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): November 4, 2004
DEVON ENERGY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
 	 	 	 	 	
DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization)	 	001-32318
(Commission File Number)	 	73-1567067
(IRS Employer
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))

 

Item 2.02 Results of Operations and Financial Condition
     Devon Energy Corporation hereby furnishes the information set forth in its Press Release, dated November 4, 2004, announcing second 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 November 4, 2004.  
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: November 5, 2004

 

EXHIBIT 99.1

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

NEWS RELEASE

Investor contact:	 	Zack Hager	
	 	(405) 552-4526	
 	 	 	
Media contact:	 	Brian Engel	
	 	(405) 228-7750	
DEVON ENERGY POSTS THIRD QUARTER GAINS; NET EARNINGS INCREASE 26 PERCENT TO $517 MILLION
OKLAHOMA CITY — November 4, 2004 — Devon Energy Corporation (NYSE:DVN) today reported net earnings for the quarter ended September 30, 2004, of $517 million, or $2.12 per common share ($2.07 per diluted common share). This is 26 percent greater than Devon’s third quarter 2003 net earnings of $412 million, or $1.76 per common share ($1.71 per diluted common share). Higher realized prices for oil, natural gas and natural gas liquids were primarily responsible for the increased earnings.
     For the nine months ended September 30, 2004, the company reported net earnings of $1.5 billion, or $6.25 per common share ($6.07 per diluted common share). For the nine months ended September 30, 2003, Devon reported net earnings of $1.2 billion, or $5.97 per common share ($5.76 per diluted common share).
     “Following another quarter of outstanding financial performance, we are delivering on the plans we unveiled in September,” said J. Larry Nichols, chairman and chief executive officer. “Devon’s shares are now trading on the New York Stock Exchange, and the stock will split two-for-one on November 15. We have already bought back 1.5 million shares and our non-core property divestiture program is under way.”
Oil, Gas and NGL Sales Climb 15 Percent to $1.9 Billion
     Combined sales of oil, gas and natural gas liquids for the third quarter of 2004 were $1.9 billion, a 15 percent increase over the third quarter of 2003. Devon realized higher prices for all three energy products. Realized prices include the effect of hedges.
     Realized natural gas prices increased 16 percent to $5.17 per thousand cubic feet in the third quarter of 2004, compared with $4.47 per thousand cubic feet in 2003. The average third quarter realized oil price increased 16 percent to $29.19 per barrel in 2004 compared with $25.19 per barrel in 2003. The company’s average realized price for natural gas liquids soared 46 percent in the third quarter of 2004, to $24.36 per barrel compared with $16.74 per barrel in the third quarter of 2003.
     Combined oil, gas and natural gas liquids production was 679 thousand barrels of oil equivalent (Boe) per day in the third quarter of 2004. This was two percent less than the 689 thousand Boe per day Devon produced in the third quarter of 2003. Hurricanes in the Gulf of Mexico reduced third quarter 2004 oil and gas production by approximately 4,600 Boe per day.

 

     Marketing and midstream revenues increased 22 percent in the third quarter of 2004, to $408 million. After $319 million of related expenses, Devon’s marketing and midstream margin reached $89 million. This was an increase of 33 percent over the third quarter 2003 margin of $67 million. Higher realized prices for natural gas and natural gas liquids led to the improvement.
Discoveries in the Gulf of Mexico and Brazil Lead Operating Highlights
     Devon invested $620 million in drilling and facilities capital projects in the third quarter of 2004. These capital expenditures resulted in 487 successful wells. During the third quarter:

•	 	The company announced a potentially significant discovery in the lower Tertiary trend in the deepwater Gulf of Mexico. The Jack prospect on Walker Ridge block 759 encountered more than 350 feet of oil pay. Jack, following successes at Cascade and St. Malo, is Devon’s third discovery in the lower Tertiary trend. Devon has a 25 percent working interest in Jack.	
 	
•	 	Devon also announced a discovery on block BM-C-8, offshore Brazil. The well encountered more than 150 feet of oil pay. Devon has a 60 percent working interest in the discovery and expects to drill another well on the block in the fourth quarter of 2004.	
 	
•	 	Devon was a high bidder on 16 Gulf of Mexico deepwater acreage blocks in August’s federal lease sale. With nearly two million net acres under lease, the company is the largest independent deepwater acreage holder in the Gulf of Mexico.	
 	
•	 	Devon experienced no personnel injuries and relatively minor damage to its operated oil and gas production facilities as a result of Hurricane Ivan in the Gulf of Mexico. However, damage sustained to pipelines and receiving facilities operated by others has caused some oil and gas production to remain shut-in. Approximately 8,800 Boe per day of Devon’s production remains shut-in due to the storm.	
 	
