Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event report): August 5, 2004
DEVON ENERGY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
 	 	 	 	 	
DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization)	 	000-30176
(Commission File Number)	 	73-1567067
(IRS Employer
Identification Number)	
 	 	 	
20 NORTH BROADWAY, OKLAHOMA CITY, OK
(Address of Principal Executive Offices)	 	73102
(Zip Code)	
Registrant’s telephone number, including area code: ( 405) 235-3611

TABLE OF CONTENTS

									
	Item 7. Financial Statements and Exhibits	
	Item 12. Results of Operations and Financial Condition	
SIGNATURES	
Press Release	

Table of Contents
Item 7. Financial Statements and Exhibits
      (c) Exhibits
99 Devon Energy Corporation Press Release dated August 5, 2004. 
Item 12. Results of Operations and Financial Condition
     Devon Energy Corporation hereby furnishes the information set forth in its Press Release, dated August 5, 2004, announcing second quarter results, a copy of which is attached as Exhibit 99. 
SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized.

 	DEVON ENERGY CORPORATION
 	 	
 	By:  	/s/ Danny J. Heatly  	 	
 	 	Danny J. Heatly 	 	
 	 	Vice President -- Accounting 	 	
 	
Date:August 5, 2004
Page 2

EXHIBIT 99

	 	20 North Broadway
Oklahoma City, Oklahoma 73102-8260	 	Telephone: (405) 235-3611
Fax: (405) 552-4667	

NEWS RELEASE	 	 	
 	 	 	
Investor contact:	 	Zack Hager
(405) 552-4526	
 	 	 	
Media contact:	 	Brian Engel
(405) 228-7750	
DEVON ENERGY’S SECOND QUARTER EARNINGS JUMP 41 PERCENT ON 11
PERCENT PRODUCTION INCREASE
OKLAHOMA CITY — August 5, 2004 — Devon Energy Corporation (AMEX: DVN) today reported net earnings for the quarter ended June 30, 2004, of $502 million, or $2.07 per common share ($2.02 per diluted common share). This represents a 41 percent increase over second quarter 2003 net earnings of $356 million, or $1.67 per common share ($1.62 per diluted common share). An increase in oil and gas production and higher price realizations drove the improvement in net earnings.
     For the six months ended June 30, 2004, the company reported net earnings of $996 million, or $4.13 per common share ($4.02 per diluted common share). This compares with net earnings of $792 million, or $4.27 per common share ($4.11 per diluted common share) for the six months ended June 30, 2003.
     “The company’s second quarter results reflect the strength of our organization and the high quality of Devon’s asset base,” said J. Larry Nichols, Devon’s chairman and chief executive officer. “In addition to strong oil and gas production, the second quarter reflects better than expected operating costs and significantly lower general and administrative expenses.”
Sales Up 25 Percent on Record Production and Higher Prices
     Combined sales of oil, gas and natural gas liquids increased 25 percent from the second quarter of 2003, to $1.8 billion in the quarter ended June 30, 2004. The sales increase reflects higher production volumes and higher prices for all three products.
     Total daily oil, gas and natural gas liquids production climbed 11 percent in the second quarter of 2004 to 684 thousand barrels of oil equivalent (Boe) per day. This compares with total production of 615 thousand Boe per day in the second quarter of 2003. Devon’s April 2003 merger with Ocean Energy contributed significantly to the production increase. However, second quarter 2004 production was also higher on a pro forma basis. Assuming the two companies were merged for the entirety of both quarters, pro forma second quarter production increased four percent in 2004, or about 27 thousand Boe per day over the 2003 quarter.

 

     Devon’s average second quarter realized gas price increased 13 percent to $5.29 per thousand cubic feet in 2004, up from $4.67 per thousand cubic feet in 2003. Devon’s average second quarter realized oil price increased 10 percent to $28.04 per barrel in 2004 compared with $25.42 per barrel in the 2003 quarter. The company’s average realized price for natural gas liquids increased 17 percent in the second quarter of 2004 to $20.89 per barrel compared with $17.88 per barrel in the second quarter of 2003.
     Second quarter marketing and midstream operating margins increased 34 percent to $78 million in 2004. A 12 percent increase in marketing and midstream revenues more than offset an eight percent increase in associated expenses. The improvement in margins was primarily attributable to stronger natural gas and natural gas liquids prices.
Deepwater Results Lead Exploration and Production Highlights
     Devon drilled 398 wells in the second quarter of 2004 with an overall success rate of 98 percent. Capital expenditures for drilling and production facilities were $629 million in the quarter. During the second quarter:

•	 	Devon drilled a successful appraisal of its St. Malo deepwater Gulf of Mexico discovery in the second quarter. This lower Tertiary trend follow-up well encountered more than 400 net feet of oil pay. The company has a 22.5 percent working interest in this significant discovery.	
 	
•	 	The company completed development work on its Red Hawk deepwater Gulf of Mexico natural gas project in the second quarter and commenced production in early July. The field is currently producing at its capacity of 120 million cubic feet per day. Devon has a 50 percent working interest in Red Hawk.	
 	
