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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2021

or

 

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

 

Commission File Number 001-32318

 

DEVON ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

73-1567067

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

identification No.)

 

 

333 West Sheridan Avenue, Oklahoma City, Oklahoma

 

73102-5015

(Address of principal executive offices)

 

(Zip code)

Registrant’s telephone number, including area code: (405235-3611

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.10 per share

DVN

The New York Stock Exchange

 

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

Accelerated filer

 

Non-accelerated filer

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  

On October 20, 2021, 677.0 million shares of common stock were outstanding.

 

 


Table of Contents

 

DEVON ENERGY CORPORATION

FORM 10-Q

TABLE OF CONTENTS

 

Part I. Financial Information

 

Item 1.

 

Financial Statements

6

 

 

Consolidated Statements of Comprehensive Earnings

6

 

 

Consolidated Statements of Cash Flows

7

 

 

Consolidated Balance Sheets

8

 

 

Consolidated Statements of Equity

9

 

 

Notes to Consolidated Financial Statements

10

 

 

Note 1 – Summary of Significant Accounting Policies

10

 

 

Note 2 – Acquisitions and Divestitures

11

 

 

Note 3 – Derivative Financial Instruments

13

 

 

Note 4 – Share-Based Compensation

15

 

 

Note 5 – Asset Impairments

16

 

 

Note 6 – Restructuring and Transaction Costs

17

 

 

Note 7 – Income Taxes

18

 

 

Note 8 – Net Earnings (Loss) Per Share From Continuing Operations

19

 

 

Note 9 – Other Comprehensive Earnings (Loss)

19

 

 

Note 10 – Supplemental Information to Statements of Cash Flows

20

 

 

Note 11 – Accounts Receivable

20

 

 

Note 12 – Property, Plant and Equipment

20

 

 

Note 13 – Debt and Related Expenses

21

 

 

Note 14 – Leases

22

 

 

Note 15 – Asset Retirement Obligations

23

 

 

Note 16 – Stockholders’ Equity

23

 

 

Note 17 – Discontinued Operations

24

 

 

Note 18 – Commitments and Contingencies

25

 

 

Note 19 – Fair Value Measurements

26

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

 

 

Executive Overview

28

 

 

Results of Operations

30

 

 

Capital Resources, Uses and Liquidity

37

 

 

Critical Accounting Estimates

40

 

 

Non-GAAP Measures

41

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4.

 

Controls and Procedures

44

 

 

 

 

Part II. Other Information

 

Item 1.

 

Legal Proceedings

45

Item 1A.

 

Risk Factors

45

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

45

Item 3.

 

Defaults Upon Senior Securities

45

Item 4.

 

Mine Safety Disclosures

45

Item 5.

 

Other Information

45

Item 6.

 

Exhibits

46

 

 

 

 

Signatures

 

 

47

 

 

 

2


Table of Contents

 

DEFINITIONS

Unless the context otherwise indicates, references to “us,” “we,” “our,” “ours,” “Devon,” the “Company” and “Registrant” refer to Devon Energy Corporation and its consolidated subsidiaries. All monetary values, other than per unit and per share amounts, are stated in millions of U.S. dollars unless otherwise specified. In addition, the following are other abbreviations and definitions of certain terms used within this Quarterly Report on Form 10-Q:

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

“BKV” means Banpu Kalnin Ventures.

“Boe” means barrel of oil equivalent. Gas proved reserves and production are converted to Boe, at the pressure and temperature base standard of each respective state in which the gas is produced, at the rate of six Mcf of gas per Bbl of oil, based upon the approximate relative energy content of gas and oil. NGL proved reserves and production are converted to Boe on a one-to-one basis with oil.

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

“Canada” means the division of Devon encompassing oil and gas properties located in Canada. On June 27, 2019, all of Devon’s Canadian operating assets and operations were divested. All dollar amounts associated with Canada are in U.S. dollars, unless stated otherwise.

“Catalyst” means Catalyst Midstream Partners, LLC.

“CDM” means Cotton Draw Midstream, L.L.C.

“DD&A” means depreciation, depletion and amortization expenses.

