DEVON ENERGY CORP/DE, 10-Q filed on 8/6/2009
Quarterly Report
Document and Entity Information (USD $)
In Billions, except Share data in Millions
Jul. 31, 2009
6 Months Ended
Jun. 30, 2009
Jun. 29, 2008
Document and Entity Information
 
 
 
Document Type
 
10-Q 
 
Document Period End Date
 
06/30/2009 
 
Amendment Flag
 
FALSE 
 
Entity Registrant Name
 
Devon Energy Corporation 
 
Entity Central Index Key
 
0001090012 
 
Entity Current Reporting Status
 
Yes 
 
Entity Voluntary Filers
 
No 
 
Current Fiscal Year End Date
 
12/31 
 
Entity Filer Category
 
Large Accelerated Filer 
 
Entity Well-known Seasoned Issuer
 
Yes 
 
Entity Common Stock, Shares Outstanding (in shares)
443.8 
 
 
Entity Public Float
 
 
$ 53 
Consolidated Balance Sheets (USD $)
In Millions
Jun. 30, 2009
Dec. 31, 2008
ASSETS
 
 
Current assets:
 
 
Cash and cash equivalents
$ 648 
$ 379 
Accounts receivable
1,318 
1,412 
Income taxes receivable
27 
334 
Derivative financial instruments, at fair value
226 
282 
Other current assets
358 
277 
Total current assets
2,577 
2,684 
Property and equipment, at cost, based on the full cost method of accounting for oil and gas properties ($4,298 and $4,551 excluded from amortization in 2009 and 2008, respectively)
59,086 
55,664 
Less accumulated depreciation, depletion and amortization
40,999 
32,683 
Property and equipment, net
18,087 
22,981 
Goodwill
5,710 
5,579 
Other long-term assets, including $180 million and $199 million at fair value in 2009 and 2008, respectively
683 
664 
Total assets
27,057 
31,908 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
Current liabilities:
 
 
Accounts payable - trade
1,074 
1,825 
Revenues and royalties due to others
377 
496 
Short-term debt
1,508 
180 
Current portion of asset retirement obligations, at fair value
175 
138 
Accrued expenses and other current liabilities
358 
496 
Total current liabilities
3,492 
3,135 
Long-term debt
5,849 
5,661 
Asset retirement obligations, at fair value
1,411 
1,347 
Other long-term liabilities
1,036 
1,026 
Deferred income taxes
1,587 
3,679 
Stockholders' equity:
 
 
Common stock of $0.10 par value. Authorized 1.0 billion shares; issued 443.9 million and 443.7 million shares in 2009 and 2008, respectively
44 
44 
Additional paid-in capital
6,363 
6,257 
Retained earnings
6,589 
10,376 
Accumulated other comprehensive income
686 
383 
Total stockholders' equity
13,682 
17,060 
Commitments and contingencies (Note 11)
 
 
Total liabilities and stockholders' equity
$ 27,057 
$ 31,908 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Per Share data
6 Months Ended
Jun. 30, 2009
Year Ended
Dec. 31, 2008
Property and equipment, at cost, based on the full cost method of accounting for oil and gas properties excluded from amortization
$ 4,298 
$ 4,551 
Other long-term assets at fair value
180 
199 
Common stock, par value (in dollars per share)
0.1 
0.1 
Common stock, shares authorized (in shares)
1,000 
1,000 
Common stock, shares issued (in shares)
443.9 
443.7 
Consolidated Statements of Operations (USD $)
In Millions, except Per Share data
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
3 Months Ended
Jun. 30, 2008
6 Months Ended
Jun. 30, 2008
Revenues:
 
 
 
 
Oil sales
$ 808 
$ 1,262 
$ 1,455 
$ 2,705 
Gas sales
740 
1,653 
2,210 
3,840 
NGL sales
170 
306 
379 
707 
Net gain (loss) on oil and gas derivative financial instruments
13 
167 
(1,215)
(2,003)
Marketing and midstream revenues
359 
730 
719 
1,274 
Total revenues
2,090 
4,118 
3,548 
6,523 
Expenses and other income, net:
 
 
 
 
Lease operating expenses
510 
1,034 
537 
1,043 
Production taxes
47 
89 
176 
310 
Marketing and midstream operating costs and expenses
234 
463 
515 
897 
Depreciation, depletion and amortization of oil and gas properties
494 
1,093 
762 
1,499 
Depreciation and amortization of non-oil and gas properties
74 
144 
62 
119 
Accretion of asset retirement obligations
24 
48 
22 
44 
General and administrative expenses
182 
348 
180 
328 
Interest expense
90 
173 
90 
192 
Change in fair value of other financial instruments
(10)
(15)
(40)
(24)
Reduction of carrying value of oil and gas properties
6,516 
Other expense (income), net
20 
27 
(17)
(38)
Total expenses and other income, net
1,665 
9,920 
2,287 
4,370 
Earnings (loss) from continuing operations before income taxes
425 
(5,802)
1,261 
2,153 
Income tax expense (benefit):
 
 
 
 
Current
51 
53 
414 
517 
Deferred
77 
(2,194)
253 
391 
Total income tax expense (benefit)
128 
(2,141)
667 
908 
Earnings (loss) from continuing operations
297 
(3,661)
594 
1,245 
Discontinued operations:
 
 
 
 
Earnings from discontinued operations before income taxes
17 
16 
851 
1,040 
Income tax expense
144 
235 
Earnings from discontinued operations
17 
16 
707 
805 
Net earnings (loss)
314 
(3,645)
1,301 
2,050 
Preferred stock dividends
Net earnings (loss) applicable to common stockholders
314 
(3,645)
1,298 
2,045 
Basic net earnings (loss) per share:
 
 
 
 
Basic earnings (loss) from continuing operations (in dollars per share)
0.67 
(8.25)
1.33 
2.8 
Basic earnings from discontinued operations (in dollars per share)
0.04 
0.04 
1.58 
1.8 
Basic net earnings (loss) (in dollars per share)
0.71 
(8.21)
2.91 
4.6 
Diluted net earnings (loss) per share:
 
 
 
 
Diluted earnings (loss) from continuing operations (in dollars per share)
0.66 
(8.25)
1.31 
2.76 
Diluted earnings from discontinued operations (in dollars per share)
0.04 
0.04 
1.57 
1.79 
Diluted net earnings (loss) (in dollars per share)
$ 0.7 
$ (8.21)
$ 2.88 
$ 4.55 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Millions
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
3 Months Ended
Jun. 30, 2008
6 Months Ended
Jun. 30, 2008
Net earnings (loss)
$ 314 
$ (3,645)
$ 1,301 
$ 2,050 
Foreign currency translation:
 