•	 	Onshore construction of the Magnolia tension leg platform was wrapping up in the second quarter, leading to tow-out to its offshore Louisiana location. The deepwater Magnolia oil field is on schedule to commence production in the fourth quarter. Devon’s share of production is expected to peak in 2005 at more than 10,000 barrels per day.	
 	
•	 	Devon commenced natural gas production from its 100th horizontal well in the Barnett Shale in north Texas in June. More than 20 percent of the company’s daily net Barnett Shale gas production of approximately 555 million cubic feet equivalent is from horizontal wells. The company produces gas from a combined total of more than 1,750 vertical and horizontal wells in the Barnett Shale.	
Cash Flow Boosts Balance Sheet Strength
     Cash flow before balance sheet changes increased 33 percent to $1.2 billion in the second quarter of 2004. During the quarter the company funded $765 million of capital expenditures and paid common and preferred dividends totaling $27 million leaving $393 million of free cash flow. Devon began the second quarter with a cash balance of $1.5 billion, retired $760 million of debt during the quarter and had $1.1 billion of cash on hand as of June 30, 2004. A reconciliation of cash flow before balance sheet changes and free cash flow is presented on the final page of this release.
Operating Expenses and DD&A Increase after Merger; G&A Decreases
     Devon’s April 25, 2003 merger with Ocean Energy significantly increased the size and scope of Devon’s operations. Consequently, most expense items increased in the second quarter of 2004, reflecting a full three months of merged operations.
Page 2

 

     Second quarter lease operating and transportation expenses increased 12 percent to $306 million in 2004. However, on a unit of production basis, lease operating and transportation expenses increased only one percent, to $4.92 per Boe in the second quarter of 2004.
     Depreciation, depletion and amortization expense (DD&A) increased 29 percent in the second quarter of 2004, to $552 million. This increase was driven by higher oil and gas production and by a higher DD&A rate. Devon’s combined DD&A rate totaled $8.86 per Boe in the second quarter of 2004. The combined DD&A rate includes depreciation of Devon’s midstream and corporate assets in addition to depletion of its oil and gas properties.
     General and administrative expenses (G&A) decreased 25 percent to $70 million in the second quarter of 2004 from $93 million in the year-earlier quarter. Second quarter 2004 and 2003 G&A expense included $5 million and $8 million, respectively, for office closings.
     Second quarter interest expense increased two percent to $134 million in 2004. Interest expense for the 2004 quarter included $16 million of unamortized debt issuance costs. The $16 million was expensed in conjunction with Devon’s early retirement of $635 million of long-term debt during the second quarter. Excluding this amount, second quarter interest expense decreased 10 percent in 2004, as compared with 2003.
     Income tax expense for the second quarter of 2004 totaled $270 million, or 35 percent of pre-tax earnings. Most of the increase in income taxes resulted from higher pre-tax earnings. Of the total, $72 million was deferred income tax expense, not requiring the current use of cash.
Items Excluded from Published Estimates
     Devon’s reported net earnings include items of income and expense that are excluded by certain securities analysts in their published estimates of the company’s financial results. Such items and their effects upon second quarter 2004 reported earnings were as follows:

•	 	A charge for abandoning office space in Calgary decreased second quarter 2004 earnings by $5 million pre-tax ($3 million after tax).	
 	
•	 	Debt issuance costs that were written off as a result of early debt repayment decreased earnings by $16 million pre-tax ($10 million after tax).	
 	
•	 	Effects of changes in foreign currency exchange rates decreased earnings by $9 million pre-tax ($8 million after tax). This is primarily related to U.S. dollar denominated debt in Canada.	
 	
•	 	A change in fair value of financial instruments not associated with hedges decreased earnings by $11 million pre-tax ($7 million after tax).	
 	
•	 	A one-time tax benefit, the result of a change in Canadian tax law, increased net earnings by $28 million.	
In aggregate, these items offset one another. Therefore, second quarter 2004 net earnings as reported are comparable to analysts’ estimates.
      Conference Call to be Webcast Today Devon will discuss its second quarter 2004 financial and operating results in a conference call webcast today. The webcast will begin at 10 a.m. Central Time (11 a.m. Eastern Time). The webcast may be accessed from Devon’s internet home page at www.devonenergy.com
Page 3

 

This press release includes “forward-looking statements” as defined by the Securities and Exchange Commission. Such statements are those concerning strategic plans, expectations and objectives for future operations. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the company expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Statements regarding future production are subject to all of the risks and uncertainties normally incident to the exploration for and development and production of oil and gas. These risks include, but are not limited to, inflation or lack of availability of goods and services, environmental risks, drilling risks and regulatory changes. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.
     Devon Energy Corporation is an Oklahoma City-based independent energy company engaged in oil and gas exploration, production and property acquisitions. Devon is the largest U.S.-based independent oil and gas producer and is included in the S&P 500 Index. For more information about Devon, please visit our website at www.devonenergy.com.
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DEVON ENERGY CORPORATION
UNAUDITED FINANCIAL AND OPERATIONAL INFORMATION

PRODUCTION DATA
(net of royalties)	 	Quarter Ended	 	Six Months Ended	
 	 	June 30,
	 	June 30,
	
