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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.
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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.
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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 $75 million, respectively, of cash collateral which represented the estimated fair value of certain derivative positions in excess of Devon’s credit guidelines. The collateral is reported in other current liabilities in the accompanying consolidated balance sheets.
Commodity Derivatives
As of March 31, 2016, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The second table presents Devon’s oil derivatives that settle against the respective indices noted within the table.
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Price Swaps |
Price Collars |
Call Options Sold |
|||||||||||||||
Period |
Volume (Bbls/d) |
Weighted Average Price ($/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 |
|
|||||||
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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.
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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:
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|||||||
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:
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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.
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Three Months Ended March 31, |
||||||
|
2016 |
2015 |
|||||
|
|||||||
Commodity derivatives: |
(Millions) |
||||||
Oil, gas and NGL derivatives |
$ |
33 |
$ |
294 | |||
Marketing and midstream revenues |
- |
2 | |||||
Interest rate derivatives: |
|||||||
Other nonoperating items |
(72) | 1 | |||||
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.
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March 31, 2016 |
December 31, 2015 |
||||
|
||||||
|
(Millions) |
|||||
Commodity derivative assets: |
||||||
Derivatives, at fair value |
$ |
53 |
$ |
34 | ||
Other long-term assets |
1 | 1 | ||||
Interest rate derivative assets: |
||||||
Derivatives, at fair value |
1 | 1 | ||||
Other long-term assets |
1 | 1 | ||||
Foreign currency derivative assets: |
||||||
Derivatives, at fair value |
- |
8 | ||||
Total derivative assets |
$ |
56 |
$ |
45 | ||
|
||||||
Commodity derivative liabilities: |
||||||
Other current liabilities |
$ |
26 |
$ |
14 | ||
Other long-term liabilities |
2 | 4 | ||||
Interest rate derivative liabilities: |
||||||
Other long-term liabilities |
95 | 22 | ||||
Foreign currency derivative liabilities: |
||||||
Other current liabilities |
26 | 8 | ||||
Total derivative liabilities |
$ |
149 |
$ |
48 |
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5. Asset Impairments
The following table presents the asset impairments recognized by Devon in the first three months of 2016 and 2015, respectively.
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|||||||
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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 |
- |
2 | |||||
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.
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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.
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Other |
Other |
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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 | (2) |
- |
||||||
Balance as of March 31, 2016 |
$ |
164 |
$ |
61 |
$ |
225 | |||
|
|||||||||
Balance as of December 31, 2014 |
$ |
13 |
$ |
7 |
$ |
20 | |||
Changes related to prior years’ restructurings |
(1) | (1) | (2) | ||||||
Balance as of March 31, 2015 |
$ |
12 |
$ |
6 |
$ |
18 | |||
|
|
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.
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|||||||
|
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.
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9. Other Comprehensive Earnings
Components of other comprehensive earnings consist of the following:
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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) |
6 | 6 | ||||
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.
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10. Supplemental Information to Statements of Cash Flows
|
||||||
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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.
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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 |
|
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 | 149 | |||
Restructuring liabilities |
164 | 13 | |||
Other |
333 | 488 | |||
Other current liabilities |
$ |
905 |
$ |
650 |
|
13. Goodwill and Other Intangible Assets
Goodwill
Devon performs an annual impairment test of goodwill at October 31, or more frequently if events or changes in circumstances indicate that the carrying value of a reporting unit may not be recoverable. Sustained weakness in the overall energy sector driven by low commodity prices, together with a decline in EnLink’s unit price, caused a change in circumstances warranting an interim impairment test of EnLink’s reporting units. In the first quarter of 2016, EnLink recorded a noncash goodwill impairment of $873 million. This consisted of a full impairment charge of $93 million related to its Crude and Condensate reporting unit and partial impairment to its Texas and General Partner reporting units of $473 million and $307 million, respectively.
