NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 U.S. GAAP 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 2016 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, 2017 and 2016 and Devon’s financial position as of March 31, 2017.
Recently Adopted Accounting Standards
In January 2017, Devon adopted 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 income taxes when awards vest or are settled, statutory withholding and forfeitures.
As the result of adoption, Devon made certain income tax presentation changes, most notably prospectively presenting excess tax benefits and deficiencies in the consolidated comprehensive statements of earnings and as operating cash flows in the consolidated statements of cash flows.
Devon also retrospectively applied the new cash flow statement guidance dictating the presentation of shares traded for tax-withholding purposes as a financing activity. The adoption of the new guidance did not materially impact the consolidated financial statements for the three months ended March 31, 2017 or previously reported financial information but could have a more material future impact.
In January 2017, the FASB issued ASU 2017-04,
Intangibles - Goodwill And Other (Topic 350)
—
Simplifying the Test for Goodwill Impairment
("ASU 2017-04"). ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test. As a result, under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value. However, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019, including any interim impairment tests within those annual periods, with early application for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. In January 2017, Devon elected to early adopt ASU 2017-04, and the adoption had no impact on the consolidated financial statements. Devon will perform future goodwill impairment tests according to ASU 2017-04.
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. Devon does not plan on early adopting this ASU. 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-effect 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 does not anticipate this ASU will have a material impact on its balance sheet or related consolidated statement of earnings, stockholders’ equity or cash flows. Devon continues to evaluate the impact of the disclosures required by this ASU. Devon does not expect its
10
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
annual disclosures will materially change upon adopting this ASU. However, Devon’s quarterly disclosures will materially expand upo
n adoption of this ASU. Devon is implementing a process to gather and provide the quarterly disclosures required by the ASU.
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, except for some changes made to align with new revenue recognition requirements. 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, but Devon does not plan to early adopt. Devon has begun the process of evaluating contracts and gathering the necessary terms and data elements for purposes of determining the impact this ASU will have on its consolidated financial statements and related disclosures. Based on initial research, Devon estimates more than 7,500 contracts and a large number of data elements must be gathered and reviewed to ensure proper accounting of these contracts once this ASU is effective. Furthermore, Devon anticipates complying with this standard will significantly impact its systems, processes and controls and is evaluating technology requirements and solutions needed to comply with the requirements of this ASU.
The FASB issued ASU No. 2017-07,
Compensation – Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
This ASU will
require entities to present the service cost component of net periodic benefit cost in the same line item as other employee compensation costs and present the other components of net periodic benefit cost outside of operating income in the income statement. Only the service cost component of net periodic benefit cost is eligible for capitalization. T
his ASU is effective for Devon beginning January 1, 2018, and income statement presentation changes will be applied retrospectively, while service cost component capitalization will be applied prospectively. Upon adoption of this ASU, Devon will reclassify $7 million, $14 million and $16 million of non-service cost components of net periodic benefit costs for 2017, 2016 and 2015, respectively, as other nonoperating items. Such amounts are currently classified in Devon’s G&A. No other changes upon adopting this ASU are expected to be material.
2.
|
Acquisitions and Divestitures
|
Devon Acquisitions
On January 7, 2016, Devon acquired approximately 80,000 net acres (unaudited) and assets in the STACK play for approximately $1.5 billion. Devon funded the acquisition with $849 million of cash, after adjustments, and $659 million of common equity shares. The purchase price allocation 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 $1.4 billion. The purchase price allocation was $1.0 billion to intangible assets and approximately $400 million to property and equipment. 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 was 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 installment payment of $250 million was paid in
January 2017. T
he remaining $250 million payment is reported in other current liabilities in the accompanying consolidated balance sheets. The accretion of the discount is reported within net financing costs in the accompanying consolidated comprehensive statement of earnings.
EnLink Asset Divestitures
D
uring the first quarter of 2017, EnLink divested its ownership interest in Howard Energy Partners for approximately $190 million.
11
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Devon Upstream Asset Divestitures
In May 2017, Devon announced its intent to divest approximately $1 billion of upstream assets. The non-core assets identified for monetization include select portions of the Barnett Shale focused primarily around Johnson County and other properties located principally within Devon’s U.S. resource base. Devon expects the divestiture process will take up to 12 to 18 months to complete. Devon plans to deploy divestiture proceeds toward its U.S. resource plays and to further strengthen its investment-grade financial position. The non-core divestiture plan is also expected to accelerate Devon’s transition to higher-margin production.
