Devon Energy Corp. (NYSE: DVN) today announced a three-year
business outlook through the year 2020 and its detailed capital and
production outlook for 2018. Additionally, the company reported
operational and financial results for the fourth quarter and
full-year 2017.
Three-Year Outlook Highlights
More detailed commentary regarding Devon’s three-year business
outlook is available within its fourth-quarter 2017 operations
report at www.devonenergy.com. Outlook highlights from the report
include:
- Greater than 15 percent corporate-level
rates of return
- $2.5 billion of cumulative free cash
flow through 2020
- Delaware and STACK oil production CAGR
of greater than 25 percent
- Per-unit cash cost savings of
approximately 15 percent by 2020
- Potential to monetize more than $5
billion of non-core assets
- Positioned for sustainable increase of
cash to shareholders
“Devon has reached an inflection point by building operating
momentum across its U.S. resource plays and has successfully
transitioned these world-class assets into full-field development,”
said Dave Hager, president and CEO. “In 2018 and beyond, with our
low-risk development programs focused in the economic core of the
Delaware Basin and STACK plays, we expect to deliver a dramatic
step change in capital efficiency, achieve attractive
corporate-level returns and generate substantial amounts of free
cash flow at prices above our base planning scenario of $50 WTI
pricing.”
“With our disciplined multi-year plan, Devon will accelerate
value creation through the pursuit of capital-efficient cash-flow
growth and portfolio simplification, not top-line production
growth,” said Hager. “Looking beyond our initial priority of
reducing up to $1.5 billion of debt from our upstream business, we
plan to return excess cash flow from operations or divestitures to
shareholders through both opportunistic share buybacks and dividend
growth.”
February 2018 Production Update: Delaware and STACK Volume
Growth Accelerates
In early 2018, production growth has accelerated in the
company’s Delaware Basin and STACK assets, with current daily rates
from these assets approximating 195,000 oil-equivalent barrels
(Boe) per day. The combined daily production rates from these two
franchise growth assets represent greater than a 10 percent
increase compared to the fourth quarter of 2017 and nearly a 20
percent increase compared to the full-year 2017 average.
The substantial increase in daily production is driven by higher
operated completion activity in the Delaware Basin and tie-in of
more than 50 non-operated wells in the STACK around year end. In
aggregate, these two high-growth assets remain on plan to increase
oil production by greater than 35 percent in 2018 compared to
2017.
Timing of Non-Operated Activity Limits Fourth Quarter
Production
Devon’s net production averaged 548,000 Boe per day in the
fourth quarter of 2017. Of this total, oil production in the
quarter totaled 246,000 barrels per day, which was 14,000 barrels
per day below the company’s midpoint guidance.
In the fourth quarter, net production in the U.S. was limited by
approximately 9,000 barrels per day primarily due to the timing of
well tie-ins associated with non-operated activity in the STACK.
This timing issue has been resolved with the tie-in of more than 50
non-operated wells around year end in the STACK (see “February 2018
Production Update” section for more details.)
In Canada, net production averaged 134,000 Boe per day in the
fourth quarter, an 8 percent increase from the prior quarter.
Facility modifications and temporary steam constraints at the
company’s Jackfish complex curtailed production by approximately
5,000 barrels per day in the fourth quarter.
Delivering Top-Tier Operated Well Productivity
Importantly, Devon’s operated well activity in the fourth
quarter across its U.S. resource plays was delivered on plan with
outstanding well productivity results. Led by the Delaware Basin
and STACK, the company’s top 30 operated wells during the fourth
quarter averaged initial 30-day production rates of greater than
2,500 Boe per day (60 percent oil). These high-rate wells showcase
Devon’s asset quality and technical excellence that has
consistently generated top-tier well productivity in North
America.
For additional details on well results and other information
about Devon’s E&P operations, please refer to the company’s
fourth-quarter 2017 operations report at www.devonenergy.com.
Drilling Success Drives U.S. Oil Reserves 32 Percent
Higher
Devon’s estimated proved reserves were 2.2 billion Boe on Dec.
31, 2017, a 5 percent increase compared to 2016. Proved developed
reserves accounted for 81 percent of the total. At year-end,
liquids reserves advanced to 1.2 billion Boe, driven by a 32
percent increase in U.S. oil reserves during 2017.
