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1. Summary of Significant Accounting Policies
The accompanying unaudited financial statements and notes of Devon Energy Corporation (“Devon”) have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“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 2013 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 and nine-month periods ended September 30, 2014 and 2013 and Devon's financial position as of September 30, 2014.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Devon and entities in which it holds a controlling interest. All intercompany transactions have been eliminated. Undivided interests in oil and natural gas exploration and production joint ventures are consolidated on a proportionate basis. Investments in non-controlled entities, over which Devon has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. In applying the equity method of accounting, the investments are initially recognized at cost and subsequently adjusted for Devon’s proportionate share of earnings, losses and distributions. Investments accounted for using the equity method and cost method are reported as a component of other long-term assets.
As discussed more fully in Note 2, on March 7, 2014, Devon completed a business combination whereby Devon controls both EnLink Midstream Partners, LP (the “Partnership”) and its general partner entity, EnLink Midstream, LLC (“EnLink”). Devon controls both the Partnership’s and EnLink’s operations; therefore, the Partnership’s and EnLink’s accounts are included in Devon’s accompanying consolidated financial statements subsequent to the completion of the transaction. The portions of the Partnership’s and EnLink’s net earnings and stockholders’ equity not attributable to Devon’s controlling interest are shown separately as noncontrolling interests in the accompanying consolidated comprehensive statements of earnings and consolidated balance sheets.
Intangible Assets
EnLink’s long-term assets include intangible assets, consisting of customer relationships. These assets are amortized on a straight-line basis over the expected periods of benefits, which range from ten to twenty years.
Recently Issued Accounting Standards Not Yet Adopted
In May 2014, the 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 update is effective for Devon beginning on January 1, 2017. 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.
|
2. Acquisitions and Divestitures
Formation of EnLink Midstream, LLC and EnLink Midstream Partners, LP
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 the Partnership and EnLink, a master limited partnership and a general partner entity, respectively, which are both publicly traded entities.
In exchange for a controlling interest in both EnLink and the Partnership, Devon contributed its equity interest in a newly formed Devon subsidiary, EnLink Midstream Holdings, LP (“EnLink Holdings”) and $100 million in cash. EnLink Holdings owns Devon’s midstream assets in the Barnett Shale in north Texas and the Cana and Arkoma Woodford Shales in Oklahoma, as well as Devon’s economic interest in Gulf Coast Fractionators in Mt. Belvieu, Texas. The Partnership and EnLink each own 50 percent of EnLink Holdings.
The ownership of EnLink is approximately:
• |
70% - Devon |
• |
30% - Public unitholders |
The ownership of the Partnership is approximately:
• |
52% - Devon |
• |
41% - Public unitholders |
• |
7% - EnLink |
This business combination was accounted for using the acquisition method of accounting. Under the acquisition method of accounting, EnLink Holdings was the accounting acquirer because its parent company, Devon, obtained control of EnLink and the Partnership as a result of the business combination. Consequently, EnLink Holdings’ assets and liabilities retained their carrying values. Additionally, the Crosstex assets acquired and liabilities assumed by the Partnership and EnLink in the business combination, as well as EnLink’s noncontrolling interest in the Partnership, were recorded at their fair values which were measured as of the acquisition date, March 7, 2014. The excess of the purchase price over the estimated fair values of Crosstex’s net assets acquired was recorded as goodwill.
The following table summarizes the purchase price (in millions, except unit price).
Crosstex Energy, Inc. outstanding common shares: |
||||
Held by public shareholders |
48.0 | |||
Restricted shares |
0.4 | |||
Total subject to conversion |
48.4 | |||
Exchange ratio |
1.0 |
x |
||
Converted shares |
48.4 | |||
Crosstex Energy, Inc. common share price (1) |
$ |
37.60 | ||
Crosstex Energy, Inc. consideration |
$ |
1,823 | ||
Fair value of noncontrolling interests in E2 (2) |
$ |
12 | ||
Total Crosstex Energy, Inc. consideration and fair value of noncontrolling interests |
$ |
1,835 | ||
Partnership outstanding units: |
||||
Common units held by public unitholders |
75.1 | |||
Preferred units held by third party (3) |
17.1 | |||
Restricted units |
0.4 | |||
Total |
92.6 | |||
Partnership common unit price (4) |
$ |
30.51 | ||
Partnership common units value |
$ |
2,825 | ||
Partnership outstanding unit options value |
$ |
4 | ||
Total fair value of noncontrolling interests in the Partnership (4) |
$ |
2,829 | ||
Total consideration and fair value of noncontrolling interests |
$ |
4,664 |
__________________________
(1) The final purchase price is based on the fair value of Crosstex Energy Inc.’s common shares as of the closing date, March 7, 2014.
(2) Represents the value of noncontrolling interests related to EnLink’s equity investment in E2 Energy Services, LLC and E2 Appalachian Compression, LLC (collectively “E2”).
(3) The Partnership converted the preferred units to common units in February 2014.
(4) The final purchase price is based on the fair value of the Partnership’s common shares as of the closing date, March 7, 2014.
The preliminary allocation of the purchase price is as follows (in millions):
Assets acquired: |
|||
Current assets |
$ |
438 | |
Property, plant and equipment, net |
2,438 | ||
Intangible assets |
547 | ||
Equity investment |
222 | ||
Goodwill (1) |
3,292 | ||
Other long term assets |
1 | ||
Liabilities assumed: |
|||
Current liabilities |
(516) | ||
Long-term debt |
(1,454) | ||
Deferred income taxes |
(203) | ||
Other long-term liabilities |
(101) | ||
Total consideration and fair value of noncontrolling interests |
$ |
4,664 |
__________________________
(1) Goodwill is the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill is not amortized and is not deductible for tax purposes.
GeoSouthern Energy Acquisition
On November 20, 2013, Devon entered into a Purchase and Sale Agreement with GeoSouthern Energy Corporation (“GeoSouthern”) and a wholly owned subsidiary of GeoSouthern to acquire GeoSouthern’s interests in certain affiliates (the “Acquired Companies”) that own certain oil and gas properties, leasehold mineral interest and related assets located in the Eagle Ford Shale. On February 28, 2014, the GeoSouthern acquisition closed, and GeoSouthern transferred the Acquired Companies to Devon in exchange for the aggregate purchase price of approximately $6.0 billion. Devon funded the acquisition price with cash on hand and debt financing. In connection with the GeoSouthern acquisition, Devon acquired approximately 82,000 net acres located in DeWitt and Lavaca counties in south Texas. The transaction was accounted for using the acquisition method, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The following table summarizes the preliminary allocation of the purchase price to the assets acquired and liabilities assumed in the transaction (in millions).
Cash and cash equivalents |
$ |
95 | |
Other current assets |
256 | ||
Proved properties |
5,029 | ||
Unproved properties |
1,008 | ||
Midstream assets |
85 | ||
Current liabilities |
(437) | ||
Long-term liabilities |
(6) | ||
Net assets acquired |
$ |
6,030 |
EnLink and GeoSouthern Operating Results
The following table presents EnLink’s (acquired Crosstex operations) and GeoSouthern’s operating revenues and net earnings included in Devon’s consolidated statements of earnings subsequent to the transactions described above.
Three Months Ended September 30, 2014 |
Nine Months Ended September 30, 2014 |
|||||||||||
GeoSouthern |
EnLink |
GeoSouthern |
EnLink |
|||||||||
(In millions) |
(In millions) |
|||||||||||
Total operating revenues |
$ |
634 |
$ |
700 |
$ |
1,374 |
$ |
1,670 | ||||
Total operating expenses |
322 | 692 | 708 | 1,654 | ||||||||
Operating income |
$ |
312 |
$ |
8 |
$ |
666 |
$ |
16 |
Pro Forma Financial Information
The following unaudited pro forma financial information has been prepared assuming both the EnLink formation and the GeoSouthern acquisition occurred on January 1, 2013. The pro forma information 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 dates indicated. In addition, they do not project Devon’s results of operations for any future period.
Nine Months Ended September 30, |
||||||
2014 |
2013 |
|||||
(In millions) |
||||||
Total operating revenues |
$ |
14,218 |
$ |
9,603 | ||
Net earnings (loss) |
$ |
2,109 |
$ |
(192) | ||
Noncontrolling interests |
$ |
68 |
$ |
32 | ||
Net earnings (loss) attributable to Devon |
$ |
2,041 |
$ |
(224) | ||
Net earnings (loss) per common share attributable to Devon |
$ |
4.98 |
$ |
(0.55) |
Partnership Acquisitions and Dropdowns
Effective November 1, 2014, the Partnership acquired Gulf Coast natural pipeline assets predominantly located in southern Louisiana for $235 million, subject to certain adjustments. Furthermore, in October 2014, the Partnership acquired equity interests in E2 Appalachian Compression, LLC and E2 Energy Services, LLC (together “E2”) from EnLink. The total consideration for the transaction was approximately $193 million, including a $163 million cash payment and 1.0 million Partnership units valued at $30 million based on the fair value of the Partnership’s units as of the closing date of the transaction.
Non-Core Asset Divestitures
In November 2013, Devon announced plans to divest certain non-core properties located throughout Canada and the U.S.
Canada
In the first quarter of 2014, Devon completed minor divestiture transactions for $142 million ($155 million Canadian dollars). In the second quarter of 2014, Devon sold conventional assets to Canadian Natural Resources Limited for $2.8 billion ($3.125 billion Canadian dollars).