 	 	2004
	 	2003
	 	2004
	 	2003
	
Total Period Production	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Natural Gas (Bcf)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	120.2	 	 	 	113.7	 	 	 	239.0	 	 	 	211.4	 	
U.S. Offshore	 	 	30.1	 	 	 	34.1	 	 	 	63.1	 	 	 	54.3	 	

 	 	 	 	

Total U.S.	 	 	150.3	 	 	 	147.8	 	 	 	302.1	 	 	 	265.7	 	
Canada	 	 	71.0	 	 	 	66.6	 	 	 	138.3	 	 	 	129.5	 	
International	 	 	2.1	 	 	 	1.3	 	 	 	5.1	 	 	 	1.3	 	

 	 	 	 	

Total Natural Gas	 	 	223.4	 	 	 	215.7	 	 	 	445.5	 	 	 	396.5	 	

 	 	 	 	

Oil (MMBbls)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	3.5	 	 	 	3.6	 	 	 	7.2	 	 	 	7.0	 	
U.S. Offshore	 	 	4.6	 	 	 	4.4	 	 	 	9.6	 	 	 	6.4	 	

 	 	 	 	

Total U.S.	 	 	8.1	 	 	 	8.0	 	 	 	16.8	 	 	 	13.4	 	
Canada	 	 	3.4	 	 	 	3.2	 	 	 	6.8	 	 	 	6.6	 	
International	 	 	7.7	 	 	 	3.7	 	 	 	16.5	 	 	 	4.0	 	

 	 	 	 	

Total Oil	 	 	19.2	 	 	 	14.9	 	 	 	40.1	 	 	 	24.0	 	

 	 	 	 	

Natural Gas Liquids (MMBbls)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	4.4	 	 	 	3.6	 	 	 	8.9	 	 	 	7.2	 	
U.S. Offshore	 	 	0.2	 	 	 	0.3	 	 	 	0.5	 	 	 	0.4	 	

 	 	 	 	

Total U.S.	 	 	4.6	 	 	 	3.9	 	 	 	9.4	 	 	 	7.6	 	
Canada	 	 	1.1	 	 	 	1.2	 	 	 	2.3	 	 	 	2.5	 	
International	 	 	0.1	 	 	 	—	 	 	 	0.2	 	 	 	—	 	

 	 	 	 	

Total Natural Gas Liquids	 	 	5.8	 	 	 	5.1	 	 	 	11.9	 	 	 	10.1	 	

 	 	 	 	

Oil Equivalent (MMBoe)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	28.0	 	 	 	26.2	 	 	 	55.9	 	 	 	49.5	 	
U.S. Offshore	 	 	9.9	 	 	 	10.3	 	 	 	20.7	 	 	 	15.8	 	

 	 	 	 	

Total U.S.	 	 	37.9	 	 	 	36.5	 	 	 	76.6	 	 	 	65.3	 	
Canada	 	 	16.3	 	 	 	15.5	 	 	 	32.2	 	 	 	30.7	 	
International	 	 	8.1	 	 	 	4.0	 	 	 	17.4	 	 	 	4.2	 	

 	 	 	 	

Total Oil Equivalent	 	 	62.3	 	 	 	56.0	 	 	 	126.2	 	 	 	100.2	 	

 	 	 	 	

Average Daily Production	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Natural Gas (MMcf)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	1,320.3	 	 	 	1,249.3	 	 	 	1,312.9	 	 	 	1,167.7	 	
U.S. Offshore	 	 	331.0	 	 	 	374.9	 	 	 	347.2	 	 	 	300.0	 	

 	 	 	 	

Total U.S.	 	 	1,651.3	 	 	 	1,624.2	 	 	 	1,660.1	 	 	 	1,467.7	 	
Canada	 	 	779.9	 	 	 	731.3	 	 	 	759.7	 	 	 	715.6	 	
International	 	 	23.5	 	 	 	14.8	 	 	 	28.3	 	 	 	7.5	 	

 	 	 	 	

Total Natural Gas	 	 	2,454.7	 	 	 	2,370.3	 	 	 	2,448.1	 	 	 	2,190.8	 	

 	 	 	 	

Oil (MBbls)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	38.8	 	 	 	39.4	 	 	 	39.6	 	 	 	38.9	 	
U.S. Offshore	 	 	50.7	 	 	 	48.3	 	 	 	52.8	 	 	 	35.2	 	

 	 	 	 	

Total U.S.	 	 	89.5	 	 	 	87.7	 	 	 	92.4	 	 	 	74.1	 	
Canada	 	 	37.4	 	 	 	35.3	 	 	 	37.6	 	 	 	36.4	 	
International	 	 	84.3	 	 	 	40.6	 	 	 	90.4	 	 	 	22.0	 	

 	 	 	 	

Total Oil	 	 	211.2	 	 	 	163.6	 	 	 	220.4	 	 	 	132.5	 	

 	 	 	 	

Natural Gas Liquids (MBbls)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	48.9	 	 	 	39.9	 	 	 	48.6	 	 	 	39.8	 	
U.S. Offshore	 	 	2.5	 	 	 	2.8	 	 	 	3.0	 	 	 	2.4	 	