Other Intangible Assets
The following table presents other intangible assets reported in other long-term assets in the accompanying consolidated balance sheets. See Note 2 for discussion of changes in other intangible assets resulting from EnLink acquisitions during the first three months of 2016.
|
March 31, 2016 |
December 31, 2015 |
||||
|
||||||
|
(Millions) |
|||||
|
||||||
Customer relationships |
$ |
1,779 |
$ |
745 | ||
Accumulated amortization |
(82) | (55) | ||||
Net intangibles |
$ |
1,697 |
$ |
690 |
The weighted-average amortization period for other intangible assets is 14 years. Amortization expense for intangibles was approximately $28 million and $12 million for the three months ended March 31, 2016 and 2015, respectively. The remaining aggregate amortization expense is estimated to be $115 million each of the next five years.
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14. Debt
A summary of debt is as follows:
|
March 31, 2016 |
December 31, 2015 |
||||
|
||||||
|
(Millions) |
|||||
Devon debt |
||||||
Commercial paper |
$ |
- |
$ |
626 | ||
Debentures and notes |
9,425 | 9,425 | ||||
Net discount on debentures and notes |
(28) | (28) | ||||
Debt issuance costs |
(56) | (57) | ||||
Total Devon debt |
9,341 | 9,966 | ||||
EnLink debt |
||||||
Credit facilities |
552 | 414 | ||||
Debentures and notes |
2,663 | 2,663 | ||||
Net premium on debentures and notes |
12 | 13 | ||||
Debt issuance costs |
(23) | (24) | ||||
Total EnLink debt |
3,204 | 3,066 | ||||
Total debt |
12,545 | 13,032 | ||||
Less amount classified as short-term debt (1) |
350 | 976 | ||||
Total long-term debt |
$ |
12,195 |
$ |
12,056 |
____________________________
As of January 1, 2016, Devon adopted ASU 2015-03, Interest – Imputation of Interest (Topic 835): Simplifying the Presentation of Debt Issuance Costs. This ASU requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability rather than as an asset. As a result of the adoption, Devon reclassified unamortized debt issuance costs of $81 million as of December 31, 2015 from other long-term assets to a reduction of long-term debt on the consolidated balance sheets.
Commercial Paper
During the three months ended March 31, 2016, Devon reduced commercial paper borrowings by $626 million. As of March 31, 2016, Devon had no outstanding commercial paper borrowings.
Credit Lines
Devon has a $3.0 billion Senior Credit Facility. As of March 31, 2016, there were $43 million in outstanding letters of credit and 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%. Under the terms of the credit agreement, total capitalization is adjusted to add back noncash financial write-downs such as full cost ceiling impairments or goodwill impairments. As of March 31, 2016, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 22.6%.
EnLink Debt
All of EnLink’s and the General Partner’s debt is non-recourse to Devon.
EnLink has a $1.5 billion unsecured revolving credit facility. As of March 31, 2016, there were $11 million in outstanding letters of credit and $543 million in outstanding borrowings at an average rate of 2.23% under the $1.5 billion credit facility. The General Partner has a $250 million secured revolving credit facility. As of March 31, 2016, the General Partner had $9 million in outstanding borrowings at an average rate of 4.25%. EnLink and the General Partner were in compliance with all financial covenants in their respective credit facilities as of March 31, 2016.
|
15. Asset Retirement Obligations
The following table presents the changes in Devon’s asset retirement obligations.
|
||||||
|
Three Months Ended March 31, |
|||||
|
2016 |
2015 |
||||
|
||||||
|
(Millions) |
|||||
Asset retirement obligations as of beginning of period |
$ |
1,414 |
$ |
1,399 | ||
Liabilities incurred and assumed through acquisitions |
12 | 23 | ||||
Liabilities settled and divested |
(17) | (25) | ||||
Revision of estimated obligation |
77 | 62 | ||||
Accretion expense on discounted obligation |
19 | 19 | ||||
Foreign currency translation adjustment |
29 | (53) | ||||
Asset retirement obligations as of end of period |
1,534 | 1,425 | ||||
Less current portion |
43 | 52 | ||||
Asset retirement obligations, long-term |
$ |
1,491 |
$ |
1,373 |
|
16. Retirement Plans
The following table presents the components of net periodic benefit cost for Devon’s pension benefit plans. There was no net periodic benefit cost for postretirement benefit plans for all periods presented below.