The company’s reserve growth in 2017 came entirely from its U.S.
resource plays, where proved reserves increased 11 percent to 1.7
billion Boe. Led by Devon’s capital programs in the Delaware Basin
and STACK, the company’s U.S. resource plays exhibited strong
growth by adding 327 million Boe of reserves in 2017. This result
represents a replacement rate of approximately 215 percent. The
capital costs incurred to contribute to these reserve additions
were $1.7 billion, equating to a finding and development cost in
the U.S. of only $5 per Boe.
Devon Converts to Successful-Efforts Accounting
Method
As previously announced, in the fourth quarter, Devon changed
its method of accounting for oil and gas exploration and
development activities from the full-cost method to successful
efforts. All reported financial results contained within this
release reflect this change in accounting policy. The company has
provided a supplemental information packet related to its
conversion to successful efforts on its website at
www.devonenergy.com, which includes a reconciliation of financial
results from full cost to successful efforts for prior financial
reporting periods.
Upstream Revenue Advances and EnLink Profitability
Expands
The company’s upstream revenue totaled $1.3 billion in the
fourth quarter, a 35 percent improvement compared to the fourth
quarter of 2016. The strong year-over-year revenue growth was
driven by higher commodity price realizations and an increase in
higher-margin liquids production.
Devon’s midstream business generated operating profits of $272
million in the fourth quarter, increasing 35 percent year over
year. This growth was driven entirely by Devon’s strategic
investment in EnLink Midstream. Overall, for 2017, Devon’s
midstream profits reached $912 million, the highest in company
history.
Devon has a 64 percent ownership interest in EnLink’s general
partner (NYSE: ENLC) and a 23 percent interest in the limited
partner (NYSE: ENLK). In aggregate, the company’s ownership in
EnLink has a market value of approximately $3.5 billion and
generated cash distributions of nearly $270 million in 2017.
Per-Unit Cost Structure Continues to Improve
Devon’s production expense, which represents field-level
operating costs, totaled $463 million in the fourth quarter. This
result is a 1 percent improvement on a per-unit basis compared to
the third quarter of 2017. The largest components of production
expense are lease operating expense and transportation, which
totaled $399 million or $7.90 per Boe in the quarter. Production
and property taxes also contributed $64 million to production
expense during the fourth quarter.
The company’s general and administrative expenses (G&A)
totaled $222 million in the fourth quarter, a 1 percent improvement
compared to the year-ago quarter. Excluding costs associated with
EnLink, Devon’s G&A expense for the quarter was $192 million.
Of this total upstream overhead, $48 million would have previously
been categorized as capitalized G&A under the company’s prior
full-cost accounting methodology.
Depreciation, depletion and amortization expense (DD&A)
amounted to $528 million or $10.47 per Boe in the fourth quarter of
2017. Compared to the third quarter of 2017, the company’s per-unit
DD&A declined by 1 percent. Exploration expense in the fourth
quarter totaled $171 million, with the majority of the expense
related to non-cash impairments of unproved properties in the
U.S.
Tax Reform to Provide Lower Tax Rates in 2018
In late 2017, significant changes to the U.S. federal income tax
code were signed into law with legislation commonly referred to as
the “Tax Cuts and Jobs Act.” This tax legislation did not have a
material impact to Devon’s fourth-quarter 2017 results. In 2018 and
beyond, Devon expects the tax reform to have an overall positive
impact on its business. This benefit is primarily due to the U.S.
corporate tax rate being lowered from 35 percent to 21 percent
along with the repeal of alternative minimum tax provisions. The
company will also benefit from legislation allowing the
tax-efficient repatriation of future Canadian earnings to the
U.S.
Higher-Margin Production Expands Cash Flow 94 Percent in
2017
In the fourth quarter of 2017, Devon’s operating cash flow
totaled $725 million. For the full-year 2017, operating cash flow
reached $2.9 billion, a 94 percent increase compared to 2016. The
increase is primarily attributable to improvements in commodity
prices, a shift to higher-margin production and a lower cost
structure.
For the fourth quarter, Devon’s reported net earnings totaled
$183 million or $0.35 per diluted share. Adjusting for items
securities analysts typically exclude from their published
estimates, the company’s core earnings were $199 million or $0.38
per diluted share in the quarter.
Financial Position Remains Strong
The company exited the fourth quarter with $2.7 billion of cash
on hand. Overall, Devon’s financial position remains exceptionally
strong, with investment-grade credit ratings and no significant
debt maturities until mid-2021.
