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, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 N. 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 April 14, 1997, was 32,141,295.
1 of 38 total pages
(Exhibit Index is found at page 24)
<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, 1997
(Unaudited) and December 31, 1996 4
Consolidated Statements of Operations (Unaudited),
For the Three Months Ended March 31, 1997 and
1996 5
Consolidated Statements of Cash Flows (Unaudited),
For the Three Months Ended March 31, 1997 and
1996 6
Notes to Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 18
2
<PAGE>
DEVON ENERGY CORPORATION
Part I. Financial Information
Item 1. Consolidated Financial Statements
March 31, 1997 and 1996
(Forming a part of Form 10-Q Quarterly Report
to the Securities and Exchange Commission)
3
<PAGE>
<TABLE>
<CAPTION>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
1997 1996
(Unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 24,863,144 9,401,350
Accounts receivable 42,743,228 29,580,306
Inventories 2,005,919 2,103,486
Prepaid expenses 2,163,085 688,752
Deferred income taxes 1,600,000 1,600,000
Total current assets 73,375,376 43,373,894
Property and equipment, at cost, based on the full
cost method of accounting for oil and gas
properties 996,358,220 974,805,756
Less: Accumulated depreciation,
depletion and amortization 301,173,988 281,959,410
695,184,232 692,846,346
Other assets 10,347,121 10,030,560
Total assets $778,906,729 746,250,800
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable:
Trade 10,864,944 4,861,428
Revenues and royalties due to others 10,503,020 10,569,960
Income taxes payable 5,613,447 4,705,447
Accrued expenses 2,240,355 3,503,420
Total current liabilities 29,221,766 23,640,255
Revenues and royalties due to others 1,056,568 1,053,270
Other liabilities 10,796,183 10,325,999
Long-term debt - 8,000,000
Deferred revenue 103,475 205,859
Deferred income taxes 92,809,000 81,121,000
Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary trust holding
solely 6.5% convertible junior subordinated
debentures of Devon Energy Corporation 149,500,000 149,500,000
Stockholders' equity:
Preferred stock of $1.00 par value.
Authorized 3,000,000 shares; none
issued - -
Common stock of $.10 par value.
Authorized 400,000,000 shares; issued
32,141,295 in 1997 and in 1996 3,214,130 3,214,130
Additional paid-in capital 388,090,930 388,090,930
Retained earnings 104,717,838 81,099,357
Cumulative currency translation
adjustment (603,161) -
Total stockholders' equity 495,419,737 472,404,417
Total liabilities and stockholders'
equity $778,906,729 746,250,800
See accompanying notes to consolidated financial statements.
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months
Ended March 31,
1997 1996
(Unaudited)
Revenues
<S> <C> <C>
Oil sales $37,529,980 16,144,794
Gas sales 43,238,141 14,621,634
Natural gas liquids sales 5,803,921 2,967,801
Other 1,327,604 313,831
Total revenues 87,899,646 34,048,060
Costs and expenses
Lease operating expenses 15,812,637 7,418,179
Production taxes 5,309,844 2,141,917
Depreciation, depletion and
amortization 19,544,552 10,126,984
General and administrative expenses 2,629,885 2,135,898
Interest expense 130,807 2,481,156
Distributions on preferred securities
of subsidiary trust 2,429,375 -
Total costs and expenses 45,857,100 24,304,134
Earnings before income taxes 42,042,546 9,743,926
Income tax expense
Current 5,045,000 1,267,000
Deferred 11,772,000 2,923,000
Total income tax expense 16,817,000 4,190,000
Net earnings $25,225,546 5,553,926
Net earnings per average common share outstanding
(Note 2):
Assuming no dilution $0.78 0.25
Assuming full dilution $0.71 0.25
Weighted average common shares outstanding 32,141,295 22,112,489
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months
Ended March 31,
1997 1996
(Unaudited)
Cash flows from operating activities
<S> <C> <C>
Net earnings $25,225,546 5,553,926
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, depletion and amortization 19,544,552 10,126,984
Gain on sale of assets (22,114) (34,897)
Deferred income taxes 11,772,000 2,923,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (13,288,510) (190,855)
Inventories 90,544 164,706
Prepaid expenses (1,476,820) (503,017)
Other assets (218,505) 208,323
Increase (decrease) in:
Accounts payable 6,655,857 (1,571,415)
Income taxes payable 930,632 300,298
Accrued expenses (1,257,416) (954,397)
Revenues and royalties due to others 3,298 222,260
Long-term other liabilities 129,995 85,648
Deferred revenue (102,384) (16,378)
Net cash provided by operating activities 47,986,675 16,314,186
Cash flows from investing activities
Proceeds from sale of property and equipment 91,276 84,283
Capital expenditures (23,299,647) (18,537,574)
Net cash used in investing activities (23,208,371) (18,453,291)
Cash flows from financing activities
Proceeds from borrowings on revolving lines of credit 1,847,750 12,000,000
Principal payments on revolving lines of credit (9,843,750) -
Issuance of common stock - 16,750
Dividends paid on common stock (1,607,065) (663,416)
Increase in long-term other liabilities 340,189 266,385
Net cash provided (used) by financing activities (9,262,876) 11,619,719
Effect of exchange rate changes on cash (53,634) -
Net increase in cash and cash equivalents 15,461,794 9,480,614
Cash and cash equivalents at beginning of period 9,401,350 8,897,891
Cash and cash equivalents at end of period $ 24,863,144 18,378,505
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. 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 1996 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,
1997, and the results of their operations and their cash flows
for the three month periods ended March 31, 1997 and 1996.