•	 	The company’s net gas equivalent production from Barnett Shale wells outside the core area of the field in north Texas reached a new high of about 40 million cubic feet per day. Non-core production now represents more than seven percent of Devon’s combined Barnett Shale gas equivalent production of about 560 million cubic feet per day.	
Free Cash Flow Funding Debt Reduction and Share Repurchase Program
     Cash flow before balance sheet changes was nearly $1.3 billion in the third quarter of 2004. Devon funded $747 million of capital expenditures and paid common and preferred dividends totaling $27 million in the quarter. This resulted in free cash flow of $497 million in the quarter. Cash on hand at September 30, 2004, was approximately $1.8 billion. A reconciliation of cash flow before balance sheet changes and free cash flow is presented later in this release.
     After retiring $972 million of debt in the first nine months of 2004, Devon’s net debt to adjusted capitalization was 30 percent at September 30, 2004. This is down from 39 percent at December 31, 2003. Reconciliations for net debt and adjusted capitalization are found later in this release.
     On September 27, 2004, Devon announced plans to repurchase up to 10 percent, or approximately 25 million (50 million shares following the upcoming two-for-one split), of its outstanding common shares. Commencing in October, Devon began repurchasing shares. To date, the company has repurchased approximately 1.5 million shares at a total cost of approximately $111 million.
Page 2

 

LOE and Transportation Expenses Up Nine Percent; G&A Expense Down 26 Percent
     Lease operating (LOE) and transportation expenses increased nine percent to $323 million in the third quarter of 2004 compared with the third quarter of 2003. Hurricane-related costs in the Gulf of Mexico, higher lease fuel costs, a stronger Canadian dollar and increased well workover activity contributed to this increase.
     Production taxes decreased 11 percent to $48 million in the third quarter of 2004. Third quarter 2004 production taxes were reduced by $22 million resulting from tax rate reductions for Barnett Shale wells in Texas. Of this amount, $4 million was applicable to the third quarter of 2004, $6 million was applicable to the first half of 2004 and $12 million was applicable to prior years.
     Depreciation, depletion and amortization expense (DD&A) increased 13 percent in the third quarter of 2004, to $572 million. The combined DD&A rate was $9.17 per Boe in the third quarter of 2004. Devon’s combined DD&A rate includes depreciation of midstream and corporate assets in addition to depletion of oil and gas properties.
     General and administrative expenses decreased 26 percent, to $59 million in the third quarter of 2004. The decrease is reflective of overhead and personnel efficiencies realized since Devon merged with Ocean Energy in April 2003.
     Interest expense in the third quarter of 2004 decreased nine percent to $109 million compared with the third quarter of 2003. The decrease in interest expense was driven by Devon’s repayment of $972 million of debt in 2004.
     Third quarter 2004 income tax expense was $300 million, or 37 percent of pre-tax earnings. Of the total, $132 million was deferred income tax expense, not requiring the current use of cash. Income taxes represented 33 percent of pre-tax earnings in the third quarter of 2003. The higher 2004 rate is largely attributable to increased pre-tax earnings.
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 third quarter 2004 reported earnings were as follows:

•	 	Effects of changes in foreign currency exchange rates increased earnings by $21 million pre-tax ($18 million after tax). This is primarily related to U.S. dollar denominated debt in Canada.	
 	
•	 	A change in fair value of derivative financial instruments not associated with hedges decreased earnings by $47 million pre-tax ($30 million after tax).	
In aggregate, these items decreased third quarter 2004 earnings by $12 million, or five cents per common share (four cents per diluted common share).
Conference Call to be Webcast Today
     Devon will discuss its third quarter 2004 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.
Page 3

 

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	 	Quarter Ended	 	Nine Months Ended	
(net of royalties)	 	September 30,	 	September 30,	
 	 	2004	 	2003	 	2004	 	2003	

Total Period Production	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Natural Gas (Bcf)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	120.8	 	 	 	126.3	 	 	 	359.7	 	 	 	337.7	 	
U.S. Offshore	 	 	29.2	 	 	 	36.4	 	 	 	92.4	 	 	 	90.7	 	

 	 	 	 	

Total U.S.	 	 	150.0	 	 	 	162.7	 	 	 	452.1	 	 	 	428.4	 	
Canada	 	 	70.1	 	 	 	70.1	 	 	 	208.4	 	 	 	199.6	 	
International	 	 	2.0	 	 	 	1.9	 	 	 	7.1	 	 	 	3.2	 	

Total Natural Gas	 	 	222.1	 	 	 	234.7	 	 	 	667.6	 	 	 	631.2	 	

Oil (MMBbls)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	3.4	 	 	 	3.6	 	 	 	10.6	 	 	 	10.7	 	
U.S. Offshore	 	 	4.1	 	 	 	5.3	 	 	 	13.8	 	 	 	11.6	 	

 	 	 	 	

Total U.S.	 	 	7.5	 	 	 	8.9	 	 	 	24.4	 	 	 	22.3	 	
Canada	 	 	3.5	 	 	 	3.4	 	 	 	10.3	 	 	 	10.0	 	
International	 	 	8.1	 	 	 	6.3	 	 	 	24.6	 	 	 	10.3	 	

