DEVON ENERGY CORP/DE, 10-Q filed on 11/7/2018
Quarterly Report
v3.10.0.1
Document And Entity Information - shares
shares in Millions
9 Months Ended
Sep. 30, 2018
Oct. 17, 2018
Document And Entity Information [Abstract]    
Document Type 10-Q  
Document Period End Date Sep. 30, 2018  
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 2018  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Document Fiscal Period Focus Q3  
Entity Common Stock, Shares Outstanding   468.2
v3.10.0.1
Consolidated Comprehensive Statements Of Earnings - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Upstream revenues $ 1,332 $ 1,101 $ 3,720 $ 3,974
Total revenues 2,579 1,933 7,026 6,498
Production expenses 554 448 1,669 1,360
Exploration expenses 32 57 133 209
Depreciation, depletion and amortization 416 370 1,235 1,139
Asset impairments 2   156  
Asset dispositions (6) (170) 5 (200)
General and administrative expenses 147 170 499 546
Financing costs, net 75 78 524 238
Restructuring and transaction costs 11   105  
Other expenses (31) (70) 14 (92)
Total expenses 2,417 1,726 7,590 5,771
Earnings (loss) from continuing operations before income taxes 162 207 (564) 727
Income tax expense (benefit) (138) 13 (179) 13
Net earnings (loss) from continuing operations 300 194 (385) 714
Net earnings from discontinued operations, net of income tax expense 2,263 18 2,460 60
Net earnings 2,563 212 2,075 774
Net earnings attributable to noncontrolling interests 26 19 160 59
Net earnings attributable to Devon $ 2,537 $ 193 $ 1,915 $ 715
Basic net earnings (loss) per share:        
Basic earnings (loss) from continuing operations per share $ 0.61 $ 0.37 $ (0.76) $ 1.36
Basic earnings from discontinued operations per share 4.56   4.50  
Basic net earnings per share 5.17 0.37 3.74 1.36
Diluted net earnings (loss) per share:        
Diluted earnings (loss) from continuing operations per share 0.61 0.37 (0.76) 1.35
Diluted earnings from discontinued operations per share 4.53   4.47  
Diluted net earnings per share $ 5.14 $ 0.37 $ 3.71 $ 1.35
Comprehensive earnings (loss):        
Net earnings $ 2,563 $ 212 $ 2,075 $ 774
Other comprehensive earnings (loss), net of tax:        
Foreign currency translation 35 42 (47) 78
Pension and postretirement plans 36 5 43 14
Other comprehensive earnings (loss), net of tax 71 47 (4) 92
Comprehensive earnings 2,634 259 2,071 866
Comprehensive earnings attributable to noncontrolling interests 26 19 160 59
Comprehensive earnings attributable to Devon 2,608 240 1,911 807
Marketing [Member]        
Revenues 1,247 832 3,306 2,524
Expenses $ 1,217 $ 843 $ 3,250 $ 2,571
v3.10.0.1
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Cash flows from operating activities:        
Net earnings $ 2,563 $ 212 $ 2,075 $ 774
Adjustments to reconcile net earnings to net cash from operating activities:        
Earnings from discontinued operations, net of tax (2,263) (18) (2,460) (60)
Depreciation, depletion and amortization 416 370 1,235 1,139
Asset impairments 2   156  
Leasehold impairments 15 16 76 80
Accretion on discounted liabilities 15 15 46 47
Total (gains) losses on commodity derivatives 276 144 814 (214)
Cash settlements on commodity derivatives (91) 24 (211) 43
(Gains) losses on asset dispositions (6) (170) 5 (200)
Deferred income tax benefit (114) (25) (132) (57)
Share-based compensation 31 33 127 114
Early retirement of debt     312  
Total (gains) losses on foreign exchange (28) (74) 53 (138)
Settlements of intercompany foreign denominated assets/liabilities     (243) 10
Other 42 (14) (8) (3)
Changes in assets and liabilities, net (51) (12) (159) 121
Net cash from operating activities - continuing operations 807 501 1,686 1,656
Cash flows from investing activities:        
Capital expenditures (598) (467) (1,851) (1,298)
Acquisitions of property and equipment (19) (6) (35) (39)
Divestitures of property and equipment 89 280 696 387
Net cash from investing activities - continuing operations (528) (193) (1,190) (950)
Cash flows from financing activities:        
Repayments of long-term debt principal (21)   (828)  
Early retirement of debt     (304)  
Repurchases of common stock (1,698)   (2,197)  
Dividends paid on common stock (38) (30) (112) (95)
Shares exchanged for tax withholdings (3) (1) (47) (57)
Net cash from financing activities - continuing operations (1,760) (31) (3,488) (152)
Effect of exchange rate changes on cash:        
Settlements of intercompany foreign denominated assets/liabilities     243 (10)
Other 10 12 (21) 22
Total effect of exchange rate changes on cash - continuing operations 10 12 222 12
