OKLAHOMA CITY, Aug. 5 /PRNewswire-FirstCall/ -- Devon Energy Corporation (NYSE: DVN) today reported net earnings of $314 million for the quarter ended June 30, 2009, or 71 cents per common share (70 cents per diluted common share). For the quarter ended June 30, 2008, Devon reported net earnings of $1.3 billion, or $2.91 per common share ($2.88 per diluted common share). Production of oil, natural gas and natural gas liquids increased 12 percent to a record 65.4 million oil-equivalent barrels (Boe) in the second quarter of 2009. Lower realized prices for all three products led to the decrease in quarterly net earnings.
For the six months ended June 30, 2009, Devon reported a net loss of $3.6 billion, or $8.21 per common share ($8.21 per diluted common share). A $4.2 billion non-cash, after-tax reduction in the carrying value of oil and gas properties in the first quarter of 2009 drove the first-half loss. For the six months ended June 30, 2008, the company reported net earnings of $2.1 billion, or $4.60 per common share ($4.55 per diluted common share).
Earnings 85 Cents per Share Excluding Items Not Estimated by Analysts
Devon's second-quarter 2009 financial results were impacted by certain items securities analysts typically exclude from their published estimates. Excluding the adjusting items, Devon earned $379 million or 85 cents per diluted common share in the second quarter of 2009. The adjusting items are discussed in more detail later in this news release.
Production Growth in All Geographic Areas
Combined oil, gas and natural gas liquids production averaged 719 thousand Boe per day in the second quarter of 2009. This is the highest average daily production of any quarter in Devon's history and compares with 643 thousand Boe per day in the second quarter of 2008. Average daily production in the second quarter increased five percent sequentially, compared with 685 thousand Boe per day produced in the first quarter of 2009.
The 12 percent increase in year-over-year second-quarter production was driven by growth in all major operating segments. U.S. onshore natural gas production led by the Barnett Shale field in Texas demonstrated significant growth. Continuing ramp up of daily volumes from the Jackfish oil sands project led oil production growth in Canada. Canadian natural gas production increased principally due to lower government royalties. Canadian royalties are calculated on a sliding scale. At lower product prices, Devon's share of Canadian gas production increases.
Despite the strong production growth, revenues from oil, gas and natural gas liquids sales decreased 58 percent to $1.7 billion in the second quarter of 2009. Dramatically lower prices for all three products more than offset the increases in production.
Devon's average realized price for natural gas decreased 70 percent in the second quarter of 2009 compared to the second quarter of 2008, to $2.91 per thousand cubic feet. The company's average realized oil price decreased 53 percent to $52.44 per barrel in the second quarter of 2009. Devon's average second-quarter realized natural gas liquids price decreased 59 percent to $22.24 per barrel in 2009.
Climbing Jackfish Production Leads Operations Highlights
Devon drilled 198 wells (197 successful) in the second quarter of 2009 compared to 494 wells (483 successful) drilled in the second quarter of 2008. The company has reduced drilling activity and related capital expenditures in response to declines in natural gas and oil prices. In spite of the lower activity levels, Devon achieved several notable operational accomplishments in the second quarter:
- Devon continued to ramp up production from its 100 percent-owned Jackfish oil sands project in Alberta in the second quarter of 2009. Oil production at Jackfish averaged 28,000 barrels per day in June. Production hit a peak rate of 33,000 barrels per day during June, nearing its design capacity of 35,000 barrels per day.
- Construction of Jackfish 2, a nearly identical second phase of the project, is now about 40 percent complete. Devon commenced drilling the first producing wells for Jackfish 2 in July 2009.
- Devon maintained a four-rig drilling program in the Cana-Woodford Shale play in western Oklahoma in the second quarter of 2009 and added 13 new wells to production. The company increased its average net production from the Cana-Woodford to 34 million cubic feet of gas equivalent per day in the second quarter. This is a 10-fold increase compared with the second quarter of 2008. Devon is adding two additional drilling rigs in the third quarter.
- At Groesbeck in east Texas, Devon drilled another high-volume well in the Nan-Su-Gail field in the second quarter. The Hill-Crenshaw 3H (100 percent working interest) had a 24-hour initial production test of 18 million cubic feet of gas per day.
- Also in east Texas, Devon continued evaluating its Haynesville Shale acreage in the greater Carthage area. The company has substantially de-risked 74,000 of its 110,000 net acres within the Carthage area and has identified roughly 800 Haynesville drilling locations on this acreage. The company believes this 74,000 net acres has resource potential of more than three trillion cubic feet of natural gas equivalent. Devon is now drilling a well in San Augustine County as the company also evaluates its acreage in the southern region of the Haynesville Shale.
Marketing and Midstream Profit Reflects Lower Prices
Marketing and midstream operating profit was $125 million in the second quarter of 2009. This was a 39 percent decrease compared with the second quarter of 2008. The decrease was largely attributable to lower natural gas and natural gas liquids prices.
Positive Cost Comparisons Continue
Continuing a trend evidenced in the first quarter of 2009, expenses in several important categories decreased in the second quarter. Compared with the second quarter of 2008, quarterly unit lease operating expenses (LOE) decreased by 15 percent to $7.80 per Boe in 2009. The decrease in unit LOE reflects declines in oil field service, supply, power and fuel costs and lower Canadian exchange rates.
Depreciation, depletion and amortization (DD&A) of oil and gas properties decreased 35 percent to $494 million in the second quarter of 2009. Unit DD&A decreased 42 percent to $7.56 per Boe compared with the second quarter of 2008.
