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 March 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-30176
DEVON ENERGY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 73-1567067
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
20 North Broadway, Suite 1500
Oklahoma City, Oklahoma 73102 -8260
(Address of Principal Executive Offices) (Zip Code)
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 April 30, 2000, was 86,595,000.
1 of 28 total pages
(Exhibit Index is found at page 27)
<PAGE>
DEVON ENERGY CORPORATION
Index to Form 10-Q Quarterly Report
to the Securities and Exchange Commission
Page No.
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets, March 31, 2000 (Unaudited) 4
and December 31, 1999
Consolidated Statements of Operations (Unaudited), 5
For the Three Months Ended March 31, 2000 and 1999
Consolidated Statements of Comprehensive Operations 6
(Unaudited), For the Three Months Ended March 31,
2000 and 1999
Consolidated Statements of Cash Flows (Unaudited), 7
For the Three Months Ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements. 8
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 22
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
"NGLs" means natural gas liquids
<PAGE>
DEVON ENERGY CORPORATION
Part I. Financial Information
Item 1. Consolidated Financial Statements
March 31, 2000 and 1999
(Forming a part of Form 10-Q Quarterly Report
to the Securities and Exchange Commission)
<PAGE>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 49,788 167,167
Accounts receivable 228,290 209,405
Inventories 14,787 13,441
Deferred income taxes 4,886 4,886
Investments and other current assets 15,812 22,295
Total current assets 313,563 417,194
Property and equipment, at cost, based
on the full cost method of accounting
for oil and gas properties 5,079,686 4,974,810
Less accumulated depreciation,
depletion and amortization 1,917,742 1,818,890
3,161,944 3,155,920
Investment in Chevron Corporation
common stock, at fair value 655,606 614,382
Goodwill, net of amortization 314,955 322,800
Other assets 115,089 112,864
Total assets $4,561,157 4,623,160
Liabilities and stockholders' equity
Current liabilities:
Accounts payable:
Trade 78,384 75,625
Revenues and royalties due to others 55,069 58,130
Income taxes payable 31,834 11,287
Accrued interest payable 25,217 26,270
Merger related expenses payable 32,016 32,504
Accrued expenses 22,621 23,628
Total current liabilities 245,141 227,444
Other liabilities 173,680 192,210
Debentures exchangeable into shares of
Chevron Corporation common stock 760,313 760,313
Other long-term debt 842,004 1,026,808
Deferred income taxes 424,184 390,865
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; issued
86,520,000 in 2000 and 86,085,000
in 1999 8,652 8,608
Additional paid-in capital 2,257,795 2,246,652
Accumulated deficit (110,362) (164,698)
Accumulated other comprehensive loss (41,750) (66,542)
Total stockholders' equity 2,115,835 2,025,520
Total liabilities and stockholders'
equity $4,561,157 4,623,160
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
(Unaudited)
Revenues
<S> <C> <C>
Oil sales $145,544 27,913
Gas sales 155,532 53,551
Natural gas liquids sales 35,270 3,929
Other 11,365 1,873
Total revenues 347,711 87,266
Costs and expenses
Lease operating expenses 65,893 27,420
Production taxes 10,420 2,969
Depreciation, depletion and amortiza-
tion of property and equipment 108,552 33,558
Amortization of goodwill 10,332 -
General and administrative expenses 16,650 6,223
Interest expense 25,276 6,664
Deferred effect of changes in foreign
currency exchange rate on
subsidiary's long-term debt 2,408 (3,161)
Distributions on preferred securities
of subsidiary trust - 2,429
Total costs and expenses 239,531 76,102
Earnings before income tax expense 108,180 11,164
Income tax expense
Current 29,847 1,903
Deferred 17,246 3,281
Total income tax expense 47,093 5,184
Net earnings 61,087 5,980
Preferred stock dividends 2,434 -
Net earnings applicable to common
shareholders $ 58,653 5,980
Net earnings per average common
share outstanding:
Basic $0.68 0.12
Diluted $0.67 0.12
Weighted average common shares
outstanding - basic 86,208 48,470
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Operations
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
(Unaudited)
<S> <C> <C>
Net earnings $61,087 5,980
Other comprehensive earnings, net of tax:
Foreign currency translation adjustments (355) 1,624
Unrealized gains on marketable securities 25,147 -