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 and costless price collars. 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. As of March 31, 2017, Devon did not have any open foreign exchange contracts.
Devon does not intend to hold or issue derivative financial instruments for speculative trading purposes and has elected not to designate any of its derivative instruments for hedge accounting treatment.
Counterparty Credit Risk
By using derivative financial instruments, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon’s policy to enter into derivative contracts only with investment-grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon’s derivative contracts generally contain provisions that provide for collateral payments, if Devon’s or its counterparty’s credit rating falls below certain credit rating levels.
As of March 31, 2017, Devon held $13 million of cash collateral, which represented the estimated fair value of certain derivative positions in excess of Devon’s credit guidelines and is reported in other current liabilities in the accompanying consolidated balance sheets. As of December 31, 2016, Devon held no collateral from counterparties.
Commodity Derivatives
As of March 31, 2017, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The second table presents Devon’s oil derivatives that settle against the respective indices noted within the table.
|
|
Price Swaps
|
|
|
Price Collars
|
|
Period
|
|
Volume
(Bbls/d)
|
|
|
Weighted
Average
Price ($/Bbl)
|
|
|
Volume
(Bbls/d)
|
|
|
Weighted
Average Floor
Price ($/Bbl)
|
|
|
Weighted
Average
Ceiling Price
($/Bbl)
|
|
Q2-Q4 2017
|
|
|
73,945
|
|
|
$
|
54.34
|
|
|
|
61,665
|
|
|
$
|
45.53
|
|
|
$
|
57.96
|
|
Q1-Q4 2018
|
|
|
5,592
|
|
|
$
|
53.38
|
|
|
|
12,921
|
|
|
$
|
46.69
|
|
|
$
|
56.69
|
|
12
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
|
|
Oil Basis Swaps
|
|
Period
|
|
Index
|
|
Volume (Bbls/d)
|
|
|
Weighted Average
Differential to WTI
($/Bbl)
|
|
Q2-Q4 2017
|
|
Western Canadian Select
|
|
|
63,244
|
|
|
$
|
(14.83
|
)
|
Q2-Q4 2017
|
|
Midland Sweet
|
|
|
20,000
|
|
|
$
|
(0.41
|
)
|
As of March 31, 2017, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.
|
|
Price Swaps
|
|
|
Price Collars
|
|
Period
|
|
Volume (MMBtu/d)
|
|
|
Weighted Average Price ($/MMBtu)
|
|
|
Volume (MMBtu/d)
|
|
|
Weighted Average Floor Price ($/MMBtu)
|
|
|
Weighted Average
Ceiling Price ($/MMBtu)
|
|
Q2-Q4 2017
|
|
|
193,218
|
|
|
$
|
3.17
|
|
|
|
411,418
|
|
|
$
|
2.98
|
|
|
$
|
3.38
|
|
Q1-Q4 2018
|
|
|
68,890
|
|
|
$
|
3.17
|
|
|
|
36,986
|
|
|
$
|
3.29
|
|
|
$
|
3.63
|
|
|
|
Natural Gas Basis Swaps
|
|
Period
|
|
Index
|
|
Volume
(MMBtu/d)
|
|
|
Weighted Average
Differential to
Henry Hub
($/MMBtu)
|
|
Q2-Q4 2017
|
|
Panhandle Eastern Pipe Line
|
|
|
150,000
|
|
|
$
|
(0.34
|
)
|
Q2-Q4 2017
|
|
El Paso Natural Gas
|
|
|
80,000
|
|
|
$
|
(0.13
|
)
|
Q2-Q4 2017
|
|
Houston Ship Channel
|
|
|
35,000
|
|
|
$
|
0.06
|
|
Q2-Q4 2017
|
|
Transco Zone 4
|
|
|
205,000
|
|
|
$
|
0.03
|
|
Q1-Q4 2018
|
|
Panhandle Eastern Pipe Line
|
|
|
50,000
|
|
|
$
|
(0.29
|
)
|
As of March 31, 2017, Devon had the following open NGL derivative positions. Devon’s NGL positions settle against the average of the prompt month OPIS Mont Belvieu, Texas index.
