DEVON ENERGY CORP/DE, 10-Q filed on 5/1/2013
Quarterly Report
Document And Entity Information
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Apr. 24, 2013
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2013 
 
Amendment Flag
false 
 
Entity Registrant Name
DEVON ENERGY CORP/DE 
 
Entity Central Index Key
0001090012 
 
Current Fiscal Year End Date
--12-31 
 
Document Fiscal Year Focus
2013 
 
Entity Filer Category
Large Accelerated Filer 
 
Document Fiscal Period Focus
Q1 
 
Entity Common Stock, Shares Outstanding
 
406 
Consolidated Comprehensive Statements Of Earnings (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Revenues:
 
 
Oil, gas and NGL sales
$ 1,804 
$ 1,915 
Oil, gas and NGL derivatives
(320)
145 
Marketing and midstream revenues
488 
437 
Total revenues
1,972 
2,497 
Expenses and other, net:
 
 
Lease operating expenses
525 
514 
Marketing and midstream operating costs and expenses
363 
325 
Depreciation, depletion and amortization
704 
680 
General and administrative expenses
150 
168 
Taxes other than income taxes
113 
102 
Interest expense
110 
87 
Restructuring costs
38 
 
Asset impairments
1,913 
 
Other, net
18 
10 
Total expenses and other, net
3,934 
1,886 
Earnings (loss) from continuing operations before income taxes
(1,962)
611 
Current income tax expense
 
18 
Deferred income tax expense (benefit)
(623)
179 
Earnings (loss) from continuing operations
(1,339)
414 
Loss from discontinued operations, net of tax
 
(21)
Net earnings (loss)
(1,339)
393 
Basic net earnings (loss) per share:
 
 
Basic earnings (loss) from continuing operations per share
$ (3.34)
$ 1.03 
Basic loss from discontinued operations per share
 
$ (0.06)
Basic net earnings (loss) per share
$ (3.34)
$ 0.97 
Diluted net earnings (loss) per share:
 
 
Diluted earnings (loss) from continuing operations per share
$ (3.34)
$ 1.03 
Diluted loss from discontinued operations per share
 
$ (0.06)
Diluted net earnings (loss) per share
$ (3.34)
$ 0.97 
Comprehensive earnings (loss):
 
 
Net earnings (loss)
(1,339)
393 
Other comprehensive earnings (loss), net of tax:
 
 
Foreign currency translation
(183)
152 
Pension and postretirement plans
Other comprehensive earnings (loss), net of tax
(179)
156 
Comprehensive earnings (loss)
$ (1,518)
$ 549 
Consolidated Statements Of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Cash flows from operating activities:
 
 
Net earnings (loss)
$ (1,339)
$ 393 
Loss from discontinued operations, net of tax
 
21 
Adjustments to reconcile earnings from continuing operations to net cash from operating activities:
 
 
Depreciation, depletion and amortization
704 
680 
Asset impairments
1,913 
 
Deferred income tax expense (benefit)
(623)
179 
Unrealized change in fair value of financial instruments
419 
22 
Other noncash charges
83 
54 
Net increase in working capital
(158)
(321)
Increase in long-term other assets
(6)
(12)
Increase (decrease) in long-term other liabilities
(16)
Cash from operating activities - continuing operations
1,002 
1,000 
Cash from operating activities - discontinued operations
 
26 
Net cash from operating activities
1,002 
1,026 
Cash flows from investing activities:
 
 
Capital expenditures
(1,926)
(2,088)
Proceeds from property and equipment divestitures
29 
 
Purchases of short-term investments
(871)
(827)
Redemptions of short-term investments
1,988 
1,048 
Other
(2)
(1)
Cash from investing activities - continuing operations
(782)
(1,868)
Cash from investing activities - discontinued operations
 