Under full-cost accounting rules, sales or dispositions of oil and gas properties are generally accounted for as adjustments to capitalized costs, with no recognition of gain or loss. However, if not recognizing a gain or loss on the disposition would otherwise significantly alter the relationship between a cost center’s capitalized costs and proved reserves, then a gain or loss must be recognized. The Canadian divestitures significantly altered such relationship. Therefore, Devon recognized gains totaling $1.1 billion ($0.6 billion after-tax) in 2014 associated with these transactions. These gains are included as a separate item in the accompanying consolidated comprehensive statements of earnings.
Included in the gain calculation noted above were asset retirement obligations of approximately $700 million assumed by the purchaser as well as the derecognition of approximately $700 million of goodwill allocated to the sold assets.
In conjunction with the divestitures noted above, Devon repatriated approximately $2.8 billion of proceeds to the U.S. in the second quarter of 2014. The proceeds were used to repay $0.7 billion of commercial paper and the $2.0 billion term loans that were drawn in the first quarter of 2014 to fund a portion of the GeoSouthern acquisition. Between collecting the divestiture proceeds and repatriating funds to the U.S., Devon recognized an $84 million foreign currency exchange loss and a $29 million foreign currency derivative loss. These losses are included in other nonoperating items in the accompanying consolidated comprehensive statements of earnings.
U.S.
On August 29, 2014, Devon sold its U.S. non-core assets to LINN Energy for $2.3 billion ($1.7 billion after-tax proceeds). Additionally, approximately $200 million of asset retirement obligations were assumed by LINN Energy. No gain or loss was recognized on the sale.
|
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. These instruments are used to manage the inherent uncertainty of future revenues due to commodity price volatility and typically include financial price swaps, basis swaps, costless price collars and call options. Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. Devon periodically enters into foreign exchange forward contracts to manage its exposure to fluctuations in exchange rates. Additionally, EnLink manages its exposure to fluctuations in commodity prices by hedging the impact of market fluctuations.
Devon does not intend to hold or issue derivative financial instruments for speculative trading purposes and has elected not to designate any of its derivative instruments for hedge accounting treatment.
Counterparty Credit Risk
By using derivative financial instruments, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon's policy to enter into derivative contracts only with investment grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon's derivative contracts contain provisions that provide for collateral payments, depending on levels of exposure and the credit rating of the counterparty.
As of September 30, 2014, Devon held $31 million of cash collateral which represented the estimated fair value of certain derivative positions in excess of Devon’s credit guidelines. The collateral is reported in other current liabilities in the accompanying balance sheet.
Commodity Derivatives
As of September 30, 2014, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX West Texas Intermediate futures price. The second table presents Devon’s oil derivatives that settle against the Western Canadian Select index.
Price Swaps |
Price Collars |
Call Options Sold |
||||||||||||||||
Period |
Volume (Bbls/d) |
Weighted Average Price ($/Bbl) |
Volume (Bbls/d) |
Weighted Average Floor Price ($/Bbl) |
Weighted Average Ceiling Price ($/Bbl) |
Volume (Bbls/d) |
Weighted Average Price ($/Bbl) |
|||||||||||
Q4 2014 |
75,000 |
$ |
94.14 |
64,750 |
$ |
89.33 |
$ |
100.00 |
42,000 |
$ |
116.43 |
|||||||
Q1-Q4 2015 |
106,736 |
$ |
91.22 |
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) |
||||
Q4 2014 |
Western Canadian Select |
50,000 |
$ |
(17.40) | |||
Q1-Q4 2015 |
Western Canadian Select |
14,890 |
$ |
(18.92) |
As of September 30, 2014, 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 AECO and PEPL 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) |
|||||||||||
Q4 2014 |
800,000 |
$ |
4.42 |
460,000 |
$ |
4.03 |
$ |
4.51 |
500,000 |
$ |
5.00 |
|||||||
Q1-Q4 2015 |
210,000 |
$ |
4.38 |
260,000 |
$ |
4.05 |
$ |
4.36 |
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) |
||||
Q4 2014 |
AECO |
94,781 |
$ |
(0.52) |
|||
Q1-Q4 2015 |
PEPL |
100,000 |
$ |
(0.28) |
Interest Rate Derivatives
As of September 30, 2014, Devon had the following open interest rate derivative positions:
Notional |
Rate Received |
Rate Paid |
Expiration |
||||
(In millions) |
|||||||
$ |
100 |
Three Month LIBOR |
0.92% |
December 2016 |
|||
$ |
100 |
1.76% |
Three Month LIBOR |
January 2019 |
Foreign Currency Derivatives
As of September 30, 2014, Devon had the following open foreign currency derivative positions:
Forward Contract |
|||||||||
Currency |
Contract Type |
CAD Notional |
Weighted Average Fixed Rate Received |
Expiration |
|||||
(In millions) |
(CAD-USD) |
||||||||
Canadian Dollar |
Sell |
$ |
1,312 |
0.899 |
December 2014 |
Financial Statement Presentation
The following table presents the net gains and losses recognized in the accompanying comprehensive statements of earnings associated with derivative financial instruments.
Comprehensive Statements of |
Three Months Ended |
Nine Months Ended |
||||||||||||
Earnings Caption |
2014 |
2013 |
2014 |
2013 |
||||||||||
(In millions) |
||||||||||||||
Commodity derivatives |
Oil, gas and NGL derivatives |
$ |
748 |
$ |
(141) |
$ |
29 |
$ |
(95) | |||||
EnLink commodity derivatives |
Marketing and midstream revenues |
1 |
— |
(2) |
— |
|||||||||
Interest rate derivatives |
Other nonoperating items |
— |
1 | 1 | 1 | |||||||||
Foreign currency derivatives |
Other nonoperating items |
55 | (28) | 15 | 29 | |||||||||
Net gains (losses) recognized in comprehensive statements of earnings |
$ |
804 |
$ |
(168) |
$ |
43 |
$ |
(65) |
The following table presents the derivative fair values included in the accompanying balance sheets.
Balance Sheet Caption |
September 30, 2014 |
December 31, 2013 |
||||||
(In millions) |
||||||||
Asset derivatives: |
||||||||
Commodity derivatives |
Other current assets |
$ |
231 |
$ |
75 | |||
Commodity derivatives |
Other long-term assets |
66 | 28 | |||||
EnLink commodity derivatives |
Other current assets |
1 |
— |
|||||
Interest rate derivatives |
Other current assets |
1 |
— |
|||||
Foreign currency derivatives |
Other current assets |
11 |
— |
|||||
Total asset derivatives |
$ |
310 |
$ |
103 | ||||
Liability derivatives: |
||||||||
Commodity derivatives |
Other current liabilities |
$ |
30 |
$ |
58 | |||
Commodity derivatives |
Other long-term liabilities |
50 | 62 | |||||
EnLink commodity derivatives |
Other current liabilities |
1 |
— |
|||||
EnLink commodity derivatives |
Other long-term liabilities |
1 |
— |
|||||
Interest rate derivatives |
Other current liabilities |
1 |
— |
|||||
Interest rate derivatives |
Other long-term liabilities |
1 |
— |
|||||
Foreign currency derivatives |
Other current liabilities |
— |
1 | |||||
Total liability derivatives |
$ |
84 |
$ |
121 |
|
5. Asset Impairments
In the first nine months of 2013, Devon recognized asset impairments related to its oil and gas property and equipment as presented below.
Nine Months Ended September 30, 2013 |
|||||
Gross |
Net of Taxes |
||||
(In millions) |
|||||
U.S. oil and gas assets |
$ |
1,110 |
$ |
707 | |
Canada oil and gas assets |
843 | 632 | |||
Midstream assets |
7 | 4 | |||
Total asset impairments |
$ |
1,960 |
$ |
1,343 |
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 percent per annum, net of related tax effects. Estimated future net cash flows are calculated using end-of-period costs and an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months.
The oil and gas impairments resulted primarily from declines in the U.S. and Canada full-cost ceilings. The lower ceiling values resulted primarily from decreases in the 12-month average trailing prices for oil, bitumen and NGLs, which reduced proved reserve values.
Midstream Impairments
In the third quarter of 2013, Devon determined that the carrying amounts of certain midstream facilities located in south and east Texas were not recoverable from estimated future cash flows due to declining natural gas production. Consequently, the assets were written down to their estimated fair values, which were determined using discounted cash flow models. The fair value of Devon’s midstream assets is considered a Level 3 fair value measurement.
|
6. Restructuring Costs
Canadian Divestitures
In the first nine months of 2014, Devon recognized $44 million of employee related and other costs associated with its Canadian non-core asset divestitures. Approximately $15 million of the employee related costs resulted from accelerated vesting of share-based grants, which are non-cash charges.
Office Consolidation
In October 2012, Devon announced plans to consolidate its U.S. personnel into a single operations group centrally located at the company’s headquarters in Oklahoma City. As of December 31, 2013, Devon had completed this initiative and incurred $134 million of restructuring costs associated with the office consolidation.
Financial Statement Presentation
The schedule below summarizes restructuring costs presented in the accompanying comprehensive statements of earnings related to the Canadian divestitures and office consolidation.
Three Months |
Nine Months |
||||||||||
Ended September 30, |
Ended September 30, |
||||||||||
2014 |
2013 |
2014 |
2013 |
||||||||
(In millions) |
|||||||||||
Canada divestitures: |
|||||||||||
Employee related and other costs |
$ |
2 |
$ |
— |
$ |
44 |
$ |
— |
|||
Office consolidation: |
|||||||||||
Lease obligations and other |
— |
4 |
— |
50 | |||||||
Restructuring costs |
$ |
2 |
$ |
4 |
$ |
44 |
$ |
50 |
The schedule below summarizes Devon’s restructuring liabilities.