|
|
|
|
Price Swaps
|
|
|
Price Collars
|
|
Period
|
|
Product
|
|
Volume (Bbls/d)
|
|
|
Weighted Average Price ($/Bbl)
|
|
|
Volume (Bbls/d)
|
|
|
Weighted Average Floor Price ($/Bbl)
|
|
|
Weighted Average Ceiling Price ($/Bbl)
|
|
Q2-Q4 2017
|
|
Propane
|
|
|
1,662
|
|
|
$
|
27.24
|
|
|
|
1,662
|
|
|
$
|
26.30
|
|
|
$
|
28.40
|
|
Interest Rate Derivatives
As of March 31, 2017, Devon had the following open interest rate derivative positions:
Notional
|
|
|
Rate Received
|
|
|
Rate Paid
|
|
|
Expiration
|
(Millions)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
750
|
|
|
Three Month LIBOR
|
|
|
|
2.98%
|
|
|
December 2048
(1)
|
$
|
100
|
|
|
|
1.76%
|
|
|
Three Month LIBOR
|
|
|
January 2019
|
(1)
|
Mandatory settlement in December 2018.
|
13
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Financial Statement Presentation
The following table presents the net gains and losses by derivative financial instrument type followed by the corresponding individual consolidated comprehensive statements of earnings caption.
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Millions)
|
|
Commodity derivatives:
|
|
|
|
|
|
|
|
|
Oil, gas and NGL derivatives
|
|
$
|
232
|
|
|
$
|
33
|
|
Marketing and midstream revenues
|
|
|
4
|
|
|
|
—
|
|
Interest rate derivatives:
|
|
|
|
|
|
|
|
|
Other nonoperating items
|
|
|
5
|
|
|
|
(72
|
)
|
Foreign currency derivatives:
|
|
|
|
|
|
|
|
|
Other nonoperating items
|
|
|
—
|
|
|
|
(155
|
)
|
Net gains (losses) recognized
|
|
$
|
241
|
|
|
$
|
(194
|
)
|
The following table presents the derivative fair values by derivative financial instrument type followed by the corresponding individual consolidated balance sheet caption.
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
(Millions)
|
|
Commodity derivative assets:
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
79
|
|
|
$
|
9
|
|
Other long-term assets
|
|
|
5
|
|
|
|
1
|
|
Interest rate derivative assets:
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
1
|
|
|
|
1
|
|
Total derivative assets
|
|
$
|
85
|
|
|
$
|
11
|
|
Commodity derivative liabilities:
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
46
|
|
|
$
|
187
|
|
Other long-term liabilities
|
|
|
—
|
|
|
|
16
|
|
Interest rate derivative liabilities:
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
36
|
|
|
|
41
|
|
Total derivative liabilities
|
|
$
|
82
|
|
|
$
|
244
|
|
14
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
4.
|
Share-Based
Compensation
|
The following table presents the effects of share-based compensation included in Devon’s accompanying consolidated comprehensive statements of earnings. Gross G&A expense for the first three months of 2017 and 2016 includes $14 million and $6 million, respectively, of unit-based compensation related to grants made under EnLink’s long-term incentive plans.
The vesting for certain share-based awards was accelerated in 2016 in conjunction with the reduction of workforce described in Note 6. For the three months ended March 31, 2016, approximately $67 million of associated expense for these accelerated awards is included in restructuring and transaction costs in the accompanying consolidated comprehensive statements of earnings.
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Millions)
|
|
Gross G&A for share-based compensation
|
|
$
|
50
|
|
|
$
|
45
|
|
Share-based compensation expense capitalized pursuant to
the full cost method of accounting for oil and gas properties
|
|
$
|
9
|
|
|
$
|
12
|
|
Related income tax benefit
|
|
$
|
1
|
|
|
$
|
9
|
|
Under its approved long-term incentive plan, Devon granted share-based awards to certain employees in the first three months of 2017. The following table presents a summary of Devon’s unvested restricted stock awards and units, performance-based restricted stock awards and performance share units granted under the plan.
