DEVON ENERGY CORP/DE, 10-Q filed on 11/5/2009
Quarterly Report
Document and Entity Information (USD $)
In Billions, except Share data in Millions
Nov. 2, 2009
9 Months Ended
Sep. 30, 2009
Jun. 29, 2008
Document and Entity Information
 
 
 
Document Type
 
10-Q 
 
Document Period End Date
 
09/30/2009 
 
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 
 
Entity Filer Category
 
Large Accelerated Filer 
 
Entity Well-known Seasoned Issuer
 
Yes 
 
Entity Common Stock, Shares Outstanding (in shares)
444.1 
 
 
Entity Public Float
 
 
$ 53 
Consolidated Balance Sheets (USD $)
In Millions
Sep. 30, 2009
Dec. 31, 2008
ASSETS
 
 
Current assets:
 
 
Cash and cash equivalents
$ 905 
$ 379 
Accounts receivable
1,142 
1,412 
Income taxes receivable
47 
334 
Derivative financial instruments, at fair value
131 
282 
Other current assets
384 
277 
Total current assets
2,609 
2,684 
Property and equipment, at cost, based on the full cost method of accounting for oil and gas properties ($4,433 million and $4,551 million excluded from amortization in 2009 and 2008, respectively)
61,375 
55,664 
Less accumulated depreciation, depletion and amortization
42,503 
32,683 
Property and equipment, net
18,872 
22,981 
Goodwill
5,929 
5,579 
Other long-term assets, including $167 million and $199 million at fair value in 2009 and 2008, respectively
731 
664 
Total assets
28,141 
31,908 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
Current liabilities:
 
 
Accounts payable - trade
1,113 
1,825 
Revenues and royalties due to others
368 
496 
Short-term debt
1,545 
180 
Current portion of asset retirement obligations, at fair value
108 
138 
Other current liabilities, including $7 million at fair value in 2009
309 
496 
Total current liabilities
3,443 
3,135 
Long-term debt
5,848 
5,661 
Asset retirement obligations, at fair value
1,511 
1,347 
Other long-term liabilities
977 
1,026 
Deferred income taxes
1,709 
3,679 
Stockholders' equity:
 
 
Common stock of $0.10 par value. Authorized 1.0 billion shares; issued 444.1 million and 443.7 million shares in 2009 and 2008, respectively
44 
44 
Additional paid-in capital
6,410 
6,257 
Retained earnings
7,017 
10,376 
Accumulated other comprehensive income
1,182 
383 
Total stockholders' equity
14,653 
17,060 
Commitments and contingencies (Note 11)
 
 
Total liabilities and stockholders' equity
$ 28,141 
$ 31,908 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Per Share data
9 Months Ended
Sep. 30, 2009
Year Ended
Dec. 31, 2008
Property and equipment, at cost, based on the full cost method of accounting for oil and gas properties excluded from amortization
$ 4,433 
$ 4,551 
Other long-term assets at fair value
167 
199 
Other current liabilities at fair value
 
Common stock, par value (in dollars per share)
0.1 
0.1 
Common stock, shares authorized (in shares)
1,000 
1,000 
Common stock, shares issued (in shares)
444.1 
443.7 
Consolidated Statements of Operations (USD $)
In Millions, except Per Share data
3 Months Ended
Sep. 30, 2009
9 Months Ended
Sep. 30, 2009
3 Months Ended
Sep. 30, 2008
9 Months Ended
Sep. 30, 2008
Revenues:
 
 
 
 
Oil sales
$ 845 
$ 2,107 
$ 1,296 
$ 4,001 
Gas sales
691 
2,344 
2,107 
5,947 
NGL sales
195 
501 
362 
1,069 
Net gain (loss) on oil and gas derivative financial instruments
23 
190 
1,592 
(411)
Marketing and midstream revenues
344 
1,074 
621 
1,895 
Total revenues
2,098 
6,216 
5,978 
12,501 
Expenses and other income, net:
 
 
 
 
Lease operating expenses
505 
1,539 
591 
1,634 
Production taxes
61 
150 
152 
462 
Marketing and midstream operating costs and expenses
244 
707 
452 
1,349 
Depreciation, depletion and amortization of oil and gas properties
480 
1,573 
781 
2,280 
Depreciation and amortization of non-oil and gas properties
65 
209 
67 
186 
Accretion of asset retirement obligations
25 
73 
22 
66 
General and administrative expenses
137 
485 
146 
474 
Interest expense
90 
263 
69 
261 
Change in fair value of other financial instruments
(5)
(20)
46 
22 
Reduction of carrying value of oil and gas properties
6,516 
Other income, net
(96)
(69)
(83)
(121)
Total expenses and other income, net
1,506 
11,426 
2,243 
6,613 
Earnings (loss) from continuing operations before income taxes
592 
(5,210)
3,735 
5,888 
Income tax expense (benefit):
 
 
 
 
Current
102 
155 
226 
743 
Deferred
(9)
(2,203)
1,000 
1,391 
Total income tax expense (benefit)
93 
(2,048)
1,226 
2,134 
Earnings (loss) from continuing operations
499 
(3,162)
2,509 
3,754 
Discontinued operations:
 
 
 
 
Earnings from discontinued operations before income taxes
16 
93 
1,133 
Discontinued operations income tax expense (benefit)
(16)
219 
Earnings from discontinued operations
16 
109 
914 
Net earnings (loss)
499 
(3,146)
2,618 
4,668 
Preferred stock dividends
Net earnings (loss) applicable to common stockholders
499 
(3,146)
2,618 
4,663 
Basic net earnings (loss) per share:
 
 
 
 
Basic earnings (loss) from continuing operations per share (in dollars per share)
1.13 
(7.12)
5.68 
8.45 
Basic earnings (loss) from discontinued operations per share (in dollars per share)
0.03 
0.25 
2.05 
Basic net earnings (loss) per share (in dollars per share)
1.13 
(7.09)
5.93 
10.5 
Diluted net earnings (loss) per share:
 
 
 
 
Diluted earnings (loss) from continuing operations per share (in dollars per share)
1.12 
(7.12)
5.64 
8.37 
Diluted earnings (loss) from discontinued operations per share (in dollars per share)
0.03 
0.24 
2.03 
Diluted net earnings (loss) per share (in dollars per share)
$ 1.12 
$ (7.09)
$ 5.88 
$ 10.4 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Millions
3 Months Ended
Sep. 30, 2009
9 Months Ended
Sep. 30, 2009
3 Months Ended
Sep. 30, 2008
9 Months Ended
Sep. 30, 2008
Net earnings (loss)
$ 499 
$ (3,146)
$ 2,618 
$ 4,668 
Foreign currency translation:
 
 
 
 
Change in cumulative translation adjustment
520 
826 
(386)
(679)
Foreign currency translation income tax benefit (expense)
(31)
(50)
15 
29 
Foreign currency translation total
489 
776 
(371)
(650)
Pension and postretirement benefit plans:
 
 
 