Total Oil	 	 	19.1	 	 	 	18.6	 	 	 	59.3	 	 	 	42.6	 	

Natural Gas Liquids (MMBbls)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	4.5	 	 	 	4.1	 	 	 	13.4	 	 	 	11.3	 	
U.S. Offshore	 	 	0.4	 	 	 	0.3	 	 	 	0.9	 	 	 	0.8	 	

 	 	 	 	

Total U.S.	 	 	4.9	 	 	 	4.4	 	 	 	14.3	 	 	 	12.1	 	
Canada	 	 	1.3	 	 	 	1.2	 	 	 	3.6	 	 	 	3.7	 	
International	 	 	0.1	 	 	 	0.1	 	 	 	0.2	 	 	 	0.1	 	

Total Natural Gas Liquids	 	 	6.3	 	 	 	5.7	 	 	 	18.1	 	 	 	15.9	 	

Oil Equivalent (MMBoe)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	28.0	 	 	 	28.8	 	 	 	83.9	 	 	 	78.3	 	
U.S. Offshore	 	 	9.4	 	 	 	11.6	 	 	 	30.1	 	 	 	27.5	 	

 	 	 	 	

Total U.S.	 	 	37.4	 	 	 	40.4	 	 	 	114.0	 	 	 	105.8	 	
Canada	 	 	16.5	 	 	 	16.3	 	 	 	48.7	 	 	 	47.0	 	
International	 	 	8.5	 	 	 	6.7	 	 	 	26.0	 	 	 	10.9	 	

Total Oil Equivalent	 	 	62.4	 	 	 	63.4	 	 	 	188.7	 	 	 	163.7	 	

Average Daily Production	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Natural Gas (MMcf)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	1,312.8	 	 	 	1,373.0	 	 	 	1,312.9	 	 	 	1,236.9	 	
U.S. Offshore	 	 	317.3	 	 	 	395.8	 	 	 	337.1	 	 	 	332.3	 	

 	 	 	 	

Total U.S.	 	 	1,630.1	 	 	 	1,768.8	 	 	 	1,650.0	 	 	 	1,569.2	 	
Canada	 	 	762.2	 	 	 	761.5	 	 	 	760.5	 	 	 	731.1	 	
International	 	 	21.8	 	 	 	20.3	 	 	 	26.1	 	 	 	11.8	 	

Total Natural Gas	 	 	2,414.1	 	 	 	2,550.6	 	 	 	2,436.6	 	 	 	2,312.1	 	

Oil (MBbls)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	36.6	 	 	 	39.7	 	 	 	38.6	 	 	 	39.2	 	
U.S. Offshore	 	 	45.2	 	 	 	57.1	 	 	 	50.3	 	 	 	42.6	 	

 	 	 	 	

Total U.S.	 	 	81.8	 	 	 	96.8	 	 	 	88.9	 	 	 	81.8	 	
Canada	 	 	38.1	 	 	 	37.4	 	 	 	37.8	 	 	 	36.8	 	
International	 	 	88.4	 	 	 	68.5	 	 	 	89.7	 	 	 	37.6	 	

Total Oil	 	 	208.3	 	 	 	202.7	 	 	 	216.4	 	 	 	156.2	 	

Natural Gas Liquids (MBbls)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	49.7	 	 	 	44.9	 	 	 	49.0	 	 	 	41.5	 	
U.S. Offshore	 	 	3.9	 	 	 	3.2	 	 	 	3.3	 	 	 	2.7	 	

 	 	 	 	

Total U.S.	 	 	53.6	 	 	 	48.1	 	 	 	52.3	 	 	 	44.2	 	
Canada	 	 	13.7	 	 	 	12.7	 	 	 	13.1	 	 	 	13.5	 	
International	 	 	0.8	 	 	 	0.7	 	 	 	0.8	 	 	 	0.3	 	

Total Natural Gas Liquids	 	 	68.1	 	 	 	61.5	 	 	 	66.2	 	 	 	58.0	 	

Oil Equivalent (MBoe)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	305.1	 	 	 	313.4	 	 	 	306.4	 	 	 	286.9	 	
U.S. Offshore	 	 	102.0	 	 	 	126.3	 	 	 	109.7	 	 	 	100.6	 	

 	 	 	 	

Total U.S.	 	 	407.1	 	 	 	439.7	 	 	 	416.1	 	 	 	387.5	 	
Canada	 	 	178.8	 	 	 	177.1	 	 	 	177.6	 	 	 	172.1	 	
International	 	 	92.9	 	 	 	72.6	 	 	 	94.9	 	 	 	40.0	 	

Total Oil Equivalent	 	 	678.8	 	 	 	689.4	 	 	 	688.6	 	 	 	599.6	 	

Page 5

 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
REALIZED PRICE DATA	 	Quarter Ended	 	Nine Months Ended	
(average realized prices)	 	September 30,	 	September 30,	
 	 	2004	 	2003	 	2004	 	2003	

