DEVON ENERGY CORP/DE, 10-Q filed on 5/6/2020
Quarterly Report
v3.20.1
Document And Entity Information - shares
shares in Millions
3 Months Ended
Mar. 31, 2020
Apr. 22, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Period End Date Mar. 31, 2020  
Amendment Flag false  
Trading Symbol DVN  
Entity Registrant Name DEVON ENERGY CORP/DE  
Entity Central Index Key 0001090012  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Document Fiscal Period Focus Q1  
Entity Common Stock, Shares Outstanding   382.7
Entity Current Reporting Status Yes  
Entity Shell Company false  
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 $0.10 per share  
Security Exchange Name NYSE  
Entity Incorporation, State or Country Code DE  
Document Quarterly Report true  
Document Transition Report false  
v3.20.1
Consolidated Statements of Comprehensive Earnings - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Statement [Abstract]    
Upstream revenues $ 1,527 $ 314
Revenues $ 560 $ 765
Type of Revenue [Extensible List] us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember
Total revenues $ 2,087 $ 1,079
Production expenses 318 283
Exploration expenses 112 4
Expenses $ 578 $ 750
Type of Cost, Good or Service [Extensible List] us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember
Depreciation, depletion and amortization $ 401 $ 360
Asset impairments 2,666  
Asset dispositions   (45)
General and administrative expenses 102 135
Financing costs, net 65 60
Restructuring and transaction costs   51
Other expenses (48) (22)
Total expenses 4,194 1,576
Earnings (loss) from continuing operations before income taxes (2,107) (497)
Income tax expense (benefit) (417) (119)
Net earnings (loss) from continuing operations (1,690) (378)
Net earnings (loss) from discontinued operations, net of income taxes (125) 61
Net earnings (loss) (1,815) (317)
Net earnings attributable to noncontrolling interests 1  
Net earnings (loss) attributable to Devon $ (1,816) $ (317)
Basic net earnings (loss) per share:    
Basic earnings (loss) from continuing operations per share $ (4.48) $ (0.89)
Basic earnings (loss) from discontinued operations per share (0.34) 0.15
Basic net earnings (loss) per share (4.82) (0.74)
Diluted net earnings (loss) per share:    
Diluted earnings (loss) from continuing operations per share (4.48) (0.89)
Diluted earnings (loss) from discontinued operations per share (0.34) 0.15
Diluted net earnings (loss) per share $ (4.82) $ (0.74)
Comprehensive earnings (loss):    
Net earnings (loss) $ (1,815) $ (317)
Other comprehensive earnings (loss), net of tax:    
Foreign currency translation, discontinued operations   35
Pension and postretirement plans 1 2
Other comprehensive earnings (loss), net of tax 1 37
Comprehensive earnings (loss): (1,814) (280)
Comprehensive earnings attributable to noncontrolling interests 1  
Comprehensive earnings (loss) attributable to Devon $ (1,815) $ (280)
v3.20.1
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities:    
Net loss $ (1,815) $ (317)
Adjustments to reconcile net loss to net cash from operating activities:    
Net (earnings) loss from discontinued operations, net of income taxes 125 (61)
Depreciation, depletion and amortization 401 360
Asset impairments 2,666  
Leasehold impairments 110 1
Accretion on discounted liabilities 8 9
Total (gains) losses on commodity derivatives (720) 605
Cash settlements on commodity derivatives 101 31
Gains on asset dispositions   (45)
Deferred income tax benefit (311) (115)
Share-based compensation 20 44
Other   (14)
Changes in assets and liabilities, net (56) (61)
Net cash from operating activities - continuing operations 529 437
Cash flows from investing activities:    
Capital expenditures (425) (490)
Acquisitions of property and equipment (4) (10)
Divestitures of property and equipment 25 310
Net cash from investing activities - continuing operations (404) (190)
Cash flows from financing activities:    
Repayments of long-term debt   (162)
Repurchases of common stock (38) (999)
Dividends paid on common stock (34) (34)
Contributions from noncontrolling interests 5  
Distributions to noncontrolling interests (3)  
Shares exchanged for tax withholdings (17) (19)
Net cash from financing activities - continuing operations (87) (1,214)
Net change in cash, cash equivalents and restricted cash of continuing operations 38 (967)
Cash flows from discontinued operations:    
