Devon Energy Corp. (NYSE: DVN) today reported operational and
financial results for the third quarter of 2016 and provided
guidance for the fourth quarter of 2016.
Highlights
- Achieved record-setting well results in
U.S. resource plays
- Increased STACK production 38 percent
year over year
- Decreased lease operating expenses 37
percent from peak rates
- Expected cost savings to reach $1
billion in 2016
- Completed $3.2 billion asset
divestiture program
- Repurchased $1.2 billion of debt
“Devon delivered an outstanding operational performance in the
third quarter,” said Dave Hager, president and CEO. “Our
development programs generated the best quarterly drill-bit results
in Devon’s 45 year history. These prolific well results were
centered in the STACK play, where production increased by 38
percent. We also continued to achieve significant cost savings in
the quarter and we are on pace to reduce operating and G&A
expenses by $1 billion in 2016.”
“In addition to our strong operating performance, we were able
to successfully complete our $3.2 billion divestiture program,”
Hager said. “These accretive transactions strengthened our
investment-grade position and significantly reduced our leverage
from earlier this year. This improved financial strength allows us
to further accelerate investment in our best-in-class U.S. resource
plays, led by the STACK and Delaware Basin.”
Record-Setting Well Results in U.S. Resource Plays
Total production averaged 577,000 oil-equivalent barrels (Boe)
per day in the third quarter of 2016. Excluding divestiture
properties, production from Devon’s retained asset base amounted to
550,000 Boe per day. With the shift to higher-margin production,
oil is now the largest component of the company’s product mix at 45
percent of total volumes. To further enhance the profitability of
production, Devon rejected approximately 6,000 barrels per day of
ethane during the third quarter.
The majority of Devon’s retained asset production was
attributable to its U.S. resource plays, which averaged 410,000 Boe
per day. Production in the third quarter benefited from new well
activity that achieved record-setting productivity. In aggregate,
Devon commenced production on 20 development wells, with initial
30-day rates averaging an all-time quarterly high of 2,000 Boe per
day. These prolific results were concentrated in the company’s
STACK play, where production increased 38 percent year over
year.
In Canada, Devon’s heavy-oil operations also delivered
impressive results with net oil production reaching 137,000 barrels
per day in the third quarter. Driven by the industry-leading
performance of the Jackfish complex, Canadian oil production
increased 13 percent compared to the third quarter of 2015.
In the upcoming fourth quarter, oil production from retained
assets is expected to be relatively stable compared to the third
quarter, ranging between 238,000 and 248,000 barrels per day. Key
drivers of the stabilized oil production are high activity levels
in the STACK and accelerated completion activity in the Eagle Ford.
Top-line production from retained assets is projected to range
between 524,000 and 546,000 Boe per day in the fourth quarter.
Operating and G&A Cost Savings to Reach $1 Billion in
2016
Devon’s successful cost-reduction initiatives resulted in lease
operating expenses (LOE) of $355 million in the third quarter,
which was 7 percent below the low end of guidance. This strong cost
result represents a decline of 37 percent from peak costs in
mid-2015. The decrease in LOE was primarily driven by improved
power and water-handling infrastructure, declining labor expense
and lower supply chain costs.
The company also realized significant general and administrative
(G&A) cost savings. Net G&A expenditures declined to $141
million in the third quarter. Including capitalized costs, total
G&A expense declined to $195 million, a 44 percent improvement
compared to peak rates in early 2015. The decrease was driven by
reduced personnel costs.
Due to the strong cost performance achieved year to date, the
company is lowering its full-year 2016 LOE outlook by $55 million
to a midpoint of $1.6 billion. With this improved outlook, Devon is
on track to reduce LOE, production taxes and G&A costs by $1
billion compared to 2015.
Upstream Revenue Rises; EnLink Profitability Expands
Improving commodity prices advanced the company’s upstream
revenue to $1.1 billion in the third quarter, with per-unit
realizations increasing 13 percent compared to the previous
quarter. Oil revenue increased to 67 percent of total upstream
sales in the third quarter.
Devon’s midstream results also improved, with operating profits
totaling $210 million in the third quarter, bringing the
year-to-date total to $619 million. This steady source of
profitability was driven by the company’s investment in EnLink
Midstream. Year-to-date, EnLink-related operating profit has
expanded 7 percent compared to the same period in 2015.
