<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 17, 1999
DEVON ENERGY CORPORATION
(Exact Name of registrant as Specified in its Charter)
Delaware 001-30176 73-1567067
(State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation or Organization) Identification Number)
20 NORTH BROADWAY, SUITE 1500, OKLAHOMA CITY, OK 73102
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (405) 235-3611
A Commission file number is to be issued in connection with this
filing. The Commission file number of the registrant's predecessor Devon Energy
Corporation, an Oklahoma corporation is 1-10067; the Commission file number of
the registrant's predecessor, PennzEnergy Company, a Delaware corporation, is
1-05591.
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 17, 1999, Devon Energy Corporation, a Delaware corporation,
("Devon"), completed its merger (the "Merger") with PennzEnergy Company
("PennzEnergy") pursuant to an Amended and Restated Agreement and Plan of Merger
dated as of May 19, 1999 (the "Merger Agreement"). In the Merger, each issued
and outstanding share of common stock of Devon Energy Corporation, an Oklahoma
corporation ("Old Devon"), par value $0.10 per share, was converted into the
right to receive one share of common stock of Devon, par value $0.10 per share.
Also, each issued and outstanding share of common stock of PennzEnergy, par
value $0.83 1/3 per share, was converted into the right to receive 0.4475 shares
of common stock of Devon. This exchange ratio was determined through arm's
length negotiations between the parties. Also, each share of 6.49% Cumulative
Preferred Stock, Series A, of PennzEnergy was converted into one share of 6.49%
Cumulative Preferred Stock, Series A, of Devon.
Devon expects to issue up to 21.5 million shares of common stock to the
former holders of PennzEnergy common stock. Shares of PennzEnergy common stock
are no longer transferable and certificates evidencing such shares represent
only the right to receive shares of Devon common stock in accordance with the
provisions of the Merger Agreement. The shareholders of Old Devon and
PennzEnergy approved the Merger at special meetings held on August 17, 1999.
A description of the Merger is contained in the August 17, 1999, press
release attached hereto as Exhibit 99.1 and incorporated herein by reference.
The Merger Agreement is incorporated herein by reference to Annex A to the Joint
Proxy Statement/Prospectus contained in Devon's Registration Statement on From
S-4 (No. 333-82903), filed with the Securities and Exchange Commission on July
15, 1999, and declared effective on July 16, 1999 (the "Registration
Statement"). A description of the Merger, including additional responses to the
information requested in this Item 2, are contained in the Registration
Statement, the text of which is incorporated by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Audited Annual Financial Statements of PennzEnergy
Consolidated Balance Sheets as of December 31, 1998 and 1997, and
Consolidated Statements of Income, Consolidated Statements of
Comprehensive Income, Consolidated Statements of Shareholders' Equity
and Consolidated Statements of Cash Flow for the Years Ended December
31, 1998, 1997 and 1996 (incorporated by reference to PennzEnergy's
Annual Report on Form 10-K for the year ended December 31, 1998)
<PAGE>
Unaudited Interim Financial Statements of PennzEnergy
Condensed Consolidated Balance Sheet as of June 30, 1999, and Condensed
Consolidated Statements of Income, Condensed Consolidated Statements of
Comprehensive Income and Consolidated Statements of Cash Flow for the
six month periods ended June 30, 1999 and 1998 (incorporated by
reference to PennzEnergy's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999)
(b) Unaudited Pro Forma Financial Information
(c) Exhibits
2.1 Amended and Restated Agreement and Plan of Merger among Registrant,
Devon Energy Corporation (Oklahoma) (formerly Devon Energy
Corporation, an Oklahoma corporation), Devon Oklahoma Corporation
and PennzEnergy Company dated as of May 19, 1999 (incorporated by
reference to Exhibit 2 to Registrant's Form S-4, File
No. 333-82903).
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ryder Scott Company, L.P.
