SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
OR
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 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 July 15, 1997, was 32,217,495.
1 of 58 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, June 30, 1997 (Unaudited),
and December 31, 1996 4
Consolidated Statements of Operations (Unaudited),
For the Three Months and the Six Months Ended
June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows (Unaudited),
For the Six Months Ended June 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 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
2
<PAGE>
DEVON ENERGY CORPORATION
Part I. Financial Information
Item 1. Consolidated Financial Statements
June 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>
December 31,
June 30, 1997 1996
(Unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 42,844,904 9,401,350
Accounts receivable 39,272,324 29,580,306
Inventories 2,079,219 2,103,486
Prepaid expenses 1,916,454 688,752
Deferred income taxes 1,600,000 1,600,000
Total current assets 87,712,901 43,373,894
Property and equipment, at cost, based on the
full cost method of accounting for oil and
gas properties 1,023,727,223 974,805,756
Less: Accumulated depreciation, depletion
and amortization 321,535,816 281,959,410
702,191,407 692,846,346
Other assets 11,160,793 10,030,560
Total assets $ 801,065,101 746,250,800
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable:
Trade 11,187,574 4,861,428
Revenues and royalties due to others 13,434,903 10,569,960
Income taxes payable 2,725,114 4,705,447
Accrued expenses 2,161,587 3,503,420
Total current liabilities 29,509,178 23,640,255
Revenues and royalties due to others 1,043,660 1,053,270
Other liabilities 12,158,592 10,325,999
Long-term debt - 8,000,000
Deferred revenue 1,091 205,859
Deferred income taxes 99,216,000 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
32,178,595 in 1997 and 32,141,295 in 1996 3,217,860 3,214,130
Additional paid-in capital 388,930,620 388,090,930
Retained earnings 117,938,898 81,099,357
Cumulative currency translation adjustment (450,798) -
Total stockholders' equity 509,636,580 472,404,417
Total liabilities and stockholders' equity $ 801,065,101 746,250,800
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
Revenues
<S> <C> <C> <C> <C>
Oil sales $32,060,026 19,507,458 69,590,006 35,652,252
Gas sales 30,175,836 14,212,694 73,413,977 28,834,328
Natural gas liquids sales 5,523,964 3,023,069 11,327,885 5,990,870
Other 1,891,956 555,392 3,219,560 869,223
Total revenues 69,651,782 37,298,613 157,551,428 71,346,673
Costs and expenses
Lease operating expenses 14,528,284 7,755,074 30,340,921 15,173,253
Production taxes 3,745,547 2,345,996 9,055,391 4,487,913
Depreciation, depletion and
amortization 20,597,744 10,461,179 40,142,296 20,588,163
General and administrative
expenses 3,606,610 2,389,052 6,236,495 4,524,950
Interest expense 28,231 2,460,924 159,038 4,942,080
Distributions on preferred
securities of subsidiary
trust 2,429,376 - 4,858,751 -
Total costs and expenses 44,935,792 25,412,225 90,792,892 49,716,359
Earnings before income taxes 24,715,990 11,886,388 66,758,536 21,630,314
Income tax expense
Current 3,500,000 1,545,000 8,545,000 2,812,000
Deferred 6,386,000 3,566,000 18,158,000 6,489,000
Total income tax expense 9,886,000 5,111,000 26,703,000 9,301,000
Net earnings $14,829,990 6,775,388 40,055,536 12,329,314
Net earnings per average common
share outstanding (Note 2):
Assuming no dilution $0.46 0.31 1.25 0.56
Assuming full dilution 0.44 0.31 1.15 0.56
Weighted average common shares
outstanding 32,165,904 22,121,786 32,153,667 22,117,138
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1997 1996
Cash flows from operating activities
<S> <C> <C>
Net earnings $ 40,055,536 12,329,314
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, depletion and amortization 40,142,296 20,588,163
(Gain) loss on sale of assets (26,681) (39,011)
Deferred income taxes 18,158,000 6,489,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (9,798,563) (2,417,642)
Inventories 17,285 20,679
Prepaid expenses (1,228,235) (780,122)
Other assets (42,005) 212,027
Increase (decrease) in:
Accounts payable 9,900,406 (1,850,332)
Income taxes payable (1,962,110) 459,433
Accrued expenses (1,517,493) (362,923)
Revenues and royalties due to others (9,610) 230,256
Long-term other liabilities 268,798 232,507
Deferred revenue (204,768) (32,759)
Net cash provided by operating activities 93,752,856 35,078,590
Cash flows from investing activities
Proceeds from sale of property and equipment 1,307,310 1,435,378
Capital expenditures (51,895,414) (42,643,295)
Net cash used in investing activities (50,588,104) (41,207,917)
Cash flows from financing activities
Proceeds from borrowings on revolving lines of credit 1,847,750 16,000,000
Principal payments on revolving line of credit (9,843,750) (4,000,000)
Issuance of common stock 843,418 159,125
Dividends paid on common stock (3,215,995) (1,327,343)
Increase in long-term other liabilities 680,377 532,770
Net cash provided (used) by financing activities (9,688,200) 11,364,552
Effect of exchange rate changes on cash (32,998) -
Net increase in cash and cash equivalents 33,443,554 5,235,225
Cash and cash equivalents at beginning of period 9,401,350 8,897,891
Cash and cash equivalents at end of period $ 42,844,904 14,133,116
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 June 30, 1997, and the results
of their operations and their cash flows for the three month and
six month periods ended June 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 June 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 six month periods ended June
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 June 30, 1997:
<S> <S> <C> <C> <C>
Net earnings per share, assuming no dilution $14,829,990 32,165,904 $0.46
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) - 402,184
Net earnings per share, assuming full dilution $16,336,479 37,469,595 $0.44
Six Months Ended June 30, 1997:
Net earnings per share, assuming no dilution $40,055,536 32,153,667 $1.25
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 $1,926,000) 3,012,977 4,901,507
Potential common shares issuable upon the exercise
of employee stock options (calculated using the
treasury stock method) - 405,837
Net earnings per share, assuming full dilution $43,068,513 37,461,011 $1.15
</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 six month periods
ended June 30, 1997, compared to the three month and six month
periods ended June 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 second quarter and year-to-date
periods.
Production for the second quarter of 1997 totaled 5.1
million Boe of oil, gas and natural gas liquids ("NGL"). This
was an increase of 91% over the second quarter of 1996. Revenues
for the second quarter of 1997 were $69.7 million, an increase of
87% over the prior year's second quarter. Net earnings for the
1997 quarter were $14.8 million, or $0.46 per share. The 1997
net earnings were 119% above the prior year's quarterly results.
The 1997 per share amount was 48% above the comparable 1996
amount, with approximately 10 million more shares outstanding in
<F1>
the 1997 period. The cash margin1 for the second quarter of
1997 also increased significantly to $41.8 million, an increase
of 101% over the 1996 second quarter's cash margin of $20.8
million.
Year-to-date production from the first six months of 1997
totaled 10.0 million Boe. This was 91% greater than the total
for the first half of 1996. Revenues for the first half of 1997
<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.
were $157.6 million, an increase of 121% over the comparable 1996
period's revenues. Net earnings for the first six months of 1997
were $40.1 million, or $1.25 per share. The 1997 earnings were
225% above the 1996 six-month total. The 1997 per share amount
was 123% above the comparable 1996 amount, with approximately 10
million more shares outstanding in the 1997 period. The cash
margin for the first half of 1997 was $98.4 million, an increase
of 150% over the first half of 1996's cash margin of $39.4
million.
Results of Operations
Total revenues increased by $32.4 million, or 87%, in the
second quarter of 1997 compared to the second quarter of 1996,
and by $86.2 million, or 121%, in the first half 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 84% in the second
quarter of 1997, and 119% in the first half 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 Six Months Ended
June 30, June 30,
1997 1996 Change 1997 1996 Change
Production
<S> <C> <C> <C> <C> <C> <C>
Oil (Bbls) 1,738,187 956,663 +82% 3,493,452 1,831,178 +91%
Gas (Mcf) 17,314,448 8,830,714 +96% 34,332,323 17,814,336 +93%
NGL (Bbls) 432,393 222,942 +94% 800,498 450,535 +78%
Oil, Gas and
<F1>
NGL (Boe)1 5,056,321 2,651,391 +91% 10,016,004 5,250,769 +91%
Revenues
Oil $32,060,026 19,507,458 +64% 69,590,006 35,652,252 +95%
Gas 30,175,836 14,212,694 +112% 73,413,977 28,834,328 +155%
NGL 5,523,964 3,023,069 +83% 11,327,885 5,990,870 +89%
Combined $67,759,826 36,743,221 +84% 154,331,868 70,477,450 +119%
Average Prices
Oil (Per Bbl) $18.44 20.39 -10% 19.92 19.47 +2%
Gas (Per Mcf) $1.74 1.61 +8% 2.14 1.62 +32%
NGL (Per Bbl) $12.78 13.56 -6% 14.15 13.30 +6%
Oil, Gas and NGL
<F1>
(Per Boe)1 $13.40 13.86 -3% 15.41 13.42 +15%
</TABLE>
<TABLE>
<CAPTION>
Domestic
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 Change 1997 1996 Change
Production
<S> <C> <C> <C> <C> <C> <C>
Oil (Bbls) 1,503,440 956,663 +57% 3,017,022 1,831,178 +65%
Gas (Mcf) 15,198,083 8,830,714 +72% 30,098,825 17,814,336 +69%
NGL (Bbls) 385,379 222,942 +73% 718,994 450,535 +60%
Oil, Gas and
<F1>
NGL (Boe)1 4,421,833 2,651,391 +67% 8,752,487 5,250,769 +67%
Revenues
Oil $27,761,317 19,507,458 +42% 60,216,142 35,652,252 +69%
Gas 27,708,475 14,212,694 +95% 67,319,351 28,834,328 +133%
NGL 4,790,391 3,023,069 +58% 9,981,159 5,990,870 +67%
Combined $60,260,183 36,743,221 +64% 137,516,652 70,477,450 +95%
Average Prices
Oil (Per Bbl) $18.47 20.39 -9% 19.96 19.47 +3%
Gas (Per Mcf) $1.82 1.61 +13% 2.24 1.62 +38%
NGL (Per Bbl) $12.43 13.56 -8% 13.88 13.30 +4%
Oil, Gas and NGL
<F1>
(Per Boe)1 $13.63 13.86 -2% 15.71 13.42 +17%
</TABLE>
<TABLE>
<CAPTION>
Canada
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 Change 1997 1996 Change
Production
<S> <C> <C> <C> <C> <C>
Oil (Bbls) 234,747 - NA 476,430 - NA
Gas (Mcf) 2,116,365 - NA 4,233,498 - NA
NGL (Bbls) 47,014 - NA 81,504 - NA
Oil, Gas and
<F1>
NGL (Boe)1 634,488 - NA 1,263,517 - NA
Revenues
Oil $4,298,709 - NA 9,373,864 - NA
Gas 2,467,361 - NA 6,094,626 - NA
NGL 733,573 - NA 1,346,726 - NA
Combined $7,499,643 - NA 16,815,216 - NA
Average Prices
Oil (Per Bbl $18.31 - NA 19.68 - NA
Gas (Per Mcf) $1.17 - NA 1.44 - NA
NGL (Per Bbl) $15.60 - NA 16.52 - NA
Oil, Gas and NGL
<F1>
(Per Boe)1 $11.82 - NA 13.31 - 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 $12.6 million, or
64%, in the second quarter of 1997 compared to the same period of
1996. Production gains of 782,000 barrels, or 82%, added $15.9
million of oil revenues in the 1997 period. This increase was
partially offset by a $3.3 million reduction in oil revenues
caused by a $1.95 per barrel decrease in the average oil price.
