DEVON ENERGY CORP/DE, 10-Q filed on 5/4/2016
Quarterly Report
Document And Entity Information
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Apr. 20, 2016
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2016 
 
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
2016 
 
Entity Filer Category
Large Accelerated Filer 
 
Document Fiscal Period Focus
Q1 
 
Entity Common Stock, Shares Outstanding
 
524.0 
Consolidated Comprehensive Statements Of Earnings (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Consolidated Comprehensive Statements Of Earnings [Abstract]
 
 
Oil, gas and NGL sales
$ 825 
$ 1,339 
Oil, gas and NGL derivatives
33 
294 
Marketing and midstream revenues
1,268 
1,632 
Total operating revenues
2,126 
3,265 
Lease operating expenses
444 
553 
Marketing and midstream operating expenses
1,066 
1,439 
General and administrative expenses
194 
251 
Production and property taxes
78 
108 
Depreciation, depletion and amortization
542 
930 
Asset impairments
3,035 
5,460 
Restructuring and transaction costs
247 
 
Other operating items
20 
19 
Total operating expenses
5,626 
8,760 
Operating loss
(3,500)
(5,495)
Net financing costs
164 
117 
Other nonoperating items
21 
12 
Loss before income taxes
(3,685)
(5,624)
Income tax benefit
(217)
(2,035)
Net loss
(3,468)
(3,589)
Net earnings (loss) attributable to noncontrolling interests
(412)
10 
Net loss attributable to Devon
(3,056)
(3,599)
Net loss per share attributable to Devon:
 
 
Basic
$ (6.44)
$ (8.88)
Diluted
$ (6.44)
$ (8.88)
Comprehensive loss:
 
 
Net loss
(3,468)
(3,589)
Other comprehensive earnings (loss), net of tax:
 
 
Foreign currency translation
23 
(302)
Pension and postretirement plans
Other comprehensive earnings (loss), net of tax
27 
(298)
Comprehensive loss
(3,441)
(3,887)
Comprehensive earnings (loss) attributable to noncontrolling interests
(412)
10 
Comprehensive loss attributable to Devon
$ (3,029)
$ (3,897)
Consolidated Statements Of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Cash flows from operating activities:
 
 
Net loss
$ (3,468)
$ (3,589)
Adjustments to reconcile net loss to net cash from operating activities:
 
 
Depreciation, depletion and amortization
542 
930 
Asset impairments
3,035 
5,460 
Deferred income tax benefit
(207)
(2,047)
Derivatives and other financial instruments
194 
(430)
Cash settlements on derivatives and financial instruments
(104)
719 
Other noncash charges
(67)
225 
Net change in working capital
198 
215 
Change in long-term other assets
53 
141 
Change in long-term other liabilities
(27)
24 
Net cash from operating activities
149 
1,648 
Cash flows from investing activities:
 
 
Capital expenditures
(749)
(1,717)
Acquisitions of property, equipment and businesses
(1,627)
(404)
Divestitures of property and equipment
18 
Other
(1)
Net cash from investing activities
(2,359)
(2,116)
Cash flows from financing activities:
 
 
Borrowings of long-term debt, net of issuance costs
396 
957 
Repayments of long-term debt
(259)
(487)
Net short-term debt borrowings (repayments)
(626)
15 
Issuance of common stock
1,469 
 
Sale of subsidiary units
   
569 
Issuance of subsidiary units
727 
Dividends paid on common stock
(125)
(99)
Distributions to noncontrolling interests
(73)
(53)
Other
 
(12)
Net cash from financing activities
1,509 
892 
Effect of exchange rate changes on cash
26 
(46)
Net change in cash and cash equivalents
(675)
378 
Cash and cash equivalents at beginning of period
2,310 
1,480 
Cash and cash equivalents at end of period
$ 1,635 
$ 1,858 
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Mar. 31, 2016
Dec. 31, 2015
Current assets:
 
 
Cash and cash equivalents
$ 1,635 
$ 2,310 
Accounts receivable
1,023 
1,105 
Derivatives, at fair value
54 
43 
Income taxes receivable
24 
147 
Other current assets
214 
416 
Total current assets
2,950 
4,021 
Oil and gas, based on full cost accounting:
 
