SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event report): January 20, 1998
DEVON ENERGY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
OKLAHOMA 1-10067 73-1474008
(State or Other Jurisdiction of (Commission File Number) (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
Page 1 of 6 total pages
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ITEM 5. OTHER EVENTS
1997 OIL, GAS AND NATURAL GAS LIQUIDS PRODUCTION AND YEAR-END RESERVE
ESTIMATES
YEAR-END 1997 RESERVES
Devon Energy Corporation's ("Devon" or "the Company") year-end 1997
proved reserves have been preliminarily estimated to be 616 billion cubic
feet of gas, 68 million barrels of oil and 13 million barrels of natural
gas liquids. Converted at a 6:1 gas-to-oil ratio, the year-end reserves
total a record 184 million barrels of oil equivalent ("MMBoe").
Devon's year-end 1997 reserves had an estimated pre-tax 10 percent
present value of $913 million. This compares to an estimated pre-tax 10
percent present value of $1.62 billion in the previous year. The after
tax present value (Standardized Measure) was $727 million at year-end
1997 compared to $1.2 billion at year-end 1996. The decrease in the 1997
present value figures was due almost entirely to lower year-end oil and
gas prices for 1997. These figures were computed using Securities and
Exchange Commission guidelines; that is, an essentially unescalated or
"flat" oil and gas price case based on year-end prices. Devon's year-end
1997 prices averaged $16.93 per barrel of oil, $1.89 per thousand cubic
feet of gas and $12.42 per barrel of natural gas liquids. This compares
to average prices of $24.52 per barrel of oil, $3.35 per thousand cubic
feet of gas and $23.34 per barrel of natural gas liquids at year-end
1996.
Drilling (extensions and discoveries) contributed 26.7 MMBoe of
reserves during 1997. Proved property acquisitions contributed an
additional 1.3 MMBoe. These increases were offset slightly by downward
revisions of prior estimates totaling 2.8 MMBoe. A significant portion
of these revisions were also due to the lower prices used in the year-end
1997 report, which shortened the economic life of certain properties.
The following tables contain additional information regarding Devon's
estimated proved oil, gas and natural gas liquids reserves as of December
31, 1996 and 1997, and the changes therein.
<TABLE>
<CAPTION>
RESERVES
December 31, 1996 December 31, 1997 % Change
__________________ ____________________ ___________________
U.S. Canada Total U.S. Canada Total U.S. Canada Total
____ _____ _____ _____ _____ _____ ____ ______ _____
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oil (MMBbls) 60.0 7.5 67.5 60.9 7.5 68.4 2% 1% 1%
Gas (Bcf) 554.7 40.8 595.5 567.8 48.2 616.0 2% 18% 3%
Natural gas liquids
(MMBbls) 11.7 0.9 12.6 12.1 0.8 12.9 3% -10% 2%
Equivalent barrels
(MMBoe) 164.1 15.2 179.3 167.6 16.4 184.0 2% 8% 3%
10% Present Worth ($
Millions) 1,486.6 135.4 1,622.0 820.4 92.6 913.1 -45% -32% -44%
</TABLE>
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<TABLE>
<CAPTION>
RESERVES RECONCILIATION
Oil (MMBbls) Gas (Bcf) NGL (MMBbls) MMBoe
------------------- ------------------ ------------------- -----------------
U.S. Canada Total U.S. Canada Total U.S. Canada Total U.S. Canada Total
---- ------ ----- ---- ------ ----- ---- ------ ----- --- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96:
Proved
Developed 52.7 7.5 60.2 529.4 40.9 570.3 10.3 0.9 11.2 151.2 15.2 166.4
Proved
Undeveloped 7.3 - 7.3 25.2 - 25.2 1.4 - 1.4 12.9 - 12.9
---- ---- ---- ----- ---- ----- ---- --- ---- ----- ---- -----
Total Proved 60.0 7.5 67.5 554.6 40.9 595.5 11.7 0.9 12.6 164.1 15.2 179.3
Production (6.1) (0.9) (7.0) (61.0) (8.3) (69.3) (1.5) (0.1) (1.6) (17.7) (2.5) (20.2)
Discoveries/
Extensions 7.4 1.1 8.5 94.9 11.7 106.6 0.3 - 0.3 23.6 3.1 26.7
Divestitures (0.2) - (0.2) (0.6) - (0.6) - - - (0.3) - (0.3)
Acquisitions 1.1 - 1.1 1.0 - 1.0 - - - 1.3 - 1.3
Revisions (1.3) (0.2) (1.5) (21.1) 3.9 (17.2) 1.6 - 1.6 (3.4) 0.6 (2.8)
12/31/97:
Proved
Developed 53.1 7.1 60.2 462.1 44.3 506.4 11.3 0.8 12.1 141.4 15.3 156.7
Proved
Undeveloped 7.8 0.4 8.2 105.7 3.9 109.6 0.8 - 0.8 26.2 1.1 27.3
---- --- ---- ----- ---- ----- ---- --- ---- ----- ---- -----
Total Proved 60.9 7.5 68.4 567.8 48.2 616.0 12.1 0.8 12.9 167.6 16.4 184.0
Year-to-Year
Variance 1% - 1% 2% 18% 3% 3% -11% 2% 2% 8% 3%
Revisions -2% -3% -2% -4% 10% -3% 14% - 13% -2% 4% -2%
</TABLE>
1997 PRODUCTION
Devon's oil, gas and natural gas liquids production for the year
ended December 31, 1997 totaled 20.2 MMBoe (million barrels of oil
equivalent). This represents an 89% increase over total 1996 production.
The following table contains additional information regarding Devon's
oil, gas and natural gas liquids production for the year's ended December
31, 1996 and 1997.
<TABLE>
<CAPTION>
PRODUCTION:
Year Ended Year Ended
December 31, 1996 December 31, 1997 % Change
------------------- ------------------ -------------------
U.S. Canada Total U.S. Canada Total U.S. Canada Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oil (MMBbls) 3.8 - 3.8 6.1 0.9 7.0 61% NM 84%
Gas (Bcf) 35.7 - 35.7 61.0 8.3 69.3 71% NM 94%
Natural gas
liquids (MMBbls) 1.0 - 1.0 1.5 0.1 1.6 50% NM 60%
Equivalent
barrels (MMBoe) 10.7 - 10.7 17.7 2.5 20.2 65% NM 89%
</TABLE>
<PAGE>
REVISIONS TO 1997 ESTIMATES
The 1996 annual report on Form 10-K, and a Form 8-K filed on
February 11, 1997, contained forward-looking information for the year
1997. This information was revised in the Quarterly Reports on Forms 10-
Q for the quarters ended June 30, 1997 and September 30, 1997. Where
necessary, certain elements of that information have been further revised
in the following discussion. The revised forward-looking statements
provided in this discussion are based on management's examination of
historical operating trends, the December 31, 1997 preliminary reserve
reports of independent petroleum consultants, data in Devon's files,
other data available from third parties, preliminary full-year 1997
financial statements and actual results for the first nine months of
1997. Devon cautions that its estimates 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 its operations
increased significantly with the merger into Devon of the North American
onshore oil and gas operations of Kerr-McGee Corporation in December of
1996 (the "KMG-NAOS transaction"). This transaction increased the margin
of error inherent in estimating Devon's 1997 results.
Discussed below are those areas where revisions have been made to
the 1997 estimates originally included in the aforementioned Form 10-K
and Form 8-K, and revised in the Forms 10-Q for the quarters ended June
30, 1997 and September 30, 1997.
PRODUCTION AND OPERATING EXPENSES Devon's production and operating
expenses vary in response to several factors. Among the most significant
of these factors are additions or deletions to the Company's property
base, changes in production taxes, general changes in the prices of
services and materials that are used in the operation of the Company's
properties and the amount of repair and workover activity conducted on
the company's properties.
As previously projected, the addition of the KMG-NAOS Properties was
the largest contributor to an increase in recurring lease operating
expenses in 1997. The additional revenues contributed by these
properties also caused production taxes to rise.
Additionally, certain components of production and operating
expenses are accrued throughout the year based on estimates. This
increases the margin of error inherent in estimating production and
operating costs.
Based on the above, Devon originally estimated that 1997's total
reported production and operating costs would be between $75 million and
$87 million. During the year, certain of the aforementioned estimates
were replaced with actual expenses for the year. As a result, Devon is
revising its estimate for 1997 to between $82 million and $85 million.
DEPRECIATION, DEPLETION AND AMORTIZATION ("DD&A") The 1997 DD&A
rate is dependent on various factors. Most notable among such factors
are the amount of proved reserves that were added from drilling or
acquisition efforts in 1997 compared to the costs incurred for such
efforts, and the revisions to Devon's year-end 1996 reserve estimates
made during 1997.
<PAGE>
The DD&A rate as of the beginning of 1997 was $3.76 per Boe. This
rate included the effect of the December 31, 1996, acquisition of the KMG-
NAOS Properties. Devon originally estimated that the average DD&A rate
for 1997 would be between $3.80 per Boe and $4.20 per Boe. The original
estimate for 1997's total DD&A expense was between $76 million and $84
million, including approximately $2.5 million of non-oil and gas property
related DD&A.
Reserve changes from year-end 1996 to year-end 1997, including
reserve additions, divestitures and revisions were 24.9 MMBoe. (See
"Year-end 1997 Reserves" above.) Costs to date and estimated future
development costs for these reserve changes, and other changes in the
amortization base are estimated to be between $155 million and $160
million. This effectively raised Devon's 1997 DD&A rate to between $4.00
per Boe and $4.15 per Boe, compared to the rate of $3.76 for 1996.
However, the 1997 rate is within the range of the previous estimate.
Total 1997 DD&A expense (including approximately $2.9 million of non-oil
and gas property related DD&A) is now expected to be $84 million to $87
million.
INCOME TAXES Based on its original estimates in February of 1997's
taxable income, Devon originally estimated that the current portion of
1997 income taxes would be between $9 million and $13 million. At that
time, Devon cautioned that revenue and earnings fluctuations could easily
make its tax estimates obsolete.
In the September 30, 1997 Form 10-Q, Devon revised upward its
estimate of the current portion of its 1997 income tax expense to between
$16 and $22 million. Since that revision, Devon has again revised upward
its estimate of 1997's current income tax expense. The primary reason
for this increase is an expected rise in taxable income due to:
1) Devon's total 1997 capital expenditures for 1997 were somewhat lower
than originally estimated. Further, the portion attributable to
intangible development costs is less than originally expected. As
intangible development costs are deductible for income tax purposes, the
less than expected actual intangible development costs caused the
Company's expected taxable income to increase.
2) Certain transactions that occurred at the end of 1997 result in an
increase in taxable income but have no impact on earnings for
financial statement purposes.
Accordingly, Devon now expects its current portion of 1997 income taxes
to be between $24 and $26 million. Devon originally estimated that its
total income tax rate for 1997 would be between 38% and 42%. Based on
more current and complete information, Devon has revised this estimate
downward to between 37% and 39%.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereto duly authorized.
Devon Energy Corporation
By: /s/ Danny J. Heatly
Danny J. Heatly
Controller
Date: January 20, 1998