|
|||||||
|
Pension Benefits |
||||||
|
Three Months Ended |
||||||
|
March 31, |
||||||
|
2016 |
2015 |
|||||
|
|||||||
|
(Millions) |
||||||
Service cost |
$ |
6 |
$ |
8 | |||
Interest cost |
12 | 13 | |||||
Expected return on plan assets |
(13) | (15) | |||||
Amortization of prior service cost (1) |
1 | 1 | |||||
Net actuarial loss (1) |
5 | 5 | |||||
Net periodic benefit cost (2) |
$ |
11 |
$ |
12 |
__________________________
(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 G&A in the accompanying consolidated comprehensive statements of earnings.
|
17. Stockholders’ Equity
Common Stock Issued
In January 2016, Devon issued approximately 23 million shares of common stock in conjunction with the STACK asset acquisition discussed in Note 2.
In February 2016, Devon issued 79 million shares of common stock to the public, inclusive of 10 million shares sold as part of the underwriters’ option. Net proceeds from the offering were $1.5 billion.
Dividends
Devon paid common stock dividends of $125 million and $99 million in the first three months of 2016 and 2015, respectively. In the first quarter of 2016, Devon announced a decrease in the quarterly cash dividend rate from $0.24 per share to $0.06 per share beginning in the second quarter of 2016.
|
18. Noncontrolling Interests
Subsidiary Equity Transactions
As a result of EnLink’s transactions discussed in Note 2, Devon’s ownership interest in EnLink decreased from 28% at December 31, 2015 to 25% at March 31, 2016, excluding the interest held by the General Partner. Additionally, Devon’s ownership in the General Partner decreased from 70% to 64% during the same time period as a result of the transaction discussed in Note 2. The net gains and losses and related income taxes resulting from these transactions have been recorded as an adjustment to equity, with the change in ownership reflected as an adjustment to noncontrolling interests.
In March 2015, Devon conducted an underwritten secondary public offering of 23 million common units representing limited partner interests in EnLink, raising net proceeds of $569 million.
Distributions to Noncontrolling Interests
EnLink and the General Partner distributed $73 million and $53 million to non-Devon unitholders during the first three months of 2016 and 2015, respectively.
|
19. 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 oil and 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 oil, natural gas and NGLs produced and sold. Devon is also involved in governmental agency proceedings and is subject to related contracts and regulatory controls in the ordinary course of business, some that may lead to additional royalty claims. 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.
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.
|
20. Fair Value Measurements
The following table provides 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 consolidated balance sheets approximated fair value at March 31, 2016 and December 31, 2015. Therefore, such financial assets and liabilities are not presented in the following table. Additionally, information regarding the fair values of oil and gas assets, goodwill and other intangible assets is provided in Note 5 and Note 13.
