DEVON ENERGY CORP/DE, 10-K filed on 2/24/2012
Annual Report
Document And Entity Information (USD $)
In Billions, except Share data in Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Feb. 9, 2012
Jun. 30, 2011
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2011 
 
 
Amendment Flag
false 
 
 
Entity Registrant Name
DEVON ENERGY CORP/DE 
 
 
Entity Central Index Key
0001090012 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Document Fiscal Year Focus
2011 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Document Fiscal Period Focus
FY 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Common Stock, Shares Outstanding
 
404.1 
 
Entity Public Float
 
 
$ 32.7 
Consolidated Comprehensive Statements Of Earnings (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Revenues:
 
 
 
Oil, gas and NGL sales
$ 8,315 
$ 7,262 
$ 6,097 
Oil, gas and NGL derivatives
881 
811 
384 
Marketing and midstream revenues
2,258 
1,867 
1,534 
Total revenues
11,454 
9,940 
8,015 
Expenses and other, net:
 
 
 
Lease operating expenses
1,851 
1,689 
1,670 
Marketing and midstream operating costs and expenses
1,716 
1,357 
1,022 
Depreciation, depletion and amortization
2,248 
1,930 
2,108 
General and administrative expenses
585 
563 
648 
Taxes other than income taxes
424 
380 
314 
Interest expense
352 
363 
349 
Restructuring costs
(2)
57 
105 
Reduction of carrying value of oil and gas properties
 
 
6,408 
Other, net
(10)
33 
(83)
Total expenses and other, net
7,164 
6,372 
12,541 
Earnings (loss) from continuing operations before income taxes
4,290 
3,568 
(4,526)
Current income tax (benefit) expense
(143)
516 
241 
Deferred income tax expense (benefit)
2,299 
719 
(2,014)
Earnings (loss) from continuing operations
2,134 
2,333 
(2,753)
Earnings from discontinued operations, net of income tax expense
2,570 
2,217 
274 
Net earnings (loss)
4,704 
4,550 
(2,479)
Basic net earnings per share:
 
 
 
Basic earnings (loss) from continuing operations per share
$ 5.12 
$ 5.31 
$ (6.20)
Basic earnings from discontinued operations per share
$ 6.17 
$ 5.04 
$ 0.62 
Basic net earnings (loss) per share
$ 11.29 
$ 10.35 
$ (5.58)
Diluted net earnings per share:
 
 
 
Diluted earnings (loss) from continuing operations per share
$ 5.10 
$ 5.29 
$ (6.20)
Diluted earnings from discontinued operations per share
$ 6.15 
$ 5.02 
$ 0.62 
Diluted net earnings (loss) per share
$ 11.25 
$ 10.31 
$ (5.58)
Comprehensive earnings (loss):
 
 
 
Net earnings (loss)
4,704 
4,550 
(2,479)
Other comprehensive income, net of tax:
 
 
 
Foreign currency translation adjustments
(191)
377 
931 
Pension and postretirement plans
(2)
71 
Other comprehensive (loss) earnings, net of tax
(185)
375 
1,002 
Comprehensive earnings (loss)
$ 4,519 
$ 4,925 
$ (1,477)
Consolidated Statements Of Cash Flows (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Cash flows from operating activities:
 
 
 
Net earnings (loss)
$ 4,704 
$ 4,550 
$ (2,479)
Earnings from discontinued operations, net of tax
(2,570)
(2,217)
(274)
Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
2,248 
1,930 
2,108 
Deferred income tax expense (benefit)
2,299 
719 
(2,014)
Unrealized change in fair value of financial instruments
(401)
107 
55 
Reduction of carrying value of oil and gas properties
 
 
6,408 
Other noncash charges
241 
215 
288 
Net decrease (increase) in working capital
185 
(273)
149 
Decrease (increase) in long-term other assets
33 
32 
(6)
Decrease in long-term other liabilities
(493)
(41)
(3)
Cash from operating activities - continuing operations
6,246 
5,022 
4,232 
Cash from operating activities - discontinued operations
(22)
456 
505 
Net cash from operating activities
6,224 
5,478 
4,737 
Cash flows from investing activities:
 
 
 
Capital expenditures
(7,534)
(6,476)
(4,879)
Proceeds from property and equipment divestitures
129 
4,310 
34 
Purchases of short-term investments
(6,691)
(145)
 
Redemptions of short-term investments
5,333 
 
 
Redemptions of long-term investments
10 
21 
Other
(39)
(19)
(17)
Cash from investing activities - continuing operations
(8,792)
(2,309)
(4,855)
Cash from investing activities - discontinued operations
3,146 
2,197 
(499)
Net cash from investing activities
(5,646)
(112)
(5,354)
Cash flows from financing activities:
 
 
 
Net commercial paper borrowings (repayments)
3,726 
(1,432)
426 
Proceeds from borrowings of long-term debt, net of issuance costs
2,221 
 
