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1.Summary of Significant Accounting Policies
The accompanying unaudited financial statements and notes of Devon Energy Corporation (“Devon”) have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The accompanying financial statements and notes should be read in conjunction with the financial statements and notes included in Devon's 2012 Annual Report on Form 10-K.
The accompanying unaudited interim financial statements furnished in this report reflect all adjustments that are, in the opinion of management, necessary to a fair statement of Devon's results of operations and cash flows for the three-month and nine-month periods ended September 30, 2013 and 2012 and Devon's financial position as of September 30, 2013.
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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, 2013, Devon held $43 million of cash collateral. Such amount represented the estimated fair value of certain derivative positions in excess of Devon’s credit guidelines. The collateral is reported in other current liabilities in the accompanying balance sheet.
Commodity Derivatives
As of September 30, 2013, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX West Texas Intermediate futures price. The second table presents Devon’s oil derivatives that settle against the Western Canadian Select index.
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Price Swaps |
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Price Collars |
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Call Options Sold |
||||||||||||
Period |
|
Volume (Bbls/d) |
|
Weighted Average Price ($/Bbl) |
|
Volume (Bbls/d) |
|
Weighted Average Floor Price ($/Bbl) |
|
Weighted Average Ceiling Price ($/Bbl) |
|
Volume (Bbls/d) |
|
Weighted Average Price ($/Bbl) |
||||
Q4 2013 |
|
70,000 |
|
$ |
100.26 |
|
72,000 |
|
$ |
90.60 |
|
$ |
111.14 |
|
10,000 |
|
$ |
120.00 |
Q1-Q4 2014 |
|
49,000 |
|
$ |
94.77 |
|
43,969 |
|
$ |
89.01 |
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$ |
102.48 |
|
42,000 |
|
$ |
116.43 |
Q1-Q4 2015 |
|
500 |
|
$ |
91.00 |
|
— |
|
$ |
— |
|
$ |
— |
|
22,000 |
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$ |
115.45 |
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Basis Swaps |
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Period |
|
Index |
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Volume (Bbls/d) |
|
Weighted Average Differential to WTI ($/Bbl) |
|
Q4 2013 |
|
Western Canadian Select |
|
40,000 |
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$ |
(22.47) |
As of September 30, 2013, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index. The next two tables present Devon’s natural gas derivatives that settle against the AECO index.
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Price Swaps |
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Price Collars |
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Call Options Sold |
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Period |
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Volume (MMBtu/d) |
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Weighted Average Price ($/MMBtu) |
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Volume (MMBtu/d) |
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Weighted Average Floor Price ($/MMBtu) |
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Weighted Average Ceiling Price ($/MMBtu) |
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Volume (MMBtu/d) |
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Weighted Average Price ($/MMBtu) |
||||
Q4 2013 |
|
987,500 |
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$ |
4.09 |
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650,000 |
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$ |
3.61 |
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$ |
4.28 |
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— |
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$ |
— |
Q1-Q4 2014 |
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800,000 |
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$ |
4.42 |
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210,000 |
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$ |
4.01 |
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$ |
4.71 |
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500,000 |
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$ |
5.00 |
Q1-Q4 2015 |
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— |
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$ |
— |
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— |
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$ |
— |
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$ |
— |
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550,000 |
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$ |
5.09 |
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Price Swaps |
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Period |
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Volume (MMBtu/d) |
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Weighted Average Price ($/MMBtu) |
|
Q4 2013 |
|
28,435 |
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$ |
3.54 |
|
|
Basis Swaps |
|||||
Period |
|
Index |
|
Volume (MMBtu/d) |
|
Weighted Average Differential to Henry Hub ($/MMBtu) |
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Q4 2013 |
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AECO |
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62,843 |
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$ |
(0.44) |
Q1-Q4 2014 |
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AECO |
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94,781 |
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$ |
(0.52) |
As of September 30, 2013, Devon had the following open NGL derivative positions. Devon’s NGL derivatives settle against the average of the prompt month OPIS Mont Belvieu, Texas index.
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Price Swaps |
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Period |
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Product |
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Volume (Bbls/d) |
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Weighted Average Price ($/Bbl) |
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Q4 2013 |
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Ethane |
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1,957 |
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$ |
15.36 |
Q4 2013 |
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Propane |
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3,985 |
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$ |
41.73 |
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|
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Basis Swaps |
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Period |
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Pay |
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Volume (Bbls/d) |
|
Weighted Average Differential to WTI ($/Bbl) |
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Q4 2013 |
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Natural Gasoline |
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1,000 |
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$ |
(9.58) |
Q1-Q4 2014 |
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Natural Gasoline |
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329 |
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$ |
(10.85) |
Foreign Currency Derivatives
As of September 30, 2013, Devon had the following open foreign currency derivative position:
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Forward Contract |
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Currency |
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Contract Type |
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CAD Notional |
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Weighted Average Fixed Rate Received |
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Expiration |
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(In millions) |
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(CAD-USD) |
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Canadian Dollar |
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Sell |
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$ |
1,261 |
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0.969 |
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December 2013 |
Financial Statement Presentation
The following table presents the cash settlements and unrealized gains and losses on fair value changes included in the accompanying comprehensive statements of earnings associated with derivative financial instruments. Cash settlements and unrealized gains and losses on fair value changes associated with Devon’s commodity derivatives are presented in oil, gas and NGL derivatives 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 other, net in the accompanying comprehensive statements of earnings.
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Three Months Ended |
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Nine Months Ended |
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2013 |
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2012 |
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2013 |
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2012 |
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(In millions) |
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Cash settlements: |
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Commodity derivatives |
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$ |
(7) |
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$ |
243 |
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$ |
93 |
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$ |
668 |
Interest rate derivatives |
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10 |
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|
10 |
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24 |
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9 |
Foreign currency derivatives |
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(5) |
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(38) |
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30 |
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(29) |
Total cash settlements |
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(2) |
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215 |
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|
147 |
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|
648 |
Unrealized gains (losses): |
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|
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|
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Commodity derivatives |
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(134) |
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|
(538) |
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(188) |
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|
(153) |
Interest rate derivatives |
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(9) |
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(9) |
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(23) |
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(24) |
Foreign currency derivatives |
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(23) |
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12 |
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(1) |
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|
4 |
Total unrealized gains (losses) |
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|
(166) |
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|
(535) |
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|
(212) |
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|
(173) |
Net gains (losses) recognized on comprehensive statements of earnings |
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$ |
(168) |
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$ |
(320) |
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$ |
(65) |
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$ |
475 |
The following table presents the derivative fair values included in the accompanying balance sheets.
