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 September 30, 1997
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 October 14, 1997, was 32,318,895.
1 of 31 total pages
(Exhibit Index is found at page 28)
<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, September 30, 1997
(Unaudited), and December 31, 1996 4
Consolidated Statements of Operations (Unaudited),
For the Three Months and the Nine Months Ended
September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows (Unaudited),
For the Nine Months Ended September 30, 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 22
2
<PAGE>
DEVON ENERGY CORPORATION
Part I. Financial Information
Item 1. Consolidated Financial Statements
September 30, 1997 and 1996
(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>
September 30, December 31,
1997 1996
(Unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 37,947,666 9,401,350
Accounts receivable 42,234,131 29,580,306
Inventories 2,166,662 2,103,486
Prepaid expenses 1,257,203 688,752
Deferred income taxes 1,600,000 1,600,000
Total current assets 85,205,662 43,373,894
Property and equipment, at cost, based on the
full cost method of accounting for oil and
gas properties 1,062,816,198 974,805,756
Less: Accumulated depreciation, depletion
and amortization 341,619,932 281,959,410
721,196,266 692,846,346
Other assets 14,262,410 10,030,560
Total assets $ 820,664,338 746,250,800
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable:
Trade 12,433,487 4,861,428
Revenues and royalties due to others 10,731,609 10,569,960
Income taxes payable - 4,705,447
Accrued expenses 2,505,694 3,503,420
Total current liabilities 25,670,790 23,640,255
Revenues and royalties due to others 1,044,654 1,053,270
Other liabilities 13,279,281 10,325,999
Long-term debt - 8,000,000
Deferred revenue 18,163 205,859
Deferred income taxes 104,544,000 81,121,000
Company-obligated mandatorily redeemable
convertible preferred securities of
Devon Financing 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 120,000,000 shares; issued
32,293,695 in 1997 and 32,141,295 in 1996 3,229,370 3,214,130
Additional paid-in capital 391,190,915 388,090,930
Retained earnings 132,632,144 81,099,357
Cumulative currency translation adjustment (444,979) -
Total stockholders' equity 526,607,450 472,404,417
Total liabilities and stockholders' equity $ 820,664,338 746,250,800
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
Revenues
<S> <C> <C> <C> <C>
Oil sales $31,267,250 20,342,307 100,857,256 55,994,559
Gas sales 34,044,149 15,289,596 107,458,126 44,123,924
Natural gas liquids sales 5,206,135 3,375,507 16,534,020 9,366,377
Other 2,342,969 466,270 5,562,529 1,335,493
Total revenues 72,860,503 39,473,680 230,411,931 110,820,353
Costs and expenses
Lease operating expenses 15,814,690 7,622,554 46,155,611 22,795,807
Production taxes 4,109,654 2,587,664 13,165,045 7,075,577
Depreciation, depletion and
amortization 20,246,574 11,046,617 60,388,870 31,634,780
General and administrative
expenses 2,992,104 2,139,647 9,228,599 6,664,597
Interest expense 90,146 230,775 249,184 5,172,855
Distributions on preferred securities
of subsidiary trust 2,429,375 2,323,750 7,288,126 2,323,750
Total costs and expenses 45,682,543 25,951,007 136,475,435 75,667,366
Earnings before income taxes 27,177,960 13,522,673 93,936,496 35,152,987
Income tax expense
Current 5,546,000 1,758,000 14,091,000 4,570,000
Deferred 5,326,000 4,057,000 23,484,000 10,546,000
Total income tax expense 10,872,000 5,815,000 37,575,000 15,116,000
Net earnings $16,305,960 7,707,673 56,361,496 20,036,987
Net earnings per average common share
outstanding (Note 2):
Assuming no dilution $0.51 0.35 1.75 0.91
Assuming full dilution $0.47 0.35 1.62 0.91
Weighted average common shares outstanding 32,235,002 22,130,896 32,181,077 22,121,757
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Nine Months
Ended September 30,
1997 1996
Cash flows from operating activities
<S> <C> <C>
Net earnings $ 56,361,496 20,036,987
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, depletion and amortization 60,388,870 31,634,780
(Gain) loss on sale of assets (155,040) 26,191
Deferred income taxes 23,484,000 10,546,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (12,138,238) (4,304,455)
Inventories (73,883) (195,490)
Prepaid expenses (568,739) (622,671)
Other assets (767,123) 609,654
Increase (decrease) in:
Accounts payable 8,444,761 (4,730,276)
Income taxes payable (4,705,447) 1,865,773
Accrued expenses (1,173,599) 421,752
Revenues and royalties due to others (8,616) 235,051
Deferred revenue (187,696) 240,942
Long-term other liabilities 49,298 376,242
Net cash provided by operating activities 128,950,044 56,140,480
Cash flows from investing activities
Proceeds from sale of property and equipment 1,436,610 1,824,009
Capital expenditures (91,418,731) (65,765,581)
Increase in other assets (2,700,941) -
Net cash used in investing activities (92,683,062) (63,941,572)
Cash flows from financing activities
Proceeds from borrowings on revolving line of credit 1,847,750 21,000,000
Principal payments on revolving line of credit (9,843,750)(159,000,000)
Issuance of common stock 3,115,223 159,125
Issuance of preferred securities of subsidiary
trust, net of issuance costs - 144,888,879
Dividends paid on common stock (4,828,709) (1,991,271)
Increase in long-term other liabilities 2,020,566 945,099
Net cash provided (used) by financing activities (7,688,920) 6,001,832
Effect of exchange rate changes on cash (31,746) -
Net increase (decrease) in cash and cash equivalents 28,546,316 (1,799,260)
Cash and cash equivalents at beginning of period 9,401,350 8,897,891
Cash and cash equivalents at end of period $ 37,947,666 7,098,631
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
September 30 1997, and the results of their operations and
their cash flows for the three month and nine month periods
ended September 30, 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 periods ended September 30, 1997, include 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 month and nine month
periods ended September 30, 1997. (There was no dilutive
effect on earnings per share in the comparable 1996 periods.)