Operating activities (131) (59)
Investing activities (1) (59)
Financing activities 0 (7)
Effect of exchange rate changes on cash (23) 1
Net change in cash, cash equivalents and restricted cash of discontinued operations (155) (124)
Net change in cash, cash equivalents and restricted cash (117) (1,091)
Cash, cash equivalents and restricted cash at beginning of period 1,844 2,446
Cash, cash equivalents and restricted cash at end of period 1,727 1,355
Reconciliation of cash, cash equivalents and restricted cash:    
Cash and cash equivalents 1,527 1,327
Cash restricted for discontinued operations 200  
Restricted cash included in other current assets   28
Cash, cash equivalents and restricted cash at end of period $ 1,727 $ 1,355
v3.20.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
ASSETS    
Cash and cash equivalents $ 1,527 $ 1,464
Cash restricted for discontinued operations 200 380
Accounts receivable 594 832
Current assets associated with discontinued operations 736 896
Other current assets 998 279
Total current assets 4,055 3,851
Oil and gas property and equipment, based on successful efforts accounting, net 4,756 7,558
Other property and equipment, net ($89 and $80 million related to CDM in 2020 and 2019, respectively) [1] 1,024 1,035
Total property and equipment, net 5,780 8,593
Goodwill 753 753
Right-of-use assets 237 243
Other long-term assets 245 196
Long-term assets associated with discontinued operations 74 81
Total assets 11,144 13,717
LIABILITIES AND EQUITY    
Accounts payable 444 428
Revenues and royalties payable 617 730
Current liabilities associated with discontinued operations 294 459
Other current liabilities 199 310
Total current liabilities 1,554 1,927
Long-term debt 4,295 4,294
Lease liabilities 245 244
Asset retirement obligations 386 380
Other long-term liabilities 461 426
Long-term liabilities associated with discontinued operations 163 185
Deferred income taxes   341
Stockholders' equity:    
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 383 million and 382 million shares in 2020 and 2019, respectively 38 38
Additional paid-in capital 2,701 2,735
Retained earnings 1,298 3,148
Accumulated other comprehensive loss (118) (119)
Total stockholders’ equity attributable to Devon 3,919 5,802
Noncontrolling interests 121 118
Total equity 4,040 5,920
Total liabilities and equity $ 11,144 $ 13,717
[1] $89 million and $80 million related to CDM in 2020 and 2019, respectively.
v3.20.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Other property and equipment, net [1] $ 1,024 $ 1,035
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) 383,000,000 382,000,000
CDM [Member]    
Other property and equipment, net $ 89 $ 80
[1] $89 million and $80 million related to CDM in 2020 and 2019, respectively.
v3.20.1
Consolidated Statements Of Equity - USD ($)
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, 2018 $ 9,186 $ 45 $ 4,486 $ 3,650 $ 1,027 $ (22)  
Balance, shares at Dec. 31, 2018   450          
Effect of adoption of lease accounting at Dec. 31, 2018 (19)     (19)      
Net earnings (loss) (317)     (317)      
Other comprehensive earnings, net of tax 37       37    
Restricted stock grants, net of cancellations, shares   3          
Common stock repurchased (1,042)         (1,042)  
Common stock retired   $ (3) (1,014)     1,017  
Common stock retired, shares   (36)          
Common stock dividends (34)     (34)      
Share-based compensation 46   46        
Balance at Mar. 31, 2019 7,857 $ 42 3,518 3,280 1,064 (47)  
Balance, shares at Mar. 31, 2019   417          
Balance at Dec. 31, 2019 5,920 $ 38 2,735 3,148 (119)   $ 118
Balance, shares at Dec. 31, 2019   382          
Net earnings (loss) (1,815)     (1,816)     1
Other comprehensive earnings, net of tax 1       1    
Restricted stock grants, net of cancellations, shares   3          
Common stock repurchased (54)         (54)  
Common stock retired     (54)     $ 54  
Common stock retired, shares   (3)          
Common stock dividends (34)     (34)      
Share-based compensation 20   20        
Share-based compensation, shares   1          
Contributions from noncontrolling interests 5           5
Distributions to noncontrolling interests (3)           (3)
Balance at Mar. 31, 2020 $ 4,040 $ 38 $ 2,701 $ 1,298 $ (118)   $ 121
Balance, shares at Mar. 31, 2020   383          
v3.20.1
Summary Of Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.