EnLink’s growing profitability is derived from an asset base
that is positioned in some of the most attractive markets in North
America, including the STACK, Midland Basin, Delaware Basin and an
NGL business that services end-user demand along the Gulf Coast. In
aggregate, the company’s ownership in EnLink is valued at
approximately $3.5 billion and will generate cash distributions of
$270 million in 2016.
Third-Quarter 2016 Operations Report
For additional details on Devon’s E&P operations, please
refer to the company’s third-quarter 2016 operations report at
www.devonenergy.com. Highlights from the report include:
- Record-setting well results in the
STACK
- Raising Meramec and Woodford type
curves
- Accelerating Delaware Basin rig
activity
- Wolfcamp drilling to ramp up in
2017
- Eagle Ford resumes completion
activity
- Jackfish complex production exceeds
nameplate capacity
Divestiture Program Complete: Proceeds Reach $3.2
Billion
Devon’s divestiture program is now complete with total proceeds
reaching $3.2 billion. During the quarter, the company closed on
the sale of non-core assets in the Midland Basin, East Texas and
Granite Wash for $1.8 billion. With the closing of these
transactions, the company’s upstream divestiture proceeds have
reached $2.1 billion.
Subsequent to quarter end, on Oct. 6, 2016, the company closed
on the sale of its 50 percent interest in the Access Pipeline for
USD $1.1 billion. In addition to these initial proceeds, Devon also
has the right to receive an incremental USD $120 million payment
with the sanctioning and development of a new thermal-oil project
on Devon’s Pike lease in Alberta, Canada. The sale agreement
further allows for Access Pipeline tolls to be reduced by as much
as 30 percent with the future development of multiple projects at
Pike.
Significant Liquidity and Financial Strength
Devon’s financial position remains exceptionally strong, with
investment-grade credit ratings and excellent liquidity. The
company exited the third quarter with $2.4 billion of cash on hand.
Adjusted for the Access Pipeline sale, cash balances reached $3.5
billion.
In August, the company successfully tendered for $1.2 billion of
debt, which is expected to reduce interest expense by $54 million
annually. With the tendering activity focused on near-term
maturities, Devon has no significant long-term debt maturities
until mid-2021.
At the end of September, the company’s consolidated debt totaled
$11.4 billion. Excluding non-recourse EnLink obligations and
adjusting for Access Pipeline proceeds, adjusted net debt has
declined to $4.7 billion.
Devon Increases Hedging Position in 2017
In recent months, Devon has had the opportunity to materially
increase its hedging position in 2017. For oil volumes, Devon has
utilized a combination of swaps and collars to hedge 83,000 barrels
per day of production. For gas volumes, Devon now has 390 million
cubic feet per day of production. These hedging positions represent
more than 30 percent of current oil and natural gas production.
The company expects to continue to add to its hedging position
and is targeting to have approximately 50 percent of its estimated
revenues protected in 2017. This risk-management program will be a
combination of systematic hedges added on a quarterly basis and
discretionary hedges that take advantage of favorable market
conditions.
Operating Cash Flow Grows 117 Percent; Earnings Beat Wall
Street Consensus
Operating cash flow reached $726 million in the third quarter, a
117 percent increase compared to the second quarter of 2016.
Combined with proceeds received from the sale of non-core assets,
Devon’s total cash inflows for the quarter reached $2.4
billion.
Devon’s reported net earnings totaled $993 million or $1.89 per
diluted share in the third quarter. These earnings results were
impacted by certain items securities analysts typically exclude
from their published estimates, with the most significant of these
items being $1.4 billion in gains related to U.S. asset sales.
Excluding these gains and other adjusting items, Devon’s core
earnings were $47 million or $0.09 per diluted share, exceeding
consensus analyst estimates.
Devon’s core earnings calculation in the third quarter was
negatively impacted by an $85 million, non-cash tax charge.
Excluding this charge, the company’s core earnings would have been
$0.16 per share higher, further widening the margin of
outperformance versus analyst expectations.
Updated 2016 Outlook
Detailed forward-looking guidance for the fourth quarter of 2016
is provided later in the release. Based on year-to-date results and
Devon’s fourth-quarter outlook, most operating and financial
metrics remain relatively unchanged compared to previous guidance
disclosures.
Of note, in the fourth quarter, the company expects to increase
its rig activity in the U.S. from five operated rigs running in the
third quarter to as many as 10 operated rigs by year end. This
activity is expected to result in approximately $400 million to
$425 million of E&P capital expenditures in the fourth
quarter.