58 
Net cash from investing activities
(782)
(1,810)
Cash flows from financing activities:
 
 
Net short-term borrowings
508 
357 
Credit facility borrowings
 
750 
Proceeds from stock option exercises
 
20 
Dividends paid on common stock
(81)
(80)
Excess tax benefits related to share-based compensation
Net cash from financing activities
430 
1,048 
Effect of exchange rate changes on cash
(12)
Net change in cash and cash equivalents
638 
273 
Cash and cash equivalents at beginning of period
4,637 
5,555 
Cash and cash equivalents at end of period
$ 5,275 
$ 5,828 
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Current assets:
 
 
Cash and cash equivalents
$ 5,275 
$ 4,637 
Short-term investments
1,226 
2,343 
Accounts receivable
1,369 
1,245 
Other current assets
533 
746 
Total current assets
8,403 
8,971 
Oil and gas, based on full cost accounting:
 
 
Subject to amortization
70,431 
69,410 
Not subject to amortization
3,426 
3,308 
Total oil and gas
73,857 
72,718 
Other
5,792 
5,630 
Total property and equipment, at cost
79,649 
78,348 
Less accumulated depreciation, depletion and amortization
(53,267)
(51,032)
Property and equipment, net
26,382 
27,316 
Goodwill
6,017 
6,079 
Other long-term assets
780 
960 
Total assets
41,582 
43,326 
Current liabilities:
 
 
Accounts payable
1,409 
1,451 
Revenues and royalties payable
753 
750 
Short-term debt
4,197 
3,189 
Other current liabilities
441 
613 
Total current liabilities
6,800 
6,003 
Long-term debt
7,955 
8,455 
Asset retirement obligations
2,092 
1,996 
Other long-term liabilities
873 
901 
Deferred income taxes
4,154 
4,693 
Stockholders' equity:
 
 
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 406 million shares in 2013 and 2012, respectively
41 
41 
Additional paid-in capital
3,717 
3,688 
Retained earnings
14,358 
15,778 
Accumulated other comprehensive earnings
1,592 
1,771 
Total stockholders' equity
19,708 
21,278 
Commitments and contingencies (Note 16)
   
   
Total liabilities and stockholders' equity
$ 41,582 
$ 43,326 
Consolidated Balance Sheets (Parenthetical) (USD $)
Mar. 31, 2013
Dec. 31, 2012
Consolidated Balance Sheets [Abstract]
 
 
Common stock, par value (in dollars per share)
$ 0.10 
$ 0.10 
Common stock, shares authorized (in shares)
1,000,000,000 
1,000,000,000 
Common stock, shares issued (in shares)
406,000,000 
406,000,000 
Consolidated Statements Of Stockholders' Equity (USD $)
In Millions
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Earnings [Member]
Treasury Stock [Member]
Total
Balance, at Dec. 31, 2011
$ 40 
$ 3,507 
$ 16,308 
$ 1,575 
 
$ 21,430 
Balance, shares, at Dec. 31, 2011
404 
 
 
 
 
 
Net earnings (loss)
 
 
393 
 
 
393 
Other comprehensive earnings (loss), net of tax
 
 
 
156 
 
156 
Stock option exercises
 
20 
 
 
 
20 
Common stock repurchased
 
 
 
 
(1)
(1)
Common stock retired
 
(1)
 
 
 
Common stock dividends
 
 
(80)
 
 
(80)
Share-based compensation
 
37 
 
 
 
37 
Share-based compensation tax benefits
 
 
 
 
Balance, at Mar. 31, 2012
40 
3,564 
16,621 
1,731 
 
21,956 
Balance, shares, at Mar. 31, 2012
404 
 
 
 
 
 
Balance, at Dec. 31, 2012
41 
3,688 
15,778 
1,771 
 
21,278 
Balance, shares, at Dec. 31, 2012
406 
 
 
 
 
 
Net earnings (loss)
 
 
(1,339)
 
 
(1,339)
Other comprehensive earnings (loss), net of tax
 
 
 
