Canada	 	 	474	 	 	 	346	 	
International	 	 	32	 	 	 	35	 	
Marketing & midstream	 	 	12	 	 	 	11	 	
Capitalized general & administrative costs	 	 	47	 	 	 	42	 	
Capitalized interest costs	 	 	19	 	 	 	17	 	
Corporate	 	 	7	 	 	 	30	 	
 	
Total	 	$	1,030	 	 	 	764	 	
 	
Page 10

 

Non-GAAP Financial Measures
     The United States Securities and Exchange Commission requires public companies such as Devon to reconcile Non-GAAP (GAAP refers to generally accepted accounting principles) financial measures to related GAAP measures. Cash flow before balance sheet changes and net debt are Non-GAAP financial measures. Devon believes cash flow before balance sheet changes is relevant because it is a measure of cash available to fund the company’s capital expenditures, dividends and to service its debt. Cash flow before balance sheet changes is also used by certain securities analysts as a measure of Devon’s financial results. 
RECONCILIATION TO GAAP INFORMATION
(in millions)

 	 	Quarter Ended	 	
 	 	March 31,	 	
 	 	2005	 	 	2004	 	
 	
Net Cash Provided By Operating Activities (GAAP)	 	$	1,388	 	 	 	1,223	 	
 	
Changes in assets and liabilities, net of effects of acquisitions of businesses	 	 	(319	)	 	 	(57	)	
 	
Cash flow before balance sheet changes (Non-GAAP)	 	$	1,069	 	 	 	1,166	 	
 	
     Devon believes that using net debt, defined as debt less cash and the debentures exchangeable into shares of ChevronTexaco common stock, for the calculation of net debt to adjusted capitalization provides a better measure than using debt. Management believes that because cash can be used to repay indebtedness, netting cash against debt provides a clearer picture of the future demands on cash to repay debt. Also, included in Devon’s indebtedness are $696 million of debentures exchangeable into 14.2 million shares of ChevronTexaco common stock owned outright by Devon. Since these shares, with a market value of $827 million as of March 31, 2005, are being held by Devon exclusively to satisfy the related indebtedness, Devon believes netting the value of the debentures provides a clearer picture of future demands on cash to repay debt. This methodology is also utilized by various lenders, rating agencies and securities analysts as a measure of Devon’s indebtedness.
Page 11