Summary of Significant Accounting Policies

The accompanying unaudited interim financial statements and notes of Devon have been prepared pursuant to the rules and regulations of the SEC. Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. The accompanying unaudited interim financial statements and notes should be read in conjunction with the financial statements and notes included in Devon’s 2019 Annual Report on Form 10-K.

The accompanying unaudited interim financial statements in this report reflect all adjustments that are, in the opinion of management, necessary for a fair statement of Devon’s results of operations and cash flows for the three-month periods ended March 31, 2020 and 2019 and Devon’s financial position as of March 31, 2020. As further discussed in Note 17, Devon reached an agreement to sell its Barnett Shale assets in December 2019, which was amended in April 2020, and sold its Canadian operations on June 27, 2019. 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, and its Canadian operations 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.

During the fourth quarter of 2019, Devon entered into an agreement to form Cotton Draw Midstream, L.L.C. (“CDM”), a joint-venture entity in the Delaware Basin with an affiliate of QL Capital Partners, LP (“QLCP”). 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. 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.

 

Disaggregation of Revenue

 

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

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Oil

 

$

662

 

 

$

659

 

Gas

 

 

70

 

 

 

138

 

NGL

 

 

75

 

 

 

122

 

Oil, gas and NGL revenues from contracts with customers

 

 

807

 

 

 

919

 

Oil, gas and NGL derivatives

 

 

720

 

 

 

(605

)

Upstream revenues

 

 

1,527

 

 

 

314

 

 

 

 

 

 

 

 

 

 

Oil

 

 

329

 

 

 

356

 

Gas

 

 

92

 

 

 

218

 

NGL

 

 

137

 

 

 

191

 

Total marketing revenues

 

 

558

 

 

 

765

 

Midstream revenues

 

 

2

 

 

 

 

Total marketing and midstream revenues from contracts with customers

 

 

560

 

 

 

765

 

Total revenues

 

$

2,087

 

 

$

1,079

 

 

 


Recently Adopted Accounting Standards

 

In 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. This ASU changes the impairment model for trade receivables, held-to-maturity debt securities, net investments in leases, loans and other financial assets measured at amortized cost from the current “incurred loss” model to a new forward-looking “expected loss” model. Devon adopted this ASU in the first quarter of 2020 using the modified retrospective approach. Devon assesses credit risk by class of account type which includes cash equivalents and oil and gas, marketing and midstream, joint interest and other accounts receivable. These classes are then further evaluated using a probability weighted scenario assessment based on historical losses and a probability of future default. This evaluation is supported by an assessment of risk factors such as the age of receivable, current macro-economic conditions, credit rating of the counterparty and our historical loss rate. This adoption did not have a material impact on Devon’s consolidated financial statements.

 

v3.20.1
Divestitures
3 Months Ended
Mar. 31, 2020
Business Combinations [Abstract]  
Divestitures

2.Divestitures

 

Discontinued Operations – Upstream Assets

 

In June 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). Additional information can be found in Note 17.

 

Devon announced the sale of its Barnett Shale assets to BKV in December 2019 and subsequently amended the agreement in April 2020. Under the amended terms, Devon has agreed to sell its Barnett Shale assets for $570 million in cash, before purchase price adjustments, at closing, which was extended to December 31, 2020. Devon recognized a $748 million asset impairment related to these assets in the fourth quarter of 2019 and an incremental $179 million asset impairment during the first quarter of 2020. Additional information can be found in Note 17.

 

Continuing Operations – Upstream Assets

 

During the first quarter of 2020, Devon entered into a farmout agreement in which the third-party to the agreement can participate in the development of certain Devon-owned non-operated interests in the Delaware Basin. Under the agreement, Devon will periodically transfer working interests to the third party, who will then fund its share of operating and development costs. Once certain investment hurdles are met, a portion of the working interest held by the third party will revert back to Devon. No material activity occurred during the first quarter of 2020.

 

In the first quarter of 2019, Devon received proceeds of approximately $300 million and recognized a $45 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 25 MMBoe.

v3.20.1
Derivative Financial Instruments
3 Months Ended
Mar. 31, 2020
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

 

3.Derivative Financial Instruments

Objectives and Strategies

Devon enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production to hedge future prices received. Additionally, Devon periodically enters into derivative financial instruments with respect to a portion of its oil, gas and NGL marketing activities. These commodity derivative financial instruments include financial price swaps, basis swaps and costless price collars. Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. As of March 31, 2020, Devon did not have any open interest rate swap contracts.

Devon does not intend to hold or issue derivative financial instruments for speculative trading purposes and has elected not to designate any of its derivative instruments for hedge accounting treatment.

Counterparty Credit Risk

By using derivative financial instruments, 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 contain provisions that provide for collateral payments if Devon’s or its counterparty’s credit rating falls below certain credit rating levels. As of March 31, 2020, Devon neither held cash collateral of its counterparties nor posted collateral to its counterparties.