(179)
 
(179)
Common stock repurchased
 
 
 
 
(6)
(6)
Common stock retired
 
(6)
 
 
 
Common stock dividends
 
 
(81)
 
 
(81)
Share-based compensation
 
32 
 
 
 
32 
Share-based compensation tax benefits
 
 
 
 
Balance, at Mar. 31, 2013
$ 41 
$ 3,717 
$ 14,358 
$ 1,592 
 
$ 19,708 
Balance, shares, at Mar. 31, 2013
406 
 
 
 
 
 
Summary Of Significant Accounting Policies
Summary Of Significant Accounting Policies

1.Summary of Significant Accounting Policies 

 

The accompanying unaudited financial statements and notes of Devon Energy Corporation (“Devon”) have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The accompanying financial statements and notes should be read in conjunction with the accompanying financial statements and notes included in Devon's 2012 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 to a fair statement of Devon's results of operations and cash flows for the three-month periods ended March 31, 2013 and 2012 and Devon's financial position as of March 31, 2013. 

 

Derivative Financial Instruments
Derivative Financial Instruments

2.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.

 

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

 

Counterparty Credit Risk

 

By using derivative financial instruments, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon's policy to enter into derivative contracts only with investment grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon's derivative contracts contain provisions that provide for collateral payments, depending on levels of exposure and the credit rating of the counterparty. As of March 31, 2013, Devon did not hold any collateral from its counterparties.

 

Commodity Derivatives

 

As of March 31, 2013, 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. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price Swaps

 

Price Collars

 

Call Options Sold

Period

 

Volume (Bbls/d)

 

Weighted Average Price ($/Bbl)

 

Volume (Bbls/d)

 

Weighted Average Floor Price ($/Bbl)

 

Weighted Average Ceiling Price ($/Bbl)

 

Volume (Bbls/d)

 

Weighted Average Price ($/Bbl)

Q2-Q4 2013

 

70,000

 

$

100.26

 

65,000

 

$

90.13

 

$

111.91

 

10,000

 

$

120.00

Q1-Q4 2014 

 

21,000

 

$

94.99

 

10,000

 

$

86.53

 

$

102.75

 

39,000

 

$

116.15

Q1-Q4 2015

 

500

 

$

91.00

 

 

$

 

$

 

19,000

 

$

114.74

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basis Swaps

Period

 

Index

 

Volume (Bbls/d)

 

Weighted Average Differential to WTI ($/Bbl)

Q2-Q4 2013

 

Western Canadian Select

 

31,169

 

$

 (22.03)

 

As of March 31, 2013, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas swaps and collars that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas swaps and collars that settle against the AECO index.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price Swaps

 

Price Collars

 

Call Options Sold

Period

 

Volume (MMBtu/d)

 

Weighted Average Price ($/MMBtu)

 

Volume (MMBtu/d)

 

Weighted Average Floor Price ($/MMBtu)

 

Weighted Average Ceiling Price ($/MMBtu)

 

Volume (MMBtu/d)

 

Weighted Average Price ($/MMBtu)

Q2-Q4 2013

 

987,500

 

$

4.09

 

749,273

 

$

3.55

 

$

4.19

 

 

$

Q1-Q4 2014 

 

725,000

 

$

4.39

 

30,000

 

$

4.00

 

$

4.55

 

500,000

 

$

5.00

Q1-Q4 2015 

 

 

$

 

 

$

 

$

 

475,000

 

$

5.11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price Swaps

Period

 

Volume (MMBtu/d)

 

Weighted Average Price ($/MMBtu)

Q2-Q4 2013 

 

28,435

 

$

3.64

 

 

As of March 31, 2013, Devon had the following open NGL derivative positions. Devon’s NGL swaps settle against the average of the prompt month OPIS Mont Belvieu, Texas hub.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price Swaps

Period

 

Product

 

Volume (Bbls/d)

 