Non-GAAP Reconciliations
Pursuant to regulatory disclosure requirements, Devon is
required to reconcile non-GAAP (generally accepted accounting
principles) financial measures to the related GAAP information. Net
debt, adjusted net debt, core earnings, and core earnings per share
referenced within the commentary of this release are non-GAAP
financial measures. Reconciliations and other important information
regarding these non-GAAP measures are provided within the tables of
this release.
Conference Call Webcast and Supplemental Earnings
Materials
Please note that as soon as practicable today, Devon will post
an operations report to its website at www.devonenergy.com. The
company’s third-quarter conference call will be held at 10 a.m.
Central (11 a.m. Eastern) on Wednesday, Nov. 2, 2016, and will
serve primarily as a forum for analyst and investor questions and
answers.
Forward-Looking Statements
This press release includes "forward-looking statements" as
defined by the Securities and Exchange Commission (SEC). Such
statements include those concerning strategic plans, expectations
and objectives for future operations, and are often identified by
use of the words “expects,” “believes,” “will,” “would,” “could,”
“forecasts,” “projections,” “estimates,” “plans,” “expectations,”
“targets,” “opportunities,” “potential,” “anticipates,” “outlook”
and other similar terminology. 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 our
business and operations 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: the volatility of oil, gas and NGL prices,
including the currently depressed commodity price environment;
uncertainties inherent in estimating oil, gas and NGL reserves; the
extent to which we are successful in acquiring and discovering
additional reserves; the uncertainties, costs and risks involved in
exploration and development activities; risks related to our
hedging activities; counterparty credit risks; regulatory
restrictions, compliance costs and other risks relating to
governmental regulation, including with respect to environmental
matters; risks relating to our indebtedness; our ability to
successfully complete mergers, acquisitions and divestitures; the
extent to which insurance covers any losses we may experience; our
limited control over third parties who operate our oil and gas
properties; midstream capacity constraints and potential
interruptions in production; competition for leases, materials,
people and capital; cyberattacks targeting our systems and
infrastructure; and any of the other risks and uncertainties
identified in our Form 10-K and our other filings with the SEC.
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. The forward-looking statements in this press release
are made as of the date of this press release, even if subsequently
made available by Devon on its website or otherwise. Devon does not
undertake any obligation to update the forward-looking statements
as a result of new information, future events or otherwise.
The SEC permits oil and gas companies, in their filings with the
SEC, to disclose only proved, probable and possible reserves that
meet the SEC's definitions for such terms, and price and cost
sensitivities for such reserves, and prohibits disclosure of
resources that do not constitute such reserves. This release
may contain certain terms, such as resource potential, potential
locations, risk and unrisked locations, estimated ultimate recovery
(or EUR), exploration target size and other similar
terms. These estimates are by their nature more speculative
than estimates of proved, probable and possible reserves and
accordingly are subject to substantially greater risk of being
actually realized. The SEC guidelines strictly prohibit us from
including these estimates in filings with the SEC. Investors are
urged to consider closely the disclosure in our Form 10-K,
available at www.devonenergy.com. You can also obtain this form
from the SEC by calling 1-800-SEC-0330 or from the SEC’s website at
www.sec.gov.
About Devon Energy
Devon Energy is a leading independent energy company engaged in
finding and producing oil and natural gas. Based in Oklahoma City
and included in the S&P 500, Devon operates in several of the
most prolific oil and natural gas plays in the U.S. and Canada with
an emphasis on a balanced portfolio. The company is the
second-largest oil producer among North American onshore
independents. For more information, please visit
www.devonenergy.com.