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Balance Sheet Caption |
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September 30, 2013 |
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December 31, 2012 |
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(In millions) |
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Asset derivatives: |
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Commodity derivatives |
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Other current assets |
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$ |
224 |
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$ |
379 |
Commodity derivatives |
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Other long-term assets |
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|
58 |
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|
22 |
Interest rate derivatives |
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Other current assets |
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|
— |
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|
23 |
Foreign currency derivatives |
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Other current assets |
|
|
— |
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|
1 |
Total asset derivatives |
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|
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$ |
282 |
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$ |
425 |
Liability derivatives: |
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|
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Commodity derivatives |
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Other current liabilities |
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$ |
50 |
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$ |
3 |
Commodity derivatives |
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Other long-term liabilities |
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|
51 |
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|
29 |
Total liability derivatives |
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|
|
$ |
101 |
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$ |
32 |
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3.Restructuring Costs
Office Consolidation
In October 2012, Devon announced plans to consolidate its U.S. personnel into a single operations group centrally located at the company’s headquarters in Oklahoma City. As of September 30, 2013, Devon had substantially completed this initiative and incurred $130 million of restructuring costs associated with the office consolidation. The $130 million includes $50 million incurred during the nine months ended September 30, 2013, which largely relates to office space that is subject to non-cancellable operating lease agreements that Devon ceased using.
Divestiture of Offshore Assets
In the fourth quarter of 2009, Devon announced plans to divest its offshore assets. Devon completed this divestiture program in 2012, having incurred $196 million of cumulative restructuring costs associated with the divestitures.
Financial Statement Presentation
The schedule below summarizes restructuring costs presented in the accompanying comprehensive statements of earnings related to the office consolidation. There were no costs related to the offshore divestitures in the nine-month periods ended September 30, 2013 and 2012.
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Three Months |
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Nine Months |
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Ended September 30, |
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Ended September 30, |
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2013 |
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2012 |
|
2013 |
|
2012 |
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(In millions) |
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Lease obligations and other |
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$ |
4 |
|
$ |
— |
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$ |
44 |
|
$ |
— |
Asset impairments |
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|
— |
|
|
— |
|
|
6 |
|
|
— |
Restructuring costs |
|
$ |
4 |
|
$ |
— |
|
$ |
50 |
|
$ |
— |
The schedule below summarizes Devon’s restructuring liabilities.
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Other |
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Other |
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|
|
Current |
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Long-Term |
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|
||
|
|
Liabilities |
|
Liabilities |
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Total |
|||
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|
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|
|
|
|
|
|
|
(In millions) |
|||||||
Balance as of December 31, 2012 |
|
$ |
52 |
|
$ |
9 |
|
$ |
61 |
Lease obligations and other - Office consolidation |
|
|
18 |
|
|
11 |
|
|
29 |
Employee severance – Office consolidation |
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|
(34) |
|
|
— |
|
|
(34) |
Lease obligations - Offshore |
|
|
(2) |
|
|
(1) |
|
|
(3) |
Balance as of September 30, 2013 |
|
$ |
34 |
|
$ |
19 |
|
$ |
53 |
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2011 |
|
$ |
29 |
|
$ |
16 |
|
$ |
45 |
Lease obligations - Offshore |
|
|
(9) |
|
|
(3) |
|
|
(12) |
Employee severance - Offshore |
|
|
(7) |
|
|
— |
|
|
(7) |
Balance as September 30, 2012 |
|
$ |
13 |
|
$ |
13 |
|
$ |
26 |
|
4.Other, net
The components of other, net in the accompanying comprehensive statements of earnings include the following:
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|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
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Accretion of asset retirement obligations |
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$ |
29 |
|
$ |
27 |
|
$ |
86 |
|
$ |
82 |
Interest rate derivatives |
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
|
15 |
Foreign currency derivatives |
|
|
28 |
|
|
26 |
|
|
(29) |
|
|
25 |
Foreign exchange loss (gain) |
|
|
(27) |
|
|
(28) |
|
|
34 |
|
|
(26) |
Interest income |
|
|
(4) |
|
|
(8) |
|
|
(16) |
|
|
(24) |
Other |
|
|
9 |
|
|
(24) |
|
|
9 |
|
|
(26) |
Other, net |
|
$ |
34 |
|
$ |
(8) |
|
$ |
83 |
|
$ |
46 |
|
.
5.Income Taxes
In the second quarter of 2013, Devon repatriated to the United States $2.0 billion of cash from its foreign subsidiaries. In conjunction with the repatriation, Devon recognized approximately $100 million of current income tax expense. The current expense was entirely offset by the recognition of deferred income tax benefits, which included the reduction of the deferred tax liability previously recognized for unremitted foreign earnings deemed not to be indefinitely reinvested.
As of September 30, 2013, Devon’s unremitted foreign earnings totaled approximately $6.0 billion. Of this amount, approximately $4.8 billion was deemed to be indefinitely reinvested into the development and growth of Devon’s Canadian business. Therefore, Devon has not recognized a deferred tax liability for U.S. income taxes associated with such earnings. If such earnings were to be repatriated to the U.S., Devon may be subject to U.S. income taxes and foreign withholding taxes. However, it is not practical to estimate the amount of such additional taxes that may be payable due to the inter-relationship of the various factors involved in making such an estimate.
Devon has deemed the remaining $1.2 billion of unremitted foreign earnings not to be indefinitely reinvested. Consequently, Devon has recognized a deferred tax liability of approximately $550 million associated with such unremitted earnings as of September 30, 2013.
The following table presents our total income tax expense (benefit) and a reconciliation of our effective income tax rate to the U.S. statutory income tax rate.
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
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Total income tax expense (benefit) (in millions) |
|
$ |
210 |
|
$ |
(442) |
|
$ |
(99) |
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. statutory income tax rate |
|
|
35% |
|
|
(35%) |
|
|
(35%) |
|
|
35% |
State income taxes |
|
|
1% |
|
|
(1%) |
|
|
(3%) |
|
|
(1%) |
Taxation on Canadian operations |
|
|
(5%) |
|
|
(1%) |
|
|
9% |
|
|
(14%) |
Other |
|
|
2% |
|
|
(1%) |
|
|
(1%) |
|
|
(13%) |
Effective income tax rate |
|
|
33% |
|
|
(38%) |
|
|
(30%) |
|
|
7% |
|
7.Other Comprehensive Earnings
Components of other comprehensive earnings consist of the following:
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
September 30, |
|
September 30, |
||||||||
|
2013 |
|
2012 |
|
2013 |
|
2012 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
||||||||||
Foreign currency translation: |
|
|
|
|
|
|
|
|
|
|
|
Beginning accumulated foreign currency translation |
$ |
1,542 |
|
$ |
1,783 |
|
$ |
1,996 |
|
$ |
1,802 |
Change in cumulative translation adjustment |
|
182 |
|
|
325 |
|
|
(294) |
|
|
305 |
Income tax benefit (expense) |
|
(9) |
|
|
(14) |
|
|
13 |
|
|
(13) |
Ending accumulated foreign currency translation |
|
1,715 |
|
|
2,094 |
|
|
1,715 |
|
|
2,094 |
Pension and postretirement benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
Beginning accumulated pension and postretirement benefits |
|
(216) |
|
|
(218) |
|
|
(225) |
|
|
(227) |
Recognition of net actuarial loss and prior service cost in earnings (1) |
|
6 |
|
|
6 |
|
|
18 |
|
|
19 |
Income tax expense |
|
(3) |
|
|
(3) |
|
|
(6) |
|
|
(7) |
Ending accumulated pension and postretirement benefits |
|
(213) |
|
|
(215) |
|
|
(213) |
|
|
(215) |
Accumulated other comprehensive earnings, net of tax |
$ |
1,502 |
|
$ |
1,879 |
|
$ |
1,502 |
|
$ |
1,879 |
__________________________
(1) These accumulated other comprehensive earnings components are included in the computation of net periodic benefit cost, which is a component of general and administrative expenses on the accompanying comprehensive statements of earnings (see “Retirement Plans” note for additional details).