Canadian Oil Swaps Protecting Cash Flow in 2018
Further bolstering the company’s financial strength is its hedge
position in 2018. The company currently has around half of its
expected oil and gas production protected in 2018. These contracts
consist of collars and swaps based off the West Texas Intermediate
(WTI) oil benchmark and the Henry Hub natural gas index. The volume
and pricing details associated with the company’s hedges are
provided in the tables within this release.
Also of note, the company has secured Western Canadian Select
(WCS) basis swaps on approximately 50 percent of its estimated
Canadian oil production in 2018. These attractive WCS basis swaps
are locked-in at $15 off the WTI benchmark price and are currently
valued at approximately $300 million.
2018 Capital and Production Outlook
Detailed forward-looking guidance for the first quarter and
full-year 2018 is provided later in the release. A notable
component of this outlook is Devon’s upstream capital budget of
$2.2 billion to $2.4 billion. This disciplined capital program is
expected to be self-funded at a $50 WTI price deck.
On a retained asset basis, Devon’s upstream capital plans are
expected to drive U.S. oil production growth of approximately 14
percent compared to 2017. The trajectory of Devon’s U.S. oil
production profile is expected to steadily advance throughout the
year and exit 2018 at rates more than 25 percent higher than the
2017 average.
Also of note, reflected in Devon’s forward-looking revenue and
cost guidance are new revenue recognition accounting rules that
will change the way certain processing fees are presented for
natural gas and natural gas liquids. Historically, these fees have
been recorded as a reduction to revenue. Now, these fees will be
recorded directly to production expense beginning in the first
quarter of 2018. This accounting change will have no impact to
per-unit cash margin or net earnings but will result in higher
price realizations, increased revenues and increased production
expenses.
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.
Core earnings and core earnings per share and other items
referenced within the commentary of this release are non-GAAP
financial measures. Reconciliations of these and other non-GAAP
measures are provided within the tables of this release.
Conference Call Webcast and Supplemental Earnings
Materials
Also included with today’s release is the company’s detailed
operations report that is available on the company’s website at
www.devonenergy.com. The company’s fourth-quarter conference call
will be held at 10 a.m. Central (11 a.m. Eastern) on Wednesday,
Feb. 21, 2018, and will serve primarily as a forum for analyst and
investor questions and answers.
Forward-Looking Statements
This 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;
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
oil and gas operations; regulatory restrictions, compliance costs
and other risks relating to governmental regulation, including with
respect to environmental matters; risks related to our hedging
activities; counterparty credit risks; risks relating to our
indebtedness; cyberattack risks; our limited control over third
parties who operate our oil and gas properties; midstream capacity
constraints and potential interruptions in production; the extent
to which insurance covers any losses we may experience; competition
for leases, materials, people and capital; our ability to
successfully complete mergers, acquisitions and divestitures; 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 release are made as of the date
of this 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, risked 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 achieving strong returns and capital-efficient cash
flow growth. For more information, please visit
www.devonenergy.com.
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
PRODUCTION NET OF
ROYALTIES
