DEVON ENERGY CORP/DE, 10-Q filed on 11/7/2012
Quarterly Report
Document And Entity Information
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Oct. 24, 2012
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2012 
 
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
2012 
 
Entity Filer Category
Large Accelerated Filer 
 
Document Fiscal Period Focus
Q3 
 
Entity Common Stock, Shares Outstanding
 
405 
Consolidated Comprehensive Statements Of Earnings (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Revenues:
 
 
 
 
Oil, gas and NGL sales
$ 1,738 
$ 2,111 
$ 5,270 
$ 6,171 
Oil, gas and NGL derivatives
(295)
738 
515 
986 
Marketing and midstream revenues
422 
653 
1,136 
1,712 
Total revenues
1,865 
3,502 
6,921 
8,869 
Expenses and other, net:
 
 
 
 
Lease operating expenses
513 
475 
1,540 
1,352 
Marketing and midstream operating costs and expenses
313 
515 
847 
1,304 
Depreciation, depletion and amortization
716 
566 
2,080 
1,622 
General and administrative expenses
150 
138 
494 
403 
Taxes other than income taxes
104 
108 
306 
336 
Interest expense
110 
104 
296 
270 
Restructuring costs
 
(3)
 
(2)
Asset impairments
1,128 
 
1,128 
 
Other, net
(8)
61 
46 
88 
Total expenses and other, net
3,026 
1,964 
6,737 
5,373 
Earnings (loss) from continuing operations before income taxes
(1,161)
1,538 
184 
3,496 
Current income tax expense (benefit)
(41)
(248)
(301)
Deferred income tax expense (benefit)
(401)
746 
2,184 
Earnings (loss) from continuing operations
(719)
1,040 
172 
1,613 
Earnings (loss) from discontinued operations, net of tax
 
(2)
(21)
2,584 
Net earnings (loss)
(719)
1,038 
151 
4,197 
Basic net earnings (loss) per share:
 
 
 
 
Basic earnings (loss) from continuing operations per share
$ (1.80)
$ 2.51 
$ 0.42 
$ 3.83 
Basic earnings (loss) from discontinued operations per share
 
 
$ (0.05)
$ 6.14 
Basic net earnings (loss) per share
$ (1.80)
$ 2.51 
$ 0.37 
$ 9.97 
Diluted net earnings (loss) per share:
 
 
 
 
Diluted earnings (loss) from continuing operations per share
$ (1.80)
$ 2.50 
$ 0.42 
$ 3.82 
Diluted earnings (loss) from discontinued operations per share
 
 
$ (0.05)
$ 6.11 
Diluted net earnings (loss) per share
$ (1.80)
$ 2.50 
$ 0.37 
$ 9.93 
Comprehensive earnings (loss):
 
 
 
 
Net earnings (loss)
(719)
1,038 
151 
4,197 
Other comprehensive earnings (loss), net of tax:
 
 
 
 
Foreign currency translation
311 
(615)
292 
(365)
Pension and postretirement plans
12 
17 
Other comprehensive earnings (loss), net of tax
314 
(609)
304 
(348)
Comprehensive earnings (loss)
$ (405)
$ 429 
$ 455 
$ 3,849 
Consolidated Statements Of Cash Flows (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Cash flows from operating activities:
 
 
Net earnings
$ 151 
$ 4,197 
(Earnings) loss from discontinued operations, net of tax
21 
(2,584)
Adjustments to reconcile earnings from continuing operations to net cash from operating activities:
 
 
Depreciation, depletion and amortization
2,080 
1,622 
Asset impairments
1,128 
 
Deferred income tax expense
2,184 
Unrealized change in fair value of financial instruments
173 
(661)
Other noncash charges
136 
185 
Net decrease (increase) in working capital
48 
(308)
Decrease (increase) in long-term other assets
(22)
51 
Increase (decrease) in long-term other liabilities
68 
(459)
Cash from operating activities - continuing operations
3,787 
4,227 
Cash from operating activities - discontinued operations
26 
(13)
Net cash from operating activities
3,813 
4,214 
Cash flows from investing activities:
 
 
Capital expenditures
(6,228)
(5,515)
Purchases of short-term investments
(2,969)
(5,751)
Redemptions of short-term investments
2,308 
4,665 
Proceeds from property and equipment divestitures
1,397 
13 
Other
18 
(23)
Cash from investing activities - continuing operations
(5,474)
(6,611)
Cash from investing activities - discontinued operations
58 
3,162 
Net cash from investing activities
(5,416)
(3,449)
Cash flows from financing activities:
 
 
Proceeds from borrowings of long-term debt, net of issuance costs
2,465 
2,221 
Net short-term borrowings (repayments)
(898)
3,196 
Debt repayments
 
(1,760)
Credit facility borrowings
750 
 
Credit facility repayments
(750)
 
Proceeds from stock option exercises
25 
101 
Repurchases of common stock
 
(1,987)
Dividends paid on common stock
(242)
(209)
Excess tax benefits related to share-based compensation
11 
Net cash from financing activities
1,355 
1,573 
Effect of exchange rate changes on cash
31 
(10)
Net change in cash and cash equivalents
(217)
2,328 
Cash and cash equivalents at beginning of period
5,555 
3,290 
Cash and cash equivalents at end of period
$ 5,338 
$ 5,618 
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Current assets:
 
 
Cash and cash equivalents
$ 5,338 
$ 5,555 
Short-term investments
2,164 
1,503 
Accounts receivable
1,113 
1,379 
Other current assets
818 
868 
Total current assets
9,433 
9,305 
Oil and gas, based on full cost accounting:
 
 
Subject to amortization
67,345 
61,696 
Not subject to amortization
3,827 
3,982 
Total oil and gas
71,172 
65,678 
Other
5,643 
5,098 
Total property and equipment, at cost
76,815 
70,776 
Less accumulated depreciation, depletion and amortization
(49,669)
(46,002)
Property and equipment, net
27,146 
24,774 
Goodwill
6,114 
6,013 
Other long-term assets
855 
1,025 
Total assets
43,548 
41,117 
Current liabilities:
 
 
Accounts payable
1,485 
1,471 
Revenues and royalties payable
696 
678 
Short-term debt
2,780 
3,811 
Other current liabilities
535 
778 
Total current liabilities
5,496 
6,738 
Long-term debt
8,455 
5,969 
Asset retirement obligations
2,009 
1,496 
Other long-term liabilities
863 
721 
Deferred income taxes
4,944 
4,763 
Stockholders' equity:
 
 
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 405 million and 404 million shares in 2012 and 2011, respectively
41 
40 
Additional paid-in capital
3,644 
3,507 
Retained earnings
16,217 
16,308 
Accumulated other comprehensive earnings
1,879 
1,575 
Total stockholders' equity
21,781 
21,430 
Commitments and contingencies (Note18)
   