Other |
Other |
||||||||
Current |
Long-Term |
||||||||
Liabilities |
Liabilities |
Total |
|||||||
(In millions) |
|||||||||
Balance as of December 31, 2013 |
$ |
27 |
$ |
18 |
$ |
45 | |||
Changes due to Canadian divestitures |
2 | 2 | 4 | ||||||
Changes due to office consolidation |
(22) | (1) | (23) | ||||||
Changes due to offshore divestiture |
(2) | (1) | (3) | ||||||
Balance as September 30, 2014 |
$ |
5 |
$ |
18 |
$ |
23 | |||
Balance as of December 31, 2012 |
$ |
52 |
$ |
9 |
$ |
61 | |||
Changes due to office consolidation |
(16) | 11 | (5) | ||||||
Changes due to offshore divestiture |
(2) | (1) | (3) | ||||||
Balance as of September 30, 2013 |
$ |
34 |
$ |
19 |
$ |
53 |
|
7. 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 September 30, |
Nine Months Ended September 30, |
||||||||||||
2014 |
2013 |
2014 |
2013 |
||||||||||
Total income tax expense (benefit) (in millions) |
$ |
613 |
$ |
210 |
$ |
1,698 |
$ |
(99) | |||||
U.S. statutory income tax rate |
35% | 35% | 35% | (35%) | |||||||||
Repatriations |
— |
— |
7% |
— |
|||||||||
State income taxes |
2% | 1% | 1% | (3%) | |||||||||
Taxation on Canadian operations |
— |
(5%) | 1% | 9% | |||||||||
Taxes on EnLink formation |
— |
— |
1% |
— |
|||||||||
Other |
— |
2% |
— |
(1%) | |||||||||
Effective income tax rate |
37% | 33% | 45% | (30%) |
In the third quarter of 2014, Devon completed its U.S. non-core asset divestiture program. In conjunction with the divestiture closing, Devon recognized $543 million of current income tax expense. The current tax expense was entirely offset by the recognition of deferred tax benefits.
In the second quarter of 2014, Devon recognized $247 million of additional income tax expense related to the $2.8 billion of repatriations to the U.S. Prior to the repatriation, Devon had recognized a $143 million deferred income tax liability associated with the planned repatriation. When the repatriation was made, Devon retained a larger property basis in Canada than was previously estimated, resulting in the incremental tax in the second quarter.
In the first quarter of 2014, Devon recorded a $48 million deferred tax liability in conjunction with the formation of EnLink, which impacted the effective tax rate as reflected in the table above.
In the second quarter of 2013, Devon repatriated to the U.S. $2.0 billion of cash from its foreign subsidiaries. In conjunction with the repatriation, Devon recognized approximately $100 million of current income tax expense. The current expense was entirely offset by the recognition of deferred income tax benefits, which included the reduction of the deferred tax liability previously recognized for unremitted foreign earnings deemed not to be indefinitely reinvested.
|
9. Other Comprehensive Earnings
Components of other comprehensive earnings consist of the following:
Three Months Ended |
Nine Months Ended |
|||||||||||
September 30, |
September 30, |
|||||||||||
2014 |
2013 |
2014 |
2013 |
|||||||||
(In millions) |
||||||||||||
Foreign currency translation: |
||||||||||||
Beginning accumulated foreign currency translation |
$ |
1,442 |
$ |
1,542 |
$ |
1,448 |
$ |
1,996 | ||||
Change in cumulative translation adjustment |
(299) | 182 | (306) | (294) | ||||||||
Income tax benefit (expense) |
20 | (9) | 21 | 13 | ||||||||
Ending accumulated foreign currency translation |
1,163 | 1,715 | 1,163 | 1,715 | ||||||||
Pension and postretirement benefit plans: |
||||||||||||
Beginning accumulated pension and postretirement benefits |
(172) | (216) | (180) | (225) | ||||||||
Recognition of net actuarial loss and prior service cost in earnings (1) |
4 | 6 | 15 | 18 | ||||||||
Income tax expense |
(2) | (3) | (5) | (6) | ||||||||
Ending accumulated pension and postretirement benefits |
(170) | (213) | (170) | (213) | ||||||||
Accumulated other comprehensive earnings, net of tax |
$ |
993 |
$ |
1,502 |
$ |
993 |
$ |
1,502 |
__________________________
(1) These accumulated other comprehensive earnings components are included in the computation of net periodic benefit cost, which is a component of general and administrative expenses on the accompanying comprehensive statements of earnings (see Note 15 for additional details).
|
10. Supplemental Information to Statements of Cash Flows
Nine Months Ended September 30, |
||||||
2014 |
2013 |
|||||
(In millions) |
||||||
Net change in working capital accounts: |
||||||
Accounts receivable |
$ |
(25) |
$ |
(287) | ||
Other current assets |
(120) | 72 | ||||
Accounts payable |
(118) | 127 | ||||
Income taxes payable |
704 | 7 | ||||
Revenues and royalties payable |
381 | 56 | ||||
Other current liabilities |
(56) | (79) | ||||
Net change in working capital |
$ |
766 |
$ |
(104) | ||
Interest paid (net of capitalized interest) |
$ |
355 |
$ |
342 | ||
Income taxes paid (received) |
$ |
214 |
$ |
(2) |
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. See Note 2 for additional details.
|
11. Accounts Receivable
The components of accounts receivable include the following:
September 30, 2014 |
December 31, 2013 |
||||
(In millions) |
|||||
Oil, gas and NGL sales |
$ |
899 |
$ |
851 | |
Joint interest billings |
393 | 447 | |||
Marketing and midstream revenues |
674 | 172 | |||
Other |
54 | 61 | |||
Gross accounts receivable |
2,020 | 1,531 | |||
Allowance for doubtful accounts |
(11) | (11) | |||
Net accounts receivable |
$ |
2,009 |
$ |
1,520 |
|
12. Goodwill
The table below provides a summary of Devon’s goodwill, by assigned reporting unit.
September 30, 2014 |
December 31, 2013 |
|||||
(In millions) |
||||||
U.S. |
$ |
2,618 |
$ |
2,618 | ||
Canada |
1,997 | 2,838 | ||||
EnLink |
3,695 | 402 | ||||
Total |
$ |
8,310 |
$ |
5,858 |
The changes to Devon’s goodwill during the first nine months of 2014 relate to both EnLink and Canada. Included in the assets Devon contributed to EnLink Holdings was $402 million of goodwill. The additional EnLink goodwill of $3.3 billion represents the goodwill recognized on the EnLink transaction described in Note 2.
The decrease in Devon’s Canadian goodwill was primarily due to goodwill that was derecognized upon the asset divestitures described in Note 2.
|
13. Debt
September 30, 2014 |
December 31, 2013 |
||||
(In millions) |
|||||
Devon debt |
|||||
Commercial paper |
$ |
- |
$ |
1,317 | |
5.625% due January 15, 2014 |
- |
500 | |||
Floating rate due December 15, 2015 |
500 | 500 | |||
2.40% due July 15, 2016 |
500 | 500 | |||
Floating rate due December 15, 2016 |
350 | 350 | |||
1.20% due December 15, 2016 |
650 | 650 | |||
1.875% due May 15, 2017 |
750 | 750 | |||
8.25% due July 1, 2018 |
125 | 125 | |||
2.25% due December 15, 2018 |
750 | 750 | |||
6.30% due January 15, 2019 |
700 | 700 | |||
4.00% due July 15, 2021 |
500 | 500 | |||
3.25% due May 15, 2022 |
1,000 | 1,000 | |||
7.50% due September 15, 2027 |
150 | 150 | |||
7.875% due September 30, 2031 |
1,250 | 1,250 | |||
7.95% due April 15, 2032 |
1,000 | 1,000 | |||
5.60% due July 15, 2041 |
1,250 | 1,250 | |||
4.75% due May 15, 2042 |
750 | 750 | |||
Net discount on debentures and notes |
(20) | (20) | |||
Total Devon debt |
10,205 | 12,022 | |||
EnLink debt |
|||||
Credit facilities |
451 |
- |
|||
Other borrowings |
27 |
- |
|||
2.70% due April 1, 2019 |
400 |
- |
|||
7.125% due June 1, 2022 |
163 |
- |
|||
4.40% due April 1, 2024 |
450 |
- |
|||
5.60% due April 1, 2044 |
350 |
- |
|||
Net premium on debentures and notes |
13 |
- |
|||
Total EnLink debt |
1,854 |
- |
|||
Total debt |
12,059 | 12,022 | |||
Less amount classified as short-term debt (1) |
1,898 | 4,066 | |||
Total long-term debt |
$ |
10,161 |
$ |
7,956 |
___________________
(1) |
Short-term debt as of September 30, 2014 consists of $1.9 billion of senior notes that Devon intends to redeem in the fourth quarter of 2014 prior to their scheduled maturity date. The redemption includes the 2.4% $500 million senior note due 2016, the 1.2% $650 million senior note due 2016 and the 1.875% $750 million senior note due 2017 plus unpaid interest and a make-whole premium. The debt will be repaid with funds received as part of the divestiture program discussed in Note 2. |
Short-term debt as of December 31, 2013 consists of $2.25 billion of senior notes issued in conjunction with the GeoSouthern acquisition, $1.3 billion of commercial paper and $500 million of senior notes due January 15, 2014. Subsequent to the close of the GeoSouthern acquisition the $2.25 billion of senior notes were reclassified to long-term debt.
Commercial Paper
During the nine months ended September 30, 2014, Devon has reduced commercial paper borrowings by $1.3 billion primarily utilizing divestiture proceeds. As of September 30, 2014, Devon had no outstanding commercial paper borrowings.
Credit Lines
Devon has a $3.0 billion syndicated, unsecured revolving line of credit (the "Senior Credit Facility"). As of September 30, 2014, there were no borrowings under the Senior Credit Facility. The Senior Credit Facility contains only one material financial covenant. This covenant requires Devon’s ratio of total funded debt to total capitalization, as defined in the credit agreement, to be no greater than 65 percent. As of September 30, 2014, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 22.7 percent.
