<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
------ OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-30176
DEVON ENERGY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 73-1567067
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
20 N. BROADWAY, SUITE 1500
OKLAHOMA CITY, OKLAHOMA 73102
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (405) 235-3611
Not applicable
--------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed from last report.
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 X No .
--- ---
The number of shares outstanding of Registrant's common stock, par
value $.10, as of November 1, 2000, was 128,341,000.
1 of 45 total pages
(Exhibit Index is found at page 36)
<PAGE> 2
DEVON ENERGY CORPORATION
Index to Form 10-Q Quarterly Report
to the Securities and Exchange Commission
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets, September 30, 2000 (Unaudited) 4
and December 31, 1999
Consolidated Statements of Operations (Unaudited) 5
for the Three Months and Nine Months Ended September 30,
2000 and 1999
Consolidated Statements of Comprehensive Operations 6
(Unaudited) for the Three Months and Nine Months Ended
September 30, 2000 and 1999
Consolidated Statements of Cash Flows (Unaudited) 7
for the Nine Months Ended September 30, 2000 and 1999
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 17
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 33
Item 6. Exhibits and Reports on Form 8-K 34
</TABLE>
DEFINITIONS
As used in this document:
"Mcf" means thousand cubic feet
"MMcf" means million cubic feet
"Bcf" means billion cubic feet
"Bbl" means barrel
"MBbls" means thousand barrels
"MMBbls" means million barrels
"Boe" means equivalent barrels of oil
"MBoe" means thousand equivalent barrels of oil
"Oil" includes crude oil and condensate
"NGL" means natural gas liquids
2
<PAGE> 3
DEVON ENERGY CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(FORMING A PART OF FORM 10-Q QUARTERLY REPORT
TO THE SECURITIES AND EXCHANGE COMMISSION)
3
<PAGE> 4
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 178,647 173,167
Accounts receivable 467,393 316,005
Inventories 54,966 38,941
Investments and other current assets 78,594 57,295
Deferred income taxes 4,886 4,886
-------------- --------------
Total current assets 784,486 590,294
-------------- --------------
Property and equipment, at cost, based on the full
cost method of accounting for oil and gas properties 9,367,282 8,592,010
Less accumulated depreciation, depletion
and amortization 4,611,753 4,168,590
-------------- --------------
4,755,529 4,423,420
Investment in Chevron Corporation common stock, at fair value 604,630 614,382
Goodwill, net of amortization 299,661 322,800
Other assets 126,210 145,464
-------------- --------------
Total assets $ 6,570,516 6,096,360
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade 277,159 266,825
Revenues and royalties due to others 93,506 67,330
Income taxes payable 83,204 12,587
Accrued interest payable 31,350 28,370
Merger related expenses payable 65,720 35,704
Accrued expenses 60,449 56,528
-------------- --------------
Total current liabilities 611,388 467,344
-------------- --------------
Other liabilities 180,411 262,310
Debentures exchangeable into shares of Chevron
Corporation common stock 760,313 760,313
Other long-term debt 1,441,824 1,656,208
Deferred revenue 129,744 104,800
Deferred income taxes 483,155 324,065
Stockholders' equity:
Preferred stock of $1.00 par value ($100 liquidation value)
Authorized 4,500,000 shares; issued 1,500,000 in 2000 and 1999 1,500 1,500
Common stock of $.10 par value
Authorized 400,000,000 shares; outstanding 128,261,000 in
2000 and 126,323,000 in 1999 12,826 12,632
Additional paid-in capital 3,544,564 3,491,828
Accumulated deficit (510,400) (908,598)
Accumulated other comprehensive loss (84,809) (65,242)
Treasury stock, at cost; 330,000 shares in 1999 -- (10,800)
-------------- --------------
Total stockholders' equity 2,963,681 2,521,320
-------------- --------------
Total liabilities and stockholders' equity $ 6,570,516 6,096,360
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Oil sales $ 265,183 166,678 805,776 334,162
Gas sales 384,542 185,719 936,628 371,957
Natural gas liquids sales 35,455 18,744 106,358 32,308
Other 29,666 5,410 54,438 10,902
---------- ---------- ---------- ----------
Total revenues 714,846 376,551 1,903,200 749,329
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Lease operating expenses 114,035 82,846 337,922 198,666
Production taxes 26,252 13,151 66,242 25,366
Depreciation, depletion and amortization of property
and equipment 170,151 135,977 507,654 255,798
Amortization of goodwill 10,364 -- 31,057 --
Expenses related to merger 57,233 -- 57,233 16,800
General and administrative expenses 25,304 26,038 74,177 52,813
Interest expense 40,445 34,359 121,396 64,938
Deferred effect of changes in foreign currency exchange
rate on subsidiary's long-term debt -- (330) 2,408 (9,076)
Distributions on preferred securities of subsidiary trust -- 2,429 -- 7,288
Reduction of carrying value of oil and gas properties -- -- -- 463,800
---------- ---------- ---------- ----------
Total costs and expenses 443,784 294,470 1,198,089 1,076,393
---------- ---------- ---------- ----------
Earnings (loss) before income tax expense (benefit) and
extraordinary item 271,062 82,081 705,111 (327,064)
INCOME TAX EXPENSE (BENEFIT)
Current 50,403 1,073 122,908 5,475
Deferred 55,747 30,156 158,770 (107,680)
---------- ---------- ---------- ----------
Total income tax expense (benefit) 106,150 31,229 281,678 (102,205)
---------- ---------- ---------- ----------
Income (loss) before extraordinary item 164,912 50,852 423,433 (224,859)
Extraordinary item -- -- -- (4,200)
---------- ---------- ---------- ----------
Net earnings (loss) 164,912 50,852 423,433 (229,059)
Preferred stock dividends 2,433 1,217 7,301 1,217
---------- ---------- ---------- ----------
Net earnings (loss) applicable to common stockholders $ 162,479 49,635 416,132 (230,276)
========== ========== ========== ==========
Net earnings (loss) before extraordinary item per average
common share outstanding:
Basic $ 1.27 0.50 3.27 (2.70)
========== ========== ========== ==========
Diluted $ 1.22 0.48 3.20 (2.70)
========== ========== ========== ==========
Net earnings (loss) after extraordinary item per average
common share outstanding:
Basic $ 1.27 0.50 3.27 (2.75)
========== ========== ========== ==========
Diluted $ 1.22 0.48 3.20 (2.75)
========== ========== ========== ==========
Weighted average common shares outstanding:
Basic 127,857 99,178 127,065 83,592
========== ========== ========== ==========
Diluted 134,394 105,596 130,628 89,427
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net earnings (loss) $ 164,912 50,852 423,433 (229,059)
Other comprehensive earnings (loss):
Foreign currency translation adjustments (6,462) 483 (12,237) 4,815
Unrealized losses on marketable securities, net of tax benefit (1,288) (25,362) (7,330) (28,962)
--------- --------- --------- ---------
Comprehensive earnings (loss) $ 157,162 25,973 403,866 (253,206)
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
-------------- -------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 423,433 (229,059)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Depreciation, depletion and amortization of property and equipment 507,654 255,798
Amortization of goodwill 31,057 --
Accretion of interest on zero-coupon convertible senior debentures 3,531 --
Accretion of debt discounts (2,891) --
Deferred effect of changes in foreign currency exchange
rate on subsidiary's long-term debt 2,408 (9,076)
Gain on sale of assets (5,854) (87)
Deferred income tax expense (benefit) 158,770 (107,680)
Reduction of carrying value of oil and gas properties -- 463,800
Other (28) 1,868
Changes in assets and liabilities:
Increase in:
Accounts receivable (153,432) (52,499)
Inventories (16,025) (3,022)
Investments and other current assets (22,751) (8,805)
Other assets (3,029) (20,106)
Increase (decrease) in:
Accounts payable 95,842 (17,998)
Income taxes payable 78,095 (100)
Accrued expenses 37,198 36,126
Deferred revenue 23,545 109,400
Long-term other liabilities (24,133) (3,369)
----------- -----------
Net cash provided by operating activities 1,133,390 415,191
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 56,640 64,524
Payments made for acquisitions of businesses, net of cash acquired -- (18,088)
Capital expenditures (947,974) (690,731)
Decrease in other assets -- 637
----------- -----------
Net cash used in investing activities (891,334) (643,658)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings on revolving lines of credit 1,912,499 1,145,291
Principal payments on revolving lines of credit (2,248,568) (1,058,096)
Principal payments on other long-term debt (225,000) (100,000)
Proceeds from issuance of other long-term debt, net of issuance costs 346,050 123,400
Issuance of common stock, net of issuance costs 37,500 499,647
Treasury stock purchased (10,699) (600)
Treasury stock issued 24,937 5,900
Dividends paid on common stock (15,080) (8,388)
Dividends paid on preferred stock (7,301) (1,217)
(Decrease) increase in long-term other liabilities (49,802) 2,072
----------- -----------
Net cash (used in) provided by financing activities (235,464) 608,009
----------- -----------
Effect of exchange rate changes on cash (1,112) 162
----------- -----------
Net increase in cash and cash equivalents 5,480 379,704
Cash and cash equivalents at beginning of period 173,167 31,254
----------- -----------
Cash and cash equivalents at end of period $ 178,647 410,958
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
On August 29, 2000, Devon Energy Corporation ("Devon") and Santa Fe
Snyder Corporation ("Santa Fe Snyder") completed a merger of the two companies
(the "Santa Fe Snyder merger"). At that date, Santa Fe Snyder became a
wholly-owned subsidiary of Devon. Pursuant to the Santa Fe Snyder merger, Santa
Fe Snyder's common shareholders received approximately 40.6 million Devon common
shares based on an exchange ratio of 0.22 Devon common shares for each Santa Fe
Snyder common share outstanding.