 
 
 
Change in cumulative translation adjustment
467 
306 
88 
(294)
Foreign currency translation income tax (expense) benefit
(30)
(19)
(3)
14 
Foreign currency translation total
437 
287 
85 
(280)
Pension and postretirement benefit plans:
 
 
 
 
Recognition of net actuarial loss and prior service cost in net earnings (loss)
12 
24 
Pension and postretirement benefit plans income tax expense
(4)
(8)
(1)
(2)
Pension and postretirement benefit plans total
16 
Other comprehensive earnings (loss), net of tax
445 
303 
88 
(274)
Comprehensive income (loss)
$ 759 
$ (3,342)
$ 1,389 
$ 1,776 
Consolidated Statements of Stockholders' Equity (USD $)
In Millions
Preferred Stock
Treasury Stock
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income
Total
1/1/2008 - 6/30/2008
 
 
 
 
 
 
 
Stockholders' equity, beginning balance
$ 1 
$ 0 
$ 44 
$ 6,743 
$ 12,813 
$ 2,405 
$ 22,006 
Net earnings (loss)
 
 
 
 
2,050 
 
2,050 
Other comprehensive (loss) income
 
 
 
 
 
(274)
(274)
Stock option exercises
 
(4)
107 
 
 
104 
Common stock repurchased
 
(316)
 
 
 
 
(316)
Common stock retired
 
270 
(1)
(269)
 
 
Redemption of preferred stock
(1)
 
 
(149)
 
 
(150)
Common stock dividends
 
 
 
 
(141)
 
(141)
Preferred stock dividends
 
 
 
 
(5)
 
(5)
Share-based compensation
 
 
 
104 
 
 
104 
Share-based compensation tax benefits
 
 
 
55 
 
 
55 
Stockholders' equity, ending balance
(50)
44 
6,591 
14,717 
2,131 
23,433 
Common Stock, Shares, Beginning Balance
 
 
444 
 
 
 
 
Stock option exercises, shares
 
 
 
 
 
 
Common stock retired, shares
 
 
(3)
 
 
 
 
Common Stock, Shares, Ending Balance
 
 
445 
 
 
 
 
4/1/2008 - 6/30/2008
 
 
 
 
 
 
 
Stockholders' equity, beginning balance
 
 
 
 
 
 
 
Net earnings (loss)
 
 
 
 
 
 
1,301 
Other comprehensive (loss) income
 
 
 
 
 
 
88 
Stock option exercises
 
 
 
 
 
 
 
Common stock repurchased
 
 
 
 
 
 
 
Common stock retired
 
 
 
 
 
 
 
Redemption of preferred stock
 
 
 
 
 
 
 
Common stock dividends
 
 
 
 
 
 
 
Preferred stock dividends
 
 
 
 
 
 
 
Share-based compensation
 
 
 
 
 
 
 
Share-based compensation tax benefits
 
 
 
 
 
 
 
Stockholders' equity, ending balance
 
 
 
 
 
 
23,433 
Common Stock, Shares, Beginning Balance
 
 
 
 
 
 
 
Stock option exercises, shares
 
 
 
 
 
 
 
Common stock retired, shares
 
 
 
 
 
 
 
Common Stock, Shares, Ending Balance
 
 
 
 
 
 
 
1/1/2009 - 6/30/2009
 
 
 
 
 
 
 
Stockholders' equity, beginning balance
 
44 
6,257 
10,376 
383 
17,060 
Net earnings (loss)
 
 
 
 
(3,645)
 
(3,645)
Other comprehensive (loss) income
 
 
 
 
 
303 
303 
Stock option exercises
 
 
 
 
Common stock repurchased
 
(11)
 
 
 
 
(11)
Common stock retired
 
11 
(11)
 
 
Redemption of preferred stock
 
 
 
 
 
 
Common stock dividends
 
 
 
 
(142)
 
(142)
Preferred stock dividends
 
 
 
 
 
 
 
Share-based compensation
 
 
 
103 
 
 
103 
Share-based compensation tax benefits
 
 
 
 
 
Stockholders' equity, ending balance
 
44 
6,363 
6,589 
686 
13,682 
Common Stock, Shares, Beginning Balance
 
 
444 
 
 
 
 
Stock option exercises, shares
 
 
 
 
 
 
Common stock retired, shares
 
 
 
 
 
 
Common Stock, Shares, Ending Balance
 
 
444 
 
 
 
 
4/1/2009 - 6/30/2009
 
 
 
 
 
 
 
Stockholders' equity, beginning balance
 
 
 
 
 
 
 
Net earnings (loss)
 
 
 
 
 
 
314 
Other comprehensive (loss) income
 
 
 
 
 
 
445 
Stock option exercises
 
 
 
 
 
 
 
Common stock repurchased
 
 
 
 
 
 
 
Common stock retired
 
 
 
 
 
 
 
Redemption of preferred stock
 
 
 
 
 
 
 
Common stock dividends
 
 
 
 
 
 
 
Preferred stock dividends
 
 
 
 
 
 
 
Share-based compensation
 
 
 
 
 
 
 
Share-based compensation tax benefits
 
 
 
 
 
 
 
Stockholders' equity, ending balance
 
 
 
 
 
 
13,682 
Common Stock, Shares, Beginning Balance
 
 
 
 
 
 
 
Stock option exercises, shares
 
 
 
 
 
 
 
Common stock retired, shares
 
 
 
 
 
 
 
Common Stock, Shares, Ending Balance
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Millions
6 Months Ended
Jun. 30,
2009
2008
Cash and Cash Equivalents, Period Increase (Decrease) [Abstract]
 
 
Cash flows from operating activities:
 
 
Net earnings (loss)
$ (3,645)
$ 2,050 
Earnings from discontinued operations, net of tax
(16)
(805)
Adjustments to reconcile (loss) earnings from continuing operations to net cash provided by operating activities:
 
 
Depreciation, depletion and amortization
1,237 
1,618 
Deferred income tax (benefit) expense
(2,194)
391 
Reduction of carrying value of oil and gas properties
6,516 
Net unrealized loss on oil and gas derivative financial instruments
65 
1,692 
Other noncash charges
134 
122 
Net increase in working capital
(89)
(132)
Decrease (increase) in long-term other assets
43 
(37)
Increase in long-term other liabilities
19 
181 
Cash provided by operating activities - continuing operations
2,070 
5,080 
Cash provided by operating activities - discontinued operations
106 
Net cash provided by operating activities
2,077 
5,186 
Cash flows from investing activities:
 