 	 	 	 	

Total U.S.	 	 	51.4	 	 	 	42.7	 	 	 	51.6	 	 	 	42.2	 	
Canada	 	 	12.0	 	 	 	13.5	 	 	 	12.7	 	 	 	13.9	 	
International	 	 	0.8	 	 	 	0.4	 	 	 	0.8	 	 	 	0.2	 	

 	 	 	 	

Total Natural Gas Liquids	 	 	64.2	 	 	 	56.6	 	 	 	65.1	 	 	 	56.3	 	

 	 	 	 	

Oil Equivalent (MBoe)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	 	307.7	 	 	 	287.5	 	 	 	307.0	 	 	 	273.5	 	
U.S. Offshore	 	 	108.4	 	 	 	113.5	 	 	 	113.7	 	 	 	87.5	 	

 	 	 	 	

Total U.S.	 	 	416.1	 	 	 	401.0	 	 	 	420.7	 	 	 	361.0	 	
Canada	 	 	179.4	 	 	 	170.7	 	 	 	177.0	 	 	 	169.6	 	
International	 	 	89.0	 	 	 	43.5	 	 	 	96.0	 	 	 	23.4	 	

 	 	 	 	

Total Oil Equivalent	 	 	684.5	 	 	 	615.2	 	 	 	693.7	 	 	 	554.0	 	

 	 	 	 	

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  	 	Quarter Ended	 	Six Months Ended	
REALIZED PRICE DATA
(average realized prices)	 	June 30,
	 	June 30,

 	 	2004
	 	2003
	 	2004
	 	2003
	
Realized Prices	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Natural Gas ($/Mcf)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	5.18	 	 	$	4.55	 	 	$	5.04	 	 	$	4.68	 	
U.S. Offshore	 	$	6.22	 	 	$	5.11	 	 	$	6.12	 	 	$	4.79	 	
Total U.S.	 	$	5.39	 	 	$	4.68	 	 	$	5.27	 	 	$	4.70	 	
Canada	 	$	5.16	 	 	$	4.67	 	 	$	5.04	 	 	$	4.85	 	
International	 	$	2.43	 	 	$	3.45	 	 	$	2.84	 	 	$	3.45	 	

 	 	 	 	

Total Natural Gas	 	$	5.29	 	 	$	4.67	 	 	$	5.17	 	 	$	4.74	 	

 	 	 	 	

Oil ($/Bbl)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	30.58	 	 	$	27.31	 	 	$	29.94	 	 	$	28.57	 	
U.S. Offshore	 	$	29.96	 	 	$	27.51	 	 	$	30.19	 	 	$	28.33	 	
Total U.S.	 	$	30.23	 	 	$	27.42	 	 	$	30.08	 	 	$	28.46	 	
Canada	 	$	21.49	 	 	$	23.88	 	 	$	22.27	 	 	$	24.39	 	
International	 	$	28.63	 	 	$	22.45	 	 	$	28.03	 	 	$	23.00	 	

 	 	 	 	

Total Oil	 	$	28.04	 	 	$	25.42	 	 	$	27.91	 	 	$	26.44	 	

 	 	 	 	

Natural Gas Liquids ($/Bbl)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	18.99	 	 	$	15.99	 	 	$	18.54	 	 	$	17.64	 	
U.S. Offshore	 	$	25.93	 	 	$	24.51	 	 	$	23.59	 	 	$	26.30	 	
Total U.S.	 	$	19.33	 	 	$	16.55	 	 	$	18.83	 	 	$	18.12	 	
Canada	 	$	27.54	 	 	$	21.98	 	 	$	26.33	 	 	$	23.67	 	
International	 	$	21.19	 	 	$	21.30	 	 	$	21.12	 	 	$	21.30	 	

 	 	 	 	

Total Natural Gas Liquids	 	$	20.89	 	 	$	17.88	 	 	$	20.32	 	 	$	19.50	 	

 	 	 	 	

Oil Equivalent ($/Boe)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	29.11	 	 	$	25.73	 	 	$	28.35	 	 	$	26.62	 	
U.S. Offshore	 	$	33.62	 	 	$	29.17	 	 	$	33.34	 	 	$	28.52	 	
Total U.S.	 	$	30.29	 	 	$	26.70	 	 	$	29.70	 	 	$	27.08	 	
Canada	 	$	28.74	 	 	$	26.68	 	 	$	28.27	 	 	$	27.63	 	
International	 	$	27.95	 	 	$	22.34	 	 	$	27.44	 	 	$	22.87	 	

 	 	 	 	

Total Oil Equivalent	 	$	29.58	 	 	$	26.39	 	 	$	29.02	 	 	$	27.07	 	

 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  	 	Quarter Ended	 	Six Months Ended	
BENCHMARK PRICES
(average prices)	 	June 30,
	 	June 30,