 
Subject to amortization
79,907 
78,190 
Not subject to amortization
3,901 
2,584 
Total oil and gas
83,808 
80,774 
Midstream and other
10,979 
10,380 
Total property and equipment, at cost
94,787 
91,154 
Less accumulated depreciation, depletion and amortization
(75,523)
(72,086)
Property and equipment, net
19,264 
19,068 
Goodwill
4,159 
5,032 
Other long-term assets
2,264 
1,330 
Total assets
28,637 
29,451 
Current liabilities:
 
 
Accounts payable
640 
906 
Revenues and royalties payable
705 
763 
Short-term debt
350 1
976 1
Other current liabilities
905 
650 
Total current liabilities
2,600 
3,295 
Long-term debt
12,195 
12,056 
Asset retirement obligations
1,491 
1,370 
Other long-term liabilities
1,112 
853 
Deferred income taxes
731 
888 
Stockholders' equity:
 
 
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 524 million and 418 million shares in 2016 and 2015, respectively
52 
42 
Additional paid-in capital
7,501 
4,996 
Retained earnings (accumulated deficit)
(1,400)
1,781 
Accumulated other comprehensive earnings
257 
230 
Total stockholders' equity attributable to Devon
6,410 
7,049 
Noncontrolling interests
4,098 
3,940 
Total stockholders' equity
10,508 
10,989 
Commitments and contingencies (Note 19)
   
   
Total liabilities and stockholders' equity
$ 28,637 
$ 29,451 
Consolidated Balance Sheets (Parenthetical) (USD $)
Mar. 31, 2016
Dec. 31, 2015
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)
524,000,000 
418,000,000 
Consolidated Statements Of Stockholders' Equity (USD $)
In Millions
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings (Accumulated Deficit) [Member]
Accumulated Other Comprehensive Earnings [Member]
Treasury Stock [Member]
Noncontrolling Interests [Member]
Total
Balance, at Dec. 31, 2014
$ 41 
$ 4,088 
$ 16,631 
$ 779 
 
$ 4,802 
$ 26,341 
Balance, shares, at Dec. 31, 2014
409 
 
 
 
 
 
 
Net earnings (loss)
 
 
(3,599)
 
 
10 
(3,589)
Other comprehensive earnings (loss), net of tax
 
 
 
(298)
 
 
(298)
Restricted stock grants, net of cancellations, shares
 
 
 
 
 
 
Common stock repurchased
 
 
 
 
(18)
 
(18)
Common stock retired
 
(18)
 
 
18 
 
 
Common stock dividends
 
 
(99)
 
 
 
(99)
Share-based compensation
 
48 
 
 
 
 
48 
Share-based compensation tax benefits
 
 
 
 
 
Subsidiary equity transactions
 
423 
 
 
 
263 
686 
Distributions to noncontrolling interests
 
 
 
 
 
(53)
(53)
Balance, at Mar. 31, 2015
41 
4,542 
12,933 
481 
 
5,022 
23,019 
Balance, shares, at Mar. 31, 2015
411 
 
 
 
 
 
 
Balance, at Dec. 31, 2015
42 
4,996 
1,781 
230 
 
3,940 
10,989 
Balance, shares, at Dec. 31, 2015
418 
 
 
 
 
 
 
Net earnings (loss)
 
 
(3,056)
 
 
(412)
(3,468)
Other comprehensive earnings (loss), net of tax
 
 
 
27 
 
 
27 
Restricted stock grants, net of cancellations, shares
 
 
 
 
 
 
Common stock repurchased
 
 
 
 
(12)
 
(12)
Common stock retired
 
(12)
 
 
12 
 
 
Common stock dividends
 
 
(125)
 
 
 
(125)
Common stock issued
10 
2,117 
 
 
 
 
2,127 
Common stock issued, shares
103 
 
 
 
 
 
 
Share-based compensation
 
99 
 
 
 
 
99 
Subsidiary equity transactions
 
301 
 
 
 
643 
944 
Distributions to noncontrolling interests
 
 
 
 
 
(73)
(73)
Balance, at Mar. 31, 2016
$ 52 
$ 7,501 
$ (1,400)
$ 257 
 
$ 4,098 
$ 10,508 
Balance, shares, at Mar. 31, 2016
524 
 
 
 
 
 
 
Summary Of Significant Accounting Policies
Summary Of Significant Accounting Policies

1.     Summary of Significant Accounting Policies

 

The accompanying unaudited interim financial statements and notes of Devon have been prepared pursuant to the rules and regulations of the SEC. Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been omitted. The accompanying unaudited interim financial statements and notes should be read in conjunction with the financial statements and notes included in Devon’s 2015 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 for a fair statement of Devon’s results of operations and cash flows for the three-month periods ended March 31, 2016 and 2015, as applicable, and Devon’s financial position as of March 31, 2016.  