   
Total liabilities and stockholders' equity
$ 43,548 
$ 41,117 
Consolidated Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2012
Dec. 31, 2011
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)
405,000,000 
404,000,000 
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, 2010
$ 43 
$ 5,601 
$ 11,882 
$ 1,760 
$ (33)
$ 19,253 
Balance, shares, at Dec. 31, 2010
432 
 
 
 
 
 
Net earnings
 
 
4,197 
 
 
4,197 
Other comprehensive earnings (loss), net of tax
 
 
 
(348)
 
(348)
Stock option exercises
 
101 
 
 
 
101 
Stock option exercises, shares
 
 
 
 
 
Common stock repurchased
 
 
 
 
(2,008)
(2,008)
Common stock retired
(2)
(1,991)
 
 
1,993 
 
Common stock retired, shares
(26)
 
 
 
 
 
Common stock dividends
 
 
(209)
 
 
(209)
Share-based compensation
 
105 
 
 
 
105 
Share-based compensation tax benefits
 
11 
 
 
 
11 
Balance, at Sep. 30, 2011
41 
3,827 
15,870 
1,412 
(48)
21,102 
Balance, shares, at Sep. 30, 2011
408 
 
 
 
 
 
Balance, at Dec. 31, 2011
40 
3,507 
16,308 
1,575 
 
21,430 
Balance, shares, at Dec. 31, 2011
404 
 
 
 
 
 
Net earnings
 
 
151 
 
 
151 
Other comprehensive earnings (loss), net of tax
 
 
 
304 
 
304 
Stock option exercises
27 
 
 
(2)
26 
Stock option exercises, shares
 
 
 
 
 
Common stock repurchased
 
 
 
 
(4)
(4)
Common stock retired
 
(6)
 
 
 
Common stock dividends
 
 
(242)
 
 
(242)
Share-based compensation
 
111 
 
 
 
111 
Share-based compensation tax benefits
 
 
 
 
Balance, at Sep. 30, 2012
$ 41 
$ 3,644 
$ 16,217 
$ 1,879 
 
$ 21,781 
Balance, shares, at Sep. 30, 2012
405 
 
 
 
 
 
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 2011 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 financial position as of September 30, 2012 and Devon's results of operations and cash flows for the three-month and nine-month periods ended September 30, 2012 and 2011. 

 

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 September 30, 2012, Devon held $49 million of cash collateral. Such amount represented the estimated fair value of certain derivative positions in excess of Devon’s credit guidelines. The collateral is reported in other current liabilities in the accompanying balance sheet.

 

Commodity Derivatives

 

As of September 30, 2012, 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)

Q4 2012

57,000

$105.47

77,000

$89.72

$122.39

19,500

 $95.00

Q1-Q4 2013    

31,000

$104.13

45,000

$91.30

$116.23

 6,000

$120.00

Q1-Q4 2014    

4,000

$100.49

 2,000

$90.00

$111.13

 6,000

$120.00

 

 

Basis Swaps

Period

Index

Volume (Bbls/d)

Weighted Average Differential to WTI ($/Bbl)

Q4 2012

Western Canadian Select

15,000

$(17.29)

 

As of September 30, 2012, Devon had the following open natural gas derivative positions. Devon’s natural gas derivatives settle against the Inside FERC first of the month Henry Hub 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)

Q4 2012 

654,239

$3.92

1,323,696

$3.50

$4.17

487,500

$6.00

Q1-Q4 2013    

185,000

$4.37

    94,219

$3.40

$4.00

Q1-Q4 2014    

240,000

$4.09

150,000

$5.00

 

Interest Rate Derivatives

 

As of September 30, 2012, 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 September 30, 2012, 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 

1.02

December 2012

 

Financial Statement Presentation 

 

The following table presents the cash settlements and unrealized gains and losses on fair value changes included in the accompanying comprehensive statements of earnings associated with derivative financial instruments. 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 September 30,

Nine Months Ended September 30,

 

2012

2011

2012

2011

 

(In millions)

Cash settlements:

 

 

 

 

Commodity derivatives

$
243 
$
96 
$
668 
$
241 

Interest rate derivatives

10 
52 
73 

Foreign currency derivatives

(38)
22 
(29)
22 

Total cash settlements

215 
170 
648 
336 

Unrealized gains (losses):

 

 

 

 

Commodity derivatives

(538)
642 
(153)
745 

Interest rate derivatives

(9)
(55)
(24)
(84)

Foreign currency derivatives

12 

Total unrealized gains (losses)

(535)
587 
(173)
661 

Net gain (loss) recognized on comprehensive statements of earnings

$
(320)
$
757 
$
475 
$
997 

 

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

 

 

 

 

 

 

Balance Sheet Caption

September 30, 2012

December 31, 2011

 

 

(In millions)

Asset derivatives:

 

 

 

Commodity derivatives

Other current assets

$
358 
$
611 

Commodity derivatives

Other long-term assets

75 
17 

Interest rate derivatives

Other current assets

28 
30 

Interest rate derivatives

Other long-term assets

22 

Foreign currency derivatives

Other current assets

Total asset derivatives

$
465 
$
680 

Liability derivatives:

 

 

 

Commodity derivatives

Other current liabilities

$
13 
$
82 

Commodity derivatives

Other long-term liabilities

27 

Total liability derivatives

$
40 
$
82 

 

Restructuring Costs
Restructuring Costs

3.Restructuring Costs 

 

Divestiture of Offshore Assets

 

In the fourth quarter of 2009, Devon announced plans to divest its offshore assets. As of September 30, 2012, Devon had divested all of its U.S. Offshore and International assets and incurred $202 million of restructuring costs associated with the divestitures.

 

The schedule below summarizes restructuring costs presented in the accompanying comprehensive statements of earnings. Restructuring costs related to Devon’s discontinued operations totaled $(2) million in the first nine months ended September 30, 2011. These costs primarily related to cash severance and share-based awards and are not included in the schedule below. There were no costs related to discontinued operations in the nine months ended September 30, 2012. 

   

 

 

 

 

 

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

2012

2011

2012

2011

 

(In millions)

Lease obligations

$

$
(3)

$

$
(5)

Asset impairments

Other

Restructuring costs

$

$
(3)

$

$
(2)

 

The schedule below summarizes Devon’s restructuring liabilities. Devon’s restructuring liabilities for cash severance related to its discontinued operations totaled $2 million at September 30, 2011 and are not included in the schedule below. 