Comprehensive earnings $85,879 7,604
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
(Unaudited)
Cash flows from operating activities
<S> <C> <C>
Net earnings $ 61,087 5,980
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation, depletion and
amortization of property and
equipment 108,552 33,558
Amortization of goodwill 10,332 -
Amortization of premiums on
debentures (1,023) -
Deferred effect of changes in
foreign currency exchange rate
on subsidiary's long-term debt 2,408 (3,161)
Gain on sale of assets (22) (18)
Deferred income taxes 17,246 3,281
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (19,970) 5,562
Inventories (1,347) (32)
Prepaid expenses 7,393 (1,121)
Other assets (7,151) 76
(Decrease) increase in:
Accounts payable (78) 20,287
Income taxes payable 21,641 -
Accrued expenses (3,711) (6,608)
Long-term other liabilities (13,987) (737)
Net cash provided by operating
activities 181,370 57,067
Cash flows from investing activities
Proceeds from sale of property and
equipment 3,048 4,702
Capital expenditures (118,555) (82,798)
Decrease in other assets 96 448
Net cash used in investing
activities (115,411) (77,648)
Cash flows from financing activities
Proceeds from borrowings on revolving
lines of credit 322,886 297,063
Principal payments on revolving lines
of credit (280,670) (281,934)
Principal payments on other long-term
debt (225,000) -
Issuance of common stock, net of
issuance costs 11,186 1,654
Dividends paid on common stock (4,317) (2,424)
Dividends paid on preferred stock (2,434) -
(Decrease) increase in long-term
other liabilities (4,522) 525
Net cash (used in) provided
by financing activities (182,871) 14,884
Effect of exchange rate changes on cash (467) (17)
Net decrease in cash and cash
equivalents (117,379) (5,714)
Cash and cash equivalents at beginning
of period 167,167 19,154
Cash and cash equivalents at end of
period $ 49,788 13,440
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
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 statements and notes thereto should be read in
conjunction with the consolidated financial statements and notes
thereto included in Devon's 1999 Annual Report on Form 10-K.
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 March 31, 2000, and the results
of their operations and their cash flows for the three month
periods ended March 31, 2000 and 1999.
2. Long-Term Debt
In March 2000, Devon entered into a new unsecured, fixed-
rate money market note with The Chase Manhattan Bank. This note
is short-term and permits multiple borrowings. Devon currently
has the ability to borrow up to a $200 million limit. As of March
31, 2000, $35 million was outstanding under this note at an
average interest rate of 6.5%. If this short-term note is not
extended at its May 22, 2000 maturity, Devon intends to refinance
any balance due with borrowings from its long-term credit
facilities. Such long-term credit facilities had $429.4 million
of availability at the end of March 2000. Accordingly, the $35
million outstanding under the short-term note are classified as
long-term debt on the March 31, 2000 consolidated balance sheet.
3. Earnings Per Share
The following table reconciles the net earnings and common
shares outstanding used in the calculations of basic and diluted
earnings per share for the three-month period ended March 31,
2000. The diluted earnings per share calculation for the three
months ended March 31, 1999, produced results that are anti-
dilutive.
<TABLE>
<CAPTION>
Net Earnings Net
Applicable to Common Earnings
Common Shares Per
Shareholders Outstanding Share
(In Thousands)
Three Months Ended March 31, 2000:
<S> <C> <C> <C>
Basic earnings per share $58,653 86,208 $0.68
Dilutive effect of potential
common shares issuable
upon the exercise of out-
standing stock options - 825
Diluted earnings per share $58,653 87,033 $0.67
</TABLE>
Options to purchase approximately 1.5 million shares of Devon's
common stock, with exercise prices from $39.44 to $92.78 per
share (with a weighted average price of $62.45 per share), were
excluded from the diluted earnings per share calculation for
first quarter 2000. The excluded options expire between April
26, 2000 and March 17, 2010. All options were excluded from the
diluted earnings per share calculation for first quarter 1999.
4. 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 for the first quarters of
2000 and 1999. The revenues reported are all from external
customers.