Recently Issued Accounting Standards



The FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition and industry-specific guidance in Subtopic 932-605, Extractive Activities – Oil and Gas – Revenue Recognition. This ASU provides guidance concerning the recognition and measurement of revenue from contracts with customers. Its objective is to increase the usefulness of information in the financial statements regarding the nature, timing and uncertainty of revenues. The effective date for ASU 2014-09 was delayed through the issuance of ASU 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date, to annual and interim periods beginning in 2018, with early adoption permitted in 2017. The ASU is required to be adopted using either the retrospective transition method, which requires restating previously reported results or the cumulative effect (modified retrospective) transition method, which utilizes a cumulative-effort adjustment to retained earnings in the period of adoption to account for prior period effects rather than restating previously reported results. Devon intends to use the cumulative effect transition method and is evaluating the impact this ASU will have on its consolidated financial statements and related disclosures. Devon does not plan on early adopting.

     

    The FASB issued ASU 2016-02, Leases (Topic 842). This ASU will supersede the lease requirements in Topic 840, Leases. Its objective is to increase transparency and comparability among organizations. This ASU provides guidance requiring lessees to recognize most leases on their balance sheet. Lessor accounting does not significantly change from Topic 840, except for some changes made to align with Topic 606. This ASU is effective for Devon beginning January 1, 2019 and will be applied using a modified retrospective transition method, which requires applying the new guidance to leases that exist or are entered into after the beginning of the earliest period in the financial statements. Early adoption is permitted. Devon is evaluating the impact this ASU will have on its consolidated financial statements and related disclosures and does not plan on early adopting.



The FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. Its objective is to simplify several aspects of the accounting for share-based payments, including accounting for income taxes when awards vest or are settled, statutory withholding and accounting for forfeitures. Classification of these aspects on the statement of cash flows is also addressed. This ASU is effective for Devon beginning January 1, 2017. Devon is evaluating the impact this ASU will have on its consolidated financial statements and related disclosures and does not plan on early adopting.



Acquisitions And Divestitures
Acquisitions And Divestitures

2.    Acquisitions and Divestitures

 

Devon Acquisitions 



    On January 7, 2016, Devon acquired approximately 80,000 net acres and assets in the STACK play for approximately $1.5 billion, subject to certain adjustments. Devon funded the acquisition with approximately $830 million of cash and $659 million of common equity shares. A preliminary allocation of the purchase price at March 31, 2016 was approximately $1.3 billion to unproved properties and approximately $200 million to proved properties.

   

EnLink Acquisitions



    On January 7, 2016, EnLink acquired Anadarko Basin gathering and processing midstream assets, along with dedicated acreage service rights and service contracts, for approximately $1.5 billion, subject to certain adjustments. EnLink funded the acquisition with approximately $215 million of General Partner common units and approximately $800 million of cash, primarily funded with the issuance of EnLink preferred units. The remaining $500 million of the purchase price is to be paid within one year with the option to defer $250 million of the final payment 24 months from the close date. The first $250 million of undiscounted  future installment payment is reported in other current liabilities in the accompanying consolidated balance sheets with the remaining $250 million payment reported in other long-term liabilities. The accretion of the discount is reported within net financing costs in the accompanying consolidated comprehensive statement of earnings. A preliminary allocation of the purchase price at March 31, 2016 was $1.0 billion to intangible assets and $420 million to property and equipment.



Devon Asset Divestitures



    In February 2016, Devon announced a program to divest certain non-core assets. On April 15, 2016, Devon reached an agreement to sell its Mississippian assets for $200 million, subject to certain adjustments. The transaction is expected to close in the second quarter of 2016.



Derivative Financial Instruments
Derivative Financial Instruments

3.     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 to hedge future prices received. Additionally, Devon and EnLink periodically enter into derivative financial instruments with respect to a portion of their oil, gas and NGL marketing activities. These commodity derivative financial instruments 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 and foreign exchange forward contracts to manage its exposure to fluctuations in the U.S. and Canadian dollar 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.