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL
INFORMATION
Quarter Ended Nine Months Ended PRODUCTION
NET OF ROYALTIES September 30, September 30,
2016 2015 2016
2015 Oil and bitumen (MBbls/d)
U. S. - Core 108 140 124 143 Heavy Oil 137 121 128 107 Retained
assets 245 261 252 250 Divested assets 6 21 13 24 Total 251 282 265
274
Natural gas liquids (MBbls/d) U. S. - Core 96 108 107
109 Divested assets 8 26 17 27 Total 104 134 124 136
Gas
(MMcf/d) U. S. - Core 1,231 1,319 1,292 1,336 Heavy Oil 18 16
20 21 Retained assets 1,249 1,335 1,312 1,357 Divested assets 75
251 165 262 Total 1,324 1,586 1,477 1,619
Oil equivalent
(MBoe/d) U. S. - Core 410 467 446 474 Heavy Oil 140 124 132 111
Retained assets 550 591 578 585 Divested assets 27 89 57 95 Total
577 680 635 680
KEY OPERATING STATISTICS BY REGION
Quarter Ended September 30, 2016 Avg. Production
Gross Wells Operated Rigs at (MBoe/d)
Drilled September 30, 2016 STACK 92 37 4 Delaware
Basin 59 8 1 Eagle Ford 61 4 — Heavy Oil 140 3 1 Barnett Shale 166
— — Rockies Oil 16 — — Other assets 16 — — Retained assets 550 52 6
Divested assets 27 — — Total 577 52 6
PRODUCTION TREND 2015
2016 Quarter 3 Quarter 4
Quarter 1 Quarter 2
Quarter 3 Oil and bitumen
(MBbls/d) STACK 7 9 15 19 21 Delaware Basin 41 42 38 36 31
Eagle Ford 62 60 59 41 33 Heavy Oil 121 121 126 121 137 Barnett
Shale 1 1 1 1 1 Rockies Oil 16 15 17 15 11 Other assets 13 12 12 11
11 Retained assets 261 260 268 244 245 Divested assets 21 18 17 15
6 Total 282 278 285 259 251
Natural gas liquids (MBbls/d)
STACK 22 24 30 30 23 Delaware Basin 8 11 12 13 12 Eagle Ford 26 27
24 17 13 Barnett Shale 47 49 46 46 44 Rockies Oil 2 1 1 1 1 Other
assets 3 3 2 3 3 Retained assets 108 115 115 110 96 Divested assets
26 24 22 21 8 Total 134 139 137 131 104
Gas (MMcf/d) STACK
229 253 306 289 292 Delaware Basin 70 82 84 99 92 Eagle Ford 155
152 144 103 85 Heavy Oil 16 24 15 28 18 Barnett Shale 807 786 768
757 730 Rockies Oil 41 38 32 31 19 Other assets 17 16 17 14 13
Retained assets 1,335 1,351 1,366 1,321 1,249 Divested assets 251
232 215 206 75 Total 1,586 1,583 1,581 1,527 1,324
Oil
equivalent (MBoe/d) STACK 67 75 96 97 92 Delaware Basin 61 66
63 65 59 Eagle Ford 113 113 107 76 61 Heavy Oil 124 125 129 126 140
Barnett Shale 183 181 175 173 166 Rockies Oil 25 23 23 21 16 Other
assets 18 18 18 16 16 Retained assets 591 601 611 574 550 Divested
assets 89 80 74 70 27 Total 680 681 685 644 577
BENCHMARK
PRICES
(average prices)
Quarter 3 September YTD
2016 2015 2016 2015 Oil ($/Bbl) - West
Texas Intermediate (Cushing) $ 45.02 $ 46.69 $ 41.41 $ 51.11
Natural Gas ($/Mcf) - Henry Hub $ 2.81 $ 2.77 $ 2.28 $ 2.80
REALIZED PRICES Quarter Ended September 30, 2016
Oil /Bitumen NGL Gas Total (Per
Bbl) (Per Bbl) (Per Mcf) (Per Boe) United
States $ 42.51 $ 9.80 $ 2.24 $ 20.26 Canada $ 23.71 N/M
N/M $ 23.23 Realized price without hedges $ 32.27 $ 9.80 $
2.24 $ 20.98 Cash settlements $ 0.84 $ 0.10 $ (0.04 ) $ 0.32
Realized price, including cash settlements $ 33.11 $ 9.90 $ 2.20 $
21.30
Quarter Ended September 30, 2015 Oil
/Bitumen NGL Gas Total (Per Bbl)
(Per Bbl) (Per Mcf) (Per Boe) United States $
42.09 $ 8.80 $ 2.24 $ 20.66 Canada $ 25.10 N/M N/M $
24.55 Realized price without hedges $ 34.78 $ 8.80 $ 2.24 $ 21.37
Cash settlements $ 21.16 $ — $ 0.47 $ 9.86 Realized price,
including cash settlements $ 55.94 $ 8.80 $ 2.71 $ 31.23
Nine Months Ended September 30, 2016 Oil /Bitumen
NGL Gas Total (Per Bbl) (Per
Bbl) (Per Mcf) (Per Boe) United States $ 36.89 $
8.84 $ 1.70 $ 17.16 Canada $ 18.58 N/M N/M $ 18.15
Realized price without hedges $ 28.03 $ 8.84 $ 1.70 $ 17.37 Cash
settlements $ (0.57 ) $ (0.06 ) $ 0.12 $ 0.02 Realized price,