<TABLE>
<CAPTION>
Inter-
U.S. Canada national Total
(In Thousands)
As of March 31, 2000:
<S> <C> <C> <C> <C>
Current assets $ 225,008 62,625 25,930 313,563
Property and equipment, net of accumulated
depreciation, depletion and amortization 2,364,800 481,122 316,022 3,161,944
Investment in Chevron Corporation common
stock 655,606 - - 655,606
Goodwill, net of amortization 288,086 - 26,869 314,955
Other assets 113,612 92 1,385 115,089
Total assets $3,647,112 543,839 370,206 4,561,157
Current liabilities 185,587 46,506 13,048 245,141
Debentures exchangeable into shares of
Chevron Corporation common stock 760,313 - - 760,313
Other long-term debt 673,444 168,560 - 842,004
Deferred income taxes 382,788 14,638 26,758 424,184
Other liabilities 147,473 2,701 23,506 173,680
Stockholders' equity 1,497,507 311,434 306,894 2,115,835
Total liabilities and stockholders'
equity $3,647,112 543,839 370,206 4,561,157
Three Months ended March 31, 2000:
Revenues
Oil sales $ 114,976 28,518 2,050 145,544
Gas sales 126,010 29,522 - 155,532
Natural gas liquids sales 30,901 4,369 - 35,270
Other 10,450 1,091 (176) 11,365
Total revenues 282,337 63,500 1,874 347,711
Costs and expenses
Lease operating expenses 52,704 12,304 885 65,893
Production taxes 10,193 227 - 10,420
Depreciation, depletion and amortization
of property equipment 92,376 15,994 182 108,552
Amortization of goodwill 10,326 - 6 10,332
General and administrative expenses 13,127 2,254 1,269 16,650
Interest expense 22,848 2,428 - 25,276
Deferred effect of changes in foreign
currency exchange rate on subsidiary's
long-term debt - 2,408 - 2,408
Total costs and expenses 201,574 35,615 2,342 239,531
Earnings (loss) before income tax expense 80,763 27,885 (468) 108,180
Income tax expense
Current 29,147 700 - 29,847
Deferred 4,296 12,910 40 17,246
Total income tax expense 33,443 13,610 40 47,093
Net earnings (loss) 47,320 14,275 (508) 61,087
Preferred stock dividends 2,434 - - 2,434
Net earnings (loss) applicable to common
shareholders $ 44,886 14,275 (508) 58,653
Capital expenditures $ 80,478 36,026 2,051 118,555
<PAGE>
4. Segment Information (Continued)
<CAPTION>
Inter-
U.S. Canada national Total
(In Thousands)
Three Months ended March 31, 1999:
Revenues
Oil sales $ 14,467 13,446 - 27,913
Gas sales 28,161 25,390 - 53,551
Natural gas liquids sales 2,518 1,411 - 3,929
Other 700 1,173 - 1,873
Total revenues 45,846 41,420 - 87,266
Costs and expenses
Lease operating expenses 14,923 12,497 - 27,420
Production taxes 2,592 377 - 2,969
Depreciation, depletion and amortization
of property equipment 18,009 15,549 - 33,558
Amortization of goodwill - - - -
General and administrative expenses 2,914 3,309 - 6,223
Interest expense 642 6,022 - 6,664
Deferred effect of changes in foreign
currency exchange rate on subsidiary's
long-term debt - (3,161) - (3,161)
Distributions on preferred securities of
subsidiary trust 2,429 - - 2,429
Total costs and expenses 41,509 34,593 - 76,102
Earnings before income tax expense 4,337 6,827 - 11,164
Income tax expense
Current 820 1,083 - 1,903
Deferred 95 3,186 - 3,281
Total income tax expense 915 4,269 - 5,184
Net earnings $ 3,422 2,558 - 5,980
Capital expenditures $ 42,466 40,332 - 82,798
</TABLE>
<PAGE>
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 months ended March 31, 2000,
compared to the three months ended March 31, 1999, and in
financial condition since December 31, 1999. It is presumed that
readers have read or have access to Devon's 1999 Annual Report on
Form 10-K.
Overview
Devon's revenues and net earnings for the quarter ended March
31, 2000, were the highest of any quarter in its history. Net
earnings for the first quarter of 2000 were $61.1 million, or 68
cents per share. This compares to net earnings of $6.0 million,
or 12 cents per share for the first quarter of 1999. The
increase in first quarter earnings was due to sharply higher oil
and natural gas production coupled with higher overall oil and
natural gas prices. The increase in first quarter production
resulted primarily from the August 17, 1999, merger of
PennzEnergy Company into Devon.
The merger also drove many of the significant changes in
assets and liabilities for Devon for the quarter. The transaction
more than doubled Devon's total assets and proved oil and gas
reserves and significantly expanded the scope of the company's
operations. The merger added 396 million Boe of reserves,
approximately 13 million net acres of undeveloped leasehold and
$3.2 billion of assets to Devon's balance sheet.
Results of Operations
Total revenues increased $260.4 million, or 298%, in the
first quarter of 2000. This was the result of increases in the
average prices of oil, gas and NGLs, along with higher production
on a combined Boe basis. Oil, gas and NGLs revenues were up
$251.0 million, or 294%, for the first quarter of 2000 compared
to the first quarter of 1999. The quarterly comparisons of
production and price changes are shown in the following tables.
(Note: Unless otherwise stated, all dollar amounts are expressed
in U.S. dollars.)
The PennzEnergy merger was accounted for under the purchase
method of accounting for business combinations. Therefore,
Devon's first quarter 1999 results discussed in this report do
not include any effect of PennzEnergy's operations.
<TABLE>
<CAPTION>
Total
Three Months Ended
March 31,
2000 1999 Change
Production
<S> <C> <C> <C>
Oil (MBbls) 5,695 2,565 +122%
Gas (MMcf) 68,814 35,122 +96%
NGL (MBbls) 1,776 476 +273%
<FN>
Oil, Gas and NGLs (MBoe)1 18,940 8,895 +113%
Average Prices
Oil (Per Bbl) $25.56 10.88 +135%
Gas (Per Mcf) 2.26 1.52 +49%
NGL (Per Bbl) 19.86 8.25 +141%
<FN>
Oil, Gas and NGLs (Per Boe)1 17.76 9.60 +85%
<CAPTION>
(In Thousands)
Revenues
Oil $145,544 27,913 +421%
Gas 155,532 53,551 +190%
NGLs 35,270 3,929 +798%
Combined $336,346 85,393 +294%
<CAPTION>
Domestic
Three Months Ended
March 31,
2000 1999 Change
Production
Oil (MBbls) 4,195 1,299 +223%
Gas (MMcf) 52,436 16,361 +220%
NGL (MBbls) 1,602 314 +410%
<FN>
Oil, Gas and NGLs (MBoe)1 14,536 4,340 +235%
Average Prices
Oil (Per Bbl) $27.41 11.14 +146%
Gas (Per Mcf) 2.40 1.72 +40%
NGL (Per Bbl) 19.29 8.02 +141%
<FN>
Oil, Gas and NGLs (Per Boe)1 18.70 10.40 +80%
<CAPTION>
(In Thousands)
Revenues
Oil $114,976 14,467 +695%
Gas 126,010 28,161 +347%
NGLs 30,901 2,518 +1,127%
Combined $271,887 45,146 +502%
<CAPTION>
Canada
Three Months Ended
March 31,
2000 1999 Change
Production
Oil (MBbls) 1,202 1,266 -5%
Gas (MMcf) 16,378 18,761 -13%
NGL (MBbls) 174 162 +7%
<FN>
Oil, Gas and NGLs (MBoe)1 4,106 4,555 -10%
Average Prices
Oil (Per Bbl) $23.73 10.62 +123%
Gas (Per Mcf) 1.80 1.35 +33%
NGL (Per Bbl) 25.11 8.71 +188%
<FN>
Oil, Gas and NGLs (Per Boe)1 15.20 8.84 +72%
<CAPTION>
(In Thousands)
Revenues
Oil $28,518 13,446 +112%
Gas 29,522 25,390 +16%
NGLs 4,369 1,411 +210%
Combined $62,409 40,247 +55%
<FN>
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.
</TABLE>
In addition to the volumes included in the prior tables for
domestic and Canadian production, in the first quarter of 2000
Devon also produced 274,000 barrels of oil in Venezuela and
24,000 barrels of oil in Azerbaijan. The oil revenues generated
by this production were $2.1 million. This production was added
by the PennzEnergy merger.
Oil Revenues. Oil revenues increased $117.6 million, or
421%, in the first quarter of 2000. Oil revenues increased $83.6
million due to a $14.68 per barrel increase in the average price
of oil in 2000. An increase in 2000's production of 3.1 million
barrels caused oil revenues to increase by $34.0 million. The
PennzEnergy merger added 3.4 million barrels of oil in the first
quarter of 2000. This increase was partially offset by a 0.3
million barrel decline in first quarter 2000 production from
Devon's other properties. This reduction was primarily the
result of natural decline.
Gas Revenues. Gas revenues increased $102.0 million, or
190%, in 2000's first quarter. Production rose 33.7 Bcf in the
2000 period, which added $51.4 million of gas revenues. A $0.74
per Mcf increase in the average gas price in the first quarter of
2000 contributed $50.6 million of the increase in gas revenues.
The largest contributor to the 2000 production increase was
production added by the PennzEnergy merger. The PennzEnergy
properties added 34.4 Bcf of production in the first quarter of
2000. Gas production from Devon's historical domestic properties
also increased in the 2000 quarter. This was primarily the
result of a 0.8 Bcf increase in production from Devon's San Juan
Basin coal seam gas properties. These properties produced 6.3
Bcf in the 2000 quarter compared to 5.5 Bcf in the 1999 quarter.
This increase was primarily the result of mechanical improvements
implemented at the Northeast Blanco Unit coal seam gas property.
These domestic increases were partially offset by a decline
in Canadian gas production of 2.4 Bcf, or 13% in the 2000
quarter. Approximately half of the decline, or 1.2 Bcf, was
related to production from certain Canadian properties that were
included in the 1999 quarter but were sold prior to the 2000
quarter. Additionally, 0.4 Bcf of the decline was the result of
increased Canadian government royalties which fluctuate based on
pricing. The remainder of the reduction was related to natural
decline.
NGLs Revenues. NGLs revenues increased $31.3 million, or
798%, in the first quarter of 2000. An increase in the average
price in 2000 of $11.61 per barrel, or 141%, caused NGLs revenues
to increase $20.6 million in the 2000 period. A production
increase of 1.3 million barrels caused revenues to increase $10.7
million. Production from the PennzEnergy merger properties
during first quarter 2000 accounted for 1.3 million barrels.
Other Revenues. Other revenues increased $9.5 million, or
507%, in the 2000 quarter. 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.
This dividend income, along with increases in third-party gas
processing revenues and interest income were the primary reasons
for the substantial increase in other revenues. The increase in
interest income was primarily related to higher than normal cash
on hand in the first quarter of 2000.
Production and Operating Expenses. The components of
production and operating expenses for the first quarter of 2000
and 1999 are set forth in the following tables.
<TABLE>
<CAPTION>
Total
Three Months Ended
March 31,
2000 1999 Change
Absolute (Thousands)
Recurring operations and maintenance
<S> <C> <C> <C>
expenses $62,835 26,032 +141%
Well workover expenses 3,058 1,388 +120%
Production taxes 10,420 2,969 +251%
Total production and operating expenses $76,313 30,389 +151%
Per Boe
Recurring operations and maintenance
expenses 3.32 2.93 +13%
Well workover expenses 0.16 0.16 0%
Production taxes 0.55 0.33 +65%
Total production and operating expenses $4.03 3.42 +18%
<CAPTION>
Domestic
Three Months Ended
March 31,
2000 1999 Change
Absolute (Thousands)
Recurring operations and maintenance
expenses $49,780 13,808 +261%
Well workover expenses 2,924 1,115 +162%
Production taxes 10,193 2,592 +293%
Total production and operating expenses $62,897 17,515 +259%
Per Boe
Recurring operations and maintenance
expenses 3.43 3.18 +8%
Well workover expenses 0.20 0.26 -22%
Production taxes 0.70 0.60 +17%
Total production and operating expenses $4.33 4.04 +7%
<CAPTION>
Canada
Three Months Ended
March 31,
2000 1999 Change
Absolute (Thousands)
Recurring operations and maintenance
expenses $12,170 12,224 0%
Well workover expenses 134 273 -51%
Production taxes 227 377 -40%
Total production and operating expenses $12,531 12,874 -3%
Per Boe
Recurring operations and maintenance
expenses 2.96 2.69 +10%
Well workover expenses 0.03 0.06 -46%
Production taxes 0.06 0.08 -33%
Total production and operating expenses $3.05 2.83 +8%
</TABLE>
In addition to the expenses included in the prior tables for
domestic and Canadian operations, the first quarter 2000 also
included $0.9 million of recurring lease operating expenses on
properties outside of North America. These expenses were related
to properties added by the PennzEnergy merger.
Recurring operations and maintenance expenses increased
$36.8 million, or 141%, in the first quarter of 2000. Domestic
expenses increased $36.0 million in first quarter 2000 due to
$35.8 million of expenses from the PennzEnergy properties. Other
than the added costs from the PennzEnergy properties, recurring
expenses in Devon's other domestic properties increased $0.2
million in first quarter 2000. Recurring operations and
maintenance expenses were lower than normal in the first quarter
of 1999 as certain non-essential services in Devon's primary oil
producing properties were delayed due to the 1999 quarter's low
oil prices. However, with the subsequent increase in oil prices,
these delays did not continue in the first quarter of 2000.
Production taxes increased $7.5 million, or 251%, 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 502% increase in domestic oil, gas and
NGLs revenues in the first quarter 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 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 $70.8 million, or
217%, from $32.6 million in the first quarter of 1999 to $103.4
million in the first quarter of 2000. Oil and gas property
related DD&A expense increased $36.8 million due to the 113%
increase in combined oil, gas and NGLs production in 2000.
Additionally, an increase in the combined U.S., Canadian and
international DD&A rate from $3.66 per Boe in 1999 to $5.46 per
Boe in 2000 caused oil and gas property related DD&A to increase
by $34.0 million. The $1.80 increase in the 2000 rate over the
1999 rate is primarily the result of the PennzEnergy merger.
Non-oil and gas property DD&A expense increased $4.2 million
from $5.2 million in the first quarter of 2000 compared to $1.0
million the first quarter of 1999. Depreciation of the non-oil
and gas properties acquired in the PennzEnergy merger and
depreciation on the new gas pipeline and gathering system in
Wyoming accounted for the increase.
Amortization of Goodwill. In connection with the
PennzEnergy merger, Devon recorded $341.4 million of goodwill.
The goodwill was allocated $314.5 million to domestic properties
and $26.9 million to international properties. The goodwill is
being amortized using the units-of-production method.
Substantially all of the $10.3 million of amortization recognized
in the first quarter of 2000 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 first quarter of
2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
(In Thousands)
<S> <C> <C>
Gross G&A $32,669 13,117
Capitalized G&A (8,088) (2,547)
Reimbursed G&A (7,931) (4,347)
Net G&A $16,650 6,223
</TABLE>
Net G&A increased $10.4 million, or 168%, in the first
quarter of 2000 compared to the first quarter of 1999. Gross G&A
increased $19.5 million, or 149%. The increase in gross expenses
in the first quarter of 2000 was primarily related to additional
costs incurred as a result of the PennzEnergy merger.
G&A was reduced $5.5 million due to an increase in the
amount capitalized as part of oil and gas properties. G&A was
also reduced by a $3.6 million increase in the amount of
reimbursements on operated properties in the 2000 quarter. The
increase in capitalized and reimbursed G&A was primarily related
to the PennzEnergy merger.
Interest Expense. Interest expense increased $18.6 million,
or 279%, in 2000's first quarter. An increase in the average debt
balance outstanding from $418.0 million in 1999 to $1.65 billion
in 2000 caused interest expense to increase by $18.9 million.
The increase in the average debt balance in the first quarter of
2000 was attributable to the long-term debt assumed in the
PennzEnergy merger. The average rate on the debt outstanding was
6.2% in both quarters and had no effect on the interest expense
variance. The remaining decrease of $0.3 million was caused by
other factors as shown in the following table.
The following schedule includes the components of interest
expense for the first quarter of 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
(In Thousands)
<S> <C> <C>
Interest on debt outstanding $25,275 6,419
Facility and agency fees 290 147
Amortization of capitalized loan costs 147 69
Capitalized interest (496) -
Other 60 29
Total interest expense $25,276 6,664
</TABLE>
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 first quarter 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. As a result, no
distributions were recorded in the 2000 quarter.
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 estimated effective tax rate in
the first quarter of 2000 was 44%, compared to 46% estimated in
the first quarter of 1999.
The lower expected 2000 rate is primarily due to the effect
of certain components of 2000's income tax expense that will not
fluctuate in relation to pre-tax earnings. Examples are the
amounts of amortization of goodwill and certain Canadian DD&A
recorded for financial statement purposes that are not deductible
for income tax purposes, and the Canadian large corporation tax
that is based on capitalization levels instead of pre-tax
earnings. As pre-tax earnings increase, these fixed components
have less impact on the effective tax rate.
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 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", SFAS 109 requires that a
valuation allowance be provided to reduce the recorded tax
benefits from such assets.
Included as deferred tax assets at March 31, 2000, were
approximately $150 million of net operating loss carryforwards.
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, Canadian carryforwards which
expire primarily between 2000 and 2005 and minimum tax credits
which have no expiration. 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.
Capital Expenditures. Approximately $118.6 million was
spent in the first three months of 2000 for capital expenditures.
This total includes $94.2 million for the acquisition, drilling
or development of oil and gas properties, $16.6 million related
to the construction of an extensive gas gathering system, related
CO2 removal facilities and gas processing project all located in
the Powder River Basin of Wyoming, and $7.8 million for other
fixed assets.
Approximately $82.8 million was spent for capital
expenditures in the first quarter of 1999. This total includes
$69.9 million for the acquisition, drilling or development of oil
and gas properties, $12.1 million related to the construction of
the new gas pipeline and gathering system in Wyoming, and $0.8
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 quarter of
2000. Operating cash flow in the first quarter of 2000 was $181.4
million, compared to $57.1 million in the first quarter of 1999.
The increase in operating cash flow in the 2000 quarter was
primarily caused by the rise in revenues, partially offset by
increased expenses, as discussed earlier in this section.
Devon used its operating cash flow and excess cash on hand
at the beginning of 2000 to fund its capital expenditures and
reduce long-term debt by over $180 million during the first
quarter. As of May 9, 2000, Devon had approximately $383 million
available under its $750 million credit facilities.
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"). SFAS 133 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. A subsequent pronouncement, SFAS 137, was
issued in July 1999 which delayed the effective date of SFAS 133
until fiscal years beginning after June 15, 2000. Devon plans to
adopt the provision of SFAS 133 in the first quarter of the year
ending December 31, 2001, and is currently evaluating the effects
of this pronouncement.
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 1999 Annual
Report on Form 10-K 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 March 31, 2000, there have
been no material changes in Devon's market risk exposure from
that disclosed in the 1999 Form 10-K.
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
None
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.
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 2.1 to Registrant's Form S-
4, File No. 333-82903).
2.2 Amended and Restated Combination Agreement between the
Registrant and Northstar Energy Corporation dated as of June 29,
1998 (incorporated by reference to Annex B to Registrant's
definitive proxy statement for a special meeting of shareholders,
filed November 6, 1998).
3.1 Registrant's Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3 to Registrant's Form 8-K
filed on August 18, 1999).
3.2 Registrant's Bylaws (incorporated by reference to Exhibit
3.3 to Registrant's Registration Statement on Form S-4, File No.
333-82903 as filed on July 15, 1999).
4.1 Form of Common Stock Certificate (incorporated by reference
to Exhibit 4.1 to Registrant's Form 8-K filed on August 18,
1999).
4.2 Rights Agreement dated as of August 17, 1999 between
Registrant and BankBoston, N.A. (incorporated by reference to
Exhibit 4.2 to Registrant's Form 8-K filed on August 18, 1999).
4.3 Certificate of Designations of Series A Junior Participating
Preferred Stock of Registrant (incorporated by reference to
Exhibit 4.3 to Registrant's Form 8-K filed on August 18, 1999).
4.4 Certificate of Designations of the 6.49% Cumulative
Preferred Stock, Series A of Registrant (incorporated by
reference to Exhibit 4.4 to Registrant's Form 8-K filed on August
18, 1999).
4.5 Description of Capital Stock of Registrant (incorporated by
reference to Exhibit 4.9 to Registrant's Form 8-K filed on August
18, 1999).
4.6 Indenture dated as of December 15, 1992 between Registrant
(as successor by merger to PennzEnergy, as successor by merger to
Pennzoil Company) and Texas Commerce Bank National Association,
Trustee (incorporated by reference to Exhibit 4(o) to Pennzoil
Company's Form 10-K filed on March 10, 1993 (SEC File No. 1-
5591)).
4.7 Third Supplemental Indenture dated as of August 3, 1998 to
Indenture dated as of December 15, 1992 among Registrant (as
successor by merger to PennzEnergy) and Chase Bank of Texas,
National Association, setting forth the terms of the 4.90%
Exchangeable Senior Debentures due August 15, 2008 (incorporated
by reference to Exhibit 4(g) to PennzEnergy Company's 1998 Form
10-K filed on March 23, 1999.)
4.8 Fourth Supplemental Indenture dated as of August 3, 1998 to
Indenture dated as of December 15, 1992 among Registrant (as
successor by merger to PennzEnergy) and Chase Bank of Texas,
National Association, setting forth the terms of the 4.95%
Exchangeable Senior Debentures due August 15, 2008 (incorporated
by reference to Exhibit 4(g) to PennzEnergy Company's 1998 Form
10-K filed on March 23, 1999.)
4.9 Fifth Supplemental Indenture dated as of August 17, 1999 to
Indenture dated as of December 15, 1992 among Registrant (as
successor by merger to PennzEnergy) and Chase Bank of Texas,
National Association (incorporated by reference to Exhibit 4.7 to
Registrant's Form 8-K filed on August 18, 1999).
4.10 Indenture dated as of February 15, 1986 among Registrant (as
successor by merger to PennzEnergy) and Chase Bank of Texas,
National Association (incorporated by reference to Exhibit 4(a)
to Pennzoil Company's Form 10-Q filed on July 31, 1986 (SEC File
No. 1-5591).
4.11 First Supplemental Indenture dated as of August 17, 1999 to
Indenture dated as of February 15, 1986 among Registrant (as
successor by merger to PennzEnergy) and Chase Bank of Texas,
National Association (incorporated by reference to Exhibit 4.8 to
Registrant's Form 8-K filed on August 18, 1999).
4.12 Second Supplemental Indenture dated as of August 17, 1999 to
Indenture dated as of July 3, 1996 among the Registrant and The
Bank of New York, as Trustee and the First Supplemental Indenture
dated as of July 3, 1996 between the Registrant (as successor by
merger to PennzEnergy) and The Bank of New York, as Trustee,
relating to the issuance of 6.5% Trust Convertible Preferred
Junior Subordinated Debentures (incorporated by reference to
Exhibit 4.6 to Registrant's Form 8-K filed on August 18, 1999).
4.13 Amending Support Agreement dated as of August 17, 1999
between Registrant and Northstar Energy Corporation (incorporated
by reference to Exhibit 4.5 to Registrant's Form 8-K filed on
August 18, 1999).
4.14 Support Agreement, dated December 10, 1998, between the
Registrant and Northstar Energy Corporation (incorporated by
reference to Exhibit 4.1 to Devon Energy Corporation (Oklahoma)'s
(predecessor of Registrant) Form 8-K dated as of December 11,
1998).