|
8.Supplemental Information to Statements of Cash Flows
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
||||
|
|
2013 |
|
2012 |
||
|
|
|
|
|
|
|
|
|
|
(In millions) |
|||
Net change in working capital accounts: |
|
|
|
|
|
|
Accounts receivable |
|
$ |
(287) |
|
$ |
275 |
Other current assets |
|
|
72 |
|
|
(234) |
Accounts payable |
|
|
127 |
|
|
77 |
Revenues and royalties payable |
|
|
56 |
|
|
(34) |
Other current liabilities |
|
|
(72) |
|
|
(36) |
Net change in working capital |
|
$ |
(104) |
|
$ |
48 |
|
|
|
|
|
|
|
Interest paid (net of capitalized interest) |
|
$ |
342 |
|
$ |
260 |
Income taxes paid (received) |
|
$ |
(2) |
|
$ |
88 |
|
9.Short-Term Investments
The components of short-term investments include the following:
|
|
|
|
|
|
|
|
|
September 30, 2013 |
|
December 31, 2012 |
||
|
|
|
|
|
|
|
|
|
(In millions) |
||||
Canadian treasury, agency and provincial securities |
|
$ |
— |
|
$ |
1,865 |
U.S. treasuries |
|
|
— |
|
|
429 |
Other |
|
|
— |
|
|
49 |
Short-term investments |
|
$ |
— |
|
$ |
2,343 |
|
10. Accounts Receivable
The components of accounts receivable include the following:
|
|
|
|
|
|
|
|
|
September 30, 2013 |
|
December 31, 2012 |
||
|
|
|
|
|
|
|
|
|
(In millions) |
||||
Oil, gas and NGL sales |
|
$ |
942 |
|
$ |
752 |
Joint interest billings |
|
|
389 |
|
|
270 |
Marketing and midstream revenues |
|
|
147 |
|
|
161 |
Other |
|
|
53 |
|
|
72 |
Gross accounts receivable |
|
|
1,531 |
|
|
1,255 |
Allowance for doubtful accounts |
|
|
(11) |
|
|
(10) |
Net accounts receivable |
|
$ |
1,520 |
|
$ |
1,245 |
|
11.Property and Equipment
Asset Impairments
In the first nine months of 2013 and 2012, Devon recognized asset impairments related to its oil and gas property and equipment and its U.S. midstream assets as presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2013 |
|
Nine Months Ended September 30, 2012 |
||||||||
|
|
Gross |
|
Net of Taxes |
|
Gross |
|
Net of Taxes |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
||||||||||
U.S. oil and gas assets |
|
$ |
1,110 |
|
$ |
707 |
|
$ |
1,106 |
|
$ |
705 |
Canada oil and gas assets |
|
|
843 |
|
|
632 |
|
|
— |
|
|
— |
Midstream assets |
|
|
7 |
|
|
4 |
|
|
22 |
|
|
14 |
Total asset impairments |
|
$ |
1,960 |
|
$ |
1,343 |
|
$ |
1,128 |
|
$ |
719 |
Oil and Gas Impairments
Under the full-cost method of accounting, capitalized costs of oil and gas properties, net of accumulated DD&A and deferred income taxes, may not exceed the full cost “ceiling” at the end of each quarter. The ceiling is calculated separately for each country and is based on the present value of estimated future net cash flows from proved oil and gas reserves, discounted at 10 percent per annum, net of related tax effects. Estimated future net cash flows are calculated using end-of-period costs and an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months.
The oil and gas impairments resulted primarily from declines in the U.S. and Canada full cost ceilings. The lower ceiling values resulted primarily from decreases in the 12-month average trailing prices for oil, bitumen and NGLs, which have reduced proved reserve values.
If estimated future cash flows decline due to price decreases or other factors, Devon could incur additional full cost ceiling impairments related to its oil and gas property and equipment.
Midstream Impairments
In the third quarter of 2013 and 2012, Devon determined that the carrying amounts of certain midstream facilities located in south and east Texas were not recoverable from estimated future cash flows due to declining dry natural gas production. Consequently, the assets were written down to their estimated fair values, which were determined using discounted cash flow models. The fair value of Devon’s midstream assets is considered a Level 3 fair value measurement.
|
12.Goodwill
During the first nine months of 2013, Devon’s Canadian goodwill decreased $99 million entirely due to foreign currency translation. Additionally, Devon’s U.S. goodwill decreased $26 million due to the sale of certain midstream assets.
|
13.Debt
Commercial Paper
During the second quarter of 2013, Devon repatriated $2.0 billion of foreign earnings to the United States and repaid $2.0 billion of commercial paper borrowings. As of September 30, 2013, Devon had $1.6 billion of outstanding commercial paper at an average rate of 0.27 percent.
Credit Lines
Devon has a $3.0 billion syndicated, unsecured revolving line of credit (the "Senior Credit Facility"). During the third quarter of 2013, the lenders agreed, effective October 24, 2013, to extend the maturity date of the Senior Credit Facility to October 24, 2018. As of September 30, 2013 there were no borrowings under the Senior Credit Facility. The Senior Credit Facility contains only one material financial covenant. This covenant requires Devon’s ratio of total funded debt to total capitalization, as defined in the credit agreement, to be no greater than 65 percent. As of September 30, 2013, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 22.4 percent.
|
14.Asset Retirement Obligations
The schedule below summarizes changes in Devon’s asset retirement obligations.