Realized Prices	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Natural Gas ($/Mcf)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	5.04	 	 	$	4.40	 	 	$	5.04	 	 	$	4.57	 	
U.S. Offshore	 	$	6.06	 	 	$	4.93	 	 	$	6.10	 	 	$	4.85	 	
Total U.S.	 	$	5.24	 	 	$	4.52	 	 	$	5.26	 	 	$	4.63	 	
Canada	 	$	5.02	 	 	$	4.39	 	 	$	5.04	 	 	$	4.69	 	
International	 	$	4.73	 	 	$	3.57	 	 	$	3.37	 	 	$	3.52	 	

Total Natural Gas	 	$	5.17	 	 	$	4.47	 	 	$	5.17	 	 	$	4.64	 	

Oil ($/Bbl)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	31.53	 	 	$	27.76	 	 	$	30.44	 	 	$	28.29	 	
U.S. Offshore	 	$	31.07	 	 	$	26.92	 	 	$	30.46	 	 	$	27.69	 	
Total U.S.	 	$	31.27	 	 	$	27.26	 	 	$	30.45	 	 	$	27.98	 	
Canada	 	$	23.71	 	 	$	22.94	 	 	$	22.75	 	 	$	23.89	 	
International	 	$	29.63	 	 	$	23.49	 	 	$	28.56	 	 	$	23.30	 	

Total Oil	 	$	29.19	 	 	$	25.19	 	 	$	28.32	 	 	$	25.89	 	

Natural Gas Liquids ($/Bbl)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	22.58	 	 	$	14.98	 	 	$	19.92	 	 	$	16.67	 	
U.S. Offshore	 	$	29.01	 	 	$	19.84	 	 	$	25.73	 	 	$	23.64	 	
Total U.S.	 	$	23.04	 	 	$	15.30	 	 	$	20.28	 	 	$	17.09	 	
Canada	 	$	29.71	 	 	$	21.94	 	 	$	27.52	 	 	$	23.11	 	
International	 	$	21.11	 	 	$	21.15	 	 	$	21.12	 	 	$	21.19	 	

Total Natural Gas Liquids	 	$	24.36	 	 	$	16.74	 	 	$	21.72	 	 	$	18.51	 	

Oil Equivalent ($/Boe) U.S. Onshore	 	$	29.14	 	 	$	24.91	 	 	$	28.61	 	 	$	25.99	 	
U.S. Offshore	 	$	33.74	 	 	$	28.13	 	 	$	33.47	 	 	$	28.36	 	
Total U.S.	 	$	30.29	 	 	$	25.84	 	 	$	29.89	 	 	$	26.60	 	
Canada	 	$	28.74	 	 	$	25.31	 	 	$	28.43	 	 	$	26.83	 	
International	 	$	29.50	 	 	$	23.37	 	 	$	28.11	 	 	$	23.18	 	

Total Oil Equivalent	 	$	29.78	 	 	$	25.44	 	 	$	29.27	 	 	$	26.44	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
BENCHMARK PRICES	 	Quarter Ended	 	Nine Months Ended	
(average prices)	 	September 30,	 	September 30,	
 	 	2004	 	2003	 	2004	 	2003	

Benchmark Prices	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Natural Gas ($/Mcf) — Henry Hub	 	$	5.75	 	 	$	4.97	 	 	$	5.81	 	 	$	5.65	 	
Oil ($/Bbl) — West Texas Intermediate (Cushing)	 	$	43.80	 	 	$	30.26	 	 	$	39.06	 	 	$	31.03	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
PRICE DIFFERENTIALS, EXCLUDING EFFECTS OF HEDGES	 	Quarter Ended	 	Nine Months Ended	
(average floating price differentials from benchmark prices)	 	September 30,	 	September 30,	
 	 	2004	 	2003	 	2004	 	2003	

Price Differentials	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Natural Gas ($/Mcf)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

U.S. Onshore	 	$	(0.69	)	 	$	(0.50	)	 	$	(0.76	)	 	$	(0.84	)	
U.S. Offshore	 	$	0.31	 	 	$	0.13	 	 	$	0.29	 	 	$	0.12	 	
Total U.S.	 	$	(0.50	)	 	$	(0.36	)	 	$	(0.54	)	 	$	(0.64	)	
Canada	 	$	(0.57	)	 	$	(0.34	)	 	$	(0.62	)	 	$	(0.64	)	
International	 	$	(1.03	)	 	$	(1.40	)	 	$	(2.44	)	 	$	(2.13	)	

Total Natural Gas	 	$	(0.52	)	 	$	(0.36	)	 	$	(0.58	)	 	$	(0.65	)	

Oil ($/Bbl)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	(2.82	)	 	$	(1.62	)	 	$	(2.40	)	 	$	(1.43	)	
U.S. Offshore	 	$	(2.06	)	 	$	(1.19	)	 	$	(1.90	)	 	$	(1.68	)	
Total U.S.	 	$	(2.40	)	 	$	(1.36	)	 	$	(2.11	)	 	$	(1.56	)	
Canada	 	$	(7.86	)	 	$	(5.68	)	 	$	(7.72	)	 	$	(5.11	)	
International	 	$	(5.55	)	 	$	(4.10	)	 	$	(5.32	)	 	$	(5.55	)	