|
|
Restricted Stock
|
|
|
Performance-Based
|
|
|
Performance
|
|
|
|
Awards and Units
|
|
|
Restricted Stock Awards
|
|
|
Share Units
|
|
|
|
Awards and
Units
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
|
Awards
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
|
Units
|
|
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
|
|
(Thousands, except fair value data)
|
|
Unvested at 12/31/16
|
|
|
6,407
|
|
|
$
|
34.40
|
|
|
|
585
|
|
|
$
|
37.60
|
|
|
|
2,604
|
|
|
|
|
$
|
46.66
|
|
Granted
|
|
|
2,571
|
|
|
$
|
45.41
|
|
|
|
205
|
|
|
$
|
45.41
|
|
|
|
1,010
|
|
|
|
|
$
|
52.58
|
|
Vested
|
|
|
(2,001
|
)
|
|
$
|
38.33
|
|
|
|
(178
|
)
|
|
$
|
42.43
|
|
|
|
(832
|
)
|
|
|
|
$
|
78.19
|
|
Forfeited
|
|
|
(59
|
)
|
|
$
|
36.06
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
|
$
|
—
|
|
Unvested at 3/31/17
|
|
|
6,918
|
|
|
$
|
37.34
|
|
|
|
612
|
|
|
$
|
38.81
|
|
|
|
2,782
|
|
|
(1
|
)
|
$
|
41.21
|
|
(1)
|
A maximum of 5.6 million common shares could be awarded based upon Devon’s final TSR ranking relative to Devon’s peer group established under applicable award agreements.
|
The following table presents the assumptions related to the performance share units granted in 2017, as indicated in the previous summary table.
|
|
2017
|
|
Grant-date fair value
|
|
$
|
51.05
|
|
|
—
|
|
$
|
53.12
|
|
Risk-free interest rate
|
|
1.50%
|
|
Volatility factor
|
|
45.8%
|
|
Contractual term (years)
|
|
2.89
|
|
15
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
The following table presents a summary of the unrecognized compensation cost and the related weighted average recognition period associated with unvested awards and units as of March 31, 2017.
|
|
|
|
|
|
Performance-Based
|
|
|
|
|
|
|
|
Restricted Stock
|
|
|
Restricted Stock
|
|
|
Performance
|
|
|
|
Awards and Units
|
|
|
Awards
|
|
|
Share Units
|
|
Unrecognized compensation cost (millions)
|
|
$
|
209
|
|
|
$
|
11
|
|
|
$
|
54
|
|
Weighted average period for recognition (years)
|
|
|
2.9
|
|
|
|
2.3
|
|
|
|
2.3
|
|
EnLink Share-Based Awards
In March 2017, the General Partner and EnLink issued restricted incentive units as bonus payments to officers and certain employees. The combined grant fair value was $10 million, and the total cost was recognized in the first quarter of 2017 due to the awards vesting immediately.
The following table presents a summary of the unrecognized compensation cost and the related weighted average recognition period associated with the General Partner’s and EnLink’s unvested restricted incentive units and performance units as of March 31, 2017.
|
|
General Partner
|
|
|
EnLink
|
|
|
|
Restricted
|
|
|
Performance
|
|
|
Restricted
|
|
|
Performance
|
|
|
|
Incentive Units
|
|
|
Units
|
|
|
Incentive Units
|
|
|
Units
|
|
Unrecognized compensation cost (millions)
|
|
$
|
20
|
|
|
$
|
8
|
|
|
$
|
21
|
|
|
$
|
8
|
|
Weighted average period for recognition (years)
|
|
|
2.0
|
|
|
|
2.3
|
|
|
|
2.0
|
|
|
|
2.3
|
|
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.
In the first quarter of 2016, Devon recognized $1.6 billion and $554 million in oil and gas asset impairments for its U.S. and Canadian operations, respectively. 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, EnLink recognized $873 million in goodwill impairments. See Note 12 for additional details.
16
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
6. Restructuring and Transaction Costs
Reduction in Workforce
In the first quarter of 2016, Devon recognized $234 million in employee-related costs associated with a reduction in workforce. 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.
Transaction Costs
In the first quarter of 2016, Devon and EnLink recognized $13 million in transaction costs primarily associated with the closing of the acquisitions discussed in Note 2.
The following table summarizes Devon’s restructuring liabilities.
|
|
Other
|
|
|
Other
|
|
|
|
|
|
|
|
Current
|
|
|
Long-term
|
|
|
|
|
|
|
|
Liabilities
|
|
|
Liabilities
|
|
|
Total
|
|
|
|
(Millions)
|
|
Balance as of December 31, 2016
|
|
$
|
48
|
|
|
$
|
62
|
|
|
$
|
110
|
|
Changes due to 2016 workforce reductions
|
|
|
(18
|
)
|
|
|
—
|
|
|
|
(18
|
)
|
Changes related to prior years' restructurings
|
|
|
3
|
|
|
|
(5
|
)
|
|
|
(2
|
)
|
Balance as of March 31, 2017
|
|
$
|
33
|
|
|
$
|
57
|
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The following table presents Devon’s total income tax expense (benefit) and a reconciliation of its effective income tax rate to the U.S. statutory income tax rate.