Commodity Derivatives

As of March 31, 2020, 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)

 

Q2-Q4 2020

 

 

82,207

 

 

$

36.87

 

 

 

50,449

 

 

$

51.11

 

 

$

61.14

 

Q1-Q4 2021

 

 

11,649

 

 

$

36.77

 

 

 

15,964

 

 

$

41.24

 

 

$

51.24

 

 

 

 

 

Oil Basis Swaps

 

Period

 

Index

 

Volume

(Bbls/d)

 

 

Weighted Average

Differential to WTI

($/Bbl)

 

Q2-Q4 2020

 

Argus MEH

 

 

50,916

 

 

$

0.45

 

Q2-Q4 2020

 

Midland Sweet

 

 

31,782

 

 

$

(1.23

)

Q2-Q4 2020

 

NYMEX Roll

 

 

52,676

 

 

$

0.38

 

Q1-Q4 2021

 

Midland Sweet

 

 

7,000

 

 

$

1.27

 

 

As of March 31, 2020, 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)

 

Q2-Q4 2020

 

 

65,396

 

 

$

2.75

 

 

 

171,418

 

 

$

1.89

 

 

$

2.37

 

Q1-Q4 2021

 

 

 

 

$

 

 

 

22,438

 

 

$

2.06

 

 

$

2.56

 

 

 

 

Natural Gas Basis Swaps

 

Period

 

Index

 

Volume

(MMBtu/d)

 

 

Weighted Average

Differential to

Henry Hub

($/MMBtu)

 

Q2-Q4 2020

 

Panhandle Eastern Pipe Line

 

 

30,000

 

 

$

(0.47

)

Q2-Q4 2020

 

El Paso Natural Gas

 

 

65,000

 

 

$

(0.78

)

Q2-Q4 2020

 

Houston Ship Channel

 

 

30,000

 

 

$

(0.02

)

Q1-Q4 2021

 

El Paso Natural Gas

 

 

35,000

 

 

$

(0.92

)

 

 


As of March 31, 2020, 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)

 

Q2-Q4 2020

 

Ethane

 

 

9,982

 

 

$

5.62

 

Q2-Q4 2020

 

Natural Gasoline

 

 

1,000

 

 

$

44.84

 

Q2-Q4 2020

 

Normal Butane

 

 

1,500

 

 

$

23.56

 

Q2-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.

 

 

 

Three Months Ended March 31,

 

 

 

 

2020

 

 

2019

 

 

Commodity derivatives:

 

 

 

 

 

 

 

 

 

Upstream revenues

 

$

720

 

 

$

(605

)

 

Marketing and midstream revenues

 

 

 

 

 

1

 

 

Net gains (losses) recognized

 

$

720

 

 

$

(604

)

 

 

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

 

 

March 31, 2020

 

 

December 31, 2019

 

Commodity derivative assets:

 

 

 

 

 

 

 

 

Other current assets

 

$

616

 

 

$

49

 

Other long-term assets

 

 

27

 

 

 

1

 

Total derivative assets

 

$

643

 

 

$

50

 

Commodity derivative liabilities:

 

 

 

 

 

 

 

 

Other current liabilities

 

$

 

 

$

30

 

Other long-term liabilities

 

 

5

 

 

 

1

 

Total derivative liabilities

 

$

5

 

 

$

31

 

 

v3.20.1
Share-Based Compensation
3 Months Ended
Mar. 31, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Share-Based Compensation

 


4.Share-Based Compensation

 

The table below presents the share-based compensation expense included in Devon’s accompanying consolidated statements of comprehensive earnings. The vesting for certain share-based awards was accelerated in conjunction with the reduction of workforce described in Note 6 and is included in restructuring and transaction costs in the accompanying consolidated statements of comprehensive earnings.

 

 

 

Three Months Ended March 31st,

 

 

 

2020

 

 

2019

 

G&A

 

$

20

 

 

$

23

 

Restructuring and transaction costs

 

 

 

 

 

22

 

Total

 

$

20

 

 

$

45

 

Related income tax benefit

 

$

 

 

$

9

 

 

Under its approved long-term incentive plan, Devon granted share-based awards to certain employees in the first three months of 2020. The following table presents a summary of Devon’s unvested restricted stock awards, performance-based restricted stock awards and performance share units granted under the plan.