Term Loans
In December 2013, in conjunction with the GeoSouthern acquisition, Devon entered into a term loan agreement with a group of major financial institutions. In February 2014, Devon drew $2.0 billion of term loans to finance, in part, the GeoSouthern acquisition and to pay transaction costs. The term loans were repaid on June 30, 2014 with the Canadian divestiture proceeds that were repatriated to the U.S.
EnLink Debt
The table below summarizes the fair value of EnLink’s debt as of March 7, 2014, the formation date of EnLink. The premiums are being amortized using the effective interest method. EnLink’s debt is non-recourse to Devon.
March 7, 2014 Fair Value |
Effective |
|||
(In millions) |
||||
8.875% due February 15, 2018 (principal of $725 million) (1) |
$ |
760 |
7.7% |
|
7.125% due June 1, 2022 (principal of $197 million) |
226 |
5.3% |
||
Credit facilities |
468 | |||
Total long-term debt |
$ |
1,454 |
___________________
(1) |
The 2018 senior notes were redeemed on April 18, 2014. |
The Partnership has a $1.0 billion unsecured revolving credit facility, which includes a $500 million letter of credit subfacility. As of September 30, 2014, there were $14.0 million in outstanding letters of credit and $371.0 million outstanding borrowings under the $1.0 billion credit facility, leaving $615.0 million available for future borrowing.
The $1.0 billion credit facility will mature on the fifth anniversary of the initial funding date, which was March 7, 2014, unless EnLink requests, and the requisite lenders agree, to extend it pursuant to its terms. The credit facility contains certain financial, operational and legal covenants. Among other things, these covenants include maintaining a ratio of consolidated indebtedness to EnLink’s consolidated EBITDA (as defined in the credit facility, which definition includes projected EnLink EBITDA from certain capital expansion projects) of no more than 5.0 to 1.0. If EnLink consummates one or more acquisitions in which the aggregate purchase price is $50 million or more, the maximum allowed ratio of consolidated indebtedness to EnLink’s consolidated EBITDA will increase to 5.5 to 1.0 for the quarter of the acquisition and the three following quarters.
EnLink also has a $250 million revolving credit facility, which includes a $125 million letter of credit subfacility, as well as an additional credit agreement in association with E2 Energy Services LLC under which EnLink can borrow up to $30 million. As of September 30, 2014, EnLink’s outstanding borrowings under the $250 million credit facility were $81 million and $26 million in association with the E2 Energy Services LLC credit agreement. Additionally, as of September 30, 2014, E2 Services had certain promissory notes outstanding related to its vehicle fleet in the amount of $0.4 million due in increments through July 2017.
The $250 million credit facility will mature on March 7, 2019. The credit facility contains certain financial, operational and legal covenants. The financial covenants will be tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter, and include (i) maintaining a maximum consolidated leverage ratio (as defined in the credit facility, but generally computed as the ratio of consolidated funded indebtedness to consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges) of 4.00 to 1.00, provided that the maximum consolidated leverage ratio is 4.50 to 1.00 during an acquisition period (as defined in the credit facility) and (ii) maintaining a minimum consolidated interest coverage ratio (as defined in the credit facility, but generally computed as the ratio of consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges to consolidated interest charges) of 2.50 to 1.00 at all times prior to the occurrence of an investment grade event (as defined in the credit facility).
|
14. Asset Retirement Obligations
The schedule below summarizes changes in Devon’s asset retirement obligations.
Nine Months Ended September 30, |
||||||
2014 |
2013 |
|||||
(In millions) |
||||||
Asset retirement obligations as of beginning of period |
$ |
2,228 |
$ |
2,095 | ||
Liabilities incurred |
79 | 88 | ||||
Liabilities settled |
(38) | (46) | ||||
Revision of estimated obligation |
75 | 104 | ||||
Liabilities assumed by others |
(949) | (15) | ||||
Accretion expense on discounted obligation |
70 | 86 | ||||
Foreign currency translation adjustment |
(55) | (44) | ||||
Asset retirement obligations as of end of period |
1,410 | 2,268 | ||||
Less current portion |
62 | 107 | ||||
Asset retirement obligations, long-term |
$ |
1,348 |
$ |
2,161 |
During the first nine months of 2014, Devon reduced its asset retirement obligations $949 million for those obligations that were assumed by the purchasers of Devon’s Canadian and U.S. non-core oil and gas properties.
|
15. Retirement Plans
The following table presents the components of net periodic benefit cost for Devon’s pension and postretirement benefit plans.
Pension Benefits |
Postretirement Benefits |
|||||||||||||||||||||||
Three Months Ended |
Nine Months Ended |
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||
September 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||||||||||
2014 |
2013 |
2014 |
2013 |
2014 |
2013 |
2014 |
2013 |
|||||||||||||||||
(In millions) |
||||||||||||||||||||||||
Service cost |
$ |
7 |
$ |
9 |
$ |
22 |
$ |
27 |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
||||||||
Interest cost |
14 | 13 | 41 | 39 |
— |
— |
— |
1 | ||||||||||||||||
Expected return on plan assets |
(13) | (16) | (40) | (47) |
— |
— |
— |
— |
||||||||||||||||
Amortization of prior service cost (1) |
1 | 1 | 3 | 3 | (1) |
— |
(1) |
— |
||||||||||||||||
Net actuarial loss (gain) (1) |
4 | 5 | 14 | 16 |
— |
— |
(1) | (1) | ||||||||||||||||
Net periodic benefit cost (2) |
$ |
13 |
$ |
12 |
$ |
40 |
$ |
38 |
$ |
(1) |
$ |
— |
$ |
(2) |
$ |
— |
__________________________
(1) These net periodic benefit costs were reclassified out of other comprehensive earnings in the current period.
(2) Net periodic benefit cost is a component of general and administrative expenses on the accompanying comprehensive statements of earnings.
|
16. Stockholders' Equity
Dividends
Devon paid common stock dividends of $287 million and $259 million in the first nine months of 2014 and 2013, respectively. The quarterly cash dividend was $0.20 per share in the first quarter of 2013. Devon increased the dividend rate to $0.22 per share in the second quarter of 2013 and to $0.24 per share in the second quarter of 2014.
Subsidiary equity transactions
In May 2014, the Partnership entered into an Equity Distribution Agreement (the “EDA”) with BMO Capital Markets Corp. (“BMO”). Pursuant to the terms of the EDA, the Partnership may from time to time through BMO, as its sales agent, sell common units representing limited partner interests having an aggregate offering price of up to $75 million.
Through September 30, 2014, the Partnership sold an aggregate of 2.4 million common units under the EDA, generating net proceeds of approximately $72 million. The Partnership used the net proceeds for general partnership purposes, including working capital, capital expenditures and repayments of indebtedness.
Distributions to noncontrolling interests
In conjunction with the formation of EnLink in the first quarter of 2014, Devon made a payment of $100 million to noncontrolling interests. Further, EnLink distributed $87 million to its non-Devon unitholders during the first nine months of 2014.
|
17. Commitments and Contingencies
Devon is party to various legal actions arising in the normal course of business. Matters that are probable of unfavorable outcome to Devon and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, Devon's estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. None of the actions are believed by management to involve future amounts that would be material to Devon's financial position or results of operations after consideration of recorded accruals. Actual amounts could differ materially from management's estimates.
Royalty Matters
Numerous oil and natural gas producers and related parties, including Devon, have been named in various lawsuits alleging royalty underpayments. The suits allege that the producers and related parties used below-market prices, made improper deductions, used improper measurement techniques and entered into gas purchase and processing arrangements with affiliates that resulted in underpayment of royalties in connection with oil, natural gas and NGLs produced and sold. Devon does not currently believe that it is subject to material exposure with respect to such royalty matters.
Environmental Matters
Devon is subject to certain laws and regulations relating to environmental remediation activities associated with past operations, such as the Comprehensive Environmental Response, Compensation, and Liability Act and similar state statutes. In response to liabilities associated with these activities, loss accruals primarily consist of estimated uninsured remediation costs. Devon's monetary exposure for environmental matters is not expected to be material.
Other Matters
Devon is involved in other various routine legal proceedings incidental to its business. However, to Devon's knowledge, there were no other material pending legal proceedings to which Devon is a party or to which any of its property is subject.
|
18. Fair Value Measurements
The following tables provide carrying value and fair value measurement information for certain of Devon’s financial assets and liabilities. The carrying values of cash, accounts receivable, other current receivables, accounts payable, other current payables and accrued expenses included in the accompanying balance sheets approximated fair value at September 30, 2014 and December 31, 2013. Therefore, such financial assets and liabilities are not presented in the following tables.