1,187 
Debt repayments
(1,760)
(350)
(178)
Proceeds from stock option exercises
101 
111 
42 
Repurchases of common stock
(2,332)
(1,168)
 
Dividends paid on common stock
(278)
(281)
(284)
Excess tax benefits related to share-based compensation
13 
16 
Net cash from financing activities
1,691 
(3,104)
1,201 
Effect of exchange rate changes on cash
(4)
17 
43 
Net increase in cash and cash equivalents
2,265 
2,279 
627 
Cash and cash equivalents at beginning of period (including cash related to assets previously held for sale in 2010 and 2009)
3,290 
1,011 
384 
Cash and cash equivalents at end of period (including cash related to assets previously held for sale in 2010 and 2009)
$ 5,555 
$ 3,290 
$ 1,011 
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Current assets:
 
 
Cash and cash equivalents
$ 5,555 
$ 2,866 
Short-term investments
1,503 
145 
Accounts receivable
1,379 
1,202 
Current assets held for sale
21 
563 
Other current assets
847 
779 
Total current assets
9,305 
5,555 
Oil and gas, based on full cost accounting:
 
 
Subject to amortization
61,696 
56,012 
Not subject to amortization
3,982 
3,434 
Total oil and gas
65,678 
59,446 
Other
5,098 
4,429 
Total property and equipment, at cost
70,776 
63,875 
Less accumulated depreciation, depletion and amortization
(46,002)
(44,223)
Property and equipment, net
24,774 
19,652 
Goodwill
6,013 
6,080 
Long-term assets held for sale
132 
859 
Other long-term assets
893 
781 
Total assets
41,117 
32,927 
Current liabilities:
 
 
Accounts payable
1,471 
1,411 
Revenues and royalties payable
678 
538 
Short-term debt
3,811 
1,811 
Current liabilities associated with assets held for sale
48 
305 
Other current liabilities
730 
518 
Total current liabilities
6,738 
4,583 
Long-term debt
5,969 
3,819 
Asset retirement obligations
1,496 
1,423 
Liabilities associated with assets held for sale
 
26 
Other long-term liabilities
721 
1,067 
Deferred income taxes
4,763 
2,756 
Stockholders' equity:
 
 
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 404.1 million and 431.9 million shares in 2011 and 2010, respectively
40 
43 
Additional paid-in capital
3,507 
5,601 
Retained earnings
16,308 
11,882 
Accumulated other comprehensive earnings
1,575 
1,760 
Treasury stock, at cost. 0.4 million shares in 2010
 
(33)
Total stockholders' equity
21,430 
19,253 
Commitments and contingencies (Note 18)
   
   
Total liabilities and stockholders' equity
$ 41,117 
$ 32,927 
Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2011
Dec. 31, 2010
Consolidated Balance Sheets [Abstract]
 
 
Common stock, par value (in dollars per share)
$ 0.10 
$ 0.1 
Common stock, shares authorized (in shares)
1,000,000,000 
1,000,000,000 
Common stock, shares issued (in shares)
404,100,000 
431,900,000 
Treasury stock, shares
400,000 
Consolidated Statements Of Stockholders' Equity (USD $)
In Millions, except Share data
Common Shares [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Earnings [Member]
Treasury Stock [Member]
Total
Balance, at Dec. 31, 2008
$ 44 
$ 6,257 
$ 10,376 
$ 383 
 
$ 17,060 
Balance, shares, at Dec. 31, 2008
444,000,000 
 
 
 
 
 
Net earnings (loss)
 
 
(2,479)
 
 
(2,479)
Other comprehensive earnings (loss), net of tax
 
 
 
1,002 
 
1,002 
Stock option exercises
47 
 
 
(5)
43 
Stock option exercises, shares
1,000,000 
 
 
 
 
 
Restricted stock grants, net of cancellations, shares
2,000,000 
 
 
 
 
 
Common stock repurchased
 
 
 
 
(40)
(40)
Common stock repurchased, shares
   
 
 
 
 
 
Common stock retired
 
(45)
 
 
45 
 
Common stock retired, shares
   
 
 
 
 
 
Common stock dividends
 
 
(284)
 
 
(284)
Share-based compensation
 
260 
 
 
 
260 
Share-based compensation tax benefits
 
 
 
 
Balance, at Dec. 31, 2009
45 
6,527 
7,613 
1,385 
 
15,570 
Balance, shares, at Dec. 31, 2009
447,000,000 
 
 
 
 
 
Net earnings (loss)
 
 
4,550 
 
 
4,550 
Other comprehensive earnings (loss), net of tax
 
 
 
375 
 
375 
Stock option exercises
 
117 
 
 
(6)
111 
Stock option exercises, shares
2,000,000 
 
 
 
 
 
