UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2005
or
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 000-32318
Devon Energy Corporation
| Delaware | 73-1567067 | |
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification Number) | |
| 20 North Broadway | ||
| Oklahoma City, Oklahoma | 73102-8260 | |
| (Address of Principal Executive Offices) | (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 þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
The number of shares outstanding of Registrant’s common stock, par value $0.10, as of March 31, 2005, was 473,735,159.
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2
DEVON ENERGY CORPORATION
Index to Form 10-Q Quarterly Report
to the Securities and Exchange Commission
3
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 billion cubic feet.
“Boe” means barrel of oil equivalent, determined by using the ratio of one Bbl of 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.
“MBbls” means thousand barrels.
“MMBbls” means million barrels.
“MBoe” means thousand Boe.
“MMBoe” means million Boe.
“MMBtu” means million Btu.
“Mcf” means thousand cubic feet.
“MMcf” means million cubic feet.
“NGL” or “NGLs” means natural gas liquids.
“NYMEX” means New York Mercantile Exchange.
“Oil” includes crude oil and condensate.
“Domestic” means the properties of Devon in the onshore continental United States and the offshore Gulf of Mexico.
“Canada” means the division of Devon encompassing oil and gas properties located in Canada.
“International” means the division of Devon encompassing oil and gas properties that lie outside the United States and Canada.
4
DEVON ENERGY CORPORATION
PART I. FINANCIAL INFORMATION
March 31, 2005 and 2004
(Forming a part of Form 10-Q Quarterly Report
to the Securities and Exchange Commission)
5
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
| (Unaudited) | ||||||||
| (In millions, except share data) | ||||||||
| ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 1,499 | $ | 1,152 | ||||
Short-term investments |
1,033 | 967 | ||||||
Accounts receivable |
1,364 | 1,320 | ||||||
Fair value of derivative financial instruments |
— | 1 | ||||||
Deferred income taxes |
317 | 289 | ||||||
Other current assets |
152 | 143 | ||||||
Total current assets |
4,365 | 3,872 | ||||||
Property and equipment, at cost, based on the full cost method of accounting for oil
and gas properties ($3,123 and $3,187 excluded from amortization in 2005 and 2004,
respectively) |
32,795 | 32,114 | ||||||
Less accumulated depreciation, depletion and amortization |
13,316 | 12,768 | ||||||
| 19,479 | 19,346 | |||||||
Investment in ChevronTexaco Corporation common stock, at fair value |
827 | 745 | ||||||
Fair value of derivative financial instruments |
— | 8 | ||||||
Goodwill |
5,624 | 5,637 | ||||||
Other assets |
381 | 417 | ||||||
Total assets |
$ | 30,676 | $ | 30,025 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable: |
||||||||
Trade |
$ | 937 | $ | 715 | ||||
Revenues and royalties due to others |
451 | 487 | ||||||
Income taxes payable |
428 | 223 | ||||||
Current portion of long-term debt |
932 | 933 | ||||||
Accrued interest payable |
97 | 139 | ||||||
Fair value of derivative financial instruments |
562 | 399 | ||||||
Current portion of asset retirement obligation |
68 | 46 | ||||||
Accrued expenses and other current liabilities |
285 | 158 | ||||||
Total current liabilities |
3,760 | 3,100 | ||||||
Debentures exchangeable into shares of ChevronTexaco Corporation common stock |
696 | 692 | ||||||
Other long-term debt |
6,312 | 6,339 | ||||||
Fair value of derivative financial instruments |
129 | 72 | ||||||
Asset retirement obligation, long-term |
685 | 693 | ||||||
Other liabilities |
379 | 366 | ||||||
Deferred income taxes |
5,081 | 5,089 | ||||||
Stockholders’ equity: |
||||||||
Preferred stock of $1.00 par value. |
||||||||
Authorized 4,500,000 shares; issued 1,500,000 ($150 million aggregate
liquidation value) |
1 | 1 | ||||||
Common stock of $0.10 par value. |
||||||||
Authorized 800,000,000 shares; issued 473,735,159 in 2005 and 483,909,000 in 2004 |
47 | 48 | ||||||
Additional paid-in capital |
8,588 | 9,087 | ||||||
Retained earnings |
4,218 | 3,693 | ||||||
Accumulated other comprehensive income |
858 | 930 | ||||||
Deferred compensation and other |
(78 | ) | (85 | ) | ||||
Total stockholders’ equity |
13,634 | 13,674 | ||||||
Total liabilities and stockholders’ equity |
$ | 30,676 | $ | 30,025 | ||||
See accompanying notes to consolidated financial statements.