 
Proceeds from sales of property and equipment
108 
Capital expenditures
(3,201)
(3,870)
Purchases of short-term investments
(50)
Sales of long-term and short-term investments
295 
Cash used in investing activities - continuing operations
(3,195)
(3,517)
Cash provided by investing activities - discontinued operations
1,712 
Net cash used in investing activities
(3,193)
(1,805)
Cash flows from financing activities:
 
 
Proceeds from borrowings of long-term debt, net of issuance costs
1,187 
Credit facility repayments
(3,070)
Credit facility borrowings
1,620 
Net commercial paper borrowings (repayments)
325 
(1,004)
Debt repayments
(1)
(47)
Redemption of preferred stock
(150)
Proceeds from stock option exercises
104 
Repurchases of common stock
(252)
Dividends paid on common and preferred stock
(142)
(146)
Excess tax benefits related to share-based compensation
55 
Net cash provided by (used in) financing activities
1,383 
(2,890)
Effect of exchange rate changes on cash
(19)
Net increase in cash and cash equivalents
272 
472 
Cash and cash equivalents at beginning of period (including cash related to assets held for sale)
384 
1,373 
Cash and cash equivalents at end of period (including cash related to assets held for sale)
$ 656 
$ 1,845 
Summary of Significant Accounting Policies
1. Summary of Significant Accounting Policies

1.     Summary of Significant Accounting Policies 

 

The accompanying unaudited consolidated 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 consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes included in Devon's 2008 Annual Report on Form 10-K. 

 

The unaudited interim consolidated 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 June 30, 2009 and Devon's results of operations and cash flows for the three-month and six-month periods ended June 30, 2009 and 2008. To prepare the accompanying financial statements and notes, Devon's management evaluated events or transactions that occurred subsequent to June 30, 2009 and before August 5, 2009, which was the date these financial statements were issued.

 

Recently Issued Accounting Standards Not Yet Adopted

 

In December 2008, the FASB issued Staff Position No. FAS 132(R)-1, "Employers' Disclosures about Postretirement Benefit Plan Assets." Staff Position 132(R)-1 amends FASB Statement No. 132 (revised 2003), Employers' Disclosures about Pensions and Other Postretirement Benefits, to require additional disclosures about the types of assets and associated risks in an employer's defined benefit pension or other postretirement plan. Staff Position 132(R)-1 is effective for fiscal years ending after December 15, 2009. Devon is evaluating the impact the adoption of Staff Position 132(R)-1 will have on its financial statement disclosures. However, Devon's adoption of Staff Position 132(R)-1 will not affect its current accounting for its pension and postretirement plans.

 

Modernization of Oil and Gas Reporting

 

In December 2008, the SEC adopted revisions to its required oil and gas reporting disclosures. The revisions are intended to provide investors with a more meaningful and comprehensive understanding of oil and gas reserves. In the three decades that have passed since adoption of these disclosure items, there have been significant changes in the oil and gas industry. The amendments are designed to modernize and update the oil and gas disclosure requirements to align them with current practices and changes in technology. In addition, the amendments concurrently align the SEC's full cost accounting rules with the revised disclosures. The revised disclosure requirements must be incorporated in registration statements filed on or after January 1, 2010, and annual reports on Form 10-K for fiscal years ending on or after December 31, 2009. A company may not apply the new rules to disclosures in quarterly reports prior to the first annual report in which the revised disclosures are required.

 

The following amendments have the greatest likelihood of affecting Devon's reserve disclosures, including the comparability of its reserves disclosures with those of its peer companies:

 

·         Pricing mechanism for oil and gas reserves estimation – The SEC's current rules require proved reserve estimates to be calculated using prices as of the end of the period and held constant over the life of the reserves. Price changes can be made only to the extent provided by contractual arrangements. The revised rules require reserve estimates to be calculated using a 12-month average price. The 12-month average price will also be used for purposes of calculating the full cost ceiling limitations. Price changes can still be incorporated to the extent defined by contractual arrangements. The use of a 12-month average price rather than a single-day price is expected to reduce the impact on reserve estimates and the full cost ceiling limitations due to short-term volatility and seasonality of prices.

 

·         Reasonable certainty – The SEC's current definition of "proved oil and gas reserves" incorporate certain specific concepts such as "lowest known hydrocarbons," which limits the ability to claim proved reserves in the absence of information on fluid contacts in a well penetration, notwithstanding the existence of other engineering and geoscientific evidence. The revised rules amend the definition to permit the use of new reliable technologies to establish the reasonable certainty of proved reserves. This revision also includes provisions for establishing levels of lowest known hydrocarbons and highest known oil through reliable technology other than well penetrations.

 

The revised rules also amend the definition of proved oil and gas reserves to include reserves located beyond development spacing areas that are immediately adjacent to developed spacing areas if economic producibility can be established with reasonable certainty. These revisions are designed to permit the use of reliable technologies to establish proved reserves in lieu of requiring companies to use specific tests. In addition, they establish a uniform standard of reasonable certainty that applies to all proved reserves, regardless of location or distance from producing wells.

 

Because the revised rules generally expand the definition of proved reserves, Devon expects its proved reserve estimates will increase upon adoption of the revised rules. However, Devon is not able to estimate the magnitude of the potential increase at this time.

 

·         Unproved reserves – The SEC's current rules prohibit disclosure of reserve estimates other than proved in documents filed with the SEC. The revised rules permit disclosure of probable and possible reserves and provide definitions of probable reserves and possible reserves. Disclosure of probable and possible reserves is optional. However, such disclosures must meet specific requirements. Disclosures of probable or possible reserves must provide the same level of geographic detail as proved reserves and must state whether the reserves are developed or undeveloped. Probable and possible reserve disclosures must also provide the relative uncertainty associated with these classifications of reserves estimations. Devon has not yet determined whether it will disclose its probable and possible reserves in documents filed with the SEC.

 

Accounts Receivable
2. Accounts Receivable

2.  Accounts Receivable

 

The components of accounts receivable include the following:

 

 

June 30, 2009

December 31, 2008

 

(In millions)

Oil, gas and NGL revenues............................................................................

$                  719

$                  789

Joint interest billings........................................................................................

                     207

                     263

Marketing and midstream revenues............................................................

                     127

                     153

Production tax credits.....................................................................................

                     210

                     170

Other..................................................................................................................

                       61

                       42

    Gross accounts receivable.........................................................................

                 1,324

                 1,417

Allowance for doubtful accounts.................................................................

                        (6)

                        (5)

    Net accounts receivable.............................................................................