Net change in cash, cash equivalents and restricted cash of continuing operations (1,471) 289 (2,770) 566
Cash flows from discontinued operations:        
Operating activities 46 200 476 528
Investing activities 2,950 (191) 2,548 (475)
Financing activities 71 187 183 276
Net change in cash, cash equivalents and restricted cash of discontinued operations 3,067 196 3,207 329
Net change in cash, cash equivalents and restricted cash 1,596 485 437 895
Cash, cash equivalents and restricted cash at beginning of period 1,525 2,369 2,684 1,959
Cash, cash equivalents and restricted cash at end of period 3,121 2,854 3,121 2,854
Reconciliation of cash, cash equivalents and restricted cash:        
Cash and cash equivalents 3,102 2,639 3,102 2,639
Restricted cash included in other current assets 19 73 19 73
Cash and cash equivalents included in current assets held for sale   142   142
Cash, cash equivalents and restricted cash at end of period $ 3,121 $ 2,854 $ 3,121 $ 2,854
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Sep. 30, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 3,102 $ 2,642
Accounts receivable 1,226 989
Current assets held for sale   760
Other current assets 429 400
Total current assets 4,757 4,791
Oil and gas property and equipment, based on successful efforts accounting, net 13,056 13,318
Other property and equipment, net 1,146 1,266
Total property and equipment, net 14,202 14,584
Goodwill 841 841
Other long-term assets 372 296
Long-term assets held for sale   9,729
Total assets 20,172 30,241
Current liabilities:    
Accounts payable 777 633
Revenues and royalties payable 947 748
Short-term debt [1] 257 115
Current liabilities held for sale   991
Other current liabilities 1,243 828
Total current liabilities 3,224 3,315
Long-term debt 5,791 6,749
Asset retirement obligations 1,103 1,099
Other long-term liabilities 613 549
Long-term liabilities held for sale   3,936
Deferred income taxes 543 489
Equity:    
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 474 million and 525 million shares in 2018 and 2017, respectively 47 53
Additional paid-in capital 5,217 7,333
Retained earnings 2,505 702
Accumulated other comprehensive earnings 1,164 1,166
Treasury stock, at cost, 0.9 million shares in 2018 (35)  
Total stockholders’ equity attributable to Devon 8,898 9,254
Noncontrolling interests   4,850
Total equity 8,898 14,104
Total liabilities and equity $ 20,172 $ 30,241
[1] As of September 30, 2018, short-term debt consists of Devon’s $95 million of 2.25% senior notes due December 15, 2018 and $162 million of 6.30% senior notes due January 15, 2019.
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 2018
Dec. 31, 2017
Statement Of Financial Position [Abstract]    
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) 474,000,000 525,000,000
Treasury stock, shares 900,000  
v3.10.0.1
Consolidated Statements Of Equity - USD ($)
shares in Millions, $ in Millions
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings (Accumulated Deficit) [Member]
Accumulated Other Comprehensive Earnings [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 774     715     59
Other comprehensive earnings (loss), net of tax 92       92    
Restricted stock grants, net of cancellations, value 1 $ 1          
Restricted stock grants, net of cancellations, shares   1          
Common stock repurchased (43)         $ (43)  
Common stock retired     (43)     43  
Common stock dividends (95)     (95)      
Share-based compensation 96   96        
Share-based compensation, shares   1          
Subsidiary equity transactions 557   12       545
Distributions to noncontrolling interests (247)           (247)
Balance at Sep. 30, 2017 13,857 $ 53 7,302 551 1,146   4,805
Balance, shares at Sep. 30, 2017   525          
Balance at Dec. 31, 2017 14,104 $ 53 7,333 702 1,166   4,850
Balance, shares at Dec. 31, 2017   525          
Net earnings 2,075     1,915     160
Other comprehensive earnings (loss), net of tax (4)       (4)    
Restricted stock grants, net of cancellations, shares   3          
Common stock repurchased (2,271)         (2,271)  
Common stock retired   $ (6) (2,230)     2,236  
Common stock retired, shares   (55)          
Common stock dividends (112)     (112)      
Share-based compensation 114   114        
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)
Balance at Sep. 30, 2018 $ 8,898 $ 47 $ 5,217 $ 2,505 $ 1,164 $ (35)  
Balance, shares at Sep. 30, 2018   474          
v3.10.0.1
Summary Of Significant Accounting Policies
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies

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 2017 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 and nine-month periods ended September 30, 2018 and 2017 and Devon’s financial position as of September 30, 2018. As further discussed in Note 3, during the second quarter of 2018, Devon announced the sale of its interests in the General Partner and EnLink, which closed on July 18, 2018. Activity relating to the General Partner and EnLink are classified as discontinued operations within Devon’s consolidated comprehensive statements of earnings and consolidated statements of cash flows. The associated assets and liabilities of EnLink and the General Partner are presented as assets and liabilities held for sale on the consolidated balance sheets.

Recently Adopted Accounting Standards

 

In January 2018, Devon adopted ASU 2014-09, Revenue from Contracts with Customers (ASC 606), using the modified retrospective method. See Note 2 for further discussion regarding Devon’s adoption of the revenue recognition standard.

 

In January 2018, Devon adopted ASU 2017-07, Compensation – Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires entities to present the service cost component of net periodic benefit cost in the same line item as other employee compensation costs. Only the service cost component of net periodic benefit cost is eligible for capitalization. As a result of the adoption of this ASU, consolidated statements of earnings presentation changes were applied retrospectively, while service cost component capitalization was applied prospectively.

 

In January 2018, Devon adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This ASU requires an entity to show the changes in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents on the statement of cash flows and to provide a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet when the cash, cash equivalents, restricted cash, and restricted cash equivalents are presented in more than one line item on the balance sheet. As a result of the adoption of this ASU, Devon made changes to the statement of cash flows to include the required presentation and reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents retrospectively. Other than presentation, adoption of this ASU did not have a material impact on Devon’s consolidated statements of cash flows.

Issued Accounting Standards Not Yet Adopted

The FASB issued ASU 2016-02, Leases (Topic 842). This ASU will supersede the lease requirements in Topic 840, Leases. Its objective is to increase transparency and comparability among organizations. This ASU provides guidance requiring lessees to recognize most leases on their balance sheet. Short-term leases can continue being accounted for off balance sheet based on a policy election. Lessor accounting does not significantly change, except for some changes made to align with new revenue recognition requirements. This ASU is effective for Devon beginning January 1, 2019. Early adoption is permitted, but Devon does not plan to early adopt. The guidance will be applied using a modified retrospective transition method at the beginning of the earliest period presented in the financial statements. Entities will be allowed to continue to apply the legacy guidance in Topic 840, including its disclosure requirements, in the comparative periods presented in the year the new leases standard is adopted.