6
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended March 31, | ||||||||
| 2005 | 2004 | |||||||
| (Unaudited) | ||||||||
| (In millions, except per share amounts) | ||||||||
Revenues: |
||||||||
Oil sales |
$ | 615 | $ | 581 | ||||
Gas sales |
1,175 | 1,121 | ||||||
NGL sales |
145 | 119 | ||||||
Marketing and midstream revenues |
416 | 417 | ||||||
Total revenues |
2,351 | 2,238 | ||||||
Expenses and other income, net: |
||||||||
Lease operating expenses |
348 | 310 | ||||||
Production taxes |
78 | 62 | ||||||
Marketing and midstream operating costs and expenses |
331 | 332 | ||||||
Depreciation, depletion and amortization of oil and gas properties |
541 | 538 | ||||||
Depreciation and amortization of non-oil and gas properties |
38 | 34 | ||||||
Accretion of asset retirement obligation |
12 | 11 | ||||||
General and administrative expenses |
58 | 77 | ||||||
Interest expense |
118 | 118 | ||||||
Effects of changes in foreign currency exchange rates |
— | 6 | ||||||
Change in fair value of derivative financial instruments |
52 | (4 | ) | |||||
Other income, net |
(138 | ) | (22 | ) | ||||
Total expenses and other income, net |
1,438 | 1,462 | ||||||
Earnings before income tax expense |
913 | 776 | ||||||
Income tax expense (benefit): |
||||||||
Current |
352 | 203 | ||||||
Deferred |
(2 | ) | 79 | |||||
Total income tax expense |
350 | 282 | ||||||
Net earnings |
563 | 494 | ||||||
Preferred stock dividends |
2 | 2 | ||||||
Net earnings applicable to common stockholders |
$ | 561 | $ | 492 | ||||
Net earnings per average common share outstanding: |
||||||||
Basic |
$ | 1.17 | $ | 1.03 | ||||
Diluted |
$ | 1.14 | $ | 1.00 | ||||
Weighted average common shares outstanding – basic |
480 | 478 | ||||||
Weighted average common shares outstanding – diluted |
496 | 493 | ||||||
See accompanying notes to consolidated financial statements.
7
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(Unaudited)
| Accumulated | ||||||||||||||||||||||||||||||||
| Additional | Other | Deferred | Total | |||||||||||||||||||||||||||||
| Preferred | Common | Paid-In | Retained | Comprehensive | Compensation | Treasury | Stockholders’ | |||||||||||||||||||||||||
| Stock | Stock | Capital | Earnings | Income | and Other | Stock | Equity | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2005 |
||||||||||||||||||||||||||||||||
Balance as of December 31, 2004 |
$ | 1 | 48 | 9,087 | 3,693 | 930 | (85 | ) | — | 13,674 | ||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net earnings |
— | — | — | 563 | — | — | — | 563 | ||||||||||||||||||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||||||||||||||||||
Foreign currency translation adjustments1 |
— | — | — | — | (26 | ) | — | — | (26 | ) | ||||||||||||||||||||||
Reclassification adjustment for derivative
losses reclassified into oil and gas sales2 |
— | — | — | — | 92 | — | — | 92 | ||||||||||||||||||||||||
Change in fair value of derivative financial
instruments3 |
— | — | — | — | (191 | ) | — | — | (191 | ) | ||||||||||||||||||||||
Unrealized gain on marketable securities4 |
— | — | — | — | 53 | — | — | 53 | ||||||||||||||||||||||||
Other comprehensive loss |
(72 | ) | ||||||||||||||||||||||||||||||
Comprehensive income |
491 | |||||||||||||||||||||||||||||||
Stock issued |
— | — | 57 | — | — | — | — | 57 | ||||||||||||||||||||||||
Stock repurchased and retired |
— | (1 | ) | (556 | ) | — | — | — | — | (557 | ) | |||||||||||||||||||||
Dividends on common stock |
— | — | — | (36 | ) | — | — | — | (36 | ) | ||||||||||||||||||||||
Dividends on preferred stock |
— | — | — | (2 | ) | — | — | — | (2 | ) | ||||||||||||||||||||||
Amortization of restricted stock awards |
— | — | — | — | — | 7 | — | 7 | ||||||||||||||||||||||||
Balance as of March 31, 2005 |
$ | 1 | 47 | 8,588 | 4,218 | 858 | (78 | ) | — | 13,634 | ||||||||||||||||||||||
Three Months Ended March 31, 2004 |
||||||||||||||||||||||||||||||||
Balance as of December 31, 2003 |
$ | 1 | 47 | 9,043 | 1,614 | 569 | (32 | ) | (186 | ) | 11,056 | |||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net earnings |