$               1,318

$               1,412

 

Derivative Financial Instruments
3. Derivative Financial Instruments

3.  Derivative Financial Instruments

 

Devonperiodically enters into commodity and interest rate derivative financial instruments. These instruments are used to manage the inherent uncertainty of future revenues due to oil and gas price volatility and to manage Devon's exposure to interest rate volatility. Also, during the first eight months of 2008, Devon was subject to an embedded option derivative related to the fair value of its debentures exchangeable into shares of Chevron common stock.

 


The following table presents the fair values of derivative assets and liabilities included in the accompanying balance sheets. None of Devon's derivative instruments included in the table have been designated as hedging instruments.

 

 

Balance Sheet Caption

Asset

Liability

 

 

(In millions)

June 30, 2009:

 

 

 

  Gas price collars...................

Derivative financial instruments, current..............................

$      190

$        

  Interest rate swaps..............

Derivative financial instruments, current..............................

           36

          

  Interest rate swaps..............

Long-term other assets.............................................................

           62

          

  Total derivatives..............................................................................................................................

$      288

$        

 

 

 

 

December 31, 2008:

 

 

 

  Gas price collars...................

Derivative financial instruments, current..............................

$      255

$        

  Interest rate swaps..............

Derivative financial instruments, current..............................

           27

          

  Interest rate swaps..............

Long-term other assets.............................................................

           77

          

  Total derivatives..............................................................................................................................

$      359

$        

 

The following table presents the cash settlements and unrealized gains and losses on fair value changes included in the accompanying statements of operations associated with these derivative financial instruments. None of Devon's derivative instruments included in the table have been designated as hedging instruments.

 

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2009

2008

2009

2008

 

(In millions)

Cash settlements receipts (payments):

 

 

 

 

    Gas price collars (1).........................................................

$             114

$            (150)

$             232

$            (150)

    Gas price swaps (1)..........................................................

                 

              (153)

                 

              (161)

    Interest rate swaps (2).....................................................

                    5

                 

                  21

                 

     Total cash settlements...................................................

               119

              (303)

               253

              (311)

 

 

 

 

 

Unrealized (losses) gains:

 

 

 

 

    Gas price collars (1).........................................................

              (101)

              (620)

                (65)

           (1,028)

    Gas price swaps (1)..........................................................

                 

              (247)

                 

              (618)

    Oil price collars (1)...........................................................

                 

                (45)

                 

                (46)

    Interest rate swaps (2).....................................................

                    5

                 

                   (6)

                 

    Embedded option (2)......................................................

                 

              (155)

                 

                (58)

    Total unrealized losses....................................................

                (96)

           (1,067)

                (71)

           (1,750)

Net gain (loss) recognized on statement of operations.

$               23

$        (1,370)

$             182

$        (2,061)

________________

(1)   Cash settlements and unrealized gains and losses on fair value changes associated with Devon’s gas price collars, gas price swaps and oil price collars have been recorded in the “Net gain (loss) on oil and gas derivate financial instruments” line item in the accompanying statements of operations. 

 

(2)   Cash settlements and unrealized gains and losses on fair value changes associated with Devon’s interest rate swaps and embedded option have been recorded in the “Change in fair value of other financial instruments” line item in the accompanying statements of operations. 

 

Other Current Assets
4. Other Current Assets

4.     Other Current Assets

 

  The components of other current assets include the following: 

 

 

June 30, 2009

December 31, 2008

 

(In millions)

Inventories........................................................................................................

$                  275

$                  197

Prepaid assets...................................................................................................

                       43

                       49

Other..................................................................................................................

                       40

                       31

    Other current assets.....................................................................................

$                  358

$                  277

 

Property and Equipment
5. Property and Equipment

5.     Property and Equipment

 

In the first quarter of 2009, Devon reduced the carrying values of certain of its oil and gas properties due to full cost ceiling limitations. These reductions are discussed in Note 13.

 

Goodwill
6. Goodwill

6.     Goodwill

 

During the first six months of 2009, Devon's goodwill increased $131 million. This increase related to Devon's Canadian goodwill and was entirely due to foreign currency translation.

 

Debt
7. Debt

7.     Debt

 

5.625% Senior Notes Due January 15, 2014 and 6.30% Senior Notes Due January 15, 2019

 

In January 2009, Devon issued $500 million of 5.625% senior unsecured notes due January 15, 2014 and $700 million of 6.30% senior unsecured notes due January 15, 2019. The net proceeds received of $1.187 billion, after discounts and issuance costs, were used primarily to repay Devon's $1.0 billion of outstanding commercial paper as of December 31, 2008.

 

Credit Lines

 

Devon has two syndicated, unsecured revolving lines of credit that can be accessed to provide liquidity as needed. The following schedule summarizes the capacity of Devon's credit facilities by maturity date, as well as its available capacity as of June 30, 2009.

 

Description

Amount

 

(In millions)

Senior Credit Facility maturities:

 

  April 7, 2012.......................................................................................................

$          500

  April 7, 2013.......................................................................................................

         2,150

Senior Credit Facility total capacity................................................................

         2,650

Short-Term Facility total capacity – November 3, 2009 maturity............

            700

Total credit facility capacity.............................................................................

         3,350

Less:

 

  Outstanding credit facility borrowings...........................................................

              

  Outstanding commercial paper borrowings..................................................

         1,330

  Outstanding letters of credit............................................................................

            111

Total available capacity....................................................................................

$       1,909

 

The credit facilities contain only one material financial covenant. This covenant requires Devon’s ratio of total funded debt to total capitalization to be less than 65%. The credit agreement contains definitions of total funded debt and total capitalization that include adjustments to the respective amounts reported in the consolidated financial statements. Also, total capitalization is adjusted to add back noncash financial writedowns such as full cost ceiling impairments or goodwill impairments. As of June 30, 2009, Devon was in compliance with this covenant. Devon’s debt-to-capitalization ratio at June 30, 2009, as calculated pursuant to the terms of the agreement, was 21.8%.

 

Commercial Paper

 

Subsequent to the $1.0 billion commercial paper repayment in January 2009, Devon utilized additional commercial paper borrowings of $1.3 billion to fund capital expenditure payments in excess of cash generated by operating activities during the first half of 2009. As of June 30, 2009, Devon’s average borrowing rate on its $1.3 billion of commercial paper debt was 0.48%.

 

Asset Retirement Obligations
8. Asset Retirement Obligations

8.     Asset Retirement Obligations  

 

The following is a summary of the changes in Devon’s asset retirement obligations (“ARO”) for the first six months of 2009 and 2008.

 

 

Six Months

Ended June 30,

 

2009

2008

 

(In millions)

ARO as of beginning of period........................................................................................................

$             1,485

$             1,318

  Liabilities incurred............................................................................................................................