including cash settlements $ 27.46 $ 8.78 $ 1.82 $ 17.39
Nine Months Ended September 30, 2015 Oil /Bitumen
NGL Gas Total (Per Bbl) (Per
Bbl) (Per Mcf) (Per Boe) United States $ 45.91 $
9.50 $ 2.27 $ 22.18 Canada $ 27.84 N/M N/M $ 27.06
Realized price without hedges $ 38.81 $ 9.50 $ 2.27 $ 22.98 Cash
settlements $ 19.48 $ — $ 0.53 $ 9.11 Realized price, including
cash settlements $ 58.29 $ 9.50 $ 2.80 $ 32.09
CONSOLIDATED STATEMENTS OF EARNINGS (in millions,
except per share amounts)
Quarter Ended Nine Months
Ended September 30, September 30, 2016
2015 2016 2015 Oil, gas and NGL sales $ 1,113
$ 1,338 $ 3,023 $ 4,264 Oil, gas and NGL derivatives 79 414 (30 )
426 Marketing and midstream revenues 1,690 1,849 4,503 5,569 Gains
on asset sales 1,351 - 1,351
- Total revenues and other 4,233
3,601 8,847 10,259 Lease
operating expenses 355 510 1,215 1,625 Marketing and midstream
operating expenses 1,480 1,637 3,884 4,939 General and
administrative expenses 141 198 482 661 Production and property
taxes 67 91 220 315 Depreciation, depletion and amortization 394
744 1,420 2,488 Asset impairments 319 5,851 4,851 15,479
Restructuring and transaction costs (5 ) — 266 — Other operating
items 17 14 41 54
Total operating expenses 2,768 9,045
12,379 25,561 Operating income
(loss) 1,465 (5,444 ) (3,532 ) (15,302 ) Net financing costs 243
136 570 378 Other nonoperating items 44 43
150 46 Earnings (loss) before
income taxes 1,178 (5,623 ) (4,252 ) (15,726 ) Income tax expense
(benefit) 171 (1,714 ) (228 )
(5,435 ) Net earnings (loss) 1,007 (3,909 ) (4,024 ) (10,291 ) Net
earnings (loss) attributable to noncontrolling interests 14
(402 ) (391 ) (369 ) Net earnings
(loss) attributable to Devon $ 993 $ (3,507 ) $ (3,633 ) $
(9,922 ) Net earnings (loss) per share attributable to Devon: Basic
$ 1.90 $ (8.64 ) $ (7.22 ) $ (24.45 ) Diluted $ 1.89 $ (8.64 ) $
(7.22 ) $ (24.45 ) Weighted average common shares
outstanding: Basic 524 411 509 411 Diluted 527 411 509 411
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Quarter Ended Nine Months Ended
September 30, September 30, 2016 2015
2016 2015 Cash flows from operating activities: Net
earnings (loss) $ 1,007 $ (3,909 ) $ (4,024 ) $ (10,291 )
Adjustments to reconcile net earnings (loss) to net cash
from operating activities:
Depreciation, depletion and amortization 394 744 1,420 2,488 Asset
impairments 319 5,851 4,851 15,479 Gains on asset sales (1,351 ) -
(1,351 ) - Deferred income tax expense (benefit) 86 (1,708 ) (300 )
(5,348 ) Derivatives and other financial instruments (58 ) (481 )
359 (606 ) Cash settlements on derivatives and financial
instruments 15 730 (133 ) 1,913 Other 169 171 190 437 Net change in
working capital 136 67 181 93 Change in long-term other assets (3 )
52 10 211 Change in long-term other liabilities 12
36 7 (74 ) Net cash from
operating activities 726 1,553
1,210 4,302 Cash flows from investing
activities: Capital expenditures (421 ) (1,080 ) (1,659 ) (4,229 )
Acquisitions of property, equipment and businesses (3 ) (113 )
(1,641 ) (530 ) Divestitures of property and equipment 1,680 27
1,889 35 Other 34 (3 ) 7
(8 ) Net cash from investing activities 1,290
(1,169 ) (1,404 ) (4,732 ) Cash flows from financing
activities: Borrowings of long-term debt, net of issuance costs 816
277 1,662 3,328 Repayments of long-term debt (2,173 ) (252 ) (2,722
) (1,773 ) Net short-term debt repayments — (169 ) (626 ) (932 )
Early retirement of debt (82 ) — (82 ) — Issuance of common stock —
— 1,469 — Sale of subsidiary units — — — 654 Issuance of subsidiary
units 59 9 835 13 Dividends paid on common stock (32 ) (99 ) (190 )
(296 ) Contributions from noncontrolling interests 146 5 151 12