 
Recognition of net actuarial loss and prior service cost in net earnings (loss)
12 
36 
12 
Pension and postretirement benefit plans income tax benefit (expense)
(5)
(13)
(2)
(5)
Pension and postretirement benefit plans total
23 
Other comprehensive earnings (loss), net of tax
496 
799 
(369)
(643)
Comprehensive income (loss)
$ 995 
$ (2,347)
$ 2,249 
$ 4,025 
Consolidated Statements of Stockholders' Equity (USD $)
In Millions
Accumulated Other Comprehensive Income
Treasury Stock
Additional Paid-in Capital
Retained Earnings
Preferred Stock
Common Stock
Total
1/1/2008 - 9/30/2008
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Stockholders' equity, beginning balance
$ 2,405 
$ 0 
$ 6,743 
$ 12,813 
$ 1 
$ 44 
$ 22,006 
Common Stock, Shares, Beginning Balance
 
 
 
 
 
444 
 
Net earnings (loss)
 
 
 
4,668 
 
 
4,668 
Other comprehensive earnings (loss), net of tax
(643)
 
 
 
 
 
(643)
Stock option exercises
 
(4)
112 
 
 
109 
Stock option exercises, shares
 
 
 
 
 
 
Common stock repurchased
 
(681)
 
 
 
 
(681)
Common stock retired
 
685 
(684)
 
 
(1)
Common stock retired, shares
 
 
 
 
 
(7)
 
Redemption of preferred stock
 
 
(149)
 
(1)
 
(150)
Common stock dividends
 
 
 
(211)
 
 
(211)
Preferred stock dividends
 
 
 
(5)
 
 
(5)
Share-based compensation
 
 
139 
 
 
 
139 
Share-based compensation tax benefits
 
 
58 
 
 
 
58 
Stockholders' equity, ending balance
1,762 
6,219 
17,265 
44 
25,290 
Common Stock, Shares, Ending Balance
 
 
 
 
 
441 
 
7/1/2008 - 9/30/2008
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Stockholders' equity, beginning balance
 
 
 
 
 
 
 
Common Stock, Shares, Beginning Balance
 
 
 
 
 
 
 
Net earnings (loss)
 
 
 
 
 
 
2,618 
Other comprehensive earnings (loss), net of tax
 
 
 
 
 
 
(369)
Stock option exercises
 
 
 
 
 
 
 
Stock option exercises, shares
 
 
 
 
 
 
 
Common stock repurchased
 
 
 
 
 
 
 
Common stock retired
 
 
 
 
 
 
 
Common stock retired, shares
 
 
 
 
 
 
 
Redemption of preferred stock
 
 
 
 
 
 
 
Common stock dividends
 
 
 
 
 
 
 
Preferred stock dividends
 
 
 
 
 
 
 
Share-based compensation
 
 
 
 
 
 
 
Share-based compensation tax benefits
 
 
 
 
 
 
 
Stockholders' equity, ending balance
 
 
 
 
 
 
25,290 
Common Stock, Shares, Ending Balance
 
 
 
 
 
 
 
1/1/2009 - 9/30/2009
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Stockholders' equity, beginning balance
383 
6,257 
10,376 
 
44 
17,060 
Common Stock, Shares, Beginning Balance
 
 
 
 
 
444 
 
Net earnings (loss)
 
 
 
(3,146)
 
 
(3,146)
Other comprehensive earnings (loss), net of tax
799 
 
 
 
 
 
799 
Stock option exercises
 
 
19 
 
 
19 
Stock option exercises, shares
 
 
 
 
 
 
Common stock repurchased
 
(12)
 
 
 
 
(12)
Common stock retired
 
12 
(12)
 
 
Common stock retired, shares
 
 
 
 
 
 
Redemption of preferred stock
 
 
 
 
 
 
Common stock dividends
 
 
 
(213)
 
 
(213)
Preferred stock dividends
 
 
 
 
 
 
 
Share-based compensation
 
 
140 
 
 
 
140 
Share-based compensation tax benefits
 
 
 
 
 
Stockholders' equity, ending balance
1,182 
6,410 
7,017 
 
44 
14,653 
Common Stock, Shares, Ending Balance
 
 
 
 
 
444 
 
7/1/2009 - 9/30/2009
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Stockholders' equity, beginning balance
 
 
 
 
 
 
 
Common Stock, Shares, Beginning Balance
 
 
 
 
 
 
 
Net earnings (loss)
 
 
 
 
 
 
499 
Other comprehensive earnings (loss), net of tax
 
 
 
 
 
 
496 
Stock option exercises
 
 
 
 
 
 
 
Stock option exercises, shares
 
 
 
 
 
 
 
Common stock repurchased
 
 
 
 
 
 
 
Common stock retired
 
 
 
 
 
 
 
Common stock retired, shares
 
 
 
 
 
 
 
Redemption of preferred stock
 
 
 
 
 
 
 
Common stock dividends
 
 
 
 
 
 
 
Preferred stock dividends
 
 
 
 
 
 
 
Share-based compensation
 
 
 
 
 
 
 
Share-based compensation tax benefits
 
 
 
 
 
 
 
Stockholders' equity, ending balance
 
 
 
 
 
 
14,653 
Common Stock, Shares, Ending Balance
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Millions
9 Months Ended
Sep. 30,
2009
2008
Cash and Cash Equivalents, Period Increase (Decrease) [Abstract]
 
 
Cash flows from operating activities:
 
 
Net earnings (loss)
$ (3,146)
$ 4,668 
Net loss (earnings) from discontinued operations
(16)
(914)
Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by operating activities:
 
 
Depreciation, depletion and amortization
1,782 
2,466 
Deferred income tax expense (benefit)
(2,203)
1,391 
Reduction of carrying value of oil and gas properties
6,516 
Net unrealized loss (gain) on oil and gas derivative financial instruments
169 
(140)
Other noncash charges
199 
217 
Net decrease (increase) in working capital
(1)
339 
Decrease (increase) in long-term other assets
20 
(61)
Increase (decrease) in long-term other liabilities
(33)
94 
Cash provided by operating activities - continuing operations
3,287 
8,060 
Cash provided by operating activities - discontinued operations
121 
Net cash provided by operating activities
3,292 
8,181 
Cash flows from investing activities:
 
 
Proceeds from sales of property and equipment
23 
116 
Capital expenditures
(4,184)
(6,184)
Purchases of short-term investments
(50)
Sales of long-term and short-term investments
297 
Cash used in investing activities - continuing operations
(4,155)
(5,821)
Cash provided by investing activities - discontinued operations
1,859 
Net cash used in investing activities
(4,154)
(3,962)
Cash flows from financing activities:
 
 
Proceeds from borrowings of long-term debt, net of issuance costs
1,187 
Credit facility repayments
(3,191)
Credit facility borrowings
1,741 
Net commercial paper borrowings (repayments)
363 
(1,004)
Debt repayments
(1)
(1,031)
Redemption of preferred stock
(150)
Proceeds from stock option exercises
19 
109 
Repurchases of common stock
(665)
Dividends paid on common and preferred stock
(213)
(216)
Excess tax benefits related to share-based compensation
58 
Net cash provided by (used in) financing activities
1,361 
(4,349)
Effect of exchange rate changes on cash
29 
(47)
Net increase (decrease) in cash and cash equivalents
528 
(177)
Cash and cash equivalents at beginning of period (including cash related to assets held for sale)
384 
1,373 
Cash and cash equivalents at end of period (including cash related to assets held for sale)
$ 912 
$ 1,196 
Summary of Significant Accounting Policies
1. Summary of Significant Accounting Policies

1.     Summary of Significant Accounting Policies 

 

The accompanying unaudited consolidated 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 consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes included in Devon's 2008 Annual Report on Form 10-K. 