“ESG” means environmental, social and governance.

“G&A” means general and administrative expenses.

“GAAP” means U.S. generally accepted accounting principles.

“Inside FERC” refers to the publication Inside FERC’s Gas Market Report.

“LOE” means lease operating expenses.

“MBbls” means thousand barrels.

“MBoe” means thousand Boe.

“Mcf” means thousand cubic feet.

“Merger” means the merger of Merger Sub with and into WPX, with WPX continuing as the surviving corporation and a wholly-owned subsidiary of the Company, pursuant to the terms of the Merger Agreement.

“Merger Agreement” means that certain Agreement and Plan of Merger, dated September 26, 2020, by and among the Company, Merger Sub and WPX.

“Merger Sub” means East Merger Sub, Inc., a wholly-owned subsidiary of the Company.

“MMBoe” means million Boe.

“MMBtu” means million Btu.

“MMcf” means million cubic feet.

3


Table of Contents

“N/M” means not meaningful.

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

“NYMEX” means New York Mercantile Exchange.

“OPEC” means Organization of the Petroleum Exporting Countries.

“SEC” means United States Securities and Exchange Commission.

“Senior Credit Facility” means Devon’s syndicated unsecured revolving line of credit, effective as of October 5, 2018.

“TSR” means total shareholder return.

“U.S.” means United States of America.

“VIE” means variable interest entity.

“WPX” means WPX Energy, Inc.

“WTI” means West Texas Intermediate.

“/Bbl” means per barrel.

“/d” means per day.

“/Mcf” means per Mcf.

“/MMBtu” means per MMBtu.

4


Table of Contents

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

 

This report includes “forward-looking statements” as defined by the SEC. Such statements include those concerning strategic plans, our expectations and objectives for future operations, as well as other future events or conditions, and are often identified by use of the words and phrases “expects,” “believes,” “will,” “would,” “could,” “continue,” “may,” “aims,” “likely to be,” “intends,” “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 report that address activities, events or developments that Devon 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 our control. Consequently, actual future results could differ materially and adversely from our expectations due to a number of factors, including, but not limited to:

 

the volatility of oil, gas and NGL prices;

 

risks relating to the COVID-19 pandemic or other future pandemics;

 

uncertainties inherent in estimating oil, gas and NGL reserves;

 

the extent to which we are successful in acquiring and discovering additional reserves;

 

regulatory restrictions, compliance costs and other risks relating to governmental regulation, including with respect to environmental matters;

 

risks related to regulatory, social and market efforts to address climate change;

 

the uncertainties, costs and risks involved in our operations, including as a result of employee misconduct;

 

risks related to our hedging activities;

 

counterparty credit risks;

 

risks relating to our indebtedness;

 

cyberattack risks;

 

our limited control over third parties who operate some of 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 assets, materials, people and capital;

 

risks related to investors attempting to effect change;

 

our ability to successfully complete mergers, acquisitions and divestitures;

 

risks related to the Merger, including the risk that we may not realize the anticipated benefits of the Merger or successfully integrate the two legacy businesses; and

 

any of the other risks and uncertainties discussed in this report, our 2020 Annual Report on Form 10-K and our other filings with the SEC.

All subsequent written and oral forward-looking statements attributable to Devon, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements above. We assume no duty to update or revise our forward-looking statements based on new information, future events or otherwise.

5


Table of Contents

Part I.  Financial Information

Item 1.  Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

Oil, gas and NGL sales

 

$

2,635

 

 

$

678

 

 

$

6,546

 

 

$

1,909

 

Oil, gas and NGL derivatives

 

 

(335

)

 

 

(87

)

 

 

(1,566

)

 

 

272

 

Marketing and midstream revenues

 

 

1,166

 

 

 

476

 

 

 

2,953

 

 

 

1,367

 

Total revenues

 

 

3,466

 

 

 

1,067

 

 

 

7,933

 

 

 

3,548

 

Production expenses

 

 

555

 

 

 

271

 

 

 

1,526

 

 

 

852

 

Exploration expenses

 

 

3

 

 

 

39

 

 

 

9

 

 

 

163

 