Devon plans to elect the practical expedients provided in the standard that allow entities to not reassess under the new standard our prior conclusions about lease identification and classification related to contracts that commenced prior to adoption and allows the new guidance to be applied prospectively to all new or modified land easements and rights-of-way. Devon also plans to elect a policy to not recognize right-of-use assets and lease liabilities related to short-term leases.

Devon has determined its portfolio of leased assets and is reviewing all related contracts to determine the impact the adoption will have on its consolidated financial statements and related disclosures. Devon anticipates recognizing right-of-use assets and lease liabilities for certain commitments related to real estate, drilling rigs and other equipment related to the exploration and development of oil and gas. Devon has designed processes and controls and has implemented a technology solution needed to comply with the requirements of this ASU. The adoption will increase asset and liability balances on the consolidated balance sheets due to the required recognition of right-of-use assets and corresponding lease liabilities.

The FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU will expand hedge accounting for nonfinancial and financial risk components and amend measurement methodologies to more closely align hedge accounting with a company’s risk management activities. The guidance also eliminates the requirement to separately measure and report hedge ineffectiveness. This ASU is effective for annual and interim periods beginning January 1, 2019, with early adoption permitted in 2018. This ASU only applies to entities that elect hedge accounting, which Devon has not for derivative financial instruments. Devon continues to evaluate the provisions of this ASU and the impact it may have on its consolidated financial statements if hedge accounting were elected in the future.   

 

The FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220). This ASU allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Reform Legislation. The ASU is effective for fiscal years beginning January 1, 2019, including interim periods within those fiscal years and allows for early adoption in any interim period after issuance of the update. Devon is currently assessing the impact this ASU will have on its consolidated financial statements.

The FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement. This ASU will eliminate, add and modify certain disclosure requirements for fair value measurement. The ASU is effective for annual and interim periods beginning January 1, 2020, with early adoption permitted for either the entire standard or only the provisions that eliminate or modify requirements. The ASU requires the additional disclosure requirements to be adopted using a prospective approach and all other amendments are required to be adopted using a retrospective approach. Devon is currently evaluating the provisions of this ASU and assessing the impact it may have on its disclosures in the notes to the consolidated financial statements. 

The FASB issued ASU 2018-14, Compensation, Retirement Benefits and Defined Benefit Plans (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU will eliminate and add certain disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. This ASU is effective for annual and interim periods beginning January 1, 2021, with early adoption permitted. The ASU is required to be adopted using a retrospective approach. Devon is currently evaluating the provisions of this ASU and assessing the impact it may have on its disclosures in the notes to the consolidated financial statements. 

The FASB issued ASU 2018-15, Intangibles, Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This ASU will require a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. This ASU is effective for annual and interim periods beginning January 1, 2020, with early adoption permitted. Entities have the option to adopt the ASU using either a retrospective approach or a prospective approach applied to all implementation costs incurred after the date of adoption. Devon is currently evaluating the provisions of this ASU and assessing the impact it may have on its consolidated financial statements.

The SEC released Final Rule Release No. 33-10532, Disclosure Update and Simplification, which amends various SEC disclosure requirements determined to be redundant, duplicative, overlapping, outdated or superseded as part of the SEC’s ongoing disclosure effectiveness initiative. The rule is effective November 5, 2018. The rule amends numerous SEC rules, items and forms covering a diverse group of topics. As the changes are generally expected to reduce or eliminate disclosures, Devon is currently evaluating and assessing the impact it may have on its disclosures.

 

v3.10.0.1
Revenue Recognition
9 Months Ended
Sep. 30, 2018
Revenue From Contract With Customer [Abstract]  
Revenue Recognition

2.