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Millions)
|
|
Current income tax expense (benefit)
|
|
$
|
20
|
|
|
$
|
(10
|
)
|
Deferred income tax benefit
|
|
|
(1
|
)
|
|
|
(207
|
)
|
Total income tax expense (benefit)
|
|
$
|
19
|
|
|
$
|
(217
|
)
|
|
|
|
|
|
|
|
|
|
U.S. statutory income tax rate
|
|
|
35
|
%
|
|
|
35
|
%
|
Deferred tax asset valuation allowance
|
|
|
(32
|
%)
|
|
|
(22
|
%)
|
Non-deductible goodwill impairments
|
|
|
0
|
%
|
|
|
(8
|
%)
|
Taxation on Canadian operations
|
|
|
0
|
%
|
|
|
(2
|
%)
|
State income taxes
|
|
|
1
|
%
|
|
|
1
|
%
|
Other
|
|
|
(1
|
%)
|
|
|
2
|
%
|
Effective income tax rate
|
|
|
3
|
%
|
|
|
6
|
%
|
17
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
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.
Throughout 2016 and into the first quarter of 2017, Devon continued to maintain a 100% valuation allowance against its U.S. deferred tax assets resulting from prior year cumulative financial losses largely due to full cost impairments. Furthermore, a partial allowance continues to be held against certain Canadian segment deferred tax assets. Devon provided an additional $808 million and a reduction of $192 million to the U.S. segment valuation allowance in the first quarters of 2016 and 2017, respectively, based on the financial loss and income recorded during those periods.
In the first quarter of 2016, EnLink recorded goodwill impairments totaling $873 million. These impairments are not deductible for purposes of calculating income tax and, therefore, have an impact on the effective tax rate.
Devon is under audit in the U.S. and various foreign jurisdictions as part of its normal course of business. The timing of resolution of income tax examinations is uncertain as are the amounts and timing of tax payments that are part of any audit settlement process. Devon believes that within the next 12 months, it is reasonably possible that certain tax examinations will be resolved by settlement with the taxing authorities.
8.
|
Net Earnings (Loss) Per Share Attributable to Devon
|
The following table reconciles net earnings (loss) attributable to Devon and weighted-average common shares outstanding used in the calculations of basic and diluted net earnings (loss) per share.
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Millions, except per share amounts)
|
|
Net earnings (loss):
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Devon
|
|
$
|
565
|
|
|
$
|
(3,056
|
)
|
Attributable to participating securities
|
|
|
(6
|
)
|
|
|
—
|
|
Basic and diluted earnings (loss)
|
|
$
|
559
|
|
|
$
|
(3,056
|
)
|
Common shares:
|
|
|
|
|
|
|
|
|
Common shares outstanding - total
|
|
|
525
|
|
|
|
479
|
|
Attributable to participating securities
|
|
|
(6
|
)
|
|
|
(5
|
)
|
Common shares outstanding - basic
|
|
|
519
|
|
|
|
474
|
|
Dilutive effect of potential common shares issuable
|
|
|
3
|
|
|
|
—
|
|
Common shares outstanding - diluted
|
|
|
522
|
|
|
|
474
|
|
Net earnings (loss) per share attributable to Devon:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.08
|
|
|
$
|
(6.44
|
)
|
Diluted
|
|
$
|
1.07
|
|
|
$
|
(6.44
|
)
|
Antidilutive options
(1)
|
|
|
2
|
|
|
|
3
|
|
(1)
|
Amounts represent options to purchase shares of Devon’s common stock that are excluded from the diluted net earnings (loss) per share calculations because the options are antidilutive.
|
18
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
9.
|
Other Comprehensive Earnings
|
Components of other comprehensive earnings consist of the following:
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Millions)
|
|
Foreign currency translation:
|
|
|
|
|
|
|
|
|
Beginning accumulated foreign currency translation
|
|
$
|
456
|
|
|
$
|
424
|
|
Change in cumulative translation adjustment
|
|
|
1
|
|
|
|
51
|
|
Income tax expense
|
|
|
(3
|
)
|
|
|
(28
|
)
|
Ending accumulated foreign currency translation
|
|
|
454
|
|
|
|
447
|
|
Pension and postretirement benefit plans:
|
|
|
|
|
|
|
|
|
Beginning accumulated pension and postretirement benefits
|
|
|
(172
|
)
|
|
|
(194
|
)
|
Recognition of net actuarial loss and prior service cost in earnings
(1)
|
|
|
5
|
|
|
|
6
|
|
Income tax expense
|
|
|
—
|
|
|
|
(2
|
)
|
Ending accumulated pension and postretirement benefits
|
|
|
(167
|
)
|
|
|
(190
|
)
|
Accumulated other comprehensive earnings, net of tax
|
|
$
|
287
|
|
|
$
|
257
|
|
(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.
