Devon Energy Reports Third-Quarter 2018 Results

Devon Energy Corp. (NYSE: DVN) today reported operational and financial results for the third quarter of 2018. Also included within the release is the companys guidance outlook for the fourth quarter of 2018.

Devon continued to execute at a high level on its U.S.-focused growth initiatives, said Dave Hager, president and CEO. Our third-quarter performance was highlighted by improving well productivity and capital efficiency that drove U.S. production above the high end of guidance with a total capital investment well below forecast. Furthermore, our unwavering commitment to capital discipline allowed us to comfortably fund our drilling programs and generate free cash flow in the quarter.

In addition to our strong operational and financial results, we also made significant progress building per-share value through our industry-leading $4 billion share-repurchase program, Hager said. Given the value proposition of our current share price, we opportunistically accelerated the buyback of our shares and are on track to repurchase approximately 20 percent of the companys outstanding shares by the time we complete the program in the first quarter of 2019.

Delaware Basin and Eagle Ford Drive U.S. Production Outperformance

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Devons total companywide production averaged 522,000 oil-equivalent barrels (Boe) per day in the third quarter. With the companys capital programs focused on expanding higher-margin production, oil and natural gas liquids (NGLs) volumes increased to 67 percent of the product mix.

Third-quarter production was highlighted by results from Devons U.S. resource plays, which are attaining the highest returns in the companys portfolio. U.S. production averaged 418,000 Boe per day in the quarter, exceeding the companys third-quarter guidance range, adjusted for asset sales, of 398,000 to 417,000 Boe per day.

Within Devons diversified U.S. portfolio, the strongest asset-level performance was achieved by the companys Delaware Basin operations in southeast New Mexico. Oil production from this world-class asset increased 45 percent year over year, driving volumes in the Delaware to 79,000 Boe per day. A key driver of growth was seven prolific Wolfcamp wells around the state-line area that averaged initial 30-day rates of 4,000 Boe per day per well.

Devons Eagle Ford assets in south Texas also delivered strong results, with production advancing 12 percent compared to the second quarter of 2018. The growth was driven by 20 high-rate wells brought online during the quarter that averaged initial 30-day rates of approximately 3,000 Boe per day per well.

With the strong well productivity Devon has achieved year to date in the U.S., light-oil production growth from retained assets is on track to advance 17 percent in 2018. This growth rate is trending at approximately 200 basis points above the companys original budget expectations, adjusted for asset sales.

For additional details on Devons E&P operations and preliminary 2019 outlook, please refer to the companys third-quarter 2018 operations report at www.devonenergy.com.

Capital Spending Below Q3 Guidance; No Change to 2018 Outlook

In addition to the strong U.S. production performance, the company maintained discipline with its capital program. Devons upstream capital spending was $523 million in the third quarter, which was $52 million, or 9 percent below the companys midpoint guidance.

For the full year, Devon has made no modifications to its capital outlook and expects its upstream capital spending to be approximately $2.4 billion in 2018.

Premium Gulf Coast Pricing Drives Upstream Revenue Higher

Devons upstream revenue, excluding commodity derivatives, totaled $1.6 billion in the third quarter, a 29 percent improvement compared to the year-ago quarter. Contributing factors to revenue growth were higher commodity price realizations and growth in higher-margin, liquids production.

Revenue associated with NGLs production delivered the highest growth, advancing 134 percent year over year. The companys NGLs volumes are benefitting from direct access to premium Mont Belvieu pricing through fixed, low-cost transportation and fractionation agreements.

Also contributing to higher revenues were firm transport and marketing agreements that provide the majority of Devons U.S. oil production direct access to advantaged Gulf Coast pricing. Combined with price protection provided by regional basis swaps, oil realizations in the U.S. averaged approximately 97 percent of the West Texas Intermediate (WTI) benchmark.

The companys heavy-oil business in Canada continues to benefit from Western Canadian Select (WCS) basis swaps on approximately 50 percent of its estimated oil production in 2018. These attractive WCS basis swaps are locked in at $15 off WTI pricing and have generated cash settlements of $193 million year to date.

Operating Costs Improve and Field-Level Margins Expand

Devons largest field-level cost, lease operating expense and transportation, totaled $453 million, or $9.45 per Boe in the third quarter. This represents a $40 million improvement compared to the previous quarter and was 2 percent below guidance. The field-level cost savings were achieved in both the U.S. and Canada.

The improving operating costs coupled with the benefits of improved price realizations and higher-margin liquids production resulted in margin expansion for Devon. Field-level cash margin reached $22 per Boe in the third quarter, a 34 percent increase compared to the year-ago period. Field-level cash margin is computed as upstream revenues, excluding commodity derivatives, less production expenses with the result divided by oil-equivalent production volumes.

Corporate Cost Savings Initiatives Enhancing Profitability

Further enhancing Devons profitability is its improving general and administrative (G&A) cost structure. G&A expenses totaled $147 million in the third quarter, which was below the low end of guidance and represents a 13 percent improvement compared to the third quarter of 2017. The lower overhead costs were driven by reduced personnel expenses.

With the retirement of $828 million of debt year to date, the company expects to reduce net financing costs by $66 million on an annual basis. With reduced debt balances, Devons net borrowing costs (net financing costs plus capitalized interest) improved 17 percent year over year to $81 million.

The aforementioned cost savings, combined with the financial benefits related to the sale of EnLink Midstream, position Devons go-forward G&A and interest expense to improve by approximately $475 million annually.

Earnings Exceeds Wall Street Consensus

The company reported net earnings attributable to Devon of $2.5 billion or $5.14 per diluted share in the third quarter. Adjusting for items securities analysts typically exclude from their published estimates, the companys core earnings totaled $324 million or $0.65 per diluted share, exceeding the consensus estimates of analysts.

With the closing of the EnLink transaction, EnLinks financial results are no longer consolidated with Devons upstream business, and historical results related to EnLink are presented as discontinued operations in the companys consolidated financial statements.

Operating Cash Flow Increases 61 Percent; Free Cash Flow Reaches $249 Million

Devons operating cash flow from continuing operations totaled $807 million in the third quarter, a 61 percent increase compared to the same period a year ago. This level of operating cash flow fully funded the companys total capital investments and generated $249 million of free cash flow in the quarter.

The company also generated additional cash inflows through its ongoing divestiture activity. With the closing of the EnLink transaction in July, asset sale proceeds exceeded $3 billion in the third quarter. To date, total proceeds from Devons divestiture program have now reached $4.7 billion, and the company expects to achieve its $5 billion divestiture target around year-end.

Industry-Leading $4 Billion Share-Repurchase Program Advances

The companys $4 billion share-repurchase authorization represents the largest in the upstream industry when measured as a percentage of market capitalization. To date, Devon has repurchased 67 million shares, or nearly 13 percent of outstanding shares, at a total cost of approximately $2.7 billion. The company expects to complete its $4 billion share-repurchase program during the first quarter of 2019.

Devon exited the third quarter with $3.1 billion of cash on hand and an undrawn credit facility of $3 billion. Devon has a debt balance of $6.0 billion and no significant debt maturities until mid-2021. Overall, Devons financial position remains exceptionally strong, with investment-grade credit ratings and excellent liquidity.

Conference Call Webcast and Supplemental Earnings Materials

Also provided with todays release is the companys detailed operations report that is available on the companys website at www.devonenergy.com. The companys third-quarter conference call will be held at 10 a.m. Central (11 a.m. Eastern) on Wednesday, Nov. 7, 2018, and will serve primarily as a forum for analyst and investor questions and answers.

Non-GAAP Disclosures

This release may include non-GAAP (generally accepted accounting principles) financial measures. Such non-GAAP measures are not alternatives to GAAP measures, and you should not consider these non-GAAP measures in isolation or as a substitute for analysis of our results as reported under GAAP. Reconciliations of these non-GAAP measures and other disclosures are provided below in this release.

