DEVON ENERGY CORP/DE - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the Quarterly Period Ended June 30, 2003

		or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 000-30176

Devon Energy Corporation

(Exact Name of Registrant as Specified in its Charter)


Delaware (State or Other Jurisdiction of Incorporation or Organization)		73-1567067 (I.R.S. Employer Identification Number)

20 North Broadway Oklahoma City, Oklahoma (Address of Principal Executive Offices)		73102-8260 (Zip Code)

Registrant’s telephone number, including area code:
(405) 235-3611

Former name, former address and former fiscal year, if changed from last report.
Not applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

The number of shares outstanding of Registrant’s common stock, par value $.10, as of July 31, 2003, was 231,880,000.

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TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
Part II. Other Information
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
EX-10.1 First Amendment to Credit Agreement
EX-10.2 First Amendment to Canadian Credit Agrmt.
EX-10.3 Amendment No. 1 to Credit Agreement
EX-31.1 Certification of CEO Pursuant to Sec. 302
EX-31.2 Certification of CFO Pursuant to Sec. 302
EX-32.1 Certification of CEO Pursuant to Sec. 906
EX-32.2 Certification of CFO Pursuant to Sec. 906

DEVON ENERGY CORPORATION
Index to Form 10-Q Quarterly Report
to the Securities and Exchange Commission


		Page
		No.

	Part I. Financial Information		5
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets, June 30, 2003 (Unaudited) and December 31, 2002		6
	Consolidated Statements of Operations (Unaudited) for the Three Months and Six Months Ended June 30, 2003 and 2002		7
	Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months and Six Months Ended June 30, 2003 and 2002		8
	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2003 and 2002		9
	Notes to Consolidated Financial Statements		10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		45
Item 4.	Controls and Procedures		51
	Part II. Other Information
Item 4.	Submission of Matters to a Vote of Security Holders		52
Item 6.	Exhibits and Reports on Form 8-K		54

DEFINITIONS

As used in this document:

“AECO” means the price of gas delivered onto the NOVA Gas Transmission Ltd. System.

“Bbl” or “Bbls” means barrel or barrels.

“Bcf” means one billion cubic feet.

“Boe” means barrel of oil equivalent, determined by using the ratio of one Bbl or oil or NGLs to six Mcf of gas.

“Brent” means pricing point for selling North Sea crude oil.

“Btu” means British Thermal units, a measure of heating value.

“Inside FERC” refers to the publication Inside F.E.R.C.’s Gas Market Report.

“LIBOR” means London Interbank Offered Rate.

“MMBbls” means one million barrels.

“MMBoe” means one million Boe.

“MMBtu” means one million Btu.

“Mcf” means one thousand cubic feet.

“NGL” or “NGLs” means natural gas liquids.

“NYMEX” means New York Mercantile Exchange.

“Oil” includes crude oil and condensate.

DEVON ENERGY CORPORATION

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2003 and 2002

(Forming a part of Form 10-Q Quarterly Report
to the Securities and Exchange Commission)

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


					June 30,			December 31,
					2003			2002

					(Unaudited)
					(In millions, except share data)
				ASSETS
Current assets:
	Cash and cash equivalents				$	724		$	292
	Accounts receivable					965			639
	Inventories					71			26
	Fair value of financial instruments					11			4
	Income taxes receivable					11			56
	Assets of discontinued operations					—			7
	Investments and other current assets					57			40

			Total current assets			1,839			1,064

Property and equipment, at cost, based on the full cost method of accounting for oil and gas properties ($3,296 and $2,289 excluded from amortization in 2003 and 2002, respectively)						26,598			18,786
	Less accumulated depreciation, depletion and amortization					9,006			7,934

						17,592			10,852
Investment in ChevronTexaco Corporation common stock at fair value						512			472
Fair value of financial instruments						4			1
Goodwill						5,324			3,555
Other assets						340			281

			Total assets		$	25,611		$	16,225

				LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable:
		Trade				651			376
		Revenues and royalties due to others				278			261
	Income taxes payable					75			9
	Current portion of long-term debt					575			—
	Accrued interest payable					147			119
	Merger related expenses payable					58			12
	Fair value of financial instruments					262			151
	Current portion of asset retirement obligation					33			—
	Accrued expenses and other current liabilities					131			114