 

 

 

 

 

   

Other Current Liabilities

Other Long-Term Liabilities

Total

 

(In millions)

Balance as of December 31, 2011

$
29 
$
16 
$
45 

Lease obligations settled

(9)
(3)
(12)

Cash severance settled

(7)

(7)

Balance as of September 30, 2012

$
13 
$
13 
$
26 

 

 

 

 

Balance as of December 31, 2010

$
31 
$
51 
$
82 

Lease obligations settled

(1)
(10)
(11)

Cash severance settled

(13)

(13)

Other

(6)
(4)

Balance as of September 30, 2011

$
19 
$
35 
$
54 

 

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 September 30,

Nine Months Ended September 30,

 

2012

2011

2012

2011

 

(In millions)

Accretion of asset retirement obligations

$
27 
$
23 
$
82 
$
69 

Interest rate derivatives 

(1)
15 
11 

Foreign currency derivatives

26 
(22)
25 
(22)

Foreign exchange loss (gain)

(28)
53 
(26)
39 

Interest income

(8)
(8)
(24)
(14)

Other

(24)
12 
(26)

Other, net

$
(8)
$
61 
$
46 
$
88 

 

Earnings Per Share
Earnings Per Share

5.Earnings 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. 

 

 

 

 

 

 

Earnings (loss)

Common Shares

Earnings (loss) per share

 

(In millions, except per share amounts)

Three Months Ended September 30, 2012:

Loss from continuing operations

$
(719)
405 

 

Attributable to participating securities

(1)
(5)

 

Basic and diluted loss per share

$
(720)
400 
$
(1.80)

 

 

 

 

Three Months Ended September 30, 2011:

Earnings from continuing operations

$
1,040 
414 

 

Attributable to participating securities

(11)
(4)

 

Basic earnings per share

1,029 
410 
$
2.51 

Dilutive effect of potential common shares issuable

 

Diluted earnings per share

$
1,029 
411 
$
2.50 

 

 

 

 

Nine Months Ended September 30, 2012:

Earnings from continuing operations

$
172 
404 

 

Attributable to participating securities

(2)
(4)

 

Basic earnings per share

170 
400 
$
0.42 

Dilutive effect of potential common shares issuable

 

Diluted earnings per share

$
170 
401 
$
0.42 

 

 

 

 

Nine Months Ended September 30, 2011:

Earnings from continuing operations

$
1,613 
421 

 

Attributable to participating securities

(16)
(4)

 

Basic earnings per share

1,597 
417 
$
3.83 

Dilutive effect of potential common shares issuable

 

Diluted earnings per share

$
1,597 
418 
$
3.82 

 

Certain options to purchase shares of Devon's common stock are excluded from the dilution calculation because the options are antidilutive. During the three-month and nine-month periods ended September 30, 2012, 9.0 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, 2011, 5.3 million shares and 3.1 million shares, respectively, were excluded from the diluted earnings per share calculations. 

Other Comprehensive Earnings
Other Comprehensive Earnings

6.Other Comprehensive Earnings

 

Components of other comprehensive earnings consist of the following:

 

 

 

 

 

 

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

2012

2011

2012

2011

 

(In millions)

Foreign currency translation:

 

 

 

 

Beginning accumulated foreign currency translation

$
1,783 
$
2,243 
$
1,802 
$
1,993 

Change in cumulative translation adjustment

325 
(644)
305 
(382)

Income tax benefit (expense)

(14)
29 
(13)
17 

Ending accumulated foreign currency translation

2,094 
1,628 
2,094 
1,628 

Pension and postretirement benefit plans:

 

 

 

 

Beginning accumulated pension and postretirement benefits

(218)
(222)
(227)
(233)

Recognition of net actuarial loss and prior service cost in earnings

19 
26 

Income tax expense

(3)
(3)
(7)
(9)

Ending accumulated pension and postretirement benefits

(215)
(216)
(215)
(216)

Accumulated other comprehensive earnings, net of tax

$
1,879 
$
1,412 
$
1,879 
$
1,412 

 

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

7.Supplemental Information to Statements of Cash Flows 

 

 

 

 

 

Nine Months Ended September 30,

 

2012

2011

 

(In millions)

Net change in working capital:

 

 

Decrease (increase) in accounts receivable

$
275 
$
(118)

Increase in other current assets

(234)
(149)

Increase in accounts payable

77 
58 

Increase (decrease) in revenues and royalties payable

(34)
121 

Decrease in other current liabilities

(36)
(220)

Net decrease (increase) in working capital

$
48 
$
(308)

 

 

 

Supplementary cash flow data – total operations:

 

 

Interest paid (net of capitalized interest)

$
260 
$
298 

Income taxes paid (received)

$
88 
$
(113)

 

Short-Term Investments
Short-Term Investments

8.Short-Term Investments

 

The components of short-term investments include the following:

 

 

 

 

 

September 30, 2012

December 31, 2011

 

(In millions)

Canadian treasury, agency and provincial securities

$
1,684 
$
1,155 

U.S. treasuries

480 
201 

Other

147 

Short-term investments

$
2,164 
$
1,503 

 

Accounts Receivable
Accounts Receivable

9.Accounts Receivable

 

The components of accounts receivable include the following: 

 

 

 

 

 

September 30, 2012

December 31, 2011

 

(In millions)

Oil, gas and NGL sales

$
713 
$
928 

Joint interest billings

207 
247 

Marketing and midstream revenues

137 
174 

Other

66 
39 

Gross accounts receivable

1,123 
1,388 

Allowance for doubtful accounts

(10)
(9)

Net accounts receivable

$
1,113 
$
1,379 

 

Other Current Assets
Other Current Assets

10.            Other Current Assets    

 

The components of other current assets include the following:    

 

 

 

 

 

September 30, 2012

December 31, 2011

 

(In millions)

Derivative financial instruments

$
390 
$
641 

Inventories

185 
102 

Income taxes receivable

137 
35 

Current assets held for sale

21 

Other

106 
69 

Other current assets

$
818 
$
868 

 

Property And Equipment
Property And Equipment

11.            Property and Equipment

 

Sinopec Transaction 

 

In April 2012, Devon closed its joint venture transaction with Sinopec International Petroleum Exploration & Production Corporation. Pursuant to the agreement, Sinopec paid approximately $900 million in cash and received a 33.3% interest in five of Devon’s new ventures exploration plays in the U.S. at closing of the transaction. Additionally, Sinopec is required to fund approximately $1.6 billion of Devon’s share of future exploration, development and drilling costs associated with these plays. Devon recognized the cash proceeds received at closing as a reduction to U.S. oil and gas property and equipment. No gain or loss was recognized. 

 

Sumitomo Transaction 

 

In September 2012, Devon closed its joint venture transaction with Sumitomo Corporation. At closing, Sumitomo paid approximately $400 million in cash and received a 30% interest in the Cline and Midland-Wolfcamp shale plays in Texas. Additionally, Sumitomo is required to fund approximately $1.0 billion of Devon’s share of future exploration, development and drilling costs associated with these plays. Devon recognized the cash proceeds received at closing as a reduction to U.S. oil and gas property and equipment. No gain or loss was recognized. 