 	 	2004
	 	2003
	 	2004
	 	2003
	
Benchmark Prices	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Natural Gas ($/Mcf) — Henry Hub	 	$	6.00	 	 	$	5.40	 	 	$	5.84	 	 	$	5.99	 	
Oil ($/Bbl) — West Texas Intermediate (Cushing)	 	$	38.26	 	 	$	28.97	 	 	$	36.70	 	 	$	31.41	 	

 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  	 	Quarter Ended	 	Six Months Ended	
PRICE DIFFERENTIALS, EXCLUDING EFFECTS OF HEDGES
(average floating price differentials from benchmark prices)	 	June 30,
	 	June 30,

 	 	2004
	 	2003
	 	2004
	 	2003
	
Price Differentials	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Natural Gas ($/Mcf)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	(0.79	)	 	$	(0.60	)	 	$	(0.80	)	 	$	(0.98	)	
U.S. Offshore	 	$	0.22	 	 	$	0.62	 	 	$	0.28	 	 	$	0.23	 	
Total U.S.	 	$	(0.59	)	 	$	(0.35	)	 	$	(0.57	)	 	$	(0.73	)	
Canada	 	$	(0.69	)	 	$	(0.43	)	 	$	(0.64	)	 	$	(0.77	)	
International	 	$	(3.57	)	 	$	(1.95	)	 	$	(3.00	)	 	$	(2.54	)	

 	 	 	 	

Total Natural Gas	 	$	(0.65	)	 	$	(0.39	)	 	$	(0.62	)	 	$	(0.75	)	

 	 	 	 	

Oil ($/Bbl)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	(1.94	)	 	$	(1.24	)	 	$	(2.04	)	 	$	(1.32	)	
U.S. Offshore	 	$	(2.15	)	 	$	(0.48	)	 	$	(1.51	)	 	$	(1.83	)	
Total U.S.	 	$	(2.06	)	 	$	(0.82	)	 	$	(1.74	)	 	$	(1.56	)	
Canada	 	$	(8.76	)	 	$	(4.32	)	 	$	(7.71	)	 	$	(3.55	)	
International	 	$	(4.74	)	 	$	(5.00	)	 	$	(5.18	)	 	$	(7.02	)	

 	 	 	 	

Total Oil	 	$	(4.32	)	 	$	(2.61	)	 	$	(4.17	)	 	$	(3.36	)	

 	 	 	 	

Page 6

 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Quarter Ended	 	Six Months Ended	
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)	 	June 30,
	 	June 30,

 	 	2004
	 	2003
	 	2004
	 	2003
	
Revenues	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Oil sales	 	$	539	 	 	$	379	 	 	$	1,120	 	 	$	635	 	
Gas sales	 	 	1,181	 	 	 	1,007	 	 	 	2,302	 	 	 	1,881	 	
Natural gas liquids sales	 	 	122	 	 	 	92	 	 	 	241	 	 	 	199	 	
Marketing & midstream revenues	 	 	377	 	 	 	335	 	 	 	794	 	 	 	769	 	

 	 	 	 	

Total revenues	 	 	2,219	 	 	 	1,813	 	 	 	4,457	 	 	 	3,484	 	

 	 	 	 	

Operating Costs and Expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Lease operating expenses	 	 	252	 	 	 	223	 	 	 	509	 	 	 	388	 	
Transportation costs	 	 	54	 	 	 	51	 	 	 	107	 	 	 	92	 	
Production taxes	 	 	71	 	 	 	51	 	 	 	133	 	 	 	98	 	
Marketing & midstream operating costs and expenses	 	 	299	 	 	 	277	 	 	 	630	 	 	 	633	 	
Depreciation, depletion and amortization of property & equipment	 	 	552	 	 	 	427	 	 	 	1,124	 	 	 	723	 	
Accretion of asset retirement obligation	 	 	10	 	 	 	9	 	 	 	22	 	 	 	16	 	
General & administrative expenses	 	 	70	 	 	 	93	 	 	 	147	 	 	 	142	 	
Expenses related to mergers	 	 	—	 	 	 	7	 	 	 	—	 	 	 	7	 	

 	 	 	 	

Total operating costs and expenses	 	 	1,308	 	 	 	1,138	 	 	 	2,672	 	 	 	2,099	 	

 	 	 	 	

Earnings from operations	 	 	911	 	 	 	675	 	 	 	1,785	 	 	 	1,385	 	
Other Income (Expenses)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	(134	)	 	 	(130	)	 	 	(252	)	 	 	(260	)	
Dividends on subsidiary’s preferred stock	 	 	—	 	 	 	(1	)	 	 	—	 	 	 	(1	)	
Effects of changes in foreign currency exchange rates	 	 	(9	)	 	 	29	 	 	 	(15	)	 	 	51	 	
Change in fair value of financial instruments	 	 	(11	)	 	 	(1	)	 	 	(7	)	 	 	9	 	
Other income	 	 	15	 	 	 	17	 	 	 	37	 	 	 	25	 	

 	 	 	 	

Net other expenses	 	 	(139	)	 	 	(86	)	 	 	(237	)	 	 	(176	)	

 	 	 	 	

Earnings before income taxes and cumulative effect of change in accounting principle	 	 	772	 	 	 	589	 	 	 	1,548	 	 	 	1,209	 	

 	 	 	 	