|
Fair Value Measurements Using: |
||||||||||||||
|
Carrying |
Total Fair |
Level 1 |
Level 2 |
Level 3 |
||||||||||
|
Amount |
Value |
Inputs |
Inputs |
Inputs |
||||||||||
|
|||||||||||||||
|
(Millions) |
||||||||||||||
March 31, 2016 assets (liabilities): |
|||||||||||||||
Cash equivalents |
$ |
1,121 |
$ |
1,121 |
$ |
1,026 |
$ |
95 |
$ |
- |
|||||
Commodity derivatives |
$ |
54 |
$ |
54 |
$ |
- |
$ |
54 |
$ |
- |
|||||
Commodity derivatives |
$ |
(28) |
$ |
(28) |
$ |
- |
$ |
(28) |
$ |
- |
|||||
Interest rate derivatives |
$ |
2 |
$ |
2 |
$ |
- |
$ |
2 |
$ |
- |
|||||
Interest rate derivatives |
$ |
(95) |
$ |
(95) |
$ |
- |
$ |
(95) |
$ |
- |
|||||
Foreign currency derivatives |
$ |
(26) |
$ |
(26) |
$ |
- |
$ |
(26) |
$ |
- |
|||||
Debt |
$ |
(12,545) |
$ |
(11,217) |
$ |
- |
$ |
(11,217) |
$ |
- |
|||||
Capital lease obligations |
$ |
(13) |
$ |
(13) |
$ |
- |
$ |
(13) |
$ |
- |
|||||
|
|||||||||||||||
December 31, 2015 assets (liabilities): |
|||||||||||||||
Cash equivalents |
$ |
1,871 |
$ |
1,871 |
$ |
1,471 |
$ |
400 |
$ |
- |
|||||
Commodity derivatives |
$ |
35 |
$ |
35 |
$ |
- |
$ |
35 |
$ |
- |
|||||
Commodity derivatives |
$ |
(18) |
$ |
(18) |
$ |
- |
$ |
(18) |
$ |
- |
|||||
Interest rate derivatives |
$ |
2 |
$ |
2 |
$ |
- |
$ |
2 |
$ |
- |
|||||
Interest rate derivatives |
$ |
(22) |
$ |
(22) |
$ |
- |
$ |
(22) |
$ |
- |
|||||
Foreign currency derivatives |
$ |
8 |
$ |
8 |
$ |
- |
$ |
8 |
$ |
- |
|||||
Foreign currency derivatives |
$ |
(8) |
$ |
(8) |
$ |
- |
$ |
(8) |
$ |
- |
|||||
Debt |
$ |
(13,032) |
$ |
(11,927) |
$ |
- |
$ |
(11,927) |
$ |
- |
|||||
Capital lease obligations |
$ |
(17) |
$ |
(16) |
$ |
- |
$ |
(16) |
$ |
- |
The following methods and assumptions were used to estimate the fair values in the table above.
Level 1 Fair Value Measurements
Cash equivalents — Amounts consist primarily of money market investments. The fair value approximates the carrying value.
Level 2 Fair Value Measurements
Cash equivalents — Amounts consist primarily of commercial paper and Canadian agency and provincial securities 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 debt are estimated based on rates available for debt with similar terms and maturity. The fair values of commercial paper and credit facility balances are the carrying values.
Capital lease obligations — The fair value was calculated using inputs from third-party banks.
|
21. Segment Information
Devon manages its operations through distinct operating segments, which are defined primarily by geographic areas. For financial reporting purposes, Devon aggregates its U.S. operating segments into one reporting segment due to the similar nature of the businesses. However, Devon’s Canadian exploration and production 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 U.S. and Canadian segments are both primarily engaged in oil and gas exploration and production activities.
Devon considers EnLink, combined with the General Partner, to be an operating segment that is distinct from the U.S. and Canadian operating segments. EnLink’s operations consist of midstream assets and operations located across the U.S. Additionally, EnLink has a management team that is primarily responsible for capital and resource allocation decisions. Therefore, EnLink is presented as a separate reporting segment.