Forward-Looking Statements

This release includes “forward-looking statements” as defined by the Securities and Exchange Commission (SEC). Such statements include those concerning strategic plans, expectations and objectives for future operations, and are often identified by use of the words expects, believes, will, would, could, 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 press release that address activities, events or developments that the company 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 the control of the company. Statements regarding our business and operations 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: 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 oil and gas operations; regulatory restrictions, compliance costs and other risks relating to governmental regulation, including with respect to environmental matters; risks related to our hedging activities; counterparty credit risks; risks relating to our indebtedness; cyberattack risks; our limited control over third parties who operate our oil and gas properties; midstream capacity constraints and potential interruptions in production; the extent to which insurance covers any losses we may experience; competition for leases, materials, people and capital; our ability to successfully complete mergers, acquisitions and divestitures; and any of the other risks and uncertainties identified in our Form 10-K and our other filings with the SEC. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. The forward-looking statements in this release are made as of the date of this release, even if subsequently made available by Devon on its website or otherwise. Devon does not undertake any obligation to update the forward-looking statements as a result of new information, future events or otherwise. The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC’s definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves. This release may contain certain terms, such as resource potential, potential locations, risked and unrisked locations, estimated ultimate recovery (or EUR), exploration target size and other similar terms. These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized. The SEC guidelines strictly prohibit us from including these estimates in filings with the SEC. Investors are urged to consider closely the disclosure in our Form 10-K, available at www.devonenergy.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or from the SECs website at www.sec.gov.

About Devon Energy

Devon Energy is a leading independent energy company engaged in finding and producing oil and natural gas. Based in Oklahoma City and included in the S&P 500, Devon operates in several of the most prolific oil and natural gas plays in the U.S. and Canada with an emphasis on achieving strong returns and capital-efficient cash-flow growth. For more information, please visit www.devonenergy.com.

                 
 
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
 
PRODUCTION NET OF ROYALTIES
Quarter Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Oil and bitumen (MBbls/d)
U. S. 125 101 121 106
Heavy Oil 102 121 113 127
Retained assets 227 222 234 233
U.S. divested assets 8 11 9 11
Total 235 233 243 244
Natural gas liquids (MBbls/d)
U. S. 107 82 97 84
U.S. divested assets 6 12 9 12
Total 113 94 106 96
Gas (MMcf/d)
U. S. 990 967 966 966
Heavy Oil 11 16 12 17
Retained assets 1,001 983 978 983
U.S. divested assets 45 218 139 229
Total 1,046 1,201 1,117 1,212
Total oil equivalent (MBoe/d)
U. S. 396 343 379 349
Heavy Oil 104 124 115 130
Retained assets 500 467 494 479
U.S. divested assets 22 60 42 63
Total 522 527 536 542
 
                     
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
 
PRODUCTION TREND
2017 2018
Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3
Oil and bitumen (MBbls/d)
STACK 26 29 34 34 29
Delaware Basin 30 30 34 45 44
Rockies Oil 9 12 15 13 15
Heavy Oil 121 132 129 109 102
Eagle Ford 28 27 23 28 31
Barnett Shale 1
Other 7 6 6 7 6
Retained assets 222 236 241 236 227
U.S. divested assets 11 10 10 9 8
Total 233 246 251 245 235
Natural gas liquids (MBbls/d)
STACK 31 34 35 37 40
Delaware Basin 10 12 11 15 19
Rockies Oil 1 1 1 1 2
Eagle Ford 12 13 8 13 15
Barnett Shale 26 33 29 31 30
Other 2 2 1 1 1
Retained assets 82 95 85 98 107
U.S. divested assets 12 11 12 11 6
Total 94 106 97 109 113
Gas (MMcf/d)
STACK 304 307 324 329 337
Delaware Basin 86 84 93 94 103
Rockies Oil 6 8 12 13 18
Heavy Oil 16 15 12 12 11
Eagle Ford 86 87 63 74 84
Barnett Shale 484 453 458 447 447
Other 1 1 1 1 1
Retained assets 983 955 963 970 1,001
U.S. divested assets 218 220 214 158 45
Total 1,201 1,175 1,177 1,128 1,046
Total oil equivalent (MBoe/d)
STACK 108 114 123 125 126
Delaware Basin 55 57 61 76 79
Rockies Oil 11 14 18 16 19
Heavy Oil 124 134 131 111 104
Eagle Ford 54 55 41 54 60
Barnett Shale 107 109 105 105 105
Other 8 7 7 8 7
Retained assets 467 490 486 495 500
U.S. divested assets 60 58 58 46 22
Total 527 548 544 541 522
 
                 
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
 
BENCHMARK PRICES
(average prices) Quarter 3 September YTD
2018 2017 2018 2017
Oil ($/Bbl) – West Texas Intermediate (Cushing) $ 69.60 $ 48.14 $ 66.79 $ 49.48
Natural Gas ($/Mcf) – Henry Hub $ 2.91 $ 2.99 $ 2.90 $ 3.17
 
REALIZED PRICES Quarter Ended September 30, 2018
Oil /Bitumen NGL Gas Total
(Per Bbl) (Per Bbl) (Per Mcf) (Per Boe)
United States $ 64.80 $ 29.59 $ 2.19 $ 34.06
Canada $ 31.77     N/M     N/M $ 31.24  
Realized price without hedges $ 50.47 $ 29.59 $ 2.19 $ 33.50
Cash settlements $ (3.04 ) $ (2.50 ) $ 0.01 $ (1.89 )
Realized price, including cash settlements $ 47.43   $ 27.09   $ 2.20 $ 31.61  
 
Quarter Ended September 30, 2017
Oil /Bitumen NGL Gas Total
(Per Bbl) (Per Bbl) (Per Mcf) (Per Boe)
United States $ 47.12 $ 15.15 $ 2.45 $ 23.85
Canada $ 32.25     N/M     N/M $ 31.59  
Realized price without hedges $ 39.36 $ 15.15 $ 2.45 $ 25.67
Cash settlements $ 0.54   $ (0.03 ) $ 0.12 $ 0.52  
Realized price, including cash settlements $ 39.90   $ 15.12   $ 2.57 $ 26.19  
 
Nine Months Ended September 30, 2018
Oil /Bitumen NGL Gas Total
(Per Bbl) (Per Bbl) (Per Mcf) (Per Boe)
United States $ 64.09 $ 25.60 $ 2.21 $ 32.16
Canada $ 27.22     N/M     N/M $ 26.79  
Realized price without hedges $ 46.95 $ 25.60 $ 2.21 $ 31.00
Cash settlements $ (2.97 ) $ (1.62 ) $ 0.10 $ (1.44 )
Realized price, including cash settlements $ 43.98   $ 23.98   $ 2.31 $ 29.56  
 
Nine Months Ended September 30, 2017
Oil /Bitumen NGL Gas Total
(Per Bbl) (Per Bbl) (Per Mcf) (Per Boe)
United States $ 47.84 $ 14.62 $ 2.54 $ 24.44
Canada $ 29.10     N/M     N/M $ 28.50  
Realized price without hedges $ 38.08 $ 14.62 $ 2.54 $ 25.41
Cash settlements $ 0.45   $ (0.02 ) $ 0.05 $ 0.29  
Realized price, including cash settlements $ 38.53   $ 14.60   $ 2.59 $ 25.70  
 
                 
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
 
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share amounts) Quarter Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Upstream revenues $ 1,332 $ 1,101 $ 3,720 $ 3,974
Marketing revenues   1,247     832     3,306     2,524  
Total revenues   2,579     1,933     7,026     6,498  
Production expenses 554 448 1,669 1,360
Exploration expenses 32 57 133 209
Marketing expenses 1,217 843 3,250 2,571
Depreciation, depletion and amortization 416 370 1,235 1,139
Asset impairments 2 156
Asset dispositions (6 ) (170 ) 5 (200 )
General and administrative expenses 147 170 499 546
Financing costs, net 75 78 524 238
Restructuring and transaction costs 11 105
Other expenses   (31 )   (70 )   14     (92 )
Total expenses   2,417     1,726     7,590     5,771  
Earnings (loss) from continuing operations before income taxes 162 207 (564 ) 727
Income tax expense (benefit)   (138 )   13     (179 )   13  
Net earnings (loss) from continuing operations 300 194 (385 ) 714
Net earnings from discontinued operations, net of income tax expense   2,263     18     2,460     60  
Net earnings 2,563 212 2,075 774
Net earnings attributable to noncontrolling interests   26     19     160     59  
Net earnings attributable to Devon $ 2,537   $ 193   $ 1,915   $ 715  
 