— | — | — | 494 | — | — | — | 494 | ||||||||||||||||||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||||||||||||||||||
Foreign currency translation adjustments5 |
— | — | — | — | (61 | ) | — | — | (61 | ) | ||||||||||||||||||||||
Reclassification adjustment for derivative
losses reclassified into oil and gas sales6 |
— | — | — | — | 43 | — | — | 43 | ||||||||||||||||||||||||
Change in fair value of derivative financial
instruments7 |
— | — | — | — | (148 | ) | — | — | (148 | ) | ||||||||||||||||||||||
Unrealized gain on marketable securities8 |
— | — | — | — | 6 | — | — | 6 | ||||||||||||||||||||||||
Other
comprehensive loss |
(160 | ) | ||||||||||||||||||||||||||||||
Comprehensive income |
334 | |||||||||||||||||||||||||||||||
Stock issued |
— | 1 | 107 | — | — | — | — | 108 | ||||||||||||||||||||||||
Conversion of preferred stock of a subsidiary |
— | — | — | — | — | — | 56 | 56 | ||||||||||||||||||||||||
Dividends on common stock |
— | — | — | (24 | ) | — | — | — | (24 | ) | ||||||||||||||||||||||
Dividends on preferred stock |
— | — | — | (2 | ) | — | — | — | (2 | ) | ||||||||||||||||||||||
Amortization of restricted stock awards |
— | — | — | — | — | 2 | — | 2 | ||||||||||||||||||||||||
Balance as of March 31, 2004 |
$ | 1 | 48 | 9,150 | 2,082 | 409 | (30 | ) | (130 | ) | 11,530 | |||||||||||||||||||||
1 net of income tax benefit of: |
$ | 2 | |||
2 net of income tax expense of: |
(50 | ) | |||
3 net of income tax benefit of: |
103 | ||||
4 net of income tax expense of: |
(30 | ) | |||
5 net of income tax benefit of: |
7 | ||||
6 net of income tax expense of: |
(29 | ) | |||
7 net of income tax benefit of: |
95 | ||||
8 net of income tax expense of: |
(4 | ) |
See accompanying notes to consolidated financial statements.
8
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended March 31, | ||||||||
| 2005 | 2004 | |||||||
| (Unaudited) | ||||||||
| (In millions) | ||||||||
Cash flows from operating activities: |
||||||||
Net earnings |
$ | 563 | $ | 494 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||
Depreciation, depletion and amortization |
579 | 572 | ||||||
Accretion of asset retirement obligation |
12 | 11 | ||||||
Accretion of discounts on long-term debt, net |
3 | 4 | ||||||
Effects of changes in foreign currency exchange rates |
— | 6 | ||||||
Change in fair value of derivative financial instruments |
52 | (4 | ) | |||||
Deferred income tax (benefit) expense |
(2 | ) | 79 | |||||
Gain on sale of non-oil and gas property and equipment |
(150 | ) | (4 | ) | ||||
Other |
12 | 8 | ||||||
Changes in assets and liabilities: |
||||||||
(Increase) decrease in: |
||||||||
Accounts receivable |
(44 | ) | (117 | ) | ||||
Other current assets |
(8 | ) | 3 | |||||
Long-term other assets |
32 | — | ||||||
Increase (decrease) in: |
||||||||
Accounts payable |
51 | 102 | ||||||
Income taxes payable |
205 | 194 | ||||||
Accrued interest and expenses |
82 | (112 | ) | |||||
Long-term other liabilities |
1 | (13 | ) | |||||
Net cash provided by operating activities |
1,388 | 1,223 | ||||||
Cash flows from investing activities: |
||||||||
Proceeds from sale of property and equipment |
432 | 11 | ||||||
Capital expenditures |
(867 | ) | (890 | ) | ||||
Purchases of short-term investments |
(1,147 | ) | (731 | ) | ||||
Sales of short-term investments |
1,081 | 693 | ||||||
Net cash used in investing activities |
(501 | ) | (917 | ) | ||||
Cash flows from financing activities: |
||||||||
Principal payments on long-term debt |
— | (211 | ) | |||||
Issuance of common stock, net of issuance costs |
57 | 108 | ||||||
Repurchase of common stock |
(557 | ) | — | |||||
Dividends paid on common stock |
(36 | ) | (24 | ) | ||||
Dividends paid on preferred stock |
(2 | ) | (2 | ) | ||||
Net cash used in financing activities |
(538 | ) | (129 | ) | ||||
Effect of exchange rate changes on cash |
(2 | ) | (7 | ) | ||||
Net increase in cash and cash equivalents |
347 | 170 | ||||||
Cash and cash equivalents at beginning of period |
1,152 | 932 | ||||||
Cash and cash equivalents at end of period |
$ | 1,499 | $ | 1,102 | ||||
See accompanying notes to consolidated financial statements.
9