                     43

                     29

  Liabilities settled...............................................................................................................................

                   (43)

                   (40)

  Revision of estimated obligation...................................................................................................

                     23

                  162

  Accretion expense on discounted obligation...............................................................................

                     48

                     44

  Foreign currency translation adjustment.....................................................................................

                     30

                   (20)

ARO as of end of period...................................................................................................................

               1,586

               1,493

Less current portion...........................................................................................................................

                  175

                     63

ARO, long-term...................................................................................................................................

$             1,411

$             1,430

 

Retirement Plans
9. Retirement Plans

9.     Retirement Plans

Net Periodic Benefit Cost and Other Comprehensive Income

 

The following table presents the components of net periodic benefit cost and other comprehensive income for Devon’s pension and other post retirement benefit plans for the three-month and six-month periods ended June 30, 2009 and 2008.

 

 

Pension Benefits

Other Postretirement Benefits

 

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended June 30,

Six Months Ended June 30,

 

2009

2008

2009

2008

2009

2008

2009

2008

 

(In millions)

Net periodic benefit cost:

          

     

 

 

 

 

       

       

  Service cost.......................................

$        11

$        10

$        22

$        20

$       

$       

$       

$       

  Interest cost......................................

          14

          14

          28

          28

            1

            2

            2

            4

  Expected return on plan assets.....

           (9)

         (13)

         (18)

         (26)

         

         

         

         

  Amortization of prior service cost

            1

         

            2

         

         

         

         

         

  Net actuarial loss.............................

          11

            4

          22

            8

         

         

         

         

     Net periodic benefit cost..............

          28

          15

          56

          30

            1

            2

            2

            4

Other comprehensive income:

 

 

 

 

 

 

 

 

  Recognition of prior service cost

     in net periodic benefit cost..........

              

           (1)

              

         

              

           (2)

              

         

 

         

              

         

              

         

              

         

  Recognition of net actuarial loss

     in net periodic benefit cost..........

                        (11)

                          (4)

                        (22)

                          (8)

                        

                        

                        

                        

Total recognized................................

$        16

$        11

$        32

$        22

$          1

$          2

$          2

$          4

 

Devon previously disclosed in its 2008 Annual Report on Form 10-K that it expected to contribute up to approximately $183 million to its defined benefit pension plans in 2009 and $5 million to its defined benefit postretirement plans in 2009. Devon has revised its estimate of 2009 defined benefit pension plan contributions to $55 million. As of June 30, 2009, Devon has contributed $15 million to its defined benefit pension plans and $2 million to its defined benefit postretirement plans.

 

Stockholders' Equity
10. Stockholders' Equity

10.  Stockholders' Equity  

 

Stock Repurchases

 

During the first six months of 2008, Devon repurchased 2.8 million common shares for $302 million, or $106.01 per share, under programs approved by its Board of Directors. The 2.8 million common shares include 2.0 million shares that were repurchased under Devon's 50 million share repurchase program and 0.8 million shares that were repurchased under Devon's ongoing, annual stock repurchase program.  No such repurchases were made during the first six months of 2009.

 

Dividends

 

Devon paid common stock dividends of $142 million and $141 million (quarterly rates of $0.16 per share) in the first six months of 2009 and 2008, respectively. Devon paid preferred stock dividends of $5 million in the first half of 2008. Devon redeemed all 1.5 million outstanding shares of its preferred stock on June 20, 2008.

 

Commitments and Contingencies
11. Commitments and Contingencies

11.    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 that 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. However, actual amounts could differ materially from management's estimate.

 

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 ("CERCLA") and similar state statutes. In response to liabilities associated with these activities, accruals have been established when reasonable estimates are possible. Such accruals primarily include estimated costs associated with remediation. Devon has not used discounting in determining its accrued liabilities for environmental remediation, and no material claims for possible recovery from third party insurers or other parties related to environmental costs have been recognized in Devon's consolidated financial statements. Devon adjusts the accruals when new remediation responsibilities are discovered and probable costs become estimable, or when current remediation estimates must be adjusted to reflect new information.

 

Certain of Devon's subsidiaries are involved in matters in which it has been alleged that such subsidiaries are potentially responsible parties ("PRPs") under CERCLA or similar state legislation with respect to various waste disposal areas owned or operated by third parties. As of June 30, 2009, Devon's balance sheet included $1 million of accrued liabilities, reflected in other long-term liabilities, related to these and other environmental remediation liabilities. Devon does not currently believe there is a reasonable possibility of incurring additional material costs in excess of the current accruals recognized for such environmental remediation activities. With respect to the sites in which Devon subsidiaries are PRPs, Devon's conclusion is based in large part on (i) Devon's participation in consent decrees with both other PRPs and the Environmental Protection Agency, which provide for performing the scope of work required for remediation and contain covenants not to sue as protection to the PRPs, (ii) participation in groups as a de minimis PRP, and (iii) the availability of other defenses to liability. As a result, Devon's monetary exposure is not expected to be material.

 


Royalty Matters

 

Numerous natural gas producers and related parties, including Devon, have been named in various lawsuits alleging violation of the federal False Claims Act. The suits allege that the producers and related parties used below-market prices, improper deductions, improper measurement techniques and transactions with affiliates, which resulted in underpayment of royalties in connection with natural gas and NGLs produced and sold from federal and Indian owned or controlled lands. The principal suit in which Devon is a defendant is United States ex rel. Wright v. Chevron USA, Inc. et al. (the "Wright case"). The suit was originally filed in August 1996 in the United States District Court for the Eastern District of Texas, but was consolidated in October 2000 with other suits for pre-trial proceedings in the United States District Court for the District of Wyoming. On July 10, 2003, the District of Wyoming remanded the Wright case back to the Eastern District of Texas to resume proceedings. On April 12, 2007, the court entered a trial plan and scheduling order in which the case will proceed in phases. Two phases have been scheduled to date. The first phase was scheduled to begin in August 2008, but the defendant settled prior to trial. The second phase was scheduled to begin in February 2009, but the defendants settled prior to trial. Devon was not included in the groups of defendants selected for these first two phases. Devon believes that it has acted reasonably, has legitimate and strong defenses to all allegations in the suit, and has paid royalties in good faith. Devon does not currently believe that it is subject to material exposure with respect to this lawsuit and, therefore, no liability related to this lawsuit has been recorded.

 

In 1995, the United States Congress passed the Deep Water Royalty Relief Act. The intent of this legislation was to encourage deep water exploration in the Gulf of Mexico by providing relief from the obligation to pay royalties on certain federal leases. Deep water leases issued in certain years by the Minerals Management Service (the "MMS") have contained price thresholds, such that if the market prices for oil or gas exceeded the thresholds for a given year, royalty relief would not be granted for that year. Deep water leases issued in 1998 and 1999 did not include price thresholds.