Total Oil	 	$	(4.74	)	 	$	(3.09	)	 	$	(4.42	)	 	$	(3.36	)	

Page 6

 

CONSOLIDATED STATEMENTS OF OPERATIONS	 	Quarter Ended	 	Nine Months Ended	
(In millions, except per share data)	 	September 30,	 	September 30,	
 	 	2004	 	2003	 	2004	 	2003	

Revenues	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Oil sales	 	$	559	 	 	$	469	 	 	$	1,679	 	 	$	1,104	 	
Gas sales	 	 	1,147	 	 	 	1,049	 	 	 	3,450	 	 	 	2,930	 	
Natural gas liquids sales	 	 	153	 	 	 	95	 	 	 	393	 	 	 	294	 	
Marketing & midstream revenues	 	 	408	 	 	 	335	 	 	 	1,202	 	 	 	1,104	 	

Total revenues	 	 	2,267	 	 	 	1,948	 	 	 	6,724	 	 	 	5,432	 	

Production and Operating Costs and Expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Lease operating expenses	 	 	264	 	 	 	238	 	 	 	773	 	 	 	626	 	
Transportation costs	 	 	59	 	 	 	57	 	 	 	166	 	 	 	149	 	
Production taxes	 	 	48	 	 	 	54	 	 	 	182	 	 	 	152	 	
Marketing & midstream operating costs and expenses	 	 	319	 	 	 	268	 	 	 	949	 	 	 	901	 	
Depreciation, depletion and amortization of property & equipment	 	 	572	 	 	 	508	 	 	 	1,696	 	 	 	1,231	 	
Accretion of asset retirement obligation	 	 	11	 	 	 	10	 	 	 	32	 	 	 	26	 	
General & administrative expenses	 	 	59	 	 	 	79	 	 	 	206	 	 	 	221	 	
Expenses related to mergers	 	 	—	 	 	 	—	 	 	 	—	 	 	 	7	 	

Total production and operating costs and expenses	 	 	1,332	 	 	 	1,214	 	 	 	4,004	 	 	 	3,313	 	

Earnings from operations	 	 	935	 	 	 	734	 	 	 	2,720	 	 	 	2,119	 	

Other Income (Expenses)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Interest expense	 	 	(109	)	 	 	(120	)	 	 	(361	)	 	 	(380	)	
Dividends on subsidiary’s preferred stock	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1	)	
Effects of changes in foreign currency exchange rates	 	 	21	 	 	 	1	 	 	 	6	 	 	 	52	 	
Change in fair value of derivative financial instruments	 	 	(47	)	 	 	(1	)	 	 	(54	)	 	 	8	 	
Other income	 	 	17	 	 	 	4	 	 	 	54	 	 	 	29	 	

Net other expenses	 	 	(118	)	 	 	(116	)	 	 	(355	)	 	 	(292	)	

Earnings before income taxes and cumulative effect of change in accounting principle	 	 	817	 	 	 	618	 	 	 	2,365	 	 	 	1,827	 	

Income Tax Expense	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Current	 	 	168	 	 	 	41	 	 	 	568	 	 	 	165	 	
Deferred	 	 	132	 	 	 	165	 	 	 	284	 	 	 	474	 	

Total income tax expense	 	 	300	 	 	 	206	 	 	 	852	 	 	 	639	 	

Earnings before cumulative effect of change in accounting principle	 	 	517	 	 	 	412	 	 	 	1,513	 	 	 	1,188	 	

Cumulative effect of change in accounting principle, net of income tax expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	16	 	

Net earnings	 	 	517	 	 	 	412	 	 	 	1,513	 	 	 	1,204	 	

Preferred stock dividends	 	 	2	 	 	 	2	 	 	 	7	 	 	 	7	 	

Net earnings applicable to common stockholders	 	$	515	 	 	$	410	 	 	$	1,506	 	 	$	1,197	 	

Basic earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings before change in accounting principle	 	$	2.12	 	 	$	1.76	 	 	$	6.25	 	 	$	5.89	 	
Cumulative effect of change in accounting principle	 	 	—	 	 	 	—	 	 	 	—	 	 	 	0.08	 	

Net earnings applicable to common stockholders	 	$	2.12	 	 	$	1.76	 	 	$	6.25	 	 	$	5.97	 	

Diluted earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings before change in accounting principle	 	$	2.07	 	 	$	1.71	 	 	$	6.07	 	 	$	5.69	 	
Cumulative effect of change in accounting principle	 	 	—	 	 	 	—	 	 	 	—	 	 	 	0.07	 	

Net earnings applicable to common stockholders	 	$	2.07	 	 	$	1.71	 	 	$	6.07	 	 	$	5.76	 	

Basic weighted average shares outstanding	 	 	242	 	 	 	232	 	 	 	241	 	 	 	200	 	
Diluted weighted average shares outstanding	 	 	250	 	 	 	241	 	 	 	249	 	 	 	209	 	
Page 7