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
||||
|
|
2013 |
|
2012 |
|
||
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|||
Asset retirement obligations as of beginning of period |
|
$ |
2,095 |
|
$ |
1,563 |
|
Liabilities incurred |
|
|
88 |
|
|
60 |
|
Liabilities settled |
|
|
(46) |
|
|
(57) |
|
Revision of estimated obligation |
|
|
104 |
|
|
411 |
|
Liabilities assumed by others |
|
|
(15) |
|
|
(18) |
|
Accretion expense on discounted obligation |
|
|
86 |
|
|
82 |
|
Foreign currency translation adjustment |
|
|
(44) |
|
|
35 |
|
Asset retirement obligations as of end of period |
|
|
2,268 |
|
|
2,076 |
|
Less current portion |
|
|
107 |
|
|
67 |
|
Asset retirement obligations, long-term |
|
$ |
2,161 |
|
$ |
2,009 |
|
|
15.Retirement Plans
The following table presents the components of net periodic benefit cost for Devon’s pension and postretirement benefit plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Postretirement Benefits |
||||||||||||||||||||
|
|
Three Months Ended |
|
Nine Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||||||
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
||||||||||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
||||||||||||||||||||||
Service cost |
|
$ |
9 |
|
$ |
11 |
|
$ |
27 |
|
$ |
32 |
|
$ |
— |
|
$ |
1 |
|
$ |
— |
|
$ |
1 |
Interest cost |
|
|
13 |
|
|
15 |
|
|
39 |
|
|
45 |
|
|
— |
|
|
— |
|
|
1 |
|
|
1 |
Expected return on plan assets |
|
|
(16) |
|
|
(16) |
|
|
(47) |
|
|
(48) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Amortization of prior service cost (1) |
|
|
1 |
|
|
1 |
|
|
3 |
|
|
3 |
|
|
— |
|
|
— |
|
|
— |
|
|
(1) |
Net actuarial loss (gain) (1) |
|
|
5 |
|
|
6 |
|
|
16 |
|
|
18 |
|
|
— |
|
|
(1) |
|
|
(1) |
|
|
(1) |
Net periodic benefit cost (2) |
|
$ |
12 |
|
$ |
17 |
|
$ |
38 |
|
$ |
50 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
__________________________
(1) These net periodic benefit costs were reclassified out of other comprehensive earnings in the current period.
(2) Net periodic benefit cost is a component of general and administrative expenses on the accompanying comprehensive statements of earnings.
|
16.Stockholders' Equity
Dividends
Devon paid common stock dividends of $259 million and $242 million in the first nine months of 2013 and 2012, respectively. The quarterly cash dividend was $0.20 per share in the first nine months of 2012 and in the first quarter of 2013. Devon increased the dividend rate to $0.22 per share in the second quarter of 2013.
|
17.Commitments and Contingencies
Devon is party to various legal actions arising in the normal course of business. Matters that are probable of unfavorable outcome to Devon and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, Devon's estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. None of the actions are believed by management to involve future amounts that would be material to Devon's financial position or results of operations after consideration of recorded accruals. Actual amounts could differ materially from management's estimates.
Royalty Matters
Numerous natural gas producers and related parties, including Devon, have been named in various lawsuits alleging royalty underpayments. The suits allege that the producers and related parties used below-market prices, made improper deductions, used improper measurement techniques and entered into gas purchase and processing arrangements with affiliates that resulted in underpayment of royalties in connection with natural gas and NGLs produced and sold. Devon’s largest exposure for such matters relates to royalties in New Mexico. Devon does not currently believe that it is subject to material exposure with respect to such royalty matters.
Environmental Matters
Devon is subject to certain laws and regulations relating to environmental remediation activities associated with past operations, such as the Comprehensive Environmental Response, Compensation, and Liability Act and similar state statutes. In response to liabilities associated with these activities, loss accruals primarily consist of estimated uninsured remediation costs. Devon's monetary exposure for environmental matters is not expected to be material.
Chief Redemption Matters
In 2006, Devon acquired Chief Holdings LLC (“Chief”) from the owners of Chief, including Trevor Rees-Jones, the majority owner of Chief. In 2008, a former owner of Chief filed a petition against Rees-Jones, as the former majority owner of Chief, and Devon, as Chief’s successor pursuant to the 2006 acquisition. The petition claimed, among other things, violations of the Texas Securities Act, fraud and breaches of Rees-Jones’ fiduciary responsibility to the former owner in connection with Chief’s 2004 redemption of the owner’s minority ownership stake in Chief.
On June 20, 2011, a court issued a judgment against Rees-Jones for $196 million, of which $133 million of the judgment was also issued against Devon. Devon did not have a legal right of set off with respect to the judgment. Therefore, Devon had recorded a $133 million long-term liability relating to the judgment with an offsetting $133 million long-term receivable relating to its right to be indemnified by Rees-Jones and certain other parties pursuant to the indemnification agreement.
The plaintiffs and Rees-Jones have settled all claims related to the 2004 redemption. Under the terms of the settlement, Rees-Jones and Devon received full releases for all of the plaintiffs’ claims with Rees-Jones funding all settlement payments. Consequently, Devon reversed the previously recorded liability and asset in the first quarter of 2013.
Other Matters
Devon is involved in other various routine legal proceedings incidental to its business. However, to Devon's knowledge, there were no other material pending legal proceedings to which Devon is a party or to which any of its property is subject.
|
18.Fair Value Measurements
The following tables provide carrying value and fair value measurement information for certain of Devon’s financial assets and liabilities. The carrying values of cash, accounts receivable, other current receivables, accounts payable, other current payables and accrued expenses included in the accompanying balance sheets approximated fair value at September 30, 2013 and December 31, 2012. Therefore, such financial assets and liabilities are not presented in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using: |
|||||||
|
|
Carrying |
|
Total Fair |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|||||
|
|
Amount |
|
Value |
|
Inputs |
|
Inputs |
|
Inputs |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
||||||||||||
September 30, 2013 assets (liabilities): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
3,592 |
|
$ |
3,592 |
|
$ |
13 |
|
$ |
3,579 |
|
$ |
— |
Long-term investments |
|
$ |
62 |
|
$ |
62 |
|
$ |
— |
|
$ |
— |
|
$ |
62 |
Commodity derivatives |
|
$ |
282 |
|
$ |
282 |
|
$ |
— |
|
$ |
282 |
|
$ |
— |
Commodity derivatives |
|
$ |
(101) |
|
$ |
(101) |
|
$ |
— |
|
$ |
(101) |
|
$ |
— |
Debt |
|
$ |
(10,068) |
|
$ |
(10,926) |
|
$ |
— |
|
$ |
(10,926) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012 assets (liabilities): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
4,149 |
|
$ |
4,149 |
|
$ |
32 |
|
$ |
4,117 |
|
$ |
— |
Short-term investments |
|
$ |
2,343 |
|
$ |
2,343 |
|
$ |
429 |
|
$ |
1,914 |
|
$ |
— |
Long-term investments |
|
$ |
64 |
|
$ |
64 |
|
$ |
— |
|
$ |
— |
|
$ |
64 |
Commodity derivatives |
|
$ |
401 |
|
$ |
401 |
|
$ |
— |
|
$ |
401 |
|
$ |
— |
Commodity derivatives |
|
$ |
(32) |
|
$ |
(32) |
|
$ |
— |
|
$ |
(32) |
|
$ |
— |
Interest rate derivatives |
|
$ |
23 |
|
$ |
23 |
|
$ |
— |
|
$ |
23 |
|
$ |
— |
Foreign currency derivatives |
|
$ |
1 |
|
$ |
1 |
|
$ |
— |
|
$ |
1 |
|
$ |
— |
Debt |
|
$ |
(11,644) |
|
$ |
(13,435) |
|
$ |
— |
|
$ |
(13,435) |
|
$ |
— |
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 approximates the carrying value.
