DEVON ENERGY CORP/DE [DVN] Filings

10-Q 1 dvn-10q_20210930.htm 10-Q dvn-10q_20210930.htm

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

☐	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: (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 October 20, 2021, 677.0 million shares of common stock were outstanding.

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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

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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.

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“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.

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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.

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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

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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

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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