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 has applied the standard to all existing contracts. 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 impact of adoption in the current period results is as follows:

 

 

Three Months Ended September 30, 2018

 

 

Nine Months Ended September 30, 2018

 

 

 

Under ASC

606

 

 

Under ASC

605

 

 

Increase/

(Decrease)

 

 

Under ASC

606

 

 

Under ASC

605

 

 

Increase/

(Decrease)

 

Upstream revenues

 

$

1,332

 

 

$

1,268

 

 

$

64

 

 

$

3,720

 

 

$

3,529

 

 

$

191

 

Marketing revenues

 

 

1,247

 

 

 

1,247

 

 

 

 

 

 

3,306

 

 

 

3,306

 

 

 

 

Total impacted revenues

 

$

2,579

 

 

$

2,515

 

 

$

64

 

 

$

7,026

 

 

$

6,835

 

 

$

191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production expenses

 

$

554

 

 

$

490

 

 

$

64

 

 

$

1,669

 

 

$

1,478

 

 

$

191

 

Marketing expenses

 

 

1,217

 

 

 

1,217

 

 

 

 

 

 

3,250

 

 

 

3,250

 

 

 

 

Total impacted expenses

 

$

1,771

 

 

$

1,707

 

 

$

64

 

 

$

4,919

 

 

$

4,728

 

 

$

191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing

   operations before income taxes

 

$

162

 

 

$

162

 

 

$

 

 

$

(564

)

 

$

(564

)

 

$

 

Changes to upstream revenues and production expenses are 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 is 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 has changed the presentation of revenues and expenses for these agreements. Revenues related to these agreements are now 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 now presented as production expenses.

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 comprehensive statements of 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 comprehensive statements of 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 comprehensive statements of 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 comprehensive statements of 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

Since 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 applies the practical expedient in ASC 606 that allows recognition of revenue in the amount to which there is a right to invoice and prevents the need to estimate a transaction price for each contract and allocating that transaction price to the performance obligations within each contract. Devon recognizes revenue for sales at the time the natural gas, NGLs or crude oil 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 are deferred and recognized when all revenue recognition criteria are met. Contract liabilities generated from such deferred revenue are not considered material as of September 30, 2018. Devon’s product sales and marketing contracts do not give rise to contract assets under ASC 606.


Disaggregation of Revenue

 

Revenue from oil, gas and NGL sales and marketing revenues represent revenue from contracts with customers. The following table presents revenue from contracts with customers that are disaggregated based on the type of good.

 

 

Three Months Ended September 30, 2018

 

 

Nine Months Ended September 30, 2018

 

 

 

U.S.

 

 

Canada

 

 

Total

 

 

U.S.

 

 

Canada

 

 

Total

 

Oil

 

$

794

 

 

$

298

 

 

$

1,092

 

 

$

2,279

 

 

$

841

 

 

$

3,120

 

Gas

 

 

210

 

 

 

 

 

 

210

 

 

 

672

 

 

 

 

 

 

672

 

NGL

 

 

306

 

 

 

 

 

 

306

 

 

 

742

 

 

 

 

 

 

742

 

Oil, gas and NGL revenues from

   contracts with customers

 

 

1,310

 

 

 

298

 

 

 

1,608

 

 

 

3,693

 

 

 

841

 

 

 

4,534

 

Oil, gas and NGL derivatives

 

 

(376

)

 

 

100

 

 

 

(276

)

 

 

(976

)

 

 

162

 

 

 

(814

)

Upstream revenues

 

 

934

 

 

 

398

 

 

 

1,332

 

 

 

2,717

 

 

 

1,003

 

 

 

3,720

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

 

750

 

 

 

25

 

 

 

775

 

 

 

2,047

 

 

 

66

 

 

 

2,113

 

Gas

 

 

191

 

 

 

 

 

 

191

 

 

 

506

 

 

 

 

 

 

506

 

NGL

 

 

281

 

 

 

 

 

 

281

 

 

 

687

 

 

 

 

 

 

687

 

Total marketing revenues from

   contracts with customers

 

 

1,222

 

 

 

25

 

 

 

1,247

 

 

 

3,240

 

 

 

66

 

 

 

3,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

2,156

 

 

$

423

 

 

$

2,579

 

 

$

5,957

 

 

$

1,069

 

 

$

7,026

 

 

v3.10.0.1
Divestitures
9 Months Ended
Sep. 30, 2018
Business Combinations [Abstract]  
Divestitures

3.