 

The U.S. House of Representatives in January 2007 passed legislation that would have required companies to renegotiate the 1998 and 1999 leases as a condition of securing future federal leases. This legislation was not passed by the U.S. Senate. However, Congress may consider similar legislation in the future. In October 2007, a federal district court ruled in favor of a plaintiff who had challenged the legality of including price thresholds in deep water leases. Additionally, in January 2009 a federal appellate court upheld this district court ruling. This judgment is subject to further appeals.

 

As of June 30, 2009, Devon had $82 million accrued for potential royalties on various deep water leases. Due to the uncertainty of this issue caused by the favorable federal court decisions and potential Congressional actions, Devon has ceased accruing additional royalties on its affected leases. Devon will continue to monitor developments and adjust its accruals as necessary.

 

Other Matters

 

Devon is involved in other various routine legal proceedings incidental to its business. However, to Devon's knowledge as of the date these financial statements were issued, neither Devon nor its property is subject to any material pending legal proceedings.

 

Fair Value Measurements
12. Fair Value Measurements

12.  Fair Value Measurements 

 

Certain of Devon's assets and liabilities are reported at fair value in the accompanying balance sheets. Such assets and liabilities include amounts for both financial and nonfinancial instruments. The following tables provide carrying value and fair value measurement information for such assets and liabilities as of June 30, 2009 and December 31, 2008.

 

 

As of June 30, 2009

 

 

 

Fair Value Measurements Using:

 

Carrying Amount

Total Fair Value

Quoted Prices in Active Markets

(Level 1)

Significant Other Observable Inputs

(Level 2)

Significant Unobservable Inputs

(Level 3)

 

(In millions)

Financial Assets (Liabilities):

 

 

 

 

 

    Long-term investments............................................

$        118

$       118

$     

$         

$        118

    Gas price collars.........................................................

$        190

$       190

$     

$        190

$          

    Interest rate swaps....................................................

$           98

$         98

$      

$          98

$          

    Debt.............................................................................

$    (7,357)

$  (8,000)

$ (1,330)

$   (6,670)

$          

Asset retirement obligations........................................

$    (1,586)

$  (1,586)

$      

$         

$    (1,586)

 

 

As of December 31, 2008

 

 

 

Fair Value Measurements Using:

 

Carrying Amount

Total Fair Value

Quoted Prices in Active Markets

(Level 1)

Significant Other Observable Inputs

(Level 2)

Significant Unobservable Inputs

(Level 3)

 

(In millions)

Financial Assets (Liabilities):

 

 

 

 

 

    Long-term investments............................................

$        122

$       122

$      

$         

$        122

    Gas price collars.........................................................

$        255

$       255

$      

$        255

$          

    Interest rate swaps....................................................

$        104

$       104

$      

$        104

$          

    Debt.............................................................................

$    (5,841)

$  (6,106)

$ (1,005)

$   (5,101)

$          

Asset retirement obligations........................................

$    (1,485)

$  (1,485)

$      

$         

$    (1,485)

 

A summary of the changes in Devon's asset retirement obligations during the first half of 2009 is included in Note 8. Included below is a summary of the changes in Devon's other Level 3 fair value measurements during the first half of 2009 (in millions).

 

Beginning balance.........................................................

$        122

Redemptions of principal.............................................

              (4)

Ending balance..............................................................

$        118

 

Reduction of Carrying Value of Oil and Gas Properties
13. Reduction of Carrying Value of Oil and Gas Properties

13.  Reduction of Carrying Value of Oil and Gas Properties

 

In the first quarter of 2009, Devon reduced the carrying values of certain of its oil and gas properties due to full cost ceiling limitations. A summary of these reductions and additional discussion is provided below.

 

 

March 31, 2009

 

 

 

Gross

Net of

Taxes

 

(In millions)

  United States....................................................................

$ 6,408

$ 4,085

  Brazil.................................................................................

       103

       103

  Russia................................................................................

           5

           2

     Total...............................................................................

$ 6,516

$ 4,190 

 

The United States reduction resulted primarily from a significant decrease in the full cost ceiling during the first three months of 2009. The lower ceiling value in the United States largely resulted from the continued effects of declining natural gas prices subsequent to December 31, 2008.

 

Although oil prices improved subsequent to December 31, 2008, Brazil's reduction resulted largely from an exploratory well drilled at the BM-BAR-3 block in the offshore Barreirinhas Basin. After drilling this well in the first quarter of 2009, Devon concluded that the well did not have adequate reserves for commercial viability. As a result, the seismic, leasehold and drilling costs associated with this well contributed to the reduction recognized in the first quarter of 2009.

 

To demonstrate the changes in the full-cost ceiling for the United States and Brazil, the March 31, 2009 and December 31, 2008 weighted average wellhead prices are presented in the following table.

 

 

March 31, 2009

December 31, 2008

 

Country

Oil

(Per Bbl)

Gas

(Per Mcf)

NGLs

(Per Bbl)

Oil

(Per Bbl)

Gas

(Per Mcf)

NGLs

(Per Bbl)

United States..........................

$47.30

$2.67

$17.04

$42.21

$4.68

$16.16

Brazil.......................................

$36.71

N/A

N/A

$26.61

N/A

N/A

__________________

N/A – Not applicable.

 

The March 31, 2009 oil and gas wellhead prices in the table above compare to the NYMEX cash price of $49.66 per Bbl for crude oil and the Henry Hub spot price of $3.63 per MMBtu for gas. The December 31, 2008 oil and gas wellhead prices in the table above compare to the NYMEX cash price of $44.60 per Bbl for crude oil and the Henry Hub spot price of $5.71 per MMBtu for gas.

 

Discontinued Operations
14. Discontinued Operations

14.  Discontinued Operations

 

At the end of 2008, Devon's operations in Angola were classified as discontinued as a result of Devon's plans and ongoing activities to sell its operations in Angola. Due to a commercial discovery in the second quarter of 2009, Devon suspended marketing its Angolan operations for sale. Although Devon intends to resume marketing activities in 2010 once it has drilled its remaining commitment wells, Devon's operations in Angola do not currently qualify as discontinued. Therefore, Devon has classified all amounts related to its Angolan operations for 2009 and prior years as continuing operations.