 

The unaudited interim consolidated financial statements furnished in this report reflect all adjustments that are, in the opinion of management, necessary to a fair statement of Devon's financial position as of September 30, 2009 and Devon's results of operations and cash flows for the three-month and nine-month periods ended September 30, 2009 and 2008. To prepare the accompanying financial statements and notes, Devon's management evaluated events or transactions that occurred subsequent to September 30, 2009 and before November 5, 2009, which was the date these financial statements were issued.

 

Recently Issued Accounting Standards Not Yet Adopted

 

In December 2008, the Financial Accounting Standards Board ("FASB") updated Accounting Standards Codification ("ASC") Topic 715 Compensation – Retirement Benefits, regarding employers' disclosures about postretirement benefit plan assets. This ASC update requires additional disclosures about the types of assets and associated risks in an employer's defined benefit pension or other postretirement plan. It is effective for fiscal years ending after December 15, 2009. Devon is evaluating the impact the adoption of this ASC update will have on its financial statement disclosures. However, Devon's adoption of this ASC update will not affect its current accounting for its pension and postretirement plans.  

 

Modernization of Oil and Gas Reporting

 

In December 2008, the SEC adopted revisions to its required oil and gas reporting disclosures. Additionally, on two separate occasions in October 2009, the SEC issued certain compliance and disclosure interpretations of its oil and gas rules. The disclosure revisions are intended to provide investors with a more meaningful and comprehensive understanding of oil and gas reserves. In the three decades that have passed since adoption of these disclosure items, there have been significant changes in the oil and gas industry. The amendments are designed to modernize and update the oil and gas disclosure requirements to align them with current practices and changes in technology. In addition, the amendments concurrently align the SEC's full cost accounting rules with the revised disclosures. The revised disclosure requirements must be incorporated in registration statements filed on or after January 1, 2010, and annual reports on Form 10-K for fiscal years ending on or after December 31, 2009. A company may not apply the new rules to disclosures in quarterly reports prior to the first annual report in which the revised disclosures are required.

 

The following amendments have the greatest likelihood of affecting Devon's reserve disclosures, including the comparability of its reserves disclosures with those of its peer companies:

 

·         Pricing mechanism for oil and gas reserves estimation – The SEC's current rules require proved reserve estimates to be calculated using prices as of the end of the period and held constant over the life of the reserves. Price changes can be made only to the extent provided by contractual arrangements. The revised rules require reserve estimates to be calculated using a 12-month average price. The 12-month average price will also be used for purposes of calculating the full cost ceiling limitations. Price changes can still be incorporated to the extent defined by contractual arrangements. The use of a 12-month average price rather than a single-day price is expected to reduce the impact on reserve estimates and the full cost ceiling limitations due to short-term volatility and seasonality of prices.

 

·         Reasonable certainty – The SEC's current definition of "proved oil and gas reserves" incorporate certain specific concepts such as "lowest known hydrocarbons," which limits the ability to claim proved reserves in the absence of information on fluid contacts in a well penetration, notwithstanding the existence of other engineering and geoscientific evidence. The revised rules amend the definition to permit the use of new reliable technologies to establish the reasonable certainty of proved reserves. This revision also includes provisions for establishing levels of lowest known hydrocarbons and highest known oil through reliable technology other than well penetrations.

 

The revised rules also amend the definition of proved oil and gas reserves to include reserves located beyond development spacing areas that are immediately adjacent to developed spacing areas if economic producibility can be established with reasonable certainty. These revisions are designed to permit the use of reliable technologies to establish proved reserves in lieu of requiring companies to use specific tests. In addition, they establish a uniform standard of reasonable certainty that applies to all proved reserves, regardless of location or distance from producing wells.

 

Because the revised rules generally expand the definition of proved reserves, Devon expects its proved reserve estimates will increase upon adoption of the revised rules. However, Devon is not able to estimate the magnitude of the potential increase at this time.

 

·         Unproved reserves – The SEC's current rules prohibit disclosure of reserve estimates other than proved in documents filed with the SEC. The revised rules permit disclosure of probable and possible reserves and provide definitions of probable reserves and possible reserves. Disclosure of probable and possible reserves is optional. However, such disclosures must meet specific requirements. Disclosures of probable or possible reserves must provide the same level of geographic detail as proved reserves and must state whether the reserves are developed or undeveloped. Probable and possible reserve disclosures must also provide the relative uncertainty associated with these classifications of reserves estimations. Devon has not yet determined whether it will disclose its probable and possible reserves in documents filed with the SEC.

 

Accounts Receivable
2. Accounts Receivable

2.  Accounts Receivable

 

The components of accounts receivable include the following:

 

 

September 30, 2009

December 31, 2008

 

(In millions)

Oil, gas and NGL revenues............................................................................

$                  595

$                  789

Joint interest billings........................................................................................

                     222

                     263

Marketing and midstream revenues............................................................

                     114

                     153

Production tax credits.....................................................................................

                     197

                     170

Other..................................................................................................................

                       25

                       42

    Gross accounts receivable.........................................................................

                 1,153

                 1,417

Allowance for doubtful accounts.................................................................

                      (11)

                        (5)

    Net accounts receivable.............................................................................

$               1,142

$               1,412

 

Derivative Financial Instruments
3. Derivative Financial Instruments

3.  Derivative Financial Instruments

 

Devonperiodically enters into commodity and interest rate derivative financial instruments. These instruments are used to manage the inherent uncertainty of future revenues due to oil and gas price volatility and to manage Devon's exposure to interest rate volatility. Also, during the first eight months of 2008, Devon was subject to an embedded option derivative related to the fair value of its debentures exchangeable into shares of Chevron common stock.

 


The following table presents the fair values of derivative assets and liabilities included in the accompanying balance sheets. None of Devon's derivative instruments included in the table have been designated as hedging instruments.

 

 

Balance Sheet Caption

Asset

Liability

 

 

(In millions)

September 30, 2009:

 

 

 

  Gas price collars...................

Derivative financial instruments, current..............................

$         86

$         —

  Gas price swaps...................

Other current liabilities..............................................................

           —

             7

  Oil price collars.....................

Derivative financial instruments, current..............................

             7

           —

  Interest rate swaps..............

Derivative financial instruments, current..............................

           38

           —

  Interest rate swaps..............

Other long-term assets..............................................................

           51

           —

  Total derivatives..............................................................................................................................

$      182

$           7

 

 

 

 

December 31, 2008:

 

 

 

  Gas price collars...................

Derivative financial instruments, current..............................

$      255

$         —

  Interest rate swaps..............

Derivative financial instruments, current..............................