Basic net earnings (loss) per share:
Basic earnings (loss) from continuing operations per share $ 0.61 $ 0.37 $ (0.76 ) $ 1.36
Basic earnings from discontinued operations per share   4.56         4.50      
Basic net earnings per share $ 5.17   $ 0.37   $ 3.74   $ 1.36  
Diluted net earnings (loss) per share:
Diluted earnings (loss) from continuing operations per share $ 0.61 $ 0.37 $ (0.76 ) $ 1.35
Diluted earnings from discontinued operations per share   4.53         4.47      
Diluted net earnings per share $ 5.14   $ 0.37   $ 3.71   $ 1.35  
Weighted average common shares outstanding:
Basic 491 526 513 525
Diluted 494 529 516 528
 
 
UPSTREAM REVENUES
(in millions) Quarter Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Oil, gas and NGL sales $ 1,608 $ 1,245 $ 4,534 $ 3,760
Derivative cash settlements (91 ) 24 (211 ) 43
Derivative valuation changes   (185 )   (168 )   (603 )   171  
Upstream revenues $ 1,332   $ 1,101   $ 3,720   $ 3,974  
 
 
PRODUCTION EXPENSES
(in millions) Quarter Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Lease operating expense $ 234 $ 229 $ 744 $ 691
Gathering, processing & transportation 219 162 671 485
Production taxes 82 46 208 142
Property taxes   19     11     46     42  
Production expense $ 554   $ 448   $ 1,669   $ 1,360  
 
                 
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions) Quarter Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Cash flows from operating activities:
Net earnings $ 2,563 $ 212 $ 2,075 $ 774

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

Earnings from discontinued operations, net of tax (2,263 ) (18 ) (2,460 ) (60 )
Depreciation, depletion and amortization 416 370 1,235 1,139
Asset impairments 2 156
Leasehold impairments 15 16 76 80
Accretion on discounted liabilities 15 15 46 47
Total (gains) losses on commodity derivatives 276 144 814 (214 )
Cash settlements on commodity derivatives (91 ) 24 (211 ) 43
(Gains) losses on asset dispositions (6 ) (170 ) 5 (200 )
Deferred income tax benefit (114 ) (25 ) (132 ) (57 )
Share-based compensation 31 33 127 114
Early retirement of debt 312
Total (gains) losses on foreign exchange (28 ) (74 ) 53 (138 )
Settlements of intercompany foreign denominated assets/liabilities (243 ) 10
Other 42 (14 ) (8 ) (3 )
Changes in assets and liabilities, net   (51 )   (12 )   (159 )   121  
Net cash from operating activities – continuing operations   807     501     1,686     1,656  
Cash flows from investing activities:
Capital expenditures (598 ) (467 ) (1,851 ) (1,298 )
Acquisitions of property and equipment (19 ) (6 ) (35 ) (39 )
Divestitures of property and equipment   89     280     696     387  
Net cash from investing activities – continuing operations   (528 )   (193 )   (1,190 )   (950 )
Cash flows from financing activities:
Repayments of long-term debt principal (21 ) (828 )
Early retirement of debt (304 )
Repurchases of common stock (1,698 ) (2,197 )
Dividends paid on common stock (38 ) (30 ) (112 ) (95 )
Shares exchanged for tax withholdings   (3 )   (1 )   (47 )   (57 )
Net cash from financing activities – continuing operations   (1,760 )   (31 )   (3,488 )   (152 )
Effect of exchange rate changes on cash:
Settlements of intercompany foreign denominated assets/liabilities 243 (10 )
Other   10     12     (21 )   22  
Total effect of exchange rate changes on cash – continuing operations   10     12     222     12  
Net change in cash, cash equivalents and restricted cash of continuing operations   (1,471 )   289     (2,770 )   566  
Cash flows from discontinued operations:
Operating activities 46 200 476 528
Investing activities 2,950 (191 ) 2,548 (475 )
Financing activities   71     187     183     276  
Net change in cash, cash equivalents and restricted cash of discontinued operations   3,067     196     3,207     329  
Net change in cash, cash equivalents and restricted cash 1,596 485 437 895
Cash, cash equivalents and restricted cash at beginning of period   1,525     2,369     2,684     1,959  
Cash, cash equivalents and restricted cash at end of period $ 3,121   $ 2,854   $ 3,121   $ 2,854  
 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents $ 3,102 $ 2,639 $ 3,102 $ 2,639
Restricted cash included in other current assets 19 73 19 73
Cash and cash equivalents included in current assets held for sale       142         142  
Total cash, cash equivalents and restricted cash $ 3,121   $ 2,854   $ 3,121   $ 2,854  
 