As of December 31, 2015, Devon’s other current assets in the accompanying consolidated balance sheet included $236 million of accrued settlements that it received in January 2016.



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 generally contain provisions that provide for collateral payments, if Devon or its counterparty’s credit rating falls below certain credit rating levels.



As of March 31, 2016 and December 31, 2015, Devon held $5 million and $75 million, respectively, of cash collateral which 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 consolidated balance sheets. 

 

Commodity Derivatives

 

As of March 31, 2016, 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 WTI futures price. The second table presents Devon’s oil derivatives that settle against the respective indices noted within the table.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Price Swaps

 

Price Collars

 

Call Options Sold

Period

 

Volume (Bbls/d)

 

Weighted Average Price ($/Bbl)

 

Volume (Bbls/d)

 

Weighted Average Floor Price ($/Bbl)

 

Weighted Average Ceiling Price ($/Bbl)

 

Volume (Bbls/d)

 

Weighted Average Price ($/Bbl)

Q2 2016

 

30,000

 

$

39.24

 

73,000

 

$

33.85

 

$

41.59

 

18,500

 

$

73.18

Q3 2016

 

-

 

$

-

 

37,000

 

$

40.05

 

$

45.05

 

18,500

 

$

73.18

Q4 2016

 

-

 

$

-

 

-

 

$

-

 

$

-

 

18,500

 

$

73.18









 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

Oil Basis Swaps

Period

 

Index

 

Volume (Bbls/d)

 

Weighted Average Differential to WTI ($/Bbl)

Q2-Q4 2016 

 

Western Canadian Select

 

37,985

 

$

(13.36)

Q2-Q4 2016 

 

West Texas Sour

 

5,000

 

$

(0.53)

Q2-Q4 2016 

 

Midland Sweet

 

13,000

 

$

0.25 



As of March 31, 2016, 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 second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Price Swaps

 

Price Collars

 

Call Options Sold

Period

 

Volume (MMBtu/d)

 

Weighted Average Price ($/MMBtu)

 

Volume (MMBtu/d)

 

Weighted Average Floor Price ($/MMBtu)

 

Weighted Average Ceiling Price ($/MMBtu)

 

Volume (MMBtu/d)

 

Weighted Average Price ($/MMBtu)

Q2 2016

 

481,400

 

$

2.73

 

4,945

 

$

1.77

 

$

2.02

 

400,000

 

$

2.80

Q3 2016

 

-

 

$

-

 

-

 

$

-

 

$

-

 

400,000

 

$

2.80

Q4 2016

 

-

 

$

-

 

-

 

$

-

 

$

-

 

400,000

 

$

2.80







 

 

 

 

 

 

 



 

Natural Gas Basis Swaps

Period

 

Index

 

Volume (MMBtu/d)

 

Weighted Average Differential to Henry Hub ($/MMBtu)

Q2-Q4 2016

 

Panhandle Eastern Pipe Line

 

175,000

 

$

(0.34)

Q2-Q4 2016

 

El Paso Natural Gas

 

125,000

 

$

(0.12)

Q2-Q4 2016

 

Houston Ship Channel

 

30,000

 

$

0.11

Q2-Q4 2016

 

Transco Zone 4

 

70,000

 

$

0.01

Q1-Q4 2017

 

Panhandle Eastern Pipe Line

 

150,000

 

$

(0.34)

Q1-Q4 2017

 

El Paso Natural Gas

 

60,000

 

$

(0.13)

Q1-Q4 2017

 

Houston Ship Channel

 

35,000

 

$

0.06

Q1-Q4 2017

 

Transco Zone 4

 

205,000

 

$

0.03





    As of March 31, 2016,  EnLink had the following open derivative positions associated with gas processing and fractionation. EnLink’s NGL derivative positions settle by purity product against the average of the prompt month OPIS Mont Belvieu, Texas index.