 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CONSOLIDATED BALANCE SHEETS	 	 	 	 	 	 	 	 	 	 	 	 	
(In millions)	 	September 30,	 	December 31,	 	 	 	 	 	 	 	 	
 	 	2004	 	2003	 	 	 	 	 	 	 	 	

Assets	 	 	 	 	 	(Audited)	 	 	 	 	 	 	 	 	

Current assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Cash and cash equivalents	 	$	1,761	 	 	$	1,273	 	 	 	 	 	 	 	 	 	
Accounts receivable	 	 	1,102	 	 	 	946	 	 	 	 	 	 	 	 	 	
Fair value of derivative financial instruments	 	 	7	 	 	 	13	 	 	 	 	 	 	 	 	 	
Investments and other current assets	 	 	151	 	 	 	132	 	 	 	 	 	 	 	 	 	

Total current assets	 	 	3,021	 	 	 	2,364	 	 	 	 	 	 	 	 	 	

Property and equipment, at cost	 	 	30,884	 	 	 	28,546	 	 	 	 	 	 	 	 	 	
Less accumulated depreciation, depletion and amortization	 	 	11,988	 	 	 	10,212	 	 	 	 	 	 	 	 	 	

Net property and equipment	 	 	18,896	 	 	 	18,334	 	 	 	 	 	 	 	 	 	

Investment in ChevronTexaco Corporation common stock, at fair value	 	 	761	 	 	 	613	 	 	 	 	 	 	 	 	 	
Fair value of derivative financial instruments	 	 	13	 	 	 	14	 	 	 	 	 	 	 	 	 	
Goodwill	 	 	5,525	 	 	 	5,477	 	 	 	 	 	 	 	 	 	
Other assets	 	 	374	 	 	 	360	 	 	 	 	 	 	 	 	 	

Total Assets	 	$	28,590	 	 	$	27,162	 	 	 	 	 	 	 	 	 	

Liabilities and Stockholders’ Equity	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Current liabilities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Accounts payable:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Trade	 	$	680	 	 	$	859	 	 	 	 	 	 	 	 	 	
Revenues and royalties due to others	 	 	430	 	 	 	315	 	 	 	 	 	 	 	 	 	
Income taxes payable	 	 	225	 	 	 	15	 	 	 	 	 	 	 	 	 	
Current portion of long-term debt	 	 	685	 	 	 	338	 	 	 	 	 	 	 	 	 	
Accrued interest payable	 	 	91	 	 	 	130	 	 	 	 	 	 	 	 	 	
Fair value of derivative financial instruments	 	 	662	 	 	 	153	 	 	 	 	 	 	 	 	 	
Current portion of asset retirement obligation	 	 	42	 	 	 	42	 	 	 	 	 	 	 	 	 	
Accrued expenses and other current liabilities	 	 	151	 	 	 	219	 	 	 	 	 	 	 	 	 	

Total current liabilities	 	 	2,966	 	 	 	2,071	 	 	 	 	 	 	 	 	 	

Other liabilities	 	 	350	 	 	 	349	 	 	 	 	 	 	 	 	 	
Asset retirement obligation, long-term	 	 	684	 	 	 	629	 	 	 	 	 	 	 	 	 	
Debentures exchangeable into shares of ChevronTexaco Corporation common stock	 	 	688	 	 	 	677	 	 	 	 	 	 	 	 	 	
Other long-term debt	 	 	6,582	 	 	 	7,903	 	 	 	 	 	 	 	 	 	
Preferred stock of subsidiary	 	 	—	 	 	 	55	 	 	 	 	 	 	 	 	 	
Fair value of derivative financial instruments	 	 	163	 	 	 	52	 	 	 	 	 	 	 	 	 	
Deferred income taxes	 	 	4,502	 	 	 	4,370	 	 	 	 	 	 	 	 	 	

Stockholders’ equity	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Preferred stock	 	 	1	 	 	 	1	 	 	 	 	 	 	 	 	 	
Common stock	 	 	25	 	 	 	24	 	 	 	 	 	 	 	 	 	
Additional paid-in capital	 	 	9,304	 	 	 	9,066	 	 	 	 	 	 	 	 	 	
Retained earnings	 	 	3,047	 	 	 	1,614	 	 	 	 	 	 	 	 	 	
Accumulated other comprehensive income	 	 	451	 	 	 	569	 	 	 	 	 	 	 	 	 	
Deferred compensation and other	 	 	(25	)	 	 	(32	)	 	 	 	 	 	 	 	 	
Treasury stock, at cost	 	 	(148	)	 	 	(186	)	 	 	 	 	 	 	 	 	

Stockholders’ Equity	 	 	12,655	 	 	 	11,056	 	 	 	 	 	 	 	 	 	

Total Liabilities & Stockholders’ Equity	 	$	28,590	 	 	$	27,162	 	 	 	 	 	 	 	 	 	

Common Shares Outstanding	 	 	243	 	 	 	236	 	 	 	 	 	 	 	 	 	

Page 8

 