Marketing and midstream expenses

 

 

1,165

 

 

 

478

 

 

 

2,972

 

 

 

1,395

 

Depreciation, depletion and amortization

 

 

578

 

 

 

299

 

 

 

1,581

 

 

 

999

 

Asset impairments

 

 

 

 

 

 

 

 

 

 

 

2,666

 

Asset dispositions

 

 

 

 

 

 

 

 

(119

)

 

 

 

General and administrative expenses

 

 

95

 

 

 

75

 

 

 

296

 

 

 

256

 

Financing costs, net

 

 

86

 

 

 

66

 

 

 

243

 

 

 

200

 

Restructuring and transaction costs

 

 

18

 

 

 

32

 

 

 

230

 

 

 

32

 

Other, net

 

 

2

 

 

 

 

 

 

(41

)

 

 

(35

)

Total expenses

 

 

2,502

 

 

 

1,260

 

 

 

6,697

 

 

 

6,528

 

Earnings (loss) from continuing operations before income taxes

 

 

964

 

 

 

(193

)

 

 

1,236

 

 

 

(2,980

)

Income tax expense (benefit)

 

 

120

 

 

 

(90

)

 

 

(85

)

 

 

(510

)

Net earnings (loss) from continuing operations

 

 

844

 

 

 

(103

)

 

 

1,321

 

 

 

(2,470

)

Net earnings (loss) from discontinued operations, net of income taxes

 

 

 

 

 

13

 

 

 

 

 

 

(103

)

Net earnings (loss)

 

 

844

 

 

 

(90

)

 

 

1,321

 

 

 

(2,573

)

Net earnings attributable to noncontrolling interests

 

 

6

 

 

 

2

 

 

 

14

 

 

 

5

 

Net earnings (loss) attributable to Devon

 

$

838

 

 

$

(92

)

 

$

1,307

 

 

$

(2,578

)

Basic net earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) from continuing operations per share

 

$

1.24

 

 

$

(0.29

)

 

$

1.95

 

 

$

(6.58

)

Basic earnings (loss) from discontinued operations per share

 

 

 

 

 

0.04

 

 

 

 

 

 

(0.27

)

Basic net earnings (loss) per share

 

$

1.24

 

 

$

(0.25

)

 

$

1.95

 

 

$

(6.85

)

Diluted net earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) from continuing operations per share

 

$

1.24

 

 

$

(0.29

)

 

$

1.95

 

 

$

(6.58

)

Diluted earnings (loss) from discontinued operations per share

 

 

 

 

 

0.04

 

 

 

 

 

 

(0.27

)

Diluted net earnings (loss) per share

 

$

1.24

 

 

$

(0.25

)

 

$

1.95

 

 

$

(6.85

)

Comprehensive earnings (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

844

 

 

$

(90

)

 

$

1,321

 

 

$

(2,573

)

Other comprehensive earnings, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement plans

 

 

1

 

 

 

1

 

 

 

27

 

 

 

3

 

Other comprehensive earnings, net of tax

 

 

1

 

 

 

1

 

 

 

27

 

 

 

3

 

Comprehensive earnings (loss):

 

 

845

 

 

 

(89

)

 

 

1,348

 

 

 

(2,570

)

Comprehensive earnings attributable to noncontrolling interests

 

 

6

 

 

 

2

 

 

 

14

 

 

 

5

 

Comprehensive earnings (loss) attributable to Devon

 

$

839

 

 

$

(91

)

 

$

1,334

 

 

$

(2,575

)

 

See accompanying notes to consolidated financial statements

6


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

844

 

 

$

(90

)

 

$

1,321

 

 

$

(2,573

)

Adjustments to reconcile net earnings (loss) to net cash from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (earnings) loss from discontinued operations, net of income taxes

 

 

 

 

 

(13

)

 

 

 

 

 

103

 

Depreciation, depletion and amortization

 

 

578

 

 

 

299

 

 

 

1,581

 

 

 

999

 

Asset impairments

 

 

 

 

 

 

 

 

 

 

 

2,666

 

Leasehold impairments

 

 

1

 

 

 

36

 

 