|
10.
|
Supplemental Information to Statements of Cash Flows
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Millions)
|
|
Net change in working capital accounts, net of assets and liabilities assumed:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
48
|
|
|
$
|
146
|
|
Income taxes receivable
|
|
|
1
|
|
|
|
115
|
|
Other current assets
|
|
|
(22
|
)
|
|
|
251
|
|
Accounts payable
|
|
|
4
|
|
|
|
(121
|
)
|
Revenues and royalties payable
|
|
|
73
|
|
|
|
(101
|
)
|
Other current liabilities
|
|
|
(89
|
)
|
|
|
(76
|
)
|
Net change in working capital
|
|
$
|
15
|
|
|
$
|
214
|
|
Interest paid (net of capitalized interest)
|
|
$
|
92
|
|
|
$
|
115
|
|
Income taxes paid (received)
|
|
$
|
3
|
|
|
$
|
(128
|
)
|
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 three months of 2016 included noncash issuance of General Partner common units. See Note 2 for additional details.
19
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Components of accounts receivable include the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
(Millions)
|
|
Oil, gas and NGL sales
|
|
$
|
495
|
|
|
$
|
487
|
|
Joint interest billings
|
|
|
104
|
|
|
|
110
|
|
Marketing and midstream revenues
|
|
|
672
|
|
|
|
708
|
|
Other
|
|
|
67
|
|
|
|
69
|
|
Gross accounts receivable
|
|
|
1,338
|
|
|
|
1,374
|
|
Allowance for doubtful accounts
|
|
|
(18
|
)
|
|
|
(18
|
)
|
Net accounts receivable
|
|
$
|
1,320
|
|
|
$
|
1,356
|
|
12.
|
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 noncash goodwill impairment of $873 million in the first quarter of 2016. This consisted of a full impairment charge of $93 million related to EnLink’s Crude and Condensate reporting unit and partial impairment to EnLink’s 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.
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
(Millions)
|
|
Customer relationships
|
|
$
|
1,796
|
|
|
$
|
1,796
|
|
Accumulated amortization
|
|
|
(201
|
)
|
|
|
(172
|
)
|
Net intangibles
|
|
$
|
1,595
|
|
|
$
|
1,624
|
|
The weighted-average amortization period for other intangible assets is 14 years. Amortization expense for intangibles was approximately $29 million and $28 million for the three months ended March 31, 2017 and 2016, respectively. The remaining amortization expense is estimated to be $118 million for each of the next five years.
1
3
.
|
Other Current Liabilities
|
Components of other current liabilities include the following:
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
(Millions)
|
|
Installment payment - see Note 2
|
$
|
230
|
|
|
$
|
249
|
|
Derivative liabilities
|
|
46
|
|
|
|
187
|
|
Accrued interest payable
|
|
156
|
|
|
|
130
|
|
Restructuring liabilities
|
|
33
|
|
|
|
48
|
|
Other
|
|
376
|
|
|
|
452
|
|
Other current liabilities
|
$
|
841
|
|
|
$
|
1,066
|
|
20
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
14.
|
Debt and Related Expenses
|
A summary of debt is as follows:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
(Millions)
|
|
Devon debt:
|
|
|
|
|
|
|
|
|
Debentures and notes
|
|
$
|
6,933
|
|
|
$
|
6,933
|
|
Net discount on debentures and notes
|
|
|
(30
|
)
|
|
|
(30
|
)
|
Debt issuance costs
|
|
|
(43
|
)
|
|
|
(44
|
)
|
Total Devon debt
|
|
|
6,860
|
|
|
|
6,859
|
|
EnLink debt:
|
|
|
|
|
|
|
|
|
Credit facilities
|
|
|
373
|
|
|
|
148
|
|
Debentures and notes
|
|
|
3,163
|
|
|
|
3,163
|
|
Net premium on debentures and notes
|
|
|
9
|
|
|
|
9
|
|
Debt issuance costs
|
|
|
(24
|
)
|
|
|
(25
|
)
|
Total EnLink debt
|
|
|
3,521
|
|
|
|
3,295
|
|
Total long-term debt
|
|
$
|
10,381
|
|
|
$
|
10,154
|
|
Credit Lines
Devon has a $3.0 billion Senior Credit Facility. As of March 31, 2017, Devon had $149 million in outstanding letters of credit, including $57 million in outstanding letters of credit under the Senior Credit Facility. There were no outstanding borrowings under the Senior Credit Facility at March 31, 2017. 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, 2017, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 19.2%.