           27

           —

  Interest rate swaps..............

Other long-term assets..............................................................

           77

           —

  Total derivatives..............................................................................................................................

$      359

$         —

 

The following table presents the cash settlements and unrealized gains and losses on fair value changes included in the accompanying statements of operations associated with these derivative financial instruments. None of Devon's derivative instruments included in the table have been designated as hedging instruments.

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2009

2008

2009

2008

 

(In millions)

Cash settlement receipts (payments):

 

 

 

 

    Gas price collars (1)......................................................

$             118

$            (125)

$             350

$            (275)

    Gas price swaps (1).......................................................

                    9

              (115)

                    9

              (276)

    Interest rate swaps (2)..................................................

                  14

                  —

                  35

                  —

     Total cash settlements................................................

               141

              (240)

               394

              (551)

 

 

 

 

 

Unrealized gains (losses):

 

 

 

 

    Gas price collars (1)......................................................

              (104)

            1,142

              (169)

               114

    Gas price swaps (1).......................................................

                   (7)

               645

                   (7)

                  27

    Oil price collars (1)........................................................

                    7

                  45

                    7

                   (1)

    Interest rate swaps (2)..................................................

                   (9)

                  23

                (15)

                  23

    Embedded option (2)...................................................

                  —

               167

                  —

               109

    Total unrealized gains (losses)....................................

              (113)

            2,022

              (184)

               272

Net gain (loss) recognized on statement of operations..........................................................................

$               28

$          1,782

$             210

$            (279)

________________

(1)   Cash settlements and unrealized gains and losses on fair value changes associated with Devon’s gas price collars, gas price swaps and oil price collars have been recorded in the “Net gain (loss) on oil and gas derivative financial instruments” line item in the accompanying statements of operations. 

 

(2)   Cash settlements and unrealized gains and losses on fair value changes associated with Devon’s interest rate swaps and embedded option have been recorded in the “Change in fair value of other financial instruments” line item in the accompanying statements of operations. 

 


Other Current Assets
4. Other Current Assets

4.     Other Current Assets

 

  The components of other current assets include the following: 

 

 

September 30, 2009

December 31, 2008

 

(In millions)

Inventories........................................................................................................

$                  278

$                  197

Prepaid assets...................................................................................................

                       71

                       49

Other..................................................................................................................

                       35

                       31

    Other current assets.....................................................................................

$                  384

$                  277

 

Property and Equipment
5. Property and Equipment

5.     Property and Equipment

 

In the first quarter of 2009, Devon reduced the carrying values of certain of its oil and gas properties due to full cost ceiling limitations. These reductions are discussed in Note 14.

 

Goodwill
6. Goodwill

6.     Goodwill

 

During the first nine months of 2009, Devon's goodwill increased $350 million. This increase related to Devon's Canadian goodwill and was entirely due to foreign currency translation.

 

Debt
7. Debt

7.     Debt

 

5.625% Senior Notes Due January 15, 2014 and 6.30% Senior Notes Due January 15, 2019

 

In January 2009, Devon issued $500 million of 5.625% senior unsecured notes due January 15, 2014 and $700 million of 6.30% senior unsecured notes due January 15, 2019. The net proceeds received of $1.187 billion, after discounts and issuance costs, were used primarily to repay Devon's $1.0 billion of outstanding commercial paper as of December 31, 2008.

 

Credit Lines

 

Devon has two syndicated, unsecured revolving lines of credit that can be accessed to provide liquidity as needed. The following schedule summarizes the capacity of Devon's credit facilities by maturity date, as well as its available capacity as of September 30, 2009.

 

Description

Amount

 

(In millions)

Senior Credit Facility maturities:

 

  April 7, 2012.......................................................................................................

$          500

  April 7, 2013.......................................................................................................

         2,150

Senior Credit Facility total capacity................................................................

         2,650

Short-Term Facility total capacity – November 2, 2010 maturity............

            700

Total credit facility capacity.............................................................................

         3,350

Less:

 

  Outstanding credit facility borrowings...........................................................

               —

  Outstanding commercial paper borrowings..................................................

         1,368

  Outstanding letters of credit............................................................................

               84

Total available capacity....................................................................................

$       1,898

 

On November 3, 2009 Devon’s unused $700 million short-term facility matured. On November 3, 2009, Devon established a new $700 million 364-day, syndicated, unsecured revolving senior credit facility (the “Short-Term Facility”). The Short-Term Facility matures on November 2, 2010. On the maturity date, all amounts outstanding will be due and payable at that time. Amounts borrowed under the Short-Term Facility bear interest at various fixed rate options for periods of up to 12 months. Such rates are generally based on LIBOR or the prime rate. The Short-Term Facility provides for an annual facility fee of approximately $1.75 million that is payable quarterly in arrears.

 

The credit facilities contain only one material financial covenant. This covenant requires Devon’s ratio of total funded debt to total capitalization to be less than 65%. The credit agreement contains definitions of total funded debt and total capitalization that include adjustments to the respective amounts reported in the consolidated financial statements. Also, total capitalization is adjusted to add back noncash financial writedowns such as full cost ceiling impairments or goodwill impairments. As of September 30, 2009, Devon was in compliance with this covenant. Devon’s debt-to-capitalization ratio at September 30, 2009, as calculated pursuant to the terms of the agreement, was 21.3%. 

 

Commercial Paper

 

Subsequent to the $1.0 billion commercial paper repayment in January 2009, Devon utilized additional net commercial paper borrowings of $1.4 billion to fund capital expenditure payments in excess of cash generated by operating activities during the first nine months of 2009. As of September 30, 2009, Devon’s average borrowing rate on its $1.4 billion of commercial paper debt was 0.32%.

 

Asset Retirement Obligations
8. Asset Retirement Obligations

8.     Asset Retirement Obligations  

 

The following is a summary of the changes in Devon’s asset retirement obligations (“ARO”) for the first nine months of 2009 and 2008.

 

 

Nine Months

Ended September 30,

 

2009

2008

 

(In millions)

ARO as of beginning of period........................................................................................................

$             1,485

$             1,318

  Liabilities incurred............................................................................................................................

                     32

                     48

  Liabilities settled...............................................................................................................................

                   (76)

                   (59)

  Revisions, net....................................................................................................................................

                     23

                  244

  Accretion expense on discounted obligation...............................................................................

                     73

                     66

  Foreign currency translation adjustment.....................................................................................

                     82

                   (46)

ARO as of end of period...................................................................................................................

               1,619

               1,571

Less current portion...........................................................................................................................

                  108

                  115

ARO, long-term...................................................................................................................................

$             1,511

$             1,456

 

Retirement Plans
9. Retirement Plans

9.     Retirement Plans

Net Periodic Benefit Cost and Other Comprehensive Income

 

The following table presents the components of net periodic benefit cost and other comprehensive income for Devon’s pension and other post retirement benefit plans for the three-month and nine-month periods ended September 30, 2009 and 2008.


 

 

 

Pension Benefits

Other Postretirement Benefits

 

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Nine Months Ended September 30,

 

2009

2008

2009

2008

2009

2008

2009

2008

 

(In millions)

Net periodic benefit cost:

 

 

 

 

 

 

 

 

  Service cost.......................................