|
|||||||||||||||
|
U.S. |
Canada |
EnLink |
Eliminations |
Total |
||||||||||
|
|||||||||||||||
|
(Millions) |
||||||||||||||
Three Months Ended March 31, 2016: |
|||||||||||||||
Revenues from external customers |
$ |
1,302 |
$ |
117 |
$ |
707 |
$ |
- |
$ |
2,126 | |||||
Intersegment revenues |
$ |
- |
$ |
- |
$ |
183 |
$ |
(183) |
$ |
- |
|||||
Depreciation, depletion and amortization |
$ |
311 |
$ |
109 |
$ |
122 |
$ |
- |
$ |
542 | |||||
Interest expense |
$ |
107 |
$ |
34 |
$ |
44 |
$ |
(20) |
$ |
165 | |||||
Asset impairments |
$ |
1,608 |
$ |
554 |
$ |
873 |
$ |
- |
$ |
3,035 | |||||
Restructuring and transaction costs |
$ |
236 |
$ |
6 |
$ |
5 |
$ |
- |
$ |
247 | |||||
Loss before income taxes |
$ |
(2,065) |
$ |
(749) |
$ |
(871) |
$ |
- |
$ |
(3,685) | |||||
Income tax benefit |
$ |
(5) |
$ |
(208) |
$ |
(4) |
$ |
- |
$ |
(217) | |||||
Net loss |
$ |
(2,060) |
$ |
(541) |
$ |
(867) |
$ |
- |
$ |
(3,468) | |||||
Net loss attributable to noncontrolling interests |
$ |
- |
$ |
- |
$ |
(412) |
$ |
- |
$ |
(412) | |||||
Net loss attributable to Devon |
$ |
(2,060) |
$ |
(541) |
$ |
(455) |
$ |
- |
$ |
(3,056) | |||||
Property and equipment, net |
$ |
8,901 |
$ |
4,246 |
$ |
6,117 |
$ |
- |
$ |
19,264 | |||||
Total assets |
$ |
13,717 |
$ |
4,933 |
$ |
10,066 |
$ |
(79) |
$ |
28,637 | |||||
Capital expenditures, including acquisitions |
$ |
1,893 |
$ |
81 |
$ |
545 |
$ |
- |
$ |
2,519 | |||||
|
|||||||||||||||
Three Months Ended March 31, 2015: |
|||||||||||||||
Revenues from external customers |
$ |
2,260 |
$ |
221 |
$ |
784 |
$ |
- |
$ |
3,265 | |||||
Intersegment revenues |
$ |
- |
$ |
- |
$ |
156 |
$ |
(156) |
$ |
- |
|||||
Depreciation, depletion and amortization |
$ |
712 |
$ |
127 |
$ |
91 |
$ |
- |
$ |
930 | |||||
Interest expense |
$ |
87 |
$ |
25 |
$ |
19 |
$ |
(12) |
$ |
119 | |||||
Asset impairments |
$ |
5,460 |
$ |
- |
$ |
- |
$ |
- |
$ |
5,460 | |||||
Earnings (loss) before income taxes |
$ |
(5,488) |
$ |
(172) |
$ |
36 |
$ |
- |
$ |
(5,624) | |||||
Income tax expense (benefit) |
$ |
(1,993) |
$ |
(53) |
$ |
11 |
$ |
- |
$ |
(2,035) | |||||
Net earnings (loss) |
$ |
(3,495) |
$ |
(119) |
$ |
25 |
$ |
- |
$ |
(3,589) | |||||
Net earnings attributable to noncontrolling interests |
$ |
- |
$ |
- |
$ |
10 |
$ |
- |
$ |
10 | |||||
Net earnings (loss) attributable to Devon |
$ |
(3,495) |
$ |
(119) |
$ |
15 |
$ |
- |
$ |
(3,599) | |||||
Property and equipment, net |
$ |
19,718 |
$ |
6,281 |
$ |
5,456 |
$ |
- |
$ |
31,455 | |||||
Total assets |
$ |
26,751 |
$ |
7,618 |
$ |
11,007 |
$ |
(102) |
$ |
45,274 | |||||
Capital expenditures, including acquisitions |
$ |
1,344 |
$ |
224 |
$ |
514 |
$ |
- |
$ |
2,082 | |||||
|
|
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.
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.
As of January 1, 2016, Devon adopted ASU 2015-03, Interest – Imputation of Interest (Topic 835): Simplifying the Presentation of Debt Issuance Costs. This ASU requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability rather than as an asset. As a result of the adoption, Devon reclassified unamortized debt issuance costs of $81 million as of December 31, 2015 from other long-term assets to a reduction of long-term debt on the consolidated balance sheets.
|
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.