 

Asset Impairments 

 

In the third quarter of 2012, Devon recognized asset impairments related to its U.S. oil and gas property and equipment and its U.S. midstream assets as presented below.

 

[

 

use this

 

 

 

 

 

 

September 30, 2012

 

Gross

Net of Taxes

 

(In millions)

 U.S. oil and gas assets

$1,106

$705

 Midstream assets

22

14

    Total asset impairments

$1,128

$719

 

U.S. Oil and Gas Impairment 

 

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

 

Additionally, if natural gas and NGL prices remain depressed, Devon may incur a  full cost ceiling impairment related to its oil and gas property and equipment in the fourth quarter of 2012.

 

Midstream Impairment

 

Due to declining natural gas production resulting from low natural gas and NGL prices, Devon determined that the carrying amounts of certain of its midstream facilities located in south and east Texas were not recoverable from estimated future cash flows. Consequently, the assets were written down to their estimated fair values, which were determined using discounted cash flow models. The fair value of Devon’s midstream assets is considered a Level 3 fair value measurement.

 

Goodwill
Goodwill

12.            Goodwill 

 

During the first nine months of 2012, Devon’s Canadian goodwill increased $101 million entirely due to foreign currency translation. 

Accounts Payable
Accounts Payable

13.            Accounts Payable  

 

Included in accounts payable at September 30, 2012, are liabilities of $51 million representing the amount by which checks issued, but not presented to Devon’s banks for collection, exceed balances in applicable bank accounts. Changes in these liabilities are reflected in cash flows from financing activities. 

Debt
Debt

14.            Debt 

 

Long-Term Debt

 

In May 2012, Devon issued $2.5 billion of senior notes that are unsecured and unsubordinated obligations of Devon. Devon used the net proceeds to repay outstanding commercial paper and credit facility borrowings. The schedule below summarizes the key terms of these notes ($ in millions).

 

 

 

 

 

1.875% due May 15, 2017

$
750 

3.25% due May 15, 2022

1,000 

4.75% due May 15, 2042

750 

Discount and issuance costs

(35)

Net proceeds

$
2,465 

 

Commercial Paper 

 

As of September 30, 2012, Devon had $2.8 billion of outstanding commercial paper at an average rate of 0.37 percent. 

 

Credit Lines 

 

Devon previously maintained a $2.19 billion syndicated, unsecured revolving line of credit. As of September 30, 2012, there were no borrowings under this line of credit. Devon terminated this line of credit and established a new $3.0 billion syndicated, unsecured revolving line of credit (the "Senior Credit Facility") on October 24, 2012. The Senior Credit Facility will mature on October 24, 2017. However, prior to the maturity date, Devon has the option to extend the maturity for up to two additional one-year periods, subject to the approval of the lenders.  

 

The terminated line of credit  and the Senior Credit Facility each contain only one material financial covenant. This covenant requires Devon’s ratio of total funded debt to total capitalization, as defined in the credit agreement, to be no greater than 65 percent. As of September 30, 2012, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 24.7 percent.

Asset Retirement Obligations
Asset Retirement Obligations

15.            Asset Retirement Obligations

 

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

 

 

 

 

 

Nine Months Ended September 30,

 

2012

2011

 

(In millions)

Asset retirement obligations as of beginning of period

$
1,563 
$
1,497 

Liabilities incurred

60 
38 

Liabilities settled

(75)
(56)

Revision of estimated obligation

411 
19 

Accretion expense on discounted obligation

82 
69 

Foreign currency translation adjustment

35 
(41)

Asset retirement obligations as of end of period

2,076 
1,526 

Less current portion

67 
66 

Asset retirement obligations, long-term

$
2,009 
$
1,460 

 

During the first nine months of 2012, Devon recognized revisions to its asset retirement obligations totaling $411 million. The primary factor contributing to this revision was an overall increase in abandonment cost estimates for certain of its production operations facilities.  

Retirement Plans
Retirement Plans

16.            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 September 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Nine Months Ended September 30,

 

2012

2011

2012

2011

2012

2011

2012

2011

 

(In millions)

 

 

 

 

 

 

 

 

 

Service cost

$
11 
$
10 
$
32 
$
28 
$

$

$
$

Interest cost

15 
15 
45 
45 

Expected return on plan assets

(16)
(11)
(48)
(32)

Amortization of prior service cost

(1)
(1)

Net actuarial loss

18 
24 
(1)

(1)

Net periodic benefit cost

$
17 
$
23 
$
50 
$
68 

$

$

$

$

 

Stockholders' Equity
Stockholders' Equity

17.            Stockholders' Equity    

 

In the second quarter of 2012, Devon’s stockholders adopted the 2012 amendment to the 2009 Long-Term Incentive Plan (“2009 Plan Amendment”), which expires June 2, 2019. The 2009 Plan Amendment increases the number of shares authorized for issuance from 21.5 million shares to 47 million shares. To calculate shares issued under the 2009 Long-Term Incentive Plan subsequent to the 2009 Plan Amendment, options and stock appreciation rights represent one share and other awards represent 2.38 shares. 

 

Dividends 

 

Devon paid common stock dividends of $242 million and $209 million in the first nine months of 2012 and 2011, respectively. The quarterly cash dividend was $0.16 per share in the first quarter of 2011. Devon increased the dividend rate to $0.17 per share in the second quarter of 2011 and further increased the dividend rate to $0.20 per share in the first quarter of 2012.

Commitments And Contingencies
Commitments And Contingencies

18.            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 the states of Oklahoma and 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. Both Rees-Jones and Devon are appealing the judgment. If the appeal is unsuccessful, Devon can and will seek full payment of the judgment and any related interest, costs and expenses from Rees-Jones pursuant to an existing indemnification agreement between Rees-Jones, certain other parties and Devon. Devon does not expect to have any net exposure as a result of the judgment. However, because Devon does not have a legal right of set off with respect to the judgment, Devon has recorded in the accompanying September 30, 2012 and December 31, 2011, balance sheets both 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. 

 

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

19.            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 September 30, 2012 and December 31, 2011. Therefore, such financial assets and liabilities are not presented in the following tables. 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using:

 

Carrying Amount

Total Fair Value

   Level 1    Inputs

   Level 2    Inputs

 Level 3  Inputs

 

(In millions)

September 30, 2012 assets (liabilities):

 

 

 

 

 

Cash equivalents

$
4,952 
$
4,952 
$
527 
$
4,425 

$

Short-term investments

$
2,164 
$
2,164 
$
480 
$
1,684 

$

Long-term investments

$
64 
$
64 

$

$

$
64 

Commodity derivatives

$
433 
$
433 

$

$
433 

$

Commodity derivatives

$
(40)
$
(40)

$

$
(40)

$

Interest rate derivatives

$
28 
$
28 

$

$
28 

$

Foreign currency derivatives

$
$

$

$

$

Debt

$
(11,235)
$
(13,134)

$

$
(13,130)
$
(4)

 

 

 

 

 

 

 

December 31, 2011 assets (liabilities):

 

 

 

 

 

Cash equivalents

$
5,123 
$
5,123 
$
929 
$
4,194 

$

Short-term investments

$
1,503 
$
1,503 
$
201 
$
1,302 

$

Long-term investments

$
84 
$
84 

$

$

$
84 

Commodity derivatives

$
628 
$
628 

$

$
628 

$

Commodity derivatives

$
(82)
$
(82)

$

$
(82)

$

Interest rate derivatives

$
52 
$
52 

$

$
52 

$

Debt

$
(9,780)
$
(11,380)

$

$
(11,295)
$
(85)

 

The following methods and assumptions were used to estimate the fair values in the tables above.

