DEVON ENERGY CORP/DE, 10-K filed on 2/19/2020
Annual Report
v3.19.3.a.u2
Document And Entity Information - USD ($)
shares in Millions, $ in Billions
12 Months Ended
Dec. 31, 2019
Feb. 05, 2020
Jun. 28, 2019
Cover [Abstract]      
Document Type 10-K    
Document Period End Date Dec. 31, 2019    
Amendment Flag false    
Trading Symbol DVN    
Entity Registrant Name DEVON ENERGY CORP/DE    
Entity Central Index Key 0001090012    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Well-known Seasoned Issuer Yes    
Current Fiscal Year End Date --12-31    
Document Fiscal Year Focus 2019    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Document Fiscal Period Focus FY    
Entity Public Float     $ 11.6
Entity Common Stock, Shares Outstanding   382.9  
Entity File Number 001-32318    
Entity Tax Identification Number 73-1567067    
Entity Address, Address Line One 333 West Sheridan Avenue    
Entity Address, City or Town Oklahoma City    
Entity Address, State or Province OK    
Entity Address, Postal Zip Code 73102-5015    
City Area Code 405    
Local Phone Number 235-3611    
Entity Interactive Data Current Yes    
Title of 12(b) Security Common stock, par value $0.10 per share    
Security Exchange Name NYSE    
Entity Incorporation, State or Country Code DE    
Document Annual Report true    
Document Transition Report false    
Documents Incorporated by Reference Portions of Registrant’s definitive Proxy Statement relating to Registrant’s 2020 annual meeting of stockholders have been incorporated by reference in Part III of this Annual Report on Form 10-K.    
v3.19.3.a.u2
Consolidated Statements of Comprehensive Earnings - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Income Statement [Abstract]      
Upstream revenues $ 3,355 $ 4,542 $ 2,988
Revenues $ 2,865 $ 4,354 $ 3,513
Type of Revenue [Extensible List] us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember
Total revenues $ 6,220 [1] $ 8,896 [1] $ 6,501
Production expenses 1,197 1,153 791
Exploration expenses 58 128 346
Expenses $ 2,812 $ 4,321 $ 3,559
Type of Cost, Good or Service [Extensible List] us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember
Depreciation, depletion and amortization $ 1,497 $ 1,228 $ 1,008
Asset impairments   156  
Asset dispositions (48) [2] (278) [2] (219)
General and administrative expenses 475 574 645
Financing costs, net 250 580 321
Restructuring and transaction costs 84 97  
Other expenses 4 (7) 10
Total expenses 6,329 7,952 6,461
Earnings (loss) from continuing operations before income taxes (109) 944 [3] 40
Income tax expense (benefit) (30) 230 7
Net earnings (loss) from continuing operations (79) 714 33
Net earnings (loss) from discontinued operations, net of income taxes (274) [4] 2,510 [4] 1,045
Net earnings (loss) (353) 3,224 1,078
Net earnings attributable to noncontrolling interests 2 160 180
Net earnings (loss) attributable to Devon $ (355) $ 3,064 $ 898
Basic net earnings (loss) per share:      
Basic earnings (loss) from continuing operations per share $ (0.21) $ 1.43 $ 0.06
Basic earnings (loss) from discontinued operations per share (0.68) 4.71 1.65
Basic net earnings (loss) per share (0.89) 6.14 1.71
Diluted net earnings (loss) per share:      
Diluted earnings (loss) from continuing operations per share (0.21) 1.42 0.06
Diluted earnings (loss) from discontinued operations per share (0.68) 4.68 1.64
Diluted net earnings (loss) per share $ (0.89) $ 6.10 $ 1.70
Comprehensive earnings (loss):      
Net earnings (loss) $ (353) $ 3,224 $ 1,078
Other comprehensive earnings (loss), net of tax:      
Foreign currency translation, discontinued operations 78 (152) 83
Release of Canadian cumulative translation adjustment, discontinued operations [5] (1,237)    
Pension and postretirement plans 13 44 29
Other comprehensive earnings (loss), net of tax (1,146) (108) 112
Comprehensive earnings (loss): (1,499) 3,116 1,190
Comprehensive earnings attributable to noncontrolling interests 2 160 180
Comprehensive earnings (loss) attributable to Devon $ (1,501) $ 2,956 $ 1,010
[1] Includes noncash commodity hedge valuation changes of approximately $600 million loss in the first quarter of 2019 and approximately $1.4 billion gain in the fourth quarter of 2018.
[2] Additional discussion regarding asset dispositions can be found in Note 2.
[3] Includes asset impairments of approximately $150 million in the second quarter of 2018. Additional discussion regarding asset impairments can be found in Note 5.
[4] 2019 includes a $748 million asset impairment recognized in connection with the announced sale of Devon’s Barnett Shale assets in the fourth quarter of 2019. In addition, 2019 includes a gain of $425 million (after-tax) on the sale of its Canadian business during 2019, and 2018 includes a gain on sale associated with the divestment of Devon’s aggregate ownership interests in EnLink and the General Partner of approximately $2.2 billion (after-tax) in the third quarter of 2018. Additional discussion can be found in Note 18.
[5] In conjunction with the sale of substantially all of its oil and gas assets and operations in Canada, Devon released the cumulative translation adjustment as part of its gain on the disposition of its Canadian business. See Note 18 for additional details.
v3.19.3.a.u2
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities:      
Net earnings (loss) $ (353) $ 3,224 $ 1,078
Adjustments to reconcile net earnings (loss) to net cash from operating activities:      
Net (earnings) loss from discontinued operations, net of income taxes 274 [1] (2,510) [1] (1,045)
Depreciation, depletion and amortization 1,497 1,228 1,008
Asset impairments   156  
Leasehold impairments 18 94 219
Accretion on discounted liabilities 33 27 27
Total (gains) losses on commodity derivatives 454 (457) (66)
Cash settlements on commodity derivatives 166 (420) 115
Gains on asset dispositions (48) (278) (219)
Deferred income tax expense (benefit) (25) 247 (2)
Share-based compensation 115 137 126
Early retirement of debt   312  
Other (6) (19) (8)
Changes in assets and liabilities, net (82) (158) 10
Net cash from operating activities - continuing operations 2,043 1,583 1,243
Cash flows from investing activities:      
Capital expenditures (1,910) (2,116) (1,614)
Acquisitions of property and equipment (31) (55) (44)
Divestitures of property and equipment 390 500 425
Net cash from investing activities - continuing operations (1,551) (1,671) (1,233)
Cash flows from financing activities:      
Repayments of long-term debt (162) (922)  
Early retirement of debt   (304)  
Repurchases of common stock (1,849) (2,956)  
Dividends paid on common stock (140) (149) (127)
Contributions from noncontrolling interests 116    