Weighted Average Price ($/Bbl)

Q2-Q4 2013

 

Propane

 

1,364

 

$

40.88

Q2-Q4 2013

 

Ethane

 

2,945

 

$

14.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basis Swaps

Period

 

Pay

 

Volume (Bbls/d)

 

Weighted Average Differential to WTI ($/Bbl)

Q2-Q4 2013

 

Natural Gasoline

 

500

 

$

(6.80)

 

Interest Rate Derivatives

 

As of March 31, 2013, Devon had the following open interest rate derivative positions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional

 

Weighted Average Fixed Rate Received

 

Variable Rate Paid

 

Expiration

(In millions)

 

 

 

 

 

 

$

750

 

3.88%

 

Federal funds rate

 

July 2013

 

 Foreign Currency Derivatives

 

As of March 31, 2013, 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

 

$

755

 

0.979

 

May 2013

 

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. Cash settlements and unrealized gains and losses on fair value changes associated with Devon’s commodity derivatives are presented in the “Oil, gas and NGL derivatives” caption in the accompanying comprehensive statements of earnings. Cash settlements and unrealized gains and losses on fair value changes associated with Devon’s interest rate and foreign currency derivatives are presented in the “Other, net” caption in the accompanying comprehensive statements of earnings.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2013

 

2012

 

 

 

 

 

 

 

 

 

(In millions)

Cash settlements:

 

 

 

 

 

 

Commodity derivatives

 

$

86 

 

$

158 

Interest rate derivatives

 

 

 

 

10 

Foreign currency derivatives

 

 

19 

 

 

(11)

Total cash settlements

 

 

114 

 

 

157 

Unrealized gains (losses):

 

 

 

 

 

 

Commodity derivatives

 

 

(406)

 

 

(13)

Interest rate derivatives

 

 

(9)

 

 

(10)

Foreign currency derivatives

 

 

(4)

 

 

Total unrealized losses

 

 

(419)

 

 

(22)

Net gain (loss) recognized on comprehensive statements of earnings

 

$

(305)

 

$

135 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Caption

 

March 31, 2013

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions)

Asset derivatives:

 

 

 

 

 

 

 

 

Commodity derivatives

 

Other current assets

 

$

91 

 

$

379 

Commodity derivatives

 

Other long-term assets

 

 

63 

 

 

22 

Interest rate derivatives

 

Other current assets

 

 

14 

 

 

23 

Foreign currency derivatives

 

Other current assets

 

 

 —

 

 

Total asset derivatives

 

 

 

$

168 

 

$

425 

 

 

 

Balance Sheet Caption

 

March 31, 2013

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions)

Liability derivatives:

 

 

 

 

 

 

 

 

Commodity derivatives

 

Other current liabilities

 

$

79 

 

$

Commodity derivatives

 

Other long-term liabilities

 

 

112 

 

 

29 

Foreign currency derivatives

 

Other current liabilities

 

 

 

 

 —

Total liability derivatives

 

 

 

$

194 

 

$

32 

 

Restructuring Costs
Restructuring Costs

 

3.Restructuring Costs 

 

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 March 31, 2013, Devon had substantially completed this initiative and incurred $118 million of restructuring costs associated with the office consolidation.

 

Divestiture of Offshore Assets

 

In the fourth quarter of 2009, Devon announced plans to divest its offshore assets. As of March 31, 2013, Devon had divested all of its U.S. Offshore and International assets and incurred $196 million of restructuring costs associated with the divestitures.

 

Financial Statement Presentation

 

The schedule below summarizes restructuring costs presented in the accompanying comprehensive statements of earnings related to the office consolidation. There were no costs related to the offshore divestitures in the three months ended March 31, 2013 and 2012, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months

 

 

Ended March 31,

 

  

2013

 

2012

 

 

 

 

 

 

 

 

  

(In millions)

Lease obligations and other

  

$

29 

  

$

 —

Asset impairments

  

 

  

 

 —

Restructuring costs

  

$

38 

  

$

 —

 

In the three months ended March 31, 2013, Devon incurred $23 million of restructuring costs related to office space that is subject to non-cancellable operating lease agreements that Devon ceased using as a part of the office consolidation. Devon also recognized $9 million of asset impairment charges for leasehold improvements and furniture associated with the office consolidation.