99.1 Press release dated August 17, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEVON ENERGY CORPORATION
/s/ DANNY J. HEATLY
Danny J. Heatly, Controller
Date: August 31, 1999
<PAGE>
EXHIBIT INDEX
2.1 Amended and Restated Agreement and Plan of Merger among Registrant, Devon
Energy Corporation (Oklahoma) (formerly Devon Energy Corporation, an
Oklahoma corporation), Devon Oklahoma Corporation and PennzEnergy Company
dated as of May 19, 1999 (incorporated by reference to Exhibit 2 to
Registrant's Form S-4, File No. 33-82903).
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ryder Scott Company, L.P.
99.1 Press release dated August 17, 1999.
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information has been prepared to
assist in the analysis of the financial effects of the PennzEnergy merger. This
pro forma information is based on the historical financial statements of Devon
and PennzEnergy.
The information was prepared based on the following:
. Devon utilizes the full cost method of accounting for its oil and gas
activities.
. The merger was accounted for as a purchase of PennzEnergy by Devon.
. The unaudited pro forma balance sheet has been prepared as if the public
offering and the merger occurred on June 30, 1999. The unaudited pro
forma statements of operations have been prepared as if the public
offering and the merger occurred on January 1, 1998.
. Targeted annual general and administrative and lease operating expense
savings from the merger of $50 to $60 million have not been reflected as an
adjustment to the historical data. These cost savings are expected to result
from the consolidation of the corporate headquarters of Devon and
PennzEnergy and the elimination of duplicate staff and expenses.
. Devon also expects additional annual interest expense savings of $30 to $35
million due to lower debt levels. Devon filed on August 27, 1999, a Form S-3
registering 8.7 million shares of common stock to be sold in a public
offering. The proceeds from this offering will be used to retire $350
million of existing debt that bears interest at 10% per year. The expected
interest savings from this debt reduction are not included as adjustments to
the historical data included in the accompanying pro forma data.
. As of June 30, 1999, the merger did not cause a pro forma reduction of
the carrying value of oil and gas properties under the full cost
accounting "ceiling test." The June 30, 1999, ceiling test was calculated
based on a posted West Texas Intermediate oil price of $16.50 per barrel
and a Texas Gulf Coast index gas price of $2.14 per Mcf. However, the pro
forma ceiling "cushion" as of June 30, 1999, in Devon's non-Canadian cost
centers was less than $20 million. Therefore, future reductions in oil
and gas prices or changes to the preliminary allocation of the purchase
price of PennzEnergy's oil and gas properties could cause a reduction of
the carrying value to be recorded as of September 30, 1999, or in
subsequent periods.
No pro forma adjustments have been made with respect to the following unusual
items. These items are reflected in the historical results of Devon or
PennzEnergy, as applicable, and should be considered when making period-to-
period comparisons:
. In 1998, PennzEnergy realized pretax gains on the sale and exchange of
Chevron Corporation common stock of $230.1 million. The unaudited pro forma
statement of operations does not include the $207.0 million after-tax
extraordinary loss resulting from the early extinguishment of related
debentures exchangeable for such common stock.
. In 1998, PennzEnergy incurred $24.3 million of nonrecurring general and
administrative expenses in connection with the spin-off of Pennzoil-
Quaker State Company on December 30, 1998.
. In 1998, Devon incurred $13.1 million of nonrecurring expenses related to
the merger with Northstar.
. In 1998, Devon reduced the carrying value of its oil and gas properties
by $126.9 million ($88.0 million after-tax) due to the full cost ceiling
limitation.
. In the second quarter of 1999, PennzEnergy recognized a gain of $46.7
million ($29.8 million after-tax) from the sale of land, timber and
mineral rights in Pennsylvania and New York.
The unaudited pro forma financial statements and related notes are presented
for illustrative purposes only. If the PennzEnergy merger had occurred in the
past, Devon's financial position or operating results might have been different
from those presented in the unaudited pro forma information. The unaudited pro
forma information should not be relied upon as an indication of the financial
position or operating results that Devon would have achieved if the merger had
occurred as of June 30, 1999 or January 1, 1998. You also should not rely on the
unaudited pro forma information as an indication of the future results that
Devon will achieve after the merger.