Shares exchanged for tax withholdings (25) (39) (46)
Other (1) (7)  
Net cash from financing activities - continuing operations (2,061) (4,377) (173)
Net change in cash, cash equivalents and restricted cash of continuing operations (1,569) (4,465) (163)
Cash flows from discontinued operations:      
Operating activities 28 1,121 1,666
Investing activities 2,472 2,726 (966)
Financing activities (1,578) 174 182
Effect of exchange rate changes on cash 45 206 6
Net change in cash, cash equivalents and restricted cash of discontinued operations 967 4,227 888
Net change in cash, cash equivalents and restricted cash (602) (238) 725
Cash, cash equivalents and restricted cash at beginning of period 2,446 2,684 1,959
Cash, cash equivalents and restricted cash at end of period 1,844 2,446 2,684
Reconciliation of cash, cash equivalents and restricted cash:      
Cash and cash equivalents 1,464 2,414 2,642
Cash restricted for discontinued operations 380    
Restricted cash included in other current assets   32 11
Cash and cash equivalents included in current assets associated with discontinued operations     31
Cash, cash equivalents and restricted cash at end of period $ 1,844 $ 2,446 $ 2,684
[1] 2019 includes a $748 million asset impairment recognized in connection with the announced sale of Devon’s Barnett Shale assets in the fourth quarter of 2019. In addition, 2019 includes a gain of $425 million (after-tax) on the sale of its Canadian business during 2019, and 2018 includes a gain on sale associated with the divestment of Devon’s aggregate ownership interests in EnLink and the General Partner of approximately $2.2 billion (after-tax) in the third quarter of 2018. Additional discussion can be found in Note 18.
v3.19.3.a.u2
Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
ASSETS    
Cash and cash equivalents $ 1,464 $ 2,414
Cash restricted for discontinued operations 380  
Accounts receivable 832 812
Current assets associated with discontinued operations 896 331
Other current assets 279 880
Total current assets 3,851 4,437
Oil and gas property and equipment, based on successful efforts accounting, net 7,558 7,430
Other property and equipment, net ($80 million related to CDM in 2019) 1,035 1,032
Total property and equipment, net 8,593 8,462
Goodwill 753 753
Right-of-use assets 243  
Other long-term assets 196 276
Long-term assets associated with discontinued operations 81 5,638
Total assets 13,717 19,566
LIABILITIES AND EQUITY    
Accounts payable 428 530
Revenues and royalties payable 730 722
Short-term debt   162
Current liabilities associated with discontinued operations 459 492
Other current liabilities 310 320
Total current liabilities 1,927 2,226
Long-term debt [1] 4,294 4,292
Lease liabilities 244  
Asset retirement obligations 380 468
Other long-term liabilities 426 411
Long-term liabilities associated with discontinued operations 185 2,454
Deferred income taxes 341 529
Stockholders' equity:    
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 382 million and 450 million shares in 2019 and 2018, respectively 38 45
Additional paid-in capital 2,735 4,486
Retained earnings 3,148 3,650
Accumulated other comprehensive earnings (loss) (119) 1,027
Treasury stock, at cost, 1.0 million shares in 2018   (22)
Total stockholders’ equity attributable to Devon 5,802 9,186
Noncontrolling interests 118  
Total equity 5,920 9,186
Total liabilities and equity $ 13,717 $ 19,566
[1] The balance as of December 31, 2018 excludes the $1.5 billion of Senior Notes classified as liabilities held for sale that were retired early in July 2019 utilizing a portion of the proceeds from the sale of Devon’s Canadian business. See Note 18 for additional details.
v3.19.3.a.u2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
Other property and equipment, net $ 1,035 $ 1,032
Common stock, par value (in dollars per share) $ 0.10 $ 0.10
Common stock, shares authorized (in shares) 1,000,000,000.0 1,000,000,000.0
Common stock, shares issued (in shares) 382,000,000 450,000,000
Treasury stock, shares   1,000,000.0
CDM [Member]    
Other property and equipment, net $ 80  
v3.19.3.a.u2
Consolidated Statements Of Equity - USD ($)
shares in Millions, $ in Millions
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings (Accumulated Deficit) [Member]
Other Comprehensive Earnings (Loss) [Member]
Treasury Stock [Member]
Noncontrolling Interests [Member]
Balance at Dec. 31, 2016 $ 12,722 $ 52 $ 7,237 $ (69) $ 1,054   $ 4,448
Balance, shares at Dec. 31, 2016   523          
Net earnings (loss) 1,078     898     180
Other comprehensive earnings (loss), net of tax 112       112    
Restricted stock grants, net of cancellations, value 1 $ 1          
Restricted stock grants, net of cancellations, shares   1          
Common stock repurchased (44)         $ (44)  
Common stock retired     (44)     44  
Common stock dividends (127)     (127)      
Share-based compensation 126   126        
Share-based compensation, shares   1          
Subsidiary equity transactions 590   14       576
Distributions to noncontrolling interests (354)           (354)
Balance at Dec. 31, 2017 14,104 $ 53 7,333 702 1,166   4,850
Balance, shares at Dec. 31, 2017   525          
Net earnings (loss) 3,224     3,064     160
Other comprehensive earnings (loss), net of tax (108)       (108)    
Restricted stock grants, net of cancellations, shares   3          
Common stock repurchased (3,017)         (3,017)  
Common stock retired   $ (8) (2,987)     2,995  
Common stock retired, shares   (79)          
Common stock dividends (149)     (149)      
Share-based compensation 140   140        
Share-based compensation, shares   1          
Divestment of subsidiary equity investment (4,861)       2   (4,863)
Subsidiary equity transactions 72           72
Distributions to noncontrolling interests (219)           (219)
Other       33 (33)    
Balance at Dec. 31, 2018 9,186 $ 45 4,486 3,650 1,027 (22)  
Balance, shares at Dec. 31, 2018   450          
Effect of adoption of lease accounting (7)     (7)      
Net earnings (loss) (353)     (355)     2
Other comprehensive earnings (loss), net of tax (1,146)       (1,146)    
Restricted stock grants, net of cancellations, shares   3          
Common stock repurchased (1,852)         (1,852)  
Common stock retired   $ (7) (1,867)     $ 1,874  
Common stock retired, shares   (71)          
Common stock dividends (140)     (140)      
Share-based compensation 116   116        
Contributions from noncontrolling interests 116           116
Balance at Dec. 31, 2019 $ 5,920 $ 38 $ 2,735 $ 3,148 $ (119)   $ 118
Balance, shares at Dec. 31, 2019   382          
v3.19.3.a.u2
Summary Of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies

1.

Summary of Significant Accounting Policies

Devon is a leading independent energy company engaged primarily in the exploration, development and production of oil, natural gas and NGLs. Devon’s operations are concentrated in various onshore areas in the U.S.

As further discussed in Note 18, Devon reached an agreement to sell its Barnett Shale assets in December 2019, sold its Canadian operations on June 27, 2019 and sold its ownership interests in EnLink and the General Partner on July 18, 2018. Activity relating to Devon’s Barnett Shale assets, inclusive of properties divested as partial sales of the Barnett Shale common operating field in previous reporting periods located primarily in Johnson and Wise counties, Texas, Canadian operations and EnLink and the General Partner are classified as discontinued operations within Devon’s consolidated statements of comprehensive earnings and consolidated statements of cash flows. The associated assets and liabilities of Devon’s Barnett Shale assets and Canadian operations are presented as assets and liabilities associated with discontinued operations on the consolidated balance sheets.

Accounting policies used by Devon and its subsidiaries conform to accounting principles generally accepted in the U.S. and reflect industry practices. The more significant of such policies are discussed below.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Devon, entities in which it holds a controlling interest and VIEs for which Devon is the primary beneficiary. All intercompany transactions have been eliminated. Undivided interests in oil and natural gas exploration and production joint ventures are consolidated on a proportionate basis. Investments in non-controlled entities, over which Devon has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. In applying the equity method of accounting, the investments are initially recognized at cost and subsequently adjusted for Devon’s proportionate share of earnings, losses, contributions and distributions. Investments accounted for using the equity method and cost method are reported as a component of other long-term assets.

Devon entered into an agreement in the fourth quarter of 2019 to form Cotton Draw Midstream, L.L.C. or, “CDM”, a partnership in the Delaware Basin with an affiliate of QL Capital Partners, LP (“QLCP”). As part of this transaction, Devon contributed gathering system and compression assets in the Cotton Draw area to CDM in exchange for a $100 million cash distribution funded by QLCP. Devon will continue to operate the assets pursuant to the management services agreement. QLCP has also committed $40 million of expansion capital to CDM to fund the build out of the assets over the next several years. Devon holds a controlling interest in CDM and the portions of CDM’s net earnings and equity not attributable to Devon’s controlling interest are shown separately as noncontrolling interests in the accompanying consolidated statements of comprehensive earnings and consolidated balance sheets. CDM is considered a VIE to Devon.

Devon, through its controlling interest in CDM, has the power to direct the activities that significantly affect the economic performance of CDM and the obligation to absorb losses or the right to receive benefits that could be significant to CDM; therefore, Devon is considered the primary beneficiary and consolidates CDM. CDM maintains its own capital structure that is separate from Devon.

The assets of CDM cannot be used by Devon for general corporate purposes and are included in and disclosed parenthetically on Devon's consolidated balance sheets. The carrying amount of liabilities related to CDM for which the creditors do not have recourse to Devon's assets are also included in and disclosed parenthetically on Devon's consolidated balance sheets, if material.

 

Segment Information

 

Subsequent to the sale of Devon’s Canadian business in 2019 discussed in Note 18, Devon’s oil and gas exploration and production activities are solely focused in the U.S. For financial reporting purposes, Devon

aggregates its U.S. operating segments into one reporting segment due to the similar nature of its business. With the reclassification of Devon’s Canadian operations to discontinued operations and assets and liabilities associated with discontinued operations, Devon now has one reporting segment, which is reflected in the consolidated financial statements.

 

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from these estimates, and changes in these estimates are recorded when known. Significant items subject to such estimates and assumptions include the following:

 

proved reserves and related present value of future net revenues;

 

evaluation of suspended well costs;

 

the carrying and fair values of oil and gas properties, other property and equipment and product and equipment inventories;

 

derivative financial instruments;

 

the fair value of reporting units and related assessment of goodwill for impairment;

 

income taxes;

 

asset retirement obligations;

 

obligations related to employee pension and postretirement benefits;

 

legal and environmental risks and exposures; and

 

general credit risk associated with receivables and other assets.

Revenue Recognition

Impact of ASC 606 Adoption

In January 2018, Devon adopted ASC 606 – Revenue from Contracts with Customers (ASC 606) using the modified retrospective method and applied the standard to all existing contracts at adoption. ASC 606 supersedes previous revenue recognition requirements in ASC 605 and includes a five-step revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration in exchange for those goods or services. 

 

The changes to upstream revenues and production expenses were due to the conclusion that Devon represents the principal and controls a promised product before transferring it to the ultimate third party customer in accordance with the control model in ASC 606. This was a change from previous conclusions reached for these agreements utilizing the principal versus agent indicators under ASC 605 where the assessment was focused on Devon passing title and not control to the processing entity and Devon ultimately receiving a net price from the third-party end customer. As a result, Devon changed the presentation of revenues and expenses for these agreements. Revenues related to these agreements are presented on a gross basis for amounts expected to be received from third-party customers through the marketing process. Gathering, processing and transportation expenses related to these agreements, incurred prior to the transfer of control to the customer at the tailgate of the natural gas processing facilities, are presented as production expenses. During 2018, these changes resulted in a $191 million increase to upstream revenues and production expenses with no impact to net earnings. As a result of

the adoption of ASC 606, Devon’s marketing and midstream revenues and marketing and midstream expenses were not impacted.

Upstream Revenues

Upstream revenues include the sale of oil, gas and NGL production. Oil, gas and NGL sales are recognized when production is sold to a purchaser at a fixed or determinable price, delivery has occurred, control has transferred and collectability of the revenue is probable. Devon’s performance obligations are satisfied at a point in time. This occurs when control is transferred to the purchaser upon delivery of contract specified production volumes at a specified point. The transaction price used to recognize revenue is a function of the contract billing terms. Revenue is invoiced, if required, by calendar month based on volumes at contractually based rates with payment typically received within 30 days of the end of the production month. Taxes assessed by governmental authorities on oil, gas and NGL sales are presented separately from such revenues in the accompanying consolidated statements of comprehensive earnings.