General and administrative expenses (G&A) increased two percent to $182 million compared with the second quarter of 2008. The increase resulted from employee severance costs following the consolidation of Devon's Gulf and International operations. The consolidation is expected to achieve operating efficiencies and reduce G&A costs in future periods.
Retaining Liquidity and Financial Strength
Second-quarter 2009 cash flow before balance sheet changes totaled $1.1 billion, fully funding capital expenditures and dividend payments for the quarter. The company ended the quarter with cash on hand and unused credit facilities of $2.6 billion and a net debt to adjusted capitalization ratio of 33 percent. Reconciliations of cash flow before balance sheet changes, net debt and adjusted capitalization, which are non-GAAP measures, are provided in this release.
Items Excluded from Published Earnings Estimates
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. These items and their effects upon reported earnings for the second quarter of 2009 were as follows:
Items affecting continuing operations-
- A change in the fair value of oil and natural gas derivative instruments decreased second-quarter earnings by $101 million pre-tax ($65 million after tax).
- A change in the fair value of other financial instruments increased second-quarter earnings by $5 million pre-tax ($4 million after tax).
- Employee severance costs associated with consolidation of the Gulf and International operations decreased second-quarter net earnings by $33 million pre-tax ($21 million after tax).
Items affecting discontinued operations-
- A post-closing adjustment from the divestiture of West African assets in 2008 resulted in a second-quarter gain of $17 million pre-tax ($17 million after tax).
The following tables summarize the effects of these items on second-quarter earnings and income taxes.
Summary of Items Typically Excluded by Securities Analysts (in millions)
Quarter Ended June 30, 2009
Continuing Operations
Cash Flow
Before
Balance
Pre-tax Income Tax Effect After tax Sheet
Earnings ----------------- Earnings Changes
Effect Current Deferred Total Effect Effect
------ ------- -------- ----- ------ ------
Change in
fair value of
oil and gas
derivative
instruments $(101) - (36) (36) (65) -
Change in
fair value
of other
financial
instruments 5 - 1 1 4 -
Employee
severance
costs from
consolidation
of operations (33) (12) - (12) (21) (11)
---- ---- ---- ---- --- ---
Totals $(129) (12) (35) (47) (82) (11)
------ ----- ---- ---- ---- ---- ----
Discontinued Operations
Cash Flow
Before
Balance
Pre-tax Income Tax Effect After tax Sheet
Earnings ----------------- Earnings Changes
Effect Current Deferred Total Effect Effect
------ ------- -------- ----- ------ ------
Post-closing
adjustment on
sale of
West African
assets $17 - - - 17 -
---- ---- ---- ---- ---- ----
In aggregate, these items decreased second-quarter 2009 net earnings by $65 million, or 14 cents per common share (15 cents per diluted share). These items and their associated tax effects decreased second-quarter 2009 cash flow before balance sheet changes by $11 million.
Conference Call to be Webcast Today
Devon will discuss its second-quarter 2009 financial and operating results in a conference call webcast today. The webcast will begin at 10 a.m. Central Time (11 a.m. Eastern Time). The webcast may be accessed from Devon's internet home page at www.devonenergy.com.
This press release includes "forward-looking statements" as defined by the Securities and Exchange Commission. Such statements are those concerning strategic plans, expectations and objectives for future operations. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the company expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Statements regarding future drilling and production are subject to all of the risks and uncertainties normally incident to the exploration for and development and production of oil and gas. These risks include, but are not limited to the volatility of oil, natural gas and NGL prices; uncertainties inherent in estimating oil, natural gas and NGL reserves; drilling risks; environmental risks; and political or regulatory changes. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. 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 United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. This release may contain certain terms, such as resource potential, reserve potential, probable reserves, possible reserves and exploration target size. The SEC guidelines strictly prohibit us from including these terms in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 10-K, File No. 001-32318, available from us at Devon Energy Corporation, Attn. Investor Relations, 20 North Broadway, Oklahoma City, OK 73102. You can also obtain this form from the SEC by calling 1-800-SEC-0330.
Devon Energy Corporation is an Oklahoma City-based independent energy company engaged in oil and gas exploration and production. Devon is the largest U.S.-based independent oil and gas producer and is included in the S&P 500 Index. For more information about Devon, please visit our website at www.devonenergy.com.
PRODUCTION (net of
royalties) Quarter Ended Six Months Ended
Excludes discontinued June 30, June 30,
operations ------------ ------------
2009 2008 2009 2008
---- ---- ---- ----
Total Period Production
-----------------------
Natural Gas (Bcf)
U.S. Onshore 183.2 162.3 364.2 314.8
U.S. Offshore 10.5 14.2 21.3 32.5
---- ---- ---- ----
Total U.S. 193.7 176.5 385.5 347.3
Canada 60.1 53.0 112.8 104.7
International 0.3 0.4 0.6 1.0
------------- --- --- --- ---
Total Natural Gas 254.1 229.9 498.9 453.0
----------------- ----- ----- ----- -----
Oil (MMBbls)
U.S. Onshore 2.9 2.8 5.9 5.7
U.S. Offshore 1.2 1.8 2.3 3.6
--- --- --- ---
Total U.S. 4.1 4.6 8.2 9.3
Canada 6.6 5.3 12.9 9.9
International 4.7 3.3 7.9 8.1
------------- --- --- --- ---
Total Oil 15.4 13.2 29.0 27.3
------------- ---- ---- ---- ----
Natural Gas Liquids (MMBbls)
U.S. Onshore 6.4 5.8 12.6 11.6
U.S. Offshore 0.2 0.2 0.4 0.4
--- --- --- ---
Total U.S.