5
<PAGE>
Unaudited Pro Forma Balance Sheet
June 30, 1999
(In Thousands)
<TABLE>
<CAPTION>
PennzEnergy
Historical Pro Forma
Devon Reclassified Adjustments Devon
Historical (Note 5) (Note 2) Pro Forma
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Assets:
Current assets........................... $ 104,760 $ 128,912 $(10,300)(a) $ 233,672
10,300 (c)
Oil and gas properties, net.............. 1,162,164 1,616,916 385,545 (a) 3,718,114
553,489 (c)
Other properties, net.................... 23,465 -- 5,000 (a) 28,465
Investment in common stock of Chevron
Corporation (Note 3).................... -- 674,224 -- 674,224
Other assets............................. 14,774 34,054 30,179 (a) 79,007
---------- ---------- -------- ----------
Total assets........................... $1,305,163 $2,454,106 $974,213 $4,733,482
========== ========== ======== ==========
Liabilities:
Current liabilities...................... $ 73,677 $ 145,167 $ (5,374)(a) $ 213,470
Debentures exchangeable into shares
of Chevron Corporation common stock
(Note 3)................................ -- 740,361 35,158 (a) 775,519
Other long-term debt..................... 448,013 822,652 48,032 (a) 1,390,242
71,545 (a)
Other long-term liabilities.............. 34,584 133,280 (2,590)(a) 165,274
Deferred income taxes.................... 44,149 187,257 (187,257)(a) 607,938
563,789 (c)
Company-obligated mandatorily redeemable
convertible preferred securities of
subsidiary trust holding solely 6.5%
convertible junior subordinated
debentures of Devon Energy Corporation.. 149,500 -- 149,500
Stockholders' equity:
Preferred stock.......................... -- 1,500 1,500
Common stock............................. 4,882 43,507 2,148 (a) 7,030
(43,507)(b)
Additional paid-in capital............... 807,270 354,504 710,151 (a) 1,679,921
14,000 (a)
148,500 (a)
(354,504)(b)
Accumulated deficit...................... (225,582) (23,743) 23,743 (b) (225,582)
Accumulated other comprehensive
earnings (loss)......................... (31,330) 275,743 (275,743)(b) (31,330)
Treasury stock........................... -- (226,122) 226,122 (b) --
---------- ---------- -------- ----------
Total stockholders' equity............. 555,240 425,389 450,910 1,431,539
---------- ---------- -------- ----------
Total liabilities and stockholders'
equity................................ $1,305,163 $2,454,106 $974,213 $4,733,482
========== ========== ======== ==========
</TABLE>
6
<PAGE>
Unaudited Pro Forma Statement of Operations
Year Ended December 31, 1998
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
PennzEnergy
Historical Pro Forma
Devon Reclassified Adjustments Devon
Historical (Note 5) (Note 2) Pro Forma
---------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Oil sales............................................. $143,624 $159,294 $ 302,918
Gas sales............................................. 209,344 344,594 553,938
NGL sales............................................. 16,692 47,011 63,703
Other................................................. 17,848 286,468 (8,513)(g) 295,803
-------- -------- -------- ---------
Total revenues...................................... 387,508 837,367 (8,513) 1,216,362
-------- -------- -------- ---------
Costs and expenses:
Lease operating expenses.............................. 113,484 181,255 294,739
Production taxes...................................... 13,916 14,232 28,148
Depreciation, depletion and amortization.............. 123,844 208,009 178,211 (d) 510,064
General and administrative expenses................... 23,554 126,124 (10,300)(g) 139,378
Northstar combination expenses........................ 13,149 -- 13,149
Interest expense...................................... 22,632 156,272 4,114 (e) 176,659
(6,359)(f)
Exploration expenses.................................. -- 139,970 (139,970)(g) --
Deferred effect of changes in foreign currency
exchange rate on subsidiary's long-term debt......... 16,104 -- 16,104
Distributions on preferred securities of subsidiary
trust................................................ 9,717 -- 9,717
Reduction of carrying value of oil and gas
properties........................................... 126,900 74,739 (74,739)(g) 126,900
-------- -------- -------- ---------
Total costs and expenses............................ 463,300 900,601 (49,043) 1,314,858
-------- -------- -------- ---------
Earnings (loss) before income tax expense (benefit)..... (75,792) (63,234) 40,530 (98,496)