 

Level 1 Fair Value Measurements 

Cash equivalents and short-term investments —  Amounts consist primarily of U.S. and Canadian treasury securities and money market investments. The fair value approximates the carrying value.

 

Level 2 Fair Value Measurements 

 

Cash equivalents and short-term investments —  Amounts consist primarily of Canadian agency and provincial securities and commercial paper investments. The fair value is based upon data from independent third parties, which approximate the carrying value. 

 

Commodity, interest rate and foreign currency derivatives — The fair values of commodity,  interest rate and foreign currency derivatives are estimated using internal discounted cash flow calculations based upon forward curves and data obtained from independent third parties for contracts with similar terms or data obtained from counterparties to the agreements.

 

Debt — Devon's debt instruments do not actively trade in an established market. The fair values of its fixed-rate debt are estimated based on rates available for debt with similar terms and maturity. The fair values of Devon’s variable-rate commercial paper and credit facility borrowings are the carrying values. 

 

Level 3 Fair Value Measurements

 

Long-term investments — Devon’s long-term investments presented in the tables above consisted entirely of auction rate securities. Due to auction failures and the lack of an active market for Devon’s auction rate securities, quoted market prices for these securities were not available. Therefore, Devon used valuation techniques that rely on unobservable inputs to estimate the fair values of its long-term auction rate securities. These inputs were based on continued receipts of principal at par,  the collection of all accrued interest to date,  the probability of full repayment of the securities considering the U.S. government guarantees substantially all of the underlying student loans, and the AAA credit rating of the securities. As a result of using these inputs, Devon concluded the estimated fair values of its long-term auction rate securities approximated the par values as of September 30, 2012 and December 31, 2011.

 

Debt — Devon's Level 3 debt consisted of a non-interest bearing promissory note. Due to the lack of an active market, quoted marked prices for this note, or similar notes, were not available. Therefore, Devon used valuation techniques that rely on unobservable inputs to estimate the fair value of its promissory note. The fair value of this debt is estimated using internal discounted cash flow calculations based upon estimated future payment schedules and a 3.125% interest rate.

 

Included below is a summary of the changes in Devon's Level 3 fair value measurements during the first nine months of 2012 and 2011. 

 

 

 

 

 

Nine Months Ended September 30,

 

2012

2011

 

(In millions)

Long-term investments balance at beginning of period

$
84 
$
94 

Redemptions of principal

(20)
(10)

Long-term investments balance at end of period

$
64 
$
84 

 

 

 

 

 

Nine Months Ended September 30,

 

2012

2011

 

(In millions)

Debt balance at beginning of period

$
(85)
$
(144)

Foreign exchange translation adjustment

(2)

Accretion of promissory note

(4)

Redemptions of principal

83 
53 

Debt balance at end of period

$
(4)
$
(92)

 

Discontinued Operations
Discontinued Operations

20.            Discontinued Operations 

 

In March 2012, Devon received $71 million upon closing the divestiture of its operations in Angola, which completed Devon’s offshore divestiture program that was announced in November 2009. In aggregate, Devon’s U.S. and International offshore divestitures generated total proceeds of $10.1 billion, or approximately $8 billion after-tax, assuming repatriation of a substantial portion of the foreign proceeds under current U.S. tax law. 

 

Revenues related to Devon’s discontinued operations totaled $43 million in the nine months ended September 30, 2011. Devon did not have revenues related to its discontinued operations during the second or third quarter of 2011 or the first nine months of 2012. Earnings (loss) from discontinued operations before income taxes totaled $(16) million in the nine months ended September 30, 2012 and $2.6 billion for the first nine months of 2011, respectively. Devon did not have any earnings in the third quarter of 2012 or 2011. Earnings (loss) from discontinued operations in 2012 and 2011 were primarily due to Devon’s International divestiture transactions. 

 

The following table presents the main classes of assets and liabilities associated with Devon’s discontinued operations at December 31, 2011. Devon did not have assets or liabilities held for sale at September 30, 2012. 

 

 

December 31, 2011

 

(In millions)

Other current assets

$
21 

Property and equipment, net

132 

Total assets

$
153 

 

 

Accounts payable

$
20 

Other current liabilities

28 

Total liabilities

$
48 

 

Segment Information
Segment Information

21.            Segment Information

 

Devon manages its operations through distinct operating segments, which are defined primarily by geographic areas. For financial reporting purposes, Devon aggregates its U.S. operating segments into one reporting segment due to the similar nature of the businesses. However, Devon's Canadian operating segment is reported as a separate reporting segment primarily due to the significant differences between the U.S. and Canadian regulatory environments. Devon’s segments are all primarily engaged in oil and gas producing activities. Revenues are all from external customers.

 

 

 

 

 

   

U.S.

Canada

Total

 

(In millions)

Three Months Ended September 30, 2012:

 

Oil, gas and NGL sales

$
1,144 
$
594 
$
1,738 

Oil, gas and NGL derivatives

$
(290)
$
(5)
$
(295)

Marketing and midstream revenues

$
415 
$
$
422 

Depreciation, depletion and amortization

$
478 
$
238 
$
716 

Interest expense

$
94 
$
16 
$
110 

Asset impairments

$
1,128 

$

$
1,128 

Earnings (loss) from continuing operations before income taxes

$
(1,169)
$
$
(1,161)

Income tax expense (benefit)

$
(438)
$
(4)
$
(442)

Earnings (loss) earnings from continuing operations

$
(731)
$
12 
$
(719)

Capital expenditures

$
1,598 
$
382 
$
1,980 

 

 

 

 

 

Three Months Ended September 30, 2011:

Oil, gas and NGL sales

$
1,406 
$
705 
$
2,111 

Oil, gas and NGL derivatives

$
738 

$

$
738 

Marketing and midstream revenues

$
586 
$
67 
$
653 

Depreciation, depletion and amortization

$
359 
$
207 
$
566 

Interest expense

$
60 
$
44 
$
104 

Earnings from continuing operations before income taxes

$
1,379 
$
159 
$
1,538 

Income tax expense

$
458 
$
40 
$
498 

Earnings from continuing operations

$
921 
$
119 
$
1,040 

Capital expenditures

$
1,556 
$
394 
$
1,950 

 

