UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-10067
DEVON ENERGY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Oklahoma 73-1474008
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
20 N. Broadway, Suite 1500
Oklahoma City, Oklahoma 73102
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (405) 235-3611
Not applicable
Former name, former address and former fiscal year, if changed from last report.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____.
The number of shares outstanding of Registrant's common
stock, par value $.10, as of April 24, 1998, was 32,319,895.
1 of 26 total pages
(Exhibit Index is found at page 24)
<PAGE>
DEVON ENERGY CORPORATION
Index to Form 10-Q Quarterly Report
to the Securities and Exchange Commission
Page No.
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets, March 31, 1998 (Unaudited)
and December 31, 1997 4
Consolidated Statements of Operations (Unaudited),
For the Three Months Ended March 31, 1998 and 1997 5
Consolidated Statements of Comprehensive Operations
(Unaudited), For the Three Months Ended March 31,
1998 and 1997 6
Consolidated Statements of Cash Flows (Unaudited),
For the Three Months Ended March 31, 1998 and 1997 7
Notes to Consolidated Financial Statements. 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 18
<PAGE>
DEVON ENERGY CORPORATION
Part I. Financial Information
Item 1. Consolidated Financial Statements
March 31, 1998 and 1997
(Forming a part of Form 10-Q Quarterly Report
to the Securities and Exchange Commission)
<PAGE>
<TABLE>
<CAPTION>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
1998 1997
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 45,656,384 42,064,344
Accounts receivable 40,024,208 47,507,805
Inventories 2,726,969 2,422,822
Prepaid expenses 2,494,944 799,923
Deferred income taxes 434,000 434,000
---------- ----------
Total current assets 91,336,505 93,228,894
---------- ----------
Property and equipment, at cost,
based on the full cost method of
accounting for oil and gas properties 1,144,186,836 1,103,320,502
Less: Accumulated depreciation,
depletion and amortization 386,932,136 365,517,722
------------- -------------
757,254,700 737,802,780
Other assets 13,238,945 15,371,368
------------- -------------
Total assets $ 861,830,150 846,403,042
================ =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable:
Trade 12,166,437 9,628,890
Revenues and royalties due to others 11,108,034 11,531,296
Income taxes payable 2,679,940 4,901,940
Accrued expenses 2,973,699 4,750,699
---------- ----------
Total current liabilities 28,928,110 30,812,825
---------- ----------
Revenues and royalties due to others 2,938,041 2,862,794
Other liabilities 23,347,192 18,177,130
Deferred income taxes 104,558,000 101,474,000
Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary trust holding
solely 6.5% convertible junior subordinated
debentures of Devon Energy Corporation 149,500,000 149,500,000
Stockholders' equity:
Preferred stock of $1.00 par value.
Authorized 3,000,000 shares; none issued - -
Common stock of $.10 par value.
Authorized 400,000,000 shares; issued
32,318,895 in 1998 and in 1997 3,231,890 3,231,890
Additional paid-in capital 392,919,170 392,919,170
Retained earnings 158,471,536 149,946,232
Accumulated other comprehensive
earnings (loss) - foreign currency
translation adjustments (2,063,789) (2,520,999)
------------ -----------
Total stockholders' equity 552,558,807 543,576,293
----------- -----------
Total liabilities and
stockholders' equity $ 861,830,150 846,403,042
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months
Ended March 31,
1998 1997
(Unaudited)
<S> <C> <C>
Revenues
Oil sales $24,460,100 37,529,980
Gas sales 34,514,575 43,238,141
Natural gas liquids sales 3,987,472 5,803,921
Other 1,919,296 1,327,604
---------- ----------
Total revenues 64,881,443 87,899,646
---------- ----------
Costs and expenses
Lease operating expenses 18,624,623 15,812,637
Production taxes 3,023,515 5,309,844
Depreciation, depletion
and amortization 21,673,028 19,544,552
General and administrative expenses 3,274,956 2,629,885
Interest expense 10,697 130,807
Distributions on preferred securities
of subsidiary trust 2,429,375 2,429,375
---------- ----------
Total costs and expenses 49,036,194 45,857,100
---------- ----------
Earnings before income taxes 15,845,249 42,042,546
Income tax expense
Current 2,693,000 5,045,000
Deferred 3,011,000 11,772,000
---------- -----------
Total income tax expense 5,704,000 16,817,000
---------- -----------
Net earnings $10,141,249 25,225,546
========== ==========
Net earnings per average common share outstanding (Note 2):
Basic $0.31 0.78
===== ====
Diluted $0.31 0.71
===== ====
Weighted average common shares outstanding -
basic (Note 2) 32,318,895 32,141,295
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Operations
Three Months
Ended March 31,
1998 1997
(Unaudited)
<S> <C> <C>
Net earnings $10,141,249 25,225,546
Other comprehensive earnings (loss) -