 

In the second quarter of 2008, Devon sold its assets and terminated its operations in certain West African countries, consisting primarily of Equatorial Guinea and Gabon. As a result of the sales, Devon recognized gains totaling $736 million ($647 million after taxes) in the second quarter of 2008 from proceeds of $2.4 billion ($1.7 billion net of income taxes and purchase price adjustments). During the second quarter of 2009, Devon recognized a $17 million gain in conjunction with post-closing settlements related to these sales, as well as the sale of its assets in Cote D'Ivoire in the third quarter of 2008.

 

Operating revenues related to Devon’s discontinued operations totaled $127 million in the three months ended June 30, 2008 and $332 million in the six months ended June 30, 2008. There were no operating revenues related to Devon's discontinued operations for the three-month and six-month periods ended June 30, 2009.

 

The following table presents the main classes of assets and liabilities associated with Devon’s discontinued operations as of June 30, 2009 and December 31, 2008.  

 

 

Devon's Consolidated

Balance Sheet Caption

June 30,

2009

December 31, 2008

 

 

(In millions)

Cash and other current assets....................................................

Other current assets

$                   18

$                     14

Property and equipment, net of accumulated depreciation,

  depletion and amortization......................................................

 

Other long-term assets

 

$                     8

 

$                       9

Accounts payable and other current liabilities........................

Other current liabilities

$                   10

$                       6

 

Earnings (Loss) Per Share
15. Earnings (Loss) Per Share

15.  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 (loss) per share for the three-month and six-month periods ended June 30, 2009 and 2008. Because a net loss from continuing operations was generated during the six-month period ended June 30, 2009, the dilutive shares produce an antidilutive net loss per share result. Therefore, the diluted loss per share from continuing operations in the six months ended June 30, 2009 reported in the accompanying 2009 statement of operations is the same as the basic loss per share amount.

 

 

 

 

Earnings (Loss)

 

Common Shares

Earnings (Loss)

per Share

 

 

 

(In millions, except per share amounts)

Three Months Ended June 30, 2009:

 

 

 

  Earnings from continuing operations...............................................

$           297

             444

 

  Attributable to participating securities.............................................

                (5)

                (5)

 

  Basic earnings per share.....................................................................

              292

              439

$              0.67

  Dilutive effect of potential common shares issuable

     upon the exercise of outstanding stock options..........................

 

               

 

                  2

 

                   

  Diluted earnings per share..................................................................

$           292

             441

$              0.66

 

 

 

 

Three Months Ended June 30, 2008:

                   

                   

                   

  Earnings from continuing operations...............................................

$           594

             446

 

  Attributable to participating securities.............................................

                (4)

                (4)

 

  Less preferred stock dividends..........................................................

                (3)

               

 

  Basic earnings per share.....................................................................

             587

             442

$              1.33

  Dilutive effect of potential common shares issuable

     upon the exercise of outstanding stock options..........................

 

               

 

                  4

 

                   

  Diluted earnings per share..................................................................

$           587

             446

$              1.31

 

 

 

 

Six Months Ended June 30, 2009:

                   

                   

                   

  Loss from continuing operations......................................................

$      (3,661)

             444

 

  Attributable to participating securities.............................................

               43

                (5)

 

  Basic and diluted loss per share........................................................

$      (3,618)

             439

$            (8.25)

 

 

 

 

Six Months Ended June 30, 2008:

                   

                   

                   

  Earnings from continuing operations...............................................

$       1,245

             445

 

  Attributable to participating securities.............................................

              (10)

                (4)

 

  Less preferred stock dividends..........................................................

                (5)

 

 

  Basic earnings per share.....................................................................

          1,230

             441

$              2.80

  Dilutive effect of potential common shares issuable

     upon the exercise of outstanding stock options..........................

 

               

 

                  4

 

                   

  Diluted earnings per share..................................................................

$       1,230

             445

$              2.76

 

Certain options to purchase shares of Devon's common stock are excluded from the dilution calculations because the options are antidilutive. During the three-month and six-month periods ended June 30, 2009, 7.1 million shares and 8.9 million shares, respectively, were excluded from the diluted earnings per share calculations. During the three-month and six-month periods ended June 30, 2008, no shares and 1.5 million shares, respectively, were excluded from the diluted earnings per share calculations.

 

Segment Information
16. Segment Information

16.          Segment Information

 

Following is certain financial information regarding Devon’s reporting segments. The revenues reported are all from external customers.

 

 

Domestic

Canada

International

Total

 

(In millions)

As of June 30, 2009:

                

          

               

            

Current assets...........................................................................

$      1,477

$         555

$         545

$      2,577

Property and equipment, net.................................................

      12,364

        4,774

            949

      18,087

Goodwill....................................................................................

        3,046

        2,596

              68

        5,710

Other long-term assets............................................................

            417

              57

            209

            683

     Total assets..........................................................................

$    17,304

$      7,982

$      1,771

$    27,057

 

 

 

 

 

Current liabilities......................................................................

$      2,851

$         401

$         240

$      3,492

Long-term debt........................................................................

        2,870

        2,979

            

        5,849

Asset retirement obligation, long-term.................................

            724

            586

            101

        1,411

Other long-term liabilities.......................................................

            992

              42

                2

        1,036

Deferred income taxes............................................................

            540

            950

              97

        1,587

Stockholders' equity................................................................

        9,327

        3,024

        1,331

      13,682

     Total liabilities and stockholders' equity........................

$    17,304

$      7,982

$      1,771

$    27,057

 


 

 

Domestic

Canada

International

Total

 

(In millions)

Three Months Ended June 30, 2009:

                

          

               

            

Revenues:

                

          

               

            

  Oil sales..............................................................................................

$         225

$         316

$         267

 $        808

  Gas sales............................................................................................

           544

           195

                1

           740

  NGL sales...........................................................................................

           138

             32

             

           170

  Net gain on oil and gas derivative financial instruments..........

             13

             

             

             13

  Marketing and midstream revenues.............................................

           351

                8

             

           359

     Total revenues...............................................................................

        1,271

           551

           268

        2,090

Expenses and other income, net:

                 

                 

                 

                 

  Lease operating expenses...............................................................

           289

           167

             54

           510

  Production taxes...............................................................................

             27

                1

             19

             47

  Marketing and midstream operating costs and expenses.........

           230

                4

             

           234

  Depreciation, depletion and amortization of oil and gas

     properties........................................................................................

 

           274

 

           156

 

             64

 

           494

  Depreciation and amortization of non-oil and gas properties.

             67

                7

             

             74

  Accretion of asset retirement obligation......................................

             14

                9

                1

             24

  General and administrative expenses...........................................

           153

             31

              (2)

           182

  Interest expense................................................................................

             34

             56

             

             90

  Change in fair value of other financial instruments..................