Divestitures

2018 Asset Divestitures

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 program to $4.0 billion, which is discussed further in Note 19. Additional information on these discontinued operations can be found in Note 20.

Additionally, during the third quarter of 2018, Devon entered into definitive agreements to sell non-core Delaware Basin and Barnett Shale assets for approximately $320 million in the aggregate, before purchase price adjustments. Devon expects to recognize a gain in the consolidated statements of earnings upon closing the transactions in the fourth quarter of 2018.

Subsequent to September 30, 2018, Devon reached an agreement to sell additional non-core assets for $100 million, before purchase price adjustments. The transaction is expected to close in the first quarter of 2019. Devon is currently evaluating the impact this transaction will have on its consolidated financial statements.

During the second quarter of 2018, Devon sold a portion of its Barnett Shale assets, primarily located in Johnson County for $553 million ($481 million after customary purchase price adjustments). Estimated proved reserves associated with these assets are approximately 10% of total proved reserves. The transaction resulted in an adjustment to Devon’s capitalized costs with no gain recognized in the consolidated statements of earnings. In conjunction with the divestiture, Devon settled certain gas processing contracts and recognized an approximately $40 million settlement expense, which is included in asset dispositions within the consolidated statements of earnings.

2017 Asset Divestitures

Through September 30, 2017, Devon completed divestiture transactions with proceeds totaling approximately $400 million, before purchase price adjustments and recognized a net gain of approximately $200 million in the consolidated statements of earnings. Estimated proved reserves associated with these assets were less than 1% of total proved reserves.

v3.10.0.1
Derivative Financial Instruments
9 Months Ended
Sep. 30, 2018
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

4.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 and foreign exchange forward contracts to manage its exposure to fluctuations in the U.S. and Canadian dollar exchange rates. As of September 30, 2018, Devon did not have any open foreign exchange 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.

Commodity Derivatives

As of September 30, 2018, 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)

 

Q4 2018

 

 

93,800

 

 

$

58.95

 

 

 

110,200

 

 

$

53.95

 

 

$

64.49

 

Q1-Q4 2019

 

 

57,130

 

 

$

59.73

 

 

 

79,904

 

 

$

54.23

 

 

$

64.23

 

Q1-Q4 2020

 

 

1,740

 

 

$

62.88

 

 

 

1,989

 

 

$

57.86

 

 

$

67.86

 

 

 

 

Oil Basis Swaps

 

 

Oil Basis Collars

 

Period

 

Index

 

Volume

(Bbls/d)

 

 

Weighted Average

Differential to WTI

($/Bbl)

 

 

Volume

(Bbls/d)

 

 

Weighted

Average Floor

Differential to WTI ($/Bbl)

 

 

Weighted

Average Ceiling

Differential to WTI ($/Bbl)

 

Q4 2018

 

Midland Sweet

 

 

23,000

 

 

$

(1.02

)

 

 

 

 

$

 

 

$

 

Q4 2018

 

Argus LLS

 

 

12,000

 

 

$

3.95

 

 

 

 

 

$

 

 

$

 

Q4 2018

 

Argus MEH

 

 

16,000

 

 

$

2.84

 

 

 

 

 

$

 

 

$

 

Q4 2018

 

NYMEX Roll

 

 

27,000

 

 

$

0.58

 

 

 

 

 

$

 

 

$

 

Q4 2018

 

Western Canadian Select

 

 

62,109

 

 

$

(16.41

)

 

 

1,326

 

 

$

(15.50

)