Restricted stock grants, net of cancellations, shares
2,000,000 
 
 
 
 
 
Common stock repurchased
 
 
 
 
(1,246)
(1,246)
Common stock retired
(2)
(1,217)
 
 
1,219 
 
Common stock retired, shares
(19,000,000)
 
 
 
 
 
Common stock dividends
 
 
(281)
 
 
(281)
Share-based compensation
 
158 
 
 
 
158 
Share-based compensation tax benefits
 
16 
 
 
 
16 
Balance, at Dec. 31, 2010
43 
5,601 
11,882 
1,760 
(33)
19,253 
Balance, shares, at Dec. 31, 2010
432,000,000 
 
 
 
 
 
Net earnings (loss)
 
 
4,704 
 
 
4,704 
Other comprehensive earnings (loss), net of tax
 
 
 
(185)
 
(185)
Stock option exercises
 
112 
 
 
(11)
101 
Stock option exercises, shares
2,000,000 
 
 
 
 
2,366,000 
Restricted stock grants, net of cancellations, shares
1,000,000 
 
 
 
 
 
Common stock repurchased
 
 
 
 
(2,337)
(2,337)
Common stock retired
(3)
(2,378)
 
 
2,381 
 
Common stock retired, shares
(31,000,000)
 
 
 
 
 
Common stock dividends
 
 
(278)
 
 
(278)
Share-based compensation
 
159 
 
 
 
159 
Share-based compensation tax benefits
 
13 
 
 
 
13 
Balance, at Dec. 31, 2011
$ 40 
$ 3,507 
$ 16,308 
$ 1,575 
 
$ 21,430 
Balance, shares, at Dec. 31, 2011
404,000,000 
 
 
 
 
 
Summary Of Significant Accounting Policies
Summary Of Significant Accounting Policies

1. Summary of Significant Accounting Policies

 

Devon Energy Corporation ("Devon") is a leading independent energy company engaged primarily in the exploration, development and production of oil and natural gas. Devon's operations are concentrated in various North American onshore areas in the U.S. and Canada. Devon also owns natural gas pipelines, plants and treatment facilities in many of its producing areas, making it one of North America's larger processors of natural gas.

 

Accounting policies used by Devon and its subsidiaries conform to accounting principles generally accepted in the United States of America and reflect industry practices. The more significant of such policies are discussed below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Financial Instruments
Derivative Financial Instruments

2. Derivative Financial Instruments

 

Commodity Derivatives

 

As of December 31, 2011, Devon had the following open oil derivative positions. Devon's oil derivatives settle against the average of the prompt month NYMEX West Texas Intermediate futures price.

Interest Rate Derivatives

As of December 31, 2011, Devon had the following open interest rate derivative positions:

       

 

 

Notional

Fixed Rate

Received

Variable

Rate Paid

 

Expiration

(In millions)

 

 

 

$           100

1.90%

Federal funds rate

August 2012

              750

3.88%

Federal funds rate

July 2013

$           850

3.65%

 

 


Foreign Exchange Derivatives

As of December 31, 2011, Devon had the following open foreign exchange rate derivative positions:

             

 

 

 

Forward Contract

 

Currency

Contract Type

CAD

Notional

Fixed Rate

Received

 

Expiration

 

 

(In millions)

(CAD-USD)

 

Canadian Dollar

Sell

$           305

0.9812

March 30, 2012

             

Financial Statement Presentation

The following table presents the cash settlements and unrealized gains and losses on fair value changes included in the accompanying comprehensive statements of earnings associated with derivative financial instruments.

           

 

Comprehensive Statement of Earnings Caption

2011

2010

2009

 

 

(In millions)

Cash settlements:

 

 

 

 

  Commodity derivatives

Oil, gas and NGL derivatives

$  392

$   888

$   505

  Interest rate derivatives

Other, net

       77

       44

       40

  Foreign exchange derivatives

Other, net

       16

       

       

     Total cash settlements

     485

     932

     545

 

 

 

 

 

Unrealized gains (losses):

 

 

 

 

  Commodity derivatives

Oil, gas and NGL derivatives

     489

      (77)

    (121)

  Interest rate derivatives

Other, net

      (88)

      (30)

       66

     Total unrealized gains (losses)

     401

    (107)

      (55)

Net gain recognized on comprehensive statements of earnings

$   886

$   825

$   490

           

 

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

 

 

 

Share-Based Compensation
Share-Based Compensation

3. Share-Based Compensation

 

On June 3, 2009, Devon's stockholders adopted the 2009 Long-Term Incentive Plan, which expires on June 2, 2019. This plan authorizes the Compensation Committee, which consists of independent non-management members of Devon's Board of Directors, to grant nonqualified and incentive stock options, restricted stock awards, performance restricted stock awards, Canadian restricted stock units, performance share units, stock appreciation rights and cash-out rights to eligible employees. The plan also authorizes the grant of nonqualified stock options, restricted stock awards, restricted stock units and stock appreciation rights to directors. A total of 21.5 million shares of Devon common stock have been reserved for issuance pursuant to the plan. To calculate shares issued under the plan, options granted represent one share and other awards represent 1.84 shares.