Quarter Ended Year Ended December
31, December 31, 2017 2016 2017
2016 Oil and bitumen (MBbls/d) U. S. 114 104 114 117
Heavy Oil 132 138 128 131 Retained assets 246 242 242 248 Divested
assets — 2 2 12 Total 246 244 244 260
Natural gas liquids
(MBbls/d) U. S. 106 89 99 102 Divested assets — 1 — 14 Total
106 90 99 116
Gas (MMcf/d) U. S. 1,160 1,198 1,182 1,263
Heavy Oil 15 18 17 20 Retained assets 1,175 1,216 1,199 1,283
Divested assets — 5 4 130 Total 1,175 1,221 1,203 1,413
Oil
equivalent (MBoe/d) U. S. 414 392 410 429 Heavy Oil 134 141 131
134 Retained assets 548 533 541 563 Divested assets — 4 2 48 Total
548 537 543 611 DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
PRODUCTION TREND
2016
2017 Quarter 4 Quarter 1 Quarter 2
Quarter 3 Quarter 4 Oil and bitumen (MBbls/d)
STACK 19 21 25 27 30 Delaware Basin 29 30 30 31 32 Rockies Oil 11
13 13 12 15 Heavy Oil 138 137 122 121 132 Eagle Ford 32 46 34 28 27
Barnett Shale 1 1 1 1 1 Other 12 11 10 11 9 Retained assets 242 259
235 231 246 Divested assets 2 2 3 2 — Total 244 261 238 233 246
Natural gas liquids (MBbls/d) STACK 21 26 31 32 34 Delaware
Basin 10 10 10 11 13 Rockies Oil 1 1 1 1 1 Eagle Ford 11 15 10 12
13 Barnett Shale 43 43 42 36 42 Other 3 2 2 2 3 Retained assets 89
97 96 94 106 Divested assets 1 1 1 — — Total 90 98 97 94 106
Gas
(MMcf/d) STACK 284 287 298 313 316 Delaware Basin 88 87 94 90
89 Rockies Oil 17 15 17 11 17 Heavy Oil 18 23 14 16 15 Eagle Ford
86 115 92 86 87 Barnett Shale 710 683 675 672 638 Other 13 13 12 10
13 Retained assets 1,216 1,223 1,202 1,198 1,175 Divested assets 5
5 6 3 — Total 1,221 1,228 1,208 1,201 1,175
Oil equivalent
(MBoe/d) STACK 88 95 105 111 117 Delaware Basin 53 54 55 57 60
Rockies Oil 15 17 18 15 19 Heavy Oil 141 141 124 124 134 Eagle Ford
57 80 60 54 55 Barnett Shale 163 158 155 148 149 Other 16 15 15 15
14 Retained assets 533 560 532 524 548 Divested assets 4 3 4 3 —
Total 537 563 536 527 548
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
BENCHMARK PRICES
(average prices)
Quarter 4
December YTD 2017 2016 2017 2016
Oil ($/Bbl) - West Texas Intermediate (Cushing) $ 55.49 $ 49.21 $
50.99 $ 43.36 Natural Gas ($/Mcf) - Henry Hub $ 2.93 $ 2.98 $ 3.11
$ 2.46
REALIZED PRICES Quarter Ended December 31,
2017 Oil /Bitumen NGL Gas Total
(Per Bbl) (Per Bbl) (Per Mcf) (Per Boe)
United States $ 54.18 $ 18.46 $ 2.29 $ 26.18 Canada $ 32.54
N/M N/M $ 31.95 Realized price
without hedges $ 42.59 $ 18.46 $ 2.29 $ 27.59 Cash settlements $
(0.38 ) $ (0.30 ) $ 0.19 $ 0.19 Realized price,
including cash settlements $ 42.21 $ 18.16 $ 2.48
$ 27.78
Quarter Ended December 31, 2016
Oil /Bitumen NGL Gas Total (Per
Bbl) (Per Bbl) (Per Mcf) (Per Boe) United
States $ 46.74 $ 13.81 $ 2.34 $ 22.78 Canada $ 25.90
N/M N/M $ 25.39 Realized price without
hedges $ 34.90 $ 13.81 $ 2.34 $ 23.47 Cash settlements $ — $
(0.31 ) $ (0.11 ) $ (0.30 ) Realized price, including cash
settlements $ 34.90 $ 13.50 $ 2.23 $ 23.17
Year Ended December 31, 2017 Oil
/Bitumen NGL Gas Total (Per Bbl)
(Per Bbl) (Per Mcf) (Per Boe) United States $
49.41 $ 15.66 $ 2.48 $ 24.88 Canada $ 29.99 N/M
N/M $ 29.39 Realized price without
hedges $ 39.23 $ 15.66 $ 2.48 $ 25.96 Cash settlements $ 0.23
$ (0.10 ) $ 0.08 $ 0.27 Realized price,
including cash settlements $ 39.46 $ 15.56 $ 2.56
$ 26.23
Year Ended December 31, 2016
Oil /Bitumen NGL Gas Total (Per
Bbl) (Per Bbl) (Per Mcf) (Per Boe) United
States $ 38.92 $ 9.81 $ 1.84 $ 18.34 Canada $ 20.53
N/M N/M $ 20.07 Realized price without
hedges $ 29.65 $ 9.81 $ 1.84 $ 18.72 Cash settlements $ (0.43 ) $
(0.11 ) $ 0.07 $ (0.05 ) Realized price, including cash
settlements $ 29.22 $ 9.70 $ 1.91 $ 18.67
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions,
except per share amounts)
Quarter Ended Year Ended
December 31, December 31, 2017 2016*
2017 2016* Upstream revenues $ 1,333 $ 988 $ 5,307 $
3,981 Marketing and midstream revenues 2,650
1,820 8,642 6,323 Total revenues
3,983 2,808 13,949