Commodity, interest rate and foreign currency derivatives — The fair values of commodity, interest rate and foreign currency derivatives are estimated using internal discounted cash flow calculations based upon forward curves and data obtained from independent third parties for contracts with similar terms or data obtained from counterparties to the agreements.
Debt — Devon's debt instruments do not actively trade in an established market. The fair values of its fixed-rate debt are estimated based on rates available for debt with similar terms and maturity. The fair value of Devon’s variable-rate commercial paper is the carrying value.
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 an inactive 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, 2013 and December 31, 2012.
Included below is a summary of the changes in Devon's Level 3 fair value measurements during the first nine months of 2013 and 2012.
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
||||
|
|
2013 |
|
2012 |
||
|
|
|
|
|
|
|
|
|
(In millions) |
||||
Long-term investments balance at beginning of period |
|
$ |
64 |
|
$ |
84 |
Redemptions of principal |
|
|
(2) |
|
|
(20) |
Long-term investments balance at end of period |
|
$ |
62 |
|
$ |
64 |
|
19.Segment Information
Devon manages its operations through distinct operating segments, which are defined primarily by geographic areas. For financial reporting purposes, Devon aggregates its U.S. operating segments into one reporting segment due to the similar nature of the businesses. However, Devon's Canadian operating segment is reported as a separate reporting segment primarily due to the significant differences between the U.S. and Canadian regulatory environments. Devon’s 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, 2013: |
|
|
|
|
|
|
|
|
|
Oil, gas and NGL sales |
|
$ |
1,573 |
|
$ |
768 |
|
$ |
2,341 |
Oil, gas and NGL derivatives |
|
$ |
(153) |
|
$ |
12 |
|
$ |
(141) |
Marketing and midstream revenues |
|
$ |
509 |
|
$ |
11 |
|
$ |
520 |
Depreciation, depletion and amortization |
|
$ |
492 |
|
$ |
199 |
|
$ |
691 |
Interest expense |
|
$ |
94 |
|
$ |
10 |
|
$ |
104 |
Asset impairments |
|
$ |
7 |
|
$ |
— |
|
$ |
7 |
Earnings from continuing operations before income taxes |
|
$ |
410 |
|
$ |
229 |
|
$ |
639 |
Income tax expense |
|
$ |
160 |
|
$ |
50 |
|
$ |
210 |
Earnings from continuing operations |
|
$ |
250 |
|
$ |
179 |
|
$ |
429 |
Capital expenditures |
|
$ |
1,256 |
|
$ |
437 |
|
$ |
1,693 |
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
7 |
|
$ |
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) |
|
$ |
8 |
|
$ |
(1,161) |
Income tax benefit |
|
$ |
(438) |
|
$ |
(4) |
|
$ |
(442) |
Earnings (loss) from continuing operations |
|
$ |
(731) |
|
$ |
12 |
|
$ |
(719) |
Capital expenditures |
|
$ |
1,586 |
|
$ |
382 |
|
$ |
1,968 |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2013: |
|
|
|
|
|
|
|
|
|
Oil, gas and NGL sales |
|
$ |
4,377 |
|
$ |
1,990 |
|
$ |
6,367 |
Oil, gas and NGL derivatives |
|
$ |
(82) |
|
$ |
(13) |
|
$ |
(95) |
Marketing and midstream revenues |
|
$ |
1,436 |
|
$ |
75 |
|
$ |
1,511 |
Depreciation, depletion and amortization |
|
$ |
1,426 |
|
$ |
643 |
|
$ |
2,069 |
Interest expense |
|
$ |
284 |
|
$ |
38 |
|
$ |
322 |
Asset impairments |
|
$ |
1,117 |
|
$ |
843 |
|
$ |
1,960 |
Earnings (loss) from continuing operations before income taxes |
|
$ |
208 |
|
$ |
(534) |
|
$ |
(326) |
Income tax expense (benefit) |
|
$ |
59 |
|
$ |
(158) |
|
$ |
(99) |
Earnings (loss) from continuing operations |
|
$ |
149 |
|
$ |
(376) |
|
$ |
(227) |
Property and equipment, net |
|
$ |
19,462 |
|
$ |
8,500 |
|
$ |
27,962 |
Total assets |
|
$ |
24,668 |
|
$ |
16,178 |
|
$ |
40,846 |
Capital expenditures |
|
$ |
3,650 |
|
$ |
1,377 |
|
$ |
5,027 |
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
6 |
|
$ |
6 |
|
$ |
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 |
|
$ |
5,007 |
|
$ |
1,276 |
|
$ |
6,283 |
|
20. Subsequent Event
On October 21, 2013, Devon, Crosstex Energy, Inc. and Crosstex Energy, L.P. (collectively “Crosstex”) announced plans to combine substantially all of Devon’s U.S. midstream assets with Crosstex’s assets to form a new midstream business. The new business will consist of a master limited partnership and a general partner entity (the “Master Limited Partnership” and the “General Partner”), which will both be publicly traded entities.
In exchange for a controlling interest in both the General Partner and the Master Limited Partnership, Devon will contribute its equity interest in a newly formed Devon subsidiary (“Devon Holdings”) and $100 million in cash. Devon Holdings will own Devon’s midstream assets in the Barnett Shale in North Texas and the Cana and Arkoma Woodford Shales in Oklahoma, as well as Devon’s interest in Gulf Coast Fractionators in Mt. Belvieu, Texas. The Master Limited Partnership and the General Partner will each own 50% of Devon Holdings. The completion of these transactions is subject to Crosstex Energy, Inc. shareholder approval.