Distributions to noncontrolling interests (77 ) (68 ) (224 ) (186 )
Other (2 ) (3 ) (9 ) (18 ) Net cash
from financing activities (1,345 ) (300 ) 264
802 Effect of exchange rate changes on cash
(9 ) (22 ) 5 (65 ) Net change in
cash and cash equivalents 662 62 75 307 Cash and cash equivalents
at beginning of period 1,723 1,725
2,310 1,480 Cash and cash equivalents
at end of period $ 2,385 $ 1,787 $ 2,385 $
1,787
CONSOLIDATED BALANCE SHEETS (in millions)
September
30, December 31, 2016 2015 Current assets:
Cash and cash equivalents $ 2,385 $ 2,310 Accounts receivable 1,092
1,105 Assets held for sale 717 — Other current assets 257
606 Total current assets 4,451
4,021 Property and equipment, at cost: Oil and gas,
based on full cost accounting: Subject to amortization 75,431
78,190 Not subject to amortization 3,637 2,584
Total oil and gas 79,068 80,774 Midstream and other
10,320 10,380 Total property and equipment, at
cost 89,388 91,154 Less accumulated depreciation, depletion and
amortization (73,219 ) (72,086 ) Property and
equipment, net 16,169 19,068 Goodwill
3,963 5,032 Other long-term assets 2,230 1,330
Total assets $ 26,813 $ 29,451 Current
liabilities: Accounts payable $ 529 $ 906 Revenues and royalties
payable 860 763 Short-term debt 350 976 Liabilities held for sale
202 — Other current liabilities 910 650
Total current liabilities 2,851 3,295
Long-term debt 11,004 12,056 Asset retirement obligations 1,230
1,370 Other long-term liabilities 1,036 853 Deferred income taxes
631 888 Stockholders’ equity: Common stock 52 42 Additional paid-in
capital 7,487 4,996 Retained earnings (accumulated deficit) (1,977
) 1,781 Accumulated other comprehensive earnings 278
230 Total stockholders’ equity attributable to Devon
5,840 7,049 Noncontrolling interests 4,221
3,940 Total stockholders’ equity 10,061
10,989 Total liabilities and stockholders’ equity $ 26,813
$ 29,451 Common shares outstanding 524 418
CONSOLIDATING STATEMENTS OF OPERATIONS
(in millions)
Quarter Ended September 30, 2016
Devon U.S.& Canada
EnLink Eliminations Total Oil, gas and NGL
sales $ 1,113 $ — $ — $ 1,113 Oil, gas and NGL derivatives 79 — —
79 Marketing and midstream revenues
766
1,104 (180 ) 1,690 Gains on asset sales 1,351
— — 1,351 Total revenues and
other 3,309 1,104 (180 )
4,233 Lease operating expenses 355 — — 355 Marketing and
midstream operating expenses 784 876 (180 ) 1,480 General and
administrative expenses 111 30 — 141 Production and property taxes
57 10 — 67 Depreciation, depletion and amortization 268 126 — 394
Asset impairments 319 — — 319 Restructuring and transaction costs
(5 ) — — (5 ) Other operating items 20 (3 )
— 17 Total operating expenses
1,909 1,039 (180 ) 2,768
Operating income 1,400 65 — 1,465 Net financing costs 195 48 — 243
Other nonoperating items 46 (2 ) —
44 Earnings before income taxes 1,159 19 —
1,178 Income tax expense 164 7 —
171 Net earnings 995 12 — 1,007 Net earnings
attributable to noncontrolling interests — 14
— 14 Net earnings (loss)
attributable to Devon $ 995 $ (2 ) $ — $ 993
OTHER KEY STATISTICS (in
millions)
Quarter Ended September 30, 2016
Devon U.S.& Canada
EnLink
Eliminations Total Cash flow
statement related items: Operating cash flow $ 517 $ 209 $ — $
726 Capital expenditures $ (285 ) $ (136 ) $ — $ (421 )
Divestitures of property and equipment $ 1,676 $ 4 $ — $ 1,680
EnLink distributions received (paid) $ 66 $ (143 ) $ — $ (77 )
Issuance of subsidiary units $ — $ 59 $ — $ 59
Balance
sheet statement items:
Net debt (1)
$ 5,784 $ 3,185 $ — $ 8,969
(1) Net debt is a non-GAAP measure. For a reconciliation of the
comparable GAAP measure, see "Non-GAAP Financial Measures" later in
this release.
