10-Q 1 dvn-20220630.htm 10-Q 10-Q
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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 June 30, 2022

or

 

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

 

Commission File Number 001-32318

 

img129271154_0.jpg 

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: (405) 235-3611

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 July 20, 2022, 654.8 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

12

 

 

Note 4 – Share-Based Compensation

13

 

 

Note 5 – Restructuring and Transaction Costs

15

 

 

Note 6 – Other, Net

15

 

 

Note 7 – Income Taxes

16

 

 

Note 8 – Net Earnings Per Share

17

 

 

Note 9 – Other Comprehensive Earnings (Loss)

17

 

 

Note 10 – Supplemental Information to Statements of Cash Flows

18

 

 

Note 11 – Accounts Receivable

18

 

 

Note 12 – Property, Plant and Equipment

18

 

 

Note 13 – Debt and Related Expenses

19

 

 

Note 14 – Leases

20

 

 

Note 15 – Asset Retirement Obligations

20

 

 

Note 16 – Stockholders’ Equity

20

 

 

Note 17 – Commitments and Contingencies

21

 

 

Note 18 – Fair Value Measurements

23

Item 2.

 

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

24

 

 

Executive Overview

24

 

 

Results of Operations

26

 

 

Capital Resources, Uses and Liquidity

34

 

 

Critical Accounting Estimates

37

 

 

Non-GAAP Measures

37

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

 

Controls and Procedures

40

 

 

 

 

Part II. Other Information

 

Item 1.

 

Legal Proceedings

41

Item 1A.

 

Risk Factors

41

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 3.

 

Defaults Upon Senior Securities

41

Item 4.

 

Mine Safety Disclosures

41

Item 5.

 

Other Information

41

Item 6.

 

Exhibits

42

 

 

 

 

Signatures

 

 

43

 

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:

"2017 Plan" means the Devon Energy Corporation 2017 Long-Term Incentive Plan.

"2022 Plan" means the Devon Energy Corporation 2022 Long-Term Incentive Plan.

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

“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.

3


Table of Contents

 

“MMcf” means million cubic feet.

“N/M” means not meaningful.

"NCI" means noncontrolling interests.

“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.

“/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;
our ability to pay dividends and make share repurchases; and
any of the other risks and uncertainties discussed in this report, our 2021 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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Oil, gas and NGL sales

 

$

4,100

 

 

$

2,154

 

 

$

7,275

 

 

$

3,911

 

Oil, gas and NGL derivatives

 

 

(170

)

 

 

(703

)

 

 

(853

)

 

 

(1,231

)

Marketing and midstream revenues

 

 

1,696

 

 

 

966

 

 

 

3,016

 

 

 

1,787

 

Total revenues

 

 

5,626

 

 

 

2,417

 

 

 

9,438

 

 

 

4,467

 

Production expenses

 

 

729

 

 

 

513

 

 

 

1,347

 

 

 

971

 

Exploration expenses

 

 

10

 

 

 

3

 

 

 

12

 

 

 

6

 

Marketing and midstream expenses

 

 

1,700

 

 

 

965

 

 

 

3,024

 

 

 

1,807

 

Depreciation, depletion and amortization

 

 

528

 

 

 

536

 

 

 

1,017

 

 

 

1,003

 

Asset dispositions

 

 

(14

)

 

 

(87

)

 

 

(15

)

 

 

(119

)

General and administrative expenses

 

 

84

 

 

 

94

 

 

 

178

 

 

 

201

 

Financing costs, net

 

 

84

 

 

 

80

 

 

 

169

 

 

 

157

 

Restructuring and transaction costs

 

 

 

 

 

23

 

 

 

 

 

 

212

 

Other, net

 

 

10

 

 

 

(14

)

 

 

(51

)

 

 

(43

)

Total expenses

 

 

3,131

 

 

 

2,113

 

 

 

5,681

 

 

 

4,195

 

Earnings before income taxes

 

 

2,495

 

 

 

304

 

 

 

3,757

 

 

 

272

 

Income tax expense (benefit)

 

 

557

 

 

 

43

 

 

 

824

 

 

 

(205

)

Net earnings

 

 

1,938

 

 

 

261

 

 

 

2,933

 

 

 

477

 

Net earnings attributable to noncontrolling interests

 

 

6

 

 

 

5

 

 

 

12

 

 

 

8

 

Net earnings attributable to Devon

 

$

1,932

 

 

$

256

 

 

$

2,921

 

 

$

469

 

Net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic net earnings per share:

 

$

2.94

 

 

$

0.38

 

 

$

4.42

 

 

$

0.70

 

Diluted net earnings per share:

 

$

2.93

 

 

$

0.38

 

 

$

4.40

 

 

$

0.70

 

Comprehensive earnings:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

1,938

 

 

$

261

 

 

$

2,933

 

 

$

477

 

Other comprehensive earnings, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement plans

 

 

1

 

 

 

3

 

 

 

2

 

 

 

26

 

Other comprehensive earnings, net of tax

 

 

1

 

 

 

3

 

 

 

2

 

 

 

26

 

Comprehensive earnings:

 

$

1,939

 

 

$

264

 

 

$

2,935

 

 

$

503

 

Comprehensive earnings attributable to noncontrolling interests

 

 

6

 

 

 

5

 

 

 

12

 

 

 

8

 

Comprehensive earnings attributable to Devon

 

$

1,933

 