2. Earnings Per Share (Continued)
<TABLE>
<CAPTION>
Net
Common Earnings
Net Shares Per
Earnings Outstanding Share
Three Months Ended Sepetember 30, 1997:
<S> <C> <C> <C>
Net earnings per share, assuming no dilution $16,305,960 32,235,020 0.51
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) 1,506,489 4,901,507
Potential common shares issuable upon the exercise
of employee stock options (calculated using the
treasury stock method) - 526,725
Net earnings per share, assuming full dilution $17,812,449 37,663,252 0.47
Nine Months Ended September 30, 1997:
Net earnings per share, assuming no dilution 56,361,496 32,181,077 1.75
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 $2,889,000) 4,519,466 4,901,507
Potential common shares issuable upon the exercise
of employee stock options (calculated using the
treasury stock method) - 550,986
Net earnings per share, assuming full dilution $60,880,962 37,633,570 1.62
</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 month and nine
month periods ended September 30, 1997, compared to the three
month and nine month periods ended September 30, 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 was the primary reason for the changes
in Devon's operational results between the 1997 and 1996 third
quarter and year-to-date periods.
Production for the third quarter of 1997 totaled
5.1 million Boe of oil, gas and natural gas liquids ("NGL").
This was an increase of 92% over the third quarter of 1996.
Revenues for the third quarter of 1997 were $72.9 million, an
increase of 85% over the prior year's third quarter. Net
earnings for the 1997 quarter were $16.3 million, or $0.51 per
share. The 1997 net earnings were 112% above the prior year's
quarterly results. The 1997 per share amount was 46% above
the comparable 1996 amount, with approximately 10 million more
<F1>
shares outstanding in the 1997 period. The cash margin 1 for
the third quarter of 1997 also increased significantly to
$41.9 million, an increase of 84% over the 1996 third
quarter's cash margin of $22.8 million.
Year-to-date production for the first nine months
of 1997 totaled 15.1 million Boe. This was 91% greater than
the total for the first nine months of 1996. Revenues for the
<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.
first nine months of 1997 were $230.4 million, an increase of
108% over the comparable 1996 period's revenues. Net earnings
for the first nine months of 1997 were $56.4 million, or $1.75
per share. The 1997 earnings were 181% above the 1996 nine-
month total. The 1997 per share amount was 92% above the
comparable 1996 amount, with approximately 10 million more
shares outstanding in the 1997 period. The cash margin for
the first nine months of 1997 was $140.2 million, an increase
of 125% over the cash margin of $62.2 million for the
comparable 1996 period.