Income tax expense (benefit):
Current............................................... 7,687 2,637 -- 10,324
Deferred.............................................. (23,194) (20,405) 15,401 (h) (28,198)
-------- -------- -------- ---------
Total income tax expense (benefit).................. (15,507) (17,768) 15,401 ( 17,874)
-------- -------- -------- ---------
Net earnings (loss)..................................... (60,285) (45,466) 26,029 (80,622)
Preferred stock dividends............................... -- 5,625 -- 5,625
-------- -------- -------- ---------
Net earnings (loss) applicable to common shareholders... $(60,285) $(51,091) $ 26,029 $ (86,247)
======== ======== ======== =========
Net loss per average common share outstanding
--basic and diluted.................................... $ (1.25) $ (1.07) $ (1.24)
======== ======== =========
Weighted average common shares outstanding
- --basic (Note 4)........................................ 48,376 47,716 69,729
======== ======== =========
</TABLE>
7
<PAGE>
Unaudited Pro Forma Statement of Operations
Six Months Ended June 30, 1999
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
PennzEnergy
Historical Pro Forma
Devon Reclassified Adjustments Devon
Historical (Note 5) (Note 2) Pro Forma
---------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Oil sales.............................................. $64,784 $ 85,114 $149,898
Gas sales.............................................. 112,938 150,884 263,822
NGL sales.............................................. 9,764 18,732 28,496
Other.................................................. 4,092 67,119 (5,557)(g) 65,654
------- -------- -------- --------
Total revenues....................................... 191,578 321,849 (5,557) 507,870
------- -------- -------- --------
Costs and expenses:
Lease operating expenses............................... 54,520 76,476 130,996
Production taxes....................................... 6,415 6,764 13,179
Depreciation, depletion and amortization............... 69,321 131,450 46,597 (d) 247,368
General and administrative expenses.................... 13,175 49,870 (5,150)(g) 57,895
Interest expense....................................... 13,779 61,811 2,057 (e) 74,232
(3,415)(f)
Exploration expenses................................... -- 17,537 (17,537)(g) --
Deferred effect of changes in foreign currency
exchange rate on subsidiary's long-term debt.......... (8,746) -- (8,746)
Distributions on preferred securities of subsidiary
trust................................................. 4,859 -- 4,859
------- -------- -------- --------
Total costs and expenses............................. 153,323 343,908 22,552 519,783
------- -------- -------- --------
Earnings (loss) before income tax expense (benefit)...... 38,255 (22,059) (28,109) (11,913)
Income tax expense (benefit):
Current................................................ 4,302 (34) -- 4,268
Deferred............................................... 11,764 (9,140) (10,681)(k) (8,057)
------- -------- -------- --------
Total income tax expense (benefit)................... 16,066 (9,174) 10,681 (3,789)
------- -------- -------- --------
Net earnings (loss)...................................... 22,189 (12,885) (17,428) (8,124)
Preferred stock dividends................................ -- 4,868 -- 4,868
------- -------- -------- --------
Net earnings (loss) applicable to common shareholders.... $22,189 $(17,753) $(17,428) $(12,992)
======= ======== ======== ========
Net earnings (loss) per average common share
outstanding--basic and diluted.......................... $ 0.46 $ (0.37) $ (0.19)
======= ======== ========
Weighted average common shares outstanding
--basic (Note 4)........................................ 48,575 47,923 70,021
======= ======== ========
</TABLE>
8
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
December 31, 1998 and June 30, 1999
1. Method of Accounting for the Merger
Devon accounted for the merger using the purchase method of accounting for
business combinations. Accordingly, PennzEnergy's assets acquired and
liabilities assumed by Devon were revalued and recorded at their estimated
"fair values." In the merger, Devon issued 0.4475 shares of Devon common stock
for each outstanding share of PennzEnergy common stock. This resulted in Devon
issuing approximately 21.4 million shares of its common stock to PennzEnergy
stockholders.