$        11

$        10

$        33

$        30

$        —

$        —

$        —

$        —

  Interest cost......................................

          14

          14

          42

          42

            1

            2

            3

            6

  Expected return on plan assets.....

           (9)

         (13)

         (27)

         (39)

          —

          —

          —

          —

  Amortization of prior service cost

            1

          —

            3

          —

          —

          —

          —

          —

  Net actuarial loss.............................

          11

            4

          33

          12

          —

          —

          —

          —

     Net periodic benefit cost..............

          28

          15

          84

          45

            1

            2

            3

            6

Other comprehensive income:

 

 

 

 

 

 

 

 

  Recognition of prior service cost

     in net periodic benefit cost..........

 

           (1)

 

          —

 

           (3)

 

          —

 

          —

 

          —

 

          —

 

          —

  Recognition of net actuarial loss

     in net periodic benefit cost..........

                        (11)

                          (4)

                        (33)

                        (12)

           —                             —

                         —

           —                             —

                         —

Total recognized................................

$        16

$        11

$        48

$        33

$          1

$          2

$          3

$          6

 

Devon previously disclosed in its 2008 Annual Report on Form 10-K that it expected to contribute up to approximately $183 million to its defined benefit pension plans in 2009 and $5 million to its defined benefit postretirement plans in 2009. Devon has revised its estimate of 2009 defined benefit pension plan contributions to $55 million. As of September 30, 2009, Devon has contributed $42 million to its defined benefit pension plans and $3 million to its defined benefit postretirement plans.

 

Stockholders' Equity
10. Stockholders' Equity

10.  Stockholders' Equity  

 

Stock Repurchases

 

During the first nine months of 2008, Devon repurchased 6.5 million common shares for $665 million, or $102.56 per share, under programs approved by its Board of Directors. The 6.5 million common shares include 4.5 million shares that were repurchased under Devon's 50 million share repurchase program and 2.0 million shares that were repurchased under Devon's ongoing, annual stock repurchase program.  No such repurchases were made during the first nine months of 2009.

 

Dividends

 

Devon paid common stock dividends of $213 million and $211 million (quarterly rates of $0.16 per share) in the first nine months of 2009 and 2008, respectively. Devon paid preferred stock dividends of $5 million in 2008. Devon redeemed all 1.5 million outstanding shares of its preferred stock on June 20, 2008.

 

Commitments and Contingencies
11. Commitments and Contingencies

11.    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 that 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. However, actual amounts could differ materially from management's estimate.

 

 

 

 

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 ("CERCLA") and similar state statutes. In response to liabilities associated with these activities, accruals have been established when reasonable estimates are possible. Such accruals primarily include estimated costs associated with remediation. Devon has not used discounting in determining its accrued liabilities for environmental remediation, and no material claims for possible recovery from third party insurers or other parties related to environmental costs have been recognized in Devon's consolidated financial statements. Devon adjusts the accruals when new remediation responsibilities are discovered and probable costs become estimable, or when current remediation estimates must be adjusted to reflect new information.

 

Certain of Devon's subsidiaries are involved in matters in which it has been alleged that such subsidiaries are potentially responsible parties ("PRPs") under CERCLA or similar state legislation with respect to various waste disposal areas owned or operated by third parties. As of September 30, 2009, Devon's balance sheet included $1 million of accrued liabilities, reflected in other long-term liabilities, related to these and other environmental remediation liabilities. Devon does not currently believe there is a reasonable possibility of incurring additional material costs in excess of the current accruals recognized for such environmental remediation activities. With respect to the sites in which Devon subsidiaries are PRPs, Devon's conclusion is based in large part on (i) Devon's participation in consent decrees with both other PRPs and the Environmental Protection Agency, which provide for performing the scope of work required for remediation and contain covenants not to sue as protection to the PRPs, (ii) participation in groups as a de minimis PRP, and (iii) the availability of other defenses to liability. As a result, Devon's monetary exposure is not expected to be material.

 

Royalty Matters

 

Numerous natural gas producers and related parties, including Devon, have been named in various lawsuits alleging violation of the federal False Claims Act. The suits allege that the producers and related parties used below-market prices, improper deductions, improper measurement techniques and transactions with affiliates, which resulted in underpayment of royalties in connection with natural gas and NGLs produced and sold from federal and Indian owned or controlled lands. The principal suit in which Devon is a defendant is United States ex rel. Wright v. Chevron USA, Inc. et al. (the "Wright case"). The suit was originally filed in August 1996 in the United States District Court for the Eastern District of Texas, but was consolidated in October 2000 with other suits for pre-trial proceedings in the United States District Court for the District of Wyoming. On July 10, 2003, the District of Wyoming remanded the Wright case back to the Eastern District of Texas to resume proceedings. On April 12, 2007, the court entered a trial plan and scheduling order in which the case will proceed in phases. Two phases have been scheduled to date. The first phase was scheduled to begin in August 2008, but the defendant settled prior to trial. The second phase was scheduled to begin in February 2009, but the defendants settled prior to trial. Devon was not included in the groups of defendants selected for these first two phases. Devon believes that it has acted reasonably, has legitimate and strong defenses to all allegations in the suit, and has paid royalties in good faith. Devon does not currently believe that it is subject to material exposure with respect to this lawsuit. Therefore, no liability related to this lawsuit has been recorded.

 

In 1995, the United States Congress passed the Deep Water Royalty Relief Act. The intent of this legislation was to encourage deep water exploration in the Gulf of Mexico by providing relief from the obligation to pay royalties on certain federal leases. Deep water leases issued in certain years by the Minerals Management Service (the "MMS") have contained price thresholds, such that if the market prices for oil or gas exceeded the thresholds for a given year, royalty relief would not be granted for that year.

 

In October 2007, a federal district court ruled in favor of a plaintiff who had challenged the legality of including price thresholds in deep water leases. Additionally, in January 2009 a federal appellate court upheld this district court ruling. This judgment was later appealed to the United States Supreme Court, which, in October 2009, declined to review the appellate court's ruling. The Supreme Court's decision ended the MMS's judicial course to enforce the price thresholds.

 

 

 

Prior to September 30, 2009, Devon had $84 million accrued for potential royalties on various deep water leases. Based upon the Supreme Court's decision, Devon reduced to zero the $84 million loss contingency accrual in the third quarter of 2009. The $84 million expense reduction is included in other income in the accompanying 2009 statements of operations.

 

Other Matters

 

Devon is involved in other various routine legal proceedings incidental to its business. However, to Devon's knowledge as of the date these financial statements were issued, neither Devon nor its property is subject to any material pending legal proceedings.

 

Fair Value Measurements
12. Fair Value Measurements

12.  Fair Value Measurements 

 

Certain of Devon's assets and liabilities are reported at fair value in the accompanying balance sheets. Such assets and liabilities include amounts for both financial and nonfinancial instruments. The following tables provide carrying value and fair value measurement information for such assets and liabilities as of September 30, 2009 and December 31, 2008.