 

 

 

 

 

 

 

 

 

 

 

Period

 

Product

 

Volume (Total)

 

 

Weighted Average Price Paid

 

 

Weighted Average Price Received

Q2 2016-Q4 2016

 

Ethane

 

415

MBbls

 

$

0.29/gal

 

 

Index

Q2 2016-Q1 2017

 

Propane

 

744

MBbls

 

 

Index

 

$

0.74/gal



Interest Rate Derivatives

 

    As of March 31, 2016, Devon had the following open interest rate derivative positions:





 

 

 

 

 

 

 



 

 

 

 

 

 

 

Notional

 

Rate Received

 

Rate Paid

 

Expiration

(Millions)

 

 

 

 

 

 

$

100

 

Three Month LIBOR

 

0.92%

 

December 2016

$

100

 

1.76%

 

Three Month LIBOR

 

January 2019

$

750

 

Three Month LIBOR

 

2.98%

 

December 2048 (1)

____________________________

(1) Mandatory settlement in December 2018.



Foreign Currency Derivatives

 

As of March 31, 2016, Devon had the following open foreign currency derivative position:

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Forward Contract

Currency

 

Contract Type

 

CAD Notional

 

Weighted Average Fixed Rate Received

 

Expiration



 

 

 

(Millions)

 

(CAD-USD)

 

 

Canadian Dollar

 

Sell

 

$

1,676 

 

0.753

 

June 2016





Financial Statement Presentation

 

The following table presents the net gains and losses by derivative financial instrument type followed by the corresponding individual consolidated comprehensive statements of earnings caption.







 

 

 

 

 

 

 



 

Three Months Ended March 31,

 



 

2016

 

2015

 



 

 

 

 

 

 

 

Commodity derivatives:

 

(Millions)

 

Oil, gas and NGL derivatives

 

$

33 

 

$

294 

 

Marketing and midstream revenues

 

 

 -

 

 

 

Interest rate derivatives:

 

 

 

 

 

 

 

Other nonoperating items

 

 

(72)

 

 

 

Foreign currency derivatives:

 

 

 

 

 

 

 

Other nonoperating items

 

 

(155)

 

 

133 

 

Net gains (losses) recognized

 

$

(194)

 

$

430 

 





    The following table presents the derivative fair values by derivative financial instrument type followed by the corresponding individual consolidated balance sheet caption.

 





 

 

 

 

 

 



 

March 31, 2016

 

December 31, 2015



 

 

 

 

 

 



 

(Millions)

Commodity derivative assets:

 

 

 

 

 

 

Derivatives, at fair value

 

$

53 

 

$

34 

Other long-term assets

 

 

 

 

Interest rate derivative assets:

 

 

 

 

 

 

Derivatives, at fair value

 

 

 

 

Other long-term assets

 

 

 

 

Foreign currency derivative assets:

 

 

 

 

 

 

Derivatives, at fair value

 

 

 -

 

 

Total derivative assets

 

$

56 

 

$

45 



 

 

 

 

 

 

Commodity derivative liabilities:

 

 

 

 

 

 

Other current liabilities

 

$

26 

 

$

14 

Other long-term liabilities

 

 

 

 

Interest rate derivative liabilities:

 

 

 

 

 

 

Other long-term liabilities

 

 

95 

 

 

22 

Foreign currency derivative liabilities:

 

 

 

 

 

 

Other current liabilities

 

 

26 

 

 

 Total derivative liabilities

 

$

149 

 

$

48 



Share-Based Compensation
Share-Based Compensation

4.     Share-Based Compensation



The following table presents the effects of share-based compensation included in Devon’s accompanying consolidated comprehensive statements of earnings. Gross G&A expense for the first three months of 2016 and 2015 includes $6 million and $12 million, respectively, of unit-based compensation related to grants made under EnLink’s long-term incentive plans.



The vesting for certain share-based awards was accelerated in 2016 in conjunction with the reduction of workforce described in Note 6.  For the three months ended March 31, 2016, approximately $67 million of associated expense for these accelerated awards is included in restructuring and transaction costs in the accompanying consolidated comprehensive statements of earnings. 







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended March 31,



 

2016

 

2015



 

 

 

 

 

 



 

(Millions)

Gross G&A for share-based compensation

 

$

45 

 

$

68 

Share-based compensation expense capitalized pursuant to the

 

 

 

 

 

 

  full cost method of accounting for oil and gas properties

 

$

12 

 

$

15 

Related income tax benefit

 

$

 

$

14 





Under its approved long-term incentive plan, Devon granted share-based awards to certain employees in the first three months of 2016. The following table presents a summary of Devon’s unvested restricted stock awards and units, performance-based restricted stock awards and performance share units granted under the plan.