            (10)

             

             

            (10)

  Other expense (income), net...........................................................

             18

                6

              (4)

             20

     Total expenses and other income, net.......................................

        1,096

           437

           132

        1,665

Earnings from continuing operations before income taxes........

           175

           114

           136

           425

Income tax expense (benefit):

                 

                 

                 

                 

  Current...............................................................................................

             11

             44

              (4)

             51

  Deferred.............................................................................................

             55

              (4)

             26

             77

     Total income tax expense...........................................................

             66

             40

             22

           128

Earnings from continuing operations.............................................

           109

             74

           114

           297

Earnings from discontinued operations.........................................

            

             

             17

             17

Net earnings applicable to common stockholders.......................

$         109

$           74

$         131

$         314

 

 

 

 

 

Capital expenditures, continuing operations.................................

$         761

$         185

$         113

$     1,059


 

 

Domestic

Canada

International

Total

 

(In millions)

Three Months Ended June 30, 2008:

                

          

               

            

Revenues:

                

          

               

            

  Oil sales..............................................................................................

$         566

$         498

$         391

 $    1,455

  Gas sales............................................................................................

        1,688

           517

                5

        2,210

  NGL sales...........................................................................................

           305

             74

             

           379

  Net loss on oil and gas derivative financial instruments...........

      (1,215)

             

             

      (1,215)

  Marketing and midstream revenues.............................................

           707

             12

             

           719

     Total revenues...............................................................................

        2,051

        1,101

           396

        3,548

Expenses and other income, net:

                 

                 

                 

                 

  Lease operating expenses...............................................................

           279

           211

             47

           537

  Production taxes...............................................................................

           104

                1

             71

           176

  Marketing and midstream operating costs and expenses.........

           510

                5

             

           515

  Depreciation, depletion and amortization of oil and gas

     properties........................................................................................

 

           481

 

           227

 

             54

 

           762

  Depreciation and amortization of non-oil and gas properties.

             54

                7

                1

             62

  Accretion of asset retirement obligation......................................

             10

             10

                2

             22

  General and administrative expenses...........................................

           145

             34

                1

           180

  Interest expense................................................................................

             36

             54

             

             90

  Change in fair value of other financial instruments..................

            (40)

             

             

            (40)

  Other income, net.............................................................................

            (11)

             

              (6)

            (17)

     Total expenses and other income, net.......................................

        1,568

           549

           170

        2,287

Earnings from continuing operations before income taxes........

           483

           552

           226

        1,261

Income tax expense (benefit):

                 

                 

                 

                 

  Current...............................................................................................

           299

             46

             69

           414

  Deferred.............................................................................................

           163

           104

            (14)

           253

     Total income tax expense...........................................................

           462

           150

             55

           667

Earnings from continuing operations.............................................

             21

           402

           171

           594

Discontinued operations:

 

 

 

 

  Earnings from discontinued operations before income taxes..

            

             

           851

           851

  Income tax expense........................................................................

            

             

           144

           144

  Earnings from discontinued operations.......................................

            

             

           707

           707

Net earnings.........................................................................................

             21

           402

           878

        1,301

Preferred stock dividends..................................................................

                3

             

             

                3

Net earnings applicable to common stockholders.......................

$           18

$         402

$         878

$     1,298

 

 

 

 

 

Capital expenditures, continuing operations.................................

$     1,654

$         182

$         173

$     2,009

 


 

 

Domestic

Canada

International

Total

 

(In millions)

Six Months Ended June 30, 2009:

                

          

               

            

Revenues:

                

          

               

            

  Oil sales..............................................................................................

$         375

$         493

$         394

 $    1,262

  Gas sales............................................................................................

        1,220

           431

                2

        1,653

  NGL sales...........................................................................................

           250

             56

             

           306

  Net gain on oil and gas derivative financial instruments..........

           167

             

             

           167

  Marketing and midstream revenues.............................................

           715

             15

             

           730

     Total revenues...............................................................................

        2,727

           995

           396

        4,118

Expenses and other income, net:

                 

                 

                 

                 

  Lease operating expenses...............................................................

           602

           344

             88

        1,034

  Production taxes...............................................................................

             59

                1

             29

             89

  Marketing and midstream operating costs and expenses.........

           455

                8

            

           463

  Depreciation, depletion and amortization of oil and gas

     properties........................................................................................

 

           714

 

           276

 

           103

 

        1,093

  Depreciation and amortization of non-oil and gas properties.

           131

             13

             

           144

  Accretion of asset retirement obligation......................................

             28

             18

                2

             48

  General and administrative expenses...........................................

           290

             60

              (2)

           348

  Interest expense................................................................................

             61

           112

             

           173

  Change in fair value of other financial instruments..................

            (15)

             

             

            (15)

  Reduction of carrying value of oil and gas properties...............

        6,408

             

           108

        6,516

  Other expense (income), net...........................................................

             14

             16

              (3)

             27

     Total expenses and other income, net.......................................

        8,747

           848

           325

        9,920

(Loss) earnings from continuing operations before income

  taxes...................................................................................................

                 

      (6,020)

                 

           147

                 

             71

                 

      (5,802)

Income tax expense (benefit):

                 

                 

                 

                 

  Current...............................................................................................

                1

             46

                6

             53

  Deferred.............................................................................................

      (2,224)

                3

             27

      (2,194)

     Total income tax (benefit) expense...........................................

      (2,223)

             49

             33

      (2,141)

(Loss) earnings from continuing operations..................................

      (3,797)

             98

             38

      (3,661)

Earnings from discontinued operations.........................................

            

             

             16

             16

Net (loss) earnings applicable to common stockholders.............

$    (3,797)

$           98

$           54

$    (3,645)

 

 

 

 

 

Capital expenditures, before revision of future ARO..................

$     1,908

$         486

$         203

$     2,597

Revision of future ARO....................................................................

             37

            (15)

                1

             23

Capital expenditures, continuing operations.................................

$     1,945

$         471

$         204

$     2,620

 


 

 

Domestic

Canada

International

Total

 

(In millions)

Six Months Ended June 30, 2008:

                

          

               

            

Revenues:

                

          

               

            

  Oil sales..............................................................................................

$     1,009

$         838

$         858

 $    2,705

  Gas sales............................................................................................

        2,924

           906

             10

        3,840

  NGL sales...........................................................................................

           571

           136

             

           707

  Net loss on oil and gas derivative financial instruments...........

      (2,003)

             

             

      (2,003)

  Marketing and midstream revenues.............................................

        1,249

             25

             

        1,274

     Total revenues...............................................................................

        3,750

        1,905

           868

        6,523

Expenses and other income, net: