DEVON ENERGY CORP/DE, 10-Q filed on 5/6/2015
Quarterly Report
Document And Entity Information
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Apr. 22, 2015
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2015 
 
Amendment Flag
false 
 
Entity Registrant Name
DEVON ENERGY CORP/DE 
 
Entity Central Index Key
0001090012 
 
Current Fiscal Year End Date
--12-31 
 
Document Fiscal Year Focus
2015 
 
Entity Filer Category
Large Accelerated Filer 
 
Document Fiscal Period Focus
Q1 
 
Entity Common Stock, Shares Outstanding
 
411.1 
Consolidated Comprehensive Statements Of Earnings (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Consolidated Comprehensive Statements Of Earnings [Abstract]
 
 
Oil, gas and NGL sales
$ 1,339 
$ 2,557 
Oil, gas and NGL derivatives
294 
(320)
Marketing and midstream revenues
1,632 
1,488 
Total operating revenues
3,265 
3,725 
Lease operating expenses
553 
598 
Marketing and midstream operating expenses
1,439 
1,305 
General and administrative expenses
251 
211 
Production and property taxes
108 
137 
Depreciation, depletion and amortization
930 
739 
Asset impairments
5,460 
   
Restructuring costs
 
37 
Gains and losses on asset sales
 
(15)
Other operating items
19 
23 
Total operating expenses
8,760 
3,035 
Operating income (loss)
(5,495)
690 
Net financing costs
117 
112 
Other nonoperating items
12 
18 
Earnings (loss) before income taxes
(5,624)
560 
Income tax expense (benefit)
(2,035)
231 
Net earnings (loss)
(3,589)
329 
Net earnings attributable to noncontrolling interests
10 
Net earnings (loss) attributable to Devon
(3,599)
324 
Net earnings (loss) per share attributable to Devon:
 
 
Basic
$ (8.88)
$ 0.80 
Diluted
$ (8.88)
$ 0.79 
Comprehensive earnings (loss):
 
 
Net earnings (loss)
(3,589)
329 
Other comprehensive loss, net of tax:
 
 
Foreign currency translation
(302)
(298)
Pension and postretirement plans
Other comprehensive loss, net of tax
(298)
(295)
Comprehensive earnings (loss)
(3,887)
34 
Comprehensive earnings attributable to noncontrolling interests
10 
Comprehensive earnings (loss) attributable to Devon
$ (3,897)
$ 29 
Consolidated Statements Of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Cash flows from operating activities:
 
 
Net earnings (loss)
$ (3,589)
$ 329 
Adjustments to reconcile net earnings (loss) to net cash from operating activities:
 
 
Depreciation, depletion and amortization
930 
739 
Asset impairments
5,460 
   
Gains and losses on asset sales
 
(15)
Deferred income tax expense (benefit)
(2,047)
208 
Derivatives and other financial instruments
(430)
307 
Cash settlements on derivatives and financial instruments
719 
(54)
Other noncash charges
225 
123 
Net change in working capital
215 
(152)
Change in long-term other assets
141 
(88)
Change in long-term other liabilities
24 
13 
Net cash from operating activities
1,648 
1,410 
Cash flows from investing activities:
 
 
Capital expenditures
(1,717)
(1,583)
Acquisitions of property, equipment and businesses
(404)
(5,935)
Divestitures of property and equipment
142 
Redemptions of long-term investments
 
57 
Other
37 
Net cash from investing activities
(2,116)
(7,282)
Cash flows from financing activities:
 
 
Borrowings of long-term debt, net of issuance costs
957 
3,346 
Net borrowings of short-term debt
15 
257 
Repayments of long-term debt
(487)
(1,577)
Stock option exercises
 
11 
Sale of subsidiary units
569 
   
Issuance of subsidiary units
 
Dividends paid on common stock
(99)
(90)
Distributions to noncontrolling interests
(53)
(100)
Other
(12)
(3)
Net cash from financing activities
892 
1,844 
Effect of exchange rate changes on cash
(46)
(11)
Net change in cash and cash equivalents
378 
(4,039)
Cash and cash equivalents at beginning of period
1,480 
6,066 
Cash and cash equivalents at end of period
$ 1,858 
$ 2,027 
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Mar. 31, 2015
Dec. 31, 2014
Current assets:
 
 
Cash and cash equivalents
$ 1,858 
$ 1,480 
Accounts receivable
1,663 
1,959 
Derivatives, at fair value
1,706 
1,993 
Income taxes receivable
 
522 
Other current assets
579 
544 
Total current assets
5,806 
6,498 
Oil and gas, based on full-cost accounting:
 
 
Subject to amortization
75,952 
75,738 
Not subject to amortization
2,656 
2,752 
Total oil and gas
78,608 
78,490 
Midstream and other
10,109 
9,695 
Total property and equipment, at cost
88,717 
88,185 
Less accumulated depreciation, depletion and amortization
(57,262)
(51,889)
Property and equipment, net
31,455 
36,296 
Goodwill
6,328 
6,303 
Other long-term assets
1,753 
1,540 
Total assets
45,342 
50,637 
Current liabilities:
 
 
Accounts payable
1,335 
1,400 
Revenues and royalties payable
1,054 
1,193 
Short-term debt
1,448 1
1,432 1
Deferred income taxes
638 
730 
Other current liabilities
1,085 
1,180 
Total current liabilities
5,560 
5,935 
Long-term debt
10,301 
9,830 
Asset retirement obligations
1,373 
1,339 
Other long-term liabilities
922 
948 
Deferred income taxes
4,167 
6,244 
Stockholders' equity:
 
 
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 411 million and 409 million shares in 2015 and 2014, respectively
41 
41 
Additional paid-in capital
4,542 
4,088 
Retained earnings
12,933 
16,631 
Accumulated other comprehensive earnings
481 
779 
Total stockholders' equity attributable to Devon
17,997 
21,539 
Noncontrolling interests
5,022 
4,802 
Total stockholders' equity
23,019 
26,341 
Commitments and contingencies (Note 17)
   
   
Total liabilities and stockholders' equity
$ 45,342 
$ 50,637 
Consolidated Balance Sheets (Parenthetical) (USD $)
Mar. 31, 2015
Dec. 31, 2014
Consolidated Balance Sheets [Abstract]
 
 
Common stock, par value (in dollars per share)
$ 0.10 
$ 0.10 
Common stock, shares authorized (in shares)
1,000,000,000 
1,000,000,000 
Common stock, shares issued (in shares)
411,000,000 
409,000,000 
Consolidated Statements Of Stockholders' Equity (USD $)
In Millions
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Earnings [Member]
Treasury Stock [Member]
Noncontrolling Interests [Member]
Total
Balance, at Dec. 31, 2013
$ 41 
$ 3,780 
$ 15,410 
$ 1,268 
 
 
$ 20,499 
Balance, shares, at Dec. 31, 2013
406 
 
 
 
 
 
 
Net earnings (loss)
 
 
324 
 
 
329 
Other comprehensive loss, net of tax
 
 
 
(295)
 
 
(295)
Stock option exercises
 
11 
 
 
 
 
11 
Restricted stock grants, net of cancellations, shares
 
 
 
 
 
 
Common stock repurchased
 
 
 
 
(3)
 
(3)
Common stock retired
 
(3)
 
 
 
 
Common stock dividends
 
 
(90)
 
 
 
(90)
Share-based compensation
 
47 
 
 
 
 
47 
Share-based compensation tax benefits
 
 
 
 
 
Acquisition of noncontrolling interests
 
 
 
 
 
4,652 
4,652 
Distributions to noncontrolling interests
 
 
 
 
 
(100)
(100)
Other
 
 
 
 
 
(5)
(5)
Balance, at Mar. 31, 2014
41 
3,836 
15,644 
973 
 
4,552 
25,046 
Balance, shares, at Mar. 31, 2014
408 
 
 
 
 
 
 
Balance, at Dec. 31, 2014
41 
4,088 
16,631 
779 
 
4,802 
26,341 
Balance, shares, at Dec. 31, 2014
409 
 
 
 
 
 
 
Net earnings (loss)
 
 
(3,599)
 
 
10 
(3,589)
Other comprehensive loss, net of tax
 
 
 
(298)
 
 
(298)
Restricted stock grants, net of cancellations, shares
 
 
 
 
 
 
Common stock repurchased
 
 
 
 
(18)
 
(18)
Common stock retired
 
(18)
 
 
18 
 
 
Common stock dividends
 
 
(99)
 
 
 
(99)
Share-based compensation
 
48 
 
 
 
 
48 
Share-based compensation tax benefits
 
 
 
 
 
Subsidiary equity transactions
 
423 
 
 
 
263 
686 
Distributions to noncontrolling interests
 
 
 
 
 
(53)
(53)
Balance, at Mar. 31, 2015
$ 41 
$ 4,542 
$ 12,933 
$ 481 
 
$ 5,022 
$ 23,019 
Balance, shares, at Mar. 31, 2015
411 
 
 
 
 
 
 
Summary Of Significant Accounting Policies
Summary Of Significant Accounting Policies

1.     Summary of Significant Accounting Policies 

 

The accompanying unaudited financial statements and notes of Devon Energy Corporation (“Devon”) have been prepared pursuant to the rules and regulations of the SEC. 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 (“U.S.”) have been omitted. The accompanying financial statements and notes should be read in conjunction with the financial statements and notes included in Devon’s 2014 Annual Report on Form 10-K.  

 

The accompanying unaudited interim financial statements furnished in this report reflect all adjustments that are, in the opinion of management, necessary for a fair statement of Devon’s results of operations and cash flows for the three-month periods ended March 31, 2015 and 2014 and Devon’s financial position as of March 31, 2015.

 

Recently Issued Accounting Standards not yet Adopted

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606). The update provides guidance concerning the recognition and measurement of revenue from contracts with customers. Its objective is to increase the usefulness of information in the financial statements regarding the nature, timing and uncertainty of revenues. The standard permits the use of either the retrospective or cumulative effect transition method. Devon has not yet selected a transition method and is evaluating the impact this standard will have on its consolidated financial statements and related disclosures. The FASB recently proposed a one-year delay which will make the update effective for Devon beginning on January 1, 2018.

 

In February 2015, the FASB issued Accounting Standards Update 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The update provides additional guidance to reporting entities in evaluating whether certain legal entities, such as limited partnerships, limited liability corporations and securitization structures, should be consolidated. The update is considered to be an improvement on current accounting requirements as it reduces the number of existing consolidation models. The update is effective for Devon beginning on January 1, 2016, and Devon is currently evaluating the impact this standard will have on its consolidated financial statements and related disclosures.

 

In April 2015, the FASB issued Accounting Standards Update 2015-03, Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs (Topic 835). The update requires debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability. The standard should be applied retrospectively and is effective for Devon beginning on January 1, 2016.

 

Acquisitions And Divestitures
Acquisitions And Divestitures

2.    Acquisitions and Divestitures

 

Acquisition of GeoSouthern and Formation of EnLink 

 

    On February 28, 2014, Devon completed its acquisition of interests in certain affiliates of GeoSouthern Energy Corporation (“GeoSouthern”). On March 7, 2014, Devon, Crosstex Energy, Inc. and Crosstex Energy, LP (together with Crosstex Energy, Inc., “Crosstex”) completed a business combination to combine substantially all of Devon’s U.S. midstream assets with Crosstex’s assets to form a new midstream business. The new business consists of EnLink Midstream, LLC (the General Partner”) and EnLink Midstream Partners, LP (“EnLink”), which are both controlled by Devon and are publicly traded entities. 

 

The following unaudited pro forma financial information was prepared assuming both the GeoSouthern acquisition and the EnLink formation occurred on January 1, 2014. The pro forma information has been included for comparative purposes only and is not intended to reflect the actual results of operations that would have occurred if the business combination and acquisition had been completed at the date indicated. In addition, it does not project Devon’s results of operations for any future period.

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 2014

 

 

 

 

 

 

(Millions)

Total operating revenues

 

$

4,372 

 

 

 

 

Net earnings

 

$

347 

Noncontrolling interests

 

$

18 

Net earnings attributable to Devon

 

$

329 

Net earnings per common share attributable to Devon

 

$

0.81 

 

EnLink Acquisitions and Dropdowns

 

    The following table summarizes EnLink’s acquisition and dropdown activity for the first quarter of 2015:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase Price
(Millions)

 

Allocation
(Millions)

Date

 

Acquiree

 

Cash

 

EnLink Units

 

PP&E

 

Goodwill

 

Intangibles

 

Other

January 31

 

LPC Crude Oil Marketing LLC

 

$100

 

 -

 

$29

 

$25

 

$49

 

$(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 17

 

General Partner’s 25% interest in EnLink Midstream Holdings, LP (“EMH”)

 

 -

 

$925

 

 -

 

 -

 

 -

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 16

 

Coronado Midstream Holdings LLC (“Coronado”)

 

$242

 

$360

 

$306

 

 -

 

$294

 

$2

   

    In addition, on April 1, 2015, EnLink acquired the Victoria Express Pipeline and related truck terminal and storage assets (“VEX”) from Devon for approximately $180 million in cash and equity, subject to certain adjustments. EnLink also assumed approximately $35 million in certain construction costs to expand the system to full capacity.

 

 

Derivative Financial Instruments
Derivative Financial Instruments

3.     Derivative Financial Instruments

 

Objectives and Strategies

 

Devon periodically enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production to hedge future prices received. Additionally, Devon and EnLink periodically enter into derivative financial instruments with respect to a portion of their oil, gas and NGL marketing activities. These commodity derivative financial instruments include financial price swaps, basis swaps, costless price collars and call options. Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. Devon periodically enters into foreign exchange forward contracts to manage its exposure to fluctuations in exchange rates.

 

Devon does not intend to hold or issue derivative financial instruments for speculative trading purposes and has elected not to designate any of its derivative instruments for hedge accounting treatment.

 

Counterparty Credit Risk

 

By using derivative financial instruments, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon’s policy to enter into derivative contracts only with investment-grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon’s derivative contracts contain provisions that provide for collateral payments, depending on levels of exposure and the credit rating of the counterparty.

 

As of March 31, 2015 and December 31, 2014, Devon held $487 million and $524 million, respectively, of cash collateral which represented the estimated fair value of certain derivative positions in excess of Devon’s credit guidelines. The collateral is reported in other current liabilities in the accompanying consolidated balance sheets.

 

Commodity Derivatives

 

As of March 31, 2015, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX West Texas Intermediate (“WTI”) futures price. The second table presents Devon’s oil derivatives that settle against the Western Canadian Select, West Texas Sour and Midland Sweet indices.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price Swaps

 

Price Collars

 

Call Options Sold

Period

 

Volume (Bbls/d)

 

Weighted Average Price ($/Bbl)

 

Volume (Bbls/d)

 

Weighted Average Floor Price ($/Bbl)

 

Weighted Average Ceiling Price ($/Bbl)

 

Volume (Bbls/d)

 

Weighted Average Price ($/Bbl)

Q2-Q4 2015

 

106,442

 

$

91.07

 

31,500

 

$

89.67

 

$

97.84

 

28,000

 

$

116.43

Q1-Q4 2016

 

-

 

$

-

 

-

 

$

-

 

$

-

 

18,500

 

$

103.11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil Basis Swaps

Period

 

Index

 

Volume (Bbls/d)

 

Weighted Average Differential to WTI ($/Bbl)

Q2-Q4 2015 

 

Western Canadian Select

 

36,320

 

$

(16.35)

Q2-Q4 2015 

 

West Texas Sour

 

 8,000

 

$

(3.68)

Q2-Q4 2015 

 

Midland Sweet

 

16,331

 

$

(2.84)

Q1-Q4 2016 

 

West Texas Sour

 

 1,000

 

$

(1.50)

 

As of March 31, 2015, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas derivatives that settle against the Panhandle Eastern Pipe Line, El Paso Natural Gas and Houston Ship Channel indices.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price Swaps

 

Price Collars

 

Call Options Sold

Period

 

Volume (MMBtu/d)

 

Weighted Average Price ($/MMBtu)

 

Volume (MMBtu/d)

 

Weighted Average Floor Price ($/MMBtu)

 

Weighted Average Ceiling Price ($/MMBtu)

 

Volume (MMBtu/d)

 

Weighted Average Price ($/MMBtu)

Q2-Q4 2015

 

250,000

 

$

4.32

 

391,964

 

$

3.74

 

$

4.04

 

550,000

 

$

5.09

Q1-Q4 2016

 

-

 

$

-

 

-

 

$

-

 

$

-

 

400,000

 

$

5.00

 

 

 

 

 

 

 

 

 

 

 

 

Natural Gas Basis Swaps

Period

 

Index

 

Volume (MMBtu/d)

 

Weighted Average Differential to Henry Hub ($/MMBtu)

Q2-Q4 2015

 

Panhandle Eastern Pipe Line

 

100,000

 

$

(0.28)

Q2-Q4 2015

 

El Paso Natural Gas

 

 70,000

 

$

(0.11)

Q2-Q4 2015

 

Houston Ship Channel

 

200,000

 

$

0.01

Q1-Q4 2016

 

Panhandle Eastern Pipe Line

 

 40,000

 

$

(0.33)

Q1-Q4 2016

 

El Paso Natural Gas

 

 15,000

 

$

(0.13)

Q1-Q4 2016

 

Houston Ship Channel

 

 30,000

 

$

0.11

 

 

    As of March 31, 2015, the following were open derivative positions associated with gas processing and fractionation at EnLink. EnLink’s NGL positions settle by purity product against the average of the prompt month OPIS Mont Belvieu, Texas index.

 

 

 

 

 

 

 

 

 

 

 

 

Period

 

Product

 

Volume (Total)

 

 

Weighted Average Price Paid

 

 

Weighted Average Price Received

Q2 2015-Q4 2016

 

Ethane

 

1,113

MBbls

 

$

0.28/gal

 

 

Index

Q2 2015-Q4 2016

 

Propane

 

1,170

MBbls

 

 

Index

 

$

0.95/gal

Q2 2015-Q1 2016

 

Normal Butane

 

 117

MBbls

 

 

Index

 

$

0.78/gal

Q2 2015-Q1 2016

 

Natural Gasoline

 

 101

MBbls

 

 

Index

 

$

1.32/gal

 

 

Interest Rate Derivatives

 

    As of March 31, 2015, Devon had the following open interest rate derivative positions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional

 

Rate Received

 

Rate Paid

 

Expiration

(Millions)

 

 

 

 

 

 

$

100

 

Three Month LIBOR

 

0.92%

 

December 2016

$

100

 

1.76%

 

Three Month LIBOR

 

January 2019

 

 

Foreign Currency Derivatives

 

As of March 31, 2015, Devon had the following open foreign currency derivative position:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward Contract

Currency

 

Contract Type

 

CAD Notional

 

Weighted Average Fixed Rate Received

 

Expiration

 

 

 

 

(Millions)

 

(CAD-USD)

 

 

Canadian Dollar

 

Sell

 

$

1,884 

 

0.799

 

June 2015

 

 

Financial Statement Presentation

 

The following table presents the net gains and losses recognized in the accompanying consolidated comprehensive statements of earnings associated with derivative financial instruments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Statements of

 

Three Months Ended March 31,

 

 

Earnings Caption

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

(Millions)

Oil, gas and NGL commodity derivatives

 

Oil, gas and NGL derivatives

 

$

294 

 

$

(320)

Midstream commodity derivatives

 

Marketing and midstream revenues

 

 

 

 

(1)

Interest rate derivatives

 

Other nonoperating items

 

 

 

 

 -

Foreign currency derivatives

 

Other nonoperating items

 

 

133 

 

 

14 

Net gains (losses) recognized in comprehensive statements of earnings

 

$

430 

 

$

(307)

 

 

The following table presents the derivative fair values included in the accompanying consolidated balance sheets.

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Caption

 

March 31, 2015

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

(Millions)

Asset derivatives:

 

 

 

 

 

 

 

 

Oil, gas and NGL commodity derivatives

 

Derivatives, at fair value

 

$

1,668 

 

$

1,967 

Oil, gas and NGL commodity derivatives

 

Other long-term assets

 

 

 

 

Midstream commodity derivatives

 

Derivatives, at fair value

 

 

14 

 

 

17 

Midstream commodity derivatives

 

Other long-term assets

 

 

 

 

10 

Interest rate derivatives

 

Derivatives, at fair value

 

 

 

 

Interest rate derivatives

 

Other long-term assets

 

 

 

 

 -

Foreign currency derivatives

 

Derivatives, at fair value

 

 

22 

 

 

Total asset derivatives

 

 

 

$

1,717 

 

$

2,004 

Liability derivatives:

 

 

 

 

 

 

 

 

Oil, gas and NGL commodity derivatives

 

Other current liabilities

 

$

45 

 

$

25 

Oil, gas and NGL commodity derivatives

 

Other long-term liabilities

 

 

 

 

26 

Midstream commodity derivatives

 

Other current liabilities

 

 

 

 

Midstream commodity derivatives

 

Other long-term liabilities

 

 

 

 

Interest rate derivatives

 

Other current liabilities

 

 

 

 

Total liability derivatives

 

 

 

$

58 

 

$

57 

 

 

Share-Based Compensation
Share-Based Compensation

4.     Share-Based Compensation

 

The following table presents the effects of share-based compensation included in Devon’s accompanying consolidated comprehensive statements of earnings. Devon’s gross general and administrative expense for the first three months of 2015 and 2014 includes $12 million and $1 million, respectively, of unit-based compensation related to grants made under EnLink’s long-term incentive plans.