Upon closing of the transactions, the pro forma ownership of the General Partner will be approximately:
|
• |
|
70% - Devon Energy Corporation |
|
• |
|
30% - Current Crosstex Energy, Inc. public stockholders |
Upon closing of the transactions, the pro forma ownership of the Master Limited Partnership will be approximately:
|
• |
|
53% - Devon Energy Corporation |
|
• |
|
40% - Current Crosstex Energy, L.P. public unitholders |
|
• |
|
7% - the General Partner |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
||||||||||
Cash settlements: |
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives |
|
$ |
(7) |
|
$ |
243 |
|
$ |
93 |
|
$ |
668 |
Interest rate derivatives |
|
|
10 |
|
|
10 |
|
|
24 |
|
|
9 |
Foreign currency derivatives |
|
|
(5) |
|
|
(38) |
|
|
30 |
|
|
(29) |
Total cash settlements |
|
|
(2) |
|
|
215 |
|
|
147 |
|
|
648 |
Unrealized gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives |
|
|
(134) |
|
|
(538) |
|
|
(188) |
|
|
(153) |
Interest rate derivatives |
|
|
(9) |
|
|
(9) |
|
|
(23) |
|
|
(24) |
Foreign currency derivatives |
|
|
(23) |
|
|
12 |
|
|
(1) |
|
|
4 |
Total unrealized gains (losses) |
|
|
(166) |
|
|
(535) |
|
|
(212) |
|
|
(173) |
Net gains (losses) recognized on comprehensive statements of earnings |
|
$ |
(168) |
|
$ |
(320) |
|
$ |
(65) |
|
$ |
475 |
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Caption |
|
September 30, 2013 |
|
December 31, 2012 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
||||
Asset derivatives: |
|
|
|
|
|
|
|
|
Commodity derivatives |
|
Other current assets |
|
$ |
224 |
|
$ |
379 |
Commodity derivatives |
|
Other long-term assets |
|
|
58 |
|
|
22 |
Interest rate derivatives |
|
Other current assets |
|
|
— |
|
|
23 |
Foreign currency derivatives |
|
Other current assets |
|
|
— |
|
|
1 |
Total asset derivatives |
|
|
|
$ |
282 |
|
$ |
425 |
Liability derivatives: |
|
|
|
|
|
|
|
|
Commodity derivatives |
|
Other current liabilities |
|
$ |
50 |
|
$ |
3 |
Commodity derivatives |
|
Other long-term liabilities |
|
|
51 |
|
|
29 |
Total liability derivatives |
|
|
|
$ |
101 |
|
$ |
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2013 |
|
70,000 |
|
$ |
100.26 |
|
72,000 |
|
$ |
90.60 |
|
$ |
111.14 |
|
10,000 |
|
$ |
120.00 |
Q1-Q4 2014 |
|
49,000 |
|
$ |
94.77 |
|
43,969 |
|
$ |
89.01 |
|
$ |
102.48 |
|
42,000 |
|
$ |
116.43 |
Q1-Q4 2015 |
|
500 |
|
$ |
91.00 |
|
— |
|
$ |
— |
|
$ |
— |
|
22,000 |
|
$ |
115.45 |
|
|
|
|
|
|
|
|
|
|
Basis Swaps |
|||||
Period |
|
Index |
|
Volume (Bbls/d) |
|
Weighted Average Differential to WTI ($/Bbl) |
|
Q4 2013 |
|
Western Canadian Select |
|
40,000 |
|
$ |
(22.47) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2013 |
|
987,500 |
|
$ |
4.09 |
|
650,000 |
|
$ |
3.61 |
|
$ |
4.28 |
|
— |
|
$ |
— |
Q1-Q4 2014 |
|
800,000 |
|
$ |
4.42 |
|
210,000 |
|
$ |
4.01 |
|
$ |
4.71 |
|
500,000 |
|
$ |
5.00 |
Q1-Q4 2015 |
|
— |
|
$ |
— |
|
— |
|
$ |
— |
|
$ |
— |
|
550,000 |
|
$ |
5.09 |
|
|
|
|
|
|
|
|
Price Swaps |
|||
Period |
|
Volume (MMBtu/d) |
|
Weighted Average Price ($/MMBtu) |
|
Q4 2013 |
|
28,435 |
|
$ |
3.54 |
|
|
Basis Swaps |
|||||
Period |
|
Index |
|
Volume (MMBtu/d) |
|
Weighted Average Differential to Henry Hub ($/MMBtu) |
|
Q4 2013 |
|
AECO |
|
62,843 |
|
$ |
(0.44) |
Q1-Q4 2014 |
|
AECO |
|
94,781 |
|
$ |
(0.52) |
|
|
|
|
|
|
|
|
|
|
Price Swaps |
|||||
Period |
|
Product |
|
Volume (Bbls/d) |
|
Weighted Average Price ($/Bbl) |
|
Q4 2013 |
|
Ethane |
|
1,957 |
|
$ |
15.36 |
Q4 2013 |
|
Propane |
|
3,985 |
|
$ |
41.73 |
|
|
|
|
|
|
|
|
|
|
Basis Swaps |
|||||
Period |
|
Pay |
|
Volume (Bbls/d) |
|
Weighted Average Differential to WTI ($/Bbl) |
|
Q4 2013 |
|
Natural Gasoline |
|
1,000 |
|
$ |
(9.58) |
Q1-Q4 2014 |
|
Natural Gasoline |
|
329 |
|
$ |
(10.85) |
|
|
|
|
|
|
|
|
|
|
Forward Contract |
|||||||||
Currency |
|
Contract Type |
|
CAD Notional |
|
Weighted Average Fixed Rate Received |
|
Expiration |
|
|
|
|
|
(In millions) |
|
(CAD-USD) |
|
|
|
Canadian Dollar |
|
Sell |
|
$ |
1,261 |
|
0.969 |
|
December 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Nine Months |
||||||||
|
|
Ended September 30, |
|
Ended September 30, |
||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
||||
Lease obligations and other |
|
$ |
4 |
|
$ |
— |
|
$ |
44 |
|
$ |
— |
Asset impairments |
|
|
— |
|
|
— |
|
|
6 |
|
|
— |
Restructuring costs |
|
$ |
4 |
|
$ |
— |
|
$ |
50 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
Other |
|
|
|
||
|
|
Current |
|
Long-Term |
|
|
|
||
|
|
Liabilities |
|
Liabilities |
|
Total |
|||
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|||||||
Balance as of December 31, 2012 |
|
$ |
52 |
|
$ |
9 |
|
$ |
61 |
Lease obligations and other - Office consolidation |
|
|
18 |
|
|
11 |
|
|
29 |
Employee severance – Office consolidation |
|
|
(34) |
|
|
— |
|
|
(34) |
Lease obligations - Offshore |
|
|
(2) |
|
|
(1) |
|
|
(3) |
Balance as of September 30, 2013 |
|
$ |
34 |
|
$ |
19 |
|
$ |
53 |
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2011 |
|
$ |
29 |
|
$ |
16 |
|
$ |
45 |
Lease obligations - Offshore |
|
|
(9) |
|
|
(3) |
|
|
(12) |
Employee severance - Offshore |
|
|
(7) |
|
|
— |
|
|
(7) |
Balance as September 30, 2012 |
|
$ |
13 |
|
$ |
13 |
|
$ |
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
||||||||||
Accretion of asset retirement obligations |
|
$ |
29 |
|
$ |
27 |
|
$ |
86 |
|
$ |
82 |
Interest rate derivatives |
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
|
15 |
Foreign currency derivatives |
|
|
28 |
|
|
26 |
|
|
(29) |
|
|
25 |
Foreign exchange loss (gain) |
|
|
(27) |
|
|
(28) |
|
|
34 |
|
|
(26) |
Interest income |
|
|
(4) |
|
|
(8) |
|
|
(16) |
|
|
(24) |
Other |
|
|
9 |
|
|
(24) |
|
|
9 |
|
|
(26) |
Other, net |
|
$ |