10,304 Production expenses(1) 463 409 1,823 1,803
Exploration expenses 171 37 380 215 Marketing and midstream
expenses 2,378 1,617 7,730 5,533 Depreciation, depletion and
amortization 528 469 2,074 2,096 Asset impairments 8 80 17 1,310
Asset dispositions (18 ) (575 ) (217 ) (1,483 ) General and
administrative expenses 222 218 872 865 Financing costs, net 126
335 498 907 Other expenses 5 (53 ) (124
) 375 Total expenses 3,883 2,537
13,053 11,621 Earnings (loss)
before income taxes 100 271 896 (1,317 ) Income tax expense
(benefit) (204 ) 75 (182 ) 141
Net earnings (loss) 304 196 1,078 (1,458 )
Net earnings (loss) attributable to
noncontrolling interests
121 (11 ) 180 (402 ) Net
earnings (loss) attributable to Devon $ 183 $ 207 $
898 $ (1,056 ) Net earnings (loss) per share
attributable to Devon: Basic $ 0.35 $ 0.41 $ 1.71 $ (2.09 ) Diluted
$ 0.35 $ 0.41 $ 1.70 $ (2.09 ) Weighted average common
shares outstanding: Basic 525 524 525 513 Diluted 528 526 528 513 *
Prior year amounts have been recast due to change in accounting
principle. (1)
PRODUCTION EXPENSES (in
millions)
Quarter Ended December 31,
Year Ended December 31, 2017 2017
2016 2017 2016
Lease operating expense $ 236 $ 209 $ 927 $ 1,027 Gathering &
transportation 163 158 647 555 Production taxes 51 32 194 147
Property taxes 13 10 55 74 Production
expenses $ 463 $ 409 $ 1,823 $ 1,803
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Quarter Ended Year Ended December 31,
December 31, 2017 2016* 2017
2016* Cash flows from operating activities: Net earnings
(loss) $ 304 $ 196 $ 1,078 $ (1,458 )
Adjustments to reconcile net earnings
(loss) to net cash from operating activities:
Depreciation, depletion and amortization 528 469 2,074 2,096
Exploratory dry hole expense and unproved leasehold impairments 139
5 219 113 Asset impairments 8 80 17 1,310 Gains and losses on asset
sales (18 ) (575 ) (217 ) (1,483 ) Deferred income tax expense
(benefit) (245 ) 47 (294 ) 41 Commodity derivatives 57 171 (157 )
201 Cash settlements on commodity derivatives 10 (14 ) 53 1 Other
derivatives and financial instruments 7 (144 ) 23 185
Cash settlements on other derivatives and
financial instruments
(6 ) 5 (6 ) (143 ) Asset retirement obligation accretion 15 17 62
75 Share-based compensation 47 40 198 233 Other 16 337 (122 ) 270
Net change in working capital (73 ) (184 ) 21 24 Change in
long-term other assets (58 ) 26 (46 ) 36 Change in long-term other
liabilities (6 ) (8 ) 6 (1 ) Net
cash from operating activities 725 468
2,909 1,500 Cash flows from investing
activities: Capital expenditures (799 ) (593 ) (2,759 ) (2,047 )
Acquisitions of property, equipment and businesses (7 ) — (46 )
(1,641 ) Divestitures of property and equipment 101 1,224 417 3,113
Proceeds from sale of investment — — 190 — Other (7 )
(26 ) (12 ) (19 ) Net cash from investing activities
(712 ) 605 (2,210 ) (594 ) Cash
flows from financing activities: Borrowings of long-term debt, net
of issuance costs 168 483 2,376 2,145 Repayments of long-term debt
(168 ) (1,687 ) (2,118 ) (4,409 ) Payment of installment payable —
— (250 ) — Net short-term debt repayments — — — (626 ) Early
retirement of debt — (183 ) (6 ) (265 ) Issuance of common stock —
— — 1,469 Issuance of subsidiary units 15 57 501 892 Dividends paid
on common stock (32 ) (31 ) (127 ) (221 ) Contributions from
noncontrolling interests 10 17 57 168 Distributions to
noncontrolling interests (107 ) (80 ) (354 ) (304 ) Shares
exchanged for tax withholdings (1 ) (5 ) (68 ) (35 ) Other —
(4 ) (2 ) (10 ) Net cash from financing
activities (115 ) (1,433 ) 9
(1,196 ) Effect of exchange rate changes on cash (6 )
(66 ) 6 (61 ) Net change in cash and cash
equivalents (108 ) (426 ) 714 (351 ) Cash and cash equivalents at
beginning of period 2,781 2,385
1,959 2,310 Cash and cash equivalents at end
of period $ 2,673 $ 1,959 $ 2,673 $ 1,959
* Prior year amounts have been recast due to change in
accounting principle.