 

 

 

 

Nine Months Ended September 30, 2012:

Oil, gas and NGL sales

$
3,394 
$
1,876 
$
5,270 

Oil, gas and NGL derivatives

$
520 
$
(5)
$
515 

Marketing and midstream revenues

$
1,064 
$
72 
$
1,136 

Depreciation, depletion and amortization

$
1,348 
$
732 
$
2,080 

Interest expense

$
249 
$
47 
$
296 

Asset impairments

$
1,128 

$

$
1,128 

Earnings from continuing operations before income taxes

$
91 
$
93 
$
184 

Income tax expense

$
$
$
12 

Earnings from continuing operations

$
85 
$
87 
$
172 

Property and equipment, net

$
18,306 
$
8,840 
$
27,146 

Total assets

$
24,425 
$
19,123 
$
43,548 

Capital expenditures (1)

$
5,129 
$
1,565 
$
6,694 

 

 

 

 

 

Nine Months Ended September 30, 2011:

Oil, gas and NGL sales

$
4,056 
$
2,115 
$
6,171 

Oil, gas and NGL derivatives

$
986 

$

$
986 

Marketing and midstream revenues

$
1,563 
$
149 
$
1,712 

Depreciation, depletion and amortization

$
1,027 
$
595 
$
1,622 

Interest expense

$
137 
$
133 
$
270 

Earnings from continuing operations before income taxes

$
2,965 
$
531 
$
3,496 

Income tax expense

$
1,748 
$
135 
$
1,883 

Earnings from continuing operations

$
1,217 
$
396 
$
1,613 

Property and equipment, net

$
15,639 
$
7,531 
$
23,170 

Total continuing assets (2)

$
21,903 
$
17,826 
$
39,729 

Capital expenditures

$
4,310 
$
1,274 
$
5,584 

_____________________________

(1)  Capital expenditures for the first nine months of 2012 presented above include the $411 million revision to Devon’s asset retirement obligations presented in Note 15. Of the $411 million, $122 million relates to the U.S. and $289 million relates to Canada.

(2)  Amounts in the table above do not include assets held for sale related to Devon’s discontinued operations, which totaled $137 million at September 30, 2011. There were no assets held for sale at September 30, 2012. 

 

Derivative Financial Instruments (Tables)

 

 

 

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

2012

2011

2012

2011

 

(In millions)

Cash settlements:

 

 

 

 

Commodity derivatives

$
243 
$
96 
$
668 
$
241 

Interest rate derivatives

10 
52 
73 

Foreign currency derivatives

(38)
22 
(29)
22 

Total cash settlements

215 
170 
648 
336 

Unrealized gains (losses):

 

 

 

 

Commodity derivatives

(538)
642 
(153)
745 

Interest rate derivatives

(9)
(55)
(24)
(84)

Foreign currency derivatives

12 

Total unrealized gains (losses)

(535)
587 
(173)
661 

Net gain (loss) recognized on comprehensive statements of earnings

$
(320)
$
757 
$
475 
$
997 

 

 

 

 

 

 

Balance Sheet Caption

September 30, 2012

December 31, 2011

 

 

(In millions)

Asset derivatives:

 

 

 

Commodity derivatives

Other current assets

$
358 
$
611 

Commodity derivatives

Other long-term assets

75 
17 

Interest rate derivatives

Other current assets

28 
30 

Interest rate derivatives

Other long-term assets

22 

Foreign currency derivatives

Other current assets

Total asset derivatives

$
465 
$
680 

Liability derivatives:

 

 

 

Commodity derivatives

Other current liabilities

$
13 
$
82 

Commodity derivatives

Other long-term liabilities

27 

Total liability derivatives

$
40 
$
82 

 

 

Forward Contract

Currency

Contract Type

CAD Notional

Weighted Average Fixed Rate Received

Expiration

 

 

(In millions)

(CAD-USD)

 

Canadian Dollar

Sell

$
755 

1.02

December 2012

 

 

 

 

 

Notional

Weighted Average Fixed Rate Received

Variable Rate Paid

Expiration

(In millions)

 

 

 

$
750 

3.88%

Federal funds rate

July 2013

 

 

Basis Swaps

Period

Index

Volume (Bbls/d)

Weighted Average Differential to WTI ($/Bbl)

Q4 2012

Western Canadian Select

15,000

$(17.29)

 

 

 

 

 

 

Price Swaps

Price Collars

Call Options Sold

Period

Volume (Bbls/d)

Weighted Average Price ($/Bbl)

Volume (Bbls/d)

Weighted Average Floor Price ($/Bbl)

Weighted Average Ceiling Price ($/Bbl)

Volume (Bbls/d)

Weighted  Average Price ($/Bbl)

Q4 2012

57,000

$105.47

77,000

$89.72

$122.39

19,500

 $95.00

Q1-Q4 2013    

31,000

$104.13

45,000

$91.30

$116.23

 6,000

$120.00

Q1-Q4 2014    

4,000

$100.49

 2,000

$90.00

$111.13

 6,000

$120.00

 

 

 

 

 

 

Price Swaps

Price Collars

Call Options Sold

Period

Volume (MMBtu/d)

Weighted Average Price ($/MMBtu)

Volume (MMBtu/d)

Weighted Average Floor Price ($/MMBtu)

Weighted  Average Ceiling Price ($/MMBtu)

Volume (MMBtu/d)

Weighted Average Price ($/MMBtu)

Q4 2012 

654,239

$3.92

1,323,696

$3.50

$4.17

487,500

$6.00

Q1-Q4 2013    

185,000

$4.37

    94,219

$3.40

$4.00

Q1-Q4 2014    

240,000

$4.09

150,000

$5.00

 

Restructuring Costs (Tables)

 

 

 

 

 

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

2012

2011

2012

2011

 

(In millions)

Lease obligations

$

$
(3)

$

$
(5)

Asset impairments

Other

Restructuring costs

$

$
(3)

$

$
(2)

 

 

 

 

 

   

Other Current Liabilities

Other Long-Term Liabilities

Total

 

(In millions)

Balance as of December 31, 2011

$
29 
$
16 
$
45 

Lease obligations settled

(9)
(3)
(12)

Cash severance settled

(7)

(7)

Balance as of September 30, 2012

$
13 
$
13 
$
26 

 

 

 

 

Balance as of December 31, 2010

$
31 
$
51 
$
82 

Lease obligations settled

(1)
(10)
(11)

Cash severance settled

(13)

(13)

Other

(6)
(4)

Balance as of September 30, 2011

$
19 
$
35 
$
54 

 

Other, Net (Tables)
Components Of Other, Net

 

 

 

 

 