The Santa Fe Snyder merger was accounted for under the
pooling-of-interests method of accounting for business combinations. All
operational and financial information contained herein includes the combined
amounts of Devon and Santa Fe Snyder for all periods presented. The separate
results of operations of Devon and Santa Fe Snyder for the six-month period
ended June 30, 2000 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 2000
--------------
(IN THOUSANDS)
<S> <C>
Revenues:
Devon $ 748,554
Santa Fe Snyder 439,800
----------
Combined $1,188,354
==========
Net earnings:
Devon 151,821
Santa Fe Snyder 106,700
----------
Combined $ 258,521
==========
</TABLE>
Merger costs related to the Devon and Santa Fe Snyder merger
consisted primarily of severance and other benefit costs, investment banking
fees, other professional expenses, costs associated with duplicate facilities
and various transaction related costs. Costs of $35.9 million have not been paid
as of September 30, 2000, and have been reflected as merger related expenses
payable.
The accompanying consolidated financial statements and notes thereto
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The accompanying consolidated financial
8
<PAGE> 9
statements and notes thereto should be read in conjunction with the consolidated
financial statements and notes thereto, as restated for the pooling accounting
method of the Santa Fe Snyder merger, included in Devon's Form 8-K filed on
November 13, 2000.
In the opinion of Devon's management, all adjustments (all of which
are normal and recurring) have been made which are necessary to fairly state the
consolidated financial position of Devon and its subsidiaries as of September
30, 2000, and the results of its operations and its cash flows for the
three-month and nine-month periods ended September 30, 2000 and 1999.
2. CREDIT FACILITIES
On August 29, 2000, Devon increased its borrowing availability under
its unsecured long-term credit facilities (the "Credit Facilities") from $750
million to $1 billion. The Credit Facilities include a U.S. facility of $725
million (the "U.S. Facility") and a Canadian facility of $275 million (the
"Canadian Facility").
Amounts borrowed under the Credit Facilities bear interest at various
fixed rate options that Devon may elect for periods up to six months. Such rates
are generally less than the prime rate. Devon may also elect to borrow at the
prime rate. The Credit Facilities provide for an annual facility fee of $0.9
million that is payable quarterly.
The $725 million U.S. Facility consists of a Tranche A facility of $200
million and a Tranche B facility of $525 million. The Tranche A facility matures
on October 15, 2004. Devon may borrow funds under the Tranche B facility until
August 28, 2001 (the "Tranche B Revolving Period"). Devon may request that the
Tranche B Revolving Period be extended an additional 364 days by notifying the
agent bank of such request between 30 and 60 days prior to the end of the
Tranche B Revolving Period. Debt borrowed under the Tranche B facility matures
two years and one day following the end of the Tranche B Revolving Period. On
September 30, 2000, there were no borrowings outstanding under the $725 million
U.S. Facility.
Devon may borrow funds under the $275 million Canadian Facility until
August 28, 2001 (the "Canadian Facility Revolving Period"). Devon may request
that the Canadian Facility Revolving Period be extended an additional 364 days
by notifying the agent bank of such request between 45 and 90 days prior to the
end of the Canadian Facility Revolving Period. Debt outstanding as of the end of
the Canadian Facility Revolving Period is payable in semi annual installments of
2.5% each for the following five years, with the final installment due five
years and one day following the end of the Canadian Facility Revolving Period.
On September 30, 2000, there was $142.7 million borrowed under the $275 million
Canadian facility.
Under the terms of the Credit Facilities, Devon has the right to
reallocate up to $100 million of the unused Tranche B facility maximum credit
amount to the Canadian Facility. Conversely, Devon also has the right to
reallocate up to $100 million of unused Canadian Facility maximum credit amount
to the Tranche B Facility.
The agreements governing the Credit Facilities contain certain
covenants and restrictions, including a maximum allowed debt-to-capitalization
ratio as defined in the agreements.
9
<PAGE> 10
3. LONG-TERM DEBT
On August 29, 2000, Devon entered into a commercial paper program with
Goldman, Sachs & Co. and Chase Securities Inc. as the dealers. Devon may borrow
up to $725 million under the commercial paper program. Total borrowings under
the U.S. Facility and the commercial paper program may not exceed $725 million.
The commercial paper borrowings may have terms of up to 365 days and will bear
interest at rates agreed to at the time of the borrowing. The interest rate will
be based on a standard index such as the Federal Funds Rate, London Interbank
Offered Rate (LIBOR), or the money market rate as found on the commercial paper
market. As of September 30, 2000, Devon had $159.6 million of borrowings under
its commercial paper program at an average rate of 6.85%. Because Devon had the
intent and ability to refinance the balance due with borrowings under its U.S.
Facility, the $159.6 million outstanding under the commercial paper program was
classified as long-term debt on the September 30, 2000 consolidated balance
sheet.
In June 2000, Devon privately sold zero-coupon convertible senior
debentures ("Convertible Debentures"). The Convertible Debentures were sold at a
price of $464.13 per debenture with a yield to maturity of 3.875% per annum.
Each debenture is convertible into 5.7593 shares of Devon common stock. Devon
may call the bonds at any time after five years, and a debenture holder has the
right to require Devon to repurchase the bonds after five, 10 and 15 years, at
the issue price plus accrued original issue discount and interest. The proceeds
to Devon were approximately $346.1 million, net of debt issuance costs of
approximately $6.6 million. Devon used the proceeds from the sale of these
Convertible Debentures to pay down other domestic long-term debt.
In March 2000, Devon entered into a new unsecured, fixed-rate money
market note with The Chase Manhattan Bank. This note was short-term and
permitted multiple borrowings. Devon had the ability to borrow up to a $200
million limit. This note was terminated with the commencement of the commercial
paper program in September 2000.
4. EARNINGS PER SHARE
The following tables reconcile the net earnings and common shares
outstanding used in the calculations of basic and diluted earnings per share for
the three-month and nine-month periods ended September 30, 2000 and the
three-month period ended September 30, 1999. The diluted loss per share
calculations for the nine-month period ended September 30, 1999 produced results
that were anti-dilutive. These calculations decreased the net loss by $4.5
million in the nine-month period ended September 30, 1999, and increased the
common shares outstanding by 5.8 million shares in the period.
Options to purchase approximately 1.1 million shares of Devon's common
stock with exercise prices ranging from $56.19 per share to $89.66 per share
(with a weighted average price of $66.14 per share) were outstanding at
September 30, 2000, but were not included in the computation of diluted earnings
per share for the third quarter of 2000 because the options' exercise price
exceeded the average market price of Devon's common stock during the third
quarter. Similarly, options to purchase approximately 1.2 million shares of
Devon's common stock with exercise prices ranging from $52.89 per share to
$89.66 per share (with a weighted average price of $66.09 per share) were
excluded from the diluted earnings per share calculation for the first nine
months of 2000. The excluded options for both the 2000 periods expire between
December 5, 2000 and June 1, 2010.
10
<PAGE> 11
Options to purchase approximately 2.2 million shares of Devon's common
stock with exercise prices ranging from $37.25 per share to $92.78 per share
(with a weighted average price of $57.02 per share) were outstanding at
September 30, 1999, but were not included in the computation of diluted earnings
per share for the third quarter of 1999 because the options' exercise price
exceeded the average market price of Devon's common stock during the third
quarter.
<TABLE>
<CAPTION>
NET EARNINGS NET
APPLICABLE COMMON EARNINGS
TO COMMON SHARES PER
STOCKHOLDERS OUTSTANDING SHARE
------------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 2000:
Basic earnings per share $162,479 127,857 $1.27
=====
Dilutive effect of:
Potential common shares issuable upon conversion
of senior convertible debentures (the increase in net
earnings is net of income tax expense of $1,355,000) 2,119 4,377
Potential common shares issuable upon the exercise
of outstanding stock options -- 2,160
-------- --------
Diluted earnings per share $164,598 134,394 $1.22
======== ======== =====
THREE MONTHS ENDED SEPTEMBER 30, 1999:
Basic earnings per share $ 49,635 99,178 $0.50
=====
Dilutive effect of:
Potential common shares issuable upon conversion of Trust Convertible
Preferred securities (the increase in net earnings is net of income
tax expense of $963,000) 1,506 4,902
Potential common shares issuable upon the exercise
of outstanding stock options -- 1,516
-------- --------
Diluted earnings per share $ 51,141 105,596 $0.48
======== ======== =====
</TABLE>
11
<PAGE> 12
4. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
NET EARNINGS NET
APPLICABLE COMMON EARNINGS
TO COMMON SHARES PER
STOCKHOLDERS OUTSTANDING SHARE
------------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 2000:
Basic earnings per share $416,132 127,065 $3.27
=====
Dilutive effect of:
Potential common shares issuable upon the conversion
of senior convertible debentures (the increase in net
earnings is net of income tax expense of $1,399,000) 2,189 1,534
Potential common shares issuable upon the
exercise of outstanding stock options -- 2,029
-------- --------
Diluted earnings per share $418,321 130,628 $3.20
======== ======== =====
</TABLE>
12
<PAGE> 13
5. SEGMENT INFORMATION
Devon manages its business by country. As such, Devon identifies its
segments based on geographic areas. Devon has three segments: its operations in
the U.S., its operations in Canada and its international operations outside of
North America. Substantially all of these segments' operations involve oil and
gas producing activities. Following is certain financial information regarding
Devon's segments. The revenues reported are all from external customers.
<TABLE>
<CAPTION>
INTER-
U.S. CANADA NATIONAL TOTAL
---- ------ -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AS OF SEPTEMBER 30, 2000:
Current assets $ 516,714 70,777 196,995 784,486
Property and equipment, net of accumulated depreciation,
depletion and amortization 3,609,470 503,041 643,018 4,755,529
Investment in Chevron Corporation common stock 604,630 -- -- 604,630
Goodwill, net of amortization 268,036 -- 31,625 299,661
Other assets 118,351 80 7,779 126,210
---------- ---------- ---------- ----------
Total assets $5,117,201 573,898 879,417 6,570,516
========== ========== ========== ==========
Current liabilities 487,185 46,621 77,582 611,388
Debentures exchangeable into shares of Chevron
Corporation common stock 760,313 -- -- 760,313
Other long-term debt 1,299,150 142,674 -- 1,441,824
Deferred revenue 128,447 1,297 -- 129,744
Deferred tax liabilities 426,804 45,507 10,844 483,155
Other liabilities 161,045 719 18,647 180,411
Stockholders' equity 1,854,257 337,080 772,344 2,963,681
---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $5,117,201 573,898 879,417 6,570,516
========== ========== ========== ==========
THREE MONTHS ENDED SEPTEMBER 30, 2000:
REVENUES
Oil sales $ 171,890 30,853 62,440 265,183
Gas sales 344,974 36,419 3,149 384,542
Natural gas liquids sales 30,985 4,354 116 35,455
Other 28,304 1,181 181 29,666
---------- ---------- ---------- ----------
Total revenues 576,153 72,807 65,886 714,846
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Lease operating expenses 86,022 13,315 14,698 114,035
Production taxes 25,835 295 122 26,252
Depreciation, depletion and amortization of property
and equipment 143,587 15,633 10,931 170,151
Amortization of goodwill 10,358 -- 6 10,364
Expenses related to merger 57,233 -- -- 57,233
General and administrative expenses 23,063 2,263 (22) 25,304
Interest expense 37,463 2,902 80 40,445
---------- ---------- ---------- ----------
Total costs and expenses 383,561 34,408 25,815 443,784
---------- ---------- ---------- ----------
Earnings before income tax expense 192,592 38,399 40,071 271,062
INCOME TAX EXPENSE
Current 46,168 595 3,640 50,403
Deferred 24,124 17,579 14,044 55,747
---------- ---------- ---------- ----------
Total income tax expense 70,292 18,174 17,684 106,150
---------- ---------- ---------- ----------
Net earnings 122,300 20,225 22,387 164,912
Preferred stock dividends 2,433 -- -- 2,433
---------- ---------- ---------- ----------
Net earnings applicable to common stockholders $ 119,867 20,225 22,387 162,479
========== ========== ========== ==========
Capital expenditures $ 173,542 29,449 25,956 228,947
========== ========== ========== ==========
</TABLE>
13
<PAGE> 14
6. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
INTER-
U.S. CANADA NATIONAL TOTAL
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 1999:
REVENUES
Oil sales $ 99,890 23,276 43,512 166,678
Gas sales 155,306 27,213 3,200 185,719
Natural gas liquids sales 15,772 2,872 100 18,744
Other 4,083 1,017 310 5,410
--------- --------- --------- ---------
Total revenues 275,051 54,378 47,122 376,551
--------- --------- --------- ---------
COSTS AND EXPENSES
Lease operating expenses 54,632 12,214 16,000 82,846
Production taxes 12,684 367 100 13,151
Depreciation, depletion and amortization of property
and equipment 110,741 16,982 8,254 135,977
General and administrative expenses 22,551 2,777 710 26,038
Interest expense 27,984 6,091 284 34,359
Deferred effect of changes in foreign currency exchange
rate on subsidiary's long-term debt -- (330) -- (330)
Distributions on preferred securities of subsidiary trust 2,429 -- -- 2,429
--------- --------- --------- ---------
Total costs and expenses 231,021 38,101 25,348 294,470
--------- --------- --------- ---------
Earnings before income tax expense (benefit) 44,030 16,277 21,774 82,081
INCOME TAX EXPENSE (BENEFIT)
Current (320) 493 900 1,073
Deferred 14,853 6,864 8,439 30,156
--------- --------- --------- ---------
Total income tax expense (benefit) 14,533 7,357 9,339 31,229
--------- --------- --------- ---------
Net earnings 29,497 8,920 12,435 50,852
Preferred stock dividends 1,217 -- -- 1,217
--------- --------- --------- ---------
Net earnings applicable to common stockholders $ 28,280 8,920 12,435 49,635
========= ========= ========= =========
Capital expenditures $ 354,740 33,996 19,300 408,036
========= ========= ========= =========
</TABLE>
14
<PAGE> 15
6. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
INTER-
U.S. CANADA NATIONAL TOTAL
---- ------ -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 2000:
REVENUES
Oil sales $ 547,128 86,117 172,531 805,776
Gas sales 827,427 100,452 8,749 936,628
Natural gas liquids sales 93,256 12,886 216 106,358
Other 50,220 3,503 715 54,438
---------- ---------- ---------- ----------
Total revenues 1,518,031 202,958 182,211 1,903,200
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Lease operating expenses 249,322 38,540 50,060 337,922
Production taxes 65,101 819 322 66,242
Depreciation, depletion and amortization of property
and equipment 428,399 47,986 31,269 507,654
Amortization of goodwill 31,039 -- 18 31,057
Expenses related to merger 57,233 -- -- 57,233
General and administrative expenses 65,815 7,058 1,304 74,177
Interest expense 112,818 7,898 680 121,396
Deferred effect of changes in foreign currency exchange
rate on subsidiary's long-term debt -- 2,408 -- 2,408
---------- ---------- ---------- ----------
Total costs and expenses 1,009,727 104,709 83,653 1,198,089
---------- ---------- ---------- ----------
Earnings before income tax expense 508,304 98,249 98,558 705,111
INCOME TAX EXPENSE
Current 110,494 1,574 10,840 122,908
Deferred 80,371 44,842 33,557 158,770
---------- ---------- ---------- ----------
Total income tax expense 190,865 46,416 44,397 281,678
---------- ---------- ---------- ----------
Net earnings 317,439 51,833 54,161 423,433
Preferred stock dividends 7,301 -- -- 7,301
---------- ---------- ---------- ----------
Net earnings applicable to common stockholders $ 310,138 51,833 54,161 416,132
========== ========== ========== ==========
Capital expenditures $ 720,013 107,606 120,355 947,974
========== ========== ========== ==========
</TABLE>
15
<PAGE> 16
6. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
INTER-
U.S. CANADA NATIONAL TOTAL
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1999:
REVENUES
Oil sales $ 179,987 53,663 100,512 334,162
Gas sales 283,415 79,542 9,000 371,957
Natural gas liquids sales 25,675 6,433 200 32,308
Other 6,261 3,731 910 10,902
---------- ---------- ---------- ----------
Total revenues 495,338 143,369 110,622 749,329
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Lease operating expenses 116,598 37,468 44,600 198,666
Production taxes 24,041 1,025 300 25,366
Depreciation, depletion and amortization of property
and equipment 182,512 49,532 23,754 255,798
Expenses related to merger 16,800 -- -- 16,800
General and administrative expenses 44,909 8,994 (1,090) 52,813
Interest expense 45,672 18,382 884 64,938
Deferred effect of changes in foreign currency exchange
rate on subsidiary's long-term debt -- (9,076) -- (9,076)
Distributions on preferred securities of subsidiary trust 7,288 -- -- 7,288
Reduction of carrying value of oil and gas properties 463,700 -- 100 463,800
---------- ---------- ---------- ----------
Total costs and expenses 901,520 106,325 68,548 1,076,393
---------- ---------- ---------- ----------
Earnings (loss) before income tax expense (benefit) and
extraordinary item (406,182) 37,044 42,074 (327,064)
INCOME TAX EXPENSE (BENEFIT)
Current 490 2,085 2,900 5,475
Deferred (138,721) 16,302 14,739 (107,680)
---------- ---------- ---------- ----------
Total income tax expense (benefit) (138,231) 18,387 17,639 (102,205)
---------- ---------- ---------- ----------
Income (loss) before extraordinary item (267,951) 18,657 24,435 (224,859)
Extraordinary item (4,200) -- -- (4,200)
---------- ---------- ---------- ----------
Net earnings (loss) $ (272,151) 18,657 24,435 (229,059)
Preferred stock dividends 1,217 -- -- 1,217
---------- ---------- ---------- ----------
Net earnings (loss) applicable to common stockholders $ (273,368) 18,657 24,435 (230,276)
========== ========== ========== ==========
Capital expenditures $ 529,344 92,287 69,100 690,731
========== ========== ========== ==========
</TABLE>
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion addresses material changes in results of
operations for the three-month and nine-month periods ended September 30, 2000,
compared to the three-month and nine-month periods ended September 30, 1999, and
in financial condition since December 31, 1999. It is presumed that readers have
read or have access to Devon's combined financial statements, footnotes and
management's discussion and analysis of financial condition and results of
operations for the three-year period ended December 31, 1999, as restated for
the pooling accounting method of the Santa Fe Snyder merger, filed in a Form 8-K
on November 13, 2000.
OVERVIEW
On August 29, 2000, Devon merged with Santa Fe Snyder. As a result of
accounting for this merger as a pooling-of-interests, the financial data for all
periods presented herein represent the combined results of the two companies.
The pooling-of-interests method of accounting requires historical information to
be restated as if the combining companies had always been merged. The restated
data varies significantly from the historical data Devon previously presented on
a stand-alone basis.
Devon's revenues and net earnings for the quarter ended September 30,
2000, were the highest of any quarter in its history. Net earnings for the third
quarter of 2000 were $164.9 million, or $1.27 per share. This compares to net
earnings of $50.9 million, or $0.50 per share for the third quarter of 1999. Net
earnings for the first nine months of 2000 were $423.4 million, or $3.27 per
share. These compare to a net loss for the first nine months of 1999 of $229.1
million, or $2.70 per share. The increase in third quarter earnings was due to
sharply higher oil and natural gas production coupled with higher overall oil
and natural gas prices offset in part by higher expenses. The increase in first
nine months earnings was due to higher oil and natural gas production coupled
with higher overall oil and natural gas prices, and a $463.8 million ($301.7
million after-tax) full cost writedown in 1999's second quarter offset in part
by higher expenses in 2000. The increase in third quarter and first nine months
production in 2000 resulted primarily from the May 5, 1999 and August 17, 1999,
mergers of Snyder Oil Company and PennzEnergy Company, respectively, as well as
the August 1999 and January 2000 purchases of certain proved domestic oil and
gas properties.
On August 29, 2000, Devon increased its borrowing availability under
its unsecured long-term credit facilities from $750 million to $1 billion.
Additionally, in August 2000, Devon commenced a commercial paper program. As of
September 30, 2000, Devon had approximately $698 million of unused borrowing
capacity under the credit facilities.
17
<PAGE> 18
RESULTS OF OPERATIONS
Total revenues increased $338.3 million, or 90%, in the third quarter
of 2000, and $1.2 billion, or 154% in the first nine months of 2000. The
quarterly and year-to-date comparisons of production and price changes are shown
in the following tables. (Note: Unless otherwise stated, all references in this
report to dollar amounts regarding Devon's foreign operations are expressed in
U.S. dollars.)
<TABLE>
<CAPTION>
TOTAL
-------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
PRODUCTION
Oil (MBbls) 10,147 8,507 +19% 32,241 21,384 +51%
Gas (MMcf) 106,114 86,709 +22% 316,084 199,973 +58%
NGL (MBbls) 1,688 1,418 +19% 5,384 2,941 +83%
Oil, Gas and NGLs (MBoe)(1) 29,521 24,377 +21% 90,306 57,654 +57%
AVERAGE PRICES
Oil (Per Bbl) $26.13 19.59 +33% 24.99 15.63 +60%
Gas (Per Mcf) 3.62 2.14 +69% 2.96 1.86 +59%
NGL (Per Bbl) 21.00 13.22 +59% 19.75 10.99 +80%
Oil, Gas and NGLs (Per Boe)(1) 23.21 15.23 +52% 20.47 12.81 +60%
(IN THOUSANDS)
REVENUES
Oil $265,183 166,678 +59% 805,776 334,162 +141%
Gas 384,542 185,719 +107% 936,628 371,957 +152%
NGLs 35,455 18,744 +89% 106,358 32,308 +229%
-------- -------- --------- -------
Combined $685,180 371,141 +85% 1,848,762 738,427 +150%
======== ======== ========= =======
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
DOMESTIC
-------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
PRODUCTION
Oil (MBbls) 6,638 4,923 +35% 21,811 11,021 +98%
Gas (MMcf) 89,404 65,429 +37% 262,231 135,885 +93%
NGL (MBbls) 1,519 1,237 +23% 4,869 2,427 +101%
Oil, Gas and NGLs (MBoe)(1) 23,058 17,065 +35% 70,385 36,096 +95%
AVERAGE PRICES
Oil (Per Bbl) $25.89 20.29 +28% 25.09 16.33 +54%
Gas (Per Mcf) 3.86 2.37 +63% 3.16 2.09 +51%
NGL (Per Bbl) 20.40 12.75 +60% 19.15 10.58 +81%
Oil, Gas and NGLs (Per Boe)(1) 23.76 15.88 +50% 20.85 13.55 +54%
(IN THOUSANDS)
REVENUES
Oil $171,890 99,890 +72% 547,128 179,987 +204%
Gas 344,974 155,306 +122% 827,427 283,415 +192%
NGLs 30,985 15,772 +96% 93,256 25,675 +263%
-------- -------- --------- -------
Combined $547,849 270,968 +102% 1,467,811 489,077 +200%
======== ======== ========= =======
</TABLE>
<TABLE>
<CAPTION>
CANADA
-------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
PRODUCTION
Oil (MBbls) 1,234 1,360 -9% 3,598 3,901 -8%
Gas (MMcf) 14,477 18,777 -23% 47,263 56,885 -17%
NGL (MBbls) 162 177 -8% 504 503 0%
Oil, Gas and NGLs (MBoe)(1) 3,809 4,667 -18% 11,979 13,885 -14%
AVERAGE PRICES
Oil (Per Bbl) $25.00 17.11 +46% 23.93 13.76 +74%
Gas (Per Mcf) 2.52 1.45 +74% 2.13 1.40 +52%
NGL (Per Bbl) 26.88 16.23 +66% 25.57 12.79 +100%
Oil, Gas and NGLs (Per Boe)(1) 18.80 11.43 +64% 16.65 10.06 +66%
(IN THOUSANDS)
REVENUES
Oil $30,853 23,276 +33% 86,117 53,663 +60%
Gas 36,419 27,213 +34% 100,452 79,542 +26%
NGLs 4,354 2,872 +52% 12,886 6,433 +100%
------- ------ ------- -------
Combined $71,626 53,361 +34% 199,455 139,638 +43%
======= ====== ======= =======
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
INTERNATIONAL
-------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
PRODUCTION
Oil (MBbls) 2,275 2,224 +2% 6,832 6,462 +6%
Gas (MMcf) 2,233 2,503 -11% 6,590 7,203 -9%
NGL (MBbls) 7 4 +75% 11 11 0%
Oil, Gas and NGLs (MBoe)(1) 2,654 2,645 0% 7,941 7,674 +3%
AVERAGE PRICES
Oil (Per Bbl) $27.45 19.56 +40% 25.25 15.55 +62%
Gas (Per Mcf) 1.41 1.28 +10% 1.33 1.25 +6%
NGL (Per Bbl) 16.57 24.50 -32% 19.64 16.42 +20%
Oil, Gas and NGLs (Per Boe)(1) 24.76 17.70 +40% 22.86 14.30 +60%
(IN THOUSANDS)
REVENUES
Oil $62,440 43,512 +44% 172,531 100,512 +72%
Gas 3,149 3,200 -2% 8,749 9,000 -3%
NGLs 116 100 +16% 216 200 +8%
------- ------ ------- -------
Combined $65,705 46,812 +40% 181,496 109,712 +65%
======= ====== ======= =======
</TABLE>
----------
(1) Gas volumes are converted to Boe or MBoe at the rate of six Mcf of gas per
barrel of oil, based upon the approximate relative energy content of natural gas
and oil, which rate is not necessarily indicative of the relationship of oil and
gas prices. The respective prices of oil, gas and NGLs are affected by market
and other factors in addition to relative energy content.
OIL REVENUES. Oil revenues increased $98.5 million, or 59%, in the
third quarter of 2000. An increase in the average price of $6.54 per barrel, or
33%, increased oil revenues by $66.4 million. An increase in production of 1.6
million barrels, or 19%, caused oil revenues to increase by $32.1 million in the
2000 quarter. Of the 1.6 million barrel increase in production, the PennzEnergy
merger accounted for 1.0 million barrels of oil production in the 2000 period
compared to the 1999 period. The 2000 quarter included three months of
production while the 1999 quarter only included production for 1 1/2 months. In
addition to the production added by the PennzEnergy merger, 1.1 million barrels
of oil production was added by the August 1999 and January 2000 acquisitions of
certain proved domestic properties. These increases were partially offset by a
0.5 million barrel decline in third quarter 2000 production from Devon's other
properties. Natural decline and the disposition of certain proved properties
were the primary causes for the decline in 2000 quarterly production.
Oil revenues increased $471.6 million, or 141%, in the first nine
months of 2000. Oil revenues increased $301.9 million due to an increase in the
average price of $9.36 per barrel, or 60%. An increase in production of 10.9
million barrels, or 51%, caused oil revenues to increase by $169.7 million. Of
the 10.9 million barrel increase in production, the PennzEnergy merger accounted
for 7.9 million barrels of oil production in the 2000 period compared to the
1999 period. The 2000 period included nine months of production while the 1999
period only included production for 1 1/2 months. In addition to the production
added by the PennzEnergy merger, 3.4 million barrels of oil production were
added by the August 1999 and January 2000 acquisitions of certain proved
domestic properties and 0.2 million barrels of oil production were
20
<PAGE> 21
added by the Snyder merger. These increases were partially offset by a 0.6
million barrel decline in the first nine months' 2000 production from Devon's
other properties. Natural decline and the disposition of certain proved
properties were the primary causes for the decline in 2000 quarterly production.
GAS REVENUES. Gas revenues increased $198.8 million, or 107%, in the
third quarter of 2000. An increase in the average price of $1.48 per Mcf, or
69%, increased gas revenues by $157.2 million. An increase in production of 19.4
Bcf, or 22%, caused gas revenues to increase by $41.6 million in the 2000
quarter. Of the 19.4 Bcf increase in production, the PennzEnergy merger
accounted for 18.5 Bcf of gas production in the 2000 period compared to the 1999
period. The 2000 quarter included three months of production while the 1999
quarter only included production for 1 1/2 months. In addition to the production
added by the PennzEnergy merger, 1.4 Bcf of gas production was added by the
August 1999 and January 2000 acquisitions of certain proved domestic properties.
Gas production at Devon's other domestic properties increased 4.1 Bcf due
primarily to additional development and acquisitions of other domestic
properties, net of natural decline and the disposition of certain proved
properties.
Canadian gas production decreased 4.3 Bcf, or 23%, in 2000's third
quarter. Natural decline, increased royalty rates and dispositions of certain
proved properties, partially offset by new production from new drilling and
acquisitions of certain proved properties, were the primary reasons for the
production decline. In Canada, the royalty rate goes up and down with gas prices
and represents the government's share of gross production.
Gas revenues increased $564.7 million, or 152%, in the first nine
months of 2000. An increase in the average price of $1.10 per Mcf, or 59%,
increased gas revenues by $348.7 million. An increase in production of 116.1
Bcf, or 58%, caused gas revenues to increase by $216.0 million in the 2000
quarter. Of the 116.1 Bcf increase in production, the PennzEnergy merger
accounted for 88.9 Bcf of gas production in the 2000 period compared to the 1999
period. The 2000 period included nine months of production while the 1999 period
only included production for 1 1/2 months. In addition to the production added
by the PennzEnergy merger, 4.1 Bcf of gas production was added by the August
1999 and January 2000 acquisitions of certain proved domestic properties and
10.4 Bcf of gas production was added by the Snyder merger. Devon's other
domestic properties added 22.9 Bcf of gas production due primarily to additional
development and acquisitions of other domestic properties, net of natural
declines and the disposition of certain proved properties.
Canadian gas production decreased 9.6 Bcf, or 17%, in the first nine
months of 2000. Natural decline, increased royalty rates and dispositions of
certain proved properties, partially offset by new production from new drilling
and acquisitions of certain proved properties, were the primary reasons for the
production decline.
NGL REVENUES. NGL revenues increased $16.7 million, or 89%, in the
third quarter of 2000. An increase in the average price of $7.78 per barrel, or
59%, caused NGL revenues to increase $13.1 million in the 2000 quarter. An
increase in production of 270,000 barrels, or 19%, caused NGL revenues to
increase by $3.6 million in the 2000 quarter. Of the 270,000 barrel increase in
production, the PennzEnergy merger accounted for 415,000 barrels of NGL
21
<PAGE> 22
production in the 2000 period compared to the 1999 period. The 2000 quarter
included three months of production while the 1999 quarter only included
production for 1 1/2 months. This increase was partially offset by a 145,000
barrel decline in third quarter 2000 production from Devon's other properties.
Natural decline was the primary cause for the decline in these properties' 2000
quarterly production.
NGLs revenues increased $74.0 million, or 229%, in the first nine
months of 2000. An increase in the average price of $8.76 per barrel, or 80%,
caused NGLs revenues to increase $47.2 million in the first nine months of 2000.
An increase in production of 2.4 million barrels, or 83%, caused NGLs revenues
to increase by $26.8 million in the year-to-date period. Of the 2.4 million
barrel increase in production, the PennzEnergy merger accounted for 2.7 million
barrels of NGL production in the 2000 period compared to the 1999 period. The
2000 period included nine months of production while the 1999 period only
included production for 1 1/2 months. This increase was partially offset by a
0.3 million barrel decline in 2000 production from Devon's other
properties. Natural decline was the primary cause for the decline in these
properties' 2000 production.
OTHER REVENUES. Other revenues increased $24.3 million, or 448%, in the
third quarter of 2000 compared to the same period in 1999. Increases in third
party gas processing income and interest income as well as a non-recurring gain
on the sale of investments were the primary reasons for the substantial increase
in other revenues. Additionally, the 2000 period included $4.6 million of
dividend income from the 7.1 million shares of Chevron Corporation common stock
acquired in the PennzEnergy merger. The 1999 period included $2.1 million of
dividend income on these same shares.
Other revenues increased $43.5 million, or 399% in the first nine
months of 2000 compared to the first nine months of 1999. Increases in third
party gas processing income and interest income as well as a non-recurring gain
on the sale of investments were the primary reasons for the substantial increase
in other revenues. Additionally, the 2000 period included $13.8 million of
dividend income from the 7.1 million shares of Chevron Corporation common stock
acquired in the PennzEnergy merger. The 1999 period included $2.1 million of
dividend income on these same shares.
22
<PAGE> 23
PRODUCTION AND OPERATING EXPENSES. The components of production and
operating expenses are set forth in the following tables.
<TABLE>
<CAPTION>
TOTAL
-------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
ABSOLUTE (Thousands)
Recurring operations and maintenance expenses $107,568 81,065 +33% 325,483 193,673 +68%
Well workover expenses 6,467 1,781 +263% 12,439 4,993 +149%
Production taxes 26,252 13,151 +100% 66,242 25,366 +161%
-------- ------ ------- -------
Total production and operating expenses $140,287 95,997 +46% 404,164 224,032 +80%
======== ====== ======= =======
PER BOE
Recurring operations and maintenance expenses 3.64 3.33 +10% 3.60 3.36 +7%
Well workover expenses 0.22 0.07 +214% 0.14 0.09 +59%
Production taxes 0.89 0.54 +65% 0.73 0.44 +67%
-------- ------ ------- -------
Total production and operating expenses $ 4.75 3.94 +21% 4.47 3.89 +15%
======== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
DOMESTIC
-------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
ABSOLUTE (Thousands)
Recurring operations and maintenance expenses $ 80,031 53,217 +50% 237,676 112,915 +110%
Well workover expenses 5,991 1,415 +323% 11,646 3,683 +216%
Production taxes 25,835 12,684 +104% 65,101 24,041 +171%
-------- ------ -------- --------
Total production and operating expenses $111,857 67,316 +66% 314,423 140,639 +124%
======== ====== ======== ========
PER BOE
Recurring operations and maintenance expenses 3.47 3.12 +11% 3.38 3.13 +8%
Well workover expenses 0.26 0.08 +213% 0.17 0.10 +62%
Production taxes 1.12 0.74 +51% 0.92 0.67 +39%
-------- ------ -------- --------
Total production and operating expenses $ 4.85 3.94 +23% 4.47 3.90 +15%
======== ====== ======== ========
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
CANADA
-------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
ABSOLUTE (Thousands)
Recurring operations and maintenance expenses $13,129 12,048 +9% 38,103 36,558 +4%
Well workover expenses 186 166 +12% 437 910 -52%
Production taxes 295 367 -20% 819 1,025 -20%
------- ------ ------ ------
Total production and operating expenses $13,610 12,581 +8% 39,359 38,493 +2%
======= ====== ====== ======
PER BOE
Recurring operations and maintenance expenses 3.45 2.58 +34% 3.18 2.63 +21%
Well workover expenses 0.05 0.04 +25% 0.04 0.07 -43%
Production taxes 0.08 0.08 0% 0.07 0.07 0%
------- ------ ------ ------
Total production and operating expenses $ 3.58 2.70 +33% 3.29 2.77 +19%
======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL
-------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
ABSOLUTE (Thousands)
Recurring operations and maintenance expenses $14,408 15,800 -9% 49,704 44,200 +12%
Well workover expenses 290 200 +45% 356 400 -11%
Production taxes 122 100 +22% 322 300 +7%
------- ------ ------ ------
Total production and operating expenses $14,820 16,100 -8% 50,382 44,900 +12%
======= ====== ====== ======
PER BOE
Recurring operations and maintenance expenses 5.43 5.97 -9% 6.26 5.76 +9%
Well workover expenses 0.11 0.08 +38% 0.04 0.05 -20%
Production taxes 0.05 0.04 +22% 0.04 0.04 +4%
------- ------ ------ ------
Total production and operating expenses $ 5.59 6.09 -8% 6.34 5.85 +8%
======= ====== ====== ======
</TABLE>
Recurring operations and maintenance expenses increased $26.5 million,
or 33%, in the third quarter of 2000. Domestic expenses increased $26.8 million
in the 2000 quarter. Of the $26.8 million increase in domestic expenses, the
PennzEnergy merger accounted for $22.2 million of expenses in the 2000 period
compared to the 1999 period. The 2000 quarter included three months of expenses
while the 1999 quarter only included expenses for 1 1/2 months. In addition to
the costs added by the PennzEnergy merger, $2.0 million of costs was added by
the August 1999 and January 2000 acquisitions of certain proved domestic
properties. Other than the added costs from these acquisitions, Devon's domestic
properties' recurring costs increased $2.6 million in the third quarter of 2000
primarily related to increased ad valorem taxes in the 2000 period. Since ad
valorem taxes are generally assessed on current estimated value and due to the
improved oil and gas pricing, ad valorem tax has been increased to reflect the
additional value.
Recurring operations and maintenance expenses in Canada increased $1.1
million in the third quarter of 2000 primarily related to higher energy costs.
International recurring operations and maintenance expenses decreased $1.4
million primarily due to rental proceeds received on some of its non-producing
properties.
24
<PAGE> 25
Production taxes increased $13.1 million, or 100%, in the 2000 quarter.
The majority of Devon's production taxes are assessed on its onshore domestic
properties. In the U.S., most of the production taxes are based on a fixed
percentage of revenues. Therefore, the 102% increase in domestic oil, gas and
NGL revenues in the third quarter of 2000 was the primary cause of the
production tax increase.
Recurring operations and maintenance expenses increased $131.8 million,
or 68%, in the first nine months of 2000. Domestic expenses increased $124.8
million in the 2000 period. Of the $124.8 million increase in domestic expenses,
the PennzEnergy merger accounted for $74.2 million of expenses in the 2000
period compared to the 1999 period. The 2000 period included nine months of
expenses while the 1999 period only included expenses for 1 1/2 months. In
addition to the costs added by the PennzEnergy merger, $8.7 million of costs was
added by the August 1999 and January 2000 acquisitions of certain proved
domestic properties and $7.7 million added by the Snyder merger. Other than the
added costs from these acquisitions, Devon's domestic properties' recurring
costs increased $34.2 million in the first nine months of 2000 primarily as a
result of increased production and higher costs related to the increased oil and
gas prices such as ad valorem taxes and energy costs.
Recurring operations and maintenance expenses in Canada increased $1.5
million in the 2000 period primarily due to higher energy costs. International
expenses increased $5.5 million. Of the $5.5 million increase in international
expenses, the PennzEnergy merger accounted for $2.3 million of expenses in the
2000 period compared to the 1999 period. The 2000 period included nine months of
expenses while the 1999 period only included expenses for 1 1/2 months. The
remainder of the increase was primarily due to increased production, higher
operating and maintenance costs and adverse currency fluctuations.
Production taxes increased $40.9 million, or 161%, in the first nine
months of 2000. The majority of Devon's production taxes are assessed on its
onshore domestic properties. In the U.S., most of the production taxes are based
on a fixed percentage of revenues. Therefore, the 200% increase in domestic oil,
gas and NGL revenues in the first nine months of 2000 was the primary cause of
the production tax increase. Production taxes did not increase proportionately
to the increase in revenues. This was primarily due to the addition in 1999 of
oil and gas revenues from offshore Gulf of Mexico properties acquired in the
PennzEnergy merger. Revenues generated from such offshore properties do not
incur state production taxes.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSES ("DD&A"). Oil and gas
property related DD&A increased $30.5 million, or 23%, from $132.2 million in
the third quarter of 1999 to $162.7 million in the third quarter of 2000. An
increase in the combined DD&A rate from $5.42 per Boe in the 1999 quarter to
$5.51 per Boe in the 2000 quarter caused oil and gas property related DD&A to
increase $2.6 million. DD&A increased $27.9 million in the 2000 quarter due to
the 21% increase in combined oil, gas and NGLs production in the 2000 quarter.
Oil and gas property related DD&A increased $238.9 million, or 97%,
from $247.2 million in the first nine months of 1999 to $486.1 million in the
first nine months of 2000. An
25
<PAGE> 26
increase in the combined DD&A rate from $4.29 per Boe in the year-to-date 1999
period to $5.38 per Boe in the year-to-date 2000 period caused oil and gas
property related DD&A to increase $98.9 million. The increase in the DD&A rate
was primarily the result of the Snyder and PennzEnergy mergers in 1999. DD&A
increased $140.0 million in the year-to-date 2000 period due to the 57% increase
in combined oil, gas and NGLs production in the first nine months of 2000.
Non-oil and gas property DD&A expense increased $3.6 million to $7.5
million in the third quarter of 2000 compared to $3.9 million the second quarter
of 1999. Non-oil and gas property DD&A expense increased $13.0 million to $21.5
million in the first nine months of 2000 compared to $8.5 million in the first
nine months of 1999. Depreciation of the non-oil and gas properties acquired in
the Snyder and PennzEnergy mergers and depreciation on Devon's newly constructed
gas pipeline and gathering system in Wyoming accounted for the increase.
AMORTIZATION OF GOODWILL. In connection with the PennzEnergy merger,
Devon recorded $346.8 million of goodwill. The goodwill was allocated $315.2
million to domestic properties and $31.6 million to international properties.
The goodwill is being amortized using the units-of-production method.
Substantially all of the $10.4 million and $31.1 million of amortization
recognized in the third quarter and first nine months of 2000, respectively, was
related to the domestic balance.
GENERAL AND ADMINISTRATIVE EXPENSES ("G&A"). Devon's net G&A consists
of three primary components. The largest of these components is the gross amount
of expenses incurred for personnel costs, office expenses, professional fees and
other G&A items. The gross amount of these expenses is partially reduced by two
offsetting components. One is the amount of G&A capitalized pursuant to the
full-cost method of accounting. The other is the amount of G&A reimbursed by
working interest owners of properties for which Devon serves as the operator.
These reimbursements are received during both the drilling and operational
stages of a property's life. The gross amount of G&A incurred, less the amounts
capitalized and reimbursed, is recorded as net G&A in the consolidated
statements of operations. The following table is a summary of G&A expenses by
component for the third quarter and first nine months of 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -------------------
2000 1999 2000 1999
-------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Gross G&A $ 52,888 45,233 158,054 98,916
Capitalized G&A (17,416) (8,725) (45,918) (18,639)
Reimbursed G&A (10,168) (10,470) (37,959) (27,464)
-------- ------- ------- -------
Net G&A $ 25,304 26,038 74,177 52,813
======== ======= ======= =======
</TABLE>
Net G&A decreased $0.7 million, or 3%, in the third quarter of 2000 and
increased $21.4 million, or 40%, in the first nine months of 2000 compared to
the same periods of 1999, respectively. Gross G&A increased $7.7 million and
$59.1 million, or 17% and 60%, in the third quarter and first nine months of
2000 compared to the same periods of 1999, respectively. The
26
<PAGE> 27
increase in gross expenses in the third quarter and first nine months of 2000
was primarily related to additional costs incurred as a result of the 1999
Snyder and PennzEnergy mergers.
Net G&A was reduced $8.7 million and $27.3 million in the third quarter
and first nine months of 2000, respectively, due to an increase in the amount
capitalized as part of oil and gas properties. G&A was also reduced $10.5
million in the first nine months of 2000, by an increase in the amount of
reimbursements on operated properties in the 2000 period. G&A was increased by
$0.3 million in the third quarter of 2000, by a slight decline in the amount of
reimbursements on operated properties in the 2000 period. The increase in
capitalized and reimbursed G&A was primarily related to the Snyder and
PennzEnergy mergers.
INTEREST EXPENSE. Interest expense increased $6.1 million, or 18%, in
2000's third quarter. An increase in the average debt balance outstanding from
$1.9 billion in the third quarter of 1999 to $2.4 billion in the third quarter
of 2000 caused interest expense to increase by $9.0 million. A decline in the
average annualized interest rate from 7.0% in the third quarter of 1999 to 6.7%
in the third quarter of 2000 caused interest expense to decrease by $1.3
million. The remaining decrease of $1.6 million was caused by other factors as
shown in the following table.
Interest expense increased $56.5 million, or 87%, in the first nine
months of 2000. An increase in the average debt balance outstanding from $1.2
billion in the first nine months of 1999 to $2.4 billion in the first nine
months of 2000 caused interest expense to increase by $61.2 million. A decline
in the average annualized interest rate from 7.0% in the first nine months of
1999 to 6.8% in the first nine months of 2000 caused interest expense to
decrease by $1.5 million. The remaining decrease of $3.2 million was caused by
other factors as shown in the following table.
The increase in average debt outstanding in the third quarter and first
nine months of 2000 was attributable to the long-term debt assumed in the Snyder
and PennzEnergy mergers on May 5, 1999 and August 17, 1999, respectively.
The following schedule includes the components of interest expense for
the third quarter and first nine months of 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest based on debt outstanding $ 41,217 33,485 123,261 63,569
Amortization of debt premiums (945) -- (2,891) --
Facility and agency fees 539 892 2,361 1,391
Amortization of capitalized loan costs 367 281 1,261 746
Capitalized interest (931) (200) (2,473) (800)
Other 198 (99) (123) 32
---------- ---------- ---------- ----------
Total interest expense $ 40,445 34,359 121,396 64,938
========== ========== ========== ==========
</TABLE>
27
<PAGE> 28
DEFERRED EFFECT OF CHANGES IN FOREIGN CURRENCY EXCHANGE RATE ON
SUBSIDIARY'S LONG-TERM DEBT. Until mid-January 2000, Devon's Canadian subsidiary
Northstar Energy Corporation had certain fixed-rate senior notes which were
denominated in U.S. dollars. Changes in the exchange rate between the U.S.
dollar and the Canadian dollar from the dates the notes were issued to the dates
of repayment increased or decreased the expected amount of Canadian dollars
eventually required to repay the notes. Such changes in the Canadian dollar
equivalent balance of the debt were required to be included in determining net
earnings for the period in which the exchange rate changed. In mid-January 2000,
the U.S. dollar denominated notes were retired prior to maturity with cash on
hand and borrowings under Devon's long-term credit facilities. The
Canadian-to-U.S. dollar exchange rate dropped slightly in January prior to the
debt retirement. As a result, $2.4 million of expense was recognized in the
first quarter of 2000.
DISTRIBUTIONS ON PREFERRED SECURITIES OF SUBSIDIARY TRUST. During the
third quarter and first nine months of 1999, Devon had $149.5 million of 6.5%
Trust Convertible Preferred Securities outstanding. Distributions on these
securities accrued and were paid at the rate of 1.625% per quarter. On November
30, 1999, Devon exercised its right to redeem such securities, and substantially
all of the securities were exchanged for shares of Devon common stock. As a
result, no distributions were recorded in the 2000 periods.
REDUCTION OF CARRYING VALUE OF OIL AND GAS PROPERTIES. Under the
full-cost method of accounting, the net book value of oil and gas properties,
less related deferred income taxes, may not exceed a calculated "ceiling." The
ceiling limitation is the discounted estimated after-tax future revenues from
proved oil and gas properties. The ceiling is imposed separately by country. In
calculating future net revenues, current prices and costs are generally held
constant indefinitely. The net book value, less deferred tax liabilities, is
compared to the ceiling on a quarterly and annual basis. Any excess of the net
book value, less deferred taxes, above the ceiling is written off as an expense.
After the Snyder merger, Devon's net book value, less deferred taxes,
of its domestic oil and gas properties exceeded the June 30, 1999, ceiling by
approximately $301.7 million. Accordingly, the carrying value of Devon's
domestic oil and gas properties was reduced by $463.8 million in the second
quarter of 1999. This reduction was partially offset by a deferred income tax
benefit of $162.1 million, resulting in a net effect of $301.7 million.
INCOME TAXES. During interim periods, income tax expense is based on
the estimated effective income tax rate that is expected for the entire fiscal
year. The effective tax rates estimated for the three-month and nine-month
periods ended September 30, 2000 and 1999 were not materially different after
excluding the effect of the reduction of carrying value of oil and gas
properties discussed above. The estimated effective tax rate in the third
quarter of 2000 was 39% compared to 38% in the third quarter of 1999. The
estimated effective tax rate in the first nine months of 2000 was 40% compared
to an estimated tax benefit of 31% for the first nine months of 1999. The
benefit rate in 1999 was below the federal statutory rate of 35% due to certain
financial expenses related to the full-cost writedown which were incurred but
are not deductible for tax purposes. Excluding the effect of the full-cost
writedown, the effective tax rate for the first nine months of 1999 was 41%.
28
<PAGE> 29
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("Statement 109"), requires that the tax benefit of available tax
carryforwards be recorded as an asset to the extent that management assesses the
utilization of such carryforwards to be "more likely than not." When the future
utilization of some portion of the carryforwards is determined not to be "more
likely than not," Statement 109 requires that a valuation allowance be provided
to reduce the recorded tax benefits from such assets.
Included as deferred tax assets as of September 30, 2000, were
approximately $296 million related to various carryforwards available to offset
future income taxes. The carryforwards include U.S. federal net operating loss
carryforwards, the majority of which do not begin to expire until 2008, U.S.
state net operating loss carryforwards which expire primarily between 2000 and
2013, and Canadian carryforwards which expire primarily between 2000 and 2005.
Devon expects the tax benefits from the net operating loss carryforwards to be
utilized between 2000 and 2006. Such expectation is based upon current estimates
of taxable income during this period, considering limitations on the annual
utilization of these benefits as set forth by federal tax regulations.
Significant changes in such estimates caused by variables such as future oil and
gas prices or capital expenditures could alter the timing of the eventual
utilization of such carryforwards. There can be no assurance that Devon will
generate any specific level of continuing taxable earnings. However, Devon's
management believes that future taxable income will more likely than not be
sufficient to utilize substantially all its tax carryforwards prior to their
expirations.
CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY
The following discussion of capital expenditures, capital resources and
liquidity should be read in conjunction with the consolidated statements of cash
flows included in Part 1, Item 1 included elsewhere herein.
CAPITAL EXPENDITURES. Approximately $948.0 million was spent in the
first nine months of 2000 for capital expenditures. This total included $881.3
million for the acquisition, drilling and development of oil and gas properties,
$29.0 million related to the construction of an extensive gas gathering system,
related CO(2) removal facilities and gas processing project all located in the
Powder River Basin of Wyoming, and $37.7 million for other fixed assets.
Approximately $690.7 million was spent for capital expenditures in the
first nine months of 1999. This total included $625.6 million for the
acquisition, drilling and development of oil and gas properties, $58.7 million
related to the construction of an extensive gas gathering system, related CO(2)
removal facilities and gas processing project all located in the Powder River
Basin of Wyoming, and $6.4 million for other fixed assets.
CAPITAL RESOURCES AND LIQUIDITY. Net cash provided by operating
activities ("operating cash flow") continued to be the primary source of capital
and liquidity in the first nine months of 2000. Operating cash flow in the first
nine months was $1.1 billion, compared to $415.2 million in the first nine
months of 1999. The increase in operating cash flow in the first nine months of
2000 was primarily caused by the rise in revenues, partially offset by increased
expenses, as discussed earlier in this section.
29
<PAGE> 30
Devon's cash flow for the first nine months of 2000 was more than
adequate to fund its capital expenditures. Excess available cash flow, along
with cash on hand at the beginning of the year and the proceeds from the
late-June issue of convertible debentures, were used to retire long-term debt.
At September 30, 2000, Devon's availability under its $1.0 billion long-term
credit facilities totaled $698 million.
On August 29, 2000, Devon increased its borrowing availability under
its unsecured long-term credit facilities (the "Credit Facilities") from $750
million to $1 billion. The Credit Facilities include a U.S. facility of $725
million (the "U.S. Facility") and a Canadian facility of $275 million (the
"Canadian Facility").
Amounts borrowed under the Credit Facilities bear interest at various
fixed rate options that Devon may elect for periods up to six months. Such rates
are generally less than the prime rate. Devon may also elect to borrow at the
prime rate. The Credit Facilities provide for an annual facility fee of $0.9
million that is payable quarterly.
The $725 million U.S. Facility consists of a Tranche A facility of $200
million and a Tranche B facility of $525 million. The Tranche A facility matures
on October 15, 2004. Devon may borrow funds under the Tranche B facility until
August 28, 2001 (the "Tranche B Revolving Period"). Devon may request that the
Tranche B Revolving Period be extended an additional 364 days by notifying the
agent bank of such request between 30 and 60 days prior to the end of the
Tranche B Revolving Period. Debt borrowed under the Tranche B facility matures
two years and one day following the end of the Tranche B Revolving Period. On
September 30, 2000, there were no borrowings under the $725 million U.S.
Facility.
Devon may borrow funds under the $275 million Canadian Facility until
August 28, 2001 (the "Canadian Facility Revolving Period"). Devon may request
that the Canadian Facility Revolving Period be extended an additional 364 days
by notifying the agent bank of such request between 45 and 90 days prior to the
end of the Canadian Facility Revolving Period. Debt outstanding as of the end of
the Canadian Facility Revolving Period is payable in semi annual installments of
2.5% each for the following five years, with the final installment due five
years and one day following the end of the Canadian Facility Revolving Period.
On September 30, 2000, there was $142.7 million borrowed under the $275 million
Canadian facility.
Under the terms of the Credit Facilities, Devon has the right to
reallocate up to $100 million of the unused Tranche B facility maximum credit
amount to the Canadian Facility. Conversely, Devon also has the right to
reallocate up to $100 million of unused Canadian Facility maximum credit amount
to the Tranche B Facility.
The agreements governing the Credit Facilities contain certain
covenants and restrictions, including a maximum allowed debt-to-capitalization
ratio as defined in the agreements.
On August 29, 2000, Devon entered into a commercial paper program with
Goldman, Sachs & Co. and Chase Securities Inc. as the dealers. Devon may borrow
up to $725 million under the commercial paper program. Total borrowings under
the U.S. credit facility and the commercial
30
<PAGE> 31
paper program may not exceed $725 million. The commercial paper borrowings may
have terms of up to 365 days and will bear interest at rates agreed to at the
time of the borrowing. The interest rate will be based on a standard index such
as the Federal Funds Rate, London Interbank Offered Rate (LIBOR), or the money
market rate as found on the commercial paper market. As of September 30, 2000,
Devon had $159.6 million of borrowings under its commercial paper program at an
average rate of 6.85%.
In June 2000, Devon privately sold zero-coupon convertible senior
debentures ("convertible debentures"). The convertible debentures were sold at a
price of $464.13 per debenture with a yield to maturity of 3.875% per annum.
Each debenture is convertible into 5.7593 shares of Devon common stock. Devon
may call the bonds at any time after five years, and a debenture holder has the
right to require Devon to repurchase the bonds after five, 10 and 15 years, at
the issue price plus accrued original issue discount and interest. The proceeds
to Devon were approximately $346.1 million, net of debt issuance costs of
approximately $6.6 million. Devon used the proceeds from the sale of these
convertible debentures to pay down other domestic long-term debt.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED. In June
1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") and in June 2000 issued SFAS 138, which amended certain
provisions of SFAS 133. SFAS 133, as amended, establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
the recognition of all derivatives as either assets or liabilities in the
statement of financial position and measurement of those instruments at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge. The accounting for changes in the fair value of a
derivative (that is gains and losses) depends on the intended use of the
derivative and whether it qualifies as a hedge. Devon plans to adopt the
provisions of SFAS 133, as amended, in the first quarter of the year ending
December 31, 2001, and is currently evaluating the effects of this
pronouncement. However, it is anticipated that adoption of SFAS 133 will not
have a material effect on Devon's financial condition and operations.
REVISIONS TO 2000 ESTIMATES
On September 19, 2000, Devon filed a Form 8-K that contained
forward-looking estimates for the year 2000 including the effect of the August
29, 2000, Santa Fe Snyder merger. Subsequently, revisions were made in other
income and general and administrative expenses. As a result of these revisions,
the forward-looking information contained in the September 19, 2000, Form 8-K
with regard to 2000 other income and G&A expense is no longer applicable and is
replaced by the following revised information.
The following revised forward-looking statement regarding other income
and G&A expense is based on data in Devon's possession and actual results for
the first nine months of 2000.
OTHER REVENUES. Devon's other revenues in 2000 are expected to be
between $64 million and $68 million. Approximately $23.4 million of 2000's
expected other revenues is from third
31
<PAGE> 32
party gas processing and $18.5 million of 2000's expected other revenues is from
dividends on Devon's investment of 7.1 million shares of Chevron Corporation
common stock.
GENERAL AND ADMINISTRATIVE EXPENSES ("G&A"). Devon's G&A includes the
costs of many different goods and services used in support of its business.
These goods and services are subject to general price level increases or
decreases. In addition, Devon's G&A varies with its level of activity and the
related staffing needs as well as with the amount of professional services
required during any given period. Should Devon's needs or the prices of the
required goods and services differ significantly from current expectations,
actual G&A could vary materially from the estimate. Given these limitations,
consolidated net G&A in 2000 is expected to be between $95 million and $100
million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information included in "Quantitative and Qualitative Disclosures
About Market Risk" in item 7A of Devon's combined financial statements,
footnotes and management's discussion and analysis of financial condition and
results of operations for the three-year period ended December 31, 1999, as
restated for the pooling accounting method of the Santa Fe Snyder merger, filed
in a Form 8-K on November 13, 2000, is incorporated herein by reference. Such
information includes a description of Devon's potential exposure to market
risks, including commodity price risk, interest rate risk and foreign currency
risk. As of September 30, 2000, there have been no material changes in Devon's
market risk exposure from that disclosed in the Form 8-K referenced above.
32
<PAGE> 33
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A special meeting of shareholders was held
in Oklahoma City, Oklahoma at 10:00 a.m.
local time, on Tuesday, August 29, 2000.
(b) Out of a total 87,015,045 shares of the
Company's common stock outstanding and
entitled to vote 78,589,479 shares were
present at the meeting in person or by
proxy, representing approximately 90 percent
of the total outstanding. The matters voted
upon at the meeting were (1) to approve the
merger agreement and the merger dated as of
May 25, 2000 between Devon and Santa Fe
Snyder Corporation, and the transactions
contemplated by it, including the issuance
of Devon common stock in the merger; and (2)
to approve a stock option plan amendment
which increased the number of shares
available for grant under that plan from six
million to ten million. The vote tabulation
with respect to each proposal was as
follows:
<TABLE>
<CAPTION>
Proposal One Proposal Two
------------ ------------
<S> <C> <C>
FOR: 73,036,317 63,618,428
AUTHORITY WITHHELD: 187,352 170,556
</TABLE>
33
<PAGE> 34
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K are as follows:
Exhibit
No.
10.1 Severance Agreement between Registrant and James L. Payne
dated August 29, 2000
27 Financial Data Schedule
(b) Reports on Form 8-K - Reports on Form 8-K filed since July 1, 2000, are
described below:
Filing Date Contents
July 12, 2000 Amendment to the Santa Fe Snyder merger agreement;
indenture and registration rights agreement
regarding the zero-coupon convertible
debentures; and certain consents.
July 27, 2000 Press release concerning the second quarter 2000
earnings announcement (a Form 8-K/A was filed
August 1, 2000, revising certain data in the
July 27, 2000, Form 8-K).
August 29, 2000 Press release concerning completion of the merger
with Santa Fe Snyder.
September 12, 2000 Announcement of the Santa Fe Snyder merger and
update of the pro forma financial information
through June 30, 2000.
September 13, 2000 Announcement of the Santa Fe Snyder merger (a Form
8-K/A was filed September 22, 2000, retracting
all information in the September 13, 2000,
Form 8-K).
September 19, 2000 Revision to 2000 forward looking estimates.
October 26, 2000 Press release concerning the third quarter 2000
earnings announcement.
October 26, 2000 Announcement concerning the expiration of the
affiliates' risk period.
November 13, 2000 Combined financial statements, footnotes and
management's discussion and analysis of
financial condition and results of operations
for the three-year period ended December 31,
1999, as restated for the pooling accounting
method of the Santa Fe Snyder merger
34
<PAGE> 35
SIGNATURES
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
Date: November 14, 2000 /s/ Danny J. Heatly
---------------------------
Danny J. Heatly
Vice President - Accounting
35
<PAGE> 36
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.1 Severance Agreement between Registrant and
James L. Payne dated August 29, 2000
27 Financial Data Schedule (filed electronically
only)
</TABLE>
36