Fair Value Measurements Using: |
|||||||||||||||
Carrying |
Total Fair |
Level 1 |
Level 2 |
Level 3 |
|||||||||||
Amount |
Value |
Inputs |
Inputs |
Inputs |
|||||||||||
(In millions) |
|||||||||||||||
September 30, 2014 assets (liabilities): |
|||||||||||||||
Cash equivalents |
$ |
2,876 |
$ |
2,876 |
$ |
1,745 |
$ |
1,131 |
$ |
— |
|||||
Commodity derivatives |
$ |
297 |
$ |
297 |
$ |
— |
$ |
297 |
$ |
— |
|||||
Commodity derivatives |
$ |
(80) |
$ |
(80) |
$ |
— |
$ |
(80) |
$ |
— |
|||||
EnLink commodity derivatives |
$ |
1 |
$ |
1 |
$ |
— |
$ |
1 |
$ |
— |
|||||
EnLink commodity derivatives |
$ |
(2) |
$ |
(2) |
$ |
— |
$ |
(2) |
$ |
— |
|||||
Interest rate derivatives |
$ |
1 |
$ |
1 |
$ |
— |
$ |
1 |
$ |
— |
|||||
Interest rate derivatives |
$ |
(2) |
$ |
(2) |
$ |
— |
$ |
(2) |
$ |
— |
|||||
Foreign currency derivatives |
$ |
11 |
$ |
11 |
$ |
— |
$ |
11 |
$ |
— |
|||||
Debt |
$ |
(12,059) |
$ |
(13,410) |
$ |
— |
$ |
(13,410) |
$ |
— |
|||||
Capital lease obligations |
$ |
(21) |
$ |
(21) |
$ |
— |
$ |
(21) |
$ |
— |
|||||
December 31, 2013 assets (liabilities): |
|||||||||||||||
Cash equivalents |
$ |
5,305 |
$ |
5,305 |
$ |
4,191 |
$ |
1,114 |
$ |
— |
|||||
Long-term investments |
$ |
62 |
$ |
62 |
$ |
— |
$ |
— |
$ |
62 | |||||
Commodity derivatives |
$ |
103 |
$ |
103 |
$ |
— |
$ |
103 |
$ |
— |
|||||
Commodity derivatives |
$ |
(120) |
$ |
(120) |
$ |
— |
$ |
(120) |
$ |
— |
|||||
Foreign currency derivatives |
$ |
(1) |
$ |
(1) |
$ |
— |
$ |
(1) |
$ |
— |
|||||
Debt |
$ |
(12,022) |
$ |
(12,908) |
$ |
— |
$ |
(12,908) |
$ |
— |
The following methods and assumptions were used to estimate the fair values in the tables above.
Level 1 Fair Value Measurements
Cash equivalents — Amounts consist primarily of U.S. and Canadian treasury securities and money market investments. The fair value approximates the carrying value.
Level 2 Fair Value Measurements
Cash equivalents — Amounts consist primarily of Canadian agency and provincial securities and commercial paper investments. The fair value approximates the carrying value.
Commodity, interest rate and foreign currency derivatives — The fair values of commodity, interest rate and foreign currency derivatives are estimated using internal discounted cash flow calculations based upon forward curves and data obtained from independent third parties for contracts with similar terms or data obtained from counterparties to the agreements.
Debt — Devon's debt instruments do not actively trade in an established market. The fair values of its debt are estimated based on rates available for debt with similar terms and maturity. The fair value of Devon’s commercial paper and EnLink’s credit facility is the carrying value.
Capital lease obligations — The fair value was calculated using inputs from third-party banks.
Level 3 Fair Value Measurements
Long-term investments — Devon’s long-term investments as of December 31, 2013 consisted entirely of auction rate securities. In the first quarter of 2014, Devon redeemed all these securities for approximately $57 million, or $5 million below their carrying value.
|
19. Segment Information
Devon manages its operations through distinct operating segments, which are defined primarily by geographic areas. For financial reporting purposes, Devon aggregates its U.S. operating segments into one reporting segment due to the similar nature of the businesses. However, Devon's Canadian operating segment is reported as a separate reporting segment primarily due to the significant differences between the U.S. and Canadian regulatory environments. Devon’s U.S. and Canadian segments are both primarily engaged in oil and gas exploration and production activities.
With the formation of EnLink in the first quarter of 2014, Devon considers EnLink to be an operating segment that is distinct from its existing operating segments. EnLink’s operations consist of midstream assets and operations located across the U.S. Additionally, EnLink has a management team that is primarily responsible for capital and resource allocation decisions. Therefore, EnLink is presented as a separate reporting segment. For the reporting periods prior to the formation of EnLink, Devon has reclassified, from its U.S. segment to the EnLink segment, all asset-level amounts related to the midstream assets that it contributed to EnLink Holdings.
U.S. |
Canada |
EnLink |
Eliminations |
Total |
|||||||||||
(In millions) |
|||||||||||||||
Three Months Ended September 30, 2014: |
|||||||||||||||
Revenues from external customers |
$ |
4,199 |
$ |
481 |
$ |
656 |
$ |
— |
$ |
5,336 | |||||
Intersegment revenues |
$ |
— |
$ |
— |
$ |
199 |
$ |
(199) |
$ |
— |
|||||
Depreciation, depletion and amortization |
$ |
655 |
$ |
113 |
$ |
74 |
$ |
— |
$ |
842 | |||||
Interest expense |
$ |
95 |
$ |
20 |
$ |
14 |
$ |
(11) |
$ |
118 | |||||
Earnings (loss) before income taxes |
$ |
1,461 |
$ |
109 |
$ |
84 |
$ |
— |
$ |
1,654 | |||||
Income tax expense (benefit) |
$ |
557 |
$ |
38 |
$ |
18 |
$ |
— |
$ |
613 | |||||
Net earnings (loss) |
$ |
904 |
$ |
71 |
$ |
66 |
$ |
— |
$ |
1,041 | |||||
Net earnings attributable to noncontrolling interests |
$ |
— |
$ |
— |
$ |
25 |
$ |
— |
$ |
25 | |||||
Net earnings (loss) attributable to Devon |
$ |
904 |
$ |
71 |
$ |
41 |
$ |
— |
$ |
1,016 | |||||
Capital expenditures |
$ |
1,213 |
$ |
335 |
$ |
207 |
$ |
— |
$ |
1,755 | |||||
Three Months Ended September 30, 2013: |
|||||||||||||||
Revenues from external customers |
$ |
1,687 |
$ |
791 |
$ |
236 |
$ |
— |
$ |
2,714 | |||||
Intersegment revenues |
$ |
— |
$ |
— |
$ |
342 |
$ |
(342) |
$ |
— |
|||||
Depreciation, depletion and amortization |
$ |
444 |
$ |
199 |
$ |
48 |
$ |
— |
$ |
691 | |||||
Interest expense |
$ |
94 |
$ |
20 |
$ |
— |
$ |
(10) |
$ |
104 | |||||
Asset impairments |
$ |
7 |
$ |
— |
$ |
— |
$ |
— |
$ |
7 | |||||
Earnings (loss) before income taxes |
$ |
366 |
$ |
219 |
$ |
54 |
$ |
— |
$ |
639 | |||||
Income tax expense (benefit) |
$ |
141 |
$ |
50 |
$ |
19 |
$ |
— |
$ |
210 | |||||
Net earnings (loss) |
$ |
225 |
$ |
169 |
$ |
35 |
$ |
— |
$ |
429 | |||||
Capital expenditures |
$ |
1,219 |
$ |
437 |
$ |
37 |
$ |
— |
$ |
1,693 | |||||
Nine Months Ended September 30, 2014: |
|||||||||||||||
Revenues from external customers |
$ |
10,067 |
$ |
1,671 |
$ |
1,833 |
$ |
— |
$ |
13,571 | |||||
Intersegment revenues |
$ |
— |
$ |
— |
$ |
672 |
$ |
(672) |
$ |
— |
|||||
Depreciation, depletion and amortization |
$ |
1,794 |
$ |
419 |
$ |
196 |
$ |
— |
$ |
2,409 | |||||
Interest expense |
$ |
303 |
$ |
61 |
$ |
33 |
$ |
(31) |
$ |
366 | |||||
Earnings (loss) before income taxes |
$ |
2,219 |
$ |
1,310 |
$ |
239 |
$ |
— |
$ |
3,768 | |||||
Income tax expense (benefit) |
$ |
1,121 |
$ |
517 |
$ |
60 |
$ |
— |
$ |
1,698 | |||||
Net earnings (loss) |
$ |
1,098 |
$ |
793 |
$ |
179 |
$ |
— |
$ |
2,070 | |||||
Net earnings attributable to noncontrolling interests |
$ |
1 |
$ |
— |
$ |
54 |
$ |
— |
$ |
55 | |||||
Net earnings (loss) attributable to Devon |
$ |
1,097 |
$ |
793 |
$ |
125 |
$ |
— |
$ |
2,015 | |||||
Property and equipment, net |
$ |
23,764 |
$ |
6,882 |
$ |
4,523 |
$ |
— |
$ |
35,169 | |||||
Total assets |
$ |
30,533 |
$ |
10,895 |
$ |
9,528 |
$ |
(117) |
$ |
50,839 | |||||
Capital expenditures |
$ |
9,748 |
$ |
1,055 |
$ |
491 |
$ |
— |
$ |
11,294 | |||||
Nine Months Ended September 30, 2013: |
|||||||||||||||
Revenues from external customers |
$ |
5,033 |
$ |
2,052 |
$ |
688 |
$ |
— |
$ |
7,773 | |||||
Intersegment revenues |
$ |
— |
$ |
— |
$ |
1,005 |
$ |
(1,005) |
$ |
— |
|||||
Depreciation, depletion and amortization |
$ |
1,287 |
$ |
643 |
$ |
139 |
$ |
— |
$ |
2,069 | |||||
Interest expense |
$ |
284 |
$ |
62 |
$ |
— |
$ |
(24) |
$ |
322 | |||||
Asset impairments |
$ |
1,117 |
$ |
843 |
$ |
— |
$ |
— |
$ |
1,960 | |||||
Earnings (loss) before income taxes |
$ |
96 |
$ |
(559) |
$ |
137 |
$ |
— |
$ |
(326) | |||||
Income tax expense (benefit) |
$ |
10 |
$ |
(158) |
$ |
49 |
$ |
— |
$ |
(99) | |||||
Net earnings (loss) |
$ |
86 |
$ |
(401) |
$ |
88 |
$ |
— |
$ |
(227) | |||||
Capital expenditures |
$ |
3,477 |
$ |
1,377 |
$ |
173 |
$ |
— |
$ |
5,027 | |||||
December 31, 2013: |
|||||||||||||||
Property and equipment, net |
$ |
18,201 |
$ |
8,478 |
$ |
1,768 |
$ |
— |
$ |
28,447 | |||||
Total assets |
$ |
27,080 |
$ |
13,560 |
$ |
2,237 |
$ |
— |
$ |
42,877 |
|
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Devon and entities in which it holds a controlling interest. All intercompany transactions have been eliminated. Undivided interests in oil and natural gas exploration and production joint ventures are consolidated on a proportionate basis. Investments in non-controlled entities, over which Devon has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. In applying the equity method of accounting, the investments are initially recognized at cost and subsequently adjusted for Devon’s proportionate share of earnings, losses and distributions. Investments accounted for using the equity method and cost method are reported as a component of other long-term assets.