			Total current liabilities			2,210			1,042

Other liabilities						395			323
Asset retirement obligation, long-term						612			—
Debentures exchangeable into shares of ChevronTexaco Corporation common stock						669			662
Other long-term debt						7,830			6,900
Preferred stock of a subsidiary						55			—
Deferred revenue						88			—
Fair value of financial instruments						24			18
Deferred income taxes						4,076			2,627
Stockholders’ equity:
	Preferred stock of $1.00 par value ($100 liquidation value) Authorized 4,500,000 shares; issued 1,500,000 in 2003 and 2002					1			1
	Common stock of $0.10 par value Authorized 800,000,000 shares; issued 235,538,000 in 2003 and 160,461,000 in 2002					24			16
	Additional paid-in capital					8,878			5,178
	Retained earnings (accumulated deficit)					688			(84	)
	Accumulated other comprehensive income (loss)					249			(267	)
	Other					(1	)		(3	)
	Treasury stock at cost: 3,700,000 shares in 2003 and 3,704,000 shares in 2002					(187	)		(188	)

			Total stockholders’ equity			9,652			4,653

			Total liabilities and stockholders’ equity		$	25,611		$	16,225

See accompanying notes to consolidated financial statements.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


			Three Months Ended						Six Months Ended
			June 30,						June 30,

			2003			2002			2003			2002

						(Unaudited)
			(In millions, except per share amounts)
Revenues
	Oil sales		$	379		$	248		$	635		$	470
	Gas sales			1,007			562			1,881			1,028
	Natural gas liquids sales			92			72			199			127
	Marketing and midstream revenues			335			267			769			427

		Total revenues		1,813			1,149			3,484			2,052

Production and operating costs and expenses
	Lease operating expenses			223			162			388			316
	Transportation costs			51			38			92			76
	Production taxes			51			33			98			55
	Marketing and midstream operating costs and expenses			277			222			633			347
	Depreciation, depletion and amortization of property and equipment			427			323			723			634
	Accretion of asset retirement obligation			9			—			16			—
	General and administrative expenses			93			54			142			104
	Expenses related to mergers			7			—			7			—
	Reduction of carrying value of oil and gas properties			—			651			—			651

		Total production and operating costs and expenses		1,138			1,483			2,099			2,183

Earnings (loss) from operations				675			(334	)		1,385			(131	)
Other income (expenses)
	Interest expense			(130	)		(148	)		(260	)		(272	)
	Dividends on subsidiary’s preferred stock			(1	)		—			(1	)		—
	Effects of changes in foreign currency exchange rates			29			18			51			17
	Change in fair value of financial instruments			(1	)		24			9			7
	Other income			17			6			25			21

		Net other expenses		(86	)		(100	)		(176	)		(227	)

Earnings (loss) from continuing operations before income tax expense and cumulative effect of change in accounting principle				589			(434	)		1,209			(358	)
Income tax expense (benefit)
	Current			89			77			124			86
	Deferred			144			(305	)		309			(296	)

		Total income tax expense (benefit)		233			(228	)		433			(210	)

Earnings (loss) from continuing operations before cumulative effect of change in accounting principle				356			(206	)		776			(148	)
Discontinued operations
	Results of discontinued operations before income taxes			—			104			—			112
	Total income tax expense			—			2			—			6

		Net results of discontinued operations		—			102			—			106

Earnings (loss) before cumulative effect of change in accounting principle				356			(104	)		776			(42	)
Cumulative effect of change in accounting principle, net of income tax expense of $10 million				—			—			16			—

Net earnings (loss)				356			(104	)		792			(42	)
Preferred stock dividends				3			3			5			5

Net earnings (loss) applicable to common stockholders			$	353		$	(107	)	$	787		$	(47	)

Basic earnings (loss) per share:
	Earnings (loss) from continuing operations		$	1.67		$	(1.33	)	$	4.18		$	(1.01	)
	Net results of discontinued operations			—			0.65			—			0.70
	Cumulative effect of change in accounting principle			—			—			0.09			—

	Net earnings (loss) applicable to common stockholders		$	1.67		$	(0.68	)	$	4.27		$	(0.31	)

Diluted earnings (loss) per share:
	Earnings (loss) from continuing operations		$	1.62		$	(1.33	)	$	4.03		$	(1.01	)
	Net results of discontinued operations			—			0.65			—			0.70
	Cumulative effect of change in accounting principle			—			—			0.08			—

	Net earnings (loss) applicable to common stockholders		$	1.62		$	(0.68	)	$	4.11		$	(0.31	)

Weighted average common shares outstanding — basic				212			157			184			153

Weighted average common shares outstanding — diluted				221			163			193			159

See accompanying notes to consolidated financial statements.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended

Six Months Ended

June 30,

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