The KMG-NAOS Properties were responsible for the majority
of the increased oil production. These properties produced
755,000 barrels of oil in the second quarter of 1997.
Approximately 520,000 of these barrels were produced in the U.S.
and another 235,000 barrels were produced in Canada. Devon's
other domestic properties produced 983,000 barrels in the second
quarter of 1997. This is an increase of 26,000 barrels, or 3%,
over the 957,000 barrels produced in the second quarter of 1996.
Oil revenues increased by $33.9 million, or 95%, in the
first half of 1997 compared to the first half of 1996.
Production gains of 1,662,000 barrels, or 91%, added $32.4
million of oil revenues in the 1997 period. An increase in the
average price of $0.45 per barrel, or 2%, added the remaining
$1.5 million of increased oil revenues.
The KMG-NAOS Properties were the primary contributors to
the increased oil production. These properties produced
1,502,000 barrels of oil in the first six months of 1997.
Approximately 1,026,000 of these barrels were produced in the
U.S., while 476,000 barrels were produced in Canada. Devon's
other domestic properties produced 1,991,000 barrels in the first
half of 1997. This is an increase of 160,000 barrels, or 9%,
over the 1,831,000 barrels produced in the first half of 1996.
Gas Revenues. Gas revenues increased by $16.0 million, or
112%, in the second quarter of 1997 compared to the second
quarter of 1996. An increase in gas production of 8.5 Bcf, or
96%, added $13.7 million to the 1997 quarter's gas sales. Also,
an increase in the average gas price of $0.13 per Mcf, or 8%,
added the remaining $2.3 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 7.1 Bcf in the second quarter of 1997. The
KMG-NAOS Properties produced 5.0 Bcf in the U.S. and 2.1 Bcf in
Canada. Devon's coal seam gas properties produced 4.5 Bcf in the
second quarter of 1997 compared to 4.3 Bcf in the second quarter
of 1996. Devon's other domestic properties produced 5.7 Bcf in
the 1997 period compared to 4.5 Bcf in the second quarter of
1996. Of this 1.2 Bcf increase, 0.5 Bcf resulted from the second
quarter receipt of out-of-period gas revenues from certain non-
operated properties in southern Oklahoma. The operator of these
properties had incorrectly disbursed prior periods' revenues from
these wells. Production from Permian Basin wells completed in
the second half of 1996 contributed 0.5 Bcf of the 1997 second
quarter increase, and the Worland properties in Wyoming increased
by 0.2 Bcf in the 1997 quarter.
The coal seam gas properties averaged $1.74 per Mcf in the
second quarter of 1997 compared to $1.33 in the second quarter of
1996. Devon's domestic conventional gas properties averaged
$1.86 per Mcf in the 1997 quarter compared to $1.88 per Mcf in
the 1996 quarter. Devon's Canadian gas production averaged $1.17
per Mcf in the 1997 quarter.
Gas revenues increased by $44.6 million, or 155%, in the
first half of 1997 compared to the same period of 1996. An
increase in gas production of 16.5 Bcf, or 93%, added $26.7
million of gas sales in the 1997 period. An increase in the
average price of $0.52 per Mcf, or 32%, added the remaining $17.9
million of increased gas sales.
The KMG-NAOS Properties were responsible for the majority
of the increased gas production. These properties produced 14.9
Bcf in the first half of 1997. Approximately 10.7 Bcf of this
production was in the U.S., while the remaining 4.2 Bcf was
produced in Canada. Devon's coal seam gas properties produced
8.6 Bcf in the first six months of 1997 compared to 9.0 Bcf
produced in the first half of 1996. Devon's other domestic
properties produced 10.9 Bcf in the first half of 1997 compared
to 8.8 Bcf in the comparable 1996 period. Of this 2.1 Bcf
increase, the out-of-period volumes discussed above added 0.5
Bcf, production from Permian Basin wells completed in the second
half of 1996 contributed 1.1 Bcf and the Worland properties added
0.5 Bcf.
The coal seam gas properties averaged $2.06 per Mcf in the
first half of 1997 compared to $1.36 per Mcf in the first half of
1996. Devon's domestic conventional gas properties averaged
$2.31 per Mcf in the 1997 period compared to $1.88 per Mcf in the
1996 period. Devon's Canadian gas production averaged $1.44 per
Mcf in the first half of 1997.
NGL Revenues. NGL revenues increased by $2.5 million, or
83%, in the second quarter of 1997 compared to the second quarter
of 1996. An increase in production of 209,000 barrels, or 94%,
added $2.8 million to the 1997 quarter's revenues. This was
partially offset by a $0.3 million reduction in revenues caused
by a $0.78 per barrel decrease in the average price.
The KMG-NAOS Properties accounted for 150,000 barrels of
the total 209,000 barrels increase in production. The KMG-NAOS
Properties produced 103,000 barrels in the U.S. and 47,000
barrels in Canada.
NGL revenues increased by $5.3 million, or 89%, in the
first half of 1997 compared to the same period of 1996. An
increase in production of 350,000 barrels, or 78%, added $4.6
million to the 1997 period's revenues. An increase in the
average price of $0.85 per barrel added the remaining $0.7
million of increased NGL revenues.
The KMG-NAOS Properties produced 244,000 barrels in the
first half of 1997. These properties produced 162,000 barrels in
the U.S. and 82,000 barrels in Canada.
Other Revenues. Other revenues increased by $1.3 million,
or 241%, in the second quarter of 1997. The addition of the KMG-
NAOS Properties added $1.0 million of revenues from processing
third party natural gas. The investment of excess cash on hand
in the 1997 quarter added $0.4 million of interest income.
Other revenues increased by $2.4 million, or 270%, in the
first half of 1997. Processing of third party natural gas
related to the KMG-NAOS Properties accounted for $1.6 million of
the increase. Another $0.6 million of the increase in other
revenues was attributable to interest income earned in the first
six 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 Six Months Ended
June 30, June 30,
1997 1996 Change 1997 1996 Change
Expenses
Recurring operations and
<S> <C> <C> <C> <C> <C> <C>
maintenance expenses $13,713,587 6,833,763 +101% 28,574,806 13,380,005 +114%
Well workover expenses 814,697 921,311 -12% 1,766,115 1,793,248 -2%
Production taxes 3,745,547 2,345,996 +60% 9,055,391 4,487,913 +102%
Total production and
operating expenses $18,273,831 10,101,070 +81% 39,396,312 19,661,166 +100%
Expenses Per Boe
Recurring operations and
maintenance expenses $2.71 2.58 +5% 2.85 2.55 +12%
Well workover expenses 0.16 0.35 -54% 0.18 0.34 -47%
Production taxes 0.74 0.88 -16% 0.90 0.85 +6%
Total production and
operating expenses $3.61 3.81 -5% 3.93 3.74 +5%
</TABLE>
<TABLE>
<CAPTION>
Domestic
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 Change 1997 1996 Change
Expenses
Recurring operations and
<S> <C> <C> <C> <C> <C> <C>
maintenance expenses $12,453,033 6,833,763 +82% 25,664,160 13,380,005 +92%
Well workover expenses 642,130 921,311 -30% 1,560,690 1,793,248 -13%
Production taxes 3,743,006 2,345,996 +60% 8,918,077 4,487,913 +99%
Total production and
operating expenses $16,838,169 10,101,070 +67% 36,142,927 19,661,166 +84%
Expenses Per Boe
Recurring operations and
maintenance expenses $2.82 2.58 +9% 2.93 2.55 +15%
Well workover expenses 0.14 0.35 -60% 0.18 0.34 -47%
Production taxes 0.85 0.88 -3% 1.02 0.85 +20%
Total production and
operating expenses $3.81 3.81 -- 4.13 3.74 +10%
</TABLE>
<TABLE>
<CAPTION>
Canada
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 Change 1997 1996 Change
Expenses
Recurring operations and
<S> <C> <C> <C> <C> <C> <C>
maintenance expenses $1,260,554 - NA 2,910,646 - NA
Well workover expenses 172,567 - NA 205,425 - NA
Production taxes 2,541 - NA 137,314 - NA
Total production and
operating expenses $1,435,662 - NA 3,253,385 - NA
Expenses Per Boe
Recurring operations and
maintenance expenses $1.99 - NA 2.30 - NA
Well workover expenses 0.27 - NA 0.16 - NA
Production taxes - - NA 0.11 - NA
Total production and
operating expenses $2.26 - NA 2.57 - NA
</TABLE>
Recurring operations and maintenance expenses increased by
$6.9 million, or 101%, in the second quarter of 1997. The
addition of the KMG-NAOS Properties accounted for $4.8 million of
the increased expenses. Expenses on wells drilled since June 30,
1996, comprised the majority of the remaining $2.1 million
increase.