 

The vesting for certain share-based awards was accelerated in the first quarter of 2014 in conjunction with the divestiture of Devon’s Canadian conventional assets. The associated expense for these accelerated awards is included in restructuring costs in the accompanying consolidated comprehensive statements of earnings.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

(Millions)

Gross general and administrative expense

 

$

68 

 

$

57 

 

Share-based compensation expense capitalized pursuant to the

 

 

 

 

 

 

 

 full cost method of accounting for oil and gas properties

 

$

15 

 

$

13 

 

Related income tax benefit

 

$

14 

 

$

14 

 

 

Under its 2009 Long-Term Incentive Plan, as amended, Devon granted share-based awards to certain employees in the first quarter of 2015. The following sections include information related to these awards.

 

Restricted Stock Awards and Units

 

The following table presents a summary of Devon’s unvested restricted stock awards and units.

 

 

 

 

 

 

 

 

 

 

 

Restricted Stock Awards & Units

 

Weighted Average Grant-Date Fair Value

 

 

 

(Thousands)

 

 

 

Unvested at December 31, 2014

 

 

4,304 

 

$

60.85 

 Granted

 

 

2,613 

 

$

63.97 

 Vested

 

 

(674)

 

$

60.78 

 Forfeited

 

 

(101)

 

$

60.85 

Unvested at March 31, 2015

 

 

6,142 

 

$

62.18 

 

 

 

 

 

 

 

 

As of March 31, 2015, Devon’s unrecognized compensation cost related to unvested restricted stock awards and units was $302 million. Such cost is expected to be recognized over a weighted-average period of 3.0 years.

 

Performance-Based Restricted Stock Awards

 

The following table presents a summary of Devon’s performance-based restricted stock awards.

 

 

 

 

 

 

 

 

 

 

 

Performance Restricted Stock Awards

 

Weighted Average Grant-Date Fair Value

 

 

 

(Thousands)

 

 

 

Unvested at December 31, 2014

 

 

380 

 

$

59.41 

 Granted

 

 

205 

 

$

64.18 

 Vested

 

 

(59)

 

$

61.33 

Unvested at March 31, 2015

 

 

526 

 

$

61.06 

 

As of March 31, 2015, Devon’s unrecognized compensation cost related to these awards was $10 million. Such cost is expected to be recognized over a weighted-average period of 3.4 years.

 

Performance Share Units

 

The following table presents a summary of the grant-date fair values of performance share units granted in 2015 and the related assumptions.

 

 

 

 

 

 

 

 

2015

 

 

 

 

 

 

Grant-date fair value

$

81.99 

-

$

85.05 

Risk-free interest rate

1.06% 

Volatility factor

26.2% 

Contractual term (in years)

2.89 

 

 

 

The following table presents a summary of Devon’s performance share units.

 

 

 

 

 

 

 

 

 

 

 

Performance Share Units

 

Weighted Average Grant-Date Fair Value

 

 

 

(Thousands)

 

 

 

Unvested at December 31, 2014

 

 

1,477 

 

$

70.90 

 Granted

 

 

786 

 

$

84.14 

 Vested

 

 

(337)

 

$

66.00 

 Forfeited

 

 

(14)

 

$

74.76 

Unvested at March 31, 2015 (1)

 

 

1,912 

 

$

76.27 

____________________________

(1)

A maximum of 3.8 million common shares could be awarded based upon Devon’s final total shareholder return ranking.

 

As of March 31, 2015, Devon’s unrecognized compensation cost related to unvested units was $74 million. Such cost is expected to be recognized over a weighted-average period of 2.4 years.

 

EnLink Share-Based Awards 

 

    In March 2015, the General Partner and EnLink issued restricted incentive units as bonus payments to officers and certain employees for 2014. The combined grant fair value was $7 million, and the total cost was recognized in the first quarter of 2015 due to the awards vesting immediately.