The purchase price of PennzEnergy's net assets acquired was based on the
value of the Devon common stock issued to the PennzEnergy stockholders. The
value of the Devon common stock issued was based on the average trading price
of Devon's common stock for a period of three days before and after the public
announcement of the merger. This average trading price equaled $33.40 per
share.
2. Pro Forma Adjustments Related to the Merger
The unaudited pro forma balance sheet includes the following adjustments:
(a) This entry adjusts the historical book values of PennzEnergy's assets
and liabilities to their estimated fair values as of June 30, 1999. The
calculation of the total purchase price and the preliminary allocation to
assets and liabilities are shown below.
<TABLE>
<CAPTION>
(In Thousands,
Except Share
Price)
--------------
<S> <C>
Calculation and preliminary allocation of purchase price:
Shares of Devon common stock issued to PennzEnergy
stockholders............................................. 21,476
Average Devon stock price................................. $ 33.40
----------
Fair value of common stock issued......................... 717,298
Plus preferred stock assumed by Devon..................... 150,000
Plus estimated merger costs to be incurred................ 71,545
Plus fair value of PennzEnergy employee stock options
assumed by Devon......................................... 14,000
Less estimated stock registration and issuance costs to be
incurred................................................. (4,999)
----------
Total purchase price........................................ 947,844
Plus fair value of liabilities assumed by Devon:
Current liabilities....................................... 139,793
Debentures exchangeable into Chevron Corporation common
stock.................................................... 775,519
Other long-term debt...................................... 870,684
Other long-term liabilities............................... 130,690
----------
2,864,530
----------
Less fair value of non oil and gas assets acquired by Devon:
Current assets............................................ 118,612
Non oil and gas properties................................ 5,000
Investment in common stock of Chevron Corporation......... 674,224
Other assets.............................................. 64,233
----------
862,069
----------
Fair value allocated to oil and gas properties, including
$111 million of undeveloped leasehold...................... $2,002,461
==========
</TABLE>
The total purchase price includes the value of the Devon common stock issued,
net of $5.0 million of estimated registration and issuance costs. The purchase
price also includes:
9
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION--(Continued)
December 31, 1998 and June 30, 1999
. $150 million of Devon preferred stock issued in exchange for the same
amount of PennzEnergy preferred stock. The unaudited pro forma balance
sheet includes $1.5 million of PennzEnergy's historical aggregate par
value of the preferred stock, plus $148.5 million of additional paid-in
capital.
. $71.5 million of estimated merger costs. These costs include advisory
fees, severance and other merger-related costs. These costs are added to
long-term debt in the unaudited pro forma balance sheet.
. $14 million of Devon employee stock options issued in exchange for
existing vested PennzEnergy employee stock options. The value of these
options is added to additional paid-in capital in the unaudited pro forma
balance sheet.
(b) This adjustment includes a $43.5 million reduction to par value, a
$354.5 million reduction of additional paid-in capital, a $23.7 million
reduction of accumulated deficit, a $275.7 million reduction of accumulated
other comprehensive earnings and a $226.1 million reduction of treasury
stock. These adjustments eliminate PennzEnergy's historical book values of
those accounts.
(c) This adjustment increases the value of PennzEnergy's oil and gas
properties acquired by $553.5 million, and increases current assets by
$10.3 million, both for related deferred income taxes. This adjustment
equals the deferred income tax effect of the difference between the fair
values assigned to PennzEnergy's assets and liabilities and their bases for
income tax purposes. Due to the tax-free nature of the merger, Devon's tax
basis in those assets and liabilities is the same as PennzEnergy's tax
basis.
The unaudited pro forma statements of operations include the following
adjustments:
(d) This adjustment reflects the pro forma depreciation, depletion and
amortization expense using the full cost method of accounting based on the
preliminary allocation of the purchase price.
(e) This adjustment increases interest expense due to the $71.5 million
of merger costs assumed to be funded with borrowings from credit
facilities.
(f) This adjustment reduces interest expense for the year 1998 and the
first quarter of 1999 by $6.4 million and $1.7 million, respectively. These
amounts represent the amortization of the pro forma premium recorded in
long-term debt as of January 1, 1998 as part of pro forma adjustment (a) to
record PennzEnergy's assets and liabilities at their estimated fair values.
(g) This adjustment eliminates historical amounts recorded by PennzEnergy
under the successful efforts accounting method for gains on property sales,
general and administrative expenses, exploration expenses and asset
impairments to conform to the full cost method of accounting followed by
Devon. Under the full cost method, proceeds from the sale of oil and gas
properties are generally recorded as an adjustment of the carrying value of
the properties, with no gain or loss recognized. Also, general and
administrative expenses incurred for property acquisition, exploration and
development activities are capitalized under the full cost method. In
addition, exploration expenses, which include items such as dry hole costs
and lease expirations or impairment expenses, are capitalized under the
full cost method. The $74.7 million reduction of oil and gas properties
recorded by PennzEnergy in the year 1998 was calculated under the
successful efforts method and therefore has been eliminated in the pro
forma statement of operations for 1998.
(h) This adjustment records the net tax effect of all pro forma
adjustments at an effective income tax rate of 38%.
10
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION--(Continued)
December 31, 1998 and June 30, 1999
3. Investment in Chevron Common Stock and Related Exchangeable Debentures
As of June 30, 1999 and December 31, 1998, PennzEnergy beneficially owned
approximately 7.1 million shares of Chevron Corporation common stock. These
shares have been deposited with an exchange agent for possible exchange for
$761.2 million principal amount of exchangeable debentures of PennzEnergy. Each
$1,000 principal amount of the exchangeable debentures is exchangeable into
9.3283 shares of Chevron common stock, an exchange rate equivalent to $107 7/32
per share of Chevron common stock.
The exchangeable debentures consist of $443.8 million of 4.90% debentures and
$317.4 million of 4.95% debentures. The exchangeable debentures were issued on
August 3, 1998 and mature August 15, 2008. The exchangeable debentures are
callable beginning on August 15, 2000. The exchangeable debentures are
exchangeable at the option of the holders at any time prior to maturity for
shares of Chevron common stock. In lieu of delivering Chevron common stock,
PennzEnergy may, at its option, pay to any holder an amount in cash equal to
the market value of the Chevron common stock to satisfy the exchange request.
4. Common Shares Outstanding
Net earnings (loss) per average share outstanding have been calculated based
upon the pro forma weighted average number of shares outstanding as follows:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ -----------
(In Thousands)
<S> <C> <C>
Devon's weighted average common shares
outstanding.................................... 48,376 48,575
Devon shares issued in exchange for all
outstanding shares of PennzEnergy ............. 21,353 21,446
------ ------
Pro forma weighted average Devon shares
outstanding with the PennzEnergy merger........ 69,729 70,021
====== ======
</TABLE>
11
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION--(Continued)
December 31, 1998 and June 30, 1999
Pro forma common shares outstanding at June 30, 1999, are as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
Devon's common shares outstanding........................ 48,820
Devon shares issued in exchange for all outstanding
shares of PennzEnergy .................................. 21,476
------
Pro forma Devon common shares outstanding with the
PennzEnergy merger...................................... 70,296
======
</TABLE>
5. PennzEnergy Historical and Reclassified Balances
Devon and PennzEnergy record certain revenues and expenses differently in
their respective consolidated financial statements. To make the unaudited pro
forma financial information consistent, we have reclassified certain of
PennzEnergy's balances to conform to Devon's financial presentation. The
following tables present PennzEnergy's balances as presented in its historical
financial statements and the reclassified balances which are included in the
accompanying unaudited pro forma statements of operations.
Securities and Exchange Commission rules regarding pro forma presentation
require that the pro forma statements of operations disclose income or loss
from continuing operations. As shown in the tables below, PennzEnergy's
historical results for the year 1998 included a loss from discontinued
operations and extraordinary items that are not included in the reclassified
balances presented in the accompanying unaudited pro forma statement of
operations for 1998.