Results of Operations
Total revenues increased by $33.4 million, or 85%,
in the third quarter of 1997 compared to the third quarter of
1996, and by $119.6 million, or 108%, in the first nine months
of 1997 compared to the same period in 1996. These increases
were primarily caused by substantial gains in oil, gas and NGL
revenues. Combined oil, gas and NGL revenues increased by 81%
in the third quarter of 1997, and 105% in the year-to-date
period of 1997. The relative contributions of production and
price changes are shown 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 Nine Months Ended
September 30, September 30,
1997 1996 Change 1997 1996 Change
Production
<S> <C> <C> <C> <C> <C> <C>
Oil (Bbls) 1,725,020 957,268 +80% 5,218,472 2,788,446 +87%
Gas (Mcf) 17,730,418 8,661,984 +105% 52,062,741 26,476,320 +97%
NGL (Bbls) 414,446 253,811 +63% 1,214,944 704,346 +72%
Oil, Gas and
<F1>
NGL (Boe)1 5,094,536 2,654,743 +92% 15,110,540 7,905,512 +91%
Revenues
Oil $31,267,250 20,342,307 +54% 100,857,256 55,994,559 +80%
Gas 34,044,149 15,289,596 +123% 107,458,126 44,123,924 +144%
NGL 5,206,135 3,375,507 +54% 16,534,020 9,366,377 +77%
Combined $70,517,534 39,007,410 +81% 224,849,402 109,484,860 +105%
Average Prices
Oil (Per Bbl) $18.13 21.25 -15% 19.33 20.08 -4%
Gas (Per Mcf) $1.92 1.77 +8% 2.06 1.67 +23%
NGL (Per Bbl) $12.56 13.30 -6% 13.61 13.30 +2%
Oil, Gas and NGL
<F1>
(Per Boe)1 $13.84 14.69 -6% 14.88 13.85 +7%
</TABLE>
<TABLE>
<CAPTION>
Domestic
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 Change 1997 1996 Change
Production
<S> <C> <C> <C> <C> <C> <C>
Oil (Bbls) 1,503,734 957,268 +57% 4,520,756 2,788,446 +62%
Gas (Mcf) 15,662,465 8,661,984 +81% 45,761,290 26,476,320 +73%
NGL (Bbls) 372,322 253,811 +47% 1,091,316 704,346 +55%
Oil, Gas and
<F1>
NGL (Boe)1 4,486,467 2,654,743 +69% 13,238,954 7,905,512 +67%
Revenues
Oil $27,297,108 20,342,307 +34% 87,513,250 55,994,559 +56%
Gas 31,524,367 15,289,596 +106% 98,843,718 44,123,924 +124%
NGL 4,617,201 3,375,507 +37% 14,598,360 9,366,377 +56%
Combined $63,438,676 39,007,410 +63% 200,955,328 109,484,860 +84%
Average Prices
Oil (Per Bbl) $18.15 21.25 -15% 19.36 20.08 -4%
Gas (Per Mcf) $2.01 1.77 +14% 2.16 1.67 +29%
NGL (Per Bbl) $12.40 13.30 -7% 13.38 13.30 +1%
Oil, Gas and NGL
<F1>
(Per Boe)1 $14.14 14.69 -4% 15.18 13.85 +10%
</TABLE>
<TABLE>
<CAPTION>
Canada
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 Change 1997 1996 Change
Production
<S> <C> <C> <C> <C> <C> <C>
Oil (Bbls) 221,286 - NA 697,716 - NA
Gas (Mcf) 2,067,953 - NA 6,301,451 - NA
NGL (Bbls) 42,124 - NA 123,628 - NA
Oil, Gas and
<F1>
NGL (Boe)1 608,069 - NA 1,871,586 - NA
Revenues
Oil $3,970,142 - NA 13,344,006 - NA
Gas 2,519,782 - NA 8,614,408 - NA
NGL 588,934 - NA 1,935,660 - NA
Combined $7,078,858 - NA 23,894,074 - NA
Average Prices
Oil (Per Bbl) $17.94 - NA 19.13 - NA
Gas (Per Mcf) $1.22 - NA 1.37 - NA
NGL (Per Bbl) $13.98 - NA 15.66 - NA
Oil, Gas and NGL
<F1>
(Per Boe)1 $11.64 - NA 12.77 - NA
<F1>
1 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 $10.9
million, or 54%, in the third quarter of 1997 compared to the
same period of 1996. Production gains of 768,000 barrels, or
80%, added $16.3 million of oil revenues in the 1997 period.
This increase was partially offset by a $5.4 million reduction
in oil revenues caused by a $3.12 per barrel decrease in the
third quarter of 1997 s average oil price.
The KMG-NAOS Properties were responsible for the
increased oil production. These properties produced 780,000
barrels of oil in the third quarter of 1997. Approximately
559,000 of these barrels were produced in the U.S. and another
221,000 barrels were produced in Canada. Devon s other
domestic properties produced 945,000 barrels in the third
quarter of 1997. This was a decrease of 12,000 barrels, or
1%, compared to the 957,000 barrels produced in the third
quarter of 1996.
Oil revenues increased by $44.9 million, or 80%,
in the first nine months of 1997 compared to the same period
in 1996. Production gains of 2,430,000 barrels, or 87%, added
$48.8 million of oil revenues in the 1997 period. This
increase was partially offset by a $3.9 million reduction in
oil revenues caused by a $0.75 per barrel decrease in the
year-to-date period of 1997.
The KMG-NAOS Properties were the primary
contributors to the increased oil production in the 1997 year-
to-date period. These properties produced 2,282,000 barrels
of oil in the first nine months of 1997. Approximately
1,584,000 of these barrels were produced in the U.S., while
698,000 barrels were produced in Canada. Devon s other
domestic properties produced 2,937,000 barrels in the first
nine months of 1997. This was an increase of 149,000 barrels,
or 5%, over the 2,788,000 barrels produced in the first nine
months of 1996.
Gas Revenues. Gas revenues increased by $18.8
million, or 123%, in the third quarter of 1997 compared to the
third quarter of 1996. An increase in gas production of 9.1
Bcf, or 105%, added $16.0 million to the 1997 quarter s gas
sales. Also, an increase in the average gas price of $0.15
per Mcf, or 8%, added the remaining $2.8 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 7.8 Bcf in the third
quarter of 1997. The KMG-NAOS Properties produced 5.7 Bcf in
the U.S. and 2.1 Bcf in Canada. Devon s coal seam gas
properties produced 4.2 Bcf in the third quarter of 1997 and
the third quarter of 1996. Devon's other domestic properties
produced 5.8 Bcf in the 1997 period compared to 4.5 Bcf in the
third quarter of 1996.
The coal seam gas properties averaged $1.88 per
Mcf in the third quarter of 1997 compared to $1.71 per Mcf in
the third quarter of 1996. Devon s domestic conventional gas
properties averaged $2.06 per Mcf in the 1997 quarter compared
to $1.82 per Mcf in the 1996 quarter. Devon s Canadian gas
production averaged $1.22 per Mcf in the 1997 quarter.
Gas revenues increased by $63.3 million, or 144%,
in the first nine months of 1997 compared to the same period
of 1996. An increase in gas production of 25.6 Bcf, or 97%,
added $42.6 million of gas sales in the 1997 period. An
increase in the average price of $0.39 per Mcf, or 23%, added
the remaining $20.7 million of increased gas sales.
The KMG-NAOS Properties were responsible for the
majority of the increased gas production. These properties
produced 22.7 Bcf in the first nine months of 1997.
Approximately 16.4 Bcf of this production was in the U.S.,
while the remaining 6.3 Bcf was produced in Canada. Devon s
coal seam gas properties produced 12.8 Bcf in the first nine
months of 1997 compared to 13.2 Bcf in the comparable 1996
period. Devon s other domestic properties produced 16.7 Bcf
in the first nine months of 1997 compared to 13.3 Bcf in the
first nine months of 1996.
The coal seam gas properties averaged $2.00 per
Mcf in the first nine months of 1997 compared to $1.47 per Mcf
in the comparable 1996 period. Devon s domestic conventional
gas properties averaged $2.22 per Mcf in the 1997 period
compared to $1.86 per Mcf in the 1996 period. Devon s
Canadian gas production averaged $1.37 per Mcf in the first
nine months of 1997.
NGL Revenues. NGL revenues increased by $1.8
million, or 54%, in the third quarter of 1997 compared to the
third quarter of 1996. An increase in production of 161,000
barrels, or 63%, added $2.1 million to the 1997 quarter s
revenues. This was partially offset by a $0.3 million
reduction in revenues caused by a $0.74 per barrel decrease in
the 1997 quarter s average price.
The KMG-NAOS Properties accounted for 121,000
barrels of the total increase in production. The KMG-NAOS
Properties produced 79,000 barrels in the U.S. and 42,000
barrels in Canada.
NGL revenues increased by $7.2 million, or 77%,
in the first nine months of 1997 compared to the same period
of 1996. An increase in production of 511,000 barrels, or
72%, added $6.8 million to the 1997 period s revenues. An
increase in the average price of $0.31 per barrel in 1997
added the remaining $0.4 million of increased NGL revenues.
The KMG-NAOS Properties produced 366,000 barrels
in the first nine months of 1997. These properties produced
242,000 barrels in the U.S. and 124,000 barrels in Canada.
Other Revenues. Other revenues increased by $1.9
million, or 402%, in the third quarter of 1997. The addition
of the KMG-NAOS Properties added $0.8 million of revenues in
the 1997 quarter from processing third party natural gas. The
investment of excess cash on hand in the 1997 quarter added
$0.6 million of interest income.
Other revenues increased by $4.2 million, or
317%, in the first nine months of 1997. Processing of third
party natural gas related to the KMG-NAOS Properties accounted
for $2.4 million of the increase. Another $1.2 million of the
increase in other revenues was attributable to interest income
earned in the first nine months of 1997.
Production and Operating Expenses. Components of
production and operating expenses in the second quarter and
first half of 1997 increased or decreased compared to 1996 as
shown in the tables below.
<TABLE>
<CAPTION>
Total
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 Change 1997 1996 Change
Expenses
Recurring operations and
<S> <C> <C> <C> <C> <C> <C>
maintenance expenses $14,513,305 7,173,359 +102% 43,088,111 20,553,364 +110%
Well workover expenses 1,301,385 449,195 +190% 3,067,500 2,242,443 +37%
Production taxes 4,109,654 2,587,664 +59% 13,165,045 7,075,577 +86%
Total production and
operating expenses $19,924,344 10,210,218 +95% 59,320,656 29,871,384 +99%
Expenses Per Boe
Recurring operations and
maintenance expenses $2.85 2.70 +6% 2.85 2.60 +10%
Well workover expenses 0.25 0.17 +47% 0.21 0.28 -25%
Production taxes 0.81 0.98 -17% 0.87 0.90 -3%
Total production and
operating expenses $3.91 3.85 +2% 3.93 3.78 +4%
</TABLE>
<TABLE>
<CAPTION>
Domestic
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 Change 1997 1996 Change
Expenses
Recurring operations and
<S> <C> <C> <C> <C> <C> <C>
maintenance expenses $12,782,991 7,173,359 +78% 38,447,151 20,553,364 +87%
Well workover expenses 849,830 449,195 +89% 2,410,520 2,242,443 +7%
Production taxes 4,043,208 2,587,664 +56% 12,961,285 7,075,577 +83%
Total production and
operating expenses $17,676,029 10,210,218 +73% 53,818,956 29,871,384 +80%
Expenses Per Boe
Recurring operations and
maintenance expenses $2.85 2.70 +6% 2.91 2.60 +12%
Well workover expenses 0.19 0.17 +12% 0.18 0.28 -36%
Production taxes 0.90 0.98 -8% 0.98 0.90 +9%
Total production and
operating expenses $3.94 3.85 +2% 4.07 3.78 +8%
</TABLE>
<TABLE>
<CAPTION>
Canada
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 Change 1997 1996 Change
Expenses
Recurring operations and
<S> <C> <C> <C> <C> <C> <C>
maintenance expenses $1,730,314 - NA 4,640,960 - NA
Well workover expenses 451,555 - NA 656,980 - NA
Production taxes 66,446 - NA 203,760 - NA
Total production and
operating expenses $2,248,315 - NA 5,501,700 - NA
Expenses Per Boe
Recurring operations and
maintenance expenses $2.85 - NA 2.48 - NA
Well workover expenses 0.74 - NA 0.35 - NA
Production taxes 0.11 - NA 0.11 - NA
Total production and
operating expenses $3.70 - NA 2.94 - NA
</TABLE>
Recurring operations and maintenance expenses
increased by $7.3 million, or 102%, in the third quarter of
1997. The addition of the KMG-NAOS Properties accounted for
$5.5 million of the increased expenses. Expenses on wells
drilled since September 30, 1996, comprised the majority of
the remaining $1.8 million increase.
Production taxes increased by $1.5 million, or
59%, in the third quarter of 1997. This increase was
attributable to the 81% increase in combined oil, gas and NGL
revenues in the 1997 period.
Recurring expenses per Boe were up by $0.15, or
6%, in the third quarter of 1997 compared to the same 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 the coal seam gas
properties are extremely low ($0.40 per Boe in the third
quarter of 1997 and $0.30 per Boe in the third 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 26% in the 1996 quarter to
only 14% in the 1997 quarter. The result is that more of
Devon s production in the 1997 period was attributable to its
conventional 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 $3.24 per Boe in the third
quarter of 1997 from $3.56 per Boe in the third quarter of
1996. Even though the coal seam costs per Boe rose only $0.10
and the conventional properties costs per Boe dropped by
$0.32 in the 1997 quarter, the overall cost per Boe increased
because of the shift in the production percentage toward the
conventional properties.
Recurring operations and maintenance expenses
increased by $22.5 million, or 110%, in the first nine months
of 1997. The KMG-NAOS Properties accounted for $17.3 million
of the increased expenses. Most of the remaining $5.2 million
of increased expenses was due to wells which were drilled
subsequent to September 30, 1996.
Production taxes increased by $6.1 million, or
86%, in the first nine months of 1997. This increase was
attributable to the 105% increase in combined oil, gas and NGL
revenues in the 1997 period.
Recurring expenses per Boe were up by $0.25, or
10%, in the first nine months of 1997. As explained above in
the discussion of the quarterly increase, the increase in the
percentage of production attributable to the conventional
properties is the cause of the increase in the costs per Boe.
Expenses of Devon s coal seam gas properties were $0.37 per
Boe in the first nine months of 1997 compared to $0.32 per Boe
in the first nine months of 1996. Expenses of Devon s
conventional properties were $3.26 per Boe in the 1997 period
compared to $3.48 per Boe in the 1996 period. Even though the
per unit expenses increased only $0.05 per Boe for the coal
seam properties and decreased by $0.22 per Boe for the
conventional properties, Devon s overall cost per Boe
increased. This was caused by the drop in the percentage of
Devon s overall production attributable to the extremely low-
cost coal seam properties. Such properties accounted for 28%
of combined production in the first nine months of 1996, but
only accounted for 14% of the 1997 period s production.
Depreciation, Depletion and Amortization Expense
( DD&A ). Oil and gas property related DD&A increased $8.9
million, or 85%, from $10.6 million in the third quarter of
1996 to $19.5 million in the third quarter of 1997. The
increase in combined oil, gas and NGL production of 2.4
million Boe, or 92%, added $9.7 million of DD&A. This was
partially offset by a $0.8 million decrease in DD&A caused by
a reduction in the 1997 quarter's DD&A rate. The DD&A rate
dropped to $3.83 per Boe in the 1997 quarter compared to $3.98
per Boe in the 1996 quarter due to 1997 upward reserve revisions.
Oil and gas property related DD&A increased $28.0
million, or 92%, from $30.3 million in the first nine months
of 1996 to $58.3 million in the first nine months of 1997.
The increase in combined oil, gas and NGL production of 7.2
million Boe, or 91%, accounted for $27.6 million of the
increased DD&A. The remaining $0.4 million of the increased
expense was caused by an increase in the DD&A rate from $3.83
per Boe in the year-to-date 1996 period to $3.86 per Boe in
the 1997 year-to-date period.
General and Administrative Expenses ( G&A ). G&A
increased $0.9 million, or 40%, in the third 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
additional permanent and 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 $0.5 million
in the third quarter.
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 $0.8 million in the third quarter of 1997.
The amount of G&A capitalized pursuant to the
full cost method of accounting for oil and gas properties
increased from $0.7 million in the third quarter of 1996 to
$0.9 million in the third quarter of 1997.
G&A increased $2.6 million, or 38%, in the first
nine months of 1997. Employee salaries and related overhead
costs increased by $3.9 million due to the expansion in
personnel from the acquisition of the KMG-NAOS Properties.
This expansion also caused office-related costs to increase by
$1.4 million in the first nine months of 1997. The higher
salary, overhead and office costs were partially offset by a
$2.7 million increase in Devon s overhead reimbursements.
Capitalized G&A increased from $2.0 million in
the first nine months of 1996 to $2.7 million in the same
period of 1997.
Interest Expense. Interest expense decreased
$0.1 million, or 61%, in the third quarter of 1997 due to a
substantial reduction in the average debt outstanding. The
average debt balance outstanding dropped from $5.7 million in
the third quarter of 1996 to zero in the third 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, along with cash flow from
operations, were used to substantially retire Devon s long-
term bank debt. (The TCP Securities are discussed further
below.)
Interest expense decreased $4.9 million, or 95%,
in the first nine months of 1997. This reduction was caused
by a drop in the average debt balance outstanding from $102.3
million in the first nine months of 1996 to only $1.0 million
in the first nine months of 1997. As explained above, the
issuance of the TCP Securities in July, 1996, was the primary
reason for the reduction in Devon s long-term bank debt.
Distributions on Preferred Securities of
Subsidiary Trust. As mentioned in the above discussions 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 third quarter of 1997 and $2.3 million in the
third quarter of 1996. The 1996 amount was slightly lower
because the initial distribution in 1996 did not cover the
entire third quarter.
Income Taxes. During interim periods, income tax
expense is based on the estimated effective tax rate for the
entire fiscal year. The estimated effective tax rate in the
third quarter and first nine months of 1997 was 40%, compared
to 43% estimated in the third quarter and first nine months 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 September 30,
1997, were approximately $11 million of various tax
carryforwards. Of this amount, $5 million were for net
operating loss carryforwards that expire between 1998 and
2008. The remaining $6 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, 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 39% from $65.8 million in the first
nine months of 1996 to $91.4 million in the first nine months
of 1997. Approximately $87.7 million was spent in the 1997
period on acquisition, exploration and development costs,
compared to $65.1 million in the 1996 period.
Capital Resources and Liquidity. Net cash
provided by operating activities ( operating cash flow )
continued to be the primary source of capital and liquidity in
the first nine months of 1997. Operating cash flow in the
1997 year-to-date period was $129.0 million compared to $56.1
million in the comparable 1996 period.
Because of the amount of operating cash flow
generated in the first nine months 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 in March, 1997. At Devon s request, the borrowing
base of the facilities was lowered from $260 million to $208
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 amendments to the credit agreements also lowered
the annual facilities fee from 0.25% of the borrowing base to
0.20%, and extended the final maturity date for $200 million
of the facilities to August 31, 2003. The maturity date for
the remaining $8 million of credit facilities is August 31,
2000. Also, the amendments reduced Devon s minimum tangible
net worth required by the lenders.
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 date 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.
Revisions to 1997 Estimates
The 1996 annual report on Form 10-K, and a Form
8-K filed on February 11, 1997, contained forward-looking
information for the year 1997. This information was revised
to the extent necessary in the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997. Where necessary, that
information has been further revised in the following
discussion. The revised forward-looking statements provided
in this discussion are based on management's examination of
historical operating trends, the December 31, 1996 reserve
reports of independent petroleum consultants LaRoche Petroleum
Consultants, Ltd. and AMH Group Ltd., data in Devon's files,
other data available from third parties, and actual results
for the first half of 1997. Devon cautions that its future
oil, gas and NGL production, revenues and expenses are subject
to all of the risks and uncertainties normally incident to the
exploration for and development and production of oil and gas.
These risks include, but are not limited to, environmental
risks, drilling risks, regulatory changes, the uncertainty
inherent in estimating future oil and gas production or
reserves, and other risks as outlined below. The scope of
Devon's operations increased significantly with the KMG-NAOS
transaction. This increases the margin of error inherent in
estimating Devon's 1997 production volumes, prices and
expenses. Also, the financial results for Devon's new
Canadian operations, obtained in the KMG-NAOS transaction, are
subject to currency exchange rate risks.
Assumptions and Risks for Price and Production
Estimates. Prices for oil, natural gas and NGLs are
determined primarily by prevailing market conditions. Market
conditions for these products are influenced by regional and
world-wide economic growth, weather and other substantially
variable factors. These factors are beyond Devon's control
and are difficult to predict. Over 90% of Devon's revenues
are attributable to sales of these three commodities.
Consequently, the company's financial results and resources
are highly influenced by this price volatility.
Estimates for Devon's future production of oil,
natural gas and NGLs are based on the assumption that market
demand and prices for oil and gas will continue at levels that
allow for profitable production of these products. Although
Devon's management believes these assumptions to be
reasonable, there can be no assurance of such stability.
Certain of Devon's individual oil and gas
properties are sufficiently significant as to have a material
impact on the company's overall financial results. With
respect to oil production, these properties include the West
Red Lake Field and the Grayburg-Jackson Unit, both in
southeast New Mexico. The company's interest in coal seam
natural gas in the Northeast Blanco Unit and the 32-9 Unit can
have a substantive effect on overall gas production.
The production, transportation and marketing of
oil, natural gas and NGLs are complex processes which are
subject to disruption due to transportation and processing
availability, mechanical failure, human error, meteorological
events and numerous other factors. The following forward-
looking statements were prepared assuming demand, curtailment,
producibility and general market conditions for Devon's oil,
natural gas and NGLs for the last quarter of 1997 will be
substantially similar to those of the first three quarters,
unless otherwise noted.
Discussed below are those areas where revisions
have been made to the 1997 estimates originally included in
the aforementioned Form 10-K and Form 8-K, and first revised
in the June 30, 1997 Form 10-Q.
Relative Prices of Oil Production. In the
revisions to forward-looking information which were included
in the June 30, 1997, Form 10-Q, Devon revised its expected
1997 oil price upward to between $0.15 above West Texas
Intermediate posted prices ("WTI") and $0.30 above WTI. Since
the time of that revision, three factors have caused Devon to
raise its expected oil prices again. First, the price
differential between higher-priced sweet crude and lower-
priced sour crude has narrowed substantially. Therefore,
Devon's expected price for its sour crude has increased as it
relates to WTI. Second, Devon's proportionate mix of sweet
and sour crude production has shifted towards a larger
percentage of the higher-priced sweet crude. And third, since
the June, 1997, price revision, Devon has been successful at
replacing expiring crude contracts with new contracts that
have pricing terms equal to or better than the terms of the
expiring contracts. These factors contributed to Devon's
average oil price for the first nine months of 1997 being
$0.41 above WTI. As a result of these events, Devon has again
revised upward its estimate for the year's average oil price
in 1997. Devon now expects its average oil price for 1997 to
be between $0.30 above WTI and $0.50 above WTI.
Relative Prices of Gas Production. In the
original forward-looking information included in the
aforementioned Form 8-K and Form 10-K, Devon estimated that
its average price for coal seam gas production would include
an expected $0.55 per Mcf from the San Juan Basin Transaction.
(See Note 3 to the consolidated financial statements included
in the 1996 Form 10-K for a complete description of the San
Juan Basin Transaction.) Recent upward revisions to Devon's
expected future San Juan Basin prices, and the effect of such
revisions on certain provisions of the agreement covering the
San Juan Basin Transaction, have caused Devon to lower the
expected price benefit from such transaction. Devon believes
that the San Juan Basin transaction will add between $0.40 per
Mcf and $0.50 per Mcf to Devon's 1997 coal seam gas average
price.
Income Taxes. In the June 30, 1997, Form 10-Q,
Devon revised upward its estimate of the current portion of
its 1997 income tax expense to between $11 million and $15
million. The upward revision was necessitated by an upward
revision to expected pre-tax earnings for the year. Since
that June revision, Devon has again revised upward its
estimate of 1997's pre-tax earnings. Accordingly, Devon now
expects its current portion of 1997 income taxes to be between
$16 million and $22 million. The original estimate of Devon's
total income tax rate of between 38% and 42% has not been
revised.
<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 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 (incorporated by reference to Exhibit
10.2 to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997).
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 Devon Energy Corporation 1997 Stock Option Plan
(incorporated by reference to Exhibit A to
Registrant's Proxy Statement for the 1997
Annual Meeting of Shareholders filed on April
3, 1997).*
10.6 Severance Agreement among Devon Energy
Corporation (Nevada), Registrant 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).*
10.7 Severance Agreement among Devon Energy
Corporation (Nevada), Registrant 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 among Devon Energy
Corporation (Nevada), Registrant 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 among Devon Energy
Corporation (Nevada), Registrant 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 among Devon Energy
Corporation (Nevada), Registrant 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 Severance Agreement among Devon Energy
Corporation (Nevada), Registrant and Duke
R. Ligon dated March 26, 1997
(incorporated by reference to Exhibit
10.11 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30,
1997).*
10.12 Employment Agreement between Registrant
and Duke R. Ligon dated February 7, 1997
(incorporated by reference to Exhibit
10.12 to Registrant's Quarterly Regport on
Form 10-Q for the quarter ended June 30,
1997).*
10.13 Supplemental Retirement Income Agreement
among Devon Energy Corporation (Nevada),
Registrant and John W. Nichols dated March
26, 1997 (incorporated by reference to
Exhibit 10.13 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1997).*
10.14 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).
10.15 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).
10.16 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).
10.17 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 - No reports on Form 8-K were
filed during the three months ended September 30,
1997.
<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: October 20, 1997 /s/William T. Vaughn
William T. Vaughn
Vice President - Finance
<PAGE>
INDEX TO EXHIBITS
Page
2.1 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 #
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 Devon Energy Corporation 1997 Stock Option Plan #
10.6 Severance Agreement among Devon Energy #
Corporation (Nevada), Registrant and Mr. J. Larry
Nichols, dated December 3, 1992
10.7 Severance Agreement among Devon Energy #
Corporation (Nevada), Registrant and Mr. J.
Michael Lacey, dated December 3, 1992
10.8 Severance Agreement among Devon Energy #
Corporation (Nevada), Registrant and Mr. H. Allen
Turner, dated December 3, 1992
10.9 Severance Agreement among Devon Energy #
Corporation (Nevada), Registrant and Mr. Darryl
G. Smette, dated December 3, 1992
10.10 Severance Agreement among Devon Energy #
Corporation (Nevada), Registrant and Mr.
William T. Vaughn, dated December 3, 1992
10.11 Severance Agreement among Devon Energy #
Corporation (Nevada), Registrant and Duke R.
Ligon dated March 26, 1997
10.12 Employment Agreement between Registrant and #
Duke R. Ligon dated February 7, 1997
10.13 Supplement Retirement Income Agreement among #
Devon Energy Corporation (Nevada),
Registrant and John W. Nichols dated March
26, 1997
10.14 Sale and Purchase Agreement relating to #
Registrant's San Juan Basin gas properties
10.15 Second Restatement of and Amendment to Sale #
and Purchase Agreement relating to
Registrant's San Juan Basin gas properties
10.16 Purchase and Sale Agreement between Union #
Oil Company of California and Devon Energy
Corporation (Nevada)
10.17 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 31
______________________________________
# Incorporated by reference.
<TABLE>
DEVON ENERGY CORPORATION Exhibit 11
Computation of Earnings Per Share
<CAPTION>
Three Monthes Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
PRIMARY EARNINGS PER SHARE
Computation for Statement of Operations
<S> <C> <C> <C> <C>
Net earnings per statement of operations $16,305,960 7,707,673 56,361,496 20,036,987
Weighted average common shares outstanding 32,235,002 22,130,896 32,181,077 22,121,757
Primary earnings per share $0.51 0.35 1.75 0.91
Additional Primary Computation (A)
Net earnings per statement of operations $16,305,960 7,707,673 56,361,496 20,036,987
Adjustment to weighted average common shares outstanding:
Weighted average as shown above in primary
computation 32,235,002 22,130,896 32,181,077 22,121,757
Add dilutive effect of outstanding stock options (as
determined using the treasury stock method) 474,919 151,815 400,737 147,047
Weighted average common shares outstanding,
as adjusted 32,709,921 22,282,711 32,581,814 22,268,804
Net earnings per common share, as adjusted $0.50 0.35 1.73 0.90
FULLY DILUTED EARNINGS PER SHARE (A)
Net earnings per statement of operations $16,305,960 7,707,673 56,361,496 20,036,987
Increase in net earnings from assumed conversion
of Trust Convertible Preferred Securities
(net of tax effect) 1,506,489 1,464,549 4,519,466 1,464,549
Net earnings, as adjusted $17,812,449 9,172,222 60,880,962 21,501,536
Weighted average common shares outstanding as shown
in primary computation above 32,235,002 22,130,896 32,181,077 22,121,757
Add fully dilutive effect of outstanding stock options
(as determined using the treasury stock method) 526,725 169,736 550,986 175,815
Add weighted average of additional shares issued
from assumed conversion of Trust Convertible
Preferred Securities 4,901,507 4,586,476 4,901,507 1,539,985
Weighted average common shares outstanding, as adjusted 37,663,234 26,887,108 37,633,570 23,837,557
Fully diluted earnings per common share $0.47 0.34 1.62 0.90
(A) The additional primary computations for all periods, and the fully
diluted computations for the 1996 periods, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 37947666
<SECURITIES> 0
<RECEIVABLES> 42234131
<ALLOWANCES> 0
<INVENTORY> 2166662
<CURRENT-ASSETS> 85205662
<PP&E> 1062816198
<DEPRECIATION> 341619932
<TOTAL-ASSETS> 820664338
<CURRENT-LIABILITIES> 25670790
<BONDS> 0
3229370
0
<COMMON> 0
<OTHER-SE> 523378080
<TOTAL-LIABILITY-AND-EQUITY> 820664338
<SALES> 224849402
<TOTAL-REVENUES> 230411931
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 59320656
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 249184
<INCOME-PRETAX> 93936496
<INCOME-TAX> 37575000
<INCOME-CONTINUING> 56361496
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56361496
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.62
</TABLE>