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(in millions)
December 31, December
31, 2017 2016* Current assets: Cash and cash
equivalents $ 2,673 $ 1,959 Accounts receivable 1,670 1,356 Assets
held for sale — 193 Other current assets 448 264
Total current assets 4,791 3,772 Oil
and gas property and equipment, based on successful efforts
accounting, net
13,318 12,998 Midstream and other property and equipment, net
7,853 7,535 Total property and equipment, net
21,171 20,533 Goodwill 2,383 2,383 Other long-term assets
1,896 1,987 Total assets $ 30,241 $ 28,675
Current liabilities: Accounts payable $ 819 $ 642 Revenues
and royalties payable 1,180 908 Short-term debt 115 — Other current
liabilities 1,201 1,066 Total current
liabilities 3,315 2,616 Long-term debt 10,291
10,154 Asset retirement obligations 1,113 1,226 Other long-term
liabilities 583 894 Deferred income taxes 835 1,063 Equity: Common
stock 53 52 Additional paid-in capital 7,333 7,237 Retained
earnings (accumulated deficit) 702 (69 ) Accumulated other
comprehensive earnings 1,166 1,054 Total
stockholders’ equity attributable to Devon 9,254 8,274
Noncontrolling interests 4,850 4,448 Total
equity 14,104 12,722 Total liabilities and
equity $ 30,241 $ 28,675 Common shares outstanding 525 523 *
Prior year amounts have been recast due to change in accounting
principle.
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
CONSOLIDATING STATEMENTS OF OPERATIONS
(in
millions)
Quarter Ended December 31, 2017
Devon U.S. &Canada
EnLink Eliminations Total Upstream revenues $
1,333 $ — $ — $ 1,333 Marketing and midstream revenues 1,048
1,756 (154 ) 2,650 Total
revenues 2,381 1,756 (154 )
3,983 Production expenses 463 — — 463 Exploration
expenses 171 — — 171 Marketing and midstream expenses 1,048 1,484
(154 ) 2,378 Depreciation, depletion and amortization 389 139 — 528
Asset impairments — 8 — 8 Asset dispositions (17 ) (1 ) — (18 )
General and administrative expenses 192 30 — 222 Financing costs,
net 78 48 — 126 Other expenses 10 (5 )
— 5 Total expenses 2,334
1,703 (154 ) 3,883 Earnings before
income taxes 47 53 — 100 Income tax expense (benefit) 3
(207 ) — (204 ) Net earnings 44
260 — 304 Net earnings attributable to noncontrolling interests
— 121 — 121
Net earnings attributable to Devon $ 44 $ 139 $ —
$ 183
OTHER KEY STATISTICS
(in millions)
Quarter Ended December 31,
2017
Devon U.S. &Canada
EnLink Eliminations
Total Cash flow statement related
items: Operating cash flow $ 553 $ 172 $ — $ 725 Divestitures
of property and equipment $ 101 $ — $ — $ 101 Capital expenditures
$ (670 ) $ (129 ) $ — $ (799 ) EnLink distributions received (paid)
$ 66 $ (173 ) $ — $ (107 )
Balance sheet statement
items: Net debt (1) $ 4,222 $ 3,511 $ — $ 7,733
(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.
DEVON ENERGY CORPORATION FINANCIAL AND OPERATIONAL
INFORMATION
CAPITAL
EXPENDITURES (in millions)
Quarter Ended Year
Ended December 31, 2017 December 31, 2017
Exploration and development capital $ 648 $ 1,947 Land and other
acquisitions 9 56 Exploration and production
(E&P) capital 657 2,003 Capitalized interest 18 69 Other
33 97 Devon capital expenditures (1) $ 708 $ 2,169
(1) Excludes $132 million and $768 million attributable to
EnLink for the fourth quarter and year end of 2017,
respectively.