12
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION--(Continued)
December 31, 1998 and June 30, 1999
In addition to the reclassifications shown below for the unaudited pro forma
statements of operations, a reclassification has been made to PennzEnergy's
historical balance sheet for the accompanying unaudited pro forma balance sheet
as of June 30, 1999. PennzEnergy had $38.4 million classified as minority
interest in its June 30, 1999 historical consolidated balance sheet. To conform
to Devon's presentation, this amount is included as other long-term liabilities
in the accompanying unaudited pro forma balance sheet.
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Six Months Ended June 30, 1999
------------------------------------------ ------------------------------------------
PennzEnergy PennzEnergy
PennzEnergy Historical PennzEnergy Historical
Historical Reclassifications Reclassified Historical Reclassifications Reclassified
----------- ----------------- ------------ ----------- ----------------- ------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales.............. $ 550,899 $(550,899) $ -- $254,730 $(254,730) $ --
Oil sales.............. -- 159,294 159,294 -- 85,114 85,114
Gas sales.............. -- 344,594 344,594 -- 150,884 150,884
NGL sales.............. -- 47,011 47,011 -- 18,732 18,732
Investment and other
income................ 286,468 -- 286,468 67,119 -- 67,119
--------- --------- -------- -------- --------- --------
Total revenues....... 837,367 -- 837,367 321,849 -- 321,849
--------- --------- -------- -------- --------- --------
Costs and expenses:
Lease operating
expenses.............. 217,194 (35,939) 181,255 90,782 (14,306) 76,476
Production taxes....... -- 14,232 14,232 -- 6,764 6,764
General and
administrative
expenses.............. 52,228 73,896 126,124 19,676 30,194 49,870
Depreciation,
depletion and
amortization.......... 208,009 -- 208,009 131,450 -- 131,450
Impairment of long-
lived assets.......... 74,739 -- 74,739 -- -- --
Exploration expenses... 161,615 (21,645) 139,970 25,921 (8,384) 17,537
Taxes, other than
income................ 30,544 (30,544) -- 14,268 (14,268) --
Interest charges,
net................... 156,272 -- 156,272 61,811 -- 61,811
--------- --------- -------- -------- --------- --------
Total costs and
expenses............ 900,601 -- 900,601 343,908 -- 343,908
--------- --------- -------- -------- --------- --------
Loss from continuing
operations before
income tax............. (63,234) -- (63,234) (22,059) -- (22,059)
Income tax benefit...... (17,768) -- (17,768) (9,174) -- (9,174)
--------- --------- -------- -------- --------- --------
Loss from continuing
operations............. $ (45,466) $ -- $(45,466) $(12,885) $ -- $(12,885)
========= ======== ========= ========
Loss from discontinued
operations............. (3,246) --
--------- --------
Loss before
extraordinary items.... (48,712) (12,885)
Extraordinary items..... (206,963) --
--------- --------
Net loss................ (255,675) (12,885)
Preferred stock
dividends.............. 5,625 4,868
--------- --------
Net loss available to
common shareholders.... $(261,300) $(17,753)
========= ========
</TABLE>
13
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 8-K of our report dated March 19, 1999 included in the
PennzEnergy Company Form 10-K for the year ended December 31, 1998. It should
be noted that we have not audited any financial statements of the Company
subsequent to December 31, 1998 or performed any audit procedures subsequent
to the date of our report.
ARTHUR ANDERSEN LLP
Houston, Texas
August 25, 1999
<PAGE>
Exhibit 23.2
ENGINEER'S CONSENT
We consent to the reference to our appraisal report for PennzEnergy Company
as of the years ended December 31, 1996, 1997, and 1998, incorporated herein by
reference.
RYDER SCOTT COMPANY, L.P.
August 25, 1999
<PAGE>
EXHIBIT 99.1
DEVON
ENERGY CORPORATION PENNZENERGY
FOR IMMEDIATE RELEASE
CONTACT: VINCE WHITE JEANNE BUCHANAN
DEVON ENERGY CORPORATION PENNZENERGY COMPANY
(405) 552-4505 (713) 546-6444
DEVON ENERGY AND PENNZENERGY ANNOUNCE
COMPLETION OF MERGER
OKLAHOMA CITY, OKLAHOMA; HOUSTON, TEXAS, AUGUST 17, 1999--Devon Energy
Corporation (AMEX: DVN, TSE: NSX) and PennzEnergy Company (NYSE: PZE) today
announced that their merger has been completed. The merger was announced on May
20, 1999. Shareholders of both companies approved the merger at special meetings
of shareholders on August 17, 1999. More than 99 percent of the shares
represented at the Devon meeting were cast in favor of the merger. Of the shares
represented at the PennzEnergy meeting, approximately 92 percent were cast in
favor of the merger.