 

 

As of September 30, 2009

 

 

 

Fair Value Measurements Using:

 

Carrying Amount

Total Fair Value

Quoted Prices in Active Markets

(Level 1)

Significant Other Observable Inputs

(Level 2)

Significant Unobservable Inputs

(Level 3)

 

(In millions)

Financial Assets (Liabilities):

 

 

 

 

 

    Long-term investments............................................

$        116

$       116

$       —

$          —

$        116

    Gas price collars.........................................................

$           86

$         86

$       —

$          86

$           —

    Gas price swaps.........................................................

$            (7)

$          (7)

$       —

$           (7)

$           —

    Oil price collars...........................................................

$             7

$            7

$       —

$            7

$           —

    Interest rate swaps....................................................

$           89

$         89

$       —

$          89

$           —

    Debt.............................................................................

$    (7,393)

$  (8,269)

$ (1,368)

$   (6,901)

$           —

Asset retirement obligations........................................

$    (1,619)

$  (1,619)

$       —

$          —

$    (1,619)

 

 

As of December 31, 2008

 

 

 

Fair Value Measurements Using:

 

Carrying Amount

Total Fair Value

Quoted Prices in Active Markets

(Level 1)

Significant Other Observable Inputs

(Level 2)

Significant Unobservable Inputs

(Level 3)

 

(In millions)

Financial Assets (Liabilities):

 

 

 

 

 

    Long-term investments............................................

$        122

$       122

$       —

$          —

$        122

    Gas price collars.........................................................

$        255

$       255

$       —

$        255

$           —

    Interest rate swaps....................................................

$        104

$       104

$       —

$        104

$           —

    Debt.............................................................................

$    (5,841)

$  (6,106)

$ (1,005)

$   (5,101)

$           —

Asset retirement obligations........................................

$    (1,485)

$  (1,485)

$       —

$          —

$    (1,485)

 


A summary of the changes in Devon's asset retirement obligations during the first nine months of 2009 is included in Note 8. Included below is a summary of the changes in Devon's other Level 3 fair value measurements during the first nine months of 2009 (in millions).

 

Beginning balance.........................................................

$        122

Redemptions of principal at par.................................

              (6)

Ending balance..............................................................

$        116

 

Change in Fair Value of Other Financial Instruments
13. Change in Fair Value of Other Financial Instruments

13.  Change in Fair Value of Other Financial Instruments

 

The components of the change in fair value of other financial instruments are presented in the following table.

 

 

Three Months

Ended September 30,

Nine Months

Ended September 30,

 

2009

2008

2009

2008

 

(In millions)

(Gains) losses from:

 

 

 

 

  Interest rate swaps – settlements.......................................................................

$            (14)

$             —

$            (35)

$             —

  Interest rate swaps – fair value changes..........................................................

                  9

              (23)

               15

              (23)

  Chevron common stock......................................................................................

                —

             236

                —

             154

  Option embedded in exchangeable debentures..............................................

                —

            (167)

                —

            (109)

   Total.......................................................................................................................

$              (5)

$             46

$            (20)

$             22

 

Reduction of Carrying Value of Oil and Gas Properties
14. Reduction of Carrying Value of Oil and Gas Properties

14.  Reduction of Carrying Value of Oil and Gas Properties

 

In the first quarter of 2009, Devon reduced the carrying values of certain of its oil and gas properties due to full cost ceiling limitations. A summary of these reductions and additional discussion is provided below.

 

 

March 31, 2009

 

 

 

Gross

Net of

Taxes

 

(In millions)

  United States....................................................................

$ 6,408

$ 4,085

  Brazil.................................................................................

       103

       103

  Russia................................................................................

           5

           2

     Total...............................................................................

$ 6,516

$ 4,190 

 

The United States reduction resulted primarily from a significant decrease in the full cost ceiling during the first three months of 2009. The lower ceiling value in the United States largely resulted from the continued effects of declining natural gas prices subsequent to December 31, 2008.

 

Although oil prices improved subsequent to December 31, 2008, Brazil's reduction resulted largely from an exploratory well drilled at the BM-BAR-3 block in the offshore Barreirinhas Basin. After drilling this well in the first quarter of 2009, Devon concluded that the well did not have adequate reserves for commercial viability. As a result, the seismic, leasehold and drilling costs associated with this well contributed to the reduction recognized in the first quarter of 2009.

 


To demonstrate the changes in the full-cost ceiling for the United States and Brazil, the March 31, 2009 and December 31, 2008 weighted average wellhead prices are presented in the following table.

 

 

March 31, 2009

December 31, 2008

 

Country

Oil

(Per Bbl)

Gas

(Per Mcf)

NGLs

(Per Bbl)

Oil

(Per Bbl)

Gas

(Per Mcf)

NGLs

(Per Bbl)

United States..........................

$47.30

$2.67

$17.04

$42.21

$4.68

$16.16

Brazil.......................................

$36.71

N/A

N/A

$26.61

N/A

N/A

__________________

N/A – Not applicable.

 

The March 31, 2009 oil and gas wellhead prices in the table above compare to the NYMEX cash price of $49.66 per Bbl for crude oil and the Henry Hub spot price of $3.63 per MMBtu for gas. The December 31, 2008 oil and gas wellhead prices in the table above compare to the NYMEX cash price of $44.60 per Bbl for crude oil and the Henry Hub spot price of $5.71 per MMBtu for gas.

 

Other Income
15. Other Income

15.  Other Income

 

The components of other income are presented in the following table.

 

 

Three Months

Ended September 30,

Nine Months

Ended September 30,

 

2009

2008

2009

2008

 

(In millions)

  Interest and dividend income.............................................................................

$               3

$             18

$               7

$             65

  Deep water royalties (see Note 11)....................................................................

               84

                —

               84

                —

  Hurricane insurance proceeds............................................................................

                —

               57

                —

               57

  Other......................................................................................................................

                  9

                  8

              (22)

                (1)

   Total.......................................................................................................................

$             96

$             83

$             69

$           121

 

Income Taxes
16. Income Taxes

16.  Income Taxes

 

In the third quarter of 2009, Devon recognized $59 million of income tax benefits in conjunction with the filing of its 2008 and certain amended 2005, 2006 and 2007 income tax returns. These tax benefits consist of deferred tax benefits of $50 million and current tax benefits of $9 million. Of the $59 million, $41 million relates to taxation on foreign operations. The remaining $18 million relates to taxation on U.S. federal and state operations.

 

Also in the third quarter of 2009, Devon recognized a $22 million current tax benefit related to certain unsuccessful international drilling results.

 

Discontinued Operations
17. Discontinued Operations

17.  Discontinued Operations

 

At the end of 2008, Devon's operations in Angola were classified as discontinued as a result of Devon's plans and ongoing activities to sell its operations in Angola. Due to a commercial discovery in the second quarter of 2009, Devon suspended marketing its Angolan operations for sale. Although Devon intends to resume marketing activities in 2010 once it has drilled its remaining commitment wells, Devon's operations in Angola do not currently qualify as discontinued. Therefore, Devon has classified all amounts related to its Angolan operations for 2009 and prior years as continuing operations.