As discussed more fully in Note 2, on March 7, 2014, Devon completed a business combination whereby Devon controls both EnLink Midstream Partners, LP (the “Partnership”) and its general partner entity, EnLink Midstream, LLC (“EnLink”). Devon controls both the Partnership’s and EnLink’s operations; therefore, the Partnership’s and EnLink’s accounts are included in Devon’s accompanying consolidated financial statements subsequent to the completion of the transaction. The portions of the Partnership’s and EnLink’s net earnings and stockholders’ equity not attributable to Devon’s controlling interest are shown separately as noncontrolling interests in the accompanying consolidated comprehensive statements of earnings and consolidated balance sheets.
Intangible Assets
EnLink’s long-term assets include intangible assets, consisting of customer relationships. These assets are amortized on a straight-line basis over the expected periods of benefits, which range from ten to twenty years.
Recently Issued Accounting Standards Not Yet Adopted
In May 2014, the 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 update is effective for Devon beginning on January 1, 2017. 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.
|
Three Months Ended September 30, 2014 |
Nine Months Ended September 30, 2014 |
|||||||||||
GeoSouthern |
EnLink |
GeoSouthern |
EnLink |
|||||||||
(In millions) |
(In millions) |
|||||||||||
Total operating revenues |
$ |
634 |
$ |
700 |
$ |
1,374 |
$ |
1,670 | ||||
Total operating expenses |
322 | 692 | 708 | 1,654 | ||||||||
Operating income |
$ |
312 |
$ |
8 |
$ |
666 |
$ |
16 |
Nine Months Ended September 30, |
||||||
2014 |
2013 |
|||||
(In millions) |
||||||
Total operating revenues |
$ |
14,218 |
$ |
9,603 | ||
Net earnings (loss) |
$ |
2,109 |
$ |
(192) | ||
Noncontrolling interests |
$ |
68 |
$ |
32 | ||
Net earnings (loss) attributable to Devon |
$ |
2,041 |
$ |
(224) | ||
Net earnings (loss) per common share attributable to Devon |
$ |
4.98 |
$ |
(0.55) |
Crosstex Energy, Inc. outstanding common shares: |
||||
Held by public shareholders |
48.0 | |||
Restricted shares |
0.4 | |||
Total subject to conversion |
48.4 | |||
Exchange ratio |
1.0 |
x |
||
Converted shares |
48.4 | |||
Crosstex Energy, Inc. common share price (1) |
$ |
37.60 | ||
Crosstex Energy, Inc. consideration |
$ |
1,823 | ||
Fair value of noncontrolling interests in E2 (2) |
$ |
12 | ||
Total Crosstex Energy, Inc. consideration and fair value of noncontrolling interests |
$ |
1,835 | ||
Partnership outstanding units: |
||||
Common units held by public unitholders |
75.1 | |||
Preferred units held by third party (3) |
17.1 | |||
Restricted units |
0.4 | |||
Total |
92.6 | |||
Partnership common unit price (4) |
$ |
30.51 | ||
Partnership common units value |
$ |
2,825 | ||
Partnership outstanding unit options value |
$ |
4 | ||
Total fair value of noncontrolling interests in the Partnership (4) |
$ |
2,829 | ||
Total consideration and fair value of noncontrolling interests |
$ |
4,664 |
__________________________
(1) The final purchase price is based on the fair value of Crosstex Energy Inc.’s common shares as of the closing date, March 7, 2014.
(2) Represents the value of noncontrolling interests related to EnLink’s equity investment in E2 Energy Services, LLC and E2 Appalachian Compression, LLC (collectively “E2”).
(3) The Partnership converted the preferred units to common units in February 2014.
(4) The final purchase price is based on the fair value of the Partnership’s common shares as of the closing date, March 7, 2014.
Assets acquired: |
|||
Current assets |
$ |
438 | |
Property, plant and equipment, net |
2,438 | ||
Intangible assets |
547 | ||
Equity investment |
222 | ||
Goodwill (1) |
3,292 | ||
Other long term assets |
1 | ||
Liabilities assumed: |
|||
Current liabilities |
(516) | ||
Long-term debt |
(1,454) | ||
Deferred income taxes |
(203) | ||
Other long-term liabilities |
(101) | ||
Total consideration and fair value of noncontrolling interests |
$ |
4,664 |
__________________________
(1) Goodwill is the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill is not amortized and is not deductible for tax purposes.
Cash and cash equivalents |
$ |
95 | |
Other current assets |
256 | ||
Proved properties |
5,029 | ||
Unproved properties |
1,008 | ||
Midstream assets |
85 | ||
Current liabilities |
(437) | ||
Long-term liabilities |
(6) | ||
Net assets acquired |
$ |
6,030 |
|
Comprehensive Statements of |
Three Months Ended |
Nine Months Ended |
||||||||||||
Earnings Caption |
2014 |
2013 |
2014 |
2013 |
||||||||||
(In millions) |
||||||||||||||
Commodity derivatives |
Oil, gas and NGL derivatives |
$ |
748 |
$ |
(141) |
$ |
29 |
$ |
(95) | |||||
EnLink commodity derivatives |
Marketing and midstream revenues |
1 |
— |
(2) |
— |
|||||||||
Interest rate derivatives |
Other nonoperating items |
— |
1 | 1 | 1 | |||||||||
Foreign currency derivatives |
Other nonoperating items |
55 | (28) | 15 | 29 | |||||||||
Net gains (losses) recognized in comprehensive statements of earnings |
$ |
804 |
$ |
(168) |
$ |
43 |
$ |
(65) |
Balance Sheet Caption |
September 30, 2014 |
December 31, 2013 |
||||||
(In millions) |
||||||||
Asset derivatives: |
||||||||
Commodity derivatives |
Other current assets |
$ |
231 |
$ |
75 | |||
Commodity derivatives |
Other long-term assets |
66 | 28 | |||||
EnLink commodity derivatives |
Other current assets |
1 |
— |
|||||
Interest rate derivatives |
Other current assets |
1 |
— |
|||||
Foreign currency derivatives |
Other current assets |
11 |
— |
|||||
Total asset derivatives |
$ |
310 |
$ |
103 | ||||
Liability derivatives: |
||||||||
Commodity derivatives |
Other current liabilities |
$ |
30 |
$ |
58 | |||
Commodity derivatives |
Other long-term liabilities |
50 | 62 | |||||
EnLink commodity derivatives |
Other current liabilities |
1 |
— |
|||||
EnLink commodity derivatives |
Other long-term liabilities |
1 |
— |
|||||
Interest rate derivatives |
Other current liabilities |
1 |
— |
|||||
Interest rate derivatives |
Other long-term liabilities |
1 |
— |
|||||
Foreign currency derivatives |
Other current liabilities |
— |
1 | |||||
Total liability derivatives |
$ |
84 |
$ |
121 |
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) |
|||||||||||
Q4 2014 |
75,000 |
$ |
94.14 |
64,750 |
$ |
89.33 |
$ |
100.00 |
42,000 |
$ |
116.43 |
|||||||
Q1-Q4 2015 |
106,736 |
$ |
91.22 |
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) |
||||
Q4 2014 |
Western Canadian Select |
50,000 |
$ |
(17.40) | |||
Q1-Q4 2015 |
Western Canadian Select |
14,890 |
$ |
(18.92) |
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) |
|||||||||||
Q4 2014 |
800,000 |
$ |
4.42 |
460,000 |
$ |
4.03 |
$ |
4.51 |
500,000 |
$ |
5.00 |
|||||||
Q1-Q4 2015 |
210,000 |
$ |
4.38 |
260,000 |
$ |
4.05 |
$ |
4.36 |
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) |
||||
Q4 2014 |
AECO |
94,781 |
$ |
(0.52) |
|||
Q1-Q4 2015 |
PEPL |
100,000 |
$ |
(0.28) |
Notional |
Rate Received |
Rate Paid |
Expiration |
||||
(In millions) |
|||||||
$ |
100 |
Three Month LIBOR |
0.92% |
December 2016 |
|||
$ |
100 |
1.76% |
Three Month LIBOR |
January 2019 |
Forward Contract |
|||||||||
Currency |
Contract Type |
CAD Notional |
Weighted Average Fixed Rate Received |
Expiration |
|||||
(In millions) |
(CAD-USD) |
||||||||
Canadian Dollar |
Sell |
$ |
1,312 |
0.899 |
December 2014 |
|
Nine Months Ended September 30, 2013 |
|||||
Gross |
Net of Taxes |
||||
(In millions) |
|||||
U.S. oil and gas assets |
$ |
1,110 |
$ |
707 | |
Canada oil and gas assets |
843 | 632 | |||
Midstream assets |
7 | 4 | |||
Total asset impairments |
$ |
1,960 |
$ |
1,343 |
|
Three Months |
Nine Months |
||||||||||
Ended September 30, |
Ended September 30, |
||||||||||
2014 |
2013 |
2014 |
2013 |
||||||||
(In millions) |
|||||||||||
Canada divestitures: |
|||||||||||
Employee related and other costs |
$ |
2 |
$ |
— |
$ |
44 |
$ |
— |
|||
Office consolidation: |
|||||||||||
Lease obligations and other |
— |
4 |
— |
50 | |||||||
Restructuring costs |
$ |
2 |
$ |
4 |
$ |
44 |
$ |
50 |
Other |
Other |
||||||||
Current |