TERMS OF MERGER
In the merger, each PennzEnergy share was converted into 0.4475 shares of common
stock of the new Devon Energy Corporation. Each share of Devon common stock was
converted into one share of new Devon. PennzEnergy shareholders will own
approximately 31 percent of the combined company and Devon shareholders will own
approximately 69 percent.
THE NEW DEVON ENERGY CORPORATION
Devon Energy Corporation now ranks in the top 10 of all U.S.-based independent
oil and gas producers in terms of market capitalization, total proved reserves
and annual production. Key measures of Devon Energy Corporation include:
. Total capitalization of approximately $5.0 billion.
. Proved reserves, as of December 31, 1998, of approximately 660 million
barrels of oil equivalent (MMBOE) (52 percent natural gas and 48
percent liquids).
. Net average daily production during 1998 of 230,000 barrels of oil
equivalent (60 percent natural gas and 40 percent liquids).
. U.S. operations concentrated in four core areas with year-end 1998
proved reserves of 422 MMBOE.
<PAGE>
. One of the world's largest coal bed methane producers from Devon's
stable San Juan Basin reserves. Significant exposure to the developing
Powder River Basin and Raton Basin coal seam plays.
. One of the largest producers in the Gulf of Mexico with operations on
75 blocks. Interests in an additional 98 undeveloped blocks.
. Significant operations in the Western Canadian Sedimentary Basin.
Year-end 1998 proved reserves of 144 MMBOE.
. International operations in the Caspian Sea region, Egypt and
Venezuela. Year-end 1998 proved reserves of 94 MMBOE, primarily in
Azerbaijan.
. An aggregate 15 million net undeveloped acres, providing an extensive
inventory of exploration opportunities.
James L. Pate, Chairman of Devon Energy Corporation, said, "This merger has
created a powerful new independent energy company. Devon is now poised to take
advantage of substantial economies of scale, cost savings and opportunities for
strategic expansion. These synergies will result in improved value for all
shareholders of the new Devon."
"I am excited and eager to begin this new chapter in the life of Devon Energy
Corporation," said J. Larry Nichols, President and CEO of Devon. "This merger is
the largest in Devon's history. It carries with it more opportunities to enhance
shareholder value than anything we have accomplished to date. This is truly a
banner day and I want to welcome all our new shareholders to Devon."
EXCHANGE AND TRANSMITTAL OF SHARES
Shareholders of Devon and PennzEnergy will receive written instructions for
exchanging their current shares for shares of the new Devon Energy Corporation.
The exchange and transmittal process will begin promptly. Questions concerning
this process should be directed to the Exchange Agent, BankBoston, N.A., at its
toll free number (800) 733-5001.
FORWARD LOOKING STATEMENTS
This press release includes "forward-looking statements" as defined by the
Securities and Exchange Commission. Such statements are those concerning the
company's plans, expectations and objectives for future operations. All
statements, other than statements of historical facts, included in this press
release that address activities, events or developments that the company
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 the control of
the company. Investors are cautioned that any such statements are not guarantees
of future performance and that actual results or developments may differ
materially from those projected in the forward-looking statements.
<PAGE>
Devon Energy Corporation is an independent energy company engaged in oil and gas
property acquisition, exploration and production. It is one of the top 10 public
independent oil and gas companies in the United States and Canada, as measured
by oil and gas reserves. Devon's Canadian operations are primarily conducted by
its subsidiary, Northstar Energy Corporation, traded on the Toronto Stock
Exchange under the symbol NSX. Shares of the new Devon Energy Corporation will
continue to trade on the American Stock Exchange under the symbol DVN.