 

 

The schedule below summarizes Devon’s restructuring liabilities. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Other

 

 

 

 

 

Current

 

Long-Term

 

 

 

 

 

Liabilities

 

Liabilities

 

Total

 

 

 

 

 

 

 

 

 

 

 

  

(In millions)

Balance as of December 31, 2011

  

$

29 

 

$

16 

 

$

45 

Lease obligations - Offshore

  

 

(2)

 

 

(1)

 

 

(3)

Employee severance - Offshore

  

 

(2)

 

 

 —

 

 

(2)

Balance as March 31, 2012

 

$

25 

 

$

15 

 

$

40 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2012

  

$

52 

 

$

 

$

61 

Lease obligations and other - Office consolidation

 

 

11 

 

 

 

 

20 

Employee severance – Office consolidation

  

 

(9)

 

 

 —

 

 

(9)

Lease obligations - Offshore

  

 

(1)

 

 

 —

 

 

(1)

Balance as of March 31, 2013

  

$

53 

  

$

18 

  

$

71 

 

Other, Net
Other, Net

 

4.Other, net 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

  

2013

 

2012

 

 

 

 

 

 

 

 

  

(In millions)

Accretion of asset retirement obligations

  

$

28 

  

$

27 

Foreign currency derivatives

  

 

(15)

 

 

10 

Foreign exchange loss (gain)

  

 

17 

 

 

(14)

Interest income

  

 

(8)

 

 

(7)

Other

  

 

(4)

 

 

(6)

Other, net

  

$

18 

 

$

10 

 

Earnings Per Share
Earnings Per Share

5.Earnings (Loss) Per Share

 

The following table reconciles earnings (loss) from continuing operations and common shares outstanding used in the calculations of basic and diluted earnings per share.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

Common

 

Earnings (loss)

 

 

Earnings (loss)

 

Shares

 

per  Share

 

 

 

 

 

 

 

 

 

 

 

  

(In millions, except per share amounts)

Three Months Ended March 31, 2013:

  

 

 

 

 

 

 

 

 

Loss from continuing operations

  

$

(1,339)

 

 

406 

 

 

 

Attributable to participating securities

  

 

(1)

 

 

(4)

 

 

 

Basic and diluted loss per share

  

$

(1,340)

 

 

402 

 

$

(3.34)

 

  

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2012:

  

 

 

 

 

 

 

 

 

Earnings from continuing operations

  

$

414 

 

 

404 

 

 

 

Attributable to participating securities

  

 

(4)

 

 

(4)

 

 

 

Basic earnings per share

  

 

410 

 

 

400 

 

$

1.03 

Dilutive effect of potential common shares issuable

  

 

 —

 

 

 

 

 

Diluted earnings per share

  

$

410 

 

 

401 

 

$

1.03 

 

Certain options to purchase shares of Devon's common stock are excluded from the dilution calculation because the options are antidilutive. These excluded options totaled 7.7 million shares and 6.4 million shares during the three-month periods ended March 31, 2013 and 2012, respectively.