Long-Term |
||||||||
Liabilities |
Liabilities |
Total |
|||||||
(In millions) |
|||||||||
Balance as of December 31, 2013 |
$ |
27 |
$ |
18 |
$ |
45 | |||
Changes due to Canadian divestitures |
2 | 2 | 4 | ||||||
Changes due to office consolidation |
(22) | (1) | (23) | ||||||
Changes due to offshore divestiture |
(2) | (1) | (3) | ||||||
Balance as September 30, 2014 |
$ |
5 |
$ |
18 |
$ |
23 | |||
Balance as of December 31, 2012 |
$ |
52 |
$ |
9 |
$ |
61 | |||
Changes due to office consolidation |
(16) | 11 | (5) | ||||||
Changes due to offshore divestiture |
(2) | (1) | (3) | ||||||
Balance as of September 30, 2013 |
$ |
34 |
$ |
19 |
$ |
53 |
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||
2014 |
2013 |
2014 |
2013 |
||||||||||
Total income tax expense (benefit) (in millions) |
$ |
613 |
$ |
210 |
$ |
1,698 |
$ |
(99) | |||||
U.S. statutory income tax rate |
35% | 35% | 35% | (35%) | |||||||||
Repatriations |
— |
— |
7% |
— |
|||||||||
State income taxes |
2% | 1% | 1% | (3%) | |||||||||
Taxation on Canadian operations |
— |
(5%) | 1% | 9% | |||||||||
Taxes on EnLink formation |
— |
— |
1% |
— |
|||||||||
Other |
— |
2% |
— |
(1%) | |||||||||
Effective income tax rate |
37% | 33% | 45% | (30%) |
|
Three Months Ended |
Nine Months Ended |
|||||||||||
September 30, |
September 30, |
|||||||||||
2014 |
2013 |
2014 |
2013 |
|||||||||
(In millions) |
||||||||||||
Foreign currency translation: |
||||||||||||
Beginning accumulated foreign currency translation |
$ |
1,442 |
$ |
1,542 |
$ |
1,448 |
$ |
1,996 | ||||
Change in cumulative translation adjustment |
(299) | 182 | (306) | (294) | ||||||||
Income tax benefit (expense) |
20 | (9) | 21 | 13 | ||||||||
Ending accumulated foreign currency translation |
1,163 | 1,715 | 1,163 | 1,715 | ||||||||
Pension and postretirement benefit plans: |
||||||||||||
Beginning accumulated pension and postretirement benefits |
(172) | (216) | (180) | (225) | ||||||||
Recognition of net actuarial loss and prior service cost in earnings (1) |
4 | 6 | 15 | 18 | ||||||||
Income tax expense |
(2) | (3) | (5) | (6) | ||||||||
Ending accumulated pension and postretirement benefits |
(170) | (213) | (170) | (213) | ||||||||
Accumulated other comprehensive earnings, net of tax |
$ |
993 |
$ |
1,502 |
$ |
993 |
$ |
1,502 |
__________________________
(1) These accumulated other comprehensive earnings components are included in the computation of net periodic benefit cost, which is a component of general and administrative expenses on the accompanying comprehensive statements of earnings (see Note 15 for additional details)
|
Nine Months Ended September 30, |
||||||
2014 |
2013 |
|||||
(In millions) |
||||||
Net change in working capital accounts: |
||||||
Accounts receivable |
$ |
(25) |
$ |
(287) | ||
Other current assets |
(120) | 72 | ||||
Accounts payable |
(118) | 127 | ||||
Income taxes payable |
704 | 7 | ||||
Revenues and royalties payable |
381 | 56 | ||||
Other current liabilities |
(56) | (79) | ||||
Net change in working capital |
$ |
766 |
$ |
(104) | ||
Interest paid (net of capitalized interest) |
$ |
355 |
$ |
342 | ||
Income taxes paid (received) |
$ |
214 |
$ |
(2) |
|
September 30, 2014 |
December 31, 2013 |
||||
(In millions) |
|||||
Oil, gas and NGL sales |
$ |
899 |
$ |
851 | |
Joint interest billings |
393 | 447 | |||
Marketing and midstream revenues |
674 | 172 | |||
Other |
54 | 61 | |||
Gross accounts receivable |
2,020 | 1,531 | |||
Allowance for doubtful accounts |
(11) | (11) | |||
Net accounts receivable |
$ |
2,009 |
$ |
1,520 |
|
September 30, 2014 |
December 31, 2013 |
|||||
(In millions) |
||||||
U.S. |
$ |
2,618 |
$ |
2,618 | ||
Canada |
1,997 | 2,838 | ||||
EnLink |
3,695 | 402 | ||||
Total |
$ |
8,310 |
$ |
5,858 |
|
September 30, 2014 |
December 31, 2013 |
||||
(In millions) |
|||||
Devon debt |
|||||
Commercial paper |
$ |
- |
$ |
1,317 | |
5.625% due January 15, 2014 |
- |
500 | |||
Floating rate due December 15, 2015 |
500 | 500 | |||
2.40% due July 15, 2016 |
500 | 500 | |||
Floating rate due December 15, 2016 |
350 | 350 | |||
1.20% due December 15, 2016 |
650 | 650 | |||
1.875% due May 15, 2017 |
750 | 750 | |||
8.25% due July 1, 2018 |
125 | 125 | |||
2.25% due December 15, 2018 |
750 | 750 | |||
6.30% due January 15, 2019 |
700 | 700 | |||
4.00% due July 15, 2021 |
500 | 500 | |||
3.25% due May 15, 2022 |
1,000 | 1,000 | |||
7.50% due September 15, 2027 |
150 | 150 | |||
7.875% due September 30, 2031 |
1,250 | 1,250 | |||
7.95% due April 15, 2032 |
1,000 | 1,000 | |||
5.60% due July 15, 2041 |
1,250 | 1,250 | |||
4.75% due May 15, 2042 |
750 | 750 | |||
Net discount on debentures and notes |
(20) | (20) | |||
Total Devon debt |
10,205 | 12,022 | |||
EnLink debt |
|||||
Credit facilities |
451 |
- |
|||
Other borrowings |
27 |
- |
|||
2.70% due April 1, 2019 |
400 |
- |
|||
7.125% due June 1, 2022 |
163 |
- |
|||
4.40% due April 1, 2024 |
450 |
- |
|||
5.60% due April 1, 2044 |
350 |
- |
|||
Net premium on debentures and notes |
13 |
- |
|||
Total EnLink debt |
1,854 |
- |
|||
Total debt |
12,059 | 12,022 | |||
Less amount classified as short-term debt (1) |
1,898 | 4,066 | |||
Total long-term debt |
$ |
10,161 |
$ |
7,956 |
___________________
(1) |
Short-term debt as of September 30, 2014 consists of $1.9 billion of senior notes that Devon intends to redeem in the fourth quarter of 2014 prior to their scheduled maturity date. The redemption includes the 2.4% $500 million senior note due 2016, the 1.2% $650 million senior note due 2016 and the 1.875% $750 million senior note due 2017 plus unpaid interest and a make-whole premium. The debt will be repaid with funds received as part of the divestiture program discussed in Note 2. |
Short-term debt as of December 31, 2013 consists of $2.25 billion of senior notes issued in conjunction with the GeoSouthern acquisition, $1.3 billion of commercial paper and $500 million of senior notes due January 15, 2014. Subsequent to the close of the GeoSouthern acquisition the $2.25 billion of senior notes were reclassified to long-term debt.
March 7, 2014 Fair Value |
Effective |
|||
(In millions) |
||||
8.875% due February 15, 2018 (principal of $725 million) (1) |
$ |
760 |
7.7% |
|
7.125% due June 1, 2022 (principal of $197 million) |
226 |
5.3% |
||
Credit facilities |
468 | |||
Total long-term debt |
$ |
1,454 |
___________________
(1) |
The 2018 senior notes were redeemed on April 18, 2014. |
|
Nine Months Ended September 30, |
||||||
2014 |
2013 |
|||||
(In millions) |
||||||
Asset retirement obligations as of beginning of period |
$ |
2,228 |
$ |
2,095 | ||
Liabilities incurred |
79 | 88 | ||||
Liabilities settled |
(38) | (46) | ||||
Revision of estimated obligation |
75 | 104 | ||||
Liabilities assumed by others |
(949) | (15) | ||||
Accretion expense on discounted obligation |
70 | 86 | ||||
Foreign currency translation adjustment |
(55) | (44) | ||||
Asset retirement obligations as of end of period |
1,410 | 2,268 | ||||
Less current portion |
62 | 107 | ||||
Asset retirement obligations, long-term |
$ |
1,348 |
$ |
2,161 |
|
Pension Benefits |
Postretirement Benefits |
|||||||||||||||||||||||
Three Months Ended |
Nine Months Ended |
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||
September 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||||||||||
2014 |
2013 |
2014 |
2013 |
2014 |
2013 |
2014 |
2013 |
|||||||||||||||||
(In millions) |
||||||||||||||||||||||||
Service cost |
$ |
7 |
$ |
9 |
$ |
22 |
$ |
27 |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
||||||||
Interest cost |
14 | 13 | 41 | 39 |
— |
— |
— |
1 | ||||||||||||||||
Expected return on plan assets |
(13) | (16) | (40) | (47) |
— |
— |
— |
— |
||||||||||||||||
Amortization of prior service cost (1) |
1 | 1 | 3 | 3 | (1) |
— |
(1) |
— |
||||||||||||||||
Net actuarial loss (gain) (1) |
4 | 5 | 14 | 16 |
— |
— |
(1) | (1) | ||||||||||||||||
Net periodic benefit cost (2) |
$ |
13 |
$ |
12 |
$ |
40 |
$ |
38 |
$ |
(1) |
$ |
— |
$ |
(2) |
$ |
— |
__________________________
(1) These net periodic benefit costs were reclassified out of other comprehensive earnings in the current period.