       
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
 
CONSOLIDATED BALANCE SHEETS
(in millions) September 30, December 31,
2018 2017
Current assets:
Cash and cash equivalents $ 3,102 $ 2,642
Accounts receivable 1,226 989
Current assets held for sale 760
Other current assets   429     400
Total current assets 4,757 4,791
Oil and gas property and equipment, based on successful efforts accounting, net 13,056 13,318
Other property and equipment, net   1,146     1,266
Total property and equipment, net 14,202 14,584
Goodwill 841 841
Other long-term assets 372 296
Long-term assets held for sale       9,729
Total assets $ 20,172   $ 30,241
 
Current liabilities:
Accounts payable $ 777 $ 633
Revenues and royalties payable 947 748
Short-term debt 257 115
Current liabilities held for sale 991
Other current liabilities   1,243     828
Total current liabilities   3,224     3,315
Long-term debt 5,791 6,749
Asset retirement obligations 1,103 1,099
Other long-term liabilities 613 549
Long-term liabilities held for sale 3,936
Deferred income taxes 543 489
Equity:
Common stock 47 53
Additional paid-in capital 5,217 7,333
Retained earnings 2,505 702
Accumulated other comprehensive earnings 1,164 1,166
Treasury stock, at cost, 0.9 million shares in 2018   (35 )  
Total stockholders equity attributable to Devon 8,898 9,254
Noncontrolling interests       4,850
Total equity   8,898     14,104
Total liabilities and equity $ 20,172   $ 30,241
 
Common shares outstanding 474 525
 
       
CAPITAL EXPENDITURES
(in millions) Quarter Ended Nine Months Ended
September 30, 2018 September 30, 2018
Upstream capital $ 523 $ 1,794
Land and other acquisitions   22   39
Exploration and production (E&P) capital 545 1,833
Capitalized interest 6 41
Other   7   30
Devon capital expenditures $ 558 $ 1,904
 
 
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
 

NON-GAAP FINANCIAL MEASURES

This press release includes non-GAAP financial measures. These non-GAAP measures are not alternatives to GAAP measures, and you should not consider these non-GAAP measures in isolation or as a substitute for analysis of our results as reported under GAAP. Below is additional disclosure regarding each of the non-GAAP measures used in this press release, including reconciliations to their most directly comparable GAAP measure.

CORE EARNINGS

Devons reported net earnings include items of income and expense that are typically excluded by securities analysts in their published estimates of the companys financial results. Accordingly, the company also uses the measures of core earnings and core earnings per share attributable to Devon. Devon believes these non-GAAP measures facilitate comparisons of its performance to earnings estimates published by securities analysts. Devon also believes these non-GAAP measures can facilitate comparisons of its performance between periods and to the performance of its peers. The following table summarizes the effects of these items on third-quarter 2018 earnings.