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

2012

2011

2012

2011

 

(In millions)

Accretion of asset retirement obligations

$
27 
$
23 
$
82 
$
69 

Interest rate derivatives 

(1)
15 
11 

Foreign currency derivatives

26 
(22)
25 
(22)

Foreign exchange loss (gain)

(28)
53 
(26)
39 

Interest income

(8)
(8)
(24)
(14)

Other

(24)
12 
(26)

Other, net

$
(8)
$
61 
$
46 
$
88 

 

Earnings Per Share (Tables)
Earnings Per Share Computations

 

 

 

 

 

Earnings (loss)

Common Shares

Earnings (loss) per share

 

(In millions, except per share amounts)

Three Months Ended September 30, 2012:

Loss from continuing operations

$
(719)
405 

 

Attributable to participating securities

(1)
(5)

 

Basic and diluted loss per share

$
(720)
400 
$
(1.80)

 

 

 

 

Three Months Ended September 30, 2011:

Earnings from continuing operations

$
1,040 
414 

 

Attributable to participating securities

(11)
(4)

 

Basic earnings per share

1,029 
410 
$
2.51 

Dilutive effect of potential common shares issuable

 

Diluted earnings per share

$
1,029 
411 
$
2.50 

 

 

 

 

Nine Months Ended September 30, 2012:

Earnings from continuing operations

$
172 
404 

 

Attributable to participating securities

(2)
(4)

 

Basic earnings per share

170 
400 
$
0.42 

Dilutive effect of potential common shares issuable

 

Diluted earnings per share

$
170 
401 
$
0.42 

 

 

 

 

Nine Months Ended September 30, 2011:

Earnings from continuing operations

$
1,613 
421 

 

Attributable to participating securities

(16)
(4)

 

Basic earnings per share

1,597 
417 
$
3.83 

Dilutive effect of potential common shares issuable

 

Diluted earnings per share

$
1,597 
418 
$
3.82 

 

Other Comprehensive Earnings (Tables)
Components Of Other Comprehensive Earnings

 

 

 

 

 

 

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

2012

2011

2012

2011

 

(In millions)

Foreign currency translation:

 

 

 

 

Beginning accumulated foreign currency translation

$
1,783 
$
2,243 
$
1,802 
$
1,993 

Change in cumulative translation adjustment

325 
(644)
305 
(382)

Income tax benefit (expense)

(14)
29 
(13)
17 

Ending accumulated foreign currency translation

2,094 
1,628 
2,094 
1,628 

Pension and postretirement benefit plans:

 

 

 

 

Beginning accumulated pension and postretirement benefits

(218)
(222)
(227)
(233)

Recognition of net actuarial loss and prior service cost in earnings

19 
26 

Income tax expense

(3)
(3)
(7)
(9)

Ending accumulated pension and postretirement benefits

(215)
(216)
(215)
(216)

Accumulated other comprehensive earnings, net of tax

$
1,879 
$
1,412 
$
1,879 
$
1,412 

 

Supplemental Information To Statements Of Cash Flows (Tables)
Schedule Of Supplemental To Cash Flow Information

 

 

 

 

 

Nine Months Ended September 30,

 

2012

2011

 

(In millions)

Net change in working capital:

 

 

Decrease (increase) in accounts receivable

$
275 
$
(118)

Increase in other current assets

(234)
(149)

Increase in accounts payable

77 
58 

Increase (decrease) in revenues and royalties payable

(34)
121 

Decrease in other current liabilities

(36)
(220)

Net decrease (increase) in working capital

$
48 
$
(308)

 

 

 

Supplementary cash flow data – total operations:

 

 

Interest paid (net of capitalized interest)

$
260 
$
298 

Income taxes paid (received)

$
88 
$
(113)

 

Short-Term Investments (Tables)
Components Of Short-Term Investments

 

 

 

 

September 30, 2012

December 31, 2011

 

(In millions)

Canadian treasury, agency and provincial securities

$
1,684 
$
1,155 

U.S. treasuries

480 
201 

Other

147 

Short-term investments

$
2,164 
$
1,503 

 

Accounts Receivable (Tables)
Schedule Of Components Of Accounts Receivable

 

 

 

 

 

September 30, 2012

December 31, 2011

 

(In millions)

Oil, gas and NGL sales

$
713 
$
928 

Joint interest billings

207 
247 

Marketing and midstream revenues

137 
174 

Other

66 
39 

Gross accounts receivable

1,123 
1,388 

Allowance for doubtful accounts

(10)
(9)

Net accounts receivable

$
1,113 
$
1,379 

 

Other Current Assets (Tables)
Schedule Of Components Of Other Current Assets

 

 

 

 

September 30, 2012

December 31, 2011

 

(In millions)

Derivative financial instruments

$
390 
$
641 

Inventories

185 
102 

Income taxes receivable

137 
35 

Current assets held for sale

21 

Other

106 
69 

Other current assets

$
818 
$
868 

 

Property And Equipment (Tables)
Schedule Of Asset Impairments

[

 

use this

 

 

 

 

 

 

September 30, 2012

 

Gross

Net of Taxes

 

(In millions)

 U.S. oil and gas assets

$1,106

$705

 Midstream assets

22

14

    Total asset impairments

$1,128

$719

 

Debt (Tables)
Schedule Of Long-term Debt Instruments

 

 

 

 

1.875% due May 15, 2017

$
750 

3.25% due May 15, 2022

1,000 

4.75% due May 15, 2042

750 

Discount and issuance costs

(35)

Net proceeds

$
2,465 

 

Asset Retirement Obligations (Tables)
Summary Of Changes In Asset Retirement Obligations

 

 

 

 

Nine Months Ended September 30,

 

2012

2011

 

(In millions)

Asset retirement obligations as of beginning of period

$
1,563 
$
1,497 

Liabilities incurred

60 
38 

Liabilities settled

(75)
(56)

Revision of estimated obligation

411 
19 

Accretion expense on discounted obligation

82 
69 

Foreign currency translation adjustment

35 
(41)

Asset retirement obligations as of end of period

2,076 
1,526 

Less current portion

67 
66 

Asset retirement obligations, long-term

$
2,009 
$
1,460 

 

Retirement Plans (Tables)
Schedule Of Net Periodic Benefit Cost For Pension And Postretirement Benefit Plans

 

 

 

 

 

 

 

 

 

 

Pension Benefits

Postretirement Benefits

 

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Nine Months Ended September 30,

 

2012

2011

2012

2011

2012

2011

2012

2011

 

(In millions)

 

 

 

 

 

 

 

 

 

Service cost

$
11 
$
10 
$
32 
$
28 
$

$

$
$

Interest cost

15 
15 
45 
45 

Expected return on plan assets

(16)
(11)
(48)
(32)

Amortization of prior service cost

(1)
(1)

Net actuarial loss

18 
24 
(1)

