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
OR
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1996
Commission File No. 1-10067
DEVON ENERGY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Oklahoma 73-1474008
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
20 North Broadway, Suite 1500
Oklahoma City, Oklahoma 73102
(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 August 9, 1996, was 22,130,896.
1 of 45 total pages
(Exhibit Index is found at page 29)
<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, June 30, 1996 (Unaudited),
Pro Forma June 30, 1996 (Unaudited) and December 31, 1995 4
Consolidated Statements of Operations (Unaudited),
For the Three Months and the Six Months Ended
June 30, 1996 and 1995 5
Consolidated Statements of Cash Flows (Unaudited),
For the Six Months Ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 23
2
<PAGE>
DEVON ENERGY CORPORATION
Part I. Financial Information
Item 1. Consolidated Financial Statements
June 30, 1996 and 1995
(Forming a part of Form 10-Q Quarterly Report
to the Securities and Exchange Commission)
3
<PAGE>
<TABLE>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
Pro Forma
June 30, June 30, December 31,
1996 1996 (Note 4) 1995
(Unaudited) (Unaudited)
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 14,133,116 4,148,116 8,897,891
Accounts receivable 16,817,937 16,817,937 14,400,295
Inventories 710,877 710,877 605,263
Prepaid expenses 1,002,257 1,002,257 222,135
Deferred income taxes 749,000 749,000 749,000
Total current assets 33,413,187 23,428,187 24,874,584
Property and equipment, at cost, based on
the full cost method of accounting for
oil and gas properties 672,429,250 672,429,250 631,437,904
Less: Accumulated depreciation,
depletion and amortization 259,816,341 259,816,341 239,619,167
412,612,909 412,612,909 391,818,737
Other assets 4,584,200 9,569,200 4,870,796
Total assets $450,610,296 445,610,296 421,564,117
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable:
Trade 3,796,782 4,296,782 3,868,458
Revenues and royalties due to others 5,730,893 5,730,893 7,322,418
Income taxes payable 1,823,503 1,823,503 1,364,070
Accrued expenses 2,641,020 2,641,020 3,003,943
Total current liabilities 13,992,198 14,492,198 15,558,889
Revenues and royalties due to others 1,046,668 1,046,668 816,412
Other liabilities 9,388,334 9,388,334 8,623,057
Long-term debt 155,000,000 - 143,000,000
Deferred revenue 40,002 40,002 72,761
Deferred income taxes 40,941,000 40,941,000 34,452,000
Company-obligated mandatorily redeemable
convertible preferred securities of
Devon Financing Trust holding solely
6.5% convertible junior subordinated
debentures of Devon Energy Corporation
(note 4) - 149,500,000 -
Stockholders' equity:
Preferred stock of $1.00 par value.
Authorized 3,000,000 shares; none
issued - - -
Common stock of $.10 par value.
Authorized 120,000,000 shares; issued
22,130,896 in 1996 and 22,111,896 in
1995 2,213,090 2,213,090 2,211,190
Additional paid-in capital 167,587,572 167,587,572 167,430,347
Retained earnings 60,401,432 60,401,432 49,399,461
Total stockholders' equity 230,202,094 230,202,094 219,040,998
Total liabilities and stockholders'
equity $450,610,296 445,610,296 421,564,117
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Revenues
<S> <C> <C> <C> <C>
Oil sales $19,507,458 14,376,088 35,652,252 26,365,389
Gas sales 14,212,694 9,552,692 28,834,328 19,452,697
Natural gas liquids sales 3,023,069 1,403,186 5,990,870 3,033,448
Other 555,392 318,368 869,223 561,127
Total revenues 37,298,613 25,650,334 71,346,673 49,412,661
Costs and expenses
Lease operating expenses 7,755,074 6,553,363 15,173,253 13,318,684
Production taxes 2,345,996 1,557,222 4,487,913 3,233,678
Depreciation, depletion and
amortization 10,461,179 9,600,192 20,588,163 19,059,444
General and administrative
expenses 2,389,052 2,053,044 4,524,950 4,389,814
Interest expense 2,460,924 1,743,091 4,942,080 3,526,817
Total costs and expenses 25,412,225 21,506,912 49,716,359 43,528,437
Earnings before income taxes 11,886,388 4,143,422 21,630,314 5,884,224
Income tax expense
Current 1,545,00 235,000 2,812,000 235,000
Deferred 3,566,000 1,464,000 6,489,000 2,178,000
Total income tax expense 5,111,000 1,699,000 9,301,000 2,413,000
Net earnings $ 6,775,388 2,444,422 12,329,314 3,471,224
Net earnings per average common
share outstanding $0.31 0.11 0.56 0.16
Weighted average common shares
outstanding 22,121,786 22,052,149 22,117,138 22,051,576
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months
Ended June 30,
1996 1995
Cash flows from operating activities
<S> <C> <C>
Net earnings $12,329,314 3,471,224
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, depletion and amortization 20,588,163 19,059,444
(Gain) loss on sale of assets (39,011) (26,763)
Deferred income taxes 6,489,000 2,178,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (2,417,642) (1,774,987)
Inventories 20,679 (15,169)
Prepaid expenses (780,122) (766,532)
Other assets 212,027 624,327
Increase (decrease) in:
Accounts payable (1,850,332) (1,324,500)
Income taxes payable 459,433 -
Accrued expenses (362,923) (168,555)
Revenues and royalties due to others 230,256 -
Long-term other liabilities 232,507 -
Deferred revenue (32,759) 6,296,937
Net cash provided by operating activities 35,078,590 27,553,426
Cash flows from investing activities
Proceeds from sale of property and equipment 1,435,378 1,460,712
Increase in deposits - 11,521,923
Capital expenditures (42,643,295) (33,440,872)
Payments made for acquisitions of business - (2,391,484)
Net cash used in investing activities (41,207,917) (22,849,721)
Cash flows from financing activities
Proceeds from borrowings on revolving lines of credit 16,000,000 4,000,000
Principal payments on revolving line of credit (4,000,000) (7,000,000)
Issuance of common stock 159,125 90,032
Dividends paid on common stock (1,327,343) (1,323,084)
Increase in long-term other liabilities 532,770 -
Net cash provided (used) by financing activities 11,364,552 (4,233,052)
Net increase in cash and cash equivalents 5,235,225 470,653
Cash and cash equivalents at beginning of period 8,897,891 8,336,371
Cash and cash equivalents at end of period $ 14,133,116 8,807,024
See accompanying notes to consolidated financial statements.
</TABLE>
6
<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 pursuant to such
rules and regulations. The accompanying consolidated financial
statements and notes thereto should be read in conjunction with
the consolidated financial statements and notes included in
Devon's 1995 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 June 30,
1996, and the results of their operations and their cash flows
for the three month and six month periods ended June 30, 1996 and
1995.
2. San Juan Basin Transaction
Effective January 1, 1995, Devon and an unrelated
company entered into a transaction covering substantially all of
Devon's San Juan Basin coal seam gas properties (the "San Juan
Basin Transaction"). This transaction is more fully described in
Devon's 1995 annual report on Form 10-K.
The San Juan Basin Transaction was initially
subject to a material contingency, and thus the transaction's
impact on Devon's operating statement was deferred pending the
contingency's resolution. In October 1995, the contingency was
favorably resolved, and therefore the transaction's cumulative
effect for the first nine months of 1995 was recorded in the
third quarter of 1995. Had the contingency not been in effect,
and had the results of the transaction not been deferred, the
following results would have been reported for the quarter and
six months ended June 30, 1995.
7
<PAGE>
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1995 1995
Revenues
<S> <C> <C>
Oil sales $14,376,088 26,365,389
Gas sales 12,514,441 25,373,648
Natural gas liquids sales 1,403,186 3,033,448
Other 318,368 636,177
Total revenues 28,612,083 55,408,662
Costs and expenses
Lease operating expenses 6,541,209 13,292,588
Production taxes 1,540,141 3,197,148
Depreciation, depletion and
amortization 9,398,067 18,640,637
General and administrative expenses 2,053,044 4,389,814
Interest expense 1,743,091 3,526,817
Total costs and expenses 21,275,552 43,047,004
Earnings before income taxes 7,336,531 12,361,658
Income tax expense
Current 1,541,000 2,596,000
Deferred 1,614,000 2,720,000
Total income tax expense 3,155,000 5,316,000
Net earnings $4,181,531 7,045,658
Net earnings per average common share
outstanding $.19 .32
</TABLE>
3. Interest Rate Swap Agreement
Devon entered into an interest rate swap
agreement in June, 1995, to hedge the impact of interest rate
changes on a portion of its long-term debt. The principal amount
of the swap agreement was $75 million, and the other party to the
agreement was one of the lenders in Devon's credit lines. The
swap agreement was accounted for as a hedge. The swap increased
Devon's interest expense in the second quarter by $34,000, and
reduced interest expense by $1,000 in the first half of 1996.
On July 1, 1996, Devon terminated the interest
rate swap for a gain of $802,000. This gain will be recognized
ratably as a reduction to interest expense for the period from
July 1, 1996 to June 16, 1998 (the original expiration date of
the swap).
8
<PAGE>
4. Subsequent Event - Issuance of Trust Convertible
Preferred Securities
On July 10, 1996, Devon, through its newly-formed
affiliate Devon Financing Trust, completed the issuance of $149.5
million of 6.5% trust convertible preferred securities (the "TCP
Securities") in a private placement. Devon Financing Trust
issued 2,990,000 shares of the TCP Securities at $50 per share.
Each TCP Security is convertible at the holder's option into
1.6393 shares of Devon common stock, which equates to a
conversion price of $30.50 per share of Devon common stock.
Devon Financing Trust invested the $149.5 million
of proceeds in 6.5% convertible junior subordinated debentures of
Devon (the "Convertible Debentures"). In turn, Devon used the
net proceeds from the issuance of the Convertible Debentures to
retire debt outstanding under its credit lines.