COSTS INCURRED Total (in
millions)
Year Ended December 31, 2017
2016* Property acquisition costs: Proved properties $ 2 $
237 Unproved properties 54 1,358 Exploration costs 677 360
Development costs 1,261 929 Costs incurred $ 1,994 $
2,884
United States Year Ended December 31,
2017 2016* Property acquisition costs: Proved
properties $ 2 $ 237 Unproved properties 50 1,356 Exploration costs
590 282 Development costs 1,036 875 Costs incurred $
1,678 $ 2,750
Canada Year Ended December 31,
2017 2016* Property acquisition costs: Proved
properties $ — $ — Unproved properties 4 2 Exploration costs 87 78
Development costs 225 54 Costs incurred $ 316 $ 134
* Prior year amounts have been recast due to change in
accounting principle.
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
RESERVES RECONCILIATION
Total
Oil / Bitumen(MMBbls)
Gas(Bcf)
NGL(MMBbls)
Total(MMBoe)
As of December 31, 2016: Proved developed 367 5,377 387
1,649 Proved undeveloped 328 254 38 409
Total Proved 695 5,631
425 2,058 Revisions due to prices (26 )
399 32 73 Revisions other than price (2 ) 2 (10 ) (12 ) Extensions
and discoveries 106 403 63 237 Production (89 ) (439 ) (36 ) (198 )
Sale of reserves (3 ) (9 ) (1 ) (6 )
As of December 31,
2017: Proved developed 393 5,632 410 1,742 Proved undeveloped
288 355 63 410
Total Proved
681 5,987 473
2,152 United States
Oil / Bitumen(MMBbls)
Gas(Bcf)
NGL(MMBbls)
Total(MMBoe)
As of December 31, 2016: Proved developed 160 5,361 387
1,439 Proved undeveloped 34 254 38 115
Total Proved 194 5,615
425 1,554 Revisions due to prices 12
398 32 111 Revisions other than price 6 — (10 ) (5 ) Extensions and
discoveries 90 403 63 221 Production (42 ) (433 ) (36 ) (150 ) Sale
of reserves (3 ) (9 ) (1 ) (6 )
As of December 31, 2017:
Proved developed 178 5,619 410 1,524 Proved undeveloped 79
355 63 201
Total Proved 257
5,974 473 1,725
Canada
Oil / Bitumen(MMBbls)
Gas(Bcf)
NGL(MMBbls)
Total(MMBoe)
As of December 31, 2016: Proved developed 207 16 — 210
Proved undeveloped 294 — — 294
Total
Proved 501 16 —
504
Revisions due to prices (38 ) 1 — (38 ) Revisions other than
price (8 ) 2 — (7 ) Extensions and discoveries 16 — — 16 Production
(47 ) (6 ) — (48 )
As of December 31, 2017: Proved
developed 215 13 — 218 Proved undeveloped 209 — —
209
Total Proved 424 13
—
427
DEVON ENERGY CORPORATIONFINANCIAL AND
OPERATIONAL INFORMATION
NON-GAAP FINANCIAL MEASURES
This 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 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
fourth-quarter 2017 earnings.
(in millions, except per share amounts)
Quarter Ended December 31, 2017 Before-tax
After-tax
AfterNoncontrollingInterests
Per DilutedShare
Earnings attributable to Devon (GAAP) $ 100 $ 304 $ 183 $ 0.35
Adjustments: Asset and exploration impairments 146 94 91 0.18 Fair
value changes in financial instruments and foreign currency 74 30
31 0.06 Asset dispositions (18 ) (11 ) (11 ) (0.02 ) Legal entity
restructuring — (86 ) (86 ) (0.16 ) Deferred tax asset valuation
allowance — 103 103 0.18 U.S. tax reform —
(211 ) (112 ) (0.21 ) Core earnings attributable to
Devon (Non-GAAP) $ 302 $ 223 $ 199 $ 0.38
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. Devon believes that netting
these sources of cash 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)
December 31, 2017
Devon U.S. & Canada EnLink
Devon Consolidated Total debt (GAAP) $ 6,864 $ 3,542
$ 10,406 Less cash and cash equivalents (2,642 ) (31
) (2,673 ) Net debt (Non-GAAP) $ 4,222 $ 3,511
$ 7,733
DEVON ENERGY CORPORATION
FORWARD LOOKING GUIDANCE
PRODUCTION GUIDANCE
Quarter 1 Full