 

    As of March 31, 2015, the General Partner and EnLink both had unrecognized compensation cost related to unvested restricted incentive units of $27 million. Such cost is expected to be recognized for the General Partner and EnLink over a weighted-average period of 2.1 and 2.2 years, respectively. Additionally, the General Partner and EnLink both had unrecognized compensation cost related to unvested performance units of $4 million. Such cost is expected to be recognized over a weighted-average period of 2.1 years for both the General Partner and EnLink.

 

 

Asset Impairments
Asset Impairments

5.     Asset Impairments

 

In the first quarter of 2015, Devon recognized asset impairments as presented below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2015

 

 

 

Gross

 

Net of Taxes

 

 

 

 

 

 

 

 

 

 

 

(Millions)

 

U.S. oil and gas assets

 

$

5,458 

 

$

3,466 

 

Other assets

 

 

 

 

 

Total asset impairments

 

$

5,460 

 

$

3,467 

 

 

Oil and Gas Impairments 

 

    Under the full cost method of accounting, capitalized costs of oil and gas properties, net of accumulated DD&A and deferred income taxes, may not exceed the full cost “ceiling” at the end of each quarter. The ceiling is calculated separately for each country and is based on the present value of estimated future net cash flows from proved oil and gas reserves, discounted at 10% per annum, net of related tax effects. Estimated future net cash flows are calculated using end-of-period costs and an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months.  

 

    The oil and gas impairments resulted primarily from a decline in the U.S. full cost ceiling. The lower ceiling value resulted from decreases in the 12-month average trailing prices for oil, gas and NGLs, which reduced proved reserves and proved reserves values.

 

Other Impairments

 

    Due to the significant decline in oil prices during the first quarter of 2015, Devon impaired its pipeline line fill inventory, as the carrying amount exceeded its estimated fair value, which was determined based on the WTI spot price.

 

 

Income Taxes
Income Taxes

6.     Income Taxes

 

The following table presents Devon’s total income tax expense (benefit) and a reconciliation of its effective income tax rate to the U.S. statutory income tax rate.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Total income tax expense (benefit) (millions)

 

$

(2,035)

 

$

231 

 

 

 

 

 

 

 

 

 

U.S. statutory income tax rate

 

 

(35)%

 

 

35% 

 

Taxation on Canadian operations

 

 

0% 

 

 

(3)%

 

State income taxes

 

 

(1)%

 

 

1% 

 

Taxes on General Partner formation

 

 

0% 

 

 

9% 

 

Other

 

 

0% 

 

 

(1)%

 

Effective income tax rate

 

 

(36)%

 

 

41% 

 

 

In the first quarter of 2014, Devon recorded a $48 million deferred tax liability in conjunction with the formation of the General Partner, which impacted the effective tax rate as reflected in the table above.

 

 

Net Earnings (Loss) Per Share Attributable To Devon
Net Earnings (Loss) Per Share Attributable To Devon

7.     Net Earnings (Loss) Per Share Attributable to Devon

 

The following table reconciles net earnings (loss) attributable to Devon and common shares outstanding used in the calculations of basic and diluted net earnings per share.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

Earnings (loss)

 

 

Earnings (loss)

 

Common Shares

 

per  Share

 

 

 

 

 

 

 

 

 

 

 

  

(Millions, except per share amounts)

Three Months Ended March 31, 2015:

  

 

 

 

 

 

 

 

 

Net loss attributable to Devon

  

$

(3,599)

 

 

410 

 

 

 

Attributable to participating securities

  

 

(1)

 

 

(4)

 

 

 

Basic net loss per share

 

 

(3,600)

 

 

406 

 

$

(8.88)

Dilutive effect of potential common shares issuable

 

 

 -

 

 

 -

 

 

 

Diluted net loss per share

  

$

(3,600)

 

 

406 

 

$

(8.88)

 

  

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2014:

  

 

 

 

 

 

 

 

 

Net earnings attributable to Devon

  

$

324 

 

 

407 

 

 

 

Attributable to participating securities

  

 

(2)

 

 

(4)

 

 

 

Basic net earnings per share

  

 

322 

 

 

403 

 

$

0.80 

Dilutive effect of potential common shares issuable

  

 

 -

 

 

 

 

 

Diluted net earnings per share

  

$

322 

 

 

405 

 

$

0.79 

 

 

 

 

 

 

 

 

 

 

 

Certain options to purchase shares of Devon’s common stock are excluded from the dilution calculation because the options are antidilutive. These excluded options totaled 4.1 million shares and 6.3 million shares for the three months ended March 31, 2015 and 2014, respectively.