(1)

Net periodic benefit cost

$
17 
$
23 
$
50 
$
68 

$

$

$

$

 

Fair Value Measurements (Tables)

 

 

 

Fair Value Measurements Using:

 

Carrying Amount

Total Fair Value

   Level 1    Inputs

   Level 2    Inputs

 Level 3  Inputs

 

(In millions)

September 30, 2012 assets (liabilities):

 

 

 

 

 

Cash equivalents

$
4,952 
$
4,952 
$
527 
$
4,425 

$

Short-term investments

$
2,164 
$
2,164 
$
480 
$
1,684 

$

Long-term investments

$
64 
$
64 

$

$

$
64 

Commodity derivatives

$
433 
$
433 

$

$
433 

$

Commodity derivatives

$
(40)
$
(40)

$

$
(40)

$

Interest rate derivatives

$
28 
$
28 

$

$
28 

$

Foreign currency derivatives

$
$

$

$

$

Debt

$
(11,235)
$
(13,134)

$

$
(13,130)
$
(4)

 

 

 

 

 

 

 

December 31, 2011 assets (liabilities):

 

 

 

 

 

Cash equivalents

$
5,123 
$
5,123 
$
929 
$
4,194 

$

Short-term investments

$
1,503 
$
1,503 
$
201 
$
1,302 

$

Long-term investments

$
84 
$
84 

$

$

$
84 

Commodity derivatives

$
628 
$
628 

$

$
628 

$

Commodity derivatives

$
(82)
$
(82)

$

$
(82)

$

Interest rate derivatives

$
52 
$
52 

$

$
52 

$

Debt

$
(9,780)
$
(11,380)

$

$
(11,295)
$
(85)

 

 

 

 

 

Nine Months Ended September 30,

 

2012

2011

 

(In millions)

Long-term investments balance at beginning of period

$
84 
$
94 

Redemptions of principal

(20)
(10)

Long-term investments balance at end of period

$
64 
$
84 

 

 

 

 

 

Nine Months Ended September 30,

 

2012

2011

 

(In millions)

Debt balance at beginning of period

$
(85)
$
(144)

Foreign exchange translation adjustment

(2)

Accretion of promissory note

(4)

Redemptions of principal

83 
53 

Debt balance at end of period

$
(4)
$
(92)

 

Discontinued Operations (Tables)
Schedule Of Discontinued Operations

 

December 31, 2011

 

(In millions)

Other current assets

$
21 

Property and equipment, net

132 

Total assets

$
153 

 

 

Accounts payable

$
20 

Other current liabilities

28 

Total liabilities

$
48 

 

Segment Information (Tables)
Condensed Statements Of Comprehensive Earnings And Balance Sheets Of Reportable Segments

 

 

 

 

 

   

U.S.

Canada

Total

 

(In millions)

Three Months Ended September 30, 2012:

 

Oil, gas and NGL sales

$
1,144 
$
594 
$
1,738 

Oil, gas and NGL derivatives

$
(290)
$
(5)
$
(295)

Marketing and midstream revenues

$
415 
$
$
422 

Depreciation, depletion and amortization

$
478 
$
238 
$
716 

Interest expense

$
94 
$
16 
$
110 

Asset impairments

$
1,128 

$

$
1,128 

Earnings (loss) from continuing operations before income taxes

$
(1,169)
$
$
(1,161)

Income tax expense (benefit)

$
(438)
$
(4)
$
(442)

Earnings (loss) earnings from continuing operations

$
(731)
$
12 
$
(719)

Capital expenditures

$
1,598 
$
382 
$
1,980 

 

 

 

 

 

Three Months Ended September 30, 2011:

Oil, gas and NGL sales

$
1,406 
$
705 
$
2,111 

Oil, gas and NGL derivatives

$
738 

$

$
738 

Marketing and midstream revenues

$
586 
$
67 
$
653 

Depreciation, depletion and amortization

$
359 
$
207 
$
566 

Interest expense

$
60 
$
44 
$
104 

Earnings from continuing operations before income taxes

$
1,379 
$
159 
$
1,538 

Income tax expense

$
458 
$
40 
$
498 

Earnings from continuing operations

$
921 
$
119 
$
1,040 

Capital expenditures

$
1,556 
$
394 
$
1,950 

 

 

 

 

 

Nine Months Ended September 30, 2012:

Oil, gas and NGL sales

$
3,394 
$
1,876 
$
5,270 

Oil, gas and NGL derivatives

$
520 
$
(5)
$
515 

Marketing and midstream revenues

$
1,064 
$
72 
$
1,136 

Depreciation, depletion and amortization

$
1,348 
$
732 
$
2,080 

Interest expense

$
249 
$
47 
$
296 

Asset impairments

$
1,128 

$

$
1,128 

Earnings from continuing operations before income taxes

$
91 
$
93 
$
184 

Income tax expense

$
$
$
12 

Earnings from continuing operations

$
85 
$
87 
$
172 

Property and equipment, net

$
18,306 
$
8,840 
$
27,146 

Total assets

$
24,425 
$
19,123 
$
43,548 

Capital expenditures (1)

$
5,129 
$
1,565 
$
6,694 

 

 

 

 

 

Nine Months Ended September 30, 2011:

Oil, gas and NGL sales

$
4,056 
$
2,115 
$
6,171 

Oil, gas and NGL derivatives

$
986 

$

$
986 

Marketing and midstream revenues

$
1,563 
$
149 
$
1,712 

Depreciation, depletion and amortization

$
1,027 
$
595 
$
1,622 

Interest expense

$
137 
$
133 
$
270 

Earnings from continuing operations before income taxes

$
2,965 
$
531 
$
3,496 

Income tax expense

$
1,748 
$
135 
$
1,883 

Earnings from continuing operations

$
1,217 
$
396 
$
1,613 

Property and equipment, net

$
15,639 
$
7,531 
$
23,170 

Total continuing assets (2)

$
21,903 
$
17,826 
$
39,729 

Capital expenditures

$
4,310 
$
1,274 
$
5,584 

_____________________________

(1)  Capital expenditures for the first nine months of 2012 presented above include the $411 million revision to Devon’s asset retirement obligations presented in Note 15. Of the $411 million, $122 million relates to the U.S. and $289 million relates to Canada.

(2)  Amounts in the table above do not include assets held for sale related to Devon’s discontinued operations, which totaled $137 million at September 30, 2011. There were no assets held for sale at September 30, 2012.

Derivative Financial Instruments (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Derivative Financial Instruments [Abstract]
 
Cash collateral received
$ 49 
Derivative Financial Instruments (Schedule Of Open Commodity Derivative Positions) (Details)
Sep. 30, 2012
Q4 2012 [Member] |
Bbl [Member] |
Open Oil Derivative Positions [Member] |
Price Swaps [Member]
 
Derivative [Line Items]