Oil sales

Devon’s oil sales contracts are generally structured in one of two ways. First, production is sold at the wellhead at an agreed-upon index price, net of pricing differentials. In this scenario, revenue is recognized when control transfers to the purchaser at the wellhead at the net price received. Alternatively, production is delivered to the purchaser at a contractually agreed-upon delivery point at which the purchaser takes custody, title and risk of loss of the product. Under this arrangement, a third party is paid to transport the product and Devon receives a specified index price from the purchaser with no transportation deduction. In this scenario, revenue is recognized when control transfers to the purchaser at the delivery point based on the price received from the purchaser. The third-party costs are recorded as gathering, processing and transportation expense as a component of production expenses in the consolidated statements of comprehensive earnings.

Natural gas and NGL sales

Under Devon’s natural gas processing contracts, natural gas is delivered to a midstream processing entity at the wellhead or the inlet of the midstream processing entity’s system. The midstream processing entity gathers and processes the natural gas and remits proceeds for the resulting sales of NGLs and residue gas. In these scenarios, Devon evaluates whether it is the principal or the agent in the transaction. Devon has concluded it is the principal under these contracts and the ultimate third party is the customer. Revenue is recognized on a gross basis, with gathering, processing and transportation fees presented as a component of production expenses in the consolidated statements of comprehensive earnings.

In certain natural gas processing agreements, Devon may elect to take residue gas and/or NGLs in-kind at the tailgate of the midstream entity’s processing plant and subsequently market the product. Through the marketing process, the product is delivered to the ultimate third-party purchaser at a contractually agreed-upon delivery point, and Devon receives a specified index price from the purchaser. In this scenario, revenue is recognized when control transfers to the purchaser at the delivery point based on the index price received from the purchaser. The gathering, processing and compression fees attributable to the gas processing contract, as well as any transportation fees incurred to deliver the product to the purchaser, are presented as gathering, processing and transportation expense as a component of production expenses in the consolidated statements of comprehensive earnings.

Marketing Revenues

Marketing revenues are generated primarily as a result of Devon selling commodities purchased from third parties. Marketing revenues are recognized when performance obligations are satisfied. This occurs at the time contract-specified products are sold to third parties at a contractually fixed or determinable price, delivery occurs at

a specified point or performance has occurred, control has transferred and collectability of the revenue is probable. The transaction price used to recognize revenue and invoice customers is based on a contractually stated fee or on a third party published index price plus or minus a known differential. Devon typically receives payment for invoiced amounts within 30 days. Marketing revenues and expenses attributable to oil, gas and NGL purchases are reported on a gross basis when Devon takes control of the products and has risks and rewards of ownership.


Satisfaction of Performance Obligations and Revenue Recognitions

Because Devon has a right to consideration from its customers in amounts that correspond directly to the value that the customer receives from the performance completed on each contract, Devon recognizes revenue for sales at the time the crude oil, natural gas or NGLs are delivered at a fixed or determinable price.

Transaction Price Allocated to Remaining Performance Obligations

Most of Devon’s contracts are short-term in nature with a contract term of one year or less. Devon applies the practical expedient in ASC 606 exempting the disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less. For contracts with terms greater than one year, Devon applies the practical expedient in ASC 606 exempting the disclosure of the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under Devon’s contracts, each unit of product typically represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

 

Contract Balances

 

Cash received relating to future performance obligations is deferred and recognized when all revenue recognition criteria are met. Contract liabilities generated from such deferred revenue are not considered material as of December 31, 2019. Devon’s product sales and marketing contracts do not give rise to contract assets.

 

Disaggregation of Revenue

 

The following table presents revenue from contracts with customers that are disaggregated based on the type of good.

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

Oil

 

$

2,988

 

 

$

2,941

 

Gas

 

 

391

 

 

 

482

 

NGL

 

 

430

 

 

 

662

 

Oil, gas and NGL revenues from

   contracts with customers

 

 

3,809

 

 

 

4,085

 

Oil, gas and NGL derivatives

 

 

(454

)

 

 

457

 

Upstream revenues

 

 

3,355

 

 

 

4,542

 

 

 

 

 

 

 

 

 

 

Oil

 

 

1,534

 

 

 

2,745

 

Gas

 

 

645

 

 

 

738

 

NGL

 

 

686

 

 

 

871

 

Total marketing revenues from

   contracts with customers

 

 

2,865

 

 

 

4,354

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

6,220

 

 

$

8,896

 

 

Customers

 

During 2019 and 2017, no purchaser accounted for more than 10% of Devon’s consolidated sales revenue.

 

During 2018, Devon had one purchaser that accounted for approximately 11% of Devon’s consolidated sales revenue.

 

Derivative Financial Instruments

Devon is exposed to certain risks relating to its ongoing business operations, including risks related to commodity prices and interest rates. As discussed more fully below, Devon uses derivative instruments primarily to manage commodity price risk and interest rate risk. Devon does not intend to issue or hold derivative financial instruments for speculative trading purposes.

Devon enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production to hedge future prices received. These instruments are used to manage the inherent uncertainty of future revenues resulting from commodity price volatility. Devon’s derivative financial instruments typically include financial price swaps, basis swaps and costless price collars. Under the terms of the price swaps, Devon receives a fixed price for its production and pays a variable market price to the contract counterparty. For the basis swaps, Devon receives a fixed differential between two regional index prices and pays a variable differential on the same two index prices to the contract counterparty. For price collars, Devon utilizes two-way price collars. The two-way price collars set a floor and ceiling price for the hedged production. If the applicable monthly price indices are outside of the ranges set by the floor and ceiling prices in the various collars, Devon will cash-settle the difference with the counterparty.

Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. As of December 31, 2019, Devon did not have any open interest rate swap contracts.

All derivative financial instruments are recognized at their current fair value as either assets or liabilities in the balance sheet. Changes in the fair value of these derivative financial instruments are recorded in earnings unless specific hedge accounting criteria are met. For derivative financial instruments held during the three-year period ended December 31, 2019, Devon chose not to meet the necessary criteria to qualify its derivative financial instruments for hedge accounting treatment. Cash settlements with counterparties on Devon’s derivative financial instruments are also recorded in earnings.

By using derivative financial instruments to hedge exposures to changes in commodity prices and interest rates, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon’s policy to enter into derivative contracts only with investment-grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon’s derivative contracts generally require cash collateral to be posted if either its or the counterparty’s credit rating falls below certain credit rating levels. As of December 31, 2019, Devon held no cash collateral of its counterparties nor posted collateral to its counterparties.

General and Administrative Expenses

G&A is reported net of amounts reimbursed by working interest owners of the oil and gas properties operated by Devon.