 

$

(13.93

)

Q1-Q4 2019

 

Midland Sweet

 

 

28,000

 

 

$

(0.46

)

 

 

 

 

$

 

 

$

 

Q1-Q4 2019

 

Argus LLS

 

 

14,000

 

 

$

4.82

 

 

 

 

 

$

 

 

$

 

Q1-Q4 2019

 

Argus MEH

 

 

16,000

 

 

$

2.84

 

 

 

 

 

$

 

 

$

 

Q1-Q4 2019

 

NYMEX Roll

 

 

38,000

 

 

$

0.45

 

 

 

 

 

$

 

 

$

 

Q1-Q4 2019

 

Western Canadian Select

 

 

10,647

 

 

$

(23.39

)

 

 

 

 

$

 

 

$

 

Q1-Q4 2020

 

NYMEX Roll

 

 

38,000

 

 

$

0.31

 

 

 

 

 

$

 

 

$

 

 

As of September 30, 2018, 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)

 

Q4 2018

 

 

304,000

 

 

$

2.92

 

 

 

267,000

 

 

$

2.76

 

 

$

3.09

 

Q1-Q4 2019

 

 

215,129

 

 

$

2.81

 

 

 

187,775

 

 

$

2.65

 

 

$

3.03

 

Q1-Q4 2020

 

 

6,589

 

 

$

2.81

 

 

 

7,086

 

 

$

2.65

 

 

$

2.95

 

 

 

 

Natural Gas Basis Swaps

 

Period

 

Index

 

Volume

(MMBtu/d)

 

 

Weighted Average

Differential to

Henry Hub

($/MMBtu)

 

Q4 2018

 

Panhandle Eastern Pipe Line

 

 

120,000

 

 

$

(0.51)

 

Q4 2018

 

El Paso Natural Gas

 

 

100,000

 

 

$

(1.25)

 

Q4 2018

 

Houston Ship Channel

 

 

110,000

 

 

$

0.01

 

Q4 2018

 

Transco Zone 4

 

 

30,000

 

 

$

(0.03)

 

Q1-Q4 2019

 

Panhandle Eastern Pipe Line

 

 

74,384

 

 

$

(0.75)

 

Q1-Q4 2019

 

El Paso Natural Gas

 

 

130,000

 

 

$

(1.46)

 

Q1-Q4 2019

 

Houston Ship Channel

 

 

122,637

 

 

$

 

Q1-Q4 2019

 

Transco Zone 4

 

 

7,397

 

 

$

(0.03)

 

 

As of September 30, 2018, 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)

 

Q4 2018

 

Ethane

 

 

6,000

 

 

$

11.73

 

Q4 2018

 

Natural Gasoline

 

 

6,500

 

 

$

56.13

 

Q4 2018

 

Normal Butane

 

 

7,000

 

 

$

38.69

 

Q4 2018

 

Propane

 

 

12,000

 

 

$

33.72

 

Q1-Q4 2019

 

Ethane

 

 

1,000

 

 

$

11.55

 

Q1-Q4 2019

 

Natural Gasoline

 

 

4,500

 

 

$

55.93

 

Q1-Q4 2019

 

Normal Butane

 

 

4,000

 

 

$

33.69

 

Q1-Q4 2019

 

Propane

 

 

8,500

 

 

$

30.01

 

 

Interest Rate Derivatives

As of September 30, 2018, Devon had the following open interest rate derivative position:

 

Notional

 

 

Rate Received

 

 

Rate Paid

 

Expiration

$

100

 

 

1.76%

 

 

Three Month LIBOR

 

January 2019

 

Financial Statement Presentation

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

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

Commodity derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream revenues

 

$

(276

)

 

$

(144

)

 

$

(814

)

 

$

214

 

 

Marketing revenues

 

 

 

 

 

 

 

 

(1

)

 

 

3

 

 

Interest rate derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

(4

)

 

 

65