The sole assets of Devon Financing Trust are the
Convertible Debentures, which mature on June 15, 2026. Devon may
redeem the Convertible Debentures, in whole or in part, on or
after June 18, 1999. For the first twelve months thereafter,
redemptions may be made at 104.55% of the principal amount. This
premium declines proportionally every twelve months until June
15, 2006, when the redemption price becomes fixed at 100% of the
principal amount. If Devon redeems any Convertible Debentures
prior to the scheduled maturity date, Devon Financing Trust must
redeem TCP Securities having an aggregate liquidation amount
equal to the aggregate principal amount of Convertible Debentures
so redeemed. The outstanding TCP Securities will be redeemed
when the Convertible Debentures mature on June 15, 2026.
Devon has guaranteed the payments of
distributions and other payments on the TCP Securities only if
and to the extent that Devon Financing Trust has funds available
there for. Such guarantee, when taken together with Devon's
obligations under the Convertible Debentures and related
indenture and declaration of trust, provide a full and
unconditional guarantee of amounts due on the TCP Securities.
Devon owns all the common securities of Devon
Financing Trust. As such, the accounts of Devon Financing Trust
will be included in Devon's consolidated financial statements
after appropriate eliminations of intercompany balances. The TCP
Securities will be presented as a separate line item in Devon's
consolidated balance sheet, and the distributions on the TCP
Securities will be recorded as a charge to earnings on Devon's
consolidated statements of operations. The distributions are
deductible for income tax purposes.
Included with the accompanying consolidated
balance sheets is a pro forma balance sheet as of June 30, 1996,
presented as if the TCP Securities had been issued on such date.
The pro forma balance sheet includes an additional $5 million of
other assets which represents the costs incurred in the TCP
Securities offering. These costs will be charged to expense over
the life of the TCP Securities. The pro forma balance sheet also
reflects the additional retirement of $10.0 million of long-term
debt during July 1996. The cash used for this debt payment was
provided by operating activities.
9
<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 and six
months ended June 30, 1996, compared to the three months and six
months ended June 30, 1995, and in financial condition since
December 31, 1995. It is presumed that readers have read or have
access to Devon's 1995 annual report on Form 10-K.
Overview
Devon produced a record quantity of 2.7 million
barrels of oil equivalent of oil, gas and natural gas liquids
("NGL") in the second quarter of 1996. The higher production,
combined with higher prices, produced revenues of $37.3 million
for the 1996 quarter, which was also a record. The 1996 second
quarter revenues of $37.3 million were up 45% compared to the
1995 second quarter revenues of $25.7 million. Revenues for the
first six months of 1996 were $71.3 million, a 44% increase over
the 1995 first half revenues of $49.4 million.
Oil and NGL volumes were up significantly for
both the quarter and year-to-date periods of 1996, while gas
production was down slightly. The continued development of the
Grayburg-Jackson Field and the acquisition of the Worland
Properties were the primary reasons for the increased oil and NGL
production.
Prices for oil, gas and NGL were all up
significantly for both the 1996 quarter and six-month periods.
Gas prices were especially helped by the effect of the San Juan
Basin Transaction. This transaction added $0.60 per Mcf to
Devon's coal seam gas average price, and added approximately
$0.30 per Mcf to Devon's total gas price in the 1996 periods.
Although this transaction was effective January 1, 1995, a
contingency, which was not resolved until the third quarter of
1995, delayed the recognition of the transaction's benefits.
Therefore, no operating statement benefit from the transaction
was recognized until the third quarter of 1995.
Devon's cash expenses (i.e., all expenses other
than the non-cash expenses of depreciation, depletion and
amortization and deferred income tax expense) also rose in the
1996 quarter and year-to-date periods. However, such increases
were at smaller rates than the increases in revenues. Cash
expenses increased by 36% for the quarter and 29% for the first
half of the year. Revenues increased by 45% and 44% in these
<F1>
same periods. As a result, cash margins1 increased
<F1>
1 "Cash margin" equals Devon's total revenues less cash expenses as
defined above. Cash margin is an indicator which is commonly used by
the investment community in the oil and gas industry. This margin
measures the net cash which is generated by a company's operations
during a given period, without regard to the period such cash is
actually physically received or spent by the company. This margin
ignores the non-operational effects on a company's "net cash provided
by operating activities", as measured by generally accepted accounting
principles, from a company's activities as an operator of oil and gas
wells. Such activities produce net increases or decreases in temporary
cash funds held by the operator which have no effect on net earnings
of the company. Cash margin should be used as a supplement to, and not
as a substitute for, net earnings and net cash provided by operating
activities (as disclosed in the consolidated financial statements)
in analyzing Devon's results of operations and liquidity.
10
<PAGE>
substantially in the 1996 periods. Cash margin for the second
quarter of 1996 was $20.8 million, an increase of 54% over the
1995 second quarter cash margin of $13.5 million. For the first
six months of 1996, cash margin was $39.4 million, an increase of
59% over the cash margin of $24.7 million for the same period in
1995. (Had the effects of the San Juan Basin Transaction been
recognized in the 1995 periods, the cash margins would have been
$15.2 million for the second quarter and $28.4 million for the
first half of the year.)
Devon's non-cash expenses increased by $3.0
million, or 27%, in the second quarter of 1996, and increased by
$5.8 million, or 27%, in the first half of 1996. The increases
in these expenses were caused primarily by increases in deferred
income tax expense. The deferred income tax expense in the 1996
periods was higher due to higher pre-tax earnings generated
compared to the 1995 periods.
The increases in cash margin, offset slightly by
the increases in non-cash expenses, resulted in substantial
increases in net earnings and net earnings per share ("EPS") in
the 1996 periods. Net earnings and EPS for the 1996 quarter were
$6.8 million and $0.31, respectively, compared to $2.4 million
and $0.11 in the 1995 quarter. Net earnings and EPS for the
first half of 1996 were $12.3 million and $0.56, compared to $3.5
million and $0.16 in the first half of 1995. (Had the effect of
the San Juan Basin Transaction been recognized in the 1995
periods, net earnings for the quarter and six months would have
been $4.2 million and $7.0 million, respectively. EPS for the
1995 periods would have been $0.19 for the quarter and $0.32 for
the six months.)
In July 1996, Devon, through a newly-formed
affiliate, completed the issuance of $149.5 million of trust
convertible preferred securities. The net proceeds from the
offering, along with cash on hand, were used to completely retire
the $155 million of debt outstanding under Devon's credit lines.
As a result, Devon now has all $260 million of its credit lines
available for future use.
11
<PAGE>
Results of Operations
Combined oil, gas and NGL revenues increased by
45% for the second quarter of 1996, and 44% for the first half of
1996. The relative contributions of production and price
changes, both with and without the effect of the San Juan Basin
Transaction in 1995's results, are shown below.
<TABLE>
<F1>
<F1>
<CAPTION>
Actual Reported Results (1) Actual Reported Results (1)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 Change 1996 1995 Change
Production
<S> <C> <C> <C> <C> <C> <C>
Oil (Bbls) 956,663 822,891 +16% 1,831,178 1,541,135 +19%
Gas (Mcf) 8,830,714 9,374,203 -6% 17,814,336 19,355,504 -8%
NGL (Bbls) 222,942 133,192 +67% 450,535 271,881 +66%
Oil, Gas and NGL
<F3>
(Boe)3 2,651,391 2,518,450 +5% 5,250,769 5,038,933 +4%
Average Prices
Oil (Per Bbl) $20.39 17.47 +17% 19.47 17.11 +14%
Gas (Per Mcf) $1.61 1.02 +58% 1.62 1.01 +60%
NGL (Per Bbl) $13.56 10.54 +29% 13.30 11.16 +19%
Oil, Gas and NGL
<F3>
(Per Boe)3 $13.86 10.06 +38% 13.42 9.69 +38%
Revenues
Oil $19,507,458 14,376,088 +36% 35,652,252 26,365,389 +35%
Gas 14,212,694 9,552,692 +49% 28,834,328 19,452,697 +48%
NGL 3,023,069 1,403,186 +115% 5,990,870 3,033,448 +97%
Combined $36,743,221 25,331,966 +45% 70,477,450 48,851,534 +44%
<CAPTION>
<F2>
<F2>
Adjusted Results (2) Adjusted Results (2)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 Change 1996 1995 Change
Production
Oil (Bbls) 956,663 822,891 +16% 1,831,178 1,541,135 +19%
Gas (Mcf) 8,830,714 9,073,361 -3% 17,814,336 18,730,872 -5%
NGL (Bbls) 222,942 133,192 +67% 450,535 271,881 +66%
Oil, Gas and
<F3>
NGL (Boe)3 2,651,391 2,468,310 +7% 5,250,769 4,934,828 +6%
Average Prices
Oil (Per Bbl) $20.39 17.47 +17% 19.47 17.11 +14%
Gas (Per Mcf) $1.61 1.38 +17% 1.62 1.35 +20%
NGL (Per Bbl) $13.56 10.54 +29% 13.30 11.16 +19%
Oil, Gas and NGL
<F3>
(Per Boe)3 $13.86 11.46 +21% 13.42 11.10 +21%
Revenues
Oil $19,507,458 14,376,088 +36% 35,652,252 26,365,389 +35%
Gas 14,212,694 12,514,441 +14% 28,834,328 25,373,648 +14%
NGL 3,023,069 1,403,186 +115% 5,990,870 3,033,448 +97%
Combined $36,743,221 28,293,715 +30% 70,477,450 54,772,485 +29%
12
<PAGE>
<F1>
1 The 1995 columns in these tables reflect the results actually
reported in the second quarter and the first half of 1995.
These figures do not include the effect of the San Juan Basin
Transaction. This transaction was effective January 1, 1995,
but recognition of the financial effects of the transaction on
Devon's operations was deferred until the third quarter of 1995
when a significant contingency was favorably resolved. The
cumulative nine-month effect of the San Juan Basin Transaction
was recorded entirely in the third quarter of 1995.
<F2>
2 The 1995 columns in these tables present the results of the
second quarter and the first half of 1995 which would have been
reported if there had been no contingency at the time the San
Juan Basin Transaction was executed.
<F3>
3 Gas is converted to barrels of oil equivalent ("Boe") at the
rate of six Mcf 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, gas and
NGL prices. The respective prices of these products are
affected by market and other factors in addition to relative
energy content.
</TABLE>
Oil Revenues. Oil revenues increased by $5.1 million,
or 36%, in the second quarter of 1996. Production gains of
134,000 barrels, or 16%, added $2.3 million of oil revenues in
the 1996 period. An increase in the average price of $2.92 per
barrel in the 1996 quarter added the remaining $2.8 million of
increased oil revenues.
Approximately 87% of the production gains were from the
Grayburg-Jackson Field acquired in May 1994. As Devon's
development of this field has progressed, more wells have come on
line and the initial stage of a waterflood has begun since the
second quarter of 1995. The Grayburg-Jackson Field produced
approximately 307,000 barrels in the second quarter of 1996.
This is an increase of 116,000 barrels, or 61%, compared to the
191,000 barrels produced in the second quarter of 1995.
Oil revenues increased by $9.3 million, or 35%, in the
first half of 1996. Production gains of 290,000 barrels, or 19%,
added $5.0 million of oil revenues in the 1996 period. An
increase in the average price of $2.36 per barrel in 1996 added
the remaining $4.3 million of increased oil revenues.
The Grayburg-Jackson Field also accounted for the
majority of the increased production in the first six months of
1996. This field produced approximately 576,000 barrels in the
first half of 1996. This is an increase of 255,000 barrels, or
79%, compared to the 321,000 barrels produced in the first six
months of 1995.
Gas Revenues. Gas revenues increased by $4.7 million,
or 49%, in the second quarter of 1996. An increase in the
average gas price of $0.59 per Mcf, or 58%, added $5.2 million to
gas sales in the second quarter of 1996. This was partially
offset by a $0.5 million reduction from a drop in gas production
of 0.5 Bcf, or 6%. The San Juan Basin Transaction added $2.6
million to 1996's second quarter gas sales, which resulted in an
increase of $0.29 per Mcf in Devon's total gas price. As
discussed previously, the effects of this transaction on 1995's
results were not recorded until the third quarter of that year.
Therefore, 1995's second quarter results as reported in the
consolidated financial statements do not include any effect of
the San Juan Basin Transaction. As shown in the above tables, if
13
<PAGE>
the effects of this transaction had been recorded in the second
quarter of 1995, gas sales for the second quarter of 1996 would
have exceeded gas sales for the second quarter of 1995 by $1.7
million.
Coal seam gas averaged $1.33 per Mcf in the second
quarter of 1996 compared to $0.70 per Mcf in the same quarter of
1995. The San Juan Basin Transaction added $0.60 per Mcf to the
1996 average price. The average price for conventional gas in
the second quarter of 1996 was $1.88 per Mcf. This compares to
1995's second quarter average for conventional gas of $1.47 per
Mcf.
Coal seam gas production in 1996's second quarter was
4.3 Bcf, which was down 1.2 Bcf from the 5.5 Bcf produced in the
second quarter of 1995. Approximately 0.3 Bcf of such decrease
was due to the fact that a small portion of Devon's coal seam gas
interest was sold as part of the San Juan Basin Transaction. The
effect of this sale is reflected in 1996's production quantities,
but the effect on the second quarter of 1995 was not recorded
until the third quarter as previously discussed.
Conventional gas production increased by 0.6 Bcf from
3.9 Bcf in 1995's second quarter to 4.5 Bcf in the second quarter
of 1996. The additional interests in the Worland Properties
which were acquired in December 1995 and the first half of 1996
added 0.6 Bcf to 1996's second quarter production.
Gas revenues increased by $9.4 million, or 48%, in the
first half of 1996. An increase in the average gas price of
$0.61 per Mcf, or 60%, added $10.9 million to gas sales in the
first half of 1996. This was partially offset by a $1.5 million
reduction from a drop in gas production of 1.5 Bcf, or 8%. The
San Juan Basin Transaction added $5.4 million to 1996's first
half gas sales, which resulted in an increase of $0.30 per Mcf in
Devon's total gas price. As discussed previously, the effects of
this transaction on 1995's results were not recorded until the
third quarter of that year. Therefore, 1995's first half results
as reported in the consolidated financial statements do not
include any effect of the San Juan Basin Transaction. As shown
in the above tables, if the effects of this transaction had been
recorded in the first half of 1995, gas sales for the first six
months of 1996 would have exceeded gas sales for the first six
months of 1995 by $3.5 million.
Coal seam gas averaged $1.36 per Mcf in the first half
of 1996 compared to $0.73 per Mcf in the same period of 1995.
The San Juan Basin Transaction added $0.60 per Mcf to the 1996
average price. The average price for conventional gas production
in the first half of 1996 was $1.88 per Mcf. This compares to
1995's first half average for conventional gas production of
$1.40 per Mcf.
Coal seam gas production in 1996's first six months was
9.0 Bcf, which was down by 2.4 Bcf from the 11.4 Bcf produced in
the first half of 1995. Approximately 0.6 Bcf of such decrease
was due to the fact that a small portion of Devon's coal seam gas
interest was sold as part of the San Juan Basin Transaction. The
14
<PAGE>
effect of this sale is reflected in 1996's production quantities,
but the effect on the first half of 1995 was not recorded until
the third quarter as previously discussed.
Conventional gas production increased by 0.8 Bcf from
8.0 Bcf in 1995's first half to 8.8 Bcf in the first six months
of 1996. The additional interests in the Worland Properties
which were acquired in December 1995 and the first half of 1996
added 1.1 Bcf to 1996's first half conventional production.
NGL Revenues. NGL revenues increased by $1.6 million,
or 115%, in the second quarter of 1996. An increase in
production of 90,000 barrels, or 67%, added $0.9 million to the
1996 revenues. The additional interests acquired in the Worland
Properties accounted for 57,000 barrels of the increase. The
remaining $0.7 million of increase in NGL revenues was caused by
a price increase of $3.02 per barrel, or 29%.
NGL revenues increased by $3.0 million, or 97%, in the
first half of 1996. An increase in production of 179,000
barrels, or 66%, added $2.0 million to the 1996 revenues. The
additional interests acquired in the Worland Properties accounted
for 110,000 barrels of the increase. The remaining $1.0 million
of increase in NGL revenues in the first half of 1996 was caused
by a price increase of $2.14 per barrel, or 19%.
15
<PAGE>
Production and Operating Expenses. Components of
production and operating expenses in the second quarter and first
half of 1996 increased or decreased compared to 1995 as shown in
the tables below.
<TABLE>
<CAPTION>
<F1>
<F1>
Actual Reported Results(1) Actual Reported Results (1)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 Change 1996 1995 Change
Absolute
Recurring operations and
<S> <C> <C> <C> <C> <C> <C>
maintenance expenses $ 6,833,763 5,578,820 +22% 13,380,005 11,168,811 +20%
Well workover expenses 921,311 974,543 -5% 1,793,248 2,149,873 -17%
Production taxes 2,345,996 1,557,222 +51% 4,487,913 3,233,678 +39%
Total production and
operating expenses $10,101,070 8,110,585 +25% 19,661,166 16,552,362 +19%
Per Boe
Recurring operations and
maintenance expenses $2.58 2.21 +17% 2.55 2.21 +15%
Well workover expenses 0.35 0.39 -10% 0.34 0.43 -21%
Production taxes 0.88 0.62 +42% 0.85 0.64 +33%
Total production and
operating expenses $3.81 3.22 +18% 3.74 3.28 +14%
<CAPTION>
<F2>
<F2>
Adjusted Results(2) Adjusted Results (2)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 Change 1996 1995 Change
Absolute
Recurring operations and
maintenance expenses $ 6,833,763 5,566,666 +23% 13,380,005 11,142,715 +20%
Well workover expenses 921,311 974,543 -5% 1,793,248 2,149,873 -17%
Production taxes 2,345,996 1,540,141 +52% 4,487,913 3,197,148 +40%
Total production and
operating expenses $10,101,070 8,081,350 +25% 19,661,166 16,489,736 +19%
Per Boe
Recurring operations and
maintenance expenses $2.58 2.26 +14% 2.55 2.26 +13%
Well workover expenses 0.35 0.39 -10% 0.34 0.43 -21%
Production taxes 0.88 0.62 +42% 0.85 0.65 +31%
Total production and
operating expenses $3.81 3.27 +17% 3.74 3.34 +12%
<F1>
1 The 1995 columns in these tables reflect the results actually
reported in the second quarter and the first half of 1995.
These figures do not include the effect of the San Juan Basin
Transaction. This transaction was effective January 1, 1995,
but recognition of the financial effects of the transaction on
Devon's operations was deferred until the third quarter of 1995
when a significant contingency was favorably resolved. The
cumulative nine-month effect of the San Juan Basin Transaction
was recorded entirely in the third quarter of 1995.
<F2>
2 The 1995 columns in these tables present the results of the
second quarter and the first half of 1995 which would have been
reported if there had been no contingency at the time the San
Juan Basin Transaction was executed.
</TABLE>
16
<PAGE>
Recurring operations and maintenance expenses
increased by $1.3 million, or 22%, in the second quarter of 1996.
The additional interests acquired in the Worland Properties
accounted for $0.7 million of the increase. Also, as Devon has
continued development of the properties acquired in the May 1994
merger, most notably the Grayburg-Jackson Field, more wells have
come on line during the twelve months ended June 30, 1996.
Therefore, the recurring expenses incurred on these properties
increased by $0.3 million in the second quarter of 1996 compared
to the same quarter in 1995.