Foreign Currency Translation
Prior to December 31, 1996, Devon had no
operations outside the United States. On December 31, 1996,
Devon acquired certain Canadian oil and gas properties as part of
a transaction in which Devon acquired all of Kerr-McGee
Corporation's North American onshore oil and gas exploration and
production properties and business in exchange for 9,954,000
shares of Devon common stock. The acquired Canadian properties
are owned by a Canadian subsidiary which is wholly-owned by
Devon.
For purposes of foreign currency translation, the
Canadian dollar is the functional currency for Devon's Canadian
operations. Translation adjustments resulting from translating
the Canadian subsidiary's foreign currency financial statements
into U.S. dollar equivalents are reported separately and
accumulated in a separate component of stockholders' equity.
2. Earnings Per Share
The period ended March 31, 1997, includes a
dilutive effect on earnings per share from Devon's 6.5% Trust
Convertible Preferred Securities issued in July, 1996, and from
employee stock options. The following table reconciles the net
earnings and common shares outstanding used in the calculations
of net earnings per share assuming no dilution, and assuming full
dilution, for the three months ended March 31, 1997. (There was
no dilutive effect on earnings per share in the first quarter of
1996.)
<TABLE>
<CAPTION>
Net
Common Earnings
Net Shares Per
Earnings Outstanding Share
<S> <C> <C> <C>
Net earnings per share, assuming no dilution $25,225,546 32,141,295 $0.78
Dilutive effect of:
Potential common shares issuable upon the conversion
of Trust Convertible Preferred securities (the
increase in net earnings is net of income tax expense
of $963,000) 1,506,488 4,901,507
Potential common shares issuable upon the exercise
of employee stock options (calculated using the
treasury stock method) - 358,398
Net earnings per share, assuming full dilution $26,732,034 37,401,200 $0.71
</TABLE>
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, 1997, compared to the three months ended March 31, 1996, and
in financial condition since December 31, 1996. It is presumed
that readers have read or have access to Devon's 1996 annual
report on Form 10-K.
Overview
On December 31, 1996, Devon acquired all of Kerr-
McGee Corporation's North American onshore oil and gas
exploration and production business and properties (the "KMG-NAOS
Properties") in exchange for 9,954,000 shares of Devon common
stock. This transaction added approximately 62 million barrels
of oil equivalent ("Boe") to Devon's year-end 1996 proved
reserves, as well as 370,000 net undeveloped acres of leasehold.
The addition of the KMG-NAOS Properties in the first quarter of
1997 resulted in record quarterly results for Devon's production,
<F1>
revenues, net earnings and cash margin1.
Production for the first quarter of 1997 totaled
5.0 million Boe of oil, gas and natural gas liquids ("NGL").
This was an increase of 91% over the first quarter of 1996.
Revenues for the first three months of 1997 were $87.9 million,
an increase of 158% over the prior year's quarter. Net earnings
for the 1997 quarter were $25.2 million, or $0.78 per share. The
1997 net earnings were 354% above the prior year's quarterly
results. The 1997 per share amount was 212% above the comparable
1996 total, with approximately 10 million more shares outstanding
in the 1997 period. The cash margin for the first quarter of
1997 also increased significantly to $56.5 million, an increase
of 204% over the 1996 first quarter's cash margin of $18.6
million.
<F1>
1 "Cash margin" equals Devon's total revenues less cash expenses. Cash
expenses are all expenses other than the non-cash expenses of
depreciation, depletion and amortization and deferred income tax
expense. Cash margin is an indicator which is commonly used 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-operations effects
on 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 determined in accordance with generally
accepted accounting principles in analyzing Devon's results of
operations and liquidity.
Results of Operations
Total revenues increased by $53.9 million, or
158%, in the first quarter of 1997. This increase was primarily
caused by substantial gains in oil, gas and NGL revenues. Oil,
gas and NGL revenues were up $52.8 million, or 157%, for the
quarter ended March 31, 1997. The relative contributions of
production and price changes to the quarterly comparisons are
shown in the tables below. (Note: Unless otherwise stated, all
references in this report to dollar amounts regarding Devon's
Canadian operations are expressed in U.S. dollars.)