Share-Based Compensation

Devon grants share-based awards to members of its Board of Directors, management and employees. All such awards are measured at fair value on the date of grant and are generally recognized as a component of G&A in the accompanying consolidated statements of comprehensive earnings over the applicable requisite service periods. As a result of Devon’s restructuring activity discussed in Note 6, certain share-based awards were accelerated and recognized as a component of restructuring and transaction costs in the accompanying consolidated statements of comprehensive earnings.

Generally, Devon uses new shares from approved incentive programs to grant share-based awards and to issue shares upon stock option exercises. Shares repurchased under approved programs are generally available to be issued as part of Devon’s share-based awards. However, Devon has historically canceled these shares upon repurchase.

Income Taxes

Devon is subject to current income taxes assessed by the federal and various state jurisdictions in the U.S. and by other foreign jurisdictions. In addition, Devon accounts for deferred income taxes related to these jurisdictions using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

Deferred tax assets are also recognized for the future tax benefits attributable to the expected utilization of existing tax net operating loss carryforwards and other types of carryforwards. If the future utilization of some portion of the deferred tax assets is determined to be unlikely, a valuation allowance is provided to reduce the recorded tax benefits from such assets. Devon periodically weighs the positive and negative evidence to determine if it is more likely than not that some or all of the deferred tax assets will be realized. Forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence, such as cumulative losses in recent years. See Note 7 for further discussion.

Devon recognizes the financial statement effects of tax positions when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by a taxing authority. Recognized tax positions are initially and subsequently measured as the largest amount of tax benefit that is more likely than not of being realized upon ultimate settlement with a taxing authority. Liabilities for unrecognized tax benefits related to such tax positions are included in other long-term liabilities unless the tax position is expected to be settled within the upcoming year, in which case the liabilities are included in other current liabilities. Interest and penalties related to unrecognized tax benefits are included in current income tax expense.

Devon estimates its annual effective income tax rate in recording its provision for income taxes in the various jurisdictions in which it operates. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the period in which they occur.

Net Earnings (Loss) Per Share Attributable to Devon

Devon’s basic earnings per share amounts have been computed based on the average number of shares of common stock outstanding for the period. Basic earnings per share includes the effect of participating securities, which primarily consist of Devon’s outstanding restricted stock awards, as well as performance-based restricted stock awards that have met the requisite performance targets. Diluted earnings per share is calculated using the

treasury stock method to reflect the assumed issuance of common shares for all potentially dilutive securities. Such securities primarily consist of unvested performance share units.

Cash and Cash Equivalents

Devon considers all highly liquid investments with original contractual maturities of three months or less to be cash equivalents.

Cash Restricted for Discontinued Operations

In conjunction primarily with the sale of its Canadian operations in June 2019, approximately $380 million of Devon’s cash balance is restricted for funding certain tax and other obligations related to the disposed assets. Other obligations primarily relate to abandoned firm transportation and office lease agreements. This cash is not legally restricted and can be used by Devon for other general corporate purposes. However, it has been designated to settle retained obligations associated with discontinued operations.

Accounts Receivable

Devon’s accounts receivable balance primarily consists of oil and gas sales receivables, marketing and midstream revenue receivables and joint interest receivables for which Devon does not require collateral security. Devon has established an allowance for bad debts equal to the estimable portions of accounts receivable, including joint interest receivables, for which failure to collect is considered probable. When a portion of the receivable is deemed uncollectible, the write-off is made against the allowance.

Property and Equipment

Oil and Gas Property and Equipment

Devon follows the successful efforts method of accounting for its oil and gas properties. Exploration costs, such as exploratory geological and geophysical costs, and costs associated with nonproductive exploratory wells, delay rentals and exploration overhead are charged against earnings as incurred. Costs of drilling successful exploratory wells along with acquisition costs and the costs of drilling development wells, including those that are unsuccessful, are capitalized. Devon groups its oil and gas properties with a common geological structure or stratigraphic condition (“common operating field”) for purposes of computing DD&A, assessing proved property impairments and accounting for asset dispositions.

Exploratory drilling costs and exploratory-type stratigraphic test wells are initially capitalized, or suspended, pending the determination of proved reserves. If proved reserves are found, drilling costs remain capitalized as proved properties. Costs of unsuccessful wells are charged to exploration expense. For exploratory wells that find reserves that cannot be classified as proved when drilling is completed, costs continue to be capitalized as suspended exploratory well costs if there have been sufficient reserves found to justify completion as a producing well and sufficient progress is being made in assessing the reserves and the economic and operating viability of the project. If management determines that future appraisal drilling or development activities are unlikely to occur, associated suspended exploratory well costs are expensed. In some instances, this determination may take longer than one year. Devon reviews the status of all suspended exploratory drilling costs quarterly.

 

Capitalized costs of proved oil and gas properties are depleted by an equivalent unit-of-production method, converting gas to oil at the ratio of six Mcf of gas to one Bbl of oil. Proved leasehold acquisition costs, less accumulated amortization, are depleted over total proved reserves, which includes proved undeveloped reserves.

Capitalized costs of wells and related equipment and facilities, including estimated asset retirement costs, net of estimated salvage values and less accumulated amortization are depreciated over proved developed reserves associated with those capitalized costs. Depletion is calculated by applying the DD&A rate (amortizable base divided by beginning of period proved reserves) to current period production.

Costs associated with unproved properties are excluded from the depletion calculation until it is determined whether or not proved reserves can be assigned to such properties. Devon assesses its unproved properties for impairment annually, or more frequently if events or changes in circumstances dictate that the carrying value of those assets may not be recoverable. Significant unproved properties are assessed individually.

Proved properties are assessed for impairment annually, or more frequently if events or changes in circumstances dictate that the carrying value of those assets may not be recoverable. Individual assets are grouped for impairment purposes based on a common operating field. If there is an indication the carrying amount of an asset may not be recovered, the asset is assessed for potential impairment by management through an established process. If, upon review, the sum of the undiscounted pre-tax cash flows is less than the carrying value of the asset, the carrying value is written down to estimated fair value. Because there is usually a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined based on the present values of expected future cash flows using discount rates believed to be consistent with those used by principal market participants or by comparable transactions. The expected future cash flows used for impairment reviews and related fair value calculations are typically based on judgmental assessments of future production volumes, commodity prices, operating costs, and capital investment plans, considering all available information at the date of review.