34 |
|
$ |
(8) |
|
$ |
83 |
|
$ |
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit) (in millions) |
|
$ |
210 |
|
$ |
(442) |
|
$ |
(99) |
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. statutory income tax rate |
|
|
35% |
|
|
(35%) |
|
|
(35%) |
|
|
35% |
State income taxes |
|
|
1% |
|
|
(1%) |
|
|
(3%) |
|
|
(1%) |
Taxation on Canadian operations |
|
|
(5%) |
|
|
(1%) |
|
|
9% |
|
|
(14%) |
Other |
|
|
2% |
|
|
(1%) |
|
|
(1%) |
|
|
(13%) |
Effective income tax rate |
|
|
33% |
|
|
(38%) |
|
|
(30%) |
|
|
7% |
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
September 30, |
|
September 30, |
||||||||
|
2013 |
|
2012 |
|
2013 |
|
2012 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
||||||||||
Foreign currency translation: |
|
|
|
|
|
|
|
|
|
|
|
Beginning accumulated foreign currency translation |
$ |
1,542 |
|
$ |
1,783 |
|
$ |
1,996 |
|
$ |
1,802 |
Change in cumulative translation adjustment |
|
182 |
|
|
325 |
|
|
(294) |
|
|
305 |
Income tax benefit (expense) |
|
(9) |
|
|
(14) |
|
|
13 |
|
|
(13) |
Ending accumulated foreign currency translation |
|
1,715 |
|
|
2,094 |
|
|
1,715 |
|
|
2,094 |
Pension and postretirement benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
Beginning accumulated pension and postretirement benefits |
|
(216) |
|
|
(218) |
|
|
(225) |
|
|
(227) |
Recognition of net actuarial loss and prior service cost in earnings (1) |
|
6 |
|
|
6 |
|
|
18 |
|
|
19 |
Income tax expense |
|
(3) |
|
|
(3) |
|
|
(6) |
|
|
(7) |
Ending accumulated pension and postretirement benefits |
|
(213) |
|
|
(215) |
|
|
(213) |
|
|
(215) |
Accumulated other comprehensive earnings, net of tax |
$ |
1,502 |
|
$ |
1,879 |
|
$ |
1,502 |
|
$ |
1,879 |
__________________________
(1) These accumulated other comprehensive earnings components are included in the computation of net periodic benefit cost, which is a component of general and administrative expenses on the accompanying comprehensive statements of earnings (see “Retirement Plans” note for additional details)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
||||
|
|
2013 |
|
2012 |
||
|
|
|
|
|
|
|
|
|
|
(In millions) |
|||
Net change in working capital accounts: |
|
|
|
|
|
|
Accounts receivable |
|
$ |
(287) |
|
$ |
275 |
Other current assets |
|
|
72 |
|
|
(234) |
Accounts payable |
|
|
127 |
|
|
77 |
Revenues and royalties payable |
|
|
56 |
|
|
(34) |
Other current liabilities |
|
|
(72) |
|
|
(36) |
Net change in working capital |
|
$ |
(104) |
|
$ |
48 |
|
|
|
|
|
|
|
Interest paid (net of capitalized interest) |
|
$ |
342 |
|
$ |
260 |
Income taxes paid (received) |
|
$ |
(2) |
|
$ |
88 |
|
|
|
|
|
|
|
|
|
|
September 30, 2013 |
|
December 31, 2012 |
||
|
|
|
|
|
|
|
|
|
(In millions) |
||||
Canadian treasury, agency and provincial securities |
|
$ |
— |
|
$ |
1,865 |
U.S. treasuries |
|
|
— |
|
|
429 |
Other |
|
|
— |
|
|
49 |
Short-term investments |
|
$ |
— |
|
$ |
2,343 |
|
|
|
|
|
|
|
|
|
|
September 30, 2013 |
|
December 31, 2012 |
||
|
|
|
|
|
|
|
|
|
(In millions) |
||||
Oil, gas and NGL sales |
|
$ |
942 |
|
$ |
752 |
Joint interest billings |
|
|
389 |
|
|
270 |
Marketing and midstream revenues |
|
|
147 |
|
|
161 |
Other |
|
|
53 |
|
|
72 |
Gross accounts receivable |
|
|
1,531 |
|
|
1,255 |
Allowance for doubtful accounts |
|
|
(11) |
|
|
(10) |
Net accounts receivable |
|
$ |
1,520 |
|
$ |
1,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2013 |
|
Nine Months Ended September 30, 2012 |
||||||||
|
|
Gross |
|
Net of Taxes |
|
Gross |
|
Net of Taxes |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
||||||||||
U.S. oil and gas assets |
|
$ |
1,110 |
|
$ |
707 |
|
$ |
1,106 |
|
$ |
705 |
Canada oil and gas assets |
|
|
843 |
|
|
632 |
|
|
— |
|
|
— |
Midstream assets |
|
|
7 |
|
|
4 |
|
|
22 |
|
|
14 |
Total asset impairments |
|
$ |
1,960 |
|
$ |
1,343 |
|
$ |
1,128 |
|
$ |
719 |
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
||||
|
|
2013 |
|
2012 |
|
||
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|||
Asset retirement obligations as of beginning of period |
|
$ |
2,095 |
|
$ |
1,563 |
|
Liabilities incurred |
|
|
88 |
|
|
60 |
|
Liabilities settled |
|
|
(46) |
|
|
(57) |
|
Revision of estimated obligation |
|
|
104 |
|
|
411 |
|
Liabilities assumed by others |
|
|
(15) |
|
|
(18) |
|
Accretion expense on discounted obligation |
|
|
86 |
|
|
82 |
|
Foreign currency translation adjustment |
|
|
(44) |
|
|
35 |
|
Asset retirement obligations as of end of period |
|
|
2,268 |
|
|
2,076 |
|
Less current portion |
|
|
107 |
|
|
67 |
|
Asset retirement obligations, long-term |
|
$ |
2,161 |
|
$ |
2,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Postretirement Benefits |
||||||||||||||||||||
|
|
Three Months Ended |
|
Nine Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||||||
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
||||||||||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
||||||||||||||||||||||
Service cost |
|
$ |
9 |
|
$ |
11 |
|
$ |
27 |
|
$ |
32 |
|
$ |
— |
|
$ |
1 |
|
$ |
— |
|
$ |
1 |
Interest cost |
|
|
13 |
|
|
15 |
|
|
39 |
|
|
45 |
|
|
— |
|
|
— |
|
|
1 |
|
|
1 |
Expected return on plan assets |
|
|
(16) |
|
|
(16) |
|
|
(47) |
|
|
(48) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Amortization of prior service cost (1) |
|
|
1 |
|
|
1 |
|
|
3 |
|
|
3 |
|
|
— |
|
|
— |
|
|
— |
|
|
(1) |
Net actuarial loss (gain) (1) |
|
|
5 |
|
|
6 |
|
|
16 |
|
|
18 |
|
|
— |
|
|
(1) |
|
|
(1) |
|
|
(1) |
Net periodic benefit cost (2) |
|
$ |
12 |
|
$ |
17 |
|
$ |
38 |
|
$ |
50 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
__________________________
(1) These net periodic benefit costs were reclassified out of other comprehensive earnings in the current period.