(in millions, except per share amounts)     Quarter Ended September 30, 2018
Before-tax     After-tax    

After Noncontrolling Interests

    Per Diluted Share
Continuing Operations
Earnings attributable to Devon (GAAP) $ 162 $ 300 $ 300 $ 0.61
Adjustments:
Asset dispositions (6 ) (5 ) (5 ) (0.01 )
Asset and exploration impairments 20 17 17 0.03
Deferred tax asset valuation allowance (130 ) (130 ) (0.27 )
Fair value changes in financial instruments and foreign currency 158 119 119 0.25
Restructuring and transaction costs   11     8     8     0.02  
Core earnings attributable to Devon (Non-GAAP) $ 345   $ 309   $ 309   $ 0.63  
 
Discontinued Operations
Earnings attributable to Devon (GAAP) $ 2,650 $ 2,263 $ 2,237 $ 4.53
Adjustments:
Gain on sale of EnLink and the General Partner   (2,607 )   (2,222 )   (2,222 )   (4.51 )
Core earnings attributable to Devon (Non-GAAP) $ 43   $ 41   $ 15   $ 0.02  
 
Total
Earnings attributable to Devon (GAAP) $ 2,812 $ 2,563 $ 2,537 $ 5.14
Adjustments:
Continuing Operations 183 9 9 0.02
Discontinued Operations   (2,607 )   (2,222 )   (2,222 )   (4.51 )
Core earnings attributable to Devon (Non-GAAP) $ 388   $ 350   $ 324   $ 0.65  
 
 

NET DEBT

Devon defines net debt as debt less cash and cash equivalents. Devon believes that netting these sources of cash against debt provides a clearer picture of the future demands on cash from Devon to repay debt.

(in millions)    
September 30, 2018
Total debt (GAAP) $ 6,048
Less cash and cash equivalents   (3,102 )
Net debt (Non-GAAP) $ 2,946  
 
 
DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
 

FREE CASH FLOW

Devon defines free cash flow as operating cash flow from continuing operations less capital expenditures. Devon believes that free cash flow provides a useful measure of available cash generated by operating activities for other investing and financing activities.

 

(in millions)     Quarter Ended

September 30, 2018

Operating cash flow from continuing operations $ 807
Less capital expenditures:
Upstream capital (523 )
Land and other acquisitions (22 )
Capitalized interest (6 )
Other   (7 )
Free cash flow $ 249  
 
       
DEVON ENERGY CORPORATION
FORWARD LOOKING GUIDANCE
 
PRODUCTION GUIDANCE
Quarter 4
Low High
Oil and bitumen (MBbls/d)
U.S. 127 131
Heavy Oil(1)  

110

(1)

 

115

(1)

Retained assets 237 246
U.S. divested assets   6     8  
Total   243     254  
Natural gas liquids (MBbls/d)
Retained assets 106 110
U.S. divested assets   3     5  
Total   109     115  
Gas (MMcf/d)
U.S. 950 1,000
Heavy Oil   5     10  
Retained assets 955 1,010
U.S. divested assets   25     35  
Total   980     1,045  
Total oil equivalent (MBoe/d)
U.S. 391 408
Heavy Oil   111     116  
Retained assets 502 524
U.S. divested assets   13     19  
Total   515     543  
 
(1) Guidance assumes Jackfish complex curtailments continue throughout December
 
PRICE REALIZATIONS GUIDANCE
Quarter 4
Low High
Oil and bitumen – % of WTI
U.S. 90 % 100 %
Canada 10 % 20 %
NGL – realized price $ 23 $ 28
Natural gas – % of Henry Hub 70 % 80 %
 
 
OTHER GUIDANCE ITEMS
Quarter 4
($ millions, except Boe and %) Low High
Marketing & midstream operating profit $ 20 $ 30
LOE & GP&T per BOE $ 9.50 $ 9.75
Production & Property Tax $ 85 $ 95
Exploration expenses $ 25 $ 35
Depreciation, depletion and amortization $ 420 $ 460
General & administrative expenses $ 140 $ 160
Financing costs, net $ 75 $ 85
Other expenses $ 15 $ 20
Current income tax rate 0 % 5 %
Deferred income tax rate   20 %   25 %
Total income tax rate   20 %   30 %
Average basic share count outstanding (MM) 450 460
 