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, 2017, there were $9 million in outstanding letters of credit and $330 million in outstanding borrowings at an average rate of 3.00% under the $1.5 billion credit facility. The General Partner has a $250 million secured revolving credit facility. As of March 31, 2017, the General Partner had $43 million in outstanding borrowings at an average rate of 3.06%. EnLink and the General Partner were in compliance with all financial covenants in their respective credit facilities as of March 31, 2017.
In April 2017, EnLink issued notice to redeem its 7.125% senior unsecured notes due 2022 on June 1, 2017.
21
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
15.
|
Asset Retirement Obligations
|
The following table presents the changes in Devon’s asset retirement obligations.
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
Asset retirement obligations as of beginning of period
|
|
$
|
1,272
|
|
|
$
|
1,414
|
|
Liabilities incurred and assumed through acquisitions
|
|
|
10
|
|
|
|
12
|
|
Liabilities settled and divested
|
|
|
(13
|
)
|
|
|
(17
|
)
|
Revision of estimated obligation
|
|
|
(184
|
)
|
|
|
77
|
|
Accretion expense on discounted obligation
|
|
|
17
|
|
|
|
19
|
|
Foreign currency translation adjustment
|
|
|
4
|
|
|
|
29
|
|
Asset retirement obligations as of end of period
|
|
|
1,106
|
|
|
|
1,534
|
|
Less current portion
|
|
|
39
|
|
|
|
43
|
|
Asset retirement obligations, long-term
|
|
$
|
1,067
|
|
|
$
|
1,491
|
|
During the first quarter of 2017, Devon reduced its estimated asset retirement obligations by $184 million primarily due to changes in the assumed inflation rate and retirement dates for its oil and gas assets.
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,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
4
|
|
|
$
|
6
|
|
Interest cost
|
|
|
11
|
|
|
|
12
|
|
Expected return on plan assets
|
|
|
(14
|
)
|
|
|
(13
|
)
|
Amortization of prior service cost
(1)
|
|
|
1
|
|
|
|
1
|
|
Net actuarial loss
(1)
|
|
|
4
|
|
|
|
5
|
|
Net periodic benefit cost
(2)
|
|
$
|
6
|
|
|
$
|
11
|
|
(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.
|
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.
22
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Dividends
Devon paid common stock dividends of $32 million and $125 million in the first three months of 2017 and 2016, respectively. Devon decreased its 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
EnLink has the ability to sell common units through an “at the market” equity offering program. During the first quarter of 2017, EnLink issued and sold 3 million common units though its “at the market” program and generated $55 million in net proceeds. During the first quarter of 2016, EnLink issued preferred units in conjunction with its acquisition of Anadarko Basin gathering and processing midstream assets as discussed in Note 2. As of March 31, 2017, Devon’s ownership interest in EnLink was 24%, excluding the interest held by the General Partner. Devon’s ownership interest in the General Partner as of March 31, 2017 was 64%. 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.
Distributions to Noncontrolling Interests
EnLink and the General Partner distributed $81 million and $73 million to non-Devon unitholders during the first three months of 2017 and 2016, 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 environmental, health and safety laws and regulations, including with respect 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 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.
23
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
20.
|
Fair Value Measurements
|
The following table provides carrying value and fair value measurement information for certain of Devon’s financial assets and liabilities. None of the items below are measured using Level 3 inputs. 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, 2017 and December 31, 2016. Therefore, such financial assets and liabilities are not presented in the following table. Additionally, the fair values of oil and gas assets, goodwill and other intangible assets and related impairments are measured as of the impairment date using Level 3 inputs. More information on these items is provided in Note 5 and Note 12, respectively.