 

In the second quarter of 2008, Devon sold its assets and terminated its operations in certain West African countries, consisting primarily of Equatorial Guinea and Gabon. As a result of the sales, Devon recognized gains totaling $736 million ($647 million after taxes) in the second quarter of 2008 from proceeds of $2.4 billion ($1.7 billion net of income taxes and purchase price adjustments).

 

In the third quarter of 2008, Devon sold its assets and terminated its operations in Cote d'Ivoire. As a result of this sale, Devon recognized a gain of $83 million ($101 million after tax) in the third quarter of 2008 from proceeds of $205 million ($163 million net of purchase price adjustments).

 

In the second quarter of 2009, Devon recognized a $17 million gain in conjunction with post-closing settlements related to the 2008 sales.

 

Operating revenues related to Devon’s discontinued operations totaled $17 million and $349 million in the three-month and nine-month periods ended September 30, 2008, respectively. There were no operating revenues related to Devon's discontinued operations for the three-month and nine-month periods ended September 30, 2009.

 

The following table presents the main classes of assets and liabilities associated with Devon’s discontinued operations as of September 30, 2009 and December 31, 2008.  

 

 

Devon's Consolidated

Balance Sheet Caption

September 30,

2009

December 31, 2008

 

 

(In millions)

Cash and other current assets....................................................

Other current assets

$                   16

$                     14

Property and equipment, net of accumulated depreciation,

  depletion and amortization......................................................

 

Other long-term assets

 

$                     9

 

$                       9

Accounts payable and other current liabilities........................

Other current liabilities

$                   10

$                       6

 

Earnings (Loss) Per Share
18. Earnings (Loss) Per Share

18.  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 (loss) per share for the three-month and nine-month periods ended September 30, 2009 and 2008. Because a net loss from continuing operations was generated during the nine-month period ended September 30, 2009, the dilutive shares produce an antidilutive net loss per share result. Therefore, the diluted loss per share from continuing operations in the nine months ended September 30, 2009 reported in the accompanying 2009 statement of operations is the same as the basic loss per share amount.

 

 

 

 

Earnings (Loss)

 

Common Shares

Earnings (Loss)

per Share

 

(In millions, except per share amounts)

Three Months Ended September 30, 2009:

 

 

 

  Earnings from continuing operations...............................................

$           499

             444

 

  Attributable to participating securities.............................................

                (5)

                (5)

 

  Basic earnings per share.....................................................................

              494

              439

$             1.13

  Dilutive effect of potential common shares issuable

     upon the exercise of outstanding stock options..........................

 

                —

 

                  2

 

 

  Diluted earnings per share..................................................................

$           494

             441

$             1.12

 

 

 

 

Three Months Ended September 30, 2008:

 

 

 

  Earnings from continuing operations...............................................

$       2,509

             442

 

  Attributable to participating securities.............................................

              (23)

                (4)

 

  Basic earnings per share.....................................................................

          2,486

             438

$             5.68

  Dilutive effect of potential common shares issuable

     upon the exercise of outstanding stock options..........................

 

                —

 

                  3

 

 

  Diluted earnings per share..................................................................

$       2,486

             441

$             5.64

 

 

 

 


 

 

 

 

Earnings (Loss)

 

Common Shares

Earnings (Loss)

per Share

 

(In millions, except per share amounts)

Nine Months Ended September 30, 2009:

 

 

 

  Loss from continuing operations......................................................

$      (3,162)

             444

 

  Attributable to participating securities.............................................

               34

                (5)

 

  Basic and diluted loss per share........................................................

$      (3,128)

             439

$            (7.12)

 

 

 

 

Nine Months Ended September 30, 2008:

 

 

 

  Earnings from continuing operations...............................................

$       3,754

             444

 

  Attributable to participating securities.............................................

              (34)

                (4)

 

  Less preferred stock dividends..........................................................

                (5)

 

 

  Basic earnings per share.....................................................................

          3,715

             440

$              8.45

  Dilutive effect of potential common shares issuable

     upon the exercise of outstanding stock options..........................

 

                —

 

                  4

 

 

  Diluted earnings per share..................................................................

$       3,715

             444

$              8.37

 

Certain options to purchase shares of Devon's common stock are excluded from the dilution calculations because the options are antidilutive. During the three-month and nine-month periods ended September 30, 2009, 7.1 million shares and 8.9 million shares, respectively, were excluded from the diluted earnings per share calculations. During the three-month and nine-month periods ended September 30, 2008, 1.6 million shares and 1.5 million shares, respectively, were excluded from the diluted earnings per share calculations.

 

Segment Information
19. Segment Information

19.          Segment Information

 

Following is certain financial information regarding Devon’s reporting segments. The revenues reported are all from external customers.

 

 

Domestic

Canada

International

Total

 

(In millions)

As of September 30, 2009:

 

 

 

 

Current assets...........................................................................

$      1,332

$         678

$         599

$      2,609

Property and equipment, net.................................................

      12,626

        5,261

            985

      18,872

Goodwill....................................................................................

        3,046

        2,815

              68

        5,929

Other long-term assets............................................................

            455

              52

            224

            731

     Total assets..........................................................................

$    17,459

$      8,806

$      1,876

$    28,141

 

 

 

 

 

Current liabilities......................................................................

$      2,822

$         420

$         201

$      3,443

Long-term debt........................................................................

        2,868

        2,980

             —

        5,848

Asset retirement obligation, long-term.................................

            763

            646

            102

        1,511

Other long-term liabilities.......................................................

            930

              45

                2

            977

Deferred income taxes............................................................

            591

        1,036

              82

        1,709

Stockholders' equity................................................................

        9,485

        3,679

        1,489

      14,653

     Total liabilities and stockholders' equity........................

$    17,459

$      8,806

$      1,876

$    28,141

 


 

 

Domestic

Canada

International

Total

 

(In millions)

Three Months Ended September 30, 2009:

 

 

 

 

Revenues:

 

 

 

 

  Oil sales..............................................................................................

$         279

$         318

$         248

 $        845

  Gas sales............................................................................................

           518

           171

                2

           691

  NGL sales...........................................................................................

           164

             31

              —

           195

  Net gain on oil and gas derivative financial instruments..........

             23

              —

              —

             23

  Marketing and midstream revenues.............................................

           333

             11

              —

           344

     Total revenues...............................................................................

        1,317

           531

           250

        2,098

Expenses and other income, net:

 

 

 

 

  Lease operating expenses...............................................................

           276

           181

             48

           505

  Production taxes...............................................................................

             35

              —

             26

             61

  Marketing and midstream operating costs and expenses.........

           239

                5

              —

           244

  Depreciation, depletion and amortization of oil and gas

     properties........................................................................................

 

           270

 

           154

 

             56

 

           480

  Depreciation and amortization of non-oil and gas properties.

             58

                6

                1

             65

  Accretion of asset retirement obligation......................................

             12

             10

                3

             25

  General and administrative expenses...........................................

           108

             28

                1

           137

  Interest expense................................................................................

             34

             56

              —

             90

  Change in fair value of other financial instruments..................