Other Comprehensive Earnings
Other Comprehensive Earnings

6.Other Comprehensive Earnings

 

Components of other comprehensive earnings consist of the following:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2013

 

2012

 

 

 

 

 

 

 

 

 

(In millions)

Foreign currency translation:

 

 

 

 

 

 

Beginning accumulated foreign currency translation

 

$

1,996 

 

$

1,802 

Change in cumulative translation adjustment

 

 

(191)

 

 

159 

Income tax benefit (expense)

 

 

 

 

(7)

Ending accumulated foreign currency translation

 

 

1,813 

 

 

1,954 

Pension and postretirement benefit plans:

 

 

 

 

 

 

Beginning accumulated pension and postretirement benefits

 

 

(225)

 

 

(227)

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

 

 

 

 

Income tax expense

 

 

(2)

 

 

(3)

Ending accumulated pension and postretirement benefits

 

 

(221)

 

 

(223)

Accumulated other comprehensive earnings, net of tax

 

$

1,592 

 

$

1,731 

__________________________

(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 retirement plans footnote for additional details). 

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

7.Supplemental Information to Statements of Cash Flows 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

(In millions)

Net change in working capital:

 

 

 

 

 

 

Change in accounts receivable

 

$

(122)

 

$

280 

Change in other current assets

 

 

(1)

 

 

(53)

Change in accounts payable

 

 

83 

 

 

(226)

Change in revenues and royalties payable

 

 

 

 

(169)

Change in income taxes payable

 

 

 

 

(16)

Change in other current liabilities

 

 

(130)

 

 

(137)

Net increase in working capital

 

$

(158)

 

$

(321)

 

 

 

 

 

 

 

Interest paid (net of capitalized interest)

 

$

139 

 

$

136 

Income taxes paid (received)

 

$

(11)

 

$

33 

 

Short-Term Investments
Short-Term Investments

 

8.Short-Term Investments

 

The components of short-term investments include the following: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

 

 

 

 

 

 

(In millions)

Canadian treasury, agency and provincial securities

 

$

1,177 

 

$

1,865 

U.S. treasuries

 

 

 —

 

 

429 

Other

 

 

49 

 

 

49 

Short-term investments

 

$

1,226 

 

$

2,343 

 

Accounts Receivable
Accounts Receivable

9. Accounts Receivable

 

The components of accounts receivable include the following: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

 

 

 

 

 

 

(In millions)

Oil, gas and NGL sales

 

$

849 

 

$

752 

Joint interest billings

 

 

331 

 

 

270 

Marketing and midstream revenues

 

 

160 

 

 

161 

Other

 

 

39 

 

 

72 

Gross accounts receivable

 

 

1,379 

 

 

1,255 

Allowance for doubtful accounts

 

 

(10)

 

 

(10)

Net accounts receivable

 

$

1,369 

 

$

1,245 

 

Property And Equipment
Property And Equipment

10.  Property and Equipment

 

Asset Impairments

 

In the first quarter of 2013, Devon recognized asset impairments related to its oil and gas property and equipment as presented below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2013

 

 

Gross

 

Net of Taxes

 

 

 

 

 

 

 

 

 

(In millions)

U.S. oil and gas assets

 

$

1,110 

 

$

707 

Canada oil and gas assets

 

 

803 

 

 

601 

Total asset impairments

 

$

1,913 

 

$

1,308 

 

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 since December 31, 2012. The lower ceiling values resulted primarily from decreases in the 12-month average trailing prices for oil, bitumen and NGLs, which have reduced proved reserve values.

 

If pricing conditions do not improve, Devon may incur a full cost ceiling impairment related to its oil and gas property and equipment in future quarters of 2013. 

Goodwill
Goodwill

11.Goodwill 

 

During the first three months of 2013, Devon’s Canadian goodwill decreased $62 million entirely due to foreign currency translation. 

Debt
Debt

12.Debt 

 

Commercial Paper

 

As of March 31, 2013, Devon had $3.7 billion of outstanding commercial paper at an average rate of 0.35 percent. 

 

Credit Lines

 

Devon has a $3.0 billion syndicated, unsecured revolving line of credit (the "Senior Credit Facility"). As of March 31, 2013 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 March 31, 2013, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 26.3 percent.  

