DEVON ENERGY CORP/DE, 10-Q filed on 8/5/2020
Quarterly Report
v3.20.2
Document And Entity Information - shares
shares in Millions
6 Months Ended
Jun. 30, 2020
Jul. 22, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Period End Date Jun. 30, 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 Q2  
Entity Common Stock, Shares Outstanding   382.8
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 $0.10 per share  
Security Exchange Name NYSE  
Entity Incorporation, State or Country Code DE  
Document Quarterly Report true  
Document Transition Report false  
v3.20.2
Consolidated Statements of Comprehensive Earnings - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenues $ 755 $ 1,666 $ 2,122 $ 3,350
Oil, gas and NGL derivatives (361) 140 359 (465)
Total revenues 394 1,806 2,481 2,885
Production expenses 263 296 581 579
Exploration expenses 12 7 124 11
Depreciation, depletion and amortization 299 374 700 734
Asset impairments     2,666  
Asset dispositions   (2)   (47)
General and administrative expenses 79 114 181 249
Financing costs, net 69 66 134 126
Restructuring and transaction costs   12   63
Other expenses 13 7 (35) (15)
Total expenses 1,074 1,587 5,268 3,163
Earnings (loss) from continuing operations before income taxes (680) 219 (2,787) (278)
Income tax expense (benefit) (3) 68 (420) (51)
Net earnings (loss) from continuing operations (677) 151 (2,367) (227)
Net earnings (loss) from discontinued operations, net of income taxes 9 344 (116) 405
Net earnings (loss) (668) 495 (2,483) 178
Net earnings attributable to noncontrolling interests 2   3  
Net earnings (loss) attributable to Devon $ (670) $ 495 $ (2,486) $ 178
Basic net earnings (loss) per share:        
Basic earnings (loss) from continuing operations per share $ (1.80) $ 0.37 $ (6.29) $ (0.54)
Basic earnings (loss) from discontinued operations per share 0.02 0.83 (0.31) 0.96
Basic net earnings (loss) per share (1.78) 1.20 (6.60) 0.42
Diluted net earnings (loss) per share:        
Diluted earnings (loss) from continuing operations per share (1.80) 0.37 (6.29) (0.54)
Diluted earnings (loss) from discontinued operations per share 0.02 0.82 (0.31) 0.96
Diluted net earnings (loss) per share $ (1.78) $ 1.19 $ (6.60) $ 0.42
Comprehensive earnings (loss):        
Net earnings (loss) $ (668) $ 495 $ (2,483) $ 178
Other comprehensive earnings (loss), net of tax:        
Foreign currency translation, discontinued operations   43   78
Release of Canadian cumulative translation adjustment, discontinued operations [1]   (1,237)   (1,237)
Pension and postretirement plans 1 13 2 15
Other comprehensive earnings (loss), net of tax 1 (1,181) 2 (1,144)
Comprehensive loss (667) (686) (2,481) (966)
Comprehensive earnings attributable to noncontrolling interests 2   3  
Comprehensive loss attributable to Devon (669) (686) (2,484) (966)
Oil, Gas and NGL Sales [Member]        
Revenues 424 936 1,231 1,855
Marketing and Midstream Revenues [Member]        
Revenues 331 730 891 1,495
Marketing and Midstream Expenses [Member]        
Expenses $ 339 $ 713 $ 917 $ 1,463
[1] 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 17 for additional details.
v3.20.2
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities:        
Net earnings (loss) $ (668) $ 495 $ (2,483) $ 178
Adjustments to reconcile net earnings (loss) to net cash from operating activities:        
Net (earnings) loss from discontinued operations, net of income taxes (9) (344) 116 (405)
Depreciation, depletion and amortization 299 374 700 734
Asset impairments     2,666  
Leasehold impairments 3 1 113 2
Accretion on discounted liabilities 8 8 16 17
Total (gains) losses on commodity derivatives 361 (140) (359) 465
Cash settlements on commodity derivatives 232 23 333 54
Gains on asset dispositions   (2)   (47)
Deferred income tax expense (benefit)   65 (311) (50)
Share-based compensation 19 25 39 69
Other 4 2 4 (13)
Changes in assets and liabilities, net (99) (75) (155) (136)
Net cash from operating activities - continuing operations 150 432 679 868
Cash flows from investing activities:        
Capital expenditures (307) (486) (732) (976)
Acquisitions of property and equipment (1) (13) (5) (23)
Divestitures of property and equipment 3 28 28 338
Net cash from investing activities - continuing operations (305) (471) (709) (661)
Cash flows from financing activities:        
Repayments of long-term debt       (162)
Repurchases of common stock   (187) (38) (1,185)
Dividends paid on common stock (42) (37) (76) (71)
Contributions from noncontrolling interests 6   11  
Distributions to noncontrolling interests (3)   (6)  
Shares exchanged for tax withholdings and other   (3) (17) (23)
Net cash from financing activities - continuing operations (39) (227) (126) (1,441)
Net change in cash, cash equivalents and restricted cash of continuing operations (194) (266) (156) (1,234)
Cash flows from discontinued operations:        
Operating activities (43) 191 (174) 131
Investing activities 171 2,536 170 2,478
Financing activities 0 0 0 (7)
Effect of exchange rate changes on cash 8 37 (15) 39
Net change in cash, cash equivalents and restricted cash of discontinued operations 136 2,764 (19) 2,641
Net change in cash, cash equivalents and restricted cash (58) 2,498 (175) 1,407
Cash, cash equivalents and restricted cash at beginning of period 1,727 1,355 1,844 2,446
Cash, cash equivalents and restricted cash at end of period 1,669 3,853 1,669 3,853
Reconciliation of cash, cash equivalents and restricted cash:        