Gains or losses are recorded for sales or dispositions of oil and gas properties which constitute an entire common operating field or which result in a significant alteration of the common operating field’s DD&A rate. These gains and losses are classified as asset dispositions in the accompanying consolidated statements of earnings. Partial common operating field sales or dispositions deemed not to significantly alter the DD&A rates are generally accounted for as adjustments to capitalized costs with no gain or loss recognized.

Devon capitalizes interest costs incurred that are attributable to material unproved oil and gas properties and major development projects of oil and gas properties.

Other Property and Equipment

Costs for midstream assets that are in use are depreciated over the assets’ estimated useful lives, using the straight-line method. Depreciation and amortization of other property and equipment, including corporate and leasehold improvements, are provided using the straight-line method based on estimated useful lives ranging from three to 60 years. Interest costs incurred and attributable to major corporate construction projects are also capitalized.

 

Asset Retirement Obligations

Devon recognizes liabilities for retirement obligations associated with tangible long-lived assets, such as producing well sites when there is a legal obligation associated with the retirement of such assets and the amount can be reasonably estimated. The initial measurement of an asset retirement obligation is recorded as a liability at its fair value, with an offsetting asset retirement cost recorded as an increase to the associated property and equipment on the consolidated balance sheet. When the assumptions used to estimate a recorded asset retirement obligation change, a revision is recorded to both the asset retirement obligation and the asset retirement cost. Devon’s asset retirement obligations also include estimated environmental remediation costs which arise from normal operations and are associated with the retirement of such long-lived assets. The asset retirement cost is depreciated using a systematic and rational method similar to that used for the associated property and equipment.

Goodwill

Goodwill represents the excess of the purchase price of business combinations over the fair value of the net assets acquired and is tested for impairment annually, or more frequently if events or changes in circumstances dictate that the carrying value of goodwill may not be recoverable. Such test includes a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, then a quantitative goodwill impairment test is performed. The quantitative goodwill impairment test requires the fair value of each reporting unit be compared to the carrying value of the reporting unit. If the fair value of the reporting unit is less than the carrying value, an impairment charge will be recognized for the amount by which the carrying amount exceeds the fair value. Because quoted market prices are not available for Devon’s reporting unit, the fair value of the reporting unit is estimated based upon several valuation analyses, including comparable companies, comparable transactions and premiums paid.

Devon performed impairment tests of goodwill in the fourth quarters of 2019, 2018 and 2017. No impairment was required as a result of the annual tests in these time periods.

Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Liabilities for environmental remediation or restoration claims resulting from allegations of improper operation of assets are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. Expenditures related to such environmental matters are expensed or capitalized in accordance with Devon’s accounting policy for property and equipment.

Fair Value Measurements

Certain of Devon’s assets and liabilities are measured at fair value at each reporting date. Fair value represents the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants. This price is commonly referred to as the “exit price.” Fair value measurements are classified according to a hierarchy that prioritizes the inputs underlying the valuation techniques. This hierarchy consists of three broad levels:

 

Level 1 – Inputs consist of unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority. When available, Devon measures fair value using Level 1 inputs because they generally provide the most reliable evidence of fair value.

 

Level 2 – Inputs consist of quoted prices that are generally observable for the asset or liability. Common examples of Level 2 inputs include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in markets not considered to be active.

 

Level 3 – Inputs are not observable from objective sources and have the lowest priority. The most common Level 3 fair value measurement is an internally developed cash flow model.

Foreign Currency Translation Adjustments

The U.S. dollar is the functional currency for Devon’s consolidated operations. Devon’s recently divested Canadian operations used the Canadian dollar as the functional currency. Assets and liabilities of the Canadian operations were translated to U.S. dollars using the applicable exchange rate as of the end of a reporting period. Revenues, expenses and cash flow were translated using an average exchange rate during the reporting period.

The disposition of substantially all of Devon’s Canadian oil and gas assets and operations resulted in Devon releasing its historical cumulative foreign currency translation adjustment of $1.2 billion from accumulated other comprehensive earnings to be included within the gain computation.

 

Noncontrolling Interests

Noncontrolling interests represent third-party ownership in the net assets of Devon’s consolidated subsidiaries and are presented as a component of equity. Changes in Devon’s ownership interests in subsidiaries that do not result in deconsolidation are recognized in equity.

 

Recently Adopted Accounting Standards

In January 2019, Devon adopted ASU 2016-02, Leases (Topic 842), using the modified retrospective method. See Note 14 for further discussion regarding Devon’s adoption of the leases standard.

The SEC released Final Rule Release No. 33-10618, FAST Act Modernization and Simplification of Regulation S-K, which amends Regulation S-K to modernize and simplify certain disclosure requirements in a manner that reduces costs and burdens on registrants while continuing to provide all material information to investors. The rule became effective May 2, 2019. The rule amended numerous SEC rules, items and forms covering a diverse group of topics, primarily focusing on reducing or eliminating disclosures. Other than presentation, this adoption did not have a material impact on Devon’s consolidated financial statements.

 

 

v3.19.3.a.u2
Divestitures
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Divestitures

2.

Divestitures

 

Discontinued Operations – Upstream Assets

 

In February 2019, Devon announced its intent to separate its Canadian business and Barnett Shale assets from the Company, based on authorizations provided by its Board of Directors. On June 27, 2019, Devon completed the sale of substantially all of its oil and gas assets and operations in Canada to Canadian Natural Resources Limited for proceeds, net of purchase price adjustments, of $2.6 billion ($3.4 billion Canadian dollars), and recognized a pre-tax gain of $223 million ($425 million, net of tax, primarily due to a significant deferred tax benefit). As a part of the transaction, $436 million of asset retirement obligations were assumed by Canadian Natural Resources Limited. In aggregate, the total estimated proved reserves associated with these assets were approximately 400 MMBoe, or 21% of total proved reserves. In conjunction with the Canadian divestiture, Devon recognized approximately $285 million of restructuring and asset impairment related charges. These costs relate to personnel, office lease abandonment and a firm transportation agreement abandonment. Additional information on these discontinued operations can be found in Note 18.

 

In December 2019, Devon announced the sale of its Barnett Shale assets to BKV for approximately $770 million, before purchase price adjustments. Estimated proved reserves associated with Devon’s Barnett Shale assets are approximately 45% of total U.S. proved reserves. In connection with the announced sale of its Barnett Shale assets, Devon recognized a $748 million asset impairment related to these assets, primarily due to the difference between the net carrying value and the purchase price, net of estimated customary purchase price adjustments. This transaction is expected to close in the second quarter of 2020. For additional information see Note 18.