4.15 Registration Rights Agreement, dated December 31, 1996, by
and between Registrant and Kerr-McGee Corporation (incorporated
by reference to Exhibit 4.4 to Devon Energy Corporation
(Oklahoma)'s (predecessor of Registrant) Form 8-K filed on
January 14, 1997).
4.16 Exchangeable Share Provisions (incorporated by reference to
Exhibit 4.2 to Devon Energy Corporation (Oklahoma)'s (predecessor
of Registrant) Form 8-K filed on December 23, 1998).
4.17 Amended Exchangeable Share Provisions dated as of August 17,
1999.
27 Financial Data Schedule (filed electronically only)
(b) Reports on Form 8-K - A Current Report on Form
8-K dated January 26, 2000, was filed by the Registrant
regarding year-end 1999 oil and gas reserves and 2000
forward-looking information.
<PAGE>
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: May 11, 2000 /s/Danny J. Heatly
Danny J. Heatly
Vice President - Accounting
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
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 *
2.2 Amended and Restated Combination Agreement between the
Registrant and Northstar Energy Corporation dated as of June 29,
1998 *
3.1 Registrant's Restated Certificate of Incorporation *
3.2 Registrant's Bylaws *
4.1 Form of Common Stock Certificate *
4.2 Rights Agreement dated as of August 17, 1999 between Registrant
and BankBoston, N.A. *
4.3 Certificate of Designations of Series A Junior Participating
Preferred Stock of Registrant. *
4.4 Certificate of Designations of the 6.49% Cumulative Preferred
Stock, Series A of Registrant *
4.5 Description of Capital Stock of Registrant *
4.6 Indenture dated as of December 15, 1992 between Registrant
(as successor by merger to PennzEnergy, successor by merger
to Pennzoil Company) and Texas Commerce Bank National
Association, Trustee *
4.7 Third Supplemental Indenture dated as of August 3, 1998 to
Indenture dated as of December 15, 1992 among Registrant
(as successor by merger to PennzEnergy) and Chase Bank of
Texas, National Association, setting forth the terms of the
4.90% Exchangeable Senior Debentures due August 15, 2008 *
4.8 Fourth Supplemental Indenture dated as of August 3, 1998 to
Indenture dated as of December 15, 1992 among Registrant
(as successor by merger to PennzEnergy) and Chase Bank of
Texas, National Association, setting forth the terms of the
4.95% Exchangeable Senior Debentures due August 15, 2008 *
4.9 Fifth Supplemental Indenture dated as of August 17, 1999 to
Indenture dated as of December 15, 1992 among Registrant
(as successor by merger to PennzEnergy) and Chase Bank of
Texas, National Association *
4.10 Indenture dated as of February 15, 1986 among Registrant
(as successor by merger to PennzEnergy) and Chase Bank of
Texas, National Association *
4.11 First Supplemental Indenture dated as of August 17, 1999 to
Indenture dated as of February 15, 1986 among Registrant
(as successor by merger to PennzEnergy) and Chase Bank of
Texas, National Association *
4.12 Second Supplemental Indenture dated as of August 17, 1999 to
Indenture dated as of July 3, 1996 among the Registrant and
The Bank of New York, as Trustee and the First Supplemental
Indenture dated as of July 3, 1996 between the Registrant (as
successor by merger to PennzEnergy) and The Bank of New York,
as Trustee, relating to the issuance of 6.5% Trust Convertible
Preferred Junior Subordinated Debentures *
4.13 Amending Support Agreement dated as of August 17, 1999
between Registrant and Northstar Energy Corporation *
4.14 Support Agreement, dated December 10, 1998, between the
Registrant and Northstar Energy Corporation *
4.15 Registration Rights Agreement, dated December 31, 1996, by
and between Registrant and Kerr-McGee Corporation *
4.16 Exchangeable Share Provisions *
4.17 Amended Exchangeable Share Provisions dated as of August 17,
1999 . *
27 Financial Data Schedule (filed electronically only)
* Incorporated by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 49788
<SECURITIES> 0
<RECEIVABLES> 228290
<ALLOWANCES> 0
<INVENTORY> 14787
<CURRENT-ASSETS> 313563
<PP&E> 5079686
<DEPRECIATION> 1917742
<TOTAL-ASSETS> 4561157
<CURRENT-LIABILITIES> 245141
<BONDS> 1602317
0652
1500
<COMMON> 8652
<OTHER-SE> 2105683
<TOTAL-LIABILITY-AND-EQUITY> 4561157
<SALES> 336346
<TOTAL-REVENUES> 347711
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 76313
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25276
<INCOME-PRETAX> 108180
<INCOME-TAX> 47093
<INCOME-CONTINUING> 61087
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61087
<EPS-BASIC> 0.68
<EPS-DILUTED> 0.67
</TABLE>