 

 

 

 

 

 

Performance-Based

 

 

Performance

 

 

 

Restricted Stock Awards

 

 

Restricted Stock Awards

 

 

Share Units

 

 

 

Awards

 

 

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 12/31/19

 

 

4,984

 

 

$

29.65

 

 

 

153

 

 

$

33.88

 

 

 

2,155

 

 

 

 

 

$

40.35

 

Granted

 

 

2,865

 

 

$

22.54

 

 

 

 

 

$

 

 

 

688

 

 

 

 

 

$

27.89

 

Vested

 

 

(1,733

)

 

$

29.42

 

 

 

(105

)

 

$

29.12

 

 

 

(455

)

 

 

 

 

$

52.56

 

Forfeited

 

 

(29

)

 

$

28.05

 

 

 

 

 

$

 

 

 

(304

)

 

 

 

 

$

52.56

 

Unvested at 3/31/20

 

 

6,087

 

 

$

26.37

 

 

 

48

 

 

$

44.12

 

 

 

2,084

 

 

(1

)

 

$

31.79

 

 

(1)

A maximum of 4.2 million common shares could be awarded based upon Devon’s final TSR ranking.

The following table presents the assumptions related to the performance share units granted in 2020, as indicated in the previous summary table.

 

 

 

2020

 

Grant-date fair value

 

$

27.89

 

Risk-free interest rate

 

1.36%

 

Volatility factor

 

38.4%

 

Contractual term (years)

 

2.89

 

 

 

The following table presents a summary of the unrecognized compensation cost and the related weighted average recognition period associated with unvested awards and units as of March 31, 2020.

 

 

 

 

 

 

 

Performance-Based

 

 

 

 

 

 

 

Restricted Stock

 

 

Restricted Stock

 

 

Performance

 

 

 

Awards

 

 

Awards

 

 

Share Units

 

Unrecognized compensation cost

 

$

120

 

 

$

 

 

$

25

 

Weighted average period for recognition (years)

 

 

2.9

 

 

 

1.2

 

 

 

1.8

 

 

v3.20.1
Asset Impairments
3 Months Ended
Mar. 31, 2020
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.

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Proved oil and gas assets

 

$

2,664

 

 

$

 

Other assets

 

 

2

 

 

 

 

Total asset impairments

 

$

2,666

 

 

$

 

 

 

 

 

 

 

 

 

 

Unproved impairments

 

$

110

 

 

$

1

 

 

Proved Oil and Gas and Other Asset Impairments

Reduced demand from the COVID-19 pandemic caused an unprecedented downturn in the price of oil. As a result, Devon reduced planned 2020 capital investment by 45%. With materially lower commodity prices and reduced near-term investment, Devon assessed all of its oil and gas fields for impairment as of March 31, 2020. For impairment determinations, Devon historically utilized NYMEX forward strip prices for the first five years and applied internally generated price forecasts for subsequent years. In response to the COVID-19 pandemic, the NYMEX forward market became highly illiquid as evidenced by materially reduced trading volumes for periods beyond 2021. Therefore, Devon supplemented the NYMEX forward strip prices with price forecasts published by reputable investment banks and reservoir engineering firms to estimate future revenues as of March 31, 2020. To measure indicated impairments, Devon used a market-based weighted-average cost of capital to discount the future net cash flows.

Devon recognized approximately $2.7 billion of proved asset impairments during the first three months of 2020. These impairments related to the Anadarko Basin and Rockies fields in which the cost basis included acquisitions completed in 2016 and 2015, respectively, when commodity prices were much higher than they are today. In the first quarter of 2020, Devon recognized $2 million of product line fill impairments.

Unproved Impairments

Due to the recent downturn in the commodity price environment and reduced near-term investment as discussed above, Devon also recognized $110 million of unproved impairments during the first three months of 2020, primarily in the Rockies field. During the first three months of 2019, Devon allowed certain non-core acreage to expire without plans for development resulting in unproved impairments of $1 million.

v3.20.1
Restructuring and Transaction Costs
3 Months Ended
Mar. 31, 2020
Restructuring And Related Activities [Abstract]  
Restructuring and Transaction Costs

6.Restructuring and Transaction Costs

During the first quarter of 2019, Devon announced workforce reductions and other initiatives designed to enhance its operational focus and cost structure in conjunction with the portfolio transformation announcement further discussed in Note 2. As a result, Devon recognized $51 million of restructuring expenses during the first three months of 2019. Of these expenses, $22 million resulted from accelerated vesting of share-based grants, which are noncash charges.

The following table summarizes Devon’s restructuring liabilities.