 

Asset Retirement Obligations
Asset Retirement Obligations

13.Asset Retirement Obligations

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

(In millions)

Asset retirement obligations as of beginning of period

 

$

2,095 

 

$

1,563 

Liabilities incurred

 

 

43 

 

 

21 

Liabilities settled

 

 

(28)

 

 

(15)

Revision of estimated obligation

 

 

63 

 

 

399 

Liabilities assumed by others

 

 

(4)

 

 

(1)

Accretion expense on discounted obligation

 

 

28 

 

 

27 

Foreign currency translation adjustment

 

 

(26)

 

 

14 

Asset retirement obligations as of end of period

 

 

2,171 

 

 

2,008 

Less current portion

 

 

79 

 

 

64 

Asset retirement obligations, long-term

 

$

2,092 

 

$

1,944 

 

Retirement Plans
Retirement Plans

14.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

 

Three Months Ended

 

 

March 31,

 

March 31,

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions)

Service cost

 

$

 

$

11 

 

$

 —

 

$

 —

Interest cost

 

 

13 

 

 

15 

 

 

 —

 

 

Expected return on plan assets

 

 

(15)

 

 

(16)

 

 

 —

 

 

 —

Amortization of prior service cost (1)

 

 

 

 

 

 

 —

 

 

 —

Net actuarial loss (1)

 

 

 

 

 

 

 —

 

 

 —

Net periodic benefit cost (2)

 

$

13 

 

$

17 

 

$

 —

 

$

__________________________

(1)  These net periodic benefit costs were reclassified out of 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.

Stockholders' Equity
Stockholders' Equity

15.  Stockholders' Equity 

 

Dividends

 

Devon paid common stock dividends of $81 million and $80 million in the first three months of 2013 and 2012, respectively. The quarterly cash dividend was $0.20 per share for both periods. In March 2013, Devon announced an increase of its quarterly cash dividend to $0.22 per share that will begin in the second quarter of 2013.

 

Commitments And Contingencies
Commitments And Contingencies

16.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 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 natural gas and NGLs produced and sold. Devon’s largest exposure for such matters relates to royalties in New Mexico. 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.

 

Chief Redemption Matters

 

In 2006, Devon acquired Chief Holdings LLC (“Chief”) from the owners of Chief, including Trevor Rees-Jones, the majority owner of Chief. In 2008, a former owner of Chief filed a petition against Rees-Jones, as the former majority owner of Chief, and Devon, as Chief’s successor pursuant to the 2006 acquisition. The petition claimed, among other things, violations of the Texas Securities Act, fraud and breaches of Rees-Jones’ fiduciary responsibility to the former owner in connection with Chief’s 2004 redemption of the owner’s minority ownership stake in Chief.

 

On June 20, 2011, a court issued a judgment against Rees-Jones for $196 million, of which $133 million of the judgment was also issued against Devon. Devon did not have a legal right of set off with respect to the judgment. Therefore, it had recorded a $133 million long-term liability relating to the judgment with an offsetting $133 million long-term receivable relating to its right to be indemnified by Rees-Jones and certain other parties pursuant to the indemnification agreement.

 

The plaintiffs and Rees-Jones have settled all claims related to the 2004 redemption. Under the terms of the settlement, Rees-Jones and Devon received full releases for all of the plaintiffs’ claims with Rees-Jones funding all settlement payments. Consequently, Devon reversed the previously recorded liability and asset in the first quarter of 2013

 

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. 

Fair Value Measurements
Fair Value Measurements

17.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 payables and accrued expenses included in the accompanying balance sheets approximated fair value at March 31, 2013 and December 31, 2012. 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)

March 31, 2013 assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

4,653 

 

$

4,653 

 

$

609 

 

$

4,044 

 

$

 —

Short-term investments

 

$

1,226 

 

$

1,226 

 

$

 —

 

$

1,226 

 

$

 —

Long-term investments

 

$

63 

 

$

63 

 

$

 —

 

$

 —

 

$

63 

Commodity derivatives