 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Restricted Stock

 

Performance-Based

 

Performance



 

Awards and Units

 

Restricted Stock Awards

 

Share Units



 

Awards and Units

 

 

 

Weighted Average Grant-Date Fair Value

 

Awards

 

 

 

Weighted Average Grant-Date Fair Value

 

Units

 

 

 

Weighted Average Grant-Date Fair Value



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(Thousands, except fair value data)

Unvested at 12/31/15

 

4,738 

 

 

$

62.49 

 

434 

 

 

$

60.48 

 

1,859 

 

 

$

76.17 

Granted

 

4,261 

 

 

$

19.31 

 

330 

 

 

$

19.22 

 

1,388 

 

 

$

10.41 

Vested

 

(1,167)

 

 

$

62.55 

 

(102)

 

 

$

62.55 

 

(602)

 

 

$

63.37 

Forfeited

 

(74)

 

 

$

60.24 

 

 -

 

 

$

 -

 

(7)

 

 

$

81.67 

Unvested at 3/31/16

 

7,758 

 

 

$

38.79 

 

662 

 

 

$

39.57 

 

2,638 

 

(1)

$

46.52 

____________________________

(1) A maximum of 5.3 million common shares could be awarded based upon Devon’s final TSR ranking relative to Devon’s peer group established under applicable award agreements.    



The following table presents the assumptions related to the performance share units granted in 2016, as indicated in the previous summary table.

 





 

 

 

 

 



2016



 

 

 

 

 

Grant-date fair value

$

9.24 

-

$

10.61 

Risk-free interest rate

0.94% 

Volatility factor

37.7% 

Contractual term (years)

2.83 



    The following table presents a summary of the unrecognized compensation cost and the related weighted average recognition period associated with unvested awards and units as of March 31, 2016.











 

 

 

 

 

 

 

 

 



 

 

 

Performance-Based

 

 

 



 

Restricted Stock

 

Restricted Stock

 

Performance



 

Awards and Units

 

Awards

 

Share Units

Unrecognized compensation cost (millions)

 

$

180 

 

$

10 

 

$

40 

Weighted average period for recognition (years)

 

 

2.7 

 

 

2.8 

 

 

1.9 



EnLink Share-Based Awards



    The following table presents a summary of the unrecognized compensation cost and the related weighted average recognition period associated with the General Partner’s and EnLink’s unvested restricted incentive units and performance units as of March 31, 2016.







 

 

 

 

 

 

 

 

 

 

 

 



 

General Partner

 

EnLink



 

Restricted

 

Performance

 

Restricted

 

Performance



 

Incentive Units

 

Units

 

Incentive Units

 

Units

Unrecognized compensation cost (millions)

 

$

22 

 

$

 

$

22 

 

$

Weighted average period for recognition (years)

 

 

1.9 

 

 

2.2 

 

 

1.9 

 

 

2.2 



 

Asset Impairments
Asset Impairments

5.     Asset Impairments



The following table presents the asset impairments recognized by Devon in the first three months of 2016 and 2015, respectively.





 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

Three Months Ended March 31,

 

 

 

2016

 

2015

 



 

 

 

 

 

 

 



 

(Millions)

 

U.S. oil and gas assets

 

$

1,608 

 

$

5,458 

 

Canada oil and gas assets

 

 

554 

 

 

 -

 

EnLink goodwill

 

 

873 

 

 

 -

 

Other assets

 

 

 -

 

 

 

Total asset impairments

 

$

3,035 

 

$

5,460 

 





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% 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 from declines in the U.S. and Canada full cost ceilings.  The lower ceiling values resulted primarily from significant decreases in the 12-month average trailing prices for oil, bitumen, gas and NGLs, which significantly reduced proved reserves values and, to a lesser degree, proved reserves.  

 

EnLink Goodwill Impairments 



    In the first quarter of 2016, Devon recognized goodwill impairments related to EnLink’s business. Additional information regarding the impairments is discussed in Note 13.