|
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 |
- |
2 | |||||
Interest rate derivatives: |
|||||||
Other nonoperating items |
(72) | 1 | |||||
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 |
1 | 1 | ||||
Interest rate derivative assets: |
||||||
Derivatives, at fair value |
1 | 1 | ||||
Other long-term assets |
1 | 1 | ||||
Foreign currency derivative assets: |
||||||
Derivatives, at fair value |
- |
8 | ||||
Total derivative assets |
$ |
56 |
$ |
45 | ||
|
||||||
Commodity derivative liabilities: |
||||||
Other current liabilities |
$ |
26 |
$ |
14 | ||
Other long-term liabilities |
2 | 4 | ||||
Interest rate derivative liabilities: |
||||||
Other long-term liabilities |
95 | 22 | ||||
Foreign currency derivative liabilities: |
||||||
Other current liabilities |
26 | 8 | ||||
Total derivative liabilities |
$ |
149 |
$ |
48 |
|
||||||||||||||||||
|
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 |
|
||||||||||||||||||
|
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 |
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 |
|
|||||||
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.
|
|||||||||
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 |
|
|
|||||||
|
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 |
- |
2 | |||||
Total asset impairments |
$ |
3,035 |
$ |
5,460 |
|
|
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 | (2) |
- |
||||||
Balance as of March 31, 2016 |
$ |
164 |
$ |
61 |
$ |
225 | |||
|
|||||||||
Balance as of December 31, 2014 |
$ |
13 |
$ |
7 |
$ |
20 | |||
Changes related to prior years’ restructurings |
(1) | (1) | (2) | ||||||
Balance as of March 31, 2015 |
$ |
12 |
$ |
6 |
$ |
18 | |||
|
|
|
|||||||
|
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%) |
|
|
||||||
|
||||||
|
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) |
6 | 6 | ||||
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.
|
|
||||||
|
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) |
|
|
||||||
|
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 |
|
|
March 31, 2016 |
December 31, 2015 |
|||
|
|||||
|
(Millions) |
||||
|
|||||
Installment payment - see Note 2 |
$ |
229 |
$ |
- |
|
Accrued interest payable |
179 | 149 | |||
Restructuring liabilities |
164 | 13 | |||
Other |
333 | 488 | |||
Other current liabilities |
$ |
905 |
$ |
650 |
|
|
March 31, 2016 |
December 31, 2015 |
||||
|
||||||
|
(Millions) |
|||||
|
||||||
Customer relationships |
$ |
1,779 |
$ |
745 | ||
Accumulated amortization |
(82) | (55) | ||||
Net intangibles |
$ |
1,697 |
$ |
690 |
|
|
March 31, 2016 |
December 31, 2015 |
||||
|
||||||
|
(Millions) |
|||||
Devon debt |
||||||
Commercial paper |
$ |
- |
$ |
626 | ||
Debentures and notes |
9,425 | 9,425 | ||||
Net discount on debentures and notes |
(28) | (28) | ||||
Debt issuance costs |
(56) | (57) | ||||
Total Devon debt |
9,341 | 9,966 | ||||
EnLink debt |
||||||
Credit facilities |
552 | 414 | ||||
Debentures and notes |
2,663 | 2,663 | ||||
Net premium on debentures and notes |
12 | 13 | ||||
Debt issuance costs |
(23) | (24) | ||||
Total EnLink debt |
3,204 | 3,066 | ||||
Total debt |
12,545 | 13,032 | ||||
Less amount classified as short-term debt (1) |
350 | 976 | ||||
Total long-term debt |
$ |
12,195 |
$ |
12,056 |
____________________________
|
|
||||||
|
Three Months Ended March 31, |
|||||
|
2016 |
2015 |
||||
|
||||||
|
(Millions) |
|||||
Asset retirement obligations as of beginning of period |
$ |
1,414 |
$ |
1,399 | ||
Liabilities incurred and assumed through acquisitions |
12 | 23 | ||||
Liabilities settled and divested |
(17) | (25) | ||||
Revision of estimated obligation |
77 | 62 | ||||
Accretion expense on discounted obligation |
19 | 19 | ||||
Foreign currency translation adjustment |
29 | (53) | ||||
Asset retirement obligations as of end of period |
1,534 | 1,425 | ||||
Less current portion |
43 | 52 | ||||
Asset retirement obligations, long-term |
$ |
1,491 |
$ |
1,373 |
|
|
|||||||
|
Pension Benefits |
||||||
|
Three Months Ended |
||||||
|
March 31, |
||||||
|
2016 |
2015 |
|||||
|
|||||||
|
(Millions) |
||||||
Service cost |
$ |
6 |
$ |
8 | |||
Interest cost |
12 | 13 | |||||
Expected return on plan assets |
(13) | (15) | |||||
Amortization of prior service cost (1) |
1 | 1 | |||||
Net actuarial loss (1) |
5 | 5 | |||||
Net periodic benefit cost (2) |
$ |
11 |
$ |
12 |
__________________________
(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 G&A in the accompanying consolidated comprehensive statements of earnings.