CAPITAL
EXPENDITURES (in millions)
Quarter Ended September 30,
2016 Nine Months Ended September 30, 2016 Exploration
and development capital $ 231 $ 816 Capitalized G&A and
interest 71 230 Acquisitions 16 1,547 Other 7 19
Devon capital expenditures (1) $ 325 $ 2,612
(1) Excludes $132 million and $816 million attributable to
EnLink for the third quarter and first nine months of 2016,
respectively.
NON-GAAP FINANCIAL MEASURES
This press release includes non-GAAP financial measures. These
non-GAAP measures are not alternatives to GAAP measures, and you
should not consider these non-GAAP measures in isolation or as a
substitute for analysis of our results as reported under GAAP.
Below is additional disclosure regarding each of the non-GAAP
measures used in this press release, including reconciliations to
their most directly comparable GAAP measure.
CORE EARNINGS
Devon’s reported net earnings include items of income and
expense that are typically excluded by securities analysts in their
published estimates of the company’s financial results.
Accordingly, the company also uses the measures of core earnings
and core earnings per share attributable to Devon. Devon believes
these non-GAAP measures facilitate comparisons of its performance
to earnings estimates published by securities analysts. Devon also
believes these non-GAAP measures can facilitate comparisons of its
performance between periods and to the performance of its peers.
The following table summarizes the effects of these items on
third-quarter 2016 earnings.
(in millions, except per share amounts)
Quarter Ended September 30, 2016 Before-tax
After-tax
AfterNoncontrollingInterests
Per Share (Millions) Earnings
attributable to Devon (GAAP) $ 1,178 $ 1,007 $ 993 $ 1.89
Adjustments: Gains on asset sales (1,351 ) (787 ) (787 ) (1.48 )
Deferred tax asset valuation allowance — (408 ) (408 ) (0.78 ) Fair
value changes in financial instruments and foreign currency (16 )
(3 ) (3 ) (0.01 ) Restructuring and transaction costs (5 ) (3 ) (3
) (0.01 ) Early retirement of debt 84 53 53 0.10 Asset impairments
319 202 202 0.38
Core earnings attributable to Devon (Non-GAAP) (1) $ 209
$ 61 $ 47 $ 0.09
(1) Devon's core earning calculation was negatively impacted by
an $85 million, non-cash tax charge or $0.16 per share.
NET DEBT AND ADJUSTED NET DEBT
Devon defines net debt as debt less cash and cash equivalents
and net debt attributable to the consolidation of EnLink Midstream
as presented in the following table. Adjusted net debt is net debt
further adjusted for the proceeds Devon received from the Access
Pipeline divestiture transaction that closed in October of 2016 or
the cash consideration for the Felix acquisition. Devon believes
that adjusting for these items, including the asset sale proceeds
and the Felix cash consideration, against debt and adjusting for
EnLink net debt provides a clearer picture of the future demands on
cash from Devon to repay debt.