 

Devon also has stock option plans that were adopted in 2005, 2003 and 1997 under which stock options and restricted stock awards were issued to certain management and professional employees. Options granted under these plans remain exercisable by the employees owning such options, but no new options or restricted stock awards will be granted under these plans. Devon also has stock options outstanding that were assumed as part of its 2003 acquisition of Ocean Energy.  

 

The following table presents the effects of share-based compensation included in Devon's accompanying comprehensive statements of earnings. The vesting for certain share-based awards was accelerated as part of Devon's strategic repositioning. The associated expense for these accelerated awards is included in restructuring costs in the accompanying comprehensive statements of earnings. See Note 4 for further details.

 

2011

2010

2009

 

(In millions)

Gross general and administrative expense

$    181

$    188

$    209

Share-based compensation expense capitalized pursuant to the

  full cost method of accounting for oil and gas properties

 

$      56

 

$      58

 

$      66

Related income tax benefit

$      33

$      40

$      43

 

 

 

 

Stock Options

 

In accordance with Devon's incentive plans, the exercise price of stock options granted may not be less than the market value of the stock at the date of grant. In addition, options granted are exercisable during a period established for each grant, which may not exceed eight years from the date of grant. The recipient must pay the exercise price in cash or in common stock, or a combination thereof, at the time that the option is exercised. Generally, the service requirement for vesting ranges from zero to four years.

 

The fair value of stock options on the date of grant is expensed over the applicable vesting period. Devon estimates the fair values of stock options granted using a Black-Scholes option valuation model, which requires Devon to make several assumptions. The volatility of Devon's common stock is based on the historical volatility of the market price of Devon's common stock over a period of time equal to the expected term of the option and ending on the grant date. The dividend yield is based on Devon's historical and current yield in effect at the date of grant. The risk-free interest rate is based on the zero-coupon U.S. Treasury yield for the expected term of the option at the date of grant. The expected term of the options is based on historical exercise and termination experience for various groups of employees and directors. Each group is determined based on the similarity of their historical exercise and termination behavior. The following table presents a summary of the grant-date fair values of stock options granted and the related assumptions. All such amounts represent the weighted-average amounts for each year.

 

 

2011

2010

2009

Grant-date fair value

$      23.11

$      25.41

$      22.85

Volatility factor

         46.0%

         45.3%

         47.7%

Dividend yield

           1.0%

           1.0%

           0.9%

Risk-free interest rate

           0.8%

           1.1%

           2.1%

Expected term (in years)

      4.2

      4.5

      4.0

 

The following table presents a summary of Devon's outstanding stock options.

 

 

 

Weighted Average

 

 

 

Options

Exercise

Price

Remaining

Term

Intrinsic

Value

 

(In thousands)

 

(In years)

(In millions)

Outstanding at December 31, 2010

         11,434

  $  62.64

 

 

  Granted

           1,962

  $  66.98

 

 

  Exercised

          (2,366)

  $  47.51

 

 

  Forfeited

             (487)

  $  73.32

 

 

Outstanding at December 31, 2011

         10,543

  $  66.35

         4.31

      $   40

Vested and expected to vest at December 31, 2011..

         10,428

  $  66.33

         4.27

      $   40

Exercisable at December 31, 2011

           6,716

  $  65.39

         2.90

      $   39

 

The aggregate intrinsic value of stock options that were exercised during 2011, 2010 and 2009 was $81 million, $47 million and $51 million, respectively. As of December 31, 2011, Devon's unrecognized compensation cost related to unvested stock options was $70 million. Such cost is expected to be recognized over a weighted-average period of 3.0 years.

 

Restricted Stock Awards and Units

 

These awards and units are subject to the terms, conditions, restrictions and limitations, if any, that the Compensation Committee deems appropriate, including restrictions on continued employment. Generally, the service requirement for vesting ranges from zero to four years. During the vesting period, recipients of such awards receive dividends that are not subject to restrictions or other limitations. Devon estimates the fair values of restricted stock awards and units as the closing price of Devon's common stock on the grant date of the award or unit, which is expensed over the applicable vesting period. 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

 

(In thousands)

 

Unvested at December 31, 2010

           5,311

  $  70.60

  Granted

           2,301

  $  65.40

  Vested

          (2,188)

  $  72.05

  Forfeited

             (200)

  $  71.18

Unvested at December 31, 2011

           5,224

  $  67.85

 

The aggregate fair value of restricted stock awards and units that vested during 2011, 2010 and 2009 was $145 million, $184 million and $165 million, respectively. As of December 31, 2011, Devon's unrecognized compensation cost related to unvested restricted stock awards and units was $305 million. Such cost is expected to be recognized over a weighted-average period of 2.8 years.