 
CAPITAL EXPENDITURES GUIDANCE
Quarter 4
(in millions) Low High
Upstream capital $ 550 $ 650
Other   5     15  
Devon capital expenditures $ 555   $ 665  
 
 
DEVON ENERGY CORPORATION
FORWARD LOOKING GUIDANCE
 
Oil Commodity Hedges                  
    Price Swaps Price Collars
Period Volume (Bbls/d)

Weighted Average Price ($/Bbl)

Volume (Bbls/d)

Weighted Average Floor Price ($/Bbl)

Weighted Average Ceiling Price ($/Bbl)

Q4 2018 93,800 $ 58.95 110,200 $ 53.95 $ 64.49
Q1-Q4 2019 57,130 $ 59.73 85,904 $ 54.72 $ 64.72
Q1-Q4 2020 1,740 $ 62.88 4,973 $ 59.94 $ 69.94
 
                     
Oil Basis Swaps
    Oil Basis Swaps Oil Basis Collars
Period Index Volume (Bbls/d)

Weighted Average Differential to WTI ($/Bbl)

Volume (Bbls/d)

Weighted Average Floor Differential to WTI ($/Bbl)

Weighted Average Ceiling Differential to WTI ($/Bbl)

Q4 2018 Midland Sweet 23,000 $ (1.02 ) $ $
Q4 2018 Argus LLS 12,000 $ 3.95 $ $
Q4 2018 Argus MEH 16,000 $ 2.84 $ $
Q4 2018 Western Canadian Select 62,109 $ (16.41 ) 1,000 $ (15.50 ) $ (13.93 )
Q1-Q4 2019 Midland Sweet 28,000 $ (0.46 ) $ $
Q1-Q4 2019 Argus LLS 15,000 $ 4.88 $ $
Q1-Q4 2019 Argus MEH 16,000 $ 2.84 $ $
Q1-Q4 2019 Western Canadian Select 10,647 $ (23.39 ) $ $
 
                 
Natural Gas Commodity Hedges – Henry Hub
    Price Swaps Price Collars
Period Volume (MMBtu/d)

Weighted Average Price ($/MMBtu)

Volume (MMBtu/d)

Weighted Average Floor Price ($/MMBtu)

Weighted Average Ceiling Price ($/MMBtu)

Q4 2018 304,000 $ 2.92 267,000 $ 2.76 $ 3.09
Q1-Q4 2019 220,129 $ 2.81 205,241 $ 2.65 $ 3.03
Q1-Q4 2020 9,075 $ 2.81 14,545 $ 2.66 $ 2.96
 
       
Natural Gas Basis Swaps
Period     Index Volume (MMBtu/d)

Weighted Average Differential to Henry Hub ($/MMBtu)

Q4 2018 Panhandle Eastern Pipe Line 120,000 $ (0.51 )
Q4 2018 El Paso Natural Gas 100,000 $ (1.25 )
Q4 2018 Houston Ship Channel 110,000 $ 0.01
Q4 2018 Transco Zone 4 30,000 $ (0.03 )
Q1-Q4 2019 Panhandle Eastern Pipe Line 74,384 $ (0.75 )
Q1-Q4 2019 El Paso Natural Gas 130,000 $ (1.46 )
Q1-Q4 2019 Houston Ship Channel 137,637 $ 0.01
Q1-Q4 2019 Transco Zone 4 7,397 $ (0.03 )
 

Devons oil derivatives settle against the average of the prompt month NYMEX West Texas Intermediate futures price. Devons natural gas derivatives settle against the Inside FERC first of the month Henry Hub index. Commodity hedge positions are shown as of November 1, 2018.

Devon Energy Corporation
Investor Contacts
Scott Coody,
405-552-4735
Chris Carr, 405-228-2496
Media Contact
John
Porretto, 405-228-7506

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