Income Tax Expense	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current	 	 	198	 	 	 	89	 	 	 	401	 	 	 	124	 	
Deferred	 	 	72	 	 	 	144	 	 	 	151	 	 	 	309	 	

 	 	 	 	

Total income tax expense	 	 	270	 	 	 	233	 	 	 	552	 	 	 	433	 	

 	 	 	 	

Earnings before cumulative effect of change in accounting principle	 	 	502	 	 	 	356	 	 	 	996	 	 	 	776	 	

 	 	 	 	

Cumulative effect of change in accounting principle	 	 	—	 	 	 	—	 	 	 	—	 	 	 	16	 	

 	 	 	 	

Net earnings	 	 	502	 	 	 	356	 	 	 	996	 	 	 	792	 	

 	 	 	 	

Dividends on preferred stock	 	 	3	 	 	 	3	 	 	 	5	 	 	 	5	 	

 	 	 	 	

Net earnings applicable to common stockholders	 	$	499	 	 	$	353	 	 	$	991	 	 	$	787	 	

 	 	 	 	

Basic earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings from operations	 	$	2.07	 	 	$	1.67	 	 	$	4.13	 	 	$	4.18	 	
Cumulative effect of change in accounting principle	 	$	—	 	 	$	—	 	 	$	—	 	 	$	0.09	 	

 	 	 	 	

Net earnings applicable to common stockholders	 	$	2.07	 	 	$	1.67	 	 	$	4.13	 	 	$	4.27	 	

 	 	 	 	

Diluted earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings from operations	 	$	2.02	 	 	$	1.62	 	 	$	4.02	 	 	$	4.03	 	
Cumulative effect of change in accounting principle	 	$	—	 	 	$	—	 	 	$	—	 	 	$	0.08	 	

 	 	 	 	

Net earnings applicable to common stockholders	 	$	2.02	 	 	$	1.62	 	 	$	4.02	 	 	$	4.11	 	

 	 	 	 	

Basic weighted average shares outstanding	 	 	241	 	 	 	212	 	 	 	240	 	 	 	184	 	
Diluted weighted average shares outstanding	 	 	249	 	 	 	221	 	 	 	248	 	 	 	193	 	
Page 7

 

 	 	 	 	 	 	 	 	 	
 CONSOLIDATED BALANCE SHEETS
(In millions)	 	 	 	 	
 	 	June 30,	 	December 31,	
 	 	2004
	 	2003
	
Assets	 	 	 	 	 	(Audited)	
Current assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	1,147	 	 	$	1,273	 	
Accounts receivable	 	 	1,104	 	 	 	946	 	
Inventories	 	 	68	 	 	 	72	 	
Fair value of financial instruments	 	 	—	 	 	 	13	 	
Income taxes receivable	 	 	11	 	 	 	11	 	
Investments and other current assets	 	 	34	 	 	 	49	 	

 	 	
Total current assets	 	 	2,364	 	 	 	2,364	 	

 	 	
Property and equipment, at cost	 	 	29,704	 	 	 	28,546	 	
Less accumulated depreciation, depletion and amortization	 	 	11,193	 	 	 	10,212	 	
Net property and equipment	 	 	18,511	 	 	 	18,334	 	
Investment in ChevronTexaco Corporation common stock	 	 	667	 	 	 	613	 	
Fair value of financial instruments	 	 	—	 	 	 	14	 	
Goodwill	 	 	5,388	 	 	 	5,477	 	
Other assets	 	 	374	 	 	 	360	 	

 	 	
Total Assets	 	$	27,304	 	 	$	27,162	 	

 	 	
Liabilities and Stockholders’ Equity	 	 	 	 	 	 	 	 	
Current liabilities	 	 	 	 	 	 	 	 	
Accounts payable	 	 	 	 	 	 	 	 	
Trade	 	$	688	 	 	$	859	 	
Revenues and royalties due to others	 	 	420	 	 	 	315	 	
Income taxes payable	 	 	171	 	 	 	15	 	
Current portion of long-term debt	 	 	412	 	 	 	338	 	
Deferred revenue	 	 	28	 	 	 	56	 	
Accrued interest payable	 	 	136	 	 	 	130	 	
Fair value of financial instruments	 	 	368	 	 	 	153	 	
Current portion of asset retirement obligation	 	 	41	 	 	 	42	 	
Accrued expenses and other current liabilities	 	 	117	 	 	 	163	 	

 	 	
Total current liabilities	 	 	2,381	 	 	 	2,071	 	

 	 	
Other liabilities	 	 	354	 	 	 	349	 	
Asset retirement obligation, long-term	 	 	658	 	 	 	629	 	
Debentures exchangeable into shares of Chevron Texaco Corporation common stock	 	 	684	 	 	 	677	 	
Other long-term debt	 	 	6,811	 	 	 	7,903	 	
Preferred stock of subsidiary	 	 	—	 	 	 	55	 	
Fair value of financial instruments	 	 	121	 	 	 	52	 	
Deferred income taxes	 	 	4,332	 	 	 	4,370	 	