 

Performance Based Restricted Stock Awards

 

In December 2011, certain members of Devon's senior management were granted performance based share awards. Vesting of the awards is dependent on Devon meeting certain internal performance targets and the recipient meeting certain service requirements. Generally, the service requirement for vesting ranges from zero to four years. If Devon meets or exceeds the performance target, the awards vest after the recipient meets the related requisite service period. If the performance target and service period requirement are not met, the award does not vest. Once vested, recipients are entitled to dividends on the awards. Devon estimates the fair values of the awards as the closing price of Devon's common stock on the grant date of the award, which is expensed over the applicable vesting period. The following table presents a summary of Devon's performance based restricted stock awards.

 

 

 

 

 

Performance Restricted Stock Awards 

Weighted

Average

Grant-Date

Fair Value

 

(In thousands)

 

Unvested at December 31, 2010

                

  $       

  Granted

              184

  $  65.10

Unvested at December 31, 2011

              184

  $  65.10

 

As of December 31, 2011, Devon's unrecognized compensation cost related to these awards was $4 million. Such cost is expected to be recognized over a weighted-average period of 2.4 years.

 

Performance Share Units  

 

In December 2011, certain members of Devon's senior management were granted performance share units. Each unit that vests entitles the recipient to one share of Devon common stock. The vesting of these units is based on comparing Devon's total shareholder return ("TSR") to the TSR of a predetermined group of fourteen peer companies over the specified two- or three-year performance period. The vesting of units may be between zero and 200 percent of the units granted depending on Devon's TSR as compared to the peer group on the vesting date.

 

During the vesting period, recipients will receive dividend equivalents with respect to each outstanding performance share unit. The fair value of each performance share unit is estimated as of the date of grant using a Monte Carlo simulation with the following assumptions used for all grants made under the plan: (i) a risk-free interest rate; (ii) a volatility assumption based on the historical realized price volatility of Devon and the designated peer group; and (iii) an estimated ranking of Devon among the designated peer group. The fair value of the unit on the date of grant is expensed over the applicable vesting period.

 

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

Share Units

 

Weighted

Average

Grant-Date

Fair Value

 

(In thousands)

 

Unvested at December 31, 2010

                

  $       

  Granted (1)

              171

  $  81.70

Unvested at December 31, 2011

              171

  $  81.70

____________________________

(1)     A maximum of 341,000 common shares could be awarded based upon Devon's final TSR ranking.

 

As of December 31, 2011, Devon's unrecognized compensation cost related to unvested units was $8 million. Such cost is expected to be recognized over a weighted-average period of 2.3 years.

Restructuring Costs
Restructuring Costs

4. Restructuring Costs

 

In the fourth quarter of 2009, Devon announced plans to divest its offshore assets. As of December 31, 2011, Devon had divested all of its U.S. Offshore assets and substantially all of its International assets. Through the end of 2011, Devon had incurred $202 million of restructuring costs associated with these divestitures.

 

Employee Severance

 

This amount was originally based on estimates of the number of employees that would ultimately be impacted by the offshore divestitures and included amounts related to cash severance costs and accelerated vesting of share-based grants. As the divestiture program progressed, Devon decreased its overall estimate of employee severance costs. More offshore employees than previously estimated received comparable positions with either the purchaser of the properties or in Devon's U.S. Onshore operations.

 

Lease Obligations

 

As a result of the divestitures, Devon ceased using certain office space that was subject to non-cancellable operating lease arrangements. Consequently, in 2010 Devon recognized $70 million of restructuring costs that represented the present value of its future obligations under the leases, net of anticipated sublease income. Devon's estimate of lease obligations was based upon certain key estimates that could change over the term of the leases. These estimates include the estimated sublease income that Devon may receive over the term of the leases, as well as the amount of variable operating costs that Devon will be required to pay under the leases. In addition, Devon recognized $11 million of asset impairment charges for leasehold improvements and furniture associated with the office space that it ceased using.

 

Financial Statement Presentation

 

The schedule below summarizes restructuring costs presented in the accompanying comprehensive statements of earnings. Restructuring costs relating to Devon's discontinued operations totaled $(2) million, $(4) million, and $48 million in 2011, 2010, and 2009, respectively. These costs primarily relate to cash severance and share-based awards and are not included in the schedule below.

 

Year Ended December 31,

 

2011

2010

2009

 

(In millions)

Cash severance

$             9

$          (17)

$           66

Share-based awards

              (1)

            (10)

             39

Lease obligations

            (13)

             70

             

Asset impairments

                2

             11

             

Other

                1

                3

             

  Total

$            (2)

$           57

$         105

 

The schedule below summarizes activity and balances associated with Devon's restructuring liabilities. Devon's restructuring liabilities related to its discontinued operations totaled $16 million and $23 million at December 31, 2010, and 2009, respectively. There was no liability at the end of 2011. These liabilities primarily relate to cash severance and are not included in the schedule below.