Production taxes increased by $1.4 million, or 60%, in the
second quarter of 1997. This increase was attributable to the
84% increase in combined oil, gas and NGL revenues in the 1997
period.
Recurring expenses per Boe were up by $0.13, or 5%, in the
second 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 these coal seam gas properties are extremely
low ($0.35 per Boe in the second quarter of 1997 and $0.27 per
Boe in the second 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 27% in the 1996 quarter to only 15% 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 $3.12 per Boe in the
second quarter of 1997 from $3.44 per Boe in the second quarter
of 1996. Even though the coal seam costs per Boe rose only $0.08
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
$15.2 million, or 114%, in the first half of 1997. The KMG-NAOS
Properties accounted for $11.8 million of the increased expenses.
Most of the remaining $3.4 million of increased expenses was due
to wells which were drilled subsequent to June 30, 1996.
Production taxes increased by $4.6 million, or 102%, in the
first six months of 1997. This increase was attributable to the
119% increase in combined oil, gas and NGL revenues in the 1997
period.
Recurring expenses per Boe were up by $0.30, or 12%, in the
first half 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 $0.36 per Boe in the first half of 1997 compared
to $0.32 per Boe in the first half of 1996. Expenses of Devon's
conventional properties were $3.27 per Boe in the 1997 period
compared to $3.44 per Boe in the 1996 period. Even though the
per unit expenses increased only $0.04 per Boe for the coal seam
properties and decreased by $0.17 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 29% of combined
production in the first half of 1996, but they were only 14% of
the 1997 period's production.
Depreciation, Depletion and Amortization Expense ("DD&A").
Oil and gas property related DD&A increased $9.9 million, or 98%,
from $10.0 million in the second quarter of 1996 to $19.9 million
in the second quarter of 1997. The increase in combined oil, gas
and NGL production of 2.4 million Boe, or 91%, accounted for $9.1
million of the increased DD&A. The remaining $0.8 million of the
increased expense was caused by an increase in the DD&A rate from
$3.78 per Boe in the 1996 quarter to $3.94 per Boe in the 1997
quarter.
Oil and gas property related DD&A increased $19.1 million,
or 97%, from $19.7 million in the first half of 1996 to $38.8
million in the first half of 1997. The increase in combined oil,
gas and NGL production of 4.8 million Boe, or 91%, accounted for
$17.9 million of the increased DD&A. The remaining $1.2 million
of the increased expense was caused by an increase in the DD&A
rate from $3.76 per Boe in the first half of 1996 to $3.87 per
Boe in the first half of 1997.
General and Administrative Expenses ("G&A"). G&A increased
$1.2 million, or 51%, in the second quarter of 1997. Employee
salaries and related overhead costs, including insurance and
pension expense, increased $1.5 million in the 1997 quarter.
This increase was primarily related to the approximately 70
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 $0.5 million in the second
quarter 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 $0.9 million in the second
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 second quarter of 1996 to $0.9 million in the
second quarter of 1997.
G&A increased $1.7 million, or 38%, in the first half of
1997. Employee salaries and related overhead costs increased
$2.7 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 $0.9 million in the
first half of 1997. The higher salary, overhead and office costs
were partially offset by a $1.9 million increase in Devon's
overhead reimbursements.
Capitalized G&A increased from $1.3 million in the first
half of 1996 to $1.8 million in the first half of 1997.
Interest Expense. Interest expense decreased $2.4 million,
or 99%, in the second quarter of 1997 due to a substantial
reduction in the average debt outstanding. The average debt
balance outstanding dropped from $152.4 million in the second
quarter of 1996 to zero in the second 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 $4.8 million, or 97%, in the
first half of 1997. This reduction was caused by a drop in the
average debt balance outstanding from $151.1 million in the first
half of 1996 to only $1.5 million in the first half 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 second quarter of 1997
and $4.9 million in the first half of 1997. There were no
distributions in either of the comparable 1996 periods, 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 for the entire
fiscal year. The estimated effective tax rate in the second
quarter and first half of 1997 was 40%, compared to 43% estimated
in the second quarter and first half 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 June 30, 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 22% from $42.6 million in the first half of 1996 to
$51.9 million in the first half of 1997. Approximately $50.0
million was spent in 1997 on acquisition, exploration and
development costs, compared to $42.2 million in the 1996 period.
The 1996 total included $7.1 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 half of
1997. Operating cash flow in the first six months of 1997 was
$93.8 million compared to $35.1 million in the first six months
of 1996.
Because of the amount of operating cash flow generated in
the first half 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 the first half of 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 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.
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. Where necessary, that information has been
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 Petro-
leum 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 half
of 1997 will be substantially similar to those of 1996, 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.
Oil Production and Relative Prices. Oil production for the
first six months of 1997 has slightly exceeded the upper range of
Devon's original estimate for the first half of the year. The
original estimate for the full year 1997 was between 5.9 million
and 6.9 million barrels. Based on the first half-year's
production, Devon has revised its estimate upward to between 6.5
million and 7.1 million barrels.
The original estimate for Devon's 1997 average oil price
was between $0.05 below West Texas Intermediate posted prices
("WTI") to $0.20 above WTI. For the first six months of the
year, Devon's average oil price was $0.37 above WTI. Certain
contracts which contributed toward the higher price in the first
six months have expired and been replaced with lower-priced
contracts. Therefore, Devon does not expect its average oil
price for the last six months to exceed WTI by the same amount as
in the first half of the year. However, because of the higher
price realized in the first six months, Devon has revised upward
its estimate for the full year to between $0.15 above WTI and
$0.30 above WTI.
Gas Production and NGL Production. Devon originally
estimated that its 1997 gas production would be between 64.0 Bcf
and 75.0 Bcf, and that its NGL production would be between 1.1
million and 1.3 million barrels. Certain of the gas wells on the
KMG-NAOS Properties have produced higher quantities of liquids
than originally estimated. The gas containing these liquids is
processed, with the liquids stripped and sold as NGL volumes.
This has caused the residual volumes of natural gas sold from
these wells to be less than originally estimated, but the NGL
volumes have been greater than anticipated. As a result, Devon
is reducing its 1997 estimate of gas production to between 65 Bcf
and 71 Bcf, and is increasing its 1997 estimate of NGL production
to between 1.4 million and 1.6 million barrels.
Income Taxes. Devon originally estimated that the current
portion of its 1997 income tax expense would be between $9
million and $13 million. An upward revision to expected pre-tax
earnings for the year has caused the current income tax expense
estimate to also be revised to between $11 million and $15
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
(a) The Company's annual meeting of shareholders was held
in Oklahoma City, Oklahoma at 11:00 a.m. local time, on
Wednesday, May 21, 1997.
(b) Proxies for the meeting were solicited pursuant to
Regulation 14 under the Securities Exchange Act of
1934, as amended. There was no solicitation in
opposition to the nominees for election as directors as
listed in the proxy statement and all nominees were
elected.
(c) Out of a total of 32,141,295 shares of the Company's
common stock outstanding and entitled to vote,
29,524,001 shares were present at the meeting in person
or by proxy, representing approximately 92 percent of
the total outstanding. Matters voted upon at the
meeting were as follows:
(i) Election of three directors to serve on the
Company's board of directors until the 2000 annual
meeting of shareholders. The vote tabulation with
respect to each nominee was as follows:
<TABLE>
<CAPTION>
Nominee For Authority Withheld
<S> <C> <C>
Thomas F. Ferguson 29,403,976 120,025
J. Larry Nichols 29,414,728 109,273
Lawrence H. Towell 29,403,152 120,849
</TABLE>
(ii) The adoption of the Devon Energy Corporation 1997
Stock Option Plan was approved by a vote of
26,757,156 shares for, 1,443,963 shares against,
94,033 shares abstaining and 1,228,849 broker non-
votes.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
are as follows:
Exhibit
No.
2.1 Agreement and Plan of Merger 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.*
10.12 Employment Agreement between Registrant and
Duke R. Ligon dated February 7, 1997.*
10.13 Supplemental 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
(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 June 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: July 21, 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 31
Corporation (Nevada), Registrant and Duke R.