 

 

Other Comprehensive Earnings
Other Comprehensive Earnings

8.     Other Comprehensive Earnings 

 

Components of other comprehensive earnings consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

(Millions)

Foreign currency translation:

 

 

 

 

 

 

Beginning accumulated foreign currency translation

 

$

983 

 

$

1,448 

Change in cumulative translation adjustment

 

 

(337)

 

 

(313)

Income tax benefit

 

 

35 

 

 

15 

Ending accumulated foreign currency translation

 

 

681 

 

 

1,150 

Pension and postretirement benefit plans:

 

 

 

 

 

 

Beginning accumulated pension and postretirement benefits

 

 

(204)

 

 

(180)

Recognition of net actuarial loss and prior service cost in earnings (1)

 

 

 

 

Income tax expense

 

 

(2)

 

 

(2)

Ending accumulated pension and postretirement benefits

 

 

(200)

 

 

(177)

Accumulated other comprehensive earnings, net of tax

 

$

481 

 

$

973 

__________________________

(1)  These accumulated other comprehensive earnings components are included in the computation of net periodic benefit cost, which is a component of general and administrative expenses on the accompanying consolidated comprehensive statements of earnings. See Note 14 for additional details.

  

 

Supplemental Information To Statements Of Cash Flows
Supplemental Information To Statements Of Cash Flows

9.     Supplemental Information to Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

(Millions)

Net change in working capital accounts:

 

 

 

 

 

 

Accounts receivable

 

$

404 

 

$

(455)

Income taxes receivable

 

 

425 

 

 

31 

Other current assets

 

 

(93)

 

 

(58)

Accounts payable

 

 

(15)

 

 

20 

Revenues and royalties payable

 

 

(236)

 

 

391 

Other current liabilities

 

 

(270)

 

 

(81)

Net change in working capital

 

$

215 

 

$

(152)

 

 

 

 

 

 

 

Interest paid (net of capitalized interest)

 

$

118 

 

$

137 

Income taxes paid (received)

 

$

(414)

 

$

38 

 

    On March 7, 2014, Devon completed a business combination to form EnLink. With the exception of a $100 million cash payment to noncontrolling interests, the business combination was a non-monetary transaction. Furthermore, EnLink’s noncash acquisition activity during the first quarter of 2015 included a portion of the Coronado transaction. See Note 2 for additional details.

 

 

Accounts Receivable
Accounts Receivable

10.    Accounts Receivable

 

The components of accounts receivable include the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

 

 

 

 

 

 

 

 

(Millions)

Oil, gas and NGL sales

 

$

556 

 

$

723 

Joint interest billings

 

 

451 

 

 

475 

Marketing and midstream revenues

 

 

620 

 

 

706 

Other

 

 

50 

 

 

71 

Gross accounts receivable

 

 

1,677 

 

 

1,975 

Allowance for doubtful accounts

 

 

(14)

 

 

(16)

Net accounts receivable

 

$

1,663 

 

$

1,959 

 

 

Goodwill And Other Intangible Assets
Goodwill And Other Intangible Assets

11.    Goodwill and Other Intangible Assets

 

     See Note 2 for discussion of changes in goodwill and other intangible assets resulting from acquisitions during the first quarter of 2015.

 

The following table presents other intangible assets reported in other long-term assets in the accompanying consolidated balance sheets.

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

 

 

 

 

 

 

 

 

(Millions)

Customer relationships

 

$

926 

 

$

569 

Accumulated amortization

 

 

(48)

 

 

(36)

 Net intangibles

 

$

878 

 

$

533 

 

 

 

 

The weighted-average amortization period for intangible assets is 11.1 years. Amortization expense for intangibles was approximately $11.5 million and $1.9 million for the three months ended March 31, 2015 and 2014, respectively.

 

The following table summarizes the estimated aggregate amortization expense for the next five years.

 

 

 

 

 

 

Year

 

Amortization Amount

 

 

 

(Millions)

2015

 

$

52 

2016