 	 	 	 	 	 	 	 	 	
CONSOLIDATED STATEMENTS OF CASH FLOWS	 	Nine Months Ended September 30,	
(In millions)	 	2004	 	2003	

Cash Flows From Operating Activities	 	 	 	 	 	 	 	 	

Earnings before cumulative effect of change in accounting principle	 	$	1,513	 	 	$	1,188	 	
Adjustments to reconcile earnings before cumulative effect of change in accounting principle to net cash provided by operating activities:	 	 	 	 	 	 	 	 	
Depreciation, depletion and amortization of property and equipment	 	 	1,696	 	 	 	1,231	 	
Accretion of asset retirement obligation	 	 	32	 	 	 	26	 	
Accretion of discounts on long-term debt, net	 	 	8	 	 	 	15	 	
Effects of changes in foreign currency exchange rates	 	 	(6	)	 	 	(52	)	
Change in fair value of derivative financial instruments	 	 	54	 	 	 	(8	)	
Deferred income tax expense	 	 	284	 	 	 	474	 	
(Gain) loss on sale of assets	 	 	(4	)	 	 	2	 	
Other	 	 	45	 	 	 	(25	)	

 	 	 	3,622	 	 	 	2,851	 	
Changes in assets and liabilities, net of acquisitions of businesses:	 	 	 	 	 	 	 	 	
Increase in:	 	 	 	 	 	 	 	 	
Accounts receivable	 	 	(142	)	 	 	(122	)	
Investments and other current assets	 	 	(22	)	 	 	(23	)	
(Increase) decrease in:	 	 	 	 	 	 	 	 	
Accounts payable	 	 	176	 	 	 	19	 	
Income taxes payable	 	 	212	 	 	 	126	 	
Accrued interest and expenses	 	 	(129	)	 	 	(66	)	
Long-term other liabilities	 	 	(25	)	 	 	(5	)	

Net cash provided by operating activities	 	$	3,692	 	 	$	2,780	 	

 	
Cash Flows From Investing Activities	

Proceeds from sales of property and equipment	 	$	20	 	 	$	40	 	
Capital expenditures	 	 	(2,402	)	 	 	(1,805	)	

Net cash used in investing activities	 	$	(2,382	)	 	$	(1,765	)	

 	
Cash Flows From Financing Activities	 	 	 	 	 	 	 	 	

Proceeds from borrowings of long-term debt, net of issuance costs	 	$	—	 	 	$	598	 	
Principal payments on long-term debt	 	 	(972	)	 	 	(1,118	)	
Issuance of common stock, net of issuance costs	 	 	220	 	 	 	51	 	
Dividends paid on common stock	 	 	(73	)	 	 	(28	)	
Dividends paid on preferred stock	 	 	(7	)	 	 	(7	)	

Net cash used in financing activities	 	$	(832	)	 	$	(504	)	

 	 	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash	 	$	10	 	 	$	37	 	
Net increase in cash and cash equivalents	 	 	488	 	 	 	548	 	
Cash and cash equivalents at beginning of period	 	 	1,273	 	 	 	292	 	

Cash and cash equivalents at end of period	 	$	1,761	 	 	$	840	 	

Page 9

 

 	 	Quarter Ended	 	Nine Months Ended	
 	 	September 30,	 	September 30,	
DRILLING ACTIVITY	 	2004	 	2003	 	2004	 	2003	

Exploration Wells Drilled	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

U.S.	 	 	8	 	 	 	7	 	 	 	18	 	 	 	20	 	
Canada	 	 	23	 	 	 	38	 	 	 	154	 	 	 	189	 	
International	 	 	1	 	 	 	—	 	 	 	3	 	 	 	3	 	

Total	 	 	32	 	 	 	45	 	 	 	175	 	 	 	212	 	

Exploration Wells Success Rate	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

U.S.	 	 	38	%	 	 	29	%	 	 	39	%	 	 	50	%	
Canada	 	 	91	%	 	 	95	%	 	 	92	%	 	 	87	%	
International	 	 	—	 	 	 	—	 	 	 	33	%	 	 	—	 	

Total	 	 	75	%	 	 	84	%	 	 	85	%	 	 	82	%	

Development Wells Drilled	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

U.S.	 	 	312	 	 	 	266	 	 	 	820	 	 	 	699	 	
Canada	 	 	138	 	 	 	202	 	 	 	472	 	 	 	406	 	
International	 	 	21	 	 	 	23	 	 	 	57	 	 	 	47	 	

Total	 	 	471	 	 	 	491	 	 	 	1,349	 	 	 	1,152	 	

Development Wells Success Rate	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

U.S.	 	 	98	%	 	 	98	%	 	 	98	%	 	 	98	%	
Canada	 	 	98	%	 	 	98	%	 	 	95	%	 	 	97	%	
International	 	 	100	%	 	 	96	%	 	 	100	%	 	 	96	%	