During 2018, Devon received proceeds of approximately $500 million and recognized a $26 million net gain on asset dispositions from the sales of non-core assets in the Barnett Shale, located primarily in Johnson and Wise counties, Texas. In conjunction with these divestitures, Devon settled certain gas processing contracts and recognized $40 million in settlement expense, which is included in asset dispositions within the discontinued operations. For additional information, see Note 18.

 

Discontinued Operations – EnLink and General Partner

 

During the third quarter of 2018, Devon completed the sale of its aggregate ownership interests in EnLink and the General Partner for $3.125 billion and recognized a gain of approximately $2.6 billion ($2.2 billion after-tax). The proceeds from the sale were utilized to increase Devon’s share repurchase activities, which are discussed further in Note 17. Additional information on these discontinued operations can be found in Note 18.

Continuing Operations

 

During 2019, Devon received proceeds of approximately $390 million and recognized a $48 million net gain on asset dispositions, primarily from sales of non-core assets in the Permian Basin. In aggregate, the total estimated proved reserves associated with these divested assets were approximately 54 MMBoe. As of December 31, 2018, assets and liabilities associated with the Permian Basin divested assets were classified as held for sale in the accompanying consolidated balance sheet.

During 2018, Devon received proceeds totaling approximately $500 million, primarily from the sales of non-core assets in the Delaware Basin, and recognized a net gain on asset dispositions of $278 million. In aggregate, the total estimated proved reserves associated with these divested assets were approximately 24 MMBoe.

During 2017, Devon received proceeds totaling approximately $425 million, and recognized a net gain on asset dispositions of $219 million. Estimated proved reserves associated with these assets were less than 1% of total U.S. proved reserves.

v3.19.3.a.u2
Derivative Financial Instruments
12 Months Ended
Dec. 31, 2019
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

3.

Derivative Financial Instruments

Commodity Derivatives

As of December 31, 2019, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The second table presents Devon’s oil derivatives that settle against the respective indices noted within the table.

 

 

 

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)

 

Q1-Q4 2020

 

 

11,238

 

 

$

57.68

 

 

 

44,932

 

 

$

51.30

 

 

$

61.36

 

Q1-Q4 2021

 

 

989

 

 

$

54.81

 

 

 

5,942

 

 

$

49.59

 

 

$

59.59

 

 

 

 

Oil Basis Swaps

 

Period

 

Index

 

Volume

(Bbls/d)

 

 

Weighted Average

Differential to WTI

($/Bbl)

 

Q1-Q4 2020

 

Argus MEH

 

 

10,000

 

 

$

3.38

 

Q1-Q4 2020

 

NYMEX Roll

 

 

50,000

 

 

$

0.36

 

 

As of December 31, 2019, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.

 

 

 

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)

 

Q1-Q4 2020

 

 

81,409

 

 

$

2.77

 

 

 

42,557

 

 

$

2.73

 

 

$

3.03

 

 

 

 

Natural Gas Basis Swaps

 

Period

 

Index

 

Volume

(MMBtu/d)

 

 

Weighted Average

Differential to

Henry Hub

($/MMBtu)

 

Q1-Q4 2020

 

Panhandle Eastern Pipe Line

 

 

30,000

 

 

$

(0.47

)

Q1-Q4 2020

 

El Paso Natural Gas

 

 

45,000

 

 

$

(0.70

)

Q1-Q4 2020

 

Houston Ship Channel

 

 

10,000

 

 

$

0.02

 

 

As of December 31, 2019, Devon had the following open NGL derivative positions. Devon’s NGL positions settle against the average of the prompt month OPIS Mont Belvieu, Texas index.

 

 

 

 

 

Price Swaps

 

Period

 

Product

 

Volume (Bbls/d)

 

 

Weighted Average Price ($/Bbl)

 

Q1-Q4 2020

 

Natural Gasoline

 

 

1,000

 

 

$

44.84

 

Q1-Q4 2020

 

Normal Butane

 

 

1,500

 

 

$

23.56

 

Q1-Q4 2020

 

Propane

 

 

4,500

 

 

$

25.18

 

 

Financial Statement Presentation

The following table presents the net gains and losses by derivative financial instrument type followed by the corresponding individual consolidated statements of comprehensive earnings caption.

 

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

Commodity derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Upstream revenues

 

$

(454

)

 

$

457

 

 

$

67

 

Marketing and midstream revenues

 

 

1

 

 

 

(1

)

 

 

3

 

Interest rate derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

65

 

 

 

(22

)

Net gains (losses) recognized

 

$

(453

)

 

$

521

 

 

$

48

 

 

The following table presents the derivative fair values by derivative financial instrument type followed by the corresponding individual consolidated balance sheet caption.

 

 

 

December 31, 2019

 

 

December 31, 2018

 

Commodity derivative assets:

 

 

 

 

 

 

 

 

Other current assets

 

$

49

 

 

$

634

 

Other long-term assets

 

 

1

 

 

 

40

 

Total derivative assets

 

$

50

 

 

$

674

 

Commodity derivative liabilities:

 

 

 

 

 

 

 

 

Other current liabilities

 

$

30

 

 

$

32

 

Other long-term liabilities

 

 

1

 

 

 

1

 

Total derivative liabilities

 

$

31

 

 

$

33

 

v3.19.3.a.u2
Share-Based Compensation
12 Months Ended
Dec. 31, 2019
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Share-Based Compensation

4.

Share-Based Compensation

In 2017, Devon’s stockholders approved the 2017 Plan. The 2017 Plan replaces the 2015 Plan. From the effective date of the 2017 Plan, no further awards may be made under the 2015 Plan, and awards previously granted will continue to be governed by the terms of the respective award documents. Subject to the terms of the 2017 Plan, awards may be made for a total of 33.5 million shares of Devon common stock, plus the number of shares available for issuance under the 2015 Plan (including shares subject to outstanding awards that were transferred to the 2017 Plan in accordance with its terms). The 2017 Plan authorizes the Compensation Committee, which consists of independent, non-management members of Devon’s Board of Directors, to grant nonqualified and incentive stock options, restricted stock awards or units, performance units and stock appreciation rights to eligible employees. The 2017 Plan also authorizes the grant of nonqualified stock options, restricted stock awards or units and stock appreciation rights to non-employee directors. To calculate the number of shares that may be granted in awards under the 2017 Plan, options and stock appreciation rights represent one share and other awards represent 2.3 shares.

The vesting for certain share-based awards was accelerated in 2019 and 2018 in conjunction with the reduction of workforce activities described in Note 6 and is included in restructuring and transaction costs in the accompanying consolidated statements of comprehensive earnings.