foreign currency translation adjustments
(Note 1) 457,210 (603,161)
---------- ----------
Comprehensive earnings $10,598,459 24,622,385
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months
Ended March 31,
1998 1997
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net earnings $10,141,249 25,225,546
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, depletion and amortization 21,673,028 19,544,552
Gain on sale of assets (40,929) (22,114)
Deferred income taxes 3,011,000 11,772,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 7,516,994 (13,288,510)
Inventories (299,856) 90,544
Prepaid expenses (1,922,118) (1,476,820)
Other assets 835,116 (218,505)
Increase (decrease) in:
Accounts payable 2,097,316 6,655,857
Income taxes payable (2,220,092) 930,632
Accrued expenses (1,777,811) (1,257,416)
Revenues and royalties due to others 75,247 (99,086)
Long-term other liabilities 206,930 129,995
---------- ---------
Net cash provided by
operating activities 39,296,074 47,986,675
---------- ----------
Cash flows from investing activities
Proceeds from sale of property and equipment 174,290 91,276
Capital expenditures (39,544,184)(23,299,647)
Decrease in other assets 27,382 -
---------- ----------
Net cash used in investing activities (39,342,512)(23,208,371)
---------- ----------
Cash flows from financing activities
Proceeds from borrowings on revolving
lines of credit - 1,847,750
Principal payments on revolving lines of credit - (9,843,750)
Dividends paid on common stock (1,615,945) (1,607,065)
Increase in long-term other liabilities 5,192,117 340,189
--------- ---------
Net cash provided (used) by
financing activities 3,576,172 (9,262,876)
--------- ---------
Effect of exchange rate changes on cash 62,306 (53,634)
--------- ---------
Net increase in cash and cash equivalents 3,592,040 15,461,794
Cash and cash equivalents at beginning of period 42,064,344 9,401,350
---------- ----------
Cash and cash equivalents at end of period $45,656,384 24,863,144
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<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 1997 annual report on Form 10-K.
In the opinion of Devon's management, all adjustments (all
of which are normal and recurring) have been made which are
necessary to fairly state the consolidated financial position of
Devon and its subsidiaries as of March 31, 1998, and the results
of their operations and their cash flows for the three month
periods ended March 31, 1998 and 1997.
Comprehensive Earnings (Loss) - Foreign Currency Translation
Adjustments
Devon adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," on January 1, 1998. SFAS
No. 130 was effective for fiscal years beginning after December
15, 1997. SFAS No. 130 established standards for reporting and
display of "comprehensive income" and its components in a set of
financial statements. It requires that all items that are
required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements. Devon has included such a statement in the
accompanying consolidated financial statements.
Devon owns certain oil and gas properties in Canada. 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 in the consolidated
statements of comprehensive operations, and accumulated in a
separate component of stockholders' equity in the consolidated
balance sheets. The amounts reported have no related income tax
expense or benefit.
Reclassifications
Certain items in the 1997 consolidated statement of cash
flows have been reclassified to correspond with the 1998
presentation.
<PAGE>
2. Earnings Per Share
The following tables reconcile the net earnings and common
shares outstanding used in the calculations of basic and diluted
earnings per share for the three month periods ended March 31,
1998 and 1997.
<TABLE>
<CAPTION>
Net
Common Earnings
Net Shares Per
Earnings Outstanding Share
<S> <C> <C> <C>
Three Months Ended March 31, 1998:
Basic earnings per share $10,141,249 32,318,895 $0.31
====
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 outstanding stock options - 333,391
--------- ---------
Diluted earnings per share $11,647,738 37,553,793 $0.31
========== ========== ====
Three Months Ended March 31, 1997:
Basic earnings per share $25,225,546 32,141,295 $0.78
====
Dilutive effect of:
Potential common shares issuable upon the
conversion of Trust Convertible Preferred
securities (the increase in net earnings
is net of income tax expense of $963,000) 1,506,488 4,901,507
Potential common shares issuable upon the
exercise of outstanding stock options - 366,125
--------- ---------
Diluted earnings per share $26,732,034 37,408,927 $0.71
========== ========== ====
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion addresses material changes in
results of operations for the three months ended March 31, 1998,
compared to the three months ended March 31, 1997, and in
financial condition since December 31, 1997. It is presumed that
readers have read or have access to Devon's 1997 annual report on
Form 10-K.