 

 

Other Current Liabilities

Other

Long-Term Liabilities

Total

 

(In millions)

Balance as of December 31, 2009

$           61

$          

$            61

  Lease obligations incurred

             17

             51

              68

  Cash severance settled

            (30)

            

             (30)

  Cash severance revision

            (17)

            

             (17)

Balance as of December 31, 2010

             31

             51

              82

  Lease obligations settled

              (8)

           (12)

             (20)

  Cash severance settled

            (13)

            

             (13)

  Lease obligations revision

             10

           (23)

             (13)

  Cash severance revision

                9

            

                9

Balance as of December 31, 2011

$           29

$          16

$            45

 

Other, Net
Other, net

5. Other, net

 

The components of other, net in the accompanying comprehensive statement of earnings include the following:  

 

 

Year Ended December 31,

 

2011

2010

2009

 

(In millions)

Accretion of asset retirement obligations

$           92

$           92

$           91

Interest rate swaps – unrealized fair value changes

             88

             30

            (66)

Interest rate swaps – cash settlements

            (77)

            (44)

            (40)

Interest income

            (21)

            (13)

              (8)

Other

            (92)

            (32)

            (60)

  Total

$          (10)

$           33

$          (83)

During 2011, Devon received $88 million of excess insurance recoveries related to certain weather and operational claims. In 2009, Devon reversed an $84 million loss contingency accrual. Devon had previously accrued $84 million for potential royalties on various deep water leases but reversed the accrual in 2009 due to a federal district court ruling.

 


 

Income Taxes
Income Taxes

6. Income Taxes

Income Tax Expense (Benefit)

 

Devon's income tax components are presented in the following table.

 

 

Year Ended December 31,

 

2011

2010

2009

 

(In millions)

Current income tax (benefit) expense:

 

 

 

  U.S. federal

$       (143)

$         244

$           45

  Various states

             20

             16

             18

  Canada and various provinces

            (20)

           256

           178

  Total current tax (benefit) expense

          (143)

           516

           241

Deferred income tax expense (benefit):

 

 

 

  U.S. federal

        1,986

           781

      (1,846)

  Various states

             95

             21

          (111)

  Canada and various provinces

           218

            (83)

            (57)

  Total deferred tax expense (benefit)

        2,299

           719

      (2,014)

Total income tax expense (benefit)

$     2,156

$     1,235

$    (1,773)

 

Total income tax expense (benefit) differed from the amounts computed by applying the U.S. federal income tax rate to earnings (loss) from continuing operations before income taxes as a result of the following:

 

 

Year Ended December 31,

 

2011

2010

2009

 

(In millions)

Expected income tax expense (benefit) based on U.S. statutory tax

  rate of 35%

$     1,502

$     1,249

$    (1,584)

Assumed repatriations.

           725

           144

             55

State income taxes

             70

             31

            (99)

Taxation on Canadian operations

            (91)

            (60)

            (31)

Other

            (50)

          (129)

          (114)

  Total income tax expense (benefit)

$     2,156

$     1,235

$    (1,773)

 

During 2011, 2010 and 2009, pursuant to the completed and planned divestitures of our International assets located outside North America, a portion of Devon's foreign earnings were no longer deemed to be permanently reinvested. Accordingly, Devon recognized deferred income tax expense of $725 million, $144 million and $55 million during 2011, 2010 and 2009 respectively, related to assumed repatriations of earnings from its foreign subsidiaries.

 


 

Deferred Tax Assets and Liabilities

 

The tax effects of temporary differences that gave rise to Devon's deferred tax assets and liabilities are presented below:

 

 

         December 31,          

 

       2011   

   2010       

Deferred tax assets:

(In millions)

  Net operating loss carryforwards

$        222

$        159

  Asset retirement obligations

           447

           494

  Pension benefit obligations

           130

           133

  Other

           117

           171

      Total deferred tax assets

           916

           957

Deferred tax liabilities:

 

 

  Property and equipment

      (4,475)

      (3,130)

  Fair value of financial instruments

         (218)

            (70)

  Long-term debt

         (185)

         (198)

  Taxes on unremitted foreign earnings (

         (936)

         (211)

  Other

            (27)

            (20)

  Total deferred tax liabilities

      (5,841)

      (3,629)

     Net deferred tax liability

$    (4,925)

$    (2,672)

 