 

 

 

Other

 

 

Other

 

 

 

 

 

 

 

Current

 

 

Long-term

 

 

 

 

 

 

 

Liabilities

 

 

Liabilities

 

 

Total

 

 

 

(Millions)

 

Balance as of December 31, 2019

 

$

20

 

 

$

1

 

 

$

21

 

Changes related to prior years' restructurings

 

 

(9

)

 

 

 

 

 

(9

)

Balance as of March 31, 2020

 

$

11

 

 

$

1

 

 

$

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2018

 

$

39

 

 

$

3

 

 

$

42

 

Changes related to prior years' restructurings

 

 

12

 

 

 

(2

)

 

 

10

 

Balance as of March 31, 2019

 

$

51

 

 

$

1

 

 

$

52

 

 

v3.20.1
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

7.Income Taxes

The following table presents Devon’s total income tax expense (benefit) and a reconciliation of its effective income tax rate to the U.S. statutory income tax rate.

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Loss from continuing operations before income taxes

 

$

(2,107

)

 

$

(497

)

 

 

 

 

 

 

 

 

 

Current income tax benefit

 

$

(106

)

 

$

(4

)

Deferred income tax benefit

 

 

(311

)

 

 

(115

)

Total income tax benefit

 

$

(417

)

 

$

(119

)

 

 

 

 

 

 

 

 

 

U.S. statutory income tax rate

 

 

21

%

 

 

21

%

State income taxes

 

 

1

%

 

 

6

%

Change in tax legislation

 

 

5

%

 

 

0

%

Other

 

 

(3

%)

 

 

(3

%)

Deferred tax asset valuation allowance

 

 

(4

%)

 

 

0

%

Effective income tax rate

 

 

20

%

 

 

24

%

 

Devon estimates its annual effective income tax rate to record its quarterly 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 quarter in which they occur.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) became law on March 27, 2020. The CARES Act allows net operating losses generated in taxable years beginning after December 31, 2017 and before January 1, 2021 to be carried back five years to offset taxable income and generate a refund. Devon intends to carry net operating losses generated in 2019 and 2020 back to 2014 and 2015, respectively. As a result, Devon recorded a $96 million income tax benefit in Q1 2020, and expects to record an additional $9 million income tax benefit by the end of the year.

Throughout 2019, Devon maintained a valuation allowance against certain deferred tax assets, including certain tax credits and state net operating losses. Since then, reduced demand from the COVID-19 pandemic has caused an unprecedented downturn in the commodity price environment. As a result, Devon recorded significant impairments during the first quarter of 2020 and is now in a net deferred tax asset position. Devon reassessed its position and recorded a 100% valuation allowance against all net deferred tax assets as of March 31, 2020, increasing its valuation allowance by $108 million.

 

Included in “other” in the table above is the impact of increasing Devon’s unrecognized tax benefits by approximately $34 million during the first quarter of 2020.

v3.20.1
Net Earnings (Loss) Per Share from Continuing Operations
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Net Earnings (Loss) Per Share from Continuing Operations

8.

Net Earnings (Loss) Per Share from Continuing Operations

The following table reconciles net earnings (loss) from continuing operations and weighted-average common shares outstanding used in the calculations of basic and diluted net earnings (loss) per share from continuing operations.

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net loss from continuing operations:

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$

(1,691

)

 

$

(378

)

Attributable to participating securities

 

 

(1

)

 

 

 

Basic and diluted loss from continuing operations

 

$

(1,692

)

 

$

(378

)

Common shares:

 

 

 

 

 

 

 

 

Common shares outstanding - total

 

 

383

 

 

 

434

 

Attributable to participating securities

 

 

(6

)

 

 

(6

)

Common shares outstanding - basic and diluted

 

 

377

 

 

 

428

 

Net loss per share from continuing operations:

 

 

 

 

 

 

 

 

Basic

 

$

(4.48

)

 

$

(0.89

)

Diluted

 

$

(4.48

)

 

$

(0.89

)

Antidilutive options (1)

 

 

 

 

 

1

 

 

(1)

Amounts represent options to purchase shares of Devon’s common stock that are excluded from the diluted net earnings per share calculations because the options are antidilutive.

v3.20.1
Other Comprehensive Earnings (Loss)
3 Months Ended
Mar. 31, 2020
Other Comprehensive Income Loss Net Of Tax Period Increase Decrease [Abstract]  
Other Comprehensive Earnings (Loss)

 

9.

Other Comprehensive Earnings (Loss)

Components of other comprehensive earnings (loss) consist of the following:

 

 

Three Months Ended March