Ligon dated March 26, 1997
10.12 Employment Agreement between Registrant and 44
Duke R. Ligon dated February 7, 1997
10.13 Supplement Retirement Income Agreement among 50
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 58
____________________________________
# Incorporated by reference.
<PAGE>
<TABLE>
DEVON ENERGY CORPORATION Exhibit 11
Computation of Earnings Per Share
<CAPTION>
Three Months
Ended June 30, Six Months Ended June 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 $14,829,990 6,775,388 40,055,536 12,329,314
Weighted average common shares outstanding 32,165,904 22,121,786 32,153,667 22,117,138
Primary earnings per share $0.46 0.31 1.25 0.56
<F1>
Additional Primary Computation (A)
Net earnings per statement of operations $14,829,990 6,775,388 40,055,536 12,329,314
Adjustment to weighted average common shares outstanding:
Weighted average as shown above in primary
computation 32,165,904 22,121,786 32,153,667 22,117,138
Add dilutive effect of outstanding stock options (as
determined using the treasury stock method) 359,857 165,700 359,659 149,357
Weighted average common shares outstanding,
as adjusted 32,525,761 22,287,486 32,513,326 22,266,495
Net earnings per common share, as adjusted $0.46 0.30 1.23 0.55
<F1>
FULLY DILUTED EARNINGS PER SHARE (A)
Net earnings per statement of operations $14,829,990 6,775,388 40,055,536 12,329,314
Increase in net earnings from assumed conversion
of Trust Convertible Preferred Securities
(net of tax effect) 1,506,489 - 3,012,977 -
Net earnings, as adjusted $16,336,479 6,775,388 43,068,513 12,329,314
Weighted average common shares outstanding as shown
in primary computation above 32,165,904 22,121,786 32,153,667 22,117,138
Add fully dilutive effect of outstanding stock options
(as determined using the treasury stock method) 402,184 170,301 405,837 173,376
Add weighted average of additional shares issued
from assumed conversion of Trust Convertible
Preferred Securities 4,901,507 - 4,901,507 -
Weighted average common shares outstanding, as adjusted 37,469,595 22,292,087 37,461,011 22,290,514
Fully diluted earnings per common share $0.44 0.30 1.15 0.55
<F1>
(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>
59
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 42844904
<SECURITIES> 0
<RECEIVABLES> 39272324
<ALLOWANCES> 0
<INVENTORY> 2079219
<CURRENT-ASSETS> 87712901
<PP&E> 1023727223
<DEPRECIATION> 321535816
<TOTAL-ASSETS> 801065101
<CURRENT-LIABILITIES> 29509178
<BONDS> 0
3217860
0
<COMMON> 0
<OTHER-SE> 506418720
<TOTAL-LIABILITY-AND-EQUITY> 801056101
<SALES> 801065101
<TOTAL-REVENUES> 157551428
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 39396312
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159038
<INCOME-PRETAX> 66758536
<INCOME-TAX> 26703000
<INCOME-CONTINUING> 40055536
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40055536
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.15
</TABLE>
Exhibit 10.11
Ligon
DEVON ENERGY CORPORATION
SEVERANCE AGREEMENT
(Execution Date: March 26, 1997)
SEVERANCE AGREEMENT
SEVERANCE AGREEMENT (the "Agreement") entered into
among DEVON ENERGY CORPORATION (NEVADA), a Nevada corporation
("Devon") and DEVON ENERGY CORPORATION, an Oklahoma corpora-
tion ("Devon Energy" and "Company"), and DUKE R. LIGON, an
individual (the "Executive"), dated this 26th day of March,
1997 (the "Effective Date").
WHEREAS, Devon and Devon Energy are herein collec-
tively referred to as the "Company" and references herein to
the Company shall be applicable to both Devon and Devon Energy
unless stated to the contrary; and
WHEREAS, the Company deems the services of the
Executive to be of great and unique value to the business of
the Company and the Company desires to assure both itself of
continuity of management and the Executive of continued em-
ployment; and
WHEREAS, the Executive is a key management employee
of the Company and is presently making and is expected to
continue making substantial contributions to the Company; and
WHEREAS, it is in the best interests of the Company
and its shareholders to induce the Executive to remain in the
employ of the Company; and
WHEREAS, the Executive presently is serving in his
capacity as General Counsel and Vice President of the Company;
and
WHEREAS, the Company desires to induce the Executive
to remain in the employ of the Company by providing to him
additional amounts of compensation in the event of his termi-
nation of employment following a Change of Control Date or an
Acquisition Date (each as defined herein) for the reasons
specified herein.
NOW, THEREFORE, in consideration of the mutual
covenants hereinafter set forth and for good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Executive and the Company hereby agree as
provided below.
1. Operation of Agreement. The purpose of this
Agreement is to provide to the Executive additional amounts of
compensation in the event of the termination of his employment
following a Change of Control Date or an Acquisition Date for
the reasons specified herein. Accordingly, the Company and
the Executive have entered into this Agreement in accordance
with the terms and provisions herein to provide such protec-
tion to the Executive. For the purposes of this Agreement,
where the following capitalized words and phrases appear in
this Agreement, they shall have the meanings set forth below
unless a different context is clearly expressed herein.
(a) Acquisition Date. "Acquisition Date"
shall mean the date on which the Company completes the acqui-
sition of oil and gas properties, or assets, or a business
entity owning such properties or assets under an acquisition
contract ("Acquisition Contract") which results in a 20% or
more increase in the total oil and gas reserves or total
assets of the Company.
(i) For purposes of determining if the
20% increase in total oil and gas reserves has occurred, the
acquisition must result in a 20% or more increase in the total
oil and gas reserves of the Company when compared to the
Company's pre-acquisition reserves. The Company's pre-acqui-
sition reserves will be the estimated reserve volumes ex-
pressed in barrels of oil equivalent ("BOE's") contained in
the most recent annual report, adjusted to the Acquisition
Date for subsequent production, drilling, purchases and sales
of reserves (other than the subject acquisition). In each
instance, 6 Mcf of natural gas will be equal to one barrel of
oil.
(ii) For purposes of determining if the
20% or more increase in the total assets of the Company has
occurred, the gross purchase or acquisition price paid (in-
cluding any debt or other liabilities assumed) for the assets
or the business entity owning the assets (as determined pursu-
ant to the final Acquisition Contract) must equal 20% or more
of the sum of (1) Total Liabilities and Stockholder's Equity
minus (2) the Total Shareholder's Equity and Devon Financing
Trust Convertible Preferred Securities plus (3) the market
value of the Company's outstanding common, preferred stock
and Devon Financing Trust Convertible Preferred Securities
(the "Market Capitalization"). For the purpose of this deter-
mination, the foregoing items included in (1) and (2) above
shall be based upon the Company's consolidated financial
statement as of the last day of the month immediately preced-
ing the month in which such purchase or acquisition occurs;
and, for the purpose of determining the Market Capitalization,
the Company's outstanding common and preferred stock and
Devon Financing Trust Convertible Preferred Securities shall
be valued at the weighted average closing price of such stock
for the ten trading days preceding the public announcement of
the execution of the definitive Acquisition Contract.
(b) Change of Control Date. "Change of Con-
trol Date" shall mean the date on which one of the following
events occurs:
(i) The acquisition by any individual,
entity or group (within the meaning of Section 13(d)(3) or
-2-
14(d)(2) of the Exchange Act) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 30% or more of either (1) the then out-
standing shares of common stock of the Company (the "Outstand-
ing Company Common Stock") or (2) the combined voting power of
the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the "Outstand-
ing Company Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change of Con-
trol: (1) any acquisition directly from the Company, (2) any
acquisition by the Company; (3) any acquisition by any employ-
ee benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company, or
(4) any acquisition by any corporation pursuant to a transac-
tion which complies with clauses (1), (2), and (3) of subsec-
tion (iii) below; or
(ii) Individuals who, as of the date
hereof, constitute the Board (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, appointment or
nomination for election by the Company's shareholders was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board,
but excluding, for purposes of this definition, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with re-
spect to the election or removal of directors or other actual
or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(iii) Approval by the shareholders of the
Company of a reorganization, share exchange, merger or consol-
idation (a "Business Combination"), in each case, unless,
following such Business Combination, (1) all or substantially
all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indi-
rectly, more than 50% of, respectively, the then outstanding
shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally
in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (includ-
ing, without limitation, a corporation which as a result of
such transaction owns the Company through one or more subsid-
iaries) in substantially the same proportions as their owner-
ship, immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (2) no Person (exclud-
ing any employee benefit plan (or related trust) of the Compa-
-3-
ny or such corporation resulting from such Business Combina-
tion) beneficially owns, directly or indirectly, 30% or more
of, respectively, the then outstanding shares of common stock
of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such
ownership existed prior to the Business Combination, and (3)
at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the execu-
tion of the initial agreement, or of the action of the Incum-
bent Board providing for such Business Combination, or were
elected, appointed or nominated by the Incumbent Board; or
(iv) Approval by the shareholders of the
Company of (1) a complete liquidation or dissolution of the
Company or, (2) the sale or other disposition of all or sub-
stantially all of the assets of the Company, other than to a
corporation with respect to which following such sale or other
disposition, (A) more than 50% of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securi-
ties of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposi-
tion, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (B) less than
30% of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation enti-
tled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by any Person
(excluding any employee benefit plan (or related trust) of the
Company or such corporation), except to the extent that such
Person owned 30% or more of the Outstanding Company Common
Stock or Outstanding Company Voting Securities prior to the
sale or disposition, and (C) at least a majority of the mem-
bers of the board of directors of such corporation were mem-
bers of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Incumbent Board
providing for such sale or other disposition of assets of the
Company, or were elected, appointed or nominated by the Incum-
bent Board.
(c) Good Reason. "Good Reason" shall mean:
(i) (1) the assignment to the Executive
of any duties inconsistent in any respect with the Executive's
-4-
position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities or (2)
any other action by the Company which results in a diminish-
ment in such position, authority, duties or responsibilities,
other than an insubstantial and inadvertent action which is
remedied by the Company promptly after receipt of written
notice thereof given by the Executive; or
(ii) the Company's requiring the Executive
to be based at any office or location other than the Company's
principal headquarters, except for travel reasonably required
in the performance of the Executive's responsibilities; or
(iii) any failure by the Company to comply
with and satisfy Section 10(a) of this Agreement.
2. Agreement Not Employment Contract. This Agree-
ment shall be considered solely as a "severance agreement"
obligating the Company to pay to the Executive certain amounts
of compensation in the event and only in the event of his
termination of employment after the Change of Control Date or
the Acquisition Date for the reasons and at the times speci-
fied herein. Apart from the obligation of the Company to
provide the amounts of additional compensation as provided in
this Agreement, the terms and conditions of the Company's
employment of the Executive shall be governed by the Employ-
ment Agreement dated as of February 7, 1997, by and between
Devon Energy and the Executive (the "Employment Agreement").
3. Termination of Agreement. Except as provided
in Section 5 hereof, this Agreement shall terminate upon the
first to occur of the following events.
(a) Death. The date of death of the Execu-
tive.
(b) Cause. The termination of the Executive's
employment by the Company for "Cause." For purposes of this
Agreement, termination of the Executive's employment by the
Company for Cause shall mean termination for one of the fol-
lowing reasons: (i) the conviction of the Executive of a
felony by a federal or state court of competent jurisdiction;
(ii) an act or acts of dishonesty taken by the Executive and
intended to result in substantial personal enrichment of the
Executive at the expense of the Company or its shareholders;
or (iii) the Executive's "willful" failure to follow a direct
lawful written order from his supervisor, within the reason-
able scope of the Executive's duties, which failure is not
cured within 30 days. Further, for purposes of this Section
(b):
(1) No act, or failure to act, on the
Executive's part shall be deemed "willful" unless done, or
-5-
omitted to be done, by the Executive not in good faith and
without reasonable belief that the Executive's action or
omission was in the best interest of the Company.
(2) The Executive shall not be deemed to
have been terminated for Cause unless and until there shall
have been delivered to the Executive a copy of the resolution
duly adopted by the affirmative vote of not less than three-
fourths (3/4ths) of the entire membership of the Board of
Directors of Devon Energy, at a meeting of the Board of Direc-
tors called and held for such purpose (after reasonable notice
to the Executive and an opportunity for the Executive, togeth-
er with the Executive's counsel, to be heard before the Board
of Directors), finding that in the good faith opinion of the
Board of Directors the Executive was guilty of conduct set
forth in clauses (i), (ii), or (iii) above and specifying the
particulars thereof in detail.
(c) Notice. Two years after the Company has
provided the Executive with written notice of the Company's
desire to terminate the Agreement.
4. Notice of Termination of Employment. Any
termination of employment by the Company for Cause or by the
Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with
Section 12 of this Agreement. For purposes of this Agreement,
a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement
relied upon, (ii) sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated
and (iii) if the date of termination of the Executive's em-
ployment is other than the date of receipt of such notice,
specifies such termination date (which date shall be not more
than 15 days after the giving of such notice).
5. Obligations of the Company Upon Termination
Following Change of Control Date or the Acquisition Date. If
within 24 months of the Change of Control Date or 12 months
following the Acquisition Date (i) the Company shall terminate
the Executive's employment for any reason other than for Cause
or death, or (ii) the employment of the Executive shall be
terminated by the Executive for Good Reason, then the Company
shall pay to the Executive in a lump sum, in cash, within 30
days after the date of termination of employment an amount
equal to the lesser of (1) two times the Executive's highest
annual Actual Compensation during the three calendar years
preceding the year in which the Executive's employment termi-
nated or (2) 2.99 times the Executive's "base amount" (as such
term is defined by Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code")) on the Change of Control
Date or the Acquisition Date, as applicable. Provided, the
-6-
amount calculated under the foregoing Subsections (1) or (2)
shall be reduced and offset (but not below zero) by any
amounts paid to the Executive under the Employment Agreement
from and after the date of the Executive's termination of
employment. If the Executive has attained his normal retire-
ment date of age 65 ("Normal Retirement Date") and is not
otherwise entitled to receive payment under this Agreement due
to his termination of employment as of his Normal Retirement
Date, then, the Executive shall not be entitled to payment
under this Agreement. For purposes of this Section 5, "Actual
Compensation" shall mean the Executive's wages, salaries,
bonuses and fees for personal services actually rendered in
the course of employment with the Company, excluding the
following: (i) amounts realized from the exercise of a nonqu-
alified stock option, or when restricted stock (or property)
held by the Executive either becomes freely transferable or is
no longer subject to a substantial risk of forfeiture; (ii)
amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option; and (iii)
other amounts which received special tax benefits (whether or
not the amounts are actually excludable from the gross income
of the Executive).
6. Certain Reduction of Payments by the Company.
(a) Cutback of Payments. Anything in this
Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise) (the "Payment") would be
nondeductible by the Company for Federal income tax purposes
because of Section 280G of the Code, then the aggregate pres-
ent value of the Payments (the "Agreement Payments") shall be
reduced (but not below zero) to the Reduced Amount. The
"Reduced Amount" shall be an amount expressed in present value
which maximizes the aggregate present value of Agreement
Payments without causing any Payment to be nondeductible by
the Company because of Section 280G of the Code. For purposes
of this Section 6, present value shall be determined in accor-
dance with Section 280G(d)(4) of the Code.
(b) Auditors to Perform Calculations. All
determinations required to be made under this Section 6 shall
be made by KPMG/Peat Marwick (the "Accounting Firm") or its
successor which shall provide detailed supporting calculations
both to the Company and the Executive within 15 business days
of the Change of Control Date, Acquisition Date or such other
time as is requested by the Company. Any such determination
by the Accounting Firm shall be binding upon the Company and
the Executive. The Company shall determine which and how much
of the Agreement Payments (or, at the election of the Execu-
tive, other payments) shall be eliminated or reduced consis-
-7-
tent with the requirements of this Section 6 and, within ten
(10) business days of the receipt of the calculations from the
Accounting Firm, shall notify the Executive promptly of such
determination. Within five (5) business days thereafter, the
Company shall pay to or distribute to or for the benefit of
the Executive such amounts as are then due to the Executive
under this Agreement.
(c) Recoupment of Overpayments. As a result
of the uncertainty in the application of Section 280G of the
Code at the time of the initial determination by the Account-
ing Firm pursuant to Section 6(b) of this Agreement, it is
possible that Agreement Payments will have been made by the
Company which should not have been made ("Overpayment") or
that additional Agreement Payments which have not been made by
the Company could have been made ("Underpayment"), in each
case, consistent with the calculations required to be made
hereunder. In the event that the Accounting Firm determines
that an Overpayment has been made, any such Overpayment shall
be treated for all purposes as a loan to the Executive which
the Executive shall repay to the Company together with inter-
est at the applicable Federal rate provided for in Section
7872(f)(2) of the Code within 5 years of the effective date of
the loan; provided, however, that no amount shall be payable
by the Executive to the Company (or if paid by the Executive
to the Company shall be returned to the Executive) if and to
the extent such payment would not reduce the amount which is
subject to taxation under Section 4999 of the Code. In the
event that the Accounting Firm determines that an Underpayment
has occurred, any such Underpayment shall be promptly paid by
the Company to or for the benefit of the Executive together
with interest at the applicable Federal rate provided for in
Section 7872(f)(2) of the Code. In the event of either an
Overpayment or Underpayment, the Executive will be provided
copies of all calculations prior to the time any adjustment is
to occur as provided under this Section 6.
7. Non-exclusivity of Rights. Nothing in this
Agreement shall prevent or limit the Executive's continuing or
future participation in any benefit, bonus, incentive or other
plan or program provided by the Company or any of its affili-
ated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as
the Executive may have under any stock option or other agree-
ments with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the
Company or any of its affiliated companies at or subsequent to
the date of termination of employment shall be payable in
accordance with such plan or program.
-8-
8. Full Settlement. The Company's obligation to
make the payments provided for in this Agreement and otherwise
to perform its obligations hereunder shall not be affected by
any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the
Company may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment by
way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement.
9. Confidential Information.
(a) Requirement of Executive. The Executive
shall hold in a fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge or
data relating to the Company or any of its affiliated compa-
nies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by
the Company or any of its affiliated companies and which shall
not be public knowledge (other than by acts by the Executive
or his representatives in violation of this Agreement). After
termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of
the Company, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of
the provisions of this Section 9 constitute a basis for defer-
ring or withholding any amounts otherwise payable to the
Executive under this Agreement.
(b) Additional Remedies. The Executive agrees
that the remedy at law for any breach or threatened breach of
any covenant contained in this Section 9 will be inadequate,
and that the Company, in addition to such other remedies as
may be available to it, in law or in equity, shall be entitled
to injunctive relief without bond or other security.
10. Successors and Binding Effect.
(a) Successor Must Assume Agreement. The
Company will require any successor (whether direct or indi-
rect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agree-
ment in the same manner and to the same extent that the Compa-
ny would be required to perform it if no such succession had
taken place. If the Company fails to obtain such assumption
and agreement prior to the effectiveness of any such succes-
sion, this Agreement shall nevertheless determine the Executi-
ve's entitlement to payment hereunder. As used in this Agree-
ment, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid
-9-
which assumes and agrees to perform this Agreement by opera-
tion of law or otherwise.
(b) Binding Effect. This Agreement shall
inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If
the Executive should die while any amount would still be
payable to the Executive at the time of his death , all such
amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's
devisee, legatee or other designee or, if there is no such
designee, to the Executive's estate.
11. Applicable Law. This Agreement shall be gov-
erned by and construed in accordance with the laws of the
State of Oklahoma, without reference to principles of conflict
of laws.
12. Notices. All notices and other communications
hereunder shall be in writing and shall be given by hand
delivery to the other party, by registered or certified mail,
return receipt requested, or by overnight express delivery
service, postage prepaid, addressed as follows:
If to the Executive:
Duke R. Ligon
1717 Kingsbury
Oklahoma City, Oklahoma 73116
If to the Company:
Devon Energy Corporation (Nevada)
20 North Broadway, Suite 1500
Oklahoma City, Oklahoma 73102-8260
Attn: J. Larry Nichols
President and Chief Executive Officer
with a copy to:
McAfee & Taft
A Professional Corporation
Tenth Floor
Two Leadership Square
Oklahoma City, Oklahoma 73102
Attn: James Dudley Hyde, Esq.
Jerry A. Warren, Esq.
or to such other address as either party shall have furnished
to the other in writing in accordance herewith. Notice and
-10-
communications shall be effective when actually received by
the addressee.
13. Alienation. The rights and benefits of, and
payments to, the Executive (or his beneficiary in the event of
his death) under this Agreement may not be anticipated, as-
signed (either at law or in equity), alienated or subject to
attachment, garnishment, levy, execution or other legal or
equitable process except as required by law. Any attempt by
the Executive to anticipate, alienate, assign, sell, transfer,
pledge, encumber or charge the same shall be void. The bene-
fits of the Executive shall not in any manner be subject to
the debts, contracts, liabilities, engagements or torts of the
Executive (or his beneficiary in the event of his death) and
payments hereunder shall not be considered an asset of the
Executive (or his beneficiary in the event of his death) in
the event of his insolvency or bankruptcy.
14. Right as General Creditor. The Executive
acknowledges this Agreement represents the Company's unfunded
and unsecured obligation to pay benefits set forth above. No
provision of this Agreement shall be construed to give the
Executive any right except as a general creditor of the Compa-
ny.
15. Taxes to be Withheld. The Company may withhold
from any amounts payable under this Agreement such Federal,
state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
16. Joint Obligations. For purposes of this Agree-
ment, Devon Energy and Devon shall have joint and several
liability for all obligations hereunder.
17. Entire Agreement. This Agreement and the
Employment Agreement constitute the entire agreement among the
parties with respect to the subject matter hereof and super-
sedes any and all prior or contemporaneous oral and prior
written agreements and understandings, including any Severance
Agreements previously entered into between the Company and the
Executive. There are no oral promises, conditions, represen-
tations, understandings, interpretations or terms of any kind
as conditions or inducements to the execution hereof or in
effect among the parties.
18. Amendment. This Agreement may not be amended,
and no provision hereof shall be waived, except by a writing
signed by all the parties to this Agreement, or, in the case
of a waiver, by the party waiving compliance therewith, which
states that it is intended to amend or waive a provision of
this Agreement. Any waiver of any rights or failure to act in
a specific instance shall relate only to such instance and
-11-
shall not be construed as an agreement to waive any rights or
failure to act in any other instance, whether or not similar.
19. Enforceability. Should any provision of this
Agreement be unenforceable or prohibited by an applicable law,
this Agreement shall be considered divisible as to such provi-
sion which shall be inoperative, and the remainder of this
Agreement shall be valid and binding as though such provision
were not included herein.
20. Counterparts. This Agreement may be executed
in two or more counterparts with the same effect as if the
signatures to all such counterparts were upon the same instru-
ment, and all such counterparts shall constitute but one
instrument.
21. Headings. All headings in this Agreement are
for convenience only and are not intended to affect the mean-
ing of any provision hereof.
IN WITNESS WHEREOF, the Executive has hereunto set
his hand and, pursuant to the authorization from their respec-
tive Boards of Directors, the Company and the Parent have each
caused these presents to be executed in its name on its be-
half, all as of the day and year first above written.
Duke R. Ligon
"EXECUTIVE"
DEVON ENERGY CORPORATION, an
Oklahoma corporation
By
J. Larry Nichols, President and
Chief Executive Officer
"DEVON ENERGY"
DEVON ENERGY CORPORATION (NE-
VADA), a Nevada corporation
-12-
By:
J. Larry Nichols, President
and Chief Executive Officer
("DEVON")
-13-
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
AGREEMENT (this "Agreement") dated as of February 7,
1997, by and between DEVON ENERGY CORPORATION, an Oklahoma
corporation (the "Company"), and DUKE R. LIGON (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Company wishes to secure the services of the
Executive pursuant to the terms and conditions hereof and in
order to induce the Executive to enter into this Agreement and
to secure the benefits that accrue from his performance
hereunder, the Company is willing to undertake the obligations
set forth herein; and
WHEREAS, the Executive is desirous of securing such
employment and is willing to accept the terms and conditions
of this Agreement set forth herein.
NOW THEREFORE, in consideration of the premises and
mutual covenants contained herein and for other good and
valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. Position and Duties. The Executive shall serve as
General Counsel and Vice President of the Company, or such
higher office to which he may be elected. The Executive's
responsibilities, duties and authorities during the Term of
Employment (as hereinafter defined) shall be those commonly
associated with such position, together with such other duties
consistent therewith and herewith as may be assigned to the
Executive by the President and Chief Executive Officer of the
Company (the "President"). The Executive shall report, during
the Term of Employment, to the President. The Executive's
services hereunder shall be performed at the Company's
principal headquarters located in Oklahoma City, Oklahoma,
except for travel reasonably required to perform such
services. During the Term of Employment, the Executive shall
devote substantially all of his business time and efforts
during the Company's normal business hours to the performance
of his duties and responsibilities on behalf of the Company in
accordance with this Agreement, except for vacations, holidays
and sickness.
2. Term. (a) Term of Employment. The Executive's term
of employment under this Agreement shall commence on February
17, 1997, and shall continue through February 17, 1999 (the
"Initial Term of Employment"). The Executive's term of
employment hereunder shall automatically renew for one two
1
(2)-year term (the "Renewal Term") immediately following the
Initial Term of Employment, beginning on February 17, 1999.
The Initial Term of Employment together with the Renewal Term
are referred to in this Agreement as the "Term of Employment."
(b) Termination of Employment. The Term of
Employment shall be terminated: (i) upon the Executive's
death, in which case Section 4.2 hereof shall apply; (ii) upon
the Company's discharge of the Executive for "Cause" (as
hereinafter defined) by giving the Executive a "Notice of
Termination" (as hereinafter defined), or at the option of the
Executive for other than "Good Reason" (as hereinafter
defined), in accordance with Section 5 hereof; (iii) at the
option of the Company in the event of the Executive's
disability, by giving the Executive a Notice of Termination,
and otherwise in accordance with Section 4.3 hereof; or (iv)
at the option of the Company, for reasons other than Cause or
such death or disability, or of the Executive for Good Reason,
by giving the other party a Notice of Termination, in which
case Section 4.1 hereof shall apply. Any termination of the
Term of Employment by the Company (other than by reason of the
Executive's death) or by the Executive for Good Reason shall
be communicated to the other party by a written Notice of
Termination, as defined in the Severance Agreement entered
into between the Executive and the Company, dated February __,
1997 (the "Severance Agreement"), and attached hereto as
Exhibit 1.
3. Compensation and Benefits
3.1 Base Salary. The Company shall pay the Executive a
base salary during the Term of Employment at the annual rate
of two hundred thousand dollars ($200,000) ("Base Salary"), in
accordance with the usual payroll practices of the Company.
The President may increase the Base Salary (and Base Salary
hereunder shall include all such increased amounts), but in no
event shall the Base Salary in effect at a particular time be
reduced without the prior written consent of the Executive.
3.2 Incentive Compensation. For each calendar year of
the Term of Employment, the Executive shall be entitled to
receive an annual or periodic performance-based cash bonus on
terms and conditions applicable to cash bonuses provided by
the Company to its other senior executive officers (which
shall include other Vice Presidents of the Company, but not
the President) (herein, the "Bonus"). The Executive shall be
entitled to participate in any other compensation plans or
arrangements (including, without limitation, any stock option
or other stock-related plans) offered to other senior
executive officers of the Company from time to time, on terms
applicable to such officers.
3.3 Stock Options. The Executive shall be eligible to
participate in the Company's 1993 Stock Option Plan (and any
successor or similar plan thereto; hereinafter, the "Option
Plan"), and the Company shall, as soon as practicable
2
following the date hereof, grant the Executive a non-qualified
option to purchase at least 30,000 shares of the Company's
$.10 par value common stock (the "Common Stock") for no more
than the fair market value, as determined in accordance with
the Stock Plan, of such shares on the date the option is
granted. Such stock option granted hereunder shall vest and
become exercisable as to one-third of the total number of
shares of Common Stock subject thereto on the first
anniversary of the date of grant of such option, and shall
vest and become exercisable as to one-third of such total
number of shares on each of the second and third anniversaries
of such grant date, respectively. Each stock option granted
to the Executive under the Option Plan in 1997 and thereafter
shall, in any event, have terms (including, without
limitation, relating to vesting and exercisability) no less
favorable than such terms applicable to stock options granted
under the Option Plan to the Company's other senior executive
officers in any particular year.
3.4 Other Benefits. (a) Employee Benefit Plans. The
Executive shall be entitled to participate, during the Term of
Employment, in all employee pension, retirement, savings,
deferred compensation, welfare, insurance and other benefit
and fringe benefit plans, programs and arrangements provided
by the Company to its employees and senior
executive officers, from time to time, according to the terms
and provisions of such plans, programs and arrangements, but
in no event on terms and conditions less favorable than those
generally applicable to the Company's other senior executive
officers (herein, the "Employee Plans"). The Executive shall
receive those perquisites and other personal benefits made
available to the Company's other senior executive officers
generally from time to time.
(b) Supplemental Retirement Plan. The Executive
shall be entitled to participate, during the Term of
Employment, in the Company's nonqualified deferred
compensation plan, provided to selected key management and
highly compensated employees of the Company, on terms and
conditions of participation at least as favorable as those
accorded the Company's other senior executive officers
(herein, the "Supplemental Plan").
(c) Vacations and Holidays. The Executive shall be
entitled to that number of days of annual paid vacation each
year as the Company makes available generally to its senior
executive officers, as well as such paid holiday and leave
time and sick leave benefits as the Company shall provide
generally to its senior executive officers.
(d) Expenses and Services. The Company shall pay or
reimburse the Executive for all business, travel,
entertainment and other expenses he incurs in the performance
of his duties and responsibilities hereunder, upon the
Executive furnishing appropriate documentation therefor.
3
(e) Temporary Housing and Relocation Expenses. The
Company shall pay or reimburse the Executive for (i)
reasonable lodging and incidental expenses incurred by him and
his family until the Executive has sold his principal
residence, or six (6) months after the date hereof, if
earlier, and (ii) the expenses he incurs in moving and
relocating himself and his family, household and personal
effects to the Oklahoma City, Oklahoma, area.
(f) Indemnification. The Company shall indemnify
the Executive consistent with the Company's prior practice.
4. Termination of Employment For Reasons Other Than
Cause, or For Good Reason
4.1 Termination Not For Cause, or For Good Reason. (a)
In general. If (i) the Company terminates the Executive's
employment hereunder, and such termination of employment is
not (A) for Cause, (B) by reason of the Executive's death or
disability (pursuant to Section 4.2 or 4.3 hereof) or (C)
within twenty-four (24) months of the Change of Control Date
or twelve (12) months following the Acquisition Date (each as
defined in the Severance Agreement); or (ii) the Executive
terminates his employment for Good Reason, and such
termination of employment by the Executive is not within
either of the time periods specified in Section 4.1(a)(i)(C)
above, the Company will pay to the Executive, no later than
ten (10) days following the date on which the Notice of
Termination is given, a cash lump-sum payment equal to the
total of: (1) any earned but unpaid Base Salary as of the
date the Notice of Termination is given and (2) his Base
Salary (at the rate in effect immediately prior to the date on
which the Notice of Termination is given) otherwise payable
hereunder for the remaining Initial Term of Employment or
Renewal Term, if the Notice of Termination is given during the
Initial Term of Employment or the Renewal Term, respectively.
The Executive shall also be entitled to receive the amount of
his Bonus for the year within which the Notice of Termination
is given, payable in accordance with terms at least as
favorable as those which would apply to the Executive had he
remained continuously employed by the Company through the end
of any applicable performance period, but nevertheless
calculated as a pro-rata portion thereof through the date the
Notice of Termination is given. Any termination of the
Executive's employment with the Company occurring within the
time period specified in Section 4.1(a)(i)(C) above shall be
subject to and in accordance with the terms and conditions of
the Severance Agreement.
(b) Good Reason. For purposes of this Agreement,
"Good Reason" shall have the meaning given such term in the
Severance Agreement; however, Section 1(c)(iii) of the
Severance Agreement shall, for this purpose, be read as
referring to Section 7(a) hereof, and, in addition, "Good
Reason" for purposes hereof shall also include the occurrence
4
of any of the following: (1) any reduction by the Company of
the Executive's Base Salary; (2) any purported termination of
the Executive's employment hereunder by the Company (other
than by reason of his death) that is not effected by a Notice
of Termination in accordance with this Agreement; (3) the
Executive is not granted the stock options in accordance with
Section 3.3 hereof; or (4) any material breach by the Company
of any provision of this Agreement, including the Severance
Agreement.
4.2 Death. The Term of Employment shall end upon the
Executive's death. The Company shall purchase insurance on
the life of the Executive with death benefits of $350,000,
naming such beneficiary as the Executive may designate.
4.3 Disability. The Company may terminate the
Executive's employment hereunder by reason his disability in
accordance with this Section 4.3. For purposes of this
Agreement, the Executive's employment hereunder shall have
been terminated by reason of his disability if (a) as a result
of the Executive's incapacity due to physical or mental
illness, in the reasonable good faith judgment of the Board of
Directors of the Company (the "Board"), the Executive shall
have been unable to substantially perform his duties under
this Agreement for a period of not less than ninety (90) days
and (b) the Company shall give the Executive a Notice of
Termination specifying such termination of employment by
reason of disability and (c) the Executive does not resume
substantially all of his duties hereunder before the
expiration of thirty (30) days following the date the
Executive receives such Notice of Termination. Upon
termination of the Executive's employment pursuant to this
Section 4.3, the Executive shall receive, as soon as
practicable (but in no event later than twenty (20) days)
after the expiration of the thirty-day period referred to in
clause (c) above (his "Disability Termination Date") a cash
lump-sum payment equal to the total of: (i) any earned but
unpaid Base Salary as of his Disability Termination Date and
(ii) his Base Salary (at the rate in effect immediately prior
to date the Notice of Termination is given) otherwise payable
hereunder for the remaining Initial Term of Employment or
Renewal Term, if the Notice of Termination is given during the
Initial Term of Employment or Renewal Term, respectively.
5. Termination For Cause, or For Other Than Good
Reason. In the event the Company, in accordance with this
Agreement, terminates the Executive's employment hereunder for
Cause (as defined in the Severance Agreement), or the
Executive terminates his employment hereunder for reasons
other than Good Reason, the Executive shall receive any earned
but unpaid Base Salary through the date on which the copy of
the duly adopted resolution of the Board finding the matters
referred to in Section 3(b)(2) of the Severance Agreement is
delivered to the Executive in accordance therewith, or the
date as of which the Executive terminates his employment
hereunder for reasons other than Good Reason.
5
6. Arbitration. The Company and the Executive agree
that any dispute, controversy or claim arising out of,
relating to or in connection with this Agreement, or the
termination of this Agreement or the termination of the
Executive's employment hereunder that is not amicably resolved
by mutual negotiations shall be finally settled by binding
arbitration proceedings initiated by either party in
accordance with the rules of the American Arbitration
Association and that the results of such proceedings shall be
conclusive on both parties and shall not be subject to
judicial review. Judgment on the award rendered by the
arbitrator or a majority of the panel of arbitrators may be
entered in any court having jurisdiction thereover, or
application may be made to such court for a judicial
acceptance of the award and an order of enforcement.
7. Successors and Binding Effect. (a) Successors of
the Company. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that
the Company would be required to perform this Agreement if no
such succession had taken place, and this Agreement shall
inure to the benefit of and shall be binding upon any such
successor, subject to the other terms and conditions hereof.
If the Company fails to obtain such assumption and agreement
prior to the effectiveness of any such succession, this
Agreement shall nevertheless continue to determine the
Executive's rights and entitlement to receive the
compensation, remuneration and benefits provided for or
referred to herein. As used in this Agreement, "Company"
shall mean the Company, as hereinabove defined, and any
successor to the Company and/or its business and/or assets, as
described in the first sentence of this Section 7(a).
(b) Assignment. This Agreement is personal in
nature and, except as provided in Section 7(a) hereof, neither
of the parties to this Agreement shall, without the prior
written consent of the other, assign or transfer this
Agreement or any right or obligation under this Agreement to
any other person; provided, however, that nothing herein shall
preclude the Executive's beneficiary, legatee or devisee or
the legal representative of the Executive or his estate from
receiving any amount or benefit that may be payable or
provided to or in respect of the Executive hereunder following
his death or legal incompetency.
8. Notices. Any notices required or permitted to be
given hereunder shall be in writing, signed, and shall be
deemed to be given when delivered personally or sent by
certified or registered mail or reputable overnight courier,
postage prepaid, addressed to the party concerned at the
address indicated below (or to such other address as either
party hereto may from time to time in writing specify in the
6
manner set forth above to the other party, and which is
actually received by such other party):
If to the Company:
20 North Broadway, Suite 1500
Oklahoma City, Oklahoma 73102-8260
Attention: President and Chief Executive Officer
If to the Executive:
4606 North 32nd Street
Arlington, Virginia 22207
9. Survival. The respective rights and obligations of
the parties hereunder shall survive any termination of this
Agreement to the extent necessary to the intended preservation
of such rights and obligations. Notwithstanding any other
provision of this Agreement to the contrary, in the event the
Executive's employment hereunder is terminated by the Company
or the Executive for any reason or no reason, the Company
shall pay or provide to or on behalf of the Executive such
rights and benefits of participation to which the Executive is
entitled, following such termination of the Executive's
employment, under the Employee Plans in which the Executive is
a participant immediately prior to the date on which the
Notice of Termination is given (or the Executive's employment
hereunder otherwise terminates) and the Supplemental Plan, in
accordance with the terms and provisions of such plans.
10. Miscellaneous. This Agreement, including the
Severance Agreement, constitutes the entire agreement between
the parties with respect to the subject matter hereof and
supersedes any and all prior or contemporaneous oral and prior
written agreements and understandings between the parties
hereto concerning such subject matter. No modification or
discharge of this Agreement shall be valid unless made in
writing and executed by the parties hereto. Failure to insist
upon strict compliance with any of the terms, covenants or
conditions hereof shall not be deemed to constitute a waiver
of any such term, covenant or condition. A waiver of any
provision of this Agreement must be made in writing,
designated a waiver, and signed by the party against whom its
enforcement is sought, and shall not be deemed to constitute a
waiver of such provision at any other time, nor of any other
provision hereof. This Agreement has been executed and
delivered in the State of Oklahoma and shall be governed and
construed in accordance with the laws of such State, without
reference to the principles of conflict of laws. A
determination that any provision of this Agreement is invalid
or unenforceable shall not affect the validity or
enforceability of any other provision hereof. This Agreement
may be executed in two or more counterparts, each of which
shall be deemed to be an original but all of which together
shall constitute one and the same instrument.
7
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
DEVON ENERGY CORPORATION
Dated:_________________ By_________________________
Name:
Title:
DUKE R. LIGON
Dated:_________________ ____________________________
8
Exhibit 10.13
SUPPLEMENTAL RETIREMENT INCOME AGREEMENT OF
DEVON ENERGY CORPORATION
AND JOHN W. NICHOLS
(Execution Date: March 26, 1997)
SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
THIS SUPPLEMENTAL RETIREMENT INCOME AGREEMENT by and
among DEVON ENERGY CORPORATION (NEVADA), a Nevada corporation
("Devon"), DEVON ENERGY CORPORATION, an Oklahoma corporation
("Devon Energy") and JOHN W. NICHOLS, an individual (the
"Executive") dated this 26th day of March, 1997 (the "Agree-
ment").
WITNESSETH:
WHEREAS, Devon and Devon Energy are herein collec-
tively referred to as the "Company" and references herein to
the Company shall be applicable to both Devon Energy and Devon
unless stated to the contrary; and
WHEREAS, the Executive has been an employee of
either the Company or Devon for over 25 years; and
WHEREAS, the Executive has been a key management
employee of Devon Energy and Devon, including serving as
President and Chairman; and
WHEREAS, the Executive intends to retire as an
employee of the Company effective April 30, 1997, but the
Executive agrees to continue as Chairman of the Board of Devon
Energy if requested by its Board of Directors ; and
WHEREAS, the Company desires to provide a "supple-
mental retirement income" pursuant to the terms of this Agree-
ment.
NOW, THEREFORE, in consideration of the covenants,
provisions and other valuable consideration, the receipt of
which is hereby acknowledged by the Executive, the parties
hereto agree as follows:
1. Supplemental Retirement Income. The Executive
will retire as an employee of the Company effective April 30,
1997. Upon his retirement, Devon Energy shall pay to the
Executive the annual supplemental retirement income of $180,-
000 (the "Supplemental Retirement Income") provided the Execu-
tive remains continuously employed by either Devon Energy or
Devon until April 30, 1997. The Supplemental Retirement
Income will be paid in equal monthly installments of $15,000
commencing May 1, 1997 and continuing thereafter for the life
of the Executive.
2. Death of the Executive. Upon the death of the
Executive Devon Energy shall pay to the Executive's spouse,
Mary D. Nichols, if then surviving, the annual sum of $100,000
payable in equal monthly installments of $8,333, commencing as
of the 1st day of the month following the date of the Execu-
tive's death with payments to continue thereafter for her
life. After the death of the Executive and his spouse, Mary
D. Nichols, no further benefits of any kind will be paid under
this Agreement.
3. Termination of Employment Prior to April 30,
1997. In the event that the Executive terminates employment
for any reason, other than death or disability, prior to April
30, 1997, then, neither the Executive or his spouse shall have
any rights whatsoever in the Supplemental Retirement Income
(or any other benefit) otherwise paid pursuant to this Agree-
ment.
4. Restrictions on Alienation of Benefits. No
right or benefit under this Agreement shall be subject to
anticipation, alienation, sale, assignment, pledge, encum-
brance, or charge, and any attempt to anticipate, alienate,
sell, assign, pledge, encumber, or charge the same shall be
void. No right or benefit hereunder shall in any manner be
liable for or subject to the debts, contracts, liabilities, or
torts of the person entitled to such benefit. If the Execu-
tive under this Agreement should become bankrupt or attempt to
anticipate, alienate, sell, assign, pledge, encumber, or
charge any right to a benefit under this Agreement, then such
right or benefit shall, in the discretion of the Compensation
Committee appointed by the Board of Directors of the Company
(the "Committee"), be held or applied for the benefit of the
Executive, his spouse, children, or other dependents, or any
of them, in such manner and in such portion as the Committee,
in its sole and absolute discretion, may deem proper.
5. No Trust. No action under this Agreement by
the Company, its Board of Directors or the Committee shall be
construed as creating a trust, escrow or other secured or
segregated fund in favor of the Executive, his spouse, or any
other persons otherwise entitled to his Supplemental Retire-
ment Income. The status of the Executive and his spouse with
respect to any liabilities assumed by the Company hereunder
shall be solely those of unsecured creditors of the Company
and/or any subsidiary. Any asset acquired or held by the
Company or any subsidiary in connection with liabilities
assumed by it hereunder, shall not be deemed to be held under
any trust, escrow or other secured or segregated fund for the
benefit of the Executive or his Beneficiaries or to be securi-
ty for the performance of the obligations of the Company or
any subsidiary, but shall be, and remain a general, unpledged,
unrestricted asset of the Company or any subsidiary at all
times subject to the claims of general creditors of the Compa-
ny or any subsidiary.
6. Withholding and Other Employment Taxes. The
Company shall comply with all federal and state laws and
regulations respecting the withholding, deposit and payment of
any income or other taxes relating to any payments made under
this Agreement.
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7. Claims Procedure.
(a) The Committee shall make all determina-
tions as to the right of any person to benefits. If any
request for a benefit is wholly or partially denied, the
Committee shall notify the person requesting the pension
benefits, in writing, of such denial, including in such noti-
fication the following information:
(b) the specific reason or reasons for such
denial;
(c) the specific references to the pertinent
Agreement provisions upon which the denial is based;
(d) a description of any additional material
and information which may be needed to clarify the request,
including an explanation of why such information is required;
and
(e) an examination of this Agreement's review
procedure with respect to denial of benefits.
Provided, that any such notice to be delivered to the Execu-
tive shall be mailed by certified or registered mail and shall
be written to the best of the Committee's ability in a manner
that may be understood without legal counsel.
8. Review Procedure. The Executive or his surviv-
ing spouse whose claim has been denied in accordance with
Section 7 herein may appeal to the Committee for review of
such denial by making a written request therefor within 60
days of receipt of the notification of such denial. The
Executive or his surviving spouse may examine documents perti-
nent to the review and may submit to the Committee written
issues and comments. Within 60 days after receipt of the
request for review, the Committee shall communicate to the
claimant, in writing, its decision, and the communication
shall set forth the reason or reasons for the decision and
specific reference to those Agreement provisions upon which
the decision is based.
9. Records and Reports. The Committee shall
exercise such authority and responsibility as it deems appro-
priate in order to comply with governmental regulations relat-
ing to records of the Executive's accounts and benefits which
may be paid under the Agreement; and to notify the Executive
and Beneficiaries as required.
10. Other Committee Powers and Duties. The Commit-
tee shall have such duties and powers as may be necessary to
discharge its duties hereunder, including, but not by way of
limitation, the following:
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(a) to construe and interpret the Agreement in
its sole and absolute discretion, decide all questions of
eligibility and determine the amount, manner and time of
payment of any benefits hereunder;
(b) to prescribe procedures to be followed by
the Executive filing applications for benefits;
(c) to prepare and distribute, in such manner
as the Committee determines to be appropriate, information
explaining the Agreement;
(d) to receive from the Company and from the
Executive and Beneficiaries such information as shall be
necessary for the proper administration of the Agreement;
(e) to furnish the Company, upon request, such
reports with respect to the administration of the Agreement as
are reasonable and appropriate;
(f) to appoint and employ individuals and any
other agents it deems advisable, including legal counsel, to
assist in the administration of the Agreement and to render
advice with respect to any responsibility of the Committee, or
any of its individual members, under the Agreement;
(g) to allocate among themselves who shall be
responsible for specific duties and to designate fiduciaries
(other than Committee members) to carry out responsibilities
under the Agreement; provided that any such allocations shall
be reduced to writing, signed by all Committee members, and
filed in a permanent Committee minute book; and
(h) to maintain continuing review of applica-
ble laws, implementing regulations thereto and suggest changes
and modifications to the Company in connection with delega-
tions of responsibility, as appropriate, and amendments to the
Agreement.
11. Rules and Decisions. The Committee may adopt
such rules as it deems necessary, desirable, or appropriate.
When making a determination or calculation, the Committee
shall be entitled to rely upon information furnished by a
Executive, the Company or the legal counsel of the Company.
12. Committee Procedures. The Committee may act at
a meeting or in writing without a meeting. The Committee
shall have a chairman, and appoint a secretary, who may or may
not be a Committee member. The secretary shall keep a record
of all meetings in a permanent Committee minute book and
forward all necessary communications to the Company. The
Committee may adopt such bylaws and regulations as it deems
desirable for the conduct of its affairs. All decisions of
the Committee shall be made by the vote of the majority in-
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cluding actions in writing taken without a meeting. A dis-
senting Committee member who, within a reasonable time after
he has knowledge of any action or failure to act by the major-
ity, registers his dissent in writing delivered to the other
Committee members, to the extent permitted by law, shall not
be responsible for any such action or failure to act.
13. Assumption of Agreement. The Company will
require any successor (whether direct or indirect, by pur-
chase, merger, consolidation or otherwise) to all or substan-
tially all of the business and/or assets of the Company to
expressly assume and agree to perform the Company's obliga-
tions under this Agreement in the same manner and to the same
extent that the Company would be required to perform if no
such succession had taken place.
14. Joint Obligations. For purposes of this Agree-
ment, Devon Energy and Devon shall have joint and several
liabilities for all obligations hereunder.
15. Miscellaneous.
15.1 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Oklahoma, without reference to principles of conflict
of laws.
15.2 Headings. The captions of this Agreement
are not part of the provisions hereof and shall have no force
and effect.
15.3 Taxes. The Executive acknowledges that
the payments and benefits to which he is entitled to under
this Agreement will be includable in his taxable income.
Accordingly, Executive agrees (i) to pay all required taxes
attributable to such payments and benefits and (ii) that the
Company may, if required, withhold all applicable taxes from
such payments and benefits.
15.4 Amendment. This Agreement may not be
amended or modified otherwise than by a written agreement ex-
ecuted by the parties hereto or their respective heirs, suc-
cessors, assigns or the legal representatives, as the case may
be.
15.5 Notices. All notices and other communi-
cations hereunder shall be in writing and shall be given by
hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as
follows:
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If to Executive:
John W. Nichols
7300 Nichols Road
Oklahoma City, Oklahoma 73120
If to the Company:
Devon Energy Corporation
20 N. Broadway, Suite 1500
Oklahoma City, Oklahoma 73102-8204
Attention: J. Larry Nichols
President and
Chief Executive Officer
or such other address as either party shall have furnished to
the other in writing in accordance herewith. Notices and
communications shall be effective when actually received by
the addressee.
15.6 Severability. The invalidity or enforce-
ability of any provision of this Agreement shall not affect
the validity or enforceability of any other provision of this
Agreement.
15.7 No Waiver. The Company's or the Executi-
ve's failure to insist upon strict compliance with any provi-
sion hereof shall not be deemed to be a waiver of such provi-
sion or any other provision hereof.
15.8 Entire Agreement. This Agreement con-
tains the entire understanding of the Company and Executive
with respect to the subject matter hereof.
15.9 Binding Effect. This Agreement shall
inure to the benefit of and be binding upon the Company,
Executive, their respective heirs, successors, assigns or
legal representatives, as the case may be.
IN WITNESS WHEREOF, Executive has hereunto set his
hand and, pursuant to the authorization from its Board of
Directors, the Company has caused these presents to be execut-
ed in its name on its behalf, all as of the day and year first
above written.
EXECUTED the date and year first above written.
DEVON ENERGY CORPORATION, an
Oklahoma corporation
By:_____________________________
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J. Larry Nichols, President
and Chief Executive Officer
"COMPANY"
APPROVED THIS 26TH DAY OF
MARCH, 1997
BOARD OF DIRECTORS OF
DEVON ENERGY CORPORATION
By_______________________________
David Gavrin, Chairman of
Compensation Committee
DEVON ENERGY CORPORATION
(NEVADA), a Nevada corporation
By:_____________________________
J. Larry Nichols, President
and Chief Executive Officer
"DEVON"
____________________________
John W. Nichols
"EXECUTIVE"
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