Production taxes increased by $0.8 million, or
51%, in 1996's second quarter. This increase was primarily due
to the increase in combined oil, gas and NGL revenues. Excluding
the revenues generated by the San Juan Basin transaction which
are not subject to production taxes, revenues in the second
quarter of 1996 were up by 35% compared to the second quarter of
1995.
On a per unit of production basis, the recurring
expenses per Boe were up by $0.37 per Boe, or 17%, in the second
quarter of 1996. This was primarily due to the increase in
Devon's mix of oil/gas production toward more oil production. Of
Devon's total Boe production in the second quarter of 1996, 36%
was oil production compared to 33% in the second quarter of 1995.
Oil wells are generally more expensive to operate on a unit of
production basis. However, oil wells also produce more revenues
per unit of production than gas wells.
Production taxes per unit of production increased
by $0.26 per Boe, or 42%, in the second quarter of 1996. This
was primarily caused by the increase in the average price per Boe
received in the 1996 quarter. Excluding the effect on the 1996
average price from the San Juan Basin Transaction, Devon's total
revenues per Boe increased by 28% in the second quarter of 1996.
Recurring operations and maintenance expenses
increased by $2.2 million, or 20%, in the first half of 1996.
The additional interests acquired in the Worland Properties
accounted for $1.2 million of the increase. The recurring
expenses incurred on the properties acquired in the May 1994
merger, most notably the Grayburg-Jackson Field, increased by
$0.5 million in the first half of 1996 compared to the first six
months in 1995.
Production taxes increased by $1.3 million, or
39%, in 1996's first six months. This increase was primarily due
to the increase in combined oil, gas and NGL revenues. Excluding
the revenues generated by the San Juan Basin transaction which
are not subject to production taxes, revenues in the first half
of 1996 were up by 33% compared to the first half of 1995.
On a unit of production basis, the recurring
expenses per Boe were up by $0.34 per Boe, or 15%, in the first
half of 1996. As discussed above in the analysis of the
quarterly results, this increase in the first six months of 1996
was primarily due to the shift toward a higher percentage of oil
production. Of Devon's total Boe production in the first half of
1996, 35% was oil compared to 31% in the first half of 1995.
Production taxes per unit of production increased
by $0.21 per Boe, or 33%, in the first half of 1996. This was
primarily caused by the increase in the average price per Boe
received in the first six months of 1996. Excluding the effect
17
<PAGE>
on the 1996 average price from the San Juan Basin Transaction,
Devon's total revenues per Boe increased by 28% in the first half
of 1996.
Depreciation, Depletion and Amortization Expenses
("DD&A"). Oil and gas property related DD&A increased by $0.7
million, or 8%, from $9.3 million in the second quarter of 1995
to $10.0 million in the second quarter of 1996. The increase in
total oil, gas and NGL production of 133,000 Boe, or 5%,
accounted for $0.5 million of the increase. The remaining $0.2
million increase was caused by a 3% increase in the DD&A rate
from $3.68 per Boe in the second quarter of 1995 to $3.78 per Boe
in the second quarter of 1996.
Oil and gas property related DD&A increased by
$1.3 million, or 7%, from $18.4 million in the first half of 1995
to $19.7 million in the first half of 1996. The increase in
total oil, gas and NGL production of 212,000 Boe, or 4%,
accounted for $0.8 million of the increase. The remaining $0.5
million increase was caused by a 3% increase in the DD&A rate
from $3.65 per Boe in the first six months of 1995 to $3.76 per
Boe in the first half of 1996.
General and Administrative Expenses ("G&A"). G&A
increased $0.3 million, or 16%, in the second quarter of 1996.
The primary reason for the increase was a change in the second
quarter of 1995 in the method used to calculate overhead
reimbursements on certain properties operated by Devon. This
change, which was retroactive to the prior two years, reduced G&A
in the second quarter of 1995 by $0.2 million.
G&A increased $0.1 million, or 3%, in the first
half of 1996. As described in the above paragraph, the
retroactive change in the second quarter of 1995 regarding
overhead reimbursements caused a $0.2 million reduction in G&A
for the first half of 1995. Excluding the effect of this change,
G&A for the first half of 1996 was $0.1 million lower than the
first half of 1995.
Interest Expense. Interest expense increased by
$0.7 million, or 41%, in the second quarter of 1996. The average
debt balance outstanding rose from $93.9 million in the second
quarter of 1995 to $152.4 million in the second quarter of 1996.
This increase in average debt, which was primarily due to the
funds borrowed to acquire the Worland Properties, caused interest
expense in the 1996 quarter to increase by $1.1 million. This
increase was partially offset by a $0.4 million decrease due to
lower interest rates in the 1996 quarter. The annualized
interest rate on the debt outstanding in the 1996 quarter was
6.1%, compared to 6.7% in the second quarter of 1995. The
overall average interest rate (including the effect of various
fees paid to the banks and the amortization of certain loan
costs) during 1996's second quarter was 6.5%, compared to an
overall rate in the second quarter of 1995 of 7.4%.
Interest expense increased by $1.4 million, or
40%, in the first half of 1996. The average debt balance
outstanding rose from $94.3 million in the first six months of
1995 to $151.1 million in the first half of 1996, primarily due
to the acquisition of the Worland Properties. The increase in
the average debt balance caused interest expense in the first
half of 1996 to increase by $2.1 million. This increase was
partially offset by a $0.7 million decrease due to lower interest
rates in 1996. The annualized interest rate on the debt
outstanding in the first half of 1996 was 6.2%, compared to 6.8%
in the first half of 1995. The overall average interest rate
during the first half of 1996 was 6.6%, compared to an overall
rate in the first six months of 1995 of 7.5%.
18
<PAGE>
Devon entered into an interest rate swap
agreement in the second quarter of 1995, and terminated the
agreement on July 1, 1996 for a gain of $0.8 million. This gain
will be recognized ratably in Devon's operating results as a
reduction to interest expense during the period from July 1, 1996
to June 16, 1998 (the original expiration date of the swap
agreement).
Income Taxes. During interim periods, income tax
expense is based on the estimated effective tax rate which is
expected for the entire fiscal year. The estimated effective tax
rate in the second quarter and first half of 1996 was 43%,
compared to 41% in the second quarter and first half of 1995.
The increase in the 1996 rate was due to the San Juan Basin
Transaction. The 41% rate estimated in 1995 was without the
effect of such transaction, which was not recorded until the
third quarter of 1995. After this transaction was recorded, the
1995 effective financial income tax rate was 43%, the same as the
rate currently estimated for 1996.
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.
Approximately $14.0 million of deferred tax
assets were included in the net deferred tax liability as of June
30, 1996. Of this amount, $6 million is for net operating loss
carryforwards which expire between 1996 and 2008. The remaining
$8 million of carryforward benefits relate to depletion and
minimum tax credit carryforwards which do not have expiration
dates.
To assess the likelihood of realizing tax
benefits from the future utilization of these carryforwards,
management considered four primary factors: (1) estimates of
future yearly taxable income which Devon is expected to generate;
(2) the level of future taxable income necessary to utilize the
carryforwards; (3) the expiration dates, if any, of such
carryforwards, and (4) certain limitations on the annual
utilization of the carryforwards as set forth by federal tax
regulations.
Based upon current estimates of future production
and average prices, management believes that taxable income
during the carryforward periods will be sufficient to utilize
substantially all of the carryforwards currently available.
Devon expects the tax benefits from its net operating loss
carryforwards to be utilized between 1996 and 2002. This is well
before the 2006 expiration date for the majority of such
benefits. However, based upon limitations imposed on the
utilization of certain of the depletion carryforwards acquired in
a 1994 merger, a $100,000 valuation allowance has been provided
since such merger.
Management's assessment of the future utilization
of Devon's deferred tax assets is based upon current estimates of
taxable income to be generated in 1996 and beyond. Significant
changes in such estimates from variables such as future oil and
gas prices or capital expenditures could alter the timing of the
eventual utilization of such assets. There can be no assurance
that Devon will generate any specific level of continuing taxable
earnings.
19
<PAGE>
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 elsewhere herein.
Capital Expenditures. Cash used for capital
expenditures increased by 28% from $33.4 million in the first
half of 1995 to $42.6 million in the first half of 1996.
Approximately $42.2 million was spent in the 1996 period for
acquisitions, exploration and development costs, compared to
$32.6 million in the 1995 period. Drilling and development costs
on the Grayburg-Jackson Field totaled $12.6 million in the first
six months of 1996 compared to $16.0 million in the first half of
1995. The 1996 capital expenditures also included $7.1 million
to acquire additional interests in the Worland Properties.
Capital Resources and Liquidity. Net cash
provided by operating activities ("operating cash flow")
continued to be the primary source of capital and liquidity
during the first half of 1996. Operating cash flow was $35.1
million in the first half of 1996, compared to $27.6 million in
the first half of 1995.
Devon's credit lines were also a source of
capital and liquidity in the first half of 1996. The total debt
outstanding at the end of the second quarter of 1996 was $155
million, up from $143 million at the beginning of 1996. In early
July 1996, the $155 million of debt outstanding under the credit
lines was eliminated. This was done primarily with the proceeds
of the issuance of 6.5% trust convertible preferred securities
(the "TCP Securities") as discussed in note 4 to the consolidated
financial statements included elsewhere herein. Devon's credit
lines allow for total borrowings of up to $260 million. After
the July 1996 payments, all $260 million is available for future
borrowings. The TCP Securities are subordinate to any balances
outstanding under Devon's credit lines. Therefore, the
securities offering and related debt repayment increase Devon's
credit lines available for future investment. The offering also
effectively fixes the rate on $149.5 million of capital, reducing
the Company's exposure to future changes in interest rates.
1996 Estimates
The 1995 annual report on Form 10-K contained
forward-looking information for the year 1996. Where necessary,
that information has been revised in the following discussion.
The forward-looking information provided herein is based on
management's examination of historical operating trends, the
December 31, 1995 reserve report of LaRoche & Associates, data in
Devon's files and other data available from third parties. The
forward-looking information in this discussion was prepared
assuming demand, curtailment, producibility and general market
conditions for Devon's oil, natural gas and NGL for the second
half of 1996 will be substantially similar to those for 1995 and
for the first half of 1996, unless otherwise noted. Devon
cautions that its future oil, gas and NGL production and expenses
are subject to all of the risks and uncertainties normally
incident to the exploration for and development and production of
20
<PAGE>
oil, gas and NGL. These risks include, but are not limited to,
environmental risks, drilling risks and the uncertainty inherent
in estimating future oil, gas and NGL production and reserves.
Discussed below are those areas where significant
revisions have been made to the 1996 estimates originally
included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations - 1996 Estimates" in Devon's
1995 annual report on Form 10-K.
Oil Revenues. Though oil production has risen
more or less steadily in the last several quarters, these gains
are not expected to continue for the second half of 1996.
Therefore, the company expects full year 1996 oil production to
be between 3.5 million barrels and 3.9 million barrels, or
approximately 12% higher than that for 1995. Previously, 1996
oil production had been estimated to be between 3.7 million and
4.3 million barrels.
Conversely, Devon's oil prices have been and are
expected to continue to be above prior estimates. The expected
range of Devon's oil price for the full year 1996 has been
revised upward to between $0.25 and $0.45 per barrel higher than
West Texas Intermediate posted prices. For 1995, Devon's oil
prices averaged $0.02 below West Texas Intermediate prices.
Gas Revenues. Based upon actual gas production
of 17.8 Bcf for the first half of 1996 and anticipated
enhancements of Devon's Northeast Blanco Unit during the second
half of 1996, full year gas production is expected to be between
34.6 and 38.5 billion Bcf. Previously, 1996 gas production had
been estimated to be between 34.6 Bcf and 40.3 Bcf.
Interest Expense/Distributions on TCP Securities.
Devon's long-term debt was totally retired in early July 1996
with the proceeds from the offering of the TCP Securities and
with operating cash flow. Based on Devon's estimate of operating
cash flow for the last half of the year, and assuming that no
significant acquisitions occur during this period, no significant
borrowings from Devon's credit lines are expected during the last
six months of the year. Therefore, interest expense for the last
half of the year should consist of only that for the first ten
days of July when debt was outstanding, plus commitment/facility
fees paid to the banks on the Company's credit lines. The
recognition of the gain from terminating the interest rate swap
agreement will partially offset the commitment/facility fees.
This is expected to result in total interest expense for the year
1996 of approximately $5.2 million.
However, the TCP Securities will require $4.8
million of distributions during the last half of the year. These
distributions will be recorded as a charge to earnings. Since
these distributions are tax deductible, the net effect of these
distributions on earnings and cash flow will be similar to bank
interest expense. The $5.2 million in interest paid previously
and the $4.8 million for TCP distributions will produce total
financing costs of approximately $10 million for 1996. This is
well within the $9 million to $11 million range for total
interest expense estimated previously.
21
<PAGE>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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) The Company's annual meeting of shareholders
was held in Oklahoma City, Oklahoma at 1:00
p.m. local time, on Wednesday, June 11, 1996.
(b) Proxies for the meeting were solicited
pursuant to Regulation 14 under the
Securities Exchange Act of 1934, as amended.
There was no solicitation in opposition to
the nominees for election as directors as
listed in the proxy statement and all
nominees were elected.
(c) Out of a total of 22,113,896 shares of the
Company's common stock outstanding and
entitled to vote, 19,664,535 shares were
present at the meeting in person or by proxy,
representing approximately 89 percent.
Matters voted upon at the meeting were as
follows:
(i) Election of two directors to serve on
the Company's board of directors until
the 1999 annual meeting of shareholders.
The vote tabulation with respect to each
nominee was as follows:
<TABLE>
<CAPTION>
Nominee For Authority Withheld
<S> <C> <C>
Michael E. Gellert 19,577,198 86,902
H. R. Sanders, Jr. 19,496,375 168,160
</TABLE>
22
<PAGE>
(ii) The appointment of KPMG Peat Marwick
LLP, the U.S. member firm of KPMG
(Klynveld Peat Marwick Goerdeler) as the
Company's certified public accountants
for 1996 was approved by a vote of
19,640,461 shares for, 17,015 shares
against, 6,774 shares abstaining and
zero broker non-votes.
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 Agreement and Plan of Merger and
Reorganization by and among Registrant
and Devon Energy Corporation, a
Delaware corporation, dated as of April
13, 1995 (incorporated by reference to
Exhibit A to Registrant's definitive
Proxy Statement for its 1995 Annual
Meeting of Shareholders filed on April
21, 1995).
2.2 Agreement and Plan of Merger by and
among Devon Energy Corporation, Devon
Acquisition Corp. and Alta Energy
Corporation dated February 18, 1994
[incorporated by reference to Exhibit
2.1 to Registrant's Registration
Statement on Form S-4 (No. 33-76524)].
2.3 Amendment to Agreement and Plan of
Merger by and among Devon Energy
Corporation, Devon Acquisition Corp.
and Alta Energy Corporation dated April
13, 1994 [incorporated by reference to
Exhibit 2.2 to Amendment No. One to
Registrant's Registration Statement on
Form S-4 (No. 33-76524)].
3.1 Registrant's Certificate of
Incorporation, as amended (incorporated
by reference to Exhibit B to
Registrant's definitive Proxy Statement
for its 1995 Annual Meeting of
Shareholders filed on April 21, 1995).
3.2 Registrant's Bylaws (incorporated by
reference to Exhibit 3.2 to
Registrant's Registration Statement on
Form 8-B filed on June 7, 1995).
4.1 Form of Common Stock Certificate
(incorporated by reference to Exhibit
4.1 to Registrant's Registration
Statement on Form 8-B filed on June 7,
1995).
23
<PAGE>
4.2 Rights Agreement between Registrant and
The First National Bank of Boston
(incorporated by reference to Exhibit
4.2 to Registrant's Registration
Statement on Form 8-B filed on June 7,
1995).
4.3 Certificate of Designations of Series A
Junior Participating Preferred Stock of
Registrant (incorporated by reference
to Exhibit 3.3 to Registrant's
Registration Statement on form 8-B
filed on June 7, 1995).
4.4 Certificate of Trust of Devon Financing
Trust [incorporated by reference to
Exhibit 4.5 to Amendment No. 1 to
Registrant's Registration Statement on
Form S-3 (No. 333-00815)].
4.5 Amended and Restated Declaration of
Trust of Devon Financing Trust dated as
of July 3, 1996, by J. Larry Nichols,
H. Allen Turner, William T. Vaughn, The
Bank of New York (Delaware) and The
Bank of New York as Trustees and the
Registrant as Sponsor [incorporated by
reference to Exhibit 4.6 to Amendment
No. 1 to Registrant's Registration
Statement on Form S-3 (No. 333-00815)].
4.6 Indenture dated as of July 3, 1996,
between the Registrant and The Bank of
New York [incorporated by reference to
Exhibit 4.7 to Amendment No. 1 to
Registrant's Registration Statement on
Form S-3 (No. 333-00815)].
4.7 First Supplemental Indenture dated as
of July 3, 1996, between the Registrant
and The Bank of New York [incorporated
by reference to Exhibit 4.8 to
Amendment No. 1 Registrant's
Registration Statement on Form S-3 (No.
333-00815)].
4.8 Forms of 6 1/2% Preferred Convertible
Securities (included as Exhibit A-1 to
Exhibit 4.5 above).
4.9 Form of 6 1/2% Convertible Junior
Subordinated Debentures (included in
Exhibit 4.7 above).
4.10 Preferred Securities Guarantee Agreement
dated July 3, 1996, between Registrant, as
Guarantor, and The Bank of New York, as
Preferred Guaranteed Trustee [incorporated by
reference to Exhibit 4.11 to Amendment No. 1 to
Registrant's Registration Statement on Form
S-3 (No. 333-00815)].
10.1 Credit Agreement dated October 7, 1994, among Devon
Energy Corporation (Nevada), as Borrower, the
Registrant and Devon Energy Operating Corporation, as
Guarantors, NationsBank of Texas, N.A., as Agent, and
NationsBank of Texas, N.A., Bank One, Texas, N.A.,
Bank of Montreal, and First Union National Bank of
North Carolina, as Lenders (incorporated by reference
to Exhibit 10.1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994).
24
<PAGE>
10.2 First Amendment, dated January 27, 1995, to Credit
Agreement among Devon Energy Corporation (Nevada), as
Borrower, the Registrant and Devon Energy Operating
Corporation, as Guarantors, NationsBank of Texas,
N.A., as Agent, and NationsBank of Texas, N.A., Bank
One, Texas, N.A., Bank of Montreal and First Union
National Bank of North Carolina, as Lenders
(incorporated by reference to Exhibit 10.2 to
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.3 Second Amendment, dated March 4, 1996, to Credit
Agreement among Devon Energy Corporation (Nevada),
as Borrower, the Registrant and Devon Energy
Operating Corporation, as Guarantors, NationsBank of
Texas, N.A., as Agent, and NationsBank of Texas, N.A.,
Bank One, Texas, N.A., Bank of Montreal and First
Union National Bank of North Carolina, as Lenders
(incorporated by reference to Exhibit 10.3 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996).
10.4 Third Amendment, dated June 26, 1996, to Credit
Agreement among Devon Energy Corporation (Nevada), as
Borrower, the Registrant and Devon Energy Operating
Corporation, as Guarantors, NationsBank of Texas,
N.A., as Agent, and NationsBank of Texas, N.A., Bank
One, Texas, N.A., Bank of Montreal and First Union
National Bank of North Carolina, as Lenders.
10.5 Devon Energy Corporation [a Delaware corporation] 1988
Stock Option Plan [incorporated by reference to
Exhibit 10.4 to Registrant's Registration Statement on
Form S-4 (No. 33-23564)]. *
10.6 Devon Energy Corporation 1993 Stock Option Plan
(incorporated by reference to Exhibit A to
Registrant's Proxy Statement for the 1993 Annual
Meeting of Shareholders filed on May 6, 1993).*
10.7 Severance Agreement between Devon Energy Corporation
(Nevada), Devon Energy Corporation (Delaware) and Mr.
J. Larry Nichols, dated December 3, 1992 (incorporated
by reference to Exhibit 10.10 to Registrant's
Amendment No. 1 to Annual Report on Form 10-K for the
year ended December 31, 1992).*
25
<PAGE>
10.8 Severance Agreement between Devon Energy Corporation
(Nevada), Devon Energy Corporation (Delaware) and Mr.
H.R. Sanders, Jr., dated December 3, 1992
(incorporated by reference to Exhibit 10.11 to
Registrant's Amendment No. 1 to Annual Report on
Form 10-K for the year ended December 31, 1992).*
10.9 Severance Agreement between Devon Energy Corporation
(Nevada), Devon Energy Corporation (Delaware) and Mr.
J. Michael Lacey, dated December 3, 1992 (incorporated
by reference to Exhibit 10.12 to Registrant's
Amendment No. 1 to Annual Report on Form 10-K for the
year ended December 31, 1992).*
10.10 Severance Agreement between Devon Energy Corporation
(Nevada), Devon Energy Corporation (Delaware) and Mr.
H. Allen Turner, dated December 3, 1992 (incorporated
by reference to Exhibit 10.13 to Registrant's
Amendment No. 1 to Annual Report on Form 10-K for the
year ended December 31, 1992).*
10.11 Severance Agreement between Devon Energy Corporation
(Nevada), Devon Energy Corporation (Delaware) and Mr.
Darryl G. Smette, dated December 3, 1992 (incorporated
by reference to Exhibit 10.14 to Registrant's
Amendment No. 1 to Annual Report on Form 10-K for the
year ended December 31, 1992).*
10.12 Severance Agreement between Devon Energy Corporation
(Nevada), Devon Energy Corporation (Delaware) and Mr.
William T. Vaughn, dated December 3, 1992
(incorporated by reference to Exhibit 10.15 to
Registrant's Amendment No. 1 to Annual Report on
Form 10-K for the year ended December 31, 1992).*
10.13 Sale and Purchase Agreement relating to Registrant's
San Juan Basin gas properties (incorporated by
reference to Exhibit 10.15 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September
30, 1995).
10.14 Second Restatement of and Amendment to Sale and
Purchase Agreement relating to Registrant's San
Juan Basin gas properties (incorporated by
reference to Exhibit 10.16 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995).
10.15 Purchase and Sale Agreement between Union Oil Company
of California and Devon Energy Corporation (Nevada)
(incorporated by reference to Exhibit 2 to Registrant's
Current Report on Form 8-K dated December 18, 1995).
26
<PAGE>
10.16 Registration Rights Agreement dated July 3, 1996, by
and among the Registrant, Devon Financing Trust and
Morgan Stanley & Co. Incorporated [incorporated by
reference to Exhibit 10.1 to Amendment No. 1 to
Registrant's Registration Statement on Form S-3
(No. 333-00815)].
11 Computation of earnings per share
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during
the three months ended June 30, 1996. A
report on Form 8-K was filed on July 2, 1996.
The report contained the June 18, 1996 press
release announcing the offering of the Trust
Convertible Preferred Securities which are
discussed in Part I, Items 1 and 2 of this
quarterly report on Form 10-Q.
* Compensatory plans or arrangements.
27
<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: August 13, 1996 /s/William T. Vaughn
William T. Vaughn
Vice President - Finance
28
<PAGE>
EXHIBIT INDEX
Page
2.1 Agreement and Plan of Merger and Reorganization *
by and Among Registrant and Devon Energy
Corporation, a Delaware corporation, dated as of
April 13, 1995.
2.2 Agreement and Plan of Merger by and among Devon *
Energy Corporation, Devon Acquisition Corp. and
Alta Energy Corporation dated February 18, 1994.
2.3 Amendment to Agreement and Plan of Merger by and *
among Devon Energy Corporation, Devon Acquisition
Corp. and Alta Energy Corporation dated April 13,
1994.
3.1 Registrant's Certificate of Incorporation. *
3.2 Registrant's Bylaws. *
4.1 Form of Common Stock Certificate. *
4.2 Rights Agreement between Registrant and The First *
National Bank of Boston.
4.3 Certificate of Designations of Series A Junior *
Participating Preferred Stock of Registrant.
4.4 Certificate of Trust of Devon Financing Trust. *
4.5 Amended and Restated Declaration of Trust of *
Devon Financing Trust dated as of July 3, 1996,
by J. Larry Nichols, H. Allen Turner, William T.
Vaughn, The Bank of New York (Delaware) and The
Bank of New York as Trustees and the Registrant
as Sponsor.
4.6 Indenture dated as of July 3, 1996, between the *
Registrant and The Bank of New York.
4.7 First Supplemental Indenture dated as of July 3, *
1996, between the Registrant and The Bank of New
York.
4.8 Forms of 6 1/2% Preferred Convertible Securities *
(included as Exhibit A-1 to Exhibit 4.5 above).
4.9 Form of 6 1/2% Convertible Junior Subordinated *
Debentures (included in Exhibit 4.7 above).
29
<PAGE>
4.10 Preferred Securities Guarantee Agreement dated *
July 3, 1996, between the Registrant, as
Guarantor, and The Bank of New York, as Preferred
Guaranteed Trustee.
10.1 Credit Agreement dated October 7, 1994, among *
Devon Energy Corporation (Nevada), as Borrower,
the Registrant and Devon Energy Operating
Corporation, as Guarantors, NationsBank of Texas,
N.A., as Agent, and NationsBank of Texas, N.A.,
Bank One, Texas, N.A., Bank of Montreal, and
First Union National Bank of North Carolina, as
Lenders.
10.2 First Amendment, dated January 27, 1995, to *
Credit Agreement among Devon Energy Corporation
(Nevada), as Borrower, the Registrant and Devon
Energy Operating Corporation, as Guarantors,
NationsBank of Texas, N.A., as Agent, and
NationsBank of Texas, N.A., Bank One, Texas,
N.A., Bank of Montreal, and First Union National
Bank of North Carolina, as Lenders.
10.3 Second Amendment, dated March 4, 1996, to Credit *
Agreement among Devon Energy Corporation
(Nevada), as Borrower, the Registrant and Devon
Energy Operating Corporation, as Guarantors,
NationsBank of Texas, N.A., as Agent, and
NationsBank of Texas, N.A., Bank One, Texas,
N.A., Bank of Montreal, and First Union National
Bank of North Carolina, as Lenders.
10.4 Third Amendment, dated June 26, 1996, to Credit 32
Agreement among Devon Energy Corporation
(Nevada), as Borrower, the Registrant and Devon
Energy Operating Corporation, as Guarantors,
NationsBank of Texas, N.A., as Agent, and
NationsBank of Texas, N.A., Bank One, Texas,
N.A., Bank of Montreal, and First Union National
Bank of North Carolina, as Lenders.
10.5 Devon Energy Corporation [a Delaware corporation] *
1988 Stock Option Plan.
10.6 Devon Energy Corporation 1993 Stock Option Plan. *
10.7 Severance Agreement between Devon Energy *
Corporation (Nevada), Devon Energy Corporation
(Delaware) and Mr. J. Larry Nichols, dated
December 3, 1992.
10.8 Severance Agreement between Devon Energy *
Corporation (Nevada), Devon Energy Corporation
(Delaware) and Mr. H. R. Sanders, Jr., dated
December 3, 1992.
10.9 Severance Agreement between Devon Energy *
Corporation (Nevada), Devon Energy Corporation
(Delaware) and Mr. J. Michael Lacey, dated
December 3, 1992.
30
<PAGE>
10.10 Severance Agreement between Devon Energy *
Corporation (Nevada), Devon Energy
Corporation (Delaware) and Mr. H. Allen
Turner, dated December 3, 1992.
10.11 Severance Agreement between Devon Energy *
Corporation (Nevada), Devon Energy
Corporation (Delaware) and Mr. Darryl G.
Smette, dated December 3, 1992.
10.12 Severance Agreement between Devon Energy *
Corporation (Nevada), Devon Energy
Corporation (Delaware) and Mr. William T.
Vaughn, dated December 3, 1992.
10.13 Sale and Purchase Agreement relating to *
Registrant's San Juan Basin gas properties.
10.14 Second Restatement of and Amendment to Sale *
and Purchase Agreement relating to
Registrant's San Juan Basin gas properties.
10.15 Purchase and Sale Agreement between Union *
Oil Company of California and Devon Energy
Corporation (Nevada).
10.16 Registration Rights Agreement dated July 3, *
1996, by and among the Registrant, Devon
Financing Trust and Morgan Stanley & Co.
Incorporated.
11 Computation of earnings per share 45
* Incorporated by reference.
31
<PAGE>
<TABLE>
Exhibit 11
DEVON ENERGY CORPORATION
Computation of Earnings Per Share
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
PRIMARY EARNINGS PER SHARE
Computation for Statement of Operations
<S> <C> <C> <C> <C>
Net earnings per statement of operations $ 6,775,388 2,444,422 12,329,314 3,471,224
Weighted average common shares outstanding 22,121,786 22,052,149 22,117,138 22,051,576
Primary earnings per common share $0.31 0.11 0.56 0.16
<F1>
Additional Primary Computation (A)
Net earnings per statement of operations $ 6,775,388 2,444,422 12,329,314 3,471,224
Adjustment to weighted average common shares
outstanding:
Weighted average as shown above in primary
computation 22,121,786 22,052,149 22,117,138 22,051,576
Add dilutive effect of outstanding stock
options (as determined using the treasury
stock method) 165,700 145,740 149,357 124,318
Weighted average common shares outstanding,
as adjusted 22,287,486 22,197,889 22,266,495 22,175,894
Net earnings per common share, as adjusted $0.30 0.11 0.55 0.16
<F1>
FULLY DILUTED EARNINGS PER SHARE (A)
Net earnings per statement of operations $ 6,775,388 2,444,422 12,329,314 3,471,224
Weighted average common shares outstanding as
shown in primary computation above 22,121,786 22,052,149 22,117,138 22,051,576
Add fully dilutive effect of outstanding stock
options (as determined using the treasury
stock method) 170,301 148,337 173,376 148,619
Weighted average common shares outstanding,
as adjusted 22,292,087 22,200,486 22,290,514 22,200,195
Fully diluted earnings per common share $0.30 0.11 0.55 0.16
<F1>
(A) These calculations are submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because they result in dilution of less than 3%.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 14133116
<SECURITIES> 0
<RECEIVABLES> 16817937
<ALLOWANCES> 0
<INVENTORY> 710877
<CURRENT-ASSETS> 33413187
<PP&E> 672429250
<DEPRECIATION> 259816341
<TOTAL-ASSETS> 450610296
<CURRENT-LIABILITIES> 13992198
<BONDS> 155000000
2213090
0
<COMMON> 0
<OTHER-SE> 227989004
<TOTAL-LIABILITY-AND-EQUITY> 450610296
<SALES> 36743221
<TOTAL-REVENUES> 37298613
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10101070
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2460924
<INCOME-PRETAX> 11886388
<INCOME-TAX> 5111000
<INCOME-CONTINUING> 6775388
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6775388
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
Exhibit 10.4
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (herein called
this "Amendment") is made as of the 26th day of June, 1996, by
and among DEVON ENERGY CORPORATION (NEVADA), as Borrower
("Borrower"), DEVON ENERGY CORPORATION ("Parent") and DEVON
ENERGY OPERATING CORPORATION ("DEOC"), as guarantors,
NATIONSBANK OF TEXAS, N.A., as Agent ("Agent"), and
NATIONSBANK OF TEXAS, N.A., BANK ONE, TEXAS, N.A., BANK OF
MONTREAL and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as
Lenders ("Lenders").
WHEREAS, Borrower, Parent, DEOC, Agent and Lenders have
entered into that certain Credit Agreement dated as of October
7, 1994, as amended by a First Amendment to Credit Agreement
dated January 27, 1995 and a Second Amendment to Credit
Agreement dated March 4, 1996 (the "Original Agreement"); and
WHEREAS, Parent and DEOC have guaranteed to Agent and
Lenders the payment of the Notes and of all other sums payable
under the Credit Agreement and the other Loan Documents
pursuant to their respective Guaranties; and
WHEREAS, Borrower, Parent, DEOC, Agent and Lenders desire
to amend the Original Agreement as herein provided;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and in the
Original Agreement, in consideration of the loans which may
hereafter be made by Lenders to Borrower, and for other good
and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby
agree as follows:
ARTICLE I -- Definitions and References
Section 1.1. Terms Defined in the Original Agreement.
Unless the context otherwise requires or unless otherwise
expressly defined herein, the terms defined in the Original
Agreement shall have the same meanings whenever used in this
Amendment.
Section 1.2. Other Defined Terms. Unless the context
otherwise requires, the following terms when used in this
Amendment shall have the meanings assigned to them in this
Section 1.2.
"Amendment" means this Third Amendment to Credit
Agreement.
"Credit Agreement" means the Original Agreement as
amended hereby.
ARTICLE II -- Amendments
Section 2.1. Defined Terms. (a) Section 1.1 of the
Original Agreement is hereby amended by adding the definitions
of "Devon Trust", "Devon Trust Declaration", "Devon Trust
Securities", "Subordinated Parent Debentures", "Subordinated
Parent Guarantee" and "Subordinated Parent Indenture" to read
as follows:
"Devon Trust" means Devon Financing Trust, a
statutory business trust to be formed under the laws of
the State of Delaware pursuant to the Devon Trust
Declaration and that certain Certificate of Trust, to be
filed with the Delaware Secretary of State on or about
June 28, 1996.
"Devon Trust Declaration" means that certain
Declaration of Trust, to be dated on or about July 1,
1996, among Parent, as sponsor, and the trustees of Devon
Trust, forming Devon Trust.
"Devon Trust Securities" means those certain Trust
Convertible Preferred Securities, to be issued by Devon
Trust pursuant to the Devon Trust Declaration, in an
amount of up to 3,000,000.
"Subordinated Parent Debentures" means those certain
Convertible Junior Subordinated Debentures, to be issued
by Parent to Devon Trust pursuant to the Parent Indenture
and subordinated to the Obligations, in the aggregate
principal amount of up to $155,000,000.
"Subordinated Parent Guarantee" means that certain
Guarantee, to be dated on or about July 1, 1996, by
Parent in favor of the holders of the Devon Trust
Securities and subordinated to the Obligations,
guaranteeing certain payments to be made by Devon Trust
pursuant to the Devon Trust Securities.
"Subordinated Parent Indenture" means that certain
Trust Indenture, to be dated on or about July 1, 1996,
among Parent and the indenture trustee named therein,
pursuant to which the Subordinated Parent Debentures and
Subordinated Parent Guarantee are to be issued.
Section 2.2. Organization and Good Standing. The first
sentence of Section 4.1(b) of the Original Agreement is hereby
amended in its entirety to read as follows:
(b) Organization and Good Standing. Each
Restricted Person which is a corporation, partnership or
business trust is duly organized, validly existing and in
good standing under the laws of its state of organization
or formation, having all corporate, partnership or
business trust powers required to carry on its business
and enter into and carry out the transactions
contemplated hereby.
Section 2.3. Maintenance of Existence and
Qualifications. Section 5.1(f) of the Original Agreement is
hereby amended in its entirety to read as follows:
(f) Maintenance of Existence and Qualifications.
Each Restricted Person which is a corporation,
partnership or business trust will maintain and preserve
its corporate, partnership or business trust existence
and its rights and franchises in full force and effect
and will qualify to do business as a foreign corporation,
partnership or business trust in all states or
jurisdictions where required by applicable law.
Section 2.4. Limitation on Debt. Section 5.2(a) of the
Original Agreement is hereby amended by changing the "." at
the end of subparagraph (ix) to a ";" and adding a new
subparagraph (x), to read as follows:
(x) obligations under the Subordinated Parent
Indenture, the Subordinated Parent Debentures and the
Subordinated Parent Guarantee; provided, the provisions
of the Subordinated Parent Indenture, Subordinated Parent
Debentures (with an interest rate of not more than
7.25%), the Subordinated Parent Guarantee (including
without limitation the subordination provisions contained
in the Subordinated Parent Indenture, the Subordinated
Parent Debentures and the Subordinated Parent Guarantee),
the Devon Trust Declaration and the Devon Trust
Securities shall not materially differ from the most-
recent drafts of such documents furnished to Lenders.
Section 2.5. Limitation on Intercompany Transfers.
Section 5.2(c) of the Original Agreement is hereby amended by:
(a) amending the parenthetical in subparagraph (iv) to
read as follows:
(other than DEOC, Devon Trust and each other)
(b) changing the "." at the end of subparagraph (vii) to
a ";" and adding a new subparagraph (viii), to read as
follows:
(viii) (A) Parent may make a capital contribution
of up to $6,000,000 to Devon Trust to purchase common
securities of Devon Trust, provided that both immediately
before and immediately after any such proposed capital
contribution, no Default is continuing; and (B) Parent
may pay quarterly interest payments on the Subordinated
Parent Debentures to Devon Trust, pursuant to the express
terms of the Subordinated Parent Debentures, and Devon
Trust may pay quarterly cash dividends to the holders of
the Devon Trust Securities pursuant to the express terms
of the Devon Trust Securities, provided that both
immediately before and immediately after any such
proposed interest payment and dividend payment, Parent is
in compliance with Section 5.2(k) and no Default under
Section 7.1(a), 7.1(f) or 7.1(h) is continuing.
Section 2.6. Limitation on Mergers, Issuances of
Securities. Section 5.2(e) of the Original Agreement is
hereby amended in its entirety to read as follows:
(e) Limitation on Mergers, Issuances of Securities.
No Restricted Person will merge or consolidate with or
into any other Person, except that (i) any Related Person
which is a Subsidiary of Parent (other than Borrower) may
be consolidated with Borrower, Parent or DEOC so long as
Borrower, Parent or DEOC is the surviving entity and
(ii) any Subsidiaries of Parent (other than Borrower) may
merge or consolidate with or into each other so long as
the surviving entity is a Guarantor. No Restricted
Person (other than Parent and Devon Trust) will issue any
additional shares of its capital stock, additional
partnership interests or other securities or any options,
warrants or other rights to acquire such additional
shares, partnership interests or other securities except
to a Restricted Person of which such issuer is already
directly or indirectly a Subsidiary and only to the
extent not otherwise forbidden under the terms hereof.
Devon Trust will not issue any securities except common
securities to Parent and the Devon Trust Securities.
Borrower and DEOC will at all times remain wholly-owned
Subsidiaries of Parent, Parent will at all times own all
of the outstanding common securities of Devon Trust, and
no Restricted Person will allow any diminution of
Borrower's, DEOC's or Parent's interest (direct or
indirect) therein. Parent will not issue or have
outstanding any securities other than its common or
preferred stock, the Subordinated Parent Guarantee and
the Subordinated Parent Debentures.
Section 2.7. Working Capital and Current Ratio. Section
5.2(j) of the Original Agreement is hereby amended by adding a
new sentence at the end of such Section 5.2(j), to read as
follows:
For purposes of the foregoing, all accrued interest
payments on the Subordinated Parent Debentures and all
dividend payments on the Devon Trust Securities shall
(without duplication) be deemed to be and shall be
included in Parent's Consolidated current liabilities as
defined by GAAP.
Section 2.8. Tangible Net Worth. Section 5.2(k) of the
Original Agreement is hereby amended in its entirety to read
as follows:
(k) Tangible Net Worth. The ratio of (i) Parent's
Consolidated Debt to (ii) Parent's Consolidated Tangible
Net Worth will never be greater than 1.25 to 1.0.
Parent's Consolidated Tangible Net Worth will never be
less than:
(i) $145,000,000, plus
(ii) seventy percent (70%) of the proceeds (net
only of costs of sale) from the issuance of the
Subordinated Parent Debentures, plus
(iii) seventy-five percent (75%) of
Parent's Cumulative Consolidated Net Income, to the
extent Parent's Cumulative Consolidated Net Income
is greater than zero, plus
(iv) one hundred percent (100%) of the proceeds
(net only of costs of sale) from any issuance after
March 31, 1993 of any shares of Parent's common or
preferred stock or any other securities, other than
the Subordinated Parent Debentures (including any
options, warrants or other rights to acquire such
stock) which Parent issues after such date, provided
that Parent shall comply with the provisions of
Section 5.2(e) hereof in connection with any such
issuance.
As used in this subsection:
"Parent's Consolidated Debt" means all Consolidated
liabilities and similar balance sheet items of Parent,
together with all other contingent and indirect
liabilities (including without limitation any guaranties)
of Parent or any of Parent's Subsidiaries which are of a
character required to be included in Parent's audited
Consolidated annual financial statements described in
Section 5.1(b), other than deferred taxes.
Notwithstanding the foregoing, for the purposes of
determining "Parent's Consolidated Debt", the outstanding
principal amount of the Subordinated Parent Debentures
shall not be included.
"Parent's Consolidated Tangible Net Worth" means (A)
all Consolidated assets of Parent, other than intangible
assets (including without limitation as intangible assets
such assets as patents, copyrights, licenses, franchises,
goodwill, trade names, trade secrets and leases other
than oil, gas or mineral leases or leases required to be
capitalized under GAAP), plus (B) the amount spent by
Parent, if any, to purchase, redeem, acquire or otherwise
retire shares of the capital stock of Parent as provided
in Section 5.2(d), minus (C) Parent's Consolidated Debt
and deferred taxes. For the purposes of determining
"Parent's Consolidated Tangible Net Worth", no
adjustments shall be made to the book value of Parent's
Consolidated oil and gas assets which would otherwise be
required after March 31, 1992 pursuant to the limitation
on capitalized costs contained in Regulation Section
210.4-10(i)(4) of the Securities and Exchange Commission.
Section 2.9. Amendment of Contracts; ERISA Plans. The
first sentence of Section 5.2(l) of the Original Agreement is
hereby amended in its entirety to read as follows:
(l) Amendment of Contracts; ERISA Plans. Borrower
will not amend or permit any amendment of the B&N
Partnership Agreement, Parent will not amend its guaranty
referred to in Section 5.2(a)(8), and no Related Person
will amend or permit any amendment of any agreement,
document or instrument delivered in connection with the
Subordinated Debt, the Subordinated Parent Debentures or
the Devon Trust Securities without the written consent of
Majority Lenders.
Section 2.10. Devon Trust; Devon Trust Securities.
Section 5.2 of the Original Agreement is hereby amended by
adding a new subsection 5.2(m) immediately following Section
5.2(l), to read as follows:
(m) Devon Trust; Devon Trust Securities. Devon
Trust shall exist for the exclusive purposes of (A)
issuing the Devon Trust Securities, (B) investing the
gross proceeds of the Devon Trust Securities in the
Subordinated Parent Debentures and (C) engaging in only
those other activities necessary or incidental thereto.
Parent shall exercise its option to defer interest
payments on the Subordinated Parent Debentures rather
than default on such interest payments. Devon Trust
shall not be dissolved without prior written notice by
Parent to Majority Lenders. Devon Trust shall not redeem
the Devon Trust Securities prior to their stated
maturity, and Parent shall not prepay or redeem the
Subordinated Parent Debentures prior to their stated
maturity, unless both immediately before and immediately
after any such proposed prepayment or redemption, Parent
is in compliance with Section 5.2(k) and no Default under
Section 7.1(a), 7.1(f) or 7.1(h) is continuing.
Section 2.11. Guaranties of Subsidiaries. The
parenthetical in the first sentence of Section 6.2 of the
Original Agreement is hereby amended in its entirety to read
as follows:
(other than Borrower, Parent, DEOC, Devon Trust or B&N
Partnership)
Section 2.12. Events of Default. Section 7.1(f) of the
Original Agreement is hereby amended in its entirety to read
as follows:
(f) Any Related Person (i) fails to duly pay any
Debt constituting principal or interest owed by it with
respect to borrowed money or money otherwise owed under
any note, bond, or similar instrument, including without
limitation the Subordinated Parent Debentures and the
Devon Trust Securities, or (ii) fails to pay when the
same becomes due and payable any other Debt in excess of
$100,000 (other than trade payables outstanding in
compliance with Section 5.1(g)(iii)), or (iii) breaches
or defaults in the performance of any agreement or
instrument by which any Debt described in the preceding
clauses (i) or (ii) is issued, evidenced, governed, or
secured, and any such failure, breach or default
continues beyond any applicable period of grace provided
therefor;
ARTICLE III. -- Conditions of Effectiveness
Section 3.1. Effective Date. This Amendment shall
become effective as of the date first above written when, and
only when, (i) Agent shall have received, at Agent's office, a
counterpart of this Amendment executed and delivered by
Borrower and each Lender, and (ii) Agent shall have
additionally received all of the following documents, each
document (unless otherwise indicated) being dated the date of
receipt thereof by Agent, duly authorized, executed and
delivered, and in form and substance satisfactory to Agent:
(a) Officer's Certificate. Agent shall have
received a certificate of a duly authorized officer of
Borrower to the effect that all of the representations
and warranties set forth in Article IV hereof are true
and correct at and as of the time of such effectiveness.
(b) Supporting Documents. Agent shall have
received (i) a certificate of the Secretary of Borrower
dated the date of this Amendment certifying that attached
thereto is a true and complete copy of resolutions
adopted by the Board of Directors of Borrower authorizing
the execution, delivery and performance of this Amendment
and certifying the names and true signatures of the
officers of Borrower authorized to sign this Amendment
and (ii) such supporting documents as Agent may
reasonably request.
ARTICLE IV -- Miscellaneous
Section 4.1. Ratification of Agreements. The Original
Agreement is hereby ratified and confirmed in all respects.
Any reference to the Credit Agreement in any Loan Document
shall be deemed to refer to the Original Agreement as amended
hereby. Any reference to the Notes in any other Loan Document
shall be deemed to be a reference to the Notes issued and
delivered pursuant to this Amendment. Each of Parent and
DEOC hereby consents to the provisions of this Amendment and
hereby ratifies and confirms its Guaranty and agrees that its
obligations and covenants thereunder are unimpaired hereby and
shall remain in full force and effect.
Section 4.2. Representations. Each of Borrower, Parent
and DEOC represent and warrant that the representations and
warranties contained in Section 4.1 and Section 9.1(b) of the
Credit Agreement are true and correct at and as of the date
hereof (taking into account the fact that this Amendment and
the Notes issued in connection herewith are each a Loan
Document as referred to in such Sections). Each of Borrower,
Parent and DEOC represent and warrant that the resolutions of
their respective Boards of Directors, attached as Exhibits A,
B and C to that certain Omnibus Certificate dated as of
October 7, 1994, given on behalf of Borrower, Parent and DEOC
in connection with the Original Agreement, remain in full
force and effect on the date hereof.
Section 4.3. Survival of Agreements. All
representations, warranties, covenants and agreements of
Borrower, Parent or DEOC herein shall survive the execution
and delivery of this Amendment and the Notes issued in
connection herewith and the performance hereof and shall
further survive until all of the Obligations are paid in full.
Section 4.4. Governing Law. This Amendment shall be
governed by and construed in accordance with the laws of the
State of Texas and any applicable laws of the United States of
America in all respects, including construction, validity and
performance.
Section 4.5. Counterparts. This Amendment may be
separately executed in counterparts and by the different
parties hereto in separate counterparts, each of which when so
executed shall be deemed to constitute one and the same
Amendment. This Amendment shall, when executed by each party
hereto, take effect as of the date first above written.
Section 4.7. Loan Documents. This Amendment is a Loan
Document, and all provisions in the Credit Agreement applying
to Loan Documents (including, without limitation, Section
9.1(b) thereof) apply hereto.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, this Amendment is executed as of the
date first above written.
DEVON ENERGY CORPORATION (NEVADA)
By:
H.R. Sanders, Jr., Executive Vice President
DEVON ENERGY CORPORATION
By:
Name: H.R. Sanders, Jr.
Title: Executive Vice President
DEVON ENERGY OPERATING CORPORATION
By:
Name: H.R. Sanders, Jr.
Title: Executive Vice President
NATIONSBANK OF TEXAS, N.A.
By:
Name:
Title:
BANK ONE, TEXAS, N.A.
By:
Name:
Title:
BANK OF MONTREAL
By:
Name:
Title:
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:
Name:
Title:
CONSENT OF GUARANTOR
Avon Energy Corporation hereby consents to the foregoing
Amendment and the transactions contemplated therein and hereby
ratifies and confirms its obligations under its certain
Guaranty dated as of October 7, 1994 in favor of Agent, as
agent for the Lenders. This Consent is executed as of the
date of the Amendment.
AVON ENERGY CORPORATION
By:
Name: H. R. Sanders, Jr.
Title: Executive Vice President