 

Restructuring And Transaction Costs
Restructuring And Transaction Costs

6.     Restructuring and Transaction Costs



Reduction in Workforce



    In the first quarter of 2016, Devon recognized $234 million of employee-related costs associated with a reduction in workforce that was made in response to the depressed commodity price environment. Of these employee-related costs, approximately $67 million resulted from accelerated vesting of share-based grants, which are noncash charges. Additionally, approximately $30 million resulted from estimated defined benefit settlements. These cash and noncash charges included estimates for employees released from service in the first quarter of 2016, as well as amounts based on the number of employees expected to be impacted by our non-core asset divestitures.  Devon expects to complete these divestitures in 2016. 



Transaction Costs



In the first quarter of 2016, Devon and EnLink recognized $13 million of transaction costs primarily associated with the closing of the acquisitions discussed in Note 2.





Financial Statement Presentation



    The following table summarizes Devon’s restructuring liabilities.  







 

 

 

 

 

 

 

 

 



 

Other

 

Other

 

 

 



 

Current

 

Long-term

 

 

 



 

Liabilities

 

Liabilities

 

Total



 

 

 

 

 

 

 

 

 



  

(Millions)

Balance as of December 31, 2015

  

$

13 

 

$

63 

 

$

76 

Changes due to 2016 workforce reductions

 

 

149 

 

 

 -

 

 

149 

Changes related to prior years’ restructurings

 

 

 

 

(2)

 

 

 -

Balance as of March 31, 2016

  

$

164 

  

$

61 

  

$

225 



 

 

 

 

 

 

 

 

 

Balance as of December 31, 2014

  

$

13 

 

$

 

$

20 

Changes related to prior years’ restructurings

 

 

(1)

 

 

(1)

 

 

(2)

Balance as of March 31, 2015

 

$

12 

 

$

 

$

18 



 

 

 

 

 

 

 

 

 



Income Taxes
Income Taxes

7.     Income Taxes



The following table presents Devon’s total income tax benefit and a reconciliation of its effective income tax rate to the U.S. statutory income tax rate.





 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

Three Months Ended March 31,

 



 

2016

 

2015

 



 

 

 

 

 

 

 

Total income tax benefit (millions)

 

$

(217)

 

$

(2,035)

 



 

 

 

 

 

 

 

U.S. statutory income tax rate

 

 

(35%)

 

 

(35%)

 

Deferred tax asset valuation allowance

 

 

22% 

 

 

0% 

 

Non-deductible goodwill impairment

 

 

8% 

 

 

0% 

 

Taxation on Canadian operations

 

 

2% 

 

 

0% 

 

State income taxes

 

 

(1%)

 

 

(1%)

 

Other

 

 

(2%)

 

 

0% 

 

Effective income tax rate

 

 

(6%)

 

 

(36%)

 



    Devon estimates its annual effective income tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which it operates. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur.



At December 31, 2015, Devon recorded a 100% valuation, or $967 million, allowance against the U.S. deferred tax assets that largely resulted from the full cost impairments recognized during 2015. In the first quarter of 2016, Devon provided an additional $808 million deferred tax valuation allowance to reflect its continued financial losses incurred largely by the additional full cost impairment.



In the first quarter of 2016, EnLink recorded a goodwill impairment of approximately $873 million. This impairment is not deductible for purposes of calculating income tax and therefore has an impact on the effective tax rate.



    Devon and its subsidiaries are subject to U.S. federal income tax as well as income or capital taxes in various state and foreign jurisdictions. Devon’s tax reserves are related to tax years that may be subject to examination by the relevant taxing authority. Devon is under audit in the U.S. and various foreign jurisdictions as part of its normal course of business.

Net Loss Per Share Attributable To Devon
Net Loss Per Share Attributable To Devon

8.     Net Loss Per Share Attributable to Devon



The following table reconciles net loss attributable to Devon and weighted-average common shares outstanding used in the calculations of basic and diluted net loss per share.