(in millions)
September 30, 2016
Devon U.S. & Canada EnLink
Devon Consolidated Total debt (GAAP) $
8,109 $ 3,245 $ 11,354 Less cash and cash equivalents (2,325
) (60 ) (2,385 ) Net debt (Non-GAAP) 5,784 3,185
8,969 Proceeds from asset sales (1,100 ) —
(1,100 ) Adjusted net debt (Non-GAAP) $ 4,684 $ 3,185
$ 7,869 (in millions)
December 31, 2015 Devon U.S. & Canada
EnLink Devon
Consolidated Total debt (GAAP) $ 10,023 $ 3,090 $ 13,113 Less
cash and cash equivalents (2,292 ) (18 )
(2,310 ) Net debt (Non-GAAP) 7,731 3,072 10,803 Cash consideration
for Felix acquisition 850 — 850
Adjusted net debt (Non-GAAP) $ 8,581 $ 3,072 $
11,653
DEVON ENERGY CORPORATION
FORWARD LOOKING GUIDANCE
PRODUCTION GUIDANCE Quarter 4 Low
High Oil and bitumen (MBbls/d)
U.S. 103 108 Heavy Oil 135 140 Total 238 248
Natural gas liquids
(MBbls/d) Total 85 90
Gas (MMcf/d) U.S. 1,190 1,230
Heavy Oil 14 16 Total 1,204 1,246
Oil equivalent (MBoe/d)
U.S.
387
403 Heavy Oil 137 143 Total 524 546
PRICE REALIZATIONS GUIDANCE Quarter 4 Low
High Oil and bitumen - % of WTI U.S. 86
% 96 % Canada 50 % 60 % NGL - realized price $
8
$
13
Natural gas - % of Henry Hub 78 % 88 %
OTHER GUIDANCE ITEMS Quarter 4 ($ millions, except %)
Low High Marketing &
midstream operating profit $ 205 $ 225 Lease operating expenses $
360 $ 400 General & administrative expenses $ 140 $ 160
Production and property taxes $ 55 $ 65 Depreciation, depletion and
amortization $ 400 $ 450 Other operating items $ 20 $ 30 Net
financing costs (1) $ 140 $ 160 Current income tax rate 0.0 % 0.0 %
Deferred income tax rate 35.0 % 45.0 %
Total income tax rate
35.0 % 45.0 % Net earnings attributable to
noncontrolling interests $ - $ -
(1) Fourth quarter includes $13 million of non-cash accretion on
EnLink’s installment purchase obligations.
CAPITAL EXPENDITURES GUIDANCE
Quarter 4 (in millions)
Low
High Exploration and development $ 400 $ 425 Capitalized
G&A 50 60 Capitalized interest 15 20 Other 5 15
Devon capital expenditures (2) $ 470 $ 520
(2) Excludes capital expenditures related to EnLink.
COMMODITY HEDGES Oil
Commodity Hedges Price Swaps Price Collars
Call Options Sold Period
Volume(Bbls/d)
WeightedAveragePrice($/Bbl)
Volume(Bbls/d)
WeightedAverageFloor Price($/Bbl)
WeightedAverageCeiling Price($/Bbl)
Volume(Bbls/d)
WeightedAverage Price($/Bbl)
Q4-2016 40,848 $ 49.02 20,000 $ 40.85 $ 50.85 18,500 $ 55.00 Q1-Q4
2017 31,075 $ 52.48 51,744 $ 45.06 $ 57.96 - $ - Q1-Q4 2018 740 $
51.26 1,973 $ 45.96 $ 55.96 - $ -
Oil Basis Swaps Period
Index Volume (Bbls/d)
Weighted Average Differential toWTI
($/Bbl)
Q4-2016 Western Canadian Select 33,000 (13.40)
Natural Gas Commodity Hedges Price Swaps
Price Collars
Call Options Sold Period
Volume(MMBtu/d)
WeightedAveragePrice($/MMBtu)
Volume(MMBtu/d)
WeightedAverageFloor Price($/MMBtu)
WeightedAverageCeiling Price($/MMBtu)
Volume(MMBtu/d)
WeightedAveragePrice($/MMBtu)
Q4 2016 155,000 $ 2.83 385,000 $ 2.74 $ 2.97 400,000 $ 2.80 Q1-Q4
2017 159,151 $ 3.08 230,904 $ 2.91 $ 3.31 - $ - Q1-Q4 2018 11,096 $
3.35 8,630 $ 3.18 $ 3.48 - $ -
Devon’s oil derivatives settle against the average of the prompt
month NYMEX West Texas Intermediate futures price. Devon’s natural
gas derivatives settle against the Inside FERC first of the month
Henry Hub index. Commodity hedge positions are shown as of October
28, 2016.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161101006642/en/
Devon Energy CorporationInvestor ContactsScott Coody,
405-552-4735Chris Carr, 405-228-2496Media ContactJohn
Porretto, 405-228-7506
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