(2) Net periodic benefit cost is a component of general and administrative expenses on the accompanying comprehensive statements of earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using: |
|||||||
|
|
Carrying |
|
Total Fair |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|||||
|
|
Amount |
|
Value |
|
Inputs |
|
Inputs |
|
Inputs |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
||||||||||||
September 30, 2013 assets (liabilities): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
3,592 |
|
$ |
3,592 |
|
$ |
13 |
|
$ |
3,579 |
|
$ |
— |
Long-term investments |
|
$ |
62 |
|
$ |
62 |
|
$ |
— |
|
$ |
— |
|
$ |
62 |
Commodity derivatives |
|
$ |
282 |
|
$ |
282 |
|
$ |
— |
|
$ |
282 |
|
$ |
— |
Commodity derivatives |
|
$ |
(101) |
|
$ |
(101) |
|
$ |
— |
|
$ |
(101) |
|
$ |
— |
Debt |
|
$ |
(10,068) |
|
$ |
(10,926) |
|
$ |
— |
|
$ |
(10,926) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012 assets (liabilities): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
4,149 |
|
$ |
4,149 |
|
$ |
32 |
|
$ |
4,117 |
|
$ |
— |
Short-term investments |
|
$ |
2,343 |
|
$ |
2,343 |
|
$ |
429 |
|
$ |
1,914 |
|
$ |
— |
Long-term investments |
|
$ |
64 |
|
$ |
64 |
|
$ |
— |
|
$ |
— |
|
$ |
64 |
Commodity derivatives |
|
$ |
401 |
|
$ |
401 |
|
$ |
— |
|
$ |
401 |
|
$ |
— |
Commodity derivatives |
|
$ |
(32) |
|
$ |
(32) |
|
$ |
— |
|
$ |
(32) |
|
$ |
— |
Interest rate derivatives |
|
$ |
23 |
|
$ |
23 |
|
$ |
— |
|
$ |
23 |
|
$ |
— |
Foreign currency derivatives |
|
$ |
1 |
|
$ |
1 |
|
$ |
— |
|
$ |
1 |
|
$ |
— |
Debt |
|
$ |
(11,644) |
|
$ |
(13,435) |
|
$ |
— |
|
$ |
(13,435) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
||||
|
|
2013 |
|
2012 |
||
|
|
|
|
|
|
|
|
|
(In millions) |
||||
Long-term investments balance at beginning of period |
|
$ |
64 |
|
$ |
84 |
Redemptions of principal |
|
|
(2) |
|
|
(20) |
Long-term investments balance at end of period |
|
$ |
62 |
|
$ |
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
Canada |
|
Total |
|||
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|||||||
Three Months Ended September 30, 2013: |
|
|
|
|
|
|
|
|
|
Oil, gas and NGL sales |
|
$ |
1,573 |
|
$ |
768 |
|
$ |
2,341 |
Oil, gas and NGL derivatives |
|
$ |
(153) |
|
$ |
12 |
|
$ |
(141) |
Marketing and midstream revenues |
|
$ |
509 |
|
$ |
11 |
|
$ |
520 |
Depreciation, depletion and amortization |
|
$ |
492 |
|
$ |
199 |
|
$ |
691 |
Interest expense |
|
$ |
94 |
|
$ |
10 |
|
$ |
104 |
Asset impairments |
|
$ |
7 |
|
$ |
— |
|
$ |
7 |
Earnings from continuing operations before income taxes |
|
$ |
410 |
|
$ |
229 |
|
$ |
639 |
Income tax expense |
|
$ |
160 |
|
$ |
50 |
|
$ |
210 |
Earnings from continuing operations |
|
$ |
250 |
|
$ |
179 |
|
$ |
429 |
Capital expenditures |
|
$ |
1,256 |
|
$ |
437 |
|
$ |
1,693 |
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
7 |
|
$ |
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) |
|
$ |
8 |
|
$ |
(1,161) |
Income tax benefit |
|
$ |
(438) |
|
$ |
(4) |
|
$ |
(442) |
Earnings (loss) from continuing operations |
|
$ |
(731) |
|
$ |
12 |
|
$ |
(719) |
Capital expenditures |
|
$ |
1,586 |
|
$ |
382 |
|
$ |
1,968 |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2013: |
|
|
|
|
|
|
|
|
|
Oil, gas and NGL sales |
|
$ |
4,377 |
|
$ |
1,990 |
|
$ |
6,367 |
Oil, gas and NGL derivatives |
|
$ |
(82) |
|
$ |
(13) |
|
$ |
(95) |
Marketing and midstream revenues |
|
$ |
1,436 |
|
$ |
75 |
|
$ |
1,511 |
Depreciation, depletion and amortization |
|
$ |
1,426 |
|
$ |
643 |
|
$ |
2,069 |
Interest expense |
|
$ |
284 |
|
$ |
38 |
|
$ |
322 |
Asset impairments |
|
$ |
1,117 |
|
$ |
843 |
|
$ |
1,960 |
Earnings (loss) from continuing operations before income taxes |
|
$ |
208 |
|
$ |
(534) |
|
$ |
(326) |
Income tax expense (benefit) |
|
$ |
59 |
|
$ |
(158) |
|
$ |
(99) |
Earnings (loss) from continuing operations |
|
$ |
149 |
|
$ |
(376) |
|
$ |
(227) |
Property and equipment, net |
|
$ |
19,462 |
|
$ |
8,500 |
|
$ |
27,962 |
Total assets |
|
$ |
24,668 |
|
$ |
16,178 |
|
$ |
40,846 |
Capital expenditures |
|
$ |
3,650 |
|
$ |
1,377 |
|
$ |
5,027 |
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
6 |
|
$ |
6 |
|
$ |
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 |
|
$ |
5,007 |
|
$ |
1,276 |
|
$ |
6,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|