Year Low High Low High Oil and
bitumen (MBbls/d) U.S. 117 122 128 133 Heavy Oil 125 130 125
130 Total 242 252 253 263
Natural gas liquids (MBbls/d) 98
103 105 110
Gas (MMcf/d) U.S. 1,125 1,175 1,150 1,200 Heavy
Oil 14 16 14 16 Total 1,139 1,191 1,164 1,216
Oil equivalent
(MBoe/d) U.S. 403 421 425 443 Heavy Oil 127 133 127 133 Total
530 554 552 576
PRICE
REALIZATIONS GUIDANCE Quarter 1 Full Year
Low High Low High Oil and bitumen - %
of WTI U.S. 95 % 100 % 95 % 100 % Canada 25 % 35 % 25 % 50 % NGL -
realized price(1) $ 22 $ 27 $ 20 $ 25 Natural gas - % of Henry
Hub(1) 75% 85 % 75 % 85 %
OTHER GUIDANCE ITEMS
Quarter 1 Full Year ($
millions, except %)
Low High Low High
Marketing & midstream operating profit $ 260 $ 280 $ 1,050 $
1,150 Production expenses(1)(2) $ 500 $ 550 $ 2,100 $ 2,200
Exploration expenses $ 25 $ 35 $ 90 $ 100 Depreciation, depletion
and amortization $ 530 $ 580 $ 2,300 $ 2,400 General &
administrative expenses $ 210 $ 230 $ 800 $ 850 Financing costs,
net $ 115 $ 125 $ 465 $ 515 Other expenses $ 15 $ 20 $ 60 $ 80
Current income tax rate 0% 5% 0% 5% Deferred income tax rate
20% 25% 20% 25% Total income tax rate
20% 30% 20% 30% Net earnings
attributable to noncontrolling interests $ 30 $ 50 $ 150 $ 200
CAPITAL EXPENDITURES GUIDANCE
Quarter 1 Full Year (in millions)
Low
High Low High Exploration and production $ 550
$ 650 $ 2,200 $ 2,400 Capitalized interest 15 20 60 90 Other
20 30 75 125 Devon capital expenditures (3) $
585 $ 700 $ 2,335 $ 2,615
(1) In 2018, Devon adopted new accounting regulations that will
change the way certain processing fees are presented for natural
gas and natural gas liquids. Historically, these fees have been
recorded as a reduction to revenue. Now, these fees will be
recorded directly to production expense beginning in the first
quarter of 2018 and prior periods will be recast for consistent
presentation. This accounting change will have no impact to per-unit cash margin or net earnings
but will result in higher price realizations, increased revenues
and increased production expenses.
(2) Production expense includes LOE, transportation, gathering
and production and property taxes.
(3) Excludes capital expenditures related to EnLink.
DEVON ENERGY CORPORATION FORWARD LOOKING GUIDANCE
Oil Commodity Hedges Price Swaps
Price Collars Period Volume (Bbls/d)
WeightedAverage Price($/Bbl)
Volume (Bbls/d)
WeightedAverage FloorPrice ($/Bbl)
Weighted AverageCeiling Price($/Bbl)
Q1-Q4 2018 49,625 $ 52.13 51,860 $ 46.06 $ 56.06 Q1-Q4 2019 7,307 $
52.22 6,559 $ 45.82 $ 55.82
Oil Basis Swaps Period Index Volume (Bbls/d)
Weighted Average Differential toWTI
($/Bbl)
Q1-Q4 2018 Midland Sweet 23,000 $ (1.02 ) Q1-Q4 2018 Argus LLS
12,000 $ 3.95 Q1-Q4 2018 Western Canadian Select 75,490 $ (14.84 )
Q1-Q4 2019 Midland Sweet 27,000 $ (0.47 )
Natural
Gas Commodity Hedges Price Swaps
Price Collars Period Volume (MMBtu/d)
WeightedAverage Price($/MMBtu)
Volume(MMBtu/d)
WeightedAverage FloorPrice ($/MMBtu)
Weighted AverageCeiling Price($/MMBtu)
Q1-Q4 2018 371,956 $ 3.06 197,516 $ 2.94 $ 3.26 Q1-Q4 2019 28,466 $
2.98 28,466 $ 2.84 $ 3.14
Natural Gas Basis
Swaps Period Index
Volume (MMBtu/d)
Weighted Average Differential toHenry Hub
($/MMBtu)
Q1-Q4 2018 Panhandle Eastern Pipe Line 50,000 $ (0.29 )
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 December
31, 2017.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180220006627/en/
Devon Energy CorporationInvestor ContactsScott Coody,
405-552-4735Chris Carr, 405-228-2496Media ContactJohn
Porretto, 405-228-7506
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