 

 

 

 

 

 



  

Three Months Ended



 

March 31,



 

2016

 

2015



 

 

 

 

 

 



  

(Millions, except per share amounts)

Net loss:

 

 

 

 

 

 

Net loss attributable to Devon

 

$

(3,056)

 

$

(3,599)

Attributable to participating securities

 

 

 -

 

 

(1)

Basic and diluted loss

 

$

(3,056)

 

$

(3,600)

Common shares:

 

 

 

 

 

 

Common shares outstanding - total

 

 

479 

 

 

410 

Attributable to participating securities

 

 

(5)

 

 

(4)

Common shares outstanding - basic

 

 

474 

 

 

406 

Dilutive effect of potential common shares issuable

 

 

 -

 

 

 -

Common shares outstanding - diluted

 

 

474 

 

 

406 



 

 

 

 

 

 

Net loss per share attributable to Devon:

 

 

 

 

 

 

Basic

 

$

(6.44)

 

$

(8.88)

Diluted

 

$

(6.44)

 

$

(8.88)

Antidilutive options (1)

 

 

 

 

____________________________

(1)

Amounts represent options to purchase shares of Devon’s common stock that are excluded from the diluted net loss per share calculations because the options are antidilutive.

  

Other Comprehensive Earnings
Other Comprehensive Earnings

9.     Other Comprehensive Earnings 



Components of other comprehensive earnings consist of the following:





 

 

 

 

 

 



 

 



 

Three Months Ended March 31,



 

2016

 

2015



 

 

 

 

 

 



 

(Millions)

Foreign currency translation:

 

 

 

 

 

 

Beginning accumulated foreign currency translation

 

$

424 

 

$

983 

Change in cumulative translation adjustment

 

 

51 

 

 

(337)

Income tax benefit (expense)

 

 

(28)

 

 

35 

Ending accumulated foreign currency translation

 

 

447 

 

 

681 

Pension and postretirement benefit plans:

 

 

 

 

 

 

Beginning accumulated pension and postretirement benefits

 

 

(194)

 

 

(204)

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

 

 

 

 

Income tax expense

 

 

(2)

 

 

(2)

Ending accumulated pension and postretirement benefits

 

 

(190)

 

 

(200)

Accumulated other comprehensive earnings, net of tax

 

$

257 

 

$

481 

__________________________

(1)  These accumulated other comprehensive earnings components are included in the computation of net periodic benefit cost, which is a component of G&A on the accompanying consolidated comprehensive statements of earnings. See Note 16 for additional details.

  

 

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

10.     Supplemental Information to Statements of Cash Flows

 



 

 

 

 

 

 



 

Three Months Ended March 31,



 

2016

 

2015



 

 

 

 

 

 



 

(Millions)

Net change in working capital accounts, net of assets and liabilities assumed:

 

 

 

 

 

 

Accounts receivable

 

$

146 

 

$

404 

Other current assets

 

 

366 

 

 

332 

Accounts payable

 

 

(121)

 

 

(15)

Revenues and royalties payable

 

 

(101)

 

 

(236)

Other current liabilities

 

 

(92)

 

 

(270)

Net change in working capital

 

$

198 

 

$

215 



 

 

 

 

 

 

Interest paid (net of capitalized interest)

 

$

115 

 

$

118 

Income taxes paid (received)

 

$

(128)

 

$

(414)



    Devon’s acquisition of certain STACK assets during the first three months of 2016 included the noncash issuance of Devon common stock. See Note 2 for additional details.



    EnLink’s acquisition of Anadarko Basin gathering and processing midstream assets during the first quarter of 2016 included noncash issuance of General Partner common units. See Note 2 for additional details. During the first three months of 2015, EnLink’s acquisitions included $360 million of noncash equity issuance.

Accounts Receivable
Accounts Receivable

11.    Accounts Receivable

 

Components of accounts receivable include the following:





 

 

 

 

 

 



 

 

 

 

 

 



 

March 31, 2016

 

December 31, 2015



 

 

 

 

 

 



 

(Millions)

Oil, gas and NGL sales

 

$

350 

 

$

362 

Joint interest billings

 

 

152 

 

 

211 

Marketing and midstream revenues

 

 

477 

 

 

520 

Other

 

 

62 

 

 

30 

Gross accounts receivable

 

 

1,041 

 

 

1,123 

Allowance for doubtful accounts

 

 

(18)

 

 

(18)

Net accounts receivable

 

$

1,023 

 

$

1,105 

 

Other Current Liabilities
Other Current Liabilities

12.    Other Current Liabilities



    Components of other current liabilities include the following:



 

 

 

 

 



March 31, 2016

 

December 31, 2015



 

 

 

 

 



(Millions)



 

 

 

 

 

Installment payment - see Note 2

$

229 

 

$

 -

Accrued interest payable

 

179