 

3

 

 

 

149

 

(Amortization) accretion of liabilities

 

 

(7

)

 

 

8

 

 

 

(21

)

 

 

24

 

Total (gains) losses on commodity derivatives

 

 

335

 

 

 

87

 

 

 

1,566

 

 

 

(272

)

Cash settlements on commodity derivatives

 

 

(370

)

 

 

10

 

 

 

(969

)

 

 

343

 

Gains on asset dispositions

 

 

 

 

 

 

 

 

(119

)

 

 

 

Deferred income tax expense (benefit)

 

 

119

 

 

 

 

 

 

(100

)

 

 

(311

)

Share-based compensation

 

 

19

 

 

 

31

 

 

 

80

 

 

 

70

 

Early retirement of debt

 

 

 

 

 

 

 

 

(30

)

 

 

 

Other

 

 

11

 

 

 

1

 

 

 

13

 

 

 

5

 

Changes in assets and liabilities, net

 

 

68

 

 

 

58

 

 

 

(42

)

 

 

(97

)

Net cash from operating activities - continuing operations

 

 

1,598

 

 

 

427

 

 

 

3,283

 

 

 

1,106

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(474

)

 

 

(204

)

 

 

(1,477

)

 

 

(936

)

Acquisitions of property and equipment

 

 

(10

)

 

 

 

 

 

(15

)

 

 

(5

)

Divestitures of property and equipment

 

 

1

 

 

 

1

 

 

 

65

 

 

 

29

 

WPX acquired cash

 

 

 

 

 

 

 

 

344

 

 

 

 

Distributions from equity method investments

 

 

9

 

 

 

 

 

 

27

 

 

 

 

Net cash from investing activities - continuing operations

 

 

(474

)

 

 

(203

)

 

 

(1,056

)

 

 

(912

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

 

 

 

 

 

 

(1,243

)

 

 

 

Early retirement of debt

 

 

 

 

 

 

 

 

(59

)

 

 

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

(38

)

Dividends paid on common stock

 

 

(329

)

 

 

(43

)

 

 

(761

)

 

 

(119

)

Contributions from noncontrolling interests

 

 

1

 

 

 

1

 

 

 

4

 

 

 

12

 

Distributions to noncontrolling interests

 

 

(6

)

 

 

(4

)

 

 

(15

)

 

 

(10

)

Acquisition of noncontrolling interests

 

 

 

 

 

 

 

 

(24

)

 

 

 

Shares exchanged for tax withholdings and other

 

 

(3

)

 

 

 

 

 

(45

)

 

 

(17

)

Net cash from financing activities - continuing operations

 

 

(337

)

 

 

(46

)

 

 

(2,143

)

 

 

(172

)

Effect of exchange rate changes on cash - continuing operations

 

 

(5

)

 

 

 

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash of continuing operations

 

 

782

 

 

 

178

 

 

 

84

 

 

 

22

 

Cash flows from discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

45

 

 

 

 

 

 

(129

)

Investing activities

 

 

 

 

 

1

 

 

 

 

 

 

171

 

Financing activities

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

 

 

 

4

 

 

 

 

 

 

(11

)

Net change in cash, cash equivalents and restricted cash of discontinued operations

 

 

 

 

 

50

 

 

 

 

 

 

31

 

Net change in cash, cash equivalents and restricted cash

 

 

782

 

 

 

228

 

 

 

84

 

 

 

53

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

1,539

 

 

 

1,669

 

 

 

2,237

 

 

 

1,844

 

Cash, cash equivalents and restricted cash at end of period

 

$

2,321

 

 

$

1,897

 

 

$

2,321

 

 

$

1,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,144

 

 

$

1,707

 

 

$

2,144

 

 

$

1,707

 

Restricted cash

 

 

177

 

 

 

190

 

 

 

177

 

 

 

190

 

Total cash, cash equivalents and restricted cash

 

$

2,321

 

 

$

1,897

 

 

$

2,321

 

 

$

1,897

 

 

See accompanying notes to consolidated financial statements

7


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash

 

$

2,321

 

 

$

2,237

 

Accounts receivable