Devon has recognized $222 million of deferred tax assets related to various carryforwards available to offset future income taxes. The carryforwards consist of $829 million of Canadian net operating loss carryforwards, which expire between 2026 and 2031, and $206 million of state net operating loss carryforwards, which expire primarily between 2012 and 2031. Devon expects the tax benefits from the Canadian net operating loss carryforwards to be utilized between 2013 and 2017. Also, Devon expects the tax benefits from the state net operating loss carryforwards to be utilized between 2012 and 2016. Such expectations are based upon current estimates of taxable income during these periods, considering limitations on the annual utilization of these benefits as set forth by tax regulations. Significant changes in such estimates caused by variables such as future oil, gas and NGL prices or capital expenditures could alter the timing of the eventual utilization of such carryforwards. There can be no assurance that Devon will generate any specific level of continuing taxable earnings. However, management believes that Devon's future taxable income will more likely than not be sufficient to utilize substantially all its tax carryforwards prior to their expiration.

 

As of December 31, 2011, approximately $5.4 billion of Devon's unremitted earnings from its foreign subsidiaries were deemed to be permanently reinvested. As a result, Devon has not recognized a deferred tax liability for U.S. income taxes associated with such earnings. If such earnings were to be remitted to the U.S., Devon may be subject to U.S. income taxes and foreign withholding taxes. However, it is not practical to estimate the amount of additional taxes that may be payable due to the inter-relationship of the various factors involved in making such an estimate.

 

Unrecognized Tax Benefits

 

The following table presents changes in Devon's unrecognized tax benefits.

 

 

         December 31,          

 

       2011   

   2010       

 

(In millions)

Balance at beginning of year

$        194

$        272

  Tax positions taken in prior periods

              (3)

             40

  Tax positions taken in current year

             27

               5

  Accrual of interest related to tax positions taken

              (7)

               9

  Lapse of statute of limitations

            (41)

              (5)

  Settlements

              (5)

         (129)

  Foreign currency translation

             —

               2

Balance at end of year

$        165

$        194

 

Devon's unrecognized tax benefit balance at December 31, 2011 and 2010, included $20 million and $27 million of interest and penalties, respectively. If recognized, all of Devon's unrecognized tax benefits as of December 31, 2011 would affect Devon's effective income tax rate. Included below is a summary of the tax years, by jurisdiction, that remain subject to examination by taxing authorities.

 

Jurisdiction

Tax Years Open

U.S. federal

2008-2011

Various U.S. states

2007-2011

Canada federal

2003-2011

Various Canadian provinces

2003-2011

 

Certain statute of limitation expirations are scheduled to occur in the next twelve months. However, Devon is currently in various stages of the administrative review process for certain open tax years. In addition, Devon is currently subject to various income tax audits that have not reached the administrative review process. As a result, Devon cannot reasonably anticipate the extent that the liabilities for unrecognized tax benefits will increase or decrease within the next twelve months.

 

Earnings (Loss) Per Share
Earnings (Loss) Per Share

7.  Earnings (Loss) Per Share  

 

The following table reconciles earnings from continuing operations and common shares outstanding used in the calculations of basic and diluted earnings (loss) per share. Because a net loss from continuing operations was incurred during 2009, the dilutive shares produce an antidilutive net loss per share result. As a result, the diluted loss per share from continuing operations is same as the basic loss per share amount.

 

 

 

 

Earnings

 

Common

Shares

Earnings

(Loss)

per Share

 

(In millions, except per share amounts)

Year Ended December 31, 2011:

 

  Earnings from continuing operations

$        2,134

             417

 

  Attributable to participating securities

               (23)

                (5)

 

  Basic earnings per share

           2,111

             412

$     5.12

  Dilutive effect of potential common shares issuable

                 —

                  2

 

  Diluted earnings per share

$        2,111

             414

$     5.10

Year Ended December 31, 2010:

 

 

 

  Earnings from continuing operations

$        2,333

             440

 

  Attributable to participating securities

               (26)

                (5)

 

  Basic earnings per share

           2,307

             435

$     5.31

  Dilutive effect of potential common shares issuable

                 —

                  1

 

  Diluted earnings per share

$        2,307

             436

$     5.29

Year Ended December 31, 2009:

 

 

 

  Loss from continuing operations

$       (2,753)

             444

 

  Attributable to participating securities

                31

                (5)

 

  Basic and diluted loss per share

$       (2,722)

             439

$       (6.20)

 

Certain options to purchase shares of Devon's common stock were excluded from the dilution calculations because the options were antidilutive. These excluded options totaled 3 million, 6 million and 9 million in 2011, 2010 and 2009, respectively.