|
|
Fair Value Measurements Using: |
||||||||||||||
|
Carrying |
Total Fair |
Level 1 |
Level 2 |
Level 3 |
||||||||||
|
Amount |
Value |
Inputs |
Inputs |
Inputs |
||||||||||
|
|||||||||||||||
|
(Millions) |
||||||||||||||
March 31, 2016 assets (liabilities): |
|||||||||||||||
Cash equivalents |
$ |
1,121 |
$ |
1,121 |
$ |
1,026 |
$ |
95 |
$ |
- |
|||||
Commodity derivatives |
$ |
54 |
$ |
54 |
$ |
- |
$ |
54 |
$ |
- |
|||||
Commodity derivatives |
$ |
(28) |
$ |
(28) |
$ |
- |
$ |
(28) |
$ |
- |
|||||
Interest rate derivatives |
$ |
2 |
$ |
2 |
$ |
- |
$ |
2 |
$ |
- |
|||||
Interest rate derivatives |
$ |
(95) |
$ |
(95) |
$ |
- |
$ |
(95) |
$ |
- |
|||||
Foreign currency derivatives |
$ |
(26) |
$ |
(26) |
$ |
- |
$ |
(26) |
$ |
- |
|||||
Debt |
$ |
(12,545) |
$ |
(11,217) |
$ |
- |
$ |
(11,217) |
$ |
- |
|||||
Capital lease obligations |
$ |
(13) |
$ |
(13) |
$ |
- |
$ |
(13) |
$ |
- |
|||||
|
|||||||||||||||
December 31, 2015 assets (liabilities): |
|||||||||||||||
Cash equivalents |
$ |
1,871 |
$ |
1,871 |
$ |
1,471 |
$ |
400 |
$ |
- |
|||||
Commodity derivatives |
$ |
35 |
$ |
35 |
$ |
- |
$ |
35 |
$ |
- |
|||||
Commodity derivatives |
$ |
(18) |
$ |
(18) |
$ |
- |
$ |
(18) |
$ |
- |
|||||
Interest rate derivatives |
$ |
2 |
$ |
2 |
$ |
- |
$ |
2 |
$ |
- |
|||||
Interest rate derivatives |
$ |
(22) |
$ |
(22) |
$ |
- |
$ |
(22) |
$ |
- |
|||||
Foreign currency derivatives |
$ |
8 |
$ |
8 |
$ |
- |
$ |
8 |
$ |
- |
|||||
Foreign currency derivatives |
$ |
(8) |
$ |
(8) |
$ |
- |
$ |
(8) |
$ |
- |
|||||
Debt |
$ |
(13,032) |
$ |
(11,927) |
$ |
- |
$ |
(11,927) |
$ |
- |
|||||
Capital lease obligations |
$ |
(17) |
$ |
(16) |
$ |
- |
$ |
(16) |
$ |
- |
|
|
|||||||||||||||
|
U.S. |
Canada |
EnLink |
Eliminations |
Total |
||||||||||
|
|||||||||||||||
|
(Millions) |
||||||||||||||
Three Months Ended March 31, 2016: |
|||||||||||||||
Revenues from external customers |
$ |
1,302 |
$ |
117 |
$ |
707 |
$ |
- |
$ |
2,126 | |||||
Intersegment revenues |
$ |
- |
$ |
- |
$ |
183 |
$ |
(183) |
$ |
- |
|||||
Depreciation, depletion and amortization |
$ |
311 |
$ |
109 |
$ |
122 |
$ |
- |
$ |
542 | |||||
Interest expense |
$ |
107 |
$ |
34 |
$ |
44 |
$ |
(20) |
$ |
165 | |||||