<TABLE>
<CAPTION>
Total
Three Months Ended
March 31,
1997 1996 Change
Production
<S> <C> <C> <C>
Oil (Bbls) 1,755,265 874,515 +101%
Gas (Mcf) 17,017,875 8,983,622 +89%
NGL (Bbls) 368,105 227,593 +62%
Oil, Gas and NGL
<F1>
(Boe)1 4,959,683 2,599,378 +91%
Revenues
Oil $37,529,980 16,144,794 +132%
Gas 43,238,141 14,621,634 +196%
NGL 5,803,921 2,967,801 +96%
Combined $86,572,042 33,734,229 +157%
Average Prices
Oil (Per Bbl) $21.38 18.46 +16%
Gas (Per Mcf) $2.54 1.63 +56%
NGL (Per Bbl) $15.77 13.04 +21%
Oil, Gas and NGL
<F1>
(Per Boe)1 $17.46 12.98 +35%
<CAPTION>
Domestic
Three Months Ended
March 31,
1997 1996 Change
Production
Oil (Bbls) 1,513,582 874,515 +73%
Gas (Mcf) 14,900,742 8,983,622 +66%
NGL (Bbls) 333,615 227,593 +47%
Oil, Gas and NGL
<F1>
(Boe)1 4,330,654 2,599,378 +67%
Revenues
Oil $32,454,825 16,144,794 +101%
Gas 39,610,876 14,621,634 +171%
NGL 5,190,768 2,967,801 +75%
Combined $77,256,469 33,734,229 +129%
Average Prices
Oil (Per Bbl) $21.44 18.46 +16%
Gas (Per Mcf) $2.66 1.63 +63%
NGL (Per Bbl) $15.56 13.04 +19%
Oil, Gas and NGL
<F1>
(Per Boe)1 $17.84 12.98 +37%
<CAPTION>
Canada
Three Months Ended
March 31,
1997 1996 Change
Production
Oil (Bbls) 241,683 - NA
Gas (Mcf) 2,117,133 - NA
NGL (Bbls) 34,490 - NA
Oil, Gas and NGL
<F1>
(Boe)1 629,029 - NA
Revenues
Oil $5,075,155 - NA
Gas 3,627,265 - NA
NGL 613,153 - NA
Combined $9,315,573 - NA
Average Prices
Oil (Per Bbl) $21.00 - NA
Gas (Per Mcf) $1.71 - NA
NGL (Per Bbl) $17.78 - NA
Oil, Gas and NGL
<F1>
(Per Boe)1 $14.81 - NA
<F1>
1 Gas is converted to barrels of oil equivalent ("Boe") 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, 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 $21.4
million, or 132%, in the first quarter of 1997. Production gains
of 881,000 barrels, or 101%, added $16.3 million of oil revenues
in the 1997 period. An increase in the average price of $2.92
per barrel, or 16%, added the remaining $5.1 million of increased
oil revenues.
The KMG-NAOS Properties were responsible for the
majority of the increased oil production. These properties
produced 746,000 barrels of oil in the first quarter of 1997.
Approximately 504,000 of these barrels were produced in the U.S.
and another 242,000 barrels were produced in Canada. Devon's
other domestic properties produced 1,009,000 barrels in the first
three months of 1997. This is an increase of 134,000 barrels, or
15%, over the 875,000 barrels produced in the first quarter of
1996.
Gas Revenues. Gas revenues increased by $28.6
million, or 196%, in the first quarter of 1997. An increase in
the average gas price of $0.91 per Mcf, or 56%, added $15.5
million to the 1997 quarter's gas revenues. Also, an increase in
gas production of 8.0 Bcf, or 89%, added the remaining $13.1
million of increased gas revenues.
The KMG-NAOS Properties were the primary
contributors to the increased production volumes in the 1997
quarter. These properties produced 7.7 Bcf in the first three
months of 1997. The KMG-NAOS Properties produced approximately
5.6 Bcf in the U.S. and 2.1 Bcf in Canada. Devon's coal seam gas
properties produced 4.1 Bcf in the first quarter of 1997 compared
to 4.7 Bcf in the first quarter of 1996. Devon's other domestic
properties produced 5.2 Bcf in the 1997 period compared to 4.3
Bcf in the 1996 quarter. Of this 0.9 Bcf increase, production
from Permian Basin wells completed in the second half of 1996
contributed 0.6 Bcf and the Worland properties in Wyoming added
0.3 Bcf.
The coal seam gas properties averaged $2.42 per
Mcf in the first quarter of 1997 compared to $1.40 in the first
quarter of 1996. Devon's domestic conventional gas properties
averaged $2.75 per Mcf in the 1997 quarter compared to $1.88 per
Mcf in the 1996 quarter. Devon's Canadian gas production
averaged $1.71 per Mcf in the 1997 quarter.
NGL Revenues. NGL revenues increased by $2.8
million, or 96%, in the first quarter of 1997. An increase in
production of 141,000 barrels, or 62%, added $1.8 million to
1997's revenues. An increase in the average price of $2.73 per
barrel, or 21%, added the remaining $1.0 million of increased NGL
revenues.
The KMG-NAOS Properties accounted for 95,000
barrels of the total 141,000 barrel increase in production. The
KMG-NAOS Properties produced 61,000 barrels in the U.S. and
34,000 barrels in Canada.
Other Revenues. Other revenues increased by $1.0
million, or 323%, in the first quarter of 1997. The addition of
the KMG-NAOS Properties added $0.6 million of revenues from
processing third party natural gas. The investment of excess
cash on hand in the 1997 quarter added $0.2 million of interest
income.
Production and Operating Expenses. Production and
operating expenses in the first quarter of 1997 varied compared
to the first quarter of 1996 as shown in the tables below.
<TABLE>
<CAPTION>
Total
Three Months Ended
March 31,
1997 1996 Change
Absolute
Recurring operations and maintenance
<S> <C> <C> <C>
expenses $14,861,219 6,546,242 +127%
Well workover expenses 951,418 871,937 +9%
Production taxes 5,309,844 2,141,917 +148%
Total production and operating
expenses $21,122,481 9,560,096 +121%
Per Boe
Recurring operations and maintenance
expenses $3.00 2.52 +19%
Well workover expenses 0.19 0.34 -44%
Production taxes 1.07 0.82 +30%
Total production and operating
expenses $4.26 3.68 +16%
<CAPTION>
Domestic
Three Months Ended
March 31,
1997 1996 Change
Absolute
Recurring operations and maintenance
expenses $13,211,127 6,546,242 +102%
Well workover expenses 918,560 871,937 +5%
Production taxes 5,175,071 2,141,917 +142%
Total production and operating
expenses $19,304,758 9,560,096 +102%
Per Boe
Recurring operations and maintenance
expenses $3.05 2.52 +21%
Well workover expenses 0.21 0.34 -38%
Production taxes 1.20 0.82 +46%
Total production and operating
expenses $4.46 3.68 +21%
<CAPTION>
Canada
Three Months Ended
March 31,
1997 1996 Change
Absolute
Recurring operations and maintenance
expenses $1,650,092 - NA
Well workover expenses 32,858 - NA
Production taxes 134,773 - NA
Total production and operating
expenses $1,817,723 - NA
Per Boe
Recurring operations and maintenance
expenses $2.62 - NA
Well workover expenses 0.05 - NA
Production taxes 0.22 - NA
Total production and operating
expenses $2.89 - NA
</TABLE>
Recurring operations and maintenance expenses
increased by $8.3 million, or 127%, in the first quarter of 1997.
The addition of the KMG-NAOS Properties accounted for $7.0
million of the increased expenses.
Production taxes increased by $3.2 million, or
148%, in the first quarter of 1997. This increase was
attributable to the 157% increase in combined oil, gas and NGL
revenues in the 1997 period.
Recurring expenses per Boe were up by $0.48, or
19%, in the first quarter of 1997 compared to the first quarter
of 1996. This increase was caused by the reduction in the coal
seam gas properties' share of total production. The recurring
operating costs per Boe for these coal seam gas properties are
extremely low ($0.36 per Boe in the first quarter of 1997 and
$0.37 per Boe in the first quarter of 1996). However, as
production from these properties declined and production from
Devon's conventional properties increased in the 1997 quarter,
the coal seam gas properties' percentage of overall production
dropped from 30% in the first three months of 1996 to only 14% in
the first three months of 1997. The result is that more of
Devon's production in the 1997 period was attributable to its
conventional oil and gas properties, which have a higher
operating cost per Boe than the low-cost coal seam gas
properties. The recurring operating costs per Boe for Devon's
conventional properties actually dropped to $3.42 per Boe in the
first quarter of 1997 from $3.45 per Boe in the first quarter of
1996. Even though both the coal seam and the conventional
properties had lower costs per Boe in the 1997 quarter, the
combined cost per Boe increased because of the shift in the
production percentage toward the conventional properties.
Production taxes per Boe increased by $0.25, or
30%, in the first quarter of 1997. This was primarily caused by
the 35% increase in the average price per Boe for oil, gas and
NGL production.
Depreciation, Depletion and Amortization Expenses
("DD&A"). Oil and gas property related DD&A increased $9.2
million, or 95%, from $9.7 million in the first quarter of 1996
to $18.9 million in the first quarter of 1997. The increase in
total oil, gas and NGL production of 2.4 Boe, or 91%, accounted
for $8.8 million of the increased DD&A. The remaining $0.4
million of increased expense was caused by an increase in the
DD&A rate from $3.73 per Boe in the 1996 quarter to $3.81 per Boe
in the 1997 quarter.
General and Administrative Expenses ("G&A"). G&A
increased $0.5 million, or 23%, in the first quarter of 1997.
Employee salaries and related overhead costs, including insurance
and pension expense, increased $1.2 million in the 1997 quarter.
This increase was primarily related to the approximately 65
permanent and 15 temporary personnel added at Devon's Oklahoma
City and Calgary offices as a result of the acquisition of the
KMG-NAOS Properties. The expansion in personnel also caused
office-related costs such as rent, dues, travel, supplies,
telephone, etc., to increase by $0.4 million in the first three
months of 1997.
The higher salary, overhead and office costs were
partially offset by an increase in Devon's overhead
reimbursements. As the operator of a property, Devon receives
these reimbursements from the property's working interest owners.
Devon records the reimbursements as reductions to G&A. Due to
the addition of the KMG-NAOS Properties, many of which Devon
operates, Devon's overhead reimbursements increased by $1.0
million in the first quarter of 1997.
Interest Expense. Interest expense decreased $2.4
million, or 95%, in the first quarter of 1997 due to a
substantial reduction in the average debt outstanding. The
average debt balance outstanding dropped from $149.9 million in
the first quarter of 1996 to $3.0 million in the first quarter of
1997. Devon issued $149.5 million of 6.5% Trust Convertible
Preferred Securities ("TCP Securities") in July, 1996. The
proceeds from this issuance were used to substantially retire
Devon's long-term bank debt. (The TCP Securities are discussed
further below.)
Distributions on Preferred Securities of
Subsidiary Trust. As mentioned in the above discussion of
interest expense, Devon, through an affiliate, issued $149.5
million of 6.5% TCP Securities in July, 1996. Distributions on
the TCP Securities accrue at the rate of 1.625% per quarter.
Distributions on the TCP Securities were $2.4 million in the
first quarter of 1997. There were no distributions in the first
quarter of 1996, as the TCP Securities were not issued until the
third quarter of 1996.
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 first quarter of 1997 was 40%, compared to 43%
estimated in the first quarter of 1996. However, the eventual
actual tax rate for the year 1996 was reduced to 41%, which was
only slightly higher than the current estimated rate for 1997.
Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("Statement 109"), requires
that the tax benefit of available tax carryforwards be recorded
as an asset to the extent that management assesses the
utilization of such carryforwards to be "more likely than not".
When the future utilization of some portion of the carryforwards
is determined not to be "more likely than not", Statement 109
requires that a valuation allowance be provided to reduce the
recorded tax benefits from such assets.
Included as deferred tax assets at March 31, 1997,
were approximately $11 million of various tax carryforwards. Of
this amount, $5 million were for net operating loss carryforwards
which expire between 1998 and 2008. The remaining $6 million of
carryforward benefits related 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,
average prices and pre-tax expenses, management believes that
taxable income during the carryforward periods will be sufficient
to utilize all of the carryforwards currently available. Devon
expects the tax benefits from its net operating loss
carryforwards to be utilized between 1997 and 1999. This is well
before the 2006 expiration date for the majority of such
benefits.
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 1997 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.
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 26% from $18.5 million in the first
quarter of 1996 to $23.3 million in the first quarter of 1997.
Approximately $22.5 million was spent in 1997 on acquisition,
exploration and development costs, compared to $18.3 million
spent in the 1996 quarter. The 1996 total included $4.3 million
to acquire additional interests in the Worland properties in
Wyoming.
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 1997. Operating cash flow in the first
quarter of 1997 was $48.0 million, compared to $16.3 million in
the first quarter of 1996.
Because of the amount of operating cash flow
generated in the first quarter of 1997, Devon's credit lines were
not used as a significant source of capital. Long-term debt at
the end of 1996 was $8 million. During the first quarter of
1997, operating cash flow was utilized to eliminate this debt
balance.
Devon's domestic long-term credit facilities were
amended effective March 15, 1997. At Devon's request, the
borrowing base of the facilities was lowered from $260 million to
$210 million. This will lower Devon's future cost of borrowings.
If future capital needs arise, Devon believes that its lenders
would increase its domestic credit lines to approximately $500
million. The amendment to the credit agreement also lowered the
annual facilities fee from 0.25% of the borrowing base to 0.20%,
and extended the final maturity date of loans outstanding by one
year to August 31, 2003. Also, the lenders' required amount of
minimum tangible net worth was reduced.
Impact of Recently Issued Accounting Standards Not
Yet Adopted. In February, 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." SFAS No. 128 is
effective for financial statements issued for periods ending
after December 15, 1997, and restatement of prior-period earnings
per share data is required. The new standard will not apply to
Devon's financial statements until the fourth quarter of 1997.
SFAS No. 128 revises the current calculation methods and
presentation of primary and fully diluted earnings per share.
Devon has reviewed the requirements of SFAS No. 128, and has
concluded that they will not affect Devon's historical primary
earnings per share data. However, SFAS No. 128 will lower
Devon's historical fully diluted earnings per share amounts by
$0.01 per share in each of the following periods: the year 1994,
the year 1995, the second quarter of 1996 and the third quarter
of 1996.
<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
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 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 among
Registrant, Devon Energy Corporation (Nevada),
Kerr-McGee Corporation, Kerr-McGee North American
Onshore Corporation and Kerr-McGee Canada Onshore
Ltd., dated October 17, 1996 (incorporated by
reference to Addendum A to Registrant's definitive
proxy statement for a special meeting of
shareholders, filed on November 6, 1996).
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 Certificate of Amendment of
Certificate of Incorporation (incorporated by
reference to Exhibit 2 to Registrant's Current
Report on Form 8-K dated December 31, 1996).
3.3 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).
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 First Amendment to Rights Agreement between
Registrant and The First National Bank of Boston
dated October 16, 1996 (incorporated by reference
to Exhibit H-1 to Addendum A to Registrant's
definitive proxy statement for a special meeting
of shareholders, filed on November 6, 1996).
4.4 Second Amendment to Rights Agreement between
Registrant and the First National Bank of Boston,
dated December 31, 1996 (incorporated by reference
to Exhibit 4.2 to Registrant's Current Report on
Form 8-K dated December 31, 1996).
4.5 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).
4.6 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)].
4.7 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)].
4.8 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)].
4.9 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 to Registrant's Registration
Statement on Form S-3 (No. 333-00815)].
4.10 Form of 6 1/2% Preferred Convertible
Securities (included as Exhibit A-1 to Exhibit 4.5
above).
4.11 Form of 6 1/2% Convertible Junior
Subordinated Debentures (included in Exhibit 4.7
above).
4.12 Preferred Securities Guarantee Agreement
dated July 3, 1996, between Registrant, as
Guarantor, and The Bank of New York, as Preferred
Guarantee Trustee [incorporated by reference to
Exhibit 4.11 to Amendment No. 1 to Registrant's
Registration Statement on Form S-3 (No. 333-
00815)].
4.13 Stock Rights and Restrictions Agreement dated
as of December 31, 1996, between Registrant and
Kerr-McGee Corporation (incorporated by reference
to Exhibit 4.3 to Registrant's Current Report on
Form 8-K dated December 31, 1996).
4.14 Registration Rights Agreement, dated December
31, 1996, by and between Registrant and Kerr-McGee
Corporation (incorporated by reference to Exhibit
4.4 to Registrant's Current Report on Form 8-K
dated December 31, 1996).
10.1 Credit Agreement dated August 30, 1996, 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, 1996).
10.2 First Amendment, dated March 15, 1997, to
Credit Agreement among Devon Energy Corporation
(Nevada), as Borrower, the Registrant, as
Guarantor, 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 Devon Energy Corporation 1988 Stock Option
Plan [incorporated by reference to Exhibit 10.4 to
Registrant's Registration Statement on Form S-4
(No. 33-23564)].*
10.4 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).*
10.5 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).*
10.6 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).*
10.7 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).*
10.8 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).*
10.9 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).*
10.10 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).*
10.11 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).
10.12 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).
10.13 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).
10.14 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
* Compensatory plans or arrangements.
(b) Reports on Form 8-K - A Current Report on Form 8-K
dated January 14, 1997, was filed by the Registrant
regarding the December 31, 1996, acquisition of the
KMG-NAOS Properties.
<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: April 21, 1997 /s/William T. Vaughn
William T. Vaughn
Vice President - Finance
<PAGE>
INDEX TO EXHIBITS
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 among Registrant, #
Devon Energy Corporation (Nevada), Kerr-McGee
Corporation, Kerr-McGee North American Onshore
Corporation and Kerr-McGee Canada Onshore Ltd.,
dated October 17, 1996
3.1 Registrant's Certificate of Incorporation, as #
amended
3.2 Registrant's Certificate of Amendment of #
Certificate of Incorporation
3.3 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 First Amendment to Rights Agreement between #
Registrant and The First National Bank of Boston
dated October 16, 1996
4.4 Second Amendment to Rights Agreement between #
Registrant and the First National Bank of Boston,
dated December 31, 1996
4.5 Certificate of Designations of Series A Junior #
Participating Preferred Stock of Registrant
4.6 Certificate of Trust of Devon Financing Trust #
4.7 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
4.8 Indenture dated as of July 3, 1996, between the #
Registrant and The Bank of New York
4.9 First Supplemental Indenture dated as of July 3, #
1996, between the Registrant and The Bank of New
York
4.10 Form of 6 1/2% Preferred Convertible Securities #
(included as Exhibit A-1 to Exhibit 4.5 above)
4.11 Form of 6 1/2% Convertible Junior Subordinated #
Debentures (included in Exhibit 4.7 above)
4.12 Preferred Securities Guarantee Agreement dated #
July 3, 1996, between Registrant, as Guarantor,
and The Bank of New York, as Preferred Guarantee
Trustee
4.13 Stock Rights and Restrictions Agreement dated as #
of December 31, 1996, between Registrant and
Kerr-McGee Corporation
4.14 Registration Rights Agreement, dated December 31, #
1996, by and between Registrant and Kerr-McGee
Corporation
10.1 Credit Agreement dated August 30, 1996, 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 March 15, 1997, to Credit 27
Agreement among Devon Energy Corporation
(Nevada), as Borrower, the Registrant, as
Guarantor, 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 Devon Energy Corporation 1988 Stock Option Plan #
10.4 Devon Energy Corporation 1993 Stock Option Plan #
10.5 Severance Agreement between Devon Energy #
Corporation (Nevada), Devon Energy Corporation
(Delaware) and Mr. J. Larry Nichols, dated
December 3, 1992
10.6 Severance Agreement between Devon Energy #
Corporation (Nevada), Devon Energy Corporation
(Delaware) and Mr. H. R. Sanders, Jr., dated
December 3, 1992
10.7 Severance Agreement between Devon Energy #
Corporation (Nevada), Devon Energy Corporation
(Delaware) and Mr. J. Michael Lacey, dated
December 3, 1992
10.8 Severance Agreement between Devon Energy #
Corporation (Nevada), Devon Energy Corporation
(Delaware) and Mr. H. Allen Turner, dated
December 3, 1992
10.9 Severance Agreement between Devon Energy #
Corporation (Nevada), Devon Energy Corporation
(Delaware) and Mr. Darryl G. Smette, dated
December 3, 1992
10.10 Severance Agreement between Devon Energy #
Corporation (Nevada), Devon Energy
Corporation (Delaware) and Mr. William T.
Vaughn, dated December 3, 1992
10.11 Sale and Purchase Agreement relating to #
Registrant's San Juan Basin gas properties
10.12 Second Restatement of and Amendment to Sale #
and Purchase Agreement relating to
Registrant's San Juan Basin gas properties
10.13 Purchase and Sale Agreement between Union #
Oil Company of California and Devon Energy
Corporation (Nevada)
10.14 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 38
____________________________________
# Incorporated by reference.
<PAGE>
<TABLE>
<CAPTION>
DEVON ENERGY CORPORATION Exhibit 11
Computation of Earnings Per Share
Three Months Ended March 31,
1997 1996
PRIMARY EARNINGS PER SHARE
Computation for Statement of Operations
<S> <C> <C>
Net earnings per statement of operations $25,225,546 5,553,926
Weighted average common shares outstanding 32,141,295 22,112,489
Primary earnings per share $0.78 0.25
Additional Primary Computation (A)
Net earnings per statement of operations $25,225,546 5,553,926
Adjustment to weighted average common shares outstanding:
Weighted average as shown above in primary computation 32,141,295 22,112,489
Add dilutive effect of outstanding stock options
(as determined using the treasury stock method) 358,398 135,253
Weighted average common shares outstanding, as adjusted 32,499,693 22,247,742
Net earnings per common share, as adjusted $0.78 0.25
FULLY DILUTED EARNINGS PER SHARE (A)
Net earnings per statement of operations $25,225,546 5,553,926
Increase in net earnings from assumed conversion
of Trust Convertible Preferred Securities
(net of tax effect) 1,506,488 -
Net earnings, as adjusted $26,732,034 5,553,926
Weighted average common shares outstanding as shown
in primary computation above 32,141,295 22,112,489
Add fully dilutive effect of outstanding stock options
(as determined using the treasury stock method) 358,398 147,146
Add weighted average of additional shares issued
from assumed conversion of Trust Convertible
Preferred Securities 4,901,507 -
Weighted average common shares outstanding, as adjusted 37,401,200 22,259,635
Fully diluted earnings per common share $0.71 0.25
(A) The additional primary computations for both periods, and the fully diluted
computations for the 1996 period, 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>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 24863144
<SECURITIES> 0
<RECEIVABLES> 42743228
<ALLOWANCES> 0
<INVENTORY> 2005919
<CURRENT-ASSETS> 73375376
<PP&E> 996358220
<DEPRECIATION> 301173988
<TOTAL-ASSETS> 778906729
<CURRENT-LIABILITIES> 29221766
<BONDS> 0
3214130
0
<COMMON> 0
<OTHER-SE> 492205607
<TOTAL-LIABILITY-AND-EQUITY> 778906729
<SALES> 86572042
<TOTAL-REVENUES> 87899646
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 21122481
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130807
<INCOME-PRETAX> 42042546
<INCOME-TAX> 16817000
<INCOME-CONTINUING> 25225546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25225546
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.71
</TABLE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment")
is made as of the 15th day of March, 1997, by and among DEVON
ENERGY CORPORATION (NEVADA), as Borrower ("Borrower"), DEVON
ENERGY CORPORATION ("Parent"), as guarantor, 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, Devon Energy Operating
Corporation ("DEOC"), Agent and Lenders have entered into that
certain Credit Agreement dated as of August 30, 1996 (the
"Original Agreement"); and
WHEREAS, DEOC and Avon Energy Corporation have been
liquidated; and
WHEREAS, Parent has 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 its
Guaranty; and
WHEREAS, Borrower, Parent, 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
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.
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 1.2.
"Amendment" means this First Amendment to Credit Agreement.
"Credit Agreement" means the Original Agreement as amended
hereby.
ARTICLE II -- Amendments
2.1. Defined Terms. (a) Section 1.1 of the Original
Agreement is hereby amended by adding the definitions of
"Canadian Facility", "DBC" and "Devon Canada" to read as follows:
-1-
<PAGE>
"Canadian Facility" means an unsecured revolving credit
facility, between Devon Canada and Bank of Montreal, in an
aggregate amount not to exceed U.S. $50,000,000, and any
unsecured guaranty by Parent, Borrower and/or other
Guarantors, guaranteeing such facility.
"DBC" means DBC, Inc., an Oklahoma corporation.
"Devon Canada" means Devon Energy Canada Corporation, a
Canadian corporation organized under the laws of Alberta.
(b) Section 1.1 of the Original Agreement is hereby amended
by amending the definitions of "Commitment Period", "Guarantor"
and Maximum Loan Amount to read as follows:
"Commitment Period" means the period from and including
the date on which the Notes are delivered and accepted as
contemplated in Section 2.4 until and including August 31,
2003 (or any date on which the Notes otherwise become due
and payable in full as provided in the Loan Documents).
"Guarantor" means any Person who has guaranteed some or
all of the Obligations and who has been recognized in
writing by Agent as a Guarantor. Parent and DBC are each
hereby recognized as a Guarantor.
"Maximum Loan Amount" means, with respect to each
Lender, the amount set forth opposite its name on the
signature pages hereto, and "Maximum Loan Amounts" means the
sum of all such amounts; provided,
(a) on August 31, 2000, the Maximum Loan Amounts
shall be automatically ratably reduced to the Available
Borrowing Base which is in effect on such date; and
(b) on the last day of each November, February,
May and August, commencing November 30, 2000, the
Maximum Loan Amounts shall be further automatically
ratably reduced by the Quarterly Reduction Amount; and
(c) on August 31, 2003, the Maximum Loan Amounts
shall be automatically reduced to zero.
As used herein, "Quarterly Reduction Amount" shall mean an
amount equal to eight and one-third percent (8.33%) of the
Available Borrowing Base as of August 31, 2000.
(c) Section 1.1 of the Original Agreement is hereby amended
by deleting the definitions of "Avon" and "DEOC".
2.2. Facility Fees. The reference to "one quarter percent
(0.25%)" set forth in Section 2.8(a) of the Original Agreement is
hereby amended to refer instead to "one-fifth percent (0.2%)".
2.3. Restricted Debt - Operating Leases. Clause (ii) of
Section 5.2(a) of the Original Agreement is hereby amended in its
entirety to read as follows:
-2-
<PAGE>
(ii) operating lease or capital lease obligations
(excluding oil, gas or mineral leases) entered into in the
ordinary course of the Restricted Persons' businesses in
arm's length transactions at competitive market rates under
competitive terms and conditions in all respects;
2.4. Restricted Debt - Canadian Facility and
Miscellaneous. Section 5.2(a) of the Original Agreement is
hereby amended as follows: clause (xi) is renumbered clause
(xii), a new clause (xi) is added, and renumbered clause (xii) is
amended in its entirety, all to read as follows:
(xi) the Canadian Facility; and
(xii) miscellaneous items of Restricted Debt not
described in subsections (i) through (xi) of this subsection
(a) which do not in the aggregate (taking into account all
such Restricted Debt of all Restricted Persons) exceed
$10,000,000 at any one time outstanding; provided, that
after giving effect to such Restricted Debt outstanding from
time to time, Borrower is not in violation of Sections
5.2(j) and (k).
2.5. Limitation on Intercompany Transfers. The
parenthetical in the first clause of clause (ii) of Section
5.2(c) of the Original Agreement is hereby amended in its
entirety to read as follows:
(other than Borrower, Guarantors, Devon Trust and Devon
Canada)
2.6. Limitation on Intercompany Transfers. Clauses (iii)
through (v) of Section 5.2(c) of the Original Agreement are
hereby renumbered (iv) through (vi), and a new clause (iii) is
hereby added to read as follows:
(iii) Parent may make loans or capital
contributions to, purchase shares of common stock from, or
otherwise provide funds to Devon Canada, provided that (A)
the aggregate amount of all such loans, capital
contributions, purchases of shares, and other provisions of
funds to Devon Canada shall not exceed $25,000,000, and (B)
no Default exists immediately before or immediately after
such transaction;
2.7. Tangible Net Worth. Section 5.2(k)(i), (ii) and
(iii) of the Original Agreement is hereby amended in its entirety
to read as follows:
(k) Tangible Net Worth. Parent's Consolidated
Tangible Net Worth will never be less than:
(i) $551,000,000, plus
(ii) one hundred percent (100%) of the proceeds
(net only of costs of sale) from any issuance after
January 1, 1997 of any shares of Parent's common or
preferred stock or any other securities, other than the
-3-
<PAGE>
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.
2.8. Subsidiary Guaranties. The parenthetical contained
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, the other Guarantors, Devon
Trust or Devon Canada)
2.9. Designation of Borrowing Base. Pursuant to Section
2.13 of the Credit Agreement, Agent, with the concurrence of
Evaluating Lenders, hereby designates the new Borrowing Base as
$200,000,000, effective for the period beginning on the date
hereof, a Determination Date, and continuing until but not
including the next date as of which the Borrowing Base is
redetermined.
2.10. Exhibits. Exhibit A to the Original Agreement is
hereby amended in its entirety to read as set forth in Exhibit A
attached hereto.
2.11. DEOC and Avon. Agent and Lenders hereby acknowledge
that DEOC and Avon have been liquidated. All references to DEOC
or Avon in any Loan Document are hereby deleted.
ARTICLE III. -- Conditions of Effectiveness
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, (ii) Borrower shall have issued and delivered to Agent,
for subsequent delivery to each Lender, a Note with appropriate
insertions in the form attached hereto as Exhibit A payable to
the order of such Lender on or before August 31, 2003, duly
executed on behalf of Borrower, dated the date hereof, and in a
principal amount equal to the stated principal amount of the Note
heretofore delivered to such Lender under the Original Agreement,
and (iii) 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) Opinion of Counsel for Borrower. Agent shall have
received the written opinion of McAfee & Taft, P.C., dated
as of the date of this Amendment, addressed to Agent, in the
form of Exhibit B attached hereto.
(b) Officer's Certificate. Agent shall have received
a certificate of a duly authorized officer of Borrower and
Parent 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.
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(c) Supporting Documents. Agent shall have received
(i) a certificate of the Secretary or Assistant Secretary of
Borrower and Parent 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
and Parent authorizing the execution, delivery and
performance of this Amendment and the Notes, certifying the
names and true signatures of the officers of Borrower and
Parent authorized to sign this Amendment and the Notes, and
certifying that the charter documents and bylaws of Borrower
and Parent attached to that certain Omnibus Certificate
dated August 30, 1996 are true, correct and complete as of
the date hereof, and (ii) such supporting documents as Agent
may reasonably request.
ARTICLE IV -- Miscellaneous
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. Parent hereby consents to the provisions of this
Amendment and the Notes 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.
4.2. Representations. Each of Borrower and Parent
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 and Parent
represent and warrant that the resolutions of their respective
Boards of Directors, attached as Exhibits A and B to that certain
Omnibus Certificate dated as of August 30, 1996, given on behalf
of Borrower and Parent in connection with the Original Agreement,
remain in full force and effect on the date hereof.
4.3. Survival of Agreements. All representations,
warranties, covenants and agreements of Borrower or Parent 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.
4.4. Delivery of Prior Notes. Each Lender shall promptly
deliver to Agent, for subsequent delivery to Borrower, the Note
heretofore delivered to it under the Original Agreement.
4.5. 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.
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4.6. 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.
4.7. Loan Documents. This Amendment and each Note 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 and thereto.
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:
William T. Vaughn, Vice President -
Finance
DEVON ENERGY CORPORATION
By:
William T. Vaughn, Vice President -
Finance
NATIONSBANK OF TEXAS, N.A.
By:
Dale T. Wilson, Vice President
BANK ONE, TEXAS, N.A.
By:
Christopher S. Parada, Asst. Vice
President
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BANK OF MONTREAL
By:
Michael P. Stuckey, Director
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:
Michael J. Kolosowsky, Vice President
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CONSENT OF GUARANTOR
DBC, Inc. 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
December 31, 1996 in favor of Agent, as agent for the Lenders.
This Consent is executed as of the date of the Amendment.
DBC, INC.
By:
William T. Vaughn, Vice President -
Finance
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