 


 

Other Comprehensive Earnings
Other Comprehensive Earnings

8. Other Comprehensive Earnings

 

Components of other comprehensive earnings consist of the following:

 

 

Year Ended December 31,

 

2011

2010

2009

 

(In millions)

Foreign currency translation:

 

  Accumulated foreign currency translation at beginning of year

$     1,993

$     1,616

$         685

  Change in cumulative translation adjustment

          (200)

           397

           993

  Income tax benefit (expense)

                9

            (20)

            (62)

  Accumulated foreign currency translation at end of year

        1,802

        1,993

        1,616

Pension and postretirement benefit plans:

 

 

 

  Accumulated pension and postretirement benefit at beginning of year

          (233)

          (231)

          (302)

  Net actuarial (loss) gain and prior service cost arising in current year

            (21)

            (33)

             59

  Income tax benefit (expense)

                8

             11

            (22)

  Recognition of net actuarial loss and prior service cost in net earnings.

             30

             31

             54

  Income tax expense

            (11)

            (11)

            (20)

Accumulated pension and postretirement benefits at end of year

          (227)

          (233)

          (231)

  Accumulated other comprehensive earnings, net of tax

$     1,575

$     1,760

$     1,385

 

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

9. Supplemental Information to Statements of Cash Flows

 

 

Year Ended December 31,

 

2011

2010

2009

 

(In millions)

Net decrease (increase) in working capital:

 

  (Increase) decrease in accounts receivable

$       (185)

$           23

$         142

  Decrease in other current assets

           125

             21

           212

  Increase (decrease) in accounts payable

             64

             37

            (91)

  Increase in revenues and royalties payable

           144

             48

             —

  Increase (decrease) in income taxes payable

             78

          (203)

            (48)

  Decrease in other current liabilities

            (41)

          (199)

            (66)

Net decrease (increase) in working capital

$         185

$       (273)

$         149

 

 

 

 

Supplementary cash flow data – total operations:

 

 

 

  Interest paid (net of capitalized interest)

$         325

$         359

$         314

  Income taxes (received) paid

$       (383)

$         955

$           68

Short-Term Investments
Short-Term Investments

10.   Short-Term Investments

 

The components of short-term investments include the following:

 

 

December 31,

 

2011

2010

 

(In millions)

Commercial paper

$     1,013

$          

U.S. Treasuries

           201

           145

Other

           289

            

  Total

$     1,503

$        145

 

As of December 31, 2011, the average remaining maturity of these investments was 75 days, with a weighted average yield of 0.28 percent.

Accounts Receivable
Accounts Receivable

11. Accounts Receivable

The components of accounts receivable include the following:

 

December 31,

 

2011

2010

 

(In millions)

Oil, gas and NGL sales

$        928

$        786

Joint interest billings

           247

           204

Marketing and midstream revenues

           174

           165

Other

             39

             57

  Gross accounts receivable

       1,388

       1,212

Allowance for doubtful accounts

              (9)

            (10)

  Net accounts receivable

$     1,379

$     1,202

Other Current Assets
Other Current Assets

12.  Other Current Assets  

The components of other current assets include the following:

 

December 31,

 

2011

2010

 

(In millions)

Derivative financial instruments

$        641

$        348

Inventories

           102

           120

Income tax receivable

             35

           270

Other

             69

             41

  Other current assets

$        847

$        779

Property And Equipment
Property And Equipment

13. Property and Equipment

 

See Note 22 for disclosure of Devon's capitalized costs related to its oil and gas exploration and development activities.

 

In November 2009, Devon announced plans to divest its offshore assets. In 2011, Devon substantially completed its planned divestiture program. In aggregate, Devon's U.S. and International sales generated total proceeds of $10 billion as presented in the following table. Assuming repatriation of a portion of the foreign proceeds under current U.S. tax law the after-tax proceeds from these transactions were approximately $8 billion.     

 

 

Cash Proceeds

Year of Divestiture

 

(In millions)

 

Brazil (discontinued operations)

$     3,251

         2011

Gulf of Mexico (continuing operations)

        4,059

         2010

Azerbaijan (discontinued operations)

        1,925

         2010

China – Panyu and Exploration (discontinued operations)

           592

         2010

Other (discontinued operations)

           175

         2010

  Total

$   10,002

 

 

Reductions of Carrying Value

 

In the first quarter of 2009, Devon reduced the carrying value of its U.S. oil and gas properties $6.4 billion, or $4.1 billion after taxes, due to a full cost ceiling limitation. The reduction resulted from a significant decrease in the full cost ceiling due to the effects of declining natural gas prices subsequent to December 31, 2008.

 

Sinopec Transaction

 

In January 2012, Devon announced a transaction with Sinopec International Petroleum Exploration & Production Corporation that Devon expects to close in the first quarter of 2012. Under the agreement, Sinopec will pay $2.5 billion, including $900 million at closing and $1.6 billion toward Devon's share of future drilling costs, and will receive a 33.3% interest in five new venture exploration plays in the United States.

Asset Retirement Obligations
Asset Retirement Obligations

15. Asset Retirement Obligations

The schedule below summarizes changes in Devon's asset retirement obligations.

 

 

Year Ended

December 31,