 	 	
Stockholders’ equity  	 	 	 	 	 	 	 	 	
Preferred stock	 	 	1	 	 	 	1	 	
Common stock	 	 	24	 	 	 	24	 	
Additional paid-in capital	 	 	9,254	 	 	 	9,066	 	
Retained earnings	 	 	2,557	 	 	 	1,614	 	
Accumulated other comprehensive income	 	 	283	 	 	 	569	 	
Deferred compensation and other	 	 	(26	)	 	 	(32	)	
Treasury stock, at cost	 	 	(130	)	 	 	(186	)	

 	 	
Stockholders’ Equity	 	 	11,963	 	 	 	11,056	 	

 	 	
Total Liabilities & Stockholders’ Equity	 	$	27,304	 	 	$	27,162	 	

 	 	
Common Shares Outstanding	 	 	242	 	 	 	236	 	

 	 	
Page 8

 

 	 	 	 	 	 	 	 	 	
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)	 	 	
 	 	Six Months Ended June 30,
	
 	 	2004
	 	2003
	
Cash Flows From Operating Activities	 	 	 	 	 	 	 	 	
Earnings before cumulative effect of change in accounting principle	 	$	996	 	 	$	776	 	
Depreciation, depletion and amortization of property and equipment	 	 	1,124	 	 	 	723	 	
Accretion of asset retirement obligation	 	 	22	 	 	 	16	 	
Accretion of discounts on long-term debt, net	 	 	5	 	 	 	12	 	
Effects of changes in foreign currency exchange rates	 	 	15	 	 	 	(51	)	
Change in fair value of derivative instruments	 	 	7	 	 	 	(9	)	
Deferred income tax expense	 	 	151	 	 	 	309	 	
Gain on sale of assets	 	 	(4	)	 	 	(2	)	
Other	 	 	35	 	 	 	(16	)	

 	 	
 	 	 	2,351	 	 	 	1,758	 	
Changes in assets and liabilities, net of acquisitions of businesses:	 	 	 	 	 	 	 	 	
(Increase) decrease in:	 	 	 	 	 	 	 	 	
Accounts receivable	 	 	(161	)	 	 	(194	)	
Inventories	 	 	4	 	 	 	(7	)	
Investments and other current assets	 	 	(31	)	 	 	(9	)	
(Increase) decrease in:	 	 	 	 	 	 	 	 	
Accounts payable	 	 	134	 	 	 	44	 	
Income taxes payable	 	 	157	 	 	 	119	 	
Accrued interest and expenses	 	 	(53	)	 	 	87	 	
Deferred revenue	 	 	(28	)	 	 	(14	)	
Long-term other liabilities	 	 	(13	)	 	 	(18	)	

 	 	
Net cash provided by operating activities	 	$	2,360	 	 	$	1,766	 	

 	 	
Cash Flows From Investing Activities	 	 	 	 	 	 	 	 	
Proceeds from sales of property and equipment	 	$	20	 	 	$	31	 	
Capital expenditures	 	 	(1,655	)	 	 	(1,100	)	
Other	 	 	—	 	 	 	12	 	

 	 	
Net cash used in investing activities	 	$	(1,635	)	 	$	(1,057	)	

 	 	
Cash Flows From Financing Activities	 	 	 	 	 	 	 	 	
Proceeds from borrowings of long-term debt, net of issuance costs	 	$	—	 	 	$	50	 	
Principal payments on long-term debt	 	 	(971	)	 	 	(380	)	
Issuance of common stock, net of issuance costs	 	 	188	 	 	 	38	 	
Dividends paid on common stock	 	 	(48	)	 	 	(16	)	
Dividends paid on preferred stock	 	 	(5	)	 	 	(5	)	

 	 	
Net cash used in financing activities	 	$	(836	)	 	$	(313	)	

 	 	
Effect of exchange rate changes on cash	 	$	(15	)	 	$	36	 	
Net (decrease) increase in cash and cash equivalents	 	 	(126	)	 	 	432	 	
Cash and cash equivalents at beginning of period	 	 	1,273	 	 	 	292	 	

 	 	
Cash and cash equivalents at end of period	 	$	1,147	 	 	$	724	 	

 	 	
Page 9

 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  	 	Quarter Ended	 	Six Months Ended	
DRILLING ACTIVITY	 	June 30,
	 	June 30,
	
 	 	2004
	 	2003
	 	2004
	 	2003
	
Exploration Wells Drilled	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S.	 	 	4	 	 	 	4	 	 	 	10	 	 	 	13	 	
Canada	 	 	32	 	 	 	13	 	 	 	131	 	 	 	151	 	
International	 	 	—	 	 	 	1	 	 	 	2	 	 	 	3	 	

 	 	 	 	

Total	 	 	36	 	 	 	18	 	 	 	143	 	 	 	167	 	

 	 	 	 	

Exploration Wells Success Rate	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S.	 	 	75	%	 	 	50	%	 	 	40	%	 	 	62	%	
Canada	 	 	97	%	 	 	92	%	 	 	92	%	 	 	85	%	
International	 	 	—	 	 	 	—	 	 	 	50	%	 	 	—	 	

 	 	 	 	