Total	 	 	98	%	 	 	98	%	 	 	97	%	 	 	97	%	

Total Wells Drilled	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

U.S.	 	 	320	 	 	 	273	 	 	 	838	 	 	 	719	 	
Canada	 	 	161	 	 	 	240	 	 	 	626	 	 	 	595	 	
International	 	 	22	 	 	 	23	 	 	 	60	 	 	 	50	 	

Total	 	 	503	 	 	 	536	 	 	 	1,524	 	 	 	1,364	 	

Total Wells Success Rate	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

U.S.	 	 	97	%	 	 	96	%	 	 	97	%	 	 	97	%	
Canada	 	 	97	%	 	 	97	%	 	 	94	%	 	 	94	%	
International	 	 	95	%	 	 	96	%	 	 	97	%	 	 	90	%	

Total	 	 	97	%	 	 	96	%	 	 	96	%	 	 	95	%	

 	 	 	 	 	 	 	 	 	
COMPANY OPERATED RIGS	 	September 30,	
 	 	2004	 	2003	

Number of Company Operated Rigs Running	 	 	 	 	 	 	 	 	
U.S.	 	 	49	 	 	 	49	 	
Canada	 	 	16	 	 	 	24	 	
International	 	 	4	 	 	 	3	 	

Total	 	 	69	 	 	 	76	 	
 	 	 	 	 	 	 	 	 	
CAPITAL EXPENDITURES DATA	 	Quarter Ended	 	Nine Months Ended	
(In millions)	 	September 30, 2004	 	September 30, 2004	

Capital Expenditures	 	 	 	 	 	 	 	 	

U.S. Onshore	 	$	298	 	 	$	763	 	
U.S. Offshore	 	 	120	 	 	 	361	 	

 	 	
Total U.S.	 	 	418	 	 	 	1,124	 	
Canada	 	 	154	 	 	 	644	 	
International	 	 	48	 	 	 	145	 	
Marketing & midstream	 	 	12	 	 	 	34	 	
Capitalized general & administrative costs	 	 	40	 	 	 	125	 	
Capitalized interest costs	 	 	18	 	 	 	52	 	
Other	 	 	23	 	 	 	72	 	

Total	 	$	713	 	 	$	2,196	 	

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, free cash flow 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. Devon believes free cash flow is relevant because it is a measure of cash available to service debt. Cash flow before balance sheet changes and free cash flow are also used by certain securities analysts as a measure Devon’s financial results.

RECONCILIATION TO GAAP INFORMATION	 	Quarter Ended	 	Nine Months Ended	
(US$ in millions)	 	September 30,	 	September 30,	
 	 	2004	 	2003	 	2004	 	2003	

Net Cash Provided By Operating Activities (GAAP)	 	$	1,332	 	 	$	1,014	 	 	$	3,692	 	 	$	2,780	 	

Changes in assets and liabilities, net of effects of acquisitions of businesses	 	 	(61	)	 	 	79	 	 	 	(70	)	 	 	71	 	

Cash flow before balance sheet changes (Non-GAAP)	 	$	1,271	 	 	$	1,093	 	 	$	3,622	 	 	$	2,851	 	

Less:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	747	 	 	 	705	 	 	 	2,402	 	 	 	1,805	 	
Common stock dividends	 	 	25	 	 	 	12	 	 	 	73	 	 	 	28	 	
Preferred stock dividends	 	 	2	 	 	 	2	 	 	 	7	 	 	 	7	 	

Free cash flow (Non-GAAP)	 	$	497	 	 	$	374	 	 	$	1,140	 	 	$	1,011	 	

     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 total 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. Furthermore, included in Devon’s indebtedness are $0.7 billion of debentures that are exchangeable into 14.2 million shares of ChevronTexaco common stock owned outright by Devon. Since these shares are being held by Devon exclusively to satisfy the related indebtedness, Devon believes that netting the value of the debentures provides a clearer picture of the 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.

RECONCILIATION TO GAAP INFORMATION	 	 	 	 	
(US$ in billions)	 	September 30,	 	December 31,	
 	 	2004	 	2003	

Total debt (GAAP)	 	$	8.0	 	 	$	8.9	 	
Adjustments:	 	 	 	 	 	 	 	 	
Cash	 	 	1.8	 	 	 	1.2	 	
Debentures exchangeable into ChevronTexaco Corporation common stock	 	 	0.7	 	 	 	0.7	 	

Net Debt (Non-GAAP)	 	$	5.5	 	 	$	7.0	 	

 	
Total Capitalization	 	 	 	 	 	 	 	 	

Total debt	 	$	8.0	 	 	$	8.9	 	
Stockholders’ equity	 	 	12.7	 	 	 	11.1	 	

Total Capitalization	 	$	20.7	 	 	$	20.0	 	

 	
Adjusted Capitalization	 	 	 	 	 	 	 	 	

Net debt	 	$	5.5	 	 	$	7.0	 	
Stockholders’ equity	 	 	12.7	 	 	 	11.1	 	

Adjusted Capitalization	 	$	18.2	 	 	$	18.1	 	

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