Overview
Production for the first quarter of 1998 totaled 5.1 million
barrels of oil equivalent ("Boe") of oil, gas and natural gas
liquids ("NGL"). This was an increase of 3% above 1997's first
quarter production total. However, due to lower oil, gas and NGL
prices, the 1998 quarterly revenues of $64.9 million were down
26% compared to the 1997 quarterly total of $87.9 million. The
reduction in revenues also led to lower net earnings and cash
margin(1) in the 1998 period. Quarterly net earnings in 1998 were
$10.1 million, or 60% below the 1997 quarter's net earnings of
$25.2 million. Basic net earnings per share were $0.31 per share
in the 1998 quarter compared to $0.78 per share in the 1997
quarter. Cash margin in the 1998 quarter was $34.8 million, or
38% below the 1997 period's cash margin of $56.5 million.
[FN]
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.
<PAGE>
Results of Operations
Total revenues decreased by $23.0 million, or 26%, in the
first quarter of 1998. This decrease was caused by reductions in
the average prices of oil, gas and NGLs. Oil, gas and NGL
revenues were down $23.6 million, or 27%, for the quarter ended
March 31, 1998. The relative contributions of production and
price changes to the quarterly comparisons are shown in the
tables below. (Note: Unless otherwise stated, all references in
this report to dollar amounts regarding Devon's Canadian
operations are expressed in U.S. dollars.)
<TABLE>
<CAPTION>
Total
Three Months Ended
March 31,
1998 1997 Change
<S> <C> <C> <C>
Production
Oil (Bbls) 1,724,110 1,755,265 -2%
Gas (Mcf) 17,996,303 17,017,875 +6%
NGL (Bbls) 390,139 368,105 +6%
Oil, Gas and NGL (Boe) 15,113,633 4,959,683 +3%
Revenues
Oil $24,460,100 37,529,980 -35%
Gas 34,514,575 43,238,141 -20%
NGL 3,987,472 5,803,921 -31%
---------- ----------
Combined $62,962,147 86,572,042 -27%
========== ==========
Average Prices
Oil (Per Bbl) $14.19 21.38 -34%
Gas (Per Mcf) $ 1.92 2.54 -24%
NGL (Per Bbl) $10.22 15.77 -35%
Oil, Gas and NGL (Per Boe)(1) $12.31 17.46 -29%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Domestic
Three Months Ended
March 31,
1998 1997 Change
<S> <C> <C> <C>
Production
Oil (Bbls) 1,485,144 1,513,582 -2%
Gas (Mcf) 15,934,536 14,900,742 +7%
NGL (Bbls) 353,796 333,615 +6%
Oil, Gas and NGL (Boe)(1) 4,494,696 4,330,654 +4%
Revenues
Oil $21,107,901 32,454,825 -35%
Gas 31,980,543 39,610,876 -19%
NGL 3,545,123 5,190,768 -32%
---------- ----------
Combined $56,633,567 77,256,469 -27%
========== ==========
Average Prices
Oil (Per Bbl) $14.21 21.44 -34%
Gas (Per Mcf) $ 2.01 2.66 -24%
NGL (Per Bbl) $10.02 15.56 -36%
Oil, Gas and NGL (Per Boe)(1) $12.60 17.84 -29%
</TABLE>
<TABLE>
<CAPTION>
Canada
Three Months Ended
March 31,
1998 1997 Change
<S> <C> <C> <C>
Production
Oil (Bbls) 238,966 241,683 -1%
Gas (Mcf) 2,061,767 2,117,133 -3%
NGL (Bbls) 36,343 34,490 +5%
Oil, Gas and NGL (Boe)(1) 618,937 629,029 -2%
Revenues
Oil $3,352,199 5,075,155 -34%
Gas 2,534,032 3,627,265 -30%
NGL 442,349 613,153 -28%
--------- ---------
Combined $6,328,580 9,315,573 -32%
========= =========
Average Prices
Oil (Per Bbl) $14.03 $21.00 -33%
Gas (Per Mcf) $ 1.23 $1.71 -28%
NGL (Per Bbl) $12.17 $17.78 -32%
Oil, Gas and NGL (Per Boe)(1) $10.22 $14.81 -31%
<FN>
1 Gas is converted to barrels of oil equivalent ("Boe") at
the rate of six Mcf of gas per barrel of oil, based upon
the approximate relative energy content of natural gas and
oil, which rate is not necessarily indicative of the
relationship of oil, gas and NGL prices. The respective
prices of these products are affected by market and other
factors in addition to relative energy content.
</TABLE>
<PAGE>
Oil Revenues. Oil revenues decreased $13.1 million, or 35%,
in the first quarter of 1998. A decrease in the average price of
$7.19 per barrel, or 34%, reduced oil revenues by $12.4 million.
The remaining $0.7 million reduction in oil revenues was caused
by a 31,000 barrel, or 2%, decrease in production.
Gas Revenues. Gas revenues decreased $8.7 million, or 20%,
in the first quarter of 1998. A decrease in the average price of
$0.62 per Mcf, or 24%, reduced gas revenues by $11.2 million. A
1.0 Bcf, or 6%, increase in gas production offset $2.5 million of
the reduction caused by lower prices.
Devon's coal seam gas properties produced 5.0 Bcf in the
first quarter of 1998 compared to 4.1 Bcf produced in the first
quarter of 1997. Devon's other domestic properties produced 10.9
Bcf in 1998's first quarter compared to 10.8 Bcf produced in
1997's first quarter. The coal seam gas properties averaged
$1.83 per Mcf in the 1998 period compared to $2.42 in the 1997
period. The other domestic properties averaged $2.09 per Mcf in
the first three months of 1998 compared to $2.75 per Mcf in the
same period of 1997.
NGL Revenues. NGL revenues decreased $1.8 million, or 31%,
in the first quarter of 1998. A decrease in the average price of
$5.55 per barrel, or 35%, reduced NGL revenues by $2.2 million.
A 22,000 barrel, or 6%, increase in production offset $0.4
million of the price-related reduction in NGL revenues.
Other Revenues. Other revenues increased $0.6 million, or
45%, in the first quarter of 1998. Approximately $0.5 million of
the increase was due to higher interest income received from the
investment of excess cash.
<PAGE>
Production and Operating Expenses. Production and operating
expenses in the first quarter of 1998 varied compared to the
first quarter of 1997 as shown in the tables below.
<TABLE>
<CAPTION>
Total
Three Months Ended
March 31,
1998 1997 Change
<S> <C> <C> <C>
Absolute
Recurring operations and maintenance
expenses $17,350,127 14,861,219 +17%
Well workover expenses 1,274,496 951,418 +34%
Production taxes 3,023,515 5,309,844 -43%
---------- ----------
Total production and
operating expenses $21,648,138 21,122,481 +2%
========== ==========
Per Boe
Recurring operations and maintenance
expenses $3.39 3.00 +13%
Well workover expenses 0.25 0.19 +32%
Production taxes 0.59 1.07 -45%
---- ----
Total production and operating
expenses $4.23 4.26 -1%
==== ====
</TABLE>
<TABLE>
<CAPTION>
Domestic
Three Months Ended
March 31,
1998 1997 Change
<S> <C> <C> <C>
Absolute
Recurring operations and maintenance
expenses $15,484,477 13,211,127 +17%
Well workover expenses 1,187,772 918,560 +29%
Production taxes 2,956,380 5,175,071 -43%
---------- ----------
Total production and operating
expenses $19,628,629 19,304,758 +2%
========== ==========
Per Boe
Recurring operations and maintenance
expenses $3.45 3.05 +13%
Well workover expenses 0.26 0.21 +24%
Production taxes 0.66 1.20 -45%
---- ----
Total production and operating
expenses $4.37 4.46 -2%
==== ====
</TABLE>
<TABLE>
<CAPTION>
Canada
Three Months Ended
March 31,
1998 1997 Change
<S> <C> <C> <C>
Absolute
Recurring operations and maintenance
expenses $1,865,650 1,650,092 +13%
Well workover expenses 86,724 32,858 +164%
Production taxes 67,135 134,773 -50%
--------- ---------
Total production and operating
expenses $2,019,509 1,817,723 +11%
========= =========
Per Boe
Recurring operations and maintenance
expenses $3.01 $2.62 +15%
Well workover expenses 0.14 0.05 +180%
Production taxes 0.11 0.22 -50%
---- ----
Total production and operating
expenses $3.26 2.89 +13%
==== ====
</TABLE>
Recurring operations and maintenance expenses increased $2.5
million, or 17%, in the first quarter of 1998. Expenses incurred
on new wells added since the first quarter of 1997 accounted for
$1.6 million of the increase. Also, the quarterly portion of
estimated annual ad valorem taxes increased $1.1 million in the
1998 quarter. However, approximately $0.9 million of this
increase is due to timing differences between the periods, as
1997's annual ad valorem taxes were underestimated during the
first three quarters of 1997.
Production taxes decreased $2.3 million, or 43%, in the first
three months of 1998. The majority of this decrease was related
to the 27% decrease in total oil, gas and NGL revenues in the
1998 quarter. Additionally, production taxes dropped in the 1998
quarter due to the benefit of lower rates on certain Texas and
Wyoming properties that qualified for either lower production tax
rates or as tax-exempt properties.
Depreciation, Depletion and Amortization Expenses ("DD&A").
Oil and gas property related DD&A increased $2.1 million, or 11%,
from $18.9 million in the first quarter of 1997 to $21.0 million
in the first quarter of 1998. An increase in the DD&A rate from
$3.81 per Boe in the 1997 period to $4.10 per Boe in the 1998
period increased oil and gas property related DD&A by $1.5
million. The remaining $0.6 million of increase was the result
of the 154,000 Boe, or 3%, increase in total oil, gas and NGL
production in the 1998 quarter.
General and Administrative Expenses ("G&A"). G&A increased
$0.6 million, or 25%, in the first quarter of 1998. Employee
salaries and related overhead costs, including insurance and
pension expense, increased $0.9 million in the 1998 period. This
increase was due to a combination of compensation increases and
an increase in the number of personnel in Devon's Oklahoma City
and Calgary offices. The increase in salaries and related
overhead was partially offset by a $0.4 million increase in the
amount of such costs that were capitalized pursuant to the full
cost method of accounting. Approximately $1.3 million of costs
were capitalized in the first quarter of 1998 compared to $0.9
million capitalized in the first quarter of 1997. Other G&A
items that incurred significant increases in the 1998 quarter
were costs of leasing various office equipment and data related
to exploration activities, which were up $0.1 million, and costs
of abandoned acquisitions, which were also up $0.1 million.
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. In the first quarter of
1998, these reimbursements increased $0.3 million compared to the
first quarter of 1997.
Interest Expense. Interest expense decreased $0.1 million,
or 92%, in the first quarter of 1998 compared to the same period
in 1997. The average debt balance decreased from $3.0 million in
the 1997 period to zero in the 1998 period. Interest expense
recorded in the 1998 quarter consists primarily of facility and
agency fees paid under the terms of Devon's long-term credit
lines, offset by $0.1 million of gain recognized from a 1996
termination of an interest rate swap. The remaining $0.1 million
of unrecognized gain from the termination will be recognized in
the second quarter of 1998.
Distributions on Preferred Securities of Subsidiary Trust.
Devon issued $149.5 million of 6.5% Trust Convertible Preferred
Securities ("TCP Securities") in July, 1996. The proceeds from
this issuance were used to substantially retire Devon's long-term
bank debt. Distributions on the TCP Securities accrue at the
rate of 1.625% per quarter.
Income Taxes. During interim periods, income tax expense is
based on the estimated effective income tax rate that is expected
for the entire fiscal year. The estimated effective tax rate in
the first quarter of 1998 was 36%, compared to 40% estimated in
the first quarter of 1997. However, the eventual actual tax rate
for the year 1997 was reduced to 38%.
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("Statement 109"), requires that
the tax benefit of available tax carryforwards be recorded as an
asset to the extent that management assesses the utilization of
such carryforwards to be "more likely than not". When the future
utilization of some portion of the carryforwards is determined
not to be "more likely than not", Statement 109 requires that a
valuation allowance be provided to reduce the recorded tax
benefits from such assets.
Included as deferred tax assets at March 31, 1998, were
approximately $2.9 million of net operating loss carryforwards.
The carryforwards include federal net operating loss
carryforwards, the majority of which do not begin to expire until
2007, and state net operating loss carryforwards that expire
primarily between 1999 and 2011. Devon expects the tax benefits
from the net operating loss carryforwards to be utilized between
1998 and 2001. Such expectation is based upon current estimates
of taxable income during this period, considering limitations on
the annual utilization of these benefits as set forth by federal
tax regulations. Significant changes in such estimates caused by
variables such as future oil and gas prices or capital
expenditures could alter the timing of the eventual utilization
of such carryforwards. There can be no assurance that Devon will
generate any specific level of continuing taxable earnings.
However, management believes that Devon's future taxable income
will more likely than not be sufficient to utilize substantially
all of its tax carryforwards prior to their expiration.
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 70% from $23.3 million in the first quarter of 1997 to
$39.5 million in the first quarter of 1998. Approximately $38.1
million was spent in the 1998 period on acquisition, exploration
and development efforts, compared to $22.5 million spent in the
1997 quarter.
Capital Resources and Liquidity. Net cash provided by
operating activities ("operating cash flow") continued to be the
primary source of capital and liquidity in the first quarter of
1998. Operating cash flow in the first quarter of 1998 was $39.3
million, compared to $48.0 million in the first quarter of 1997.
Devon's operating and financing cash flow in the first
quarter of 1998 was more than sufficient to fund the period's
capital expenditures and dividend requirements. Therefore, Devon
did not utilize its credit lines during the period. As of March
31, 1998, Devon had $208 million of long-term credit lines, all
of which was available for future use. Also, Devon had a $12.5
million Canadian dollars demand facility for its Canadian
operations. All of this Canadian facility was also available for
future use.
Impact of Recently Issued Accounting Standards Not Yet
Adopted. In February, 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits." SFAS No. 132 revises employers' disclosures about
pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. It
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer
as useful as they previously were. SFAS No. 132 is effective for
fiscal years beginning after December 15, 1997. Devon will adopt
the new disclosure requirements in its annual financial
statements for the year ending December 31, 1998.
<PAGE>
DEVON ENERGY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K are
as follows:
Exhibit
No.
2.1 Agreement and Plan of Merger among Registrant, Devon
Energy Corporation (Nevada), Kerr-McGee
Corporation, Kerr-McGee North American Onshore
Corporation and Kerr-McGee Canada Onshore Ltd.,
dated October 17, 1996 (incorporated by reference
to Addendum A to Registrant's definitive proxy
statement for a special meeting of shareholders,
filed on November 6, 1996).
3.1 Registrant's Certificate of Incorporation, as amended
(incorporated by reference to Exhibit B to
Registrant's definitive Proxy Statement for its
1995 Annual Meeting of Shareholders filed on
April 21, 1995).
3.2 Registrant's Certificate of Amendment of Certificate
of Incorporation (incorporated by reference to
Exhibit 2 to Registrant's Current Report on Form
8-K dated December 31, 1996).
3.3 Registrant's Bylaws (incorporated by reference to
Exhibit 3.2 to Registrant's Registration
Statement on Form 8-B filed on June 7, 1995).
4.1 Form of Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to Registrant's
Registration Statement on Form 8-B filed on June
7, 1995).
4.2 Rights Agreement between Registrant and The First
National Bank of Boston (incorporated by
reference to Exhibit 4.2 to Registrant's
Registration Statement on Form 8-B filed on June
7, 1995).
4.3 First Amendment to Rights Agreement between Registrant
and The First National Bank of Boston, dated
October 16, 1996 (incorporated by reference to
Exhibit H-1 to Addendum A to Registrant's
definitive proxy statement for a special meeting
of shareholders, filed on November 6, 1996).
4.4 Second Amendment to Rights Agreement between Registrant
and the First National Bank of Boston, dated
December 31, 1996 (incorporated by reference to
Exhibit 4.2 to Registrant's Current Report on
Form 8-K dated December 31, 1996).
4.5 Certificate of Designations of Series A Junior
Participating Preferred Stock of Registrant
(incorporated by reference to Exhibit 3.3 to
Registrant's Registration Statement on Form 8-B
filed on June 7, 1995).
4.6 Certificate of Trust of Devon Financing Trust
[incorporated by reference to Exhibit 4.5 to
Amendment No. 1 to Registrant's Registration
Statement on Form S-3 (No. 333-00815)].
4.7 Amended and Restated Declaration of Trust of Devon
Financing Trust, dated as of July 3, 1996, by J.
Larry Nichols, H. Allen Turner, William T.
Vaughn, The Bank of New York (Delaware) and The
Bank of New York as Trustees and the Registrant
as Sponsor [incorporated by reference to Exhibit
4.6 to Amendment No. 1 to Registrant's
Registration Statement on Form S-3 (No. 333-
00815)].
4.8 Indenture, dated as of July 3, 1996, between the
Registrant and The Bank of New York [incorporated
by reference to Exhibit 4.7 to Amendment No. 1 to
Registrant's Registration Statement on Form S-3
(No. 333-00815)].
4.9 First Supplemental Indenture, dated as of July 3, 1996,
between the Registrant and The Bank of New York
[incorporated by reference to Exhibit 4.8 to
Amendment No. 1 to Registrant's Registration
Statement on Form S-3 (No. 333-00815)].
4.10 Form of 6 1/2% Preferred Convertible Securities
(included as Exhibit A-1 to Exhibit 4.7 above).
4.11 Form of 6 1/2% Convertible Junior Subordinated
Debentures (included as Exhibit B to 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 to Credit Agreement, dated March 15,
1997, 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 (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 the Shareholders filed on April 3,
1997).*
10.6 Severance Agreement between Devon Energy Corporation
(Nevada), Devon Energy Corporation (Delaware) and
Mr. J. Larry Nichols, dated December 3, 1992
(incorporated by reference to Exhibit 10.10 to
Registrant's Amendment No. 1 to Annual Report on
Form 10-K for the year ended December 31, 1992).*
10.7 Severance Agreement between Devon Energy Corporation
(Nevada), Devon Energy Corporation (Delaware) and
Mr. J. Michael Lacey, dated December 3, 1992
(incorporated by reference to Exhibit 10.12 to
Registrant's Amendment No. 1 to Annual Report on
Form 10-K for the year ended December 31, 1992).*
10.8 Severance Agreement between Devon Energy Corporation
(Nevada), Devon Energy Corporation (Delaware) and
Mr. H. Allen Turner, dated December 3, 1992
(incorporated by reference to Exhibit 10.13 to
Registrant's Amendment No. 1 to Annual Report on
Form 10-K for the year ended December 31, 1992).*
10.9 Severance Agreement between Devon Energy Corporation
(Nevada), Devon Energy Corporation (Delaware) and
Mr. Darryl G. Smette, dated December 3, 1992
(incorporated by reference to Exhibit 10.14 to
Registrant's Amendment No. 1 to Annual Report on
Form 10-K for the year ended December 31, 1992).*
10.10 Severance Agreement between Devon Energy Corporation
(Nevada), Devon Energy Corporation (Delaware) and
Mr. William T. Vaughn, dated December 3, 1992
(incorporated by reference to Exhibit 10.15 to
Registrant's Amendment No. 1 to Annual Report on
Form 10-K for the year ended December 31, 1992).*
10.11 Severance Agreement between Devon Energy Corporation
(Nevada), Registrant and Duke R. Ligon, dated
March 26, 1997 (incorporated by reference to
Exhibit 10.11 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997).*
10.12 Employment Agreement between Devon Energy Corporation
(Nevada), Registrant and Duke R. Ligon, dated
February 7, 1997 (incorporated by reference to
Exhibit 10.12 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997).*
10.13 Supplemental Retirement Income Agreement among Devon
Energy Corporation (Nevada), Registrant and John
W. Nichols, dated March 26, 1997 (incorporated by
reference to Exhibit 10.13 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).*
10.14 Sale and Purchase Agreement relating to Registrant's
San Juan Basin gas properties (incorporated by
reference to Exhibit 10.15 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995).
10.15 Second Restatement of and Amendment to Sale and
Purchase Agreement relating to Registrant's San
Juan Basin gas properties (incorporated by
reference to Exhibit 10.16 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995).
10.16 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)].
* Compensatory plans or arrangements.
(b) Reports on Form 8-K - A Current Report on Form 8-K dated
January 20, 1998, was filed by the Registrant
regarding year-end 1997 reserves, 1997 production
and modifications to 1997 forward-looking
information. A Current Report on Form 8-K dated
January 27, 1998, was filed by the Registrant
regarding 1998 forward-looking information.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
DEVON ENERGY CORPORATION
Date: April 24, 1998 William T. Vaughn
William T. Vaughn
Vice President - Finance
<PAGE>
INDEX TO EXHIBITS
Page
2.1 Agreement and Plan of Merger and Reorganization by and #
among Registrant and Devon Energy Corporation, a
Delaware corporation, dated as of April 13, 1995
2.2 Agreement and Plan of Merger among Registrant, Devon #
Energy Corporation (Nevada), Kerr-McGee Corporation,
Kerr-McGee North American Onshore Corporation and Kerr-
McGee Canada Onshore Ltd., dated October 17, 1996
3.1 Registrant's Certificate of Incorporation, as amended #
3.2 Registrant's Certificate of Amendment of Certificate of #
Incorporation
3.3 Registrant's Bylaws #
4.1 Form of Common Stock Certificate #
4.2 Rights Agreement between Registrant and The First #
National Bank of Boston
4.3 First Amendment to Rights Agreement between Registrant #
and The First National Bank of Boston dated October 16,
1996
4.4 Second Amendment to Rights Agreement between Registrant #
and the First National Bank of Boston, dated December
31, 1996
4.5 Certificate of Designations of Series A Junior #
Participating Preferred Stock of Registrant
4.6 Certificate of Trust of Devon Financing Trust #
4.7 Amended and Restated Declaration of Trust of Devon #
Financing Trust dated as of July 3, 1996, by J. Larry
Nichols, H. Allen Turner, William T. Vaughn, The Bank
of New York (Delaware) and The Bank of New York as
Trustees and the Registrant as Sponsor
4.8 Indenture dated as of July 3, 1996, between the #
Registrant and The Bank of New York
4.9 First Supplemental Indenture dated as of July 3, 1996, #
between the Registrant and The Bank of New York
4.10 Form of 6 1/2% Preferred Convertible Securities #
(included as Exhibit A-1 to Exhibit 4.5 above)
4.11 Form of 6 1/2% Convertible Junior Subordinated #
Debentures (included in Exhibit 4.7 above)
4.12 Preferred Securities Guarantee Agreement dated July 3, #
1996, between Registrant, as Guarantor, and The Bank of
New York, as Preferred Guarantee Trustee
4.13 Stock Rights and Restrictions Agreement dated as of #
December 31, 1996, between Registrant and Kerr-McGee
Corporation
4.14 Registration Rights Agreement, dated December 31, 1996, #
by and between Registrant and Kerr-McGee Corporation
10.1 Credit Agreement dated August 30, 1996, among Devon #
Energy Corporation (Nevada), as Borrower, the
Registrant and Devon Energy Operating Corporation, as
Guarantors, NationsBank of Texas, N.A., as Agent, and
NationsBank of Texas, N.A., Bank One, Texas, N.A., Bank
of Montreal, and First Union National Bank of North
Carolina, as Lenders
10.2 First Amendment to Credit Agreement dated March 15, #
1997, 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
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 between Devon Energy Corporation #
(Nevada), Devon Energy Corporation (Delaware) and Mr.
J. Larry Nichols, dated December 3, 1992
10.7 Severance Agreement between Devon Energy Corporation #
(Nevada),Devon Energy Corporation (Delaware) and Mr. J.
Michael Lacey, dated December 3, 1992
10.8 Severance Agreement between Devon Energy Corporation #
(Nevada), Devon Energy Corporation (Delaware) and Mr.
H. Allen Turner, dated December 3, 1992
10.9 Severance Agreement between Devon Energy Corporation #
(Nevada), Devon Energy Corporation (Delaware) and Mr.
Darryl G. Smette, dated December 3, 1992
10.10 Severance Agreement between Devon Energy Corporation #
(Nevada), Devon Energy Corporation (Delaware) and Mr.
William T. Vaughn, dated December 3, 1992
10.11 Severance Agreement between 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 between 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 Registration Rights Agreement dated July 3, 1996, by #
and among the Registrant, Devon Financing Trust and
Morgan Stanley & Co. Incorporated
____________________________________
# Incorporated by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 45,656,384
<SECURITIES> 0
<RECEIVABLES> 40,024,208
<ALLOWANCES> 0
<INVENTORY> 2,726,969
<CURRENT-ASSETS> 91,336,505
<PP&E> 1,144,186,836
<DEPRECIATION> 386,932,136
<TOTAL-ASSETS> 861,830,150
<CURRENT-LIABILITIES> 28,928,110
<BONDS> 0
0
0
<COMMON> 3,231,890
<OTHER-SE> 549,326,917
<TOTAL-LIABILITY-AND-EQUITY> 861,830,150
<SALES> 62,962,147
<TOTAL-REVENUES> 64,881,443
<CGS> 0
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<OTHER-EXPENSES> 21,648,138
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<INTEREST-EXPENSE> 10,697
<INCOME-PRETAX> 15,845,249
<INCOME-TAX> 5,704,000
<INCOME-CONTINUING> 10,141,249
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