 

The table below presents the share-based compensation expense included in Devon’s accompanying consolidated statements of comprehensive earnings.

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

G&A

 

$

83

 

 

$

104

 

 

$

121

 

Exploration expenses

 

 

1

 

 

 

2

 

 

 

5

 

Restructuring and transaction costs

 

 

31

 

 

 

31

 

 

 

 

Total

 

$

115

 

 

$

137

 

 

$

126

 

Related income tax benefit

 

$

13

 

 

$

17

 

 

$

 

 

The following table presents a summary of Devon’s unvested restricted stock awards and units, performance-based restricted stock awards and performance share units granted under the plans.

 

 

 

Restricted Stock

 

 

Performance-Based

 

 

Performance

 

 

 

Awards and Units

 

 

Restricted Stock Awards

 

 

Share Units

 

 

 

Awards and

Units

 

 

Weighted

Average

Grant-Date

Fair Value

 

 

Awards

 

 

Weighted

Average

Grant-Date

Fair Value

 

 

Units

 

 

 

 

 

Weighted

Average

Grant-Date

Fair Value

 

 

 

(Thousands, except fair value data)

 

Unvested at 12/31/18

 

 

5,963

 

 

$

35.47

 

 

 

302

 

 

$

35.93

 

 

 

2,868

 

 

 

 

 

$

30.14

 

Granted

 

 

4,430

 

 

$

25.47

 

 

 

 

 

$

 

 

 

741

 

 

 

 

 

$

28.97

 

Vested

 

 

(4,646

)

 

$

33.48

 

 

 

(149

)

 

$

38.03

 

 

 

(145

)

 

 

 

 

$

37.23

 

Forfeited

 

 

(763

)

 

$

27.50

 

 

 

 

 

$

 

 

 

(1,309

)

 

 

 

 

$

11.91

 

Unvested at 12/31/19

 

 

4,984

 

 

$

29.65

 

 

 

153

 

 

$

33.88

 

 

 

2,155

 

 

(1

)

 

$

40.35

 

 

(1)

A maximum of 4.3 million common shares could be awarded based upon Devon’s final TSR ranking.

 

The following table presents the aggregate fair value of awards and units that vested during the indicated period.

 

 

 

2019

 

 

2018

 

 

2017

 

Restricted Stock Awards and Units

 

$

127

 

 

$

111

 

 

$

105

 

Performance-Based Restricted Stock Awards

 

$

4

 

 

$

10

 

 

$

10

 

Performance Share Units

 

$

4

 

 

$

20

 

 

$

38

 

 

The following table presents the unrecognized compensation cost and the related weighted average recognition period associated with unvested awards and units as of December 31, 2019.

 

 

 

 

 

 

 

Performance-Based

 

 

 

 

 

 

 

Restricted Stock

 

 

Restricted Stock

 

 

Performance

 

 

 

Awards and Units

 

 

Awards

 

 

Share Units

 

Unrecognized compensation cost

 

$

80

 

 

$

 

 

$

12

 

Weighted average period for recognition (years)

 

 

2.5

 

 

 

1.4

 

 

 

1.5

 

 

Restricted Stock Awards and Units

Restricted stock awards and units are subject to the terms, conditions, restrictions and limitations, if any, that the Compensation Committee deems appropriate, including restrictions on continued employment. Generally, the service requirement for vesting ranges from one to four years. During the vesting period, recipients of restricted stock awards made under the 2015 Plan receive dividends that are not subject to restrictions or other limitations. However, dividends declared during the vesting period with respect to restricted stock awards made under the 2017 Plan and all restricted stock units will not be paid until the underlying award vests. Devon estimates the fair values of restricted stock awards and units as the closing price of Devon’s common stock on the grant date of the award or unit, which is expensed over the applicable vesting period.

Performance-Based Restricted Stock Awards

Performance-based restricted stock awards were granted to certain members of Devon’s senior management. Vesting of the awards is dependent on Devon meeting certain internal performance targets and the recipient meeting certain service requirements. Generally, the service requirement for vesting ranges from one to four years. In order for awards to vest, the performance target must be met in the first year. If the performance target is met, the recipient is entitled to dividends under the same terms described above for nonperformance-based restricted stock. If the performance target and service period requirements are not met, the award does not vest. Devon estimates the fair values of the awards as the closing price of Devon’s common stock on the grant date of the award, which is expensed over the applicable vesting period. No performance-based restricted stock awards were granted in 2019 and 2018.

Performance Share Units

Performance share units are granted to certain members of Devon’s management and employees. Each unit that vests entitles the recipient to one share of Devon common stock. The vesting of these units is based on comparing Devon’s TSR to the TSR of a predetermined group of fourteen peer companies over the specified three-year performance period. The vesting of units may be between zero and 200% of the units granted depending on Devon’s TSR as compared to the peer group on the vesting date.

At the end of the vesting period, recipients receive dividend equivalents with respect to the number of units vested. The fair value of each performance share unit is estimated as of the date of grant using a Monte Carlo simulation with the following assumptions used for all grants made under the plan: (i) a risk-free interest rate based on U.S. Treasury rates as of the grant date; (ii) a volatility assumption based on the historical realized price volatility of Devon and the designated peer group; and (iii) an estimated ranking of Devon among the designated peer group. The fair value of the unit on the date of grant is expensed over the applicable vesting period. The following table presents the assumptions related to performance share units granted.

 

 

 

2019

 

 

2018

 

 

2017

 

Grant-date fair value

 

$

28.43

 

 

 

$

29.53

 

 

$

36.23

 

 

 

$

37.88

 

 

$

51.05

 

 

 

$

53.12

 

Risk-free interest rate

 

2.48%

 

 

2.28%

 

 

1.50%

 

Volatility factor

 

39.1%

 

 

45.8%

 

 

45.8%

 

Contractual term (years)

 

2.89

 

 

2.89

 

 

2.89

 

 

v3.19.3.a.u2
Asset Impairments
12 Months Ended
Dec. 31, 2019
Asset Impairment Charges [Abstract]  
Asset Impairments

5.

Asset Impairments

 

The following table presents a summary of Devon’s asset impairments. Unproved impairments shown below are included in exploration expenses in the consolidated statements of comprehensive earnings.

 

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

Proved oil and gas assets

 

$

 

 

$

109

 

 

$

 

Other assets

 

 

 

 

 

47

 

 

 

 

Total asset impairments

 

$

 

 

$

156

 

 

$