 

$

259

 

 

$

2,923

 

 

$

495

 

 

See accompanying notes to consolidated financial statements

6


Table of Contents

 

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

1,938

 

 

$

261

 

 

$

2,933

 

 

$

477

 

Adjustments to reconcile net earnings to net cash from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

528

 

 

 

536

 

 

 

1,017

 

 

 

1,003

 

Leasehold impairments

 

 

7

 

 

 

1

 

 

 

8

 

 

 

2

 

Amortization of liabilities

 

 

(9

)

 

 

(7

)

 

 

(15

)

 

 

(14

)

Total losses on commodity derivatives

 

 

170

 

 

 

703

 

 

 

853

 

 

 

1,231

 

Cash settlements on commodity derivatives

 

 

(472

)

 

 

(367

)

 

 

(816

)

 

 

(599

)

Gains on asset dispositions

 

 

(14

)

 

 

(87

)

 

 

(15

)

 

 

(119

)

Deferred income tax expense (benefit)

 

 

305

 

 

 

24

 

 

 

469

 

 

 

(219

)

Share-based compensation

 

 

23

 

 

 

20

 

 

 

43

 

 

 

61

 

Early retirement of debt

 

 

 

 

 

(10

)

 

 

 

 

 

(30

)

Other

 

 

4

 

 

 

2

 

 

 

(17

)

 

 

2

 

Changes in assets and liabilities, net

 

 

198

 

 

 

17

 

 

 

55

 

 

 

(110

)

Net cash from operating activities

 

 

2,678

 

 

 

1,093

 

 

 

4,515

 

 

 

1,685

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(573

)

 

 

(504

)

 

 

(1,110

)

 

 

(1,003

)

Acquisitions of property and equipment

 

 

(100

)

 

 

(5

)

 

 

(101

)

 

 

(5

)

Divestitures of property and equipment

 

 

9

 

 

 

49

 

 

 

35

 

 

 

64

 

WPX acquired cash

 

 

 

 

 

 

 

 

 

 

 

344

 

Distributions from equity method investments

 

 

15

 

 

 

8

 

 

 

23

 

 

 

18

 

Contributions to equity method investments

 

 

(21

)

 

 

 

 

 

(43

)

 

 

 

Net cash from investing activities

 

 

(670

)

 

 

(452

)

 

 

(1,196

)

 

 

(582

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

 

 

 

(710

)

 

 

 

 

 

(1,243

)

Early retirement of debt

 

 

 

 

 

(32

)

 

 

 

 

 

(59

)

Repurchases of common stock

 

 

(324

)

 

 

 

 

 

(535

)

 

 

 

Dividends paid on common stock

 

 

(830

)

 

 

(229

)

 

 

(1,497

)

 

 

(432

)

Contributions from noncontrolling interests

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Distributions to noncontrolling interests

 

 

(5

)

 

 

(5

)

 

 

(13

)

 

 

(9

)

Acquisition of noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

(24

)

Shares exchanged for tax withholdings and other

 

 

(12

)

 

 

(9

)

 

 

(85

)

 

 

(42

)

Net cash from financing activities

 

 

(1,171

)

 

 

(982

)

 

 

(2,130

)

 

 

(1,806

)

Effect of exchange rate changes on cash

 

 

(5

)

 

 

2

 

 

 

(3

)

 

 

5

 

Net change in cash, cash equivalents and restricted cash

 

 

832

 

 

 

(339

)

 

 

1,186

 

 

 

(698

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

2,625

 

 

 

1,878

 

 

 

2,271

 

 

 

2,237

 

Cash, cash equivalents and restricted cash at end of period

 

$

3,457

 

 

$

1,539

 

 

$

3,457

 

 

$

1,539

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,300

 

 

$

1,348

 

 

$

3,300

 

 

$

1,348

 

Restricted cash

 

 

157

 

 

 

191

 

 

 

157

 

 

 

191

 

Total cash, cash equivalents and restricted cash

 

$

3,457

 

 

$

1,539

 

 

$

3,457

 

 

$

1,539

 

 

See accompanying notes to consolidated financial statements

7


Table of Contents

 

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

June 30, 2022

 

 

December 31, 2021

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash, cash equivalents and restricted cash

 

$

3,457

 

 

$

2,271

 

Accounts receivable

 

 

2,348

 

 

 

1,543

 

Other current assets

 

 

546

 

 

 

435

 

Total current assets

 

 

6,351

 

 

 

4,249

 

Oil and gas property and equipment, based on successful efforts
   accounting, net

 

 

13,588

 

 

 

13,536

 

Other property and equipment, net ($122 million and $111 million related to CDM in 2022 and 2021, respectively)

 

 

1,525

 

 

 

1,472

 

Total property and equipment, net

 

 

15,113

 

 

 

15,008

 

Goodwill

 

 

753

 

 

 

753

 

Right-of-use assets

 

 

236

 

 

 

235

 

Investments

 

 

423

 

 

 

402

 

Other long-term assets

 

 

318

 

 

 

378

 

Total assets

 

$

23,194

 

 

$

21,025

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

668

 

 

$

500

 

Revenues and royalties payable

 

 

2,108

 

 

 

1,456

 

Other current liabilities

 

 

1,318

 

 

 

1,131

 

Total current liabilities

 

 

4,094

 

 

 

3,087

 

Long-term debt

 

 

6,461

 

 

 

6,482