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Measurements Using:
|
|
|
|
Carrying
|
|
|
Total Fair
|
|
|
Level 1
|
|
|
Level 2
|
|
|
|
Amount
|
|
|
Value
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
(Millions)
|
|
March 31, 2017 assets (liabilities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
1,734
|
|
|
$
|
1,734
|
|
|
$
|
1,558
|
|
|
$
|
176
|
|
Commodity derivatives
|
|
$
|
84
|
|
|
$
|
84
|
|
|
$
|
—
|
|
|
$
|
84
|
|
Commodity derivatives
|
|
$
|
(46
|
)
|
|
$
|
(46
|
)
|
|
$
|
—
|
|
|
$
|
(46
|
)
|
Interest rate derivatives
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Interest rate derivatives
|
|
$
|
(36
|
)
|
|
$
|
(36
|
)
|
|
$
|
—
|
|
|
$
|
(36
|
)
|
Debt
|
|
$
|
(10,381
|
)
|
|
$
|
(11,184
|
)
|
|
$
|
—
|
|
|
$
|
(11,184
|
)
|
Installment payment
|
|
$
|
(230
|
)
|
|
$
|
(233
|
)
|
|
$
|
—
|
|
|
$
|
(233
|
)
|
Capital lease obligations
|
|
$
|
(5
|
)
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 assets (liabilities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
1,542
|
|
|
$
|
1,542
|
|
|
$
|
1,298
|
|
|
$
|
244
|
|
Commodity derivatives
|
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
10
|
|
Commodity derivatives
|
|
$
|
(203
|
)
|
|
$
|
(203
|
)
|
|
$
|
—
|
|
|
$
|
(203
|
)
|
Interest rate derivatives
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Interest rate derivatives
|
|
$
|
(41
|
)
|
|
$
|
(41
|
)
|
|
$
|
—
|
|
|
$
|
(41
|
)
|
Debt
|
|
$
|
(10,154
|
)
|
|
$
|
(10,760
|
)
|
|
$
|
—
|
|
|
$
|
(10,760
|
)
|
Installment payment
|
|
$
|
(473
|
)
|
|
$
|
(477
|
)
|
|
$
|
—
|
|
|
$
|
(477
|
)
|
Capital lease obligations
|
|
$
|
(7
|
)
|
|
$
|
(6
|
)
|
|
$
|
—
|
|
|
$
|
(6
|
)
|
24
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
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 and U.S. and Canadian treasury securities. 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.
Installment payment
– The fair value of the EnLink installment payment was based on Level 2 inputs from third-party market quotations.
Capital lease obligations
– The fair value was calculated using inputs from third-party banks.
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 E&P 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 E&P 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.
25
Table of Contents
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
|
|
U.S.
|
|
|
Canada
|
|
|
EnLink
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(Millions)
|
|
Three Months Ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
2,081
|
|
|
$
|
319
|
|
|
$
|
1,151
|
|
|
$
|
—
|
|
|
$
|
3,551
|
|
Intersegment revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
171
|
|
|
$
|
(171
|
)
|
|
$
|
—
|
|
Depreciation, depletion and amortization
|
|
$
|
181
|
|
|
$
|
72
|
|
|
$
|
128
|
|
|
$
|
—
|
|
|
$
|
381
|
|
Interest expense
|
|
$
|
80
|
|
|
$
|
20
|
|
|
$
|
45
|
|
|
$
|
(15
|
)
|
|
$
|
130
|
|
Asset impairments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
7
|
|
Earnings before income taxes
|
|
$
|
557
|
|
|
$
|
29
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
598
|
|
Income tax expense
|
|
$
|
3
|
|
|
$
|
13
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
19
|
|
Net earnings
|
|
$
|
554
|
|
|
$
|
16
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
579
|
|
Net earnings attributable to noncontrolling interests
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
14
|
|
Net earnings (loss) attributable to Devon
|
|
$
|
554
|
|
|
$
|
16
|
|
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
$
|
565
|
|
Property and equipment, net
|
|
$
|
7,452
|
|
|
$
|
2,573
|
|
|
$
|
6,396
|
|
|
$
|
—
|
|
|
$
|
16,421
|
|
Total assets
|
|
$
|
12,648
|
|
|
$
|
3,364
|
|
|
$
|
10,177
|
|
|
$
|
(55
|
)
|
|
$
|
26,134
|
|
Capital expenditures, including acquisitions
|
|
$
|
437
|
|
|
$
|
96
|
|
|
$
|
248
|
|
|
$
|
—
|
|
|
$
|
781
|
|
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
|
|
26
Table of Contents