(2) Net periodic benefit cost is a component of general and administrative expenses on the accompanying comprehensive statements of earnings
|
Fair Value Measurements Using: |
|||||||||||||||
Carrying |
Total Fair |
Level 1 |
Level 2 |
Level 3 |
|||||||||||
Amount |
Value |
Inputs |
Inputs |
Inputs |
|||||||||||
(In millions) |
|||||||||||||||
September 30, 2014 assets (liabilities): |
|||||||||||||||
Cash equivalents |
$ |
2,876 |
$ |
2,876 |
$ |
1,745 |
$ |
1,131 |
$ |
— |
|||||
Commodity derivatives |
$ |
297 |
$ |
297 |
$ |
— |
$ |
297 |
$ |
— |
|||||
Commodity derivatives |
$ |
(80) |
$ |
(80) |
$ |
— |
$ |
(80) |
$ |
— |
|||||
EnLink commodity derivatives |
$ |
1 |
$ |
1 |
$ |
— |
$ |
1 |
$ |
— |
|||||
EnLink commodity derivatives |
$ |
(2) |
$ |
(2) |
$ |
— |
$ |
(2) |
$ |
— |
|||||
Interest rate derivatives |
$ |
1 |
$ |
1 |
$ |
— |
$ |
1 |
$ |
— |
|||||
Interest rate derivatives |
$ |
(2) |
$ |
(2) |
$ |
— |
$ |
(2) |
$ |
— |
|||||
Foreign currency derivatives |
$ |
11 |
$ |
11 |
$ |
— |
$ |
11 |
$ |
— |
|||||
Debt |
$ |
(12,059) |
$ |
(13,410) |
$ |
— |
$ |
(13,410) |
$ |
— |
|||||
Capital lease obligations |
$ |
(21) |
$ |
(21) |
$ |
— |
$ |
(21) |
$ |
— |
|||||
December 31, 2013 assets (liabilities): |
|||||||||||||||
Cash equivalents |
$ |
5,305 |
$ |
5,305 |
$ |
4,191 |
$ |
1,114 |
$ |
— |
|||||
Long-term investments |
$ |
62 |
$ |
62 |
$ |
— |
$ |
— |
$ |
62 | |||||
Commodity derivatives |
$ |
103 |
$ |
103 |
$ |
— |
$ |
103 |
$ |
— |
|||||
Commodity derivatives |
$ |
(120) |
$ |
(120) |
$ |
— |
$ |
(120) |
$ |
— |
|||||
Foreign currency derivatives |
$ |
(1) |
$ |
(1) |
$ |
— |
$ |
(1) |
$ |
— |
|||||
Debt |
$ |
(12,022) |
$ |
(12,908) |
$ |
— |
$ |
(12,908) |
$ |
— |
|
U.S. |
Canada |
EnLink |
Eliminations |
Total |
|||||||||||
(In millions) |
|||||||||||||||
Three Months Ended September 30, 2014: |
|||||||||||||||
Revenues from external customers |
$ |
4,199 |
$ |
481 |
$ |
656 |
$ |
— |
$ |
5,336 | |||||
Intersegment revenues |
$ |
— |
$ |
— |
$ |
199 |
$ |
(199) |
$ |
— |
|||||
Depreciation, depletion and amortization |
$ |
655 |
$ |
113 |
$ |
74 |
$ |
— |
$ |
842 | |||||
Interest expense |
$ |
95 |
$ |
20 |
$ |
14 |
$ |
(11) |
$ |
118 | |||||
Earnings (loss) before income taxes |
$ |
1,461 |
$ |
109 |
$ |
84 |
$ |
— |
$ |
1,654 | |||||
Income tax expense (benefit) |
$ |
557 |
$ |
38 |
$ |
18 |
$ |
— |
$ |
613 | |||||
Net earnings (loss) |
$ |
904 |
$ |
71 |
$ |
66 |
$ |
— |
$ |
1,041 | |||||
Net earnings attributable to noncontrolling interests |
$ |
— |
$ |
— |
$ |
25 |
$ |
— |
$ |
25 | |||||
Net earnings (loss) attributable to Devon |
$ |
904 |
$ |
71 |
$ |
41 |
$ |
— |
$ |
1,016 | |||||
Capital expenditures |
$ |
1,213 |
$ |
335 |
$ |
207 |
$ |
— |
$ |
1,755 | |||||
Three Months Ended September 30, 2013: |
|||||||||||||||
Revenues from external customers |
$ |
1,687 |
$ |
791 |
$ |
236 |
$ |
— |
$ |
2,714 | |||||
Intersegment revenues |
$ |
— |
$ |
— |
$ |
342 |
$ |
(342) |
$ |
— |
|||||
Depreciation, depletion and amortization |
$ |
444 |
$ |
199 |
$ |
48 |
$ |
— |
$ |
691 | |||||
Interest expense |
$ |
94 |
$ |
20 |
$ |
— |
$ |
(10) |
$ |
104 | |||||
Asset impairments |
$ |
7 |
$ |
— |
$ |
— |
$ |
— |
$ |
7 | |||||
Earnings (loss) before income taxes |
$ |
366 |
$ |
219 |
$ |
54 |
$ |
— |
$ |
639 | |||||
Income tax expense (benefit) |
$ |
141 |
$ |
50 |
$ |
19 |
$ |
— |
$ |
210 | |||||
Net earnings (loss) |
$ |
225 |
$ |
169 |
$ |
35 |
$ |
— |
$ |
429 | |||||
Capital expenditures |
$ |
1,219 |
$ |
437 |
$ |
37 |
$ |
— |
$ |
1,693 | |||||
Nine Months Ended September 30, 2014: |
|||||||||||||||
Revenues from external customers |
$ |
10,067 |
$ |
1,671 |
$ |
1,833 |
$ |
— |
$ |
13,571 | |||||
Intersegment revenues |
$ |
— |
$ |
— |
$ |
672 |
$ |
(672) |
$ |
— |
|||||
Depreciation, depletion and amortization |
$ |
1,794 |
$ |
419 |
$ |
196 |
$ |
— |
$ |
2,409 | |||||
Interest expense |
$ |
303 |
$ |
61 |
$ |
33 |
$ |
(31) |
$ |
366 | |||||
Earnings (loss) before income taxes |
$ |
2,219 |
$ |
1,310 |
$ |
239 |
$ |
— |
$ |
3,768 | |||||
Income tax expense (benefit) |
$ |
1,121 |
$ |
517 |
$ |
60 |
$ |
— |
$ |
1,698 | |||||
Net earnings (loss) |
$ |
1,098 |
$ |
793 |
$ |
179 |
$ |
— |
$ |
2,070 | |||||
Net earnings attributable to noncontrolling interests |
$ |
1 |
$ |
— |
$ |
54 |
$ |
— |
$ |
55 | |||||
Net earnings (loss) attributable to Devon |
$ |
1,097 |
$ |
793 |
$ |
125 |
$ |
— |
$ |
2,015 | |||||
Property and equipment, net |
$ |
23,764 |
$ |
6,882 |
$ |
4,523 |
$ |
— |
$ |
35,169 | |||||
Total assets |
$ |
30,533 |
$ |
10,895 |
$ |
9,528 |
$ |
(117) |
$ |
50,839 | |||||
Capital expenditures |
$ |
9,748 |
$ |
1,055 |
$ |
491 |
$ |
— |
$ |
11,294 | |||||
Nine Months Ended September 30, 2013: |
|||||||||||||||
Revenues from external customers |
$ |
5,033 |
$ |
2,052 |
$ |
688 |
$ |
— |
$ |
7,773 | |||||
Intersegment revenues |
$ |
— |
$ |
— |
$ |
1,005 |
$ |
(1,005) |
$ |
— |
|||||
Depreciation, depletion and amortization |
$ |
1,287 |
$ |
643 |
$ |
139 |
$ |
— |
$ |
2,069 | |||||
Interest expense |
$ |
284 |
$ |
62 |
$ |
— |
$ |
(24) |
$ |
322 | |||||
Asset impairments |
$ |
1,117 |
$ |
843 |
$ |
— |
$ |
— |
$ |
1,960 | |||||
Earnings (loss) before income taxes |
$ |
96 |
$ |
(559) |
$ |
137 |
$ |
— |
$ |
(326) | |||||
Income tax expense (benefit) |
$ |
10 |
$ |
(158) |
$ |
49 |
$ |
— |
$ |
(99) | |||||
Net earnings (loss) |
$ |
86 |
$ |
(401) |
$ |
88 |
$ |
— |
$ |
(227) | |||||
Capital expenditures |
$ |
3,477 |
$ |
1,377 |
$ |
173 |
$ |
— |
$ |
5,027 | |||||
December 31, 2013: |
|||||||||||||||
Property and equipment, net |
$ |
18,201 |
$ |
8,478 |
$ |
1,768 |
$ |
— |
$ |
28,447 | |||||
Total assets |
$ |
27,080 |
$ |
13,560 |
$ |
2,237 |
$ |
— |
$ |
42,877 |
|
|
|
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