Total	 	 	94	%	 	 	78	%	 	 	87	%	 	 	81	%	

 	 	 	 	

Development Wells Drilled	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S.	 	 	231	 	 	 	251	 	 	 	508	 	 	 	433	 	
Canada	 	 	110	 	 	 	47	 	 	 	334	 	 	 	204	 	
International	 	 	21	 	 	 	13	 	 	 	36	 	 	 	24	 	

 	 	 	 	

Total	 	 	362	 	 	 	311	 	 	 	878	 	 	 	661	 	

 	 	 	 	

Development Wells Success Rate	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S.	 	 	99	%	 	 	97	%	 	 	98	%	 	 	98	%	
Canada	 	 	99	%	 	 	100	%	 	 	93	%	 	 	96	%	
International	 	 	100	%	 	 	92	%	 	 	100	%	 	 	96	%	

 	 	 	 	

Total	 	 	99	%	 	 	97	%	 	 	97	%	 	 	97	%	

 	 	 	 	

Total Wells Drilled	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S.	 	 	235	 	 	 	255	 	 	 	518	 	 	 	446	 	
Canada	 	 	142	 	 	 	60	 	 	 	465	 	 	 	355	 	
International	 	 	21	 	 	 	14	 	 	 	38	 	 	 	27	 	

 	 	 	 	

Total	 	 	398	 	 	 	329	 	 	 	1,021	 	 	 	828	 	

 	 	 	 	

Total Wells Success Rate	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S.	 	 	98	%	 	 	96	%	 	 	97	%	 	 	97	%	
Canada	 	 	99	%	 	 	98	%	 	 	93	%	 	 	91	%	
International	 	 	100	%	 	 	86	%	 	 	97	%	 	 	85	%	

 	 	 	 	

Total	 	 	98	%	 	 	96	%	 	 	95	%	 	 	94	%	

 	 	 	 	

COMPANY OPERATED RIGS

 	 	June 30,
	
 	 	2004
	 	2003
	
Number of Company Operated Rigs Running	 	 	 	 	 	 	 	 	
U.S.	 	 	47	 	 	 	44	 	
Canada	 	 	20	 	 	 	14	 	
International	 	 	3	 	 	 	1	 	

 	 	
Total	 	 	70	 	 	 	59	 	

 	 	
CAPITAL EXPENDITURES DATA
 (In millions)

 	 	Quarter Ended	 	Six Months Ended	
 	 	June 30, 2004
	 	June 30, 2004
	
Capital Expenditures	 	 	 	 	 	 	 	 	
U.S. Onshore	 	$	253	 	 	$	465	 	
U.S. Offshore	 	 	170	 	 	 	241	 	

 	 	
Total U.S.	 	 	423	 	 	 	706	 	
Canada	 	 	144	 	 	 	490	 	
International	 	 	62	 	 	 	97	 	
Marketing & midstream	 	 	11	 	 	 	22	 	
Capitalized general & administrative costs	 	 	42	 	 	 	84	 	
Capitalized interest costs	 	 	17	 	 	 	34	 	
Other	 	 	20	 	 	 	50	 	

 	 	
Total	 	$	719	 	 	$	1,483	 	

 	 	
10

 

Non-GAAP Financial Measure
     The United States Securities and Exchange Commission has adopted disclosure requirements for public companies such as Devon concerning Non-GAAP financial measures. (GAAP refers to generally accepted accounting principles.) The company must reconcile the Non-GAAP financial measure to related GAAP information. Cash flow before balance sheet changes and free cash flow are Non-GAAP financial measures. Devon believes cash flow before balance sheet changes is relevant because it is a measure of cash available to fund the company’s capital expenditures, dividends and to service its debt. Devon believes free cash flow is relevant because it is a measure of cash available to service debt. Cash flow before balance sheet changes and free cash flow are also used by certain securities analysts as a measure Devon’s financial results. 
RECONCILIATION TO GAAP INFORMATION
 (US$ in millions)

 	 	Quarter Ended	 	Six Months Ended	
 	 	June 30,
	 	June 30,
	
 	 	2004
	 	2003
	 	2004
	 	2003
	
Net Cash Provided By Operating Activities (GAAP)	 	$	1,137	 	 	$	939	 	 	$	2,360	 	 	$	1,766	 	

 	 	 	 	

Changes in assets and liabilities, net of effects of acquisitions of businesses	 	 	48	 	 	 	(49	)	 	 	(9	)	 	 	(8	)	

 	 	 	 	

Cash flow before balance sheet changes (Non-GAAP)	 	$	1,185	 	 	$	890	 	 	$	2,351	 	 	$	1,758	 	

 	 	 	 	

Less:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	765	 	 	 	588	 	 	 	1,655	 	 	 	1,100	 	
Common stock dividends	 	 	24	 	 	 	8	 	 	 	48	 	 	 	16	 	
Preferred stock dividends	 	 	3	 	 	 	3	 	 	 	5	 	 	 	5	 	

 	 	 	 	

Free cash flow (Non-GAAP)	 	$	393	 	 	$	291	 	 	$	643	 	 	$	637	 	

 	 	 	 	

11