              (5)

              —

              —

              (5)

  Other (income) expense, net...........................................................

            (98)

                7

              (5)

            (96)

     Total expenses and other income, net.......................................

           929

           447

           130

        1,506

Earnings from continuing operations before income taxes........

           388

             84

           120

           592

Income tax expense (benefit):

 

 

 

 

  Current...............................................................................................

             27

             58

             17

           102

  Deferred.............................................................................................

             30

            (26)

            (13)

              (9)

     Total income tax expense...........................................................

             57

             32

                4

             93

Net earnings applicable to common stockholders.......................

$         331

$           52

$         116

$         499

 

 

 

 

 

Capital expenditures, continuing operations.................................

$         698

$         247

$           91

$     1,036


 

 

Domestic

Canada

International

Total

 

(In millions)

Three Months Ended September 30, 2008:

 

 

 

 

Revenues:

 

 

 

 

  Oil sales..............................................................................................

$         467

$         507

$         322

 $    1,296

  Gas sales............................................................................................

        1,598

           504

                5

        2,107

  NGL sales...........................................................................................

           288

             74

              —

           362

  Net gain on oil and gas derivative financial instruments..........

        1,592

              —

              —

        1,592

  Marketing and midstream revenues.............................................

           607

             14

              —

           621

     Total revenues...............................................................................

        4,552

        1,099

           327

        5,978

Expenses and other income, net:

 

 

 

 

  Lease operating expenses...............................................................

           318

           217

             56

           591

  Production taxes...............................................................................

             87

                1

             64

           152

  Marketing and midstream operating costs and expenses.........

           447

                5

              —

           452

  Depreciation, depletion and amortization of oil and gas

     properties........................................................................................

 

           505

 

           224

 

             52

 

           781

  Depreciation and amortization of non-oil and gas properties.

             60

                7

              —

             67

  Accretion of asset retirement obligation......................................

             11

             10

                1

             22

  General and administrative expenses...........................................

           114

             31

                1

           146

  Interest expense................................................................................

             15

             54

              —

             69

  Change in fair value of other financial instruments..................

             46

              —

              —

             46

  Other income, net.............................................................................

            (75)

              (7)

              (1)

            (83)

     Total expenses and other income, net.......................................

        1,528

           542

           173

        2,243

Earnings from continuing operations before income taxes........

        3,024

           557

           154

        3,735

Income tax expense (benefit):

 

 

 

 

  Current...............................................................................................

             83

             85

             58

           226

  Deferred.............................................................................................

           946

             74

            (20)

        1,000

     Total income tax expense...........................................................

        1,029

           159

             38

        1,226

Earnings from continuing operations.............................................

        1,995

           398

           116

        2,509

Discontinued operations:

 

 

 

 

  Earnings from discontinued operations before income taxes..

             —

              —

             93

             93

  Income tax benefit..........................................................................

             —

              —

            (16)

            (16)

  Earnings from discontinued operations.......................................

             —

              —

           109

           109

Net earnings applicable to common stockholders.......................

$     1,995

$         398

$         225

$     2,618

 

 

 

 

 

Capital expenditures, before revision of future ARO..................

$     1,717

$         508

$         133

$     2,358

Revision of future ARO....................................................................

             82

              —

              —

             82

Capital expenditures, continuing operations.................................

$     1,799

$         508

$         133

$     2,440

 


 

 

Domestic

Canada

International

Total

 

(In millions)

Nine Months Ended September 30, 2009:

 

 

 

 

Revenues:

 

 

 

 

  Oil sales..............................................................................................

$         654

$         811

$         642

 $    2,107

  Gas sales............................................................................................

        1,738

           602

                4

        2,344

  NGL sales...........................................................................................

           414

             87

              —

           501

  Net gain on oil and gas derivative financial instruments..........

           190

              —

              —

           190

  Marketing and midstream revenues.............................................

        1,048

             26

              —

        1,074

     Total revenues...............................................................................

        4,044

        1,526

           646

        6,216

Expenses and other income, net:

 

 

 

 

  Lease operating expenses...............................................................

           878

           525

           136

        1,539

  Production taxes...............................................................................

             94

                1

             55

           150

  Marketing and midstream operating costs and expenses.........

           694

             13

             —

           707

  Depreciation, depletion and amortization of oil and gas

     properties........................................................................................

 

           984

 

           430

 

           159

 

        1,573

  Depreciation and amortization of non-oil and gas properties.

           189

             19

                1

           209

  Accretion of asset retirement obligation......................................

             40

             28

                5

             73

  General and administrative expenses...........................................

           398

             88

              (1)

           485

  Interest expense................................................................................

             95

           168

              —

           263

  Change in fair value of other financial instruments..................

            (20)

              —

              —

            (20)

  Reduction of carrying value of oil and gas properties...............

        6,408

              —

           108

        6,516

  Other (income) expense, net...........................................................

            (84)

             23

              (8)

            (69)

     Total expenses and other income, net.......................................

        9,676

        1,295

           455

     11,426

Earnings (loss) from continuing operations before income

  taxes...................................................................................................

 

      (5,632)

 

           231

 

           191

 

      (5,210)

Income tax expense (benefit):

 

 

 

 

  Current...............................................................................................

             28

           104

             23

           155

  Deferred.............................................................................................

      (2,194)

            (23)

             14

      (2,203)

     Total income tax (benefit) expense...........................................

      (2,166)

             81

             37

      (2,048)

Earnings (loss) from continuing operations...................................

      (3,466)

           150

           154

      (3,162)

Earnings from discontinued operations.........................................

             —

              —

             16

             16

Net earnings (loss) applicable to common stockholders.............

$    (3,466)

$         150

$         170

$    (3,146)

 

 

 

 

 

Capital expenditures, before revision of future ARO..................

$     2,606

$         733

$         294

$     3,633

Revision of future ARO....................................................................

             37

            (15)

                1

             23

Capital expenditures, continuing operations.................................

$     2,643

$         718

$         295

$     3,656

 


 

 

Domestic

Canada

International

Total

 

(In millions)

Nine Months Ended September 30, 2008:

 

 

 

 

Revenues:

 

 

 

 

  Oil sales..............................................................................................

$     1,476

$     1,345

$     1,180

 $    4,001

  Gas sales............................................................................................

        4,522

        1,410

             15

        5,947

  NGL sales...........................................................................................

           859

           210

              —

        1,069

  Net loss on oil and gas derivative financial instruments...........

          (411)

              —

              —

          (411)

  Marketing and midstream revenues.............................................

        1,856

             39

              —

        1,895

     Total revenues...............................................................................

        8,302

        3,004

        1,195

     12,501

Expenses and other income, net:

 

 

 

 

  Lease operating expenses...............................................................

           863

           622

           149

        1,634

  Production taxes...............................................................................

           270

                3

           189

           462

  Marketing and midstream operating costs and expenses.........

        1,334

             15

              —

        1,349

  Depreciation, depletion and amortization of oil and gas

     properties........................................................................................

 

        1,446

 

           662

 

           172

 

        2,280

  Depreciation and amortization of non-oil and gas properties.

           165

             20

                1

           186

  Accret