Cash and cash equivalents 1,474 3,470 1,474 3,470
Cash restricted for discontinued operations 195 370 195 370
Restricted cash included in other current assets   13   13
Cash, cash equivalents and restricted cash at end of period $ 1,669 $ 3,853 $ 1,669 $ 3,853
v3.20.2
Consolidated Balance Sheets - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
ASSETS    
Cash and cash equivalents $ 1,474 $ 1,464
Cash restricted for discontinued operations 195 380
Accounts receivable 515 832
Current assets associated with discontinued operations 748 896
Other current assets 446 279
Total current assets 3,378 3,851
Oil and gas property and equipment, based on successful efforts accounting, net 4,673 7,558
Other property and equipment, net ($96 million and $80 million related to CDM in 2020 and 2019, respectively) [1] 1,013 1,035
Total property and equipment, net 5,686 8,593
Goodwill 753 753
Right-of-use assets 231 243
Other long-term assets 227 196
Long-term assets associated with discontinued operations 82 81
Total assets 10,357 13,717
LIABILITIES AND EQUITY    
Accounts payable 309 428
Revenues and royalties payable 473 730
Current liabilities associated with discontinued operations 441 459
Other current liabilities 229 310
Total current liabilities 1,452 1,927
Long-term debt 4,296 4,294
Lease liabilities 245 244
Asset retirement obligations 391 380
Other long-term liabilities 458 426
Long-term liabilities associated with discontinued operations 162 185
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 2,720 2,735
Retained earnings 586 3,148
Accumulated other comprehensive loss (117) (119)
Total stockholders’ equity attributable to Devon 3,227 5,802
Noncontrolling interests 126 118
Total equity 3,353 5,920
Total liabilities and equity $ 10,357 $ 13,717
[1] $96 million and $80 million related to CDM in 2020 and 2019, respectively.
v3.20.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Other property and equipment, net [1] $ 1,013 $ 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 $ 96 $ 80
[1] $96 million and $80 million related to CDM in 2020 and 2019, respectively.
v3.20.2
Consolidated Statements Of Equity - USD ($)
shares in Millions, $ in Millions
Total
Effect of Adoption of Lease Accounting [Member]
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings (Accumulated Deficit) [Member]
Retained Earnings (Accumulated Deficit) [Member]
Effect of Adoption of Lease Accounting [Member]
Other Comprehensive Earnings (Loss) [Member]
Treasury Stock [Member]
Noncontrolling Interests [Member]
Balance at Dec. 31, 2018 $ 9,186 $ (19) $ 45 $ 4,486 $ 3,650 $ (19) $ 1,027 $ (22)  
Balance, shares at Dec. 31, 2018     450            
Net earnings (loss) 178       178        
Other comprehensive earnings (loss), net of tax (1,144)           (1,144)    
Restricted stock grants, net of cancellations, shares     3            
Common stock repurchased (1,206)             (1,206)  
Common stock retired     $ (4) (1,204)       1,208  
Common stock retired, shares     (43)            
Common stock dividends (71)       (71)        
Share-based compensation 70     70          
Balance at Jun. 30, 2019 6,994   $ 41 3,352 3,738   (117) (20)  
Balance, shares at Jun. 30, 2019     410            
Balance at Mar. 31, 2019 7,857   $ 42 3,518 3,280   1,064 (47)  
Balance, shares at Mar. 31, 2019     417            
Net earnings (loss) 495       495        
Other comprehensive earnings (loss), net of tax (1,181)           (1,181)    
Common stock repurchased (164)             (164)  
Common stock retired     $ (1) (190)       191  
Common stock retired, shares     (7)            
Common stock dividends (37)       (37)        
Share-based compensation 24     24          
Balance at Jun. 30, 2019 6,994   $ 41 3,352 3,738   (117) (20)  
Balance, shares at Jun. 30, 2019     410            
Balance at Dec. 31, 2019 5,920   $ 38 2,735 3,148   (119)   $ 118
Balance, shares at Dec. 31, 2019     382            
Net earnings (loss) (2,483)       (2,486)       3
Other comprehensive earnings (loss), net of tax 2           2    
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 (76)       (76)        
Share-based compensation 39     39          
Share-based compensation, shares     1            
Contributions from noncontrolling interests 11               11
Distributions to noncontrolling interests (6)               (6)
Balance at Jun. 30, 2020 3,353   $ 38 2,720 586   (117)   126
Balance, shares at Jun. 30, 2020     383            
Balance at Mar. 31, 2020 4,040   $ 38 2,701 1,298   (118)   121
Balance, shares at Mar. 31, 2020     383            
Net earnings (loss) (668)       (670)       2
Other comprehensive earnings (loss), net of tax 1           1    
Common stock dividends (42)       (42)        
Share-based compensation 19     19          
Contributions from noncontrolling interests 6               6
Distributions to noncontrolling interests (3)               (3)
Balance at Jun. 30, 2020 $ 3,353   $ 38 $ 2,720 $ 586   $ (117)   $ 126
Balance, shares at Jun. 30, 2020     383            
v3.20.2
Summary Of Significant Accounting Policies
6 Months Ended
Jun. 30, 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 and six-month periods ended June 30, 2020 and 2019 and Devon’s financial position as of June 30, 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 in the second quarter of 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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Oