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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 001-32318

 

img130197558_0.jpg 

DEVON ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

73-1567067

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

identification No.)

 

 

333 West Sheridan Avenue, Oklahoma City, Oklahoma

73102-5015

(Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code: (405) 235-3611

Former name, address and former fiscal year, if changed from last report: Not applicable

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.10 per share

DVN

The New York Stock Exchange

 

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

Accelerated filer

 

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No

On October 25, 2023, 640.7 million shares of common stock were outstanding.

 


Table of Contents

 

DEVON ENERGY CORPORATION

FORM 10-Q

TABLE OF CONTENTS

 

Part I. Financial Information

 

Item 1.

 

Financial Statements

6

 

 

Consolidated Statements of Comprehensive Earnings

6

 

 

Consolidated Balance Sheets

7

 

 

Consolidated Statements of Cash Flows

8

 

 

Consolidated Statements of Equity

9

 

 

Notes to Consolidated Financial Statements

10

 

 

Note 1 – Summary of Significant Accounting Policies

10

 

 

Note 2 – Acquisitions and Divestitures

11

 

 

Note 3 – Derivative Financial Instruments

11

 

 

Note 4 – Share-Based Compensation

13

 

 

Note 5 – Restructuring

14

 

 

Note 6 – Other, Net

15

 

 

Note 7 – Income Taxes

15

 

 

Note 8 – Net Earnings Per Share

16

 

 

Note 9 – Other Comprehensive Earnings (Loss)

16

 

 

Note 10 – Supplemental Information to Statements of Cash Flows

16

 

 

Note 11 – Accounts Receivable

17

 

 

Note 12 – Property, Plant and Equipment

17

 

 

Note 13 – Debt and Related Expenses

17

 

 

Note 14 – Leases

18

 

 

Note 15 – Asset Retirement Obligations

19

 

 

Note 16 – Stockholders’ Equity

19

 

 

Note 17 – Commitments and Contingencies

20

 

 

Note 18 – Fair Value Measurements

21

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

 

 

Executive Overview

23

 

 

Results of Operations

24

 

 

Capital Resources, Uses and Liquidity

31

 

 

Critical Accounting Estimates

35

 

 

Non-GAAP Measures

35

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

 

Controls and Procedures

37

 

 

 

 

Part II. Other Information

 

Item 1.

 

Legal Proceedings

38

Item 1A.

 

Risk Factors

38

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

 

Defaults Upon Senior Securities

38

Item 4.

 

Mine Safety Disclosures

38

Item 5.

 

Other Information

38

Item 6.

 

Exhibits

39

 

 

 

 

Signatures

 

 

40

 

2


Table of Contents

 

DEFINITIONS

Unless the context otherwise indicates, references to “us,” “we,” “our,” “ours,” “Devon,” the “Company” and “Registrant” refer to Devon Energy Corporation and its consolidated subsidiaries. All monetary values, other than per unit and per share amounts, are stated in millions of U.S. dollars unless otherwise specified. In addition, the following are other abbreviations and definitions of certain terms used within this Quarterly Report on Form 10-Q:

“AFSI” means adjusted financial statement income.

“Bbl” or “Bbls” means barrel or barrels.

“Boe” means barrel of oil equivalent. Gas proved reserves and production are converted to Boe, at the pressure and temperature base standard of each respective state in which the gas is produced, at the rate of six Mcf of gas per Bbl of oil, based upon the approximate relative energy content of gas and oil. NGL proved reserves and production are converted to Boe on a one-to-one basis with oil.

“Btu” means British thermal units, a measure of heating value.

“CAMT” means corporate alternative minimum tax.

“Catalyst” means Catalyst Midstream Partners, LLC.

“CDM” means Cotton Draw Midstream, L.L.C.

“DD&A” means depreciation, depletion and amortization expenses.

“ESG” means environmental, social and governance.

“G&A” means general and administrative expenses.

“GAAP” means U.S. generally accepted accounting principles.

“Inside FERC” refers to the publication Inside FERC’s Gas Market Report.

“IRA” refers to the Inflation Reduction Act of 2022.

“LOE” means lease operating expenses.

“Matterhorn” refers to Matterhorn Express Pipeline, LLC and, as applicable, its direct parent, MXP Parent, LLC.

“MBbls” means thousand barrels.

“MBoe” means thousand Boe.

“Mcf” means thousand cubic feet.

“Merger” means the merger of East Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”) with and into WPX, with WPX continuing as the surviving corporation and a wholly-owned subsidiary of the Company, pursuant to the terms of that certain Agreement and Plan of Merger, dated September 26, 2020, by and among the Company, Merger Sub and WPX.

“MMBoe” means million Boe.

“MMBtu” means million Btu.

“MMcf” means million cubic feet.

“N/M” means not meaningful.

3


Table of Contents

 

“NCI” means noncontrolling interests.

“NGL” or “NGLs” means natural gas liquids.

“NYMEX” means New York Mercantile Exchange.

“SEC” means United States Securities and Exchange Commission.

“2018 Senior Credit Facility” means Devon’s syndicated unsecured revolving line of credit, effective as of October 5, 2018.

“2023 Senior Credit Facility” means Devon’s syndicated unsecured revolving line of credit, effective as of March 24, 2023.

“TSR” means total shareholder return.

“U.S.” means United States of America.

“VIE” means variable interest entity.

“Water JV” means NDB Midstream L.L.C.

“WPX” means WPX Energy, Inc.

“WTI” means West Texas Intermediate.

“/Bbl” means per barrel.

“/d” means per day.

“/MMBtu” means per MMBtu.

 

4


Table of Contents

 

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” as defined by the SEC. Such statements include those concerning strategic plans, our expectations and objectives for future operations, as well as other future events or conditions, and are often identified by use of the words and phrases “expects,” “believes,” “will,” “would,” “could,” “continue,” “may,” “aims,” “likely to be,” “intends,” “forecasts,” “projections,” “estimates,” “plans,” “expectations,” “targets,” “opportunities,” “potential,” “anticipates,” “outlook” and other similar terminology. All statements, other than statements of historical facts, included in this report that address activities, events or developments that Devon expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control. Consequently, actual future results could differ materially and adversely from our expectations due to a number of factors, including, but not limited to:

the volatility of oil, gas and NGL prices;
uncertainties inherent in estimating oil, gas and NGL reserves;
the extent to which we are successful in acquiring and discovering additional reserves;
the uncertainties, costs and risks involved in our operations;
risks related to our hedging activities;
our limited control over third parties who operate some of our oil and gas properties;
midstream capacity constraints and potential interruptions in production, including from limits to the build out of midstream infrastructure;
competition for assets, materials, people and capital;
regulatory restrictions, compliance costs and other risks relating to governmental regulation, including with respect to federal lands, environmental matters and seismicity;
risks related to regulatory, social and market efforts to address climate change;
governmental interventions in energy markets;
risks relating to the COVID-19 pandemic or other future pandemics;
counterparty credit risks;
risks relating to our indebtedness;
cyberattack risks;
the extent to which insurance covers any losses we may experience;
risks related to stockholder activism;
our ability to successfully complete mergers, acquisitions and divestitures;
our ability to pay dividends and make share repurchases; and
any of the other risks and uncertainties discussed in this report, our 2022 Annual Report on Form 10-K and our other filings with the SEC.

The forward-looking statements included in this filing speak only as of the date of this report, represent management’s current reasonable expectations as of the date of this filing and are subject to the risks and uncertainties identified above as well as those described elsewhere in this report and in other documents we file from time to time with the SEC. We cannot guarantee the accuracy of our forward-looking statements, and readers are urged to carefully review and consider the various disclosures made in this report and in other documents we file from time to time with the SEC. All subsequent written and oral forward-looking statements attributable to Devon, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements above. We do not undertake, and expressly disclaim, any duty to update or revise our forward-looking statements based on new information, future events or otherwise.

5


Table of Contents

 

Part I. Financial Information

Item 1. Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

Oil, gas and NGL sales

 

$

2,882

 

 

$

3,668

 

 

$

8,054

 

 

$

10,943

 

Oil, gas and NGL derivatives

 

 

(194

)

 

 

248

 

 

 

(206

)

 

 

(605

)

Marketing and midstream revenues

 

 

1,148

 

 

 

1,516

 

 

 

3,265

 

 

 

4,532

 

Total revenues

 

 

3,836

 

 

 

5,432

 

 

 

11,113

 

 

 

14,870

 

Production expenses

 

 

757

 

 

 

735

 

 

 

2,169

 

 

 

2,082

 

Exploration expenses

 

 

3

 

 

 

4

 

 

 

16

 

 

 

16

 

Marketing and midstream expenses

 

 

1,160

 

 

 

1,525

 

 

 

3,316

 

 

 

4,549

 

Depreciation, depletion and amortization

 

 

651

 

 

 

581

 

 

 

1,904

 

 

 

1,598

 

Asset dispositions

 

 

 

 

 

 

 

 

(41

)

 

 

(15

)

General and administrative expenses

 

 

99

 

 

 

95

 

 

 

297

 

 

 

273

 

Financing costs, net

 

 

81

 

 

 

67

 

 

 

231

 

 

 

236

 

Other, net

 

 

13

 

 

 

(40

)

 

 

28

 

 

 

(91

)

Total expenses

 

 

2,764

 

 

 

2,967

 

 

 

7,920

 

 

 

8,648

 

Earnings before income taxes

 

 

1,072

 

 

 

2,465

 

 

 

3,193

 

 

 

6,222

 

Income tax expense

 

 

152

 

 

 

565

 

 

 

572

 

 

 

1,389

 

Net earnings

 

 

920

 

 

 

1,900

 

 

 

2,621

 

 

 

4,833

 

Net earnings attributable to noncontrolling interests

 

 

10

 

 

 

7

 

 

 

26

 

 

 

19

 

Net earnings attributable to Devon

 

$

910

 

 

$

1,893

 

 

$

2,595

 

 

$

4,814

 

Net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic net earnings per share

 

$

1.43

 

 

$

2.89

 

 

$

4.05

 

 

$

7.30

 

Diluted net earnings per share

 

$

1.42

 

 

$

2.88

 

 

$

4.03

 

 

$

7.28

 

Comprehensive earnings:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

920

 

 

$

1,900

 

 

$

2,621

 

 

$

4,833

 

Other comprehensive earnings, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement plans

 

 

1

 

 

 

1

 

 

 

3

 

 

 

3

 

Other comprehensive earnings, net of tax

 

 

1

 

 

 

1

 

 

 

3

 

 

 

3

 

Comprehensive earnings:

 

 

921

 

 

 

1,901

 

 

 

2,624

 

 

 

4,836

 

Comprehensive earnings attributable to noncontrolling interests

 

 

10

 

 

 

7

 

 

 

26

 

 

 

19

 

Comprehensive earnings attributable to Devon

 

$

911

 

 

$

1,894

 

 

$

2,598

 

 

$

4,817

 

 

See accompanying notes to consolidated financial statements.

6


Table of Contents

 

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash, cash equivalents and restricted cash

 

$

761

 

 

$

1,454

 

Accounts receivable

 

 

1,853

 

 

 

1,767

 

Inventory

 

 

233

 

 

 

201

 

Other current assets

 

 

365

 

 

 

469

 

Total current assets

 

 

3,212

 

 

 

3,891

 

Oil and gas property and equipment, based on successful efforts accounting, net

 

 

17,563

 

 

 

16,567

 

Other property and equipment, net ($124 million and $109 million related to CDM in
   2023 and 2022, respectively)

 

 

1,468

 

 

 

1,539

 

Total property and equipment, net

 

 

19,031

 

 

 

18,106

 

Goodwill

 

 

753

 

 

 

753

 

Right-of-use assets

 

 

261

 

 

 

224

 

Investments

 

 

671

 

 

 

440

 

Other long-term assets

 

 

313

 

 

 

307

 

Total assets

 

$

24,241

 

 

$

23,721

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

812

 

 

$

859

 

Revenues and royalties payable

 

 

1,434

 

 

 

1,506

 

Short-term debt

 

 

487

 

 

 

251

 

Other current liabilities

 

 

597

 

 

 

489

 

Total current liabilities

 

 

3,330

 

 

 

3,105

 

Long-term debt

 

 

5,675

 

 

 

6,189

 

Lease liabilities

 

 

290

 

 

 

257

 

Asset retirement obligations

 

 

641

 

 

 

511

 

Other long-term liabilities

 

 

850

 

 

 

900

 

Deferred income taxes

 

 

1,676

 

 

 

1,463

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.10 par value. Authorized 1.0 billion shares; issued
   
641 million and 653 million shares in 2023 and 2022, respectively

 

 

64

 

 

 

65

 

Additional paid-in capital

 

 

6,153

 

 

 

6,921

 

Retained earnings

 

 

5,535

 

 

 

4,297

 

Accumulated other comprehensive loss

 

 

(113

)

 

 

(116

)

Total stockholders’ equity attributable to Devon

 

 

11,639

 

 

 

11,167

 

Noncontrolling interests

 

 

140

 

 

 

129

 

Total equity

 

 

11,779

 

 

 

11,296

 

Total liabilities and equity

 

$

24,241

 

 

$

23,721

 

 

See accompanying notes to consolidated financial statements.

7


Table of Contents

 

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

920

 

 

$

1,900

 

 

$

2,621

 

 

$

4,833

 

Adjustments to reconcile net earnings to net cash from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

651

 

 

 

581

 

 

 

1,904

 

 

 

1,598

 

Leasehold impairments

 

 

1

 

 

 

2

 

 

 

4

 

 

 

10

 

Amortization of liabilities

 

 

(2

)

 

 

(8

)

 

 

(17

)

 

 

(23

)

Total (gains) losses on commodity derivatives

 

 

194

 

 

 

(248

)

 

 

206

 

 

 

605

 

Cash settlements on commodity derivatives

 

 

(11

)

 

 

(363

)

 

 

39

 

 

 

(1,179

)

Gains on asset dispositions

 

 

 

 

 

 

 

 

(41

)

 

 

(15

)

Deferred income tax expense

 

 

13

 

 

 

445

 

 

 

212

 

 

 

914

 

Share-based compensation

 

 

22

 

 

 

22

 

 

 

70

 

 

 

65

 

Other

 

 

(2

)

 

 

8

 

 

 

(2

)

 

 

(9

)

Changes in assets and liabilities, net

 

 

(61

)

 

 

(235

)

 

 

(189

)

 

 

(180

)

Net cash from operating activities

 

 

1,725

 

 

 

2,104

 

 

 

4,807

 

 

 

6,619

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(882

)

 

 

(628

)

 

 

(2,973

)

 

 

(1,738

)

Acquisitions of property and equipment

 

 

(23

)

 

 

(2,465

)

 

 

(54

)

 

 

(2,566

)

Divestitures of property and equipment

 

 

1

 

 

 

4

 

 

 

23

 

 

 

39

 

Distributions from investments

 

 

7

 

 

 

7

 

 

 

24

 

 

 

30

 

Contributions to investments and other

 

 

 

 

 

(16

)

 

 

(52

)

 

 

(59

)

Net cash from investing activities

 

 

(897

)

 

 

(3,098

)

 

 

(3,032

)

 

 

(4,294

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

(242

)

 

 

 

 

 

(242

)

 

 

 

Repurchases of common stock

 

 

 

 

 

(126

)

 

 

(745

)

 

 

(661

)

Dividends paid on common stock

 

 

(312

)

 

 

(1,007

)

 

 

(1,370

)

 

 

(2,504

)

Contributions from noncontrolling interests

 

 

10

 

 

 

 

 

 

18

 

 

 

 

Distributions to noncontrolling interests

 

 

(9

)

 

 

(9

)

 

 

(33

)

 

 

(22

)

Shares exchanged for tax withholdings and other

 

 

 

 

 

(1

)

 

 

(96

)

 

 

(86

)

Net cash from financing activities

 

 

(553

)

 

 

(1,143

)

 

 

(2,468

)

 

 

(3,273

)

Effect of exchange rate changes on cash

 

 

(2

)

 

 

(10

)

 

 

 

 

 

(13

)

Net change in cash, cash equivalents and restricted cash

 

 

273

 

 

 

(2,147

)

 

 

(693

)

 

 

(961

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

488

 

 

 

3,457

 

 

 

1,454

 

 

 

2,271

 

Cash, cash equivalents and restricted cash at end of period

 

$

761

 

 

$

1,310

 

 

$

761

 

 

$

1,310

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

654

 

 

$

1,166

 

 

$

654

 

 

$

1,166

 

Restricted cash

 

 

107

 

 

 

144

 

 

 

107

 

 

 

144

 

Total cash, cash equivalents and restricted cash

 

$

761

 

 

$

1,310

 

 

$

761

 

 

$

1,310

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

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Table of Contents

 

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Earnings

 

 

Treasury

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

(Loss)

 

 

Stock

 

 

Interests

 

 

Equity

 

 

 

(Unaudited)

 

Three Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2023

 

 

641

 

 

$

64

 

 

$

6,131

 

 

$

4,940

 

 

$

(114

)

 

$

 

 

$

129

 

 

$

11,150

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

910

 

 

 

 

 

 

 

 

 

10

 

 

 

920

 

Other comprehensive earnings, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(315

)

 

 

 

 

 

 

 

 

 

 

 

(315

)

Share-based compensation

 

 

 

 

 

 

 

 

22