Asset impairments |
$ |
1,608 |
$ |
554 |
$ |
873 |
$ |
- |
$ |
3,035 | |||||
Restructuring and transaction costs |
$ |
236 |
$ |
6 |
$ |
5 |
$ |
- |
$ |
247 | |||||
Loss before income taxes |
$ |
(2,065) |
$ |
(749) |
$ |
(871) |
$ |
- |
$ |
(3,685) | |||||
Income tax benefit |
$ |
(5) |
$ |
(208) |
$ |
(4) |
$ |
- |
$ |
(217) | |||||
Net loss |
$ |
(2,060) |
$ |
(541) |
$ |
(867) |
$ |
- |
$ |
(3,468) | |||||
Net loss attributable to noncontrolling interests |
$ |
- |
$ |
- |
$ |
(412) |
$ |
- |
$ |
(412) | |||||
Net loss attributable to Devon |
$ |
(2,060) |
$ |
(541) |
$ |
(455) |
$ |
- |
$ |
(3,056) | |||||
Property and equipment, net |
$ |
8,901 |
$ |
4,246 |
$ |
6,117 |
$ |
- |
$ |
19,264 | |||||
Total assets |
$ |
13,717 |
$ |
4,933 |
$ |
10,066 |
$ |
(79) |
$ |
28,637 | |||||
Capital expenditures, including acquisitions |
$ |
1,893 |
$ |
81 |
$ |
545 |
$ |
- |
$ |
2,519 | |||||
|
|||||||||||||||
Three Months Ended March 31, 2015: |
|||||||||||||||
Revenues from external customers |
$ |
2,260 |
$ |
221 |
$ |
784 |
$ |
- |
$ |
3,265 | |||||
Intersegment revenues |
$ |
- |
$ |
- |
$ |
156 |
$ |
(156) |
$ |
- |
|||||
Depreciation, depletion and amortization |
$ |
712 |
$ |
127 |
$ |
91 |
$ |
- |
$ |
930 | |||||
Interest expense |
$ |
87 |
$ |
25 |
$ |
19 |
$ |
(12) |
$ |
119 | |||||
Asset impairments |
$ |
5,460 |
$ |
- |
$ |
- |
$ |
- |
$ |
5,460 | |||||
Earnings (loss) before income taxes |
$ |
(5,488) |
$ |
(172) |
$ |
36 |
$ |
- |
$ |
(5,624) | |||||
Income tax expense (benefit) |
$ |
(1,993) |
$ |
(53) |
$ |
11 |
$ |
- |
$ |
(2,035) | |||||
Net earnings (loss) |
$ |
(3,495) |
$ |
(119) |
$ |
25 |
$ |
- |
$ |
(3,589) | |||||
Net earnings attributable to noncontrolling interests |
$ |
- |
$ |
- |
$ |
10 |
$ |
- |
$ |
10 | |||||
Net earnings (loss) attributable to Devon |
$ |
(3,495) |
$ |
(119) |
$ |
15 |
$ |
- |
$ |
(3,599) | |||||
Property and equipment, net |
$ |
19,718 |
$ |
6,281 |
$ |
5,456 |
$ |
- |
$ |
31,455 | |||||
Total assets |
$ |
26,751 |
$ |
7,618 |
$ |
11,007 |
$ |
(102) |
$ |
45,274 | |||||
Capital expenditures, including acquisitions |
$ |
1,344 |
$ |
224 |
$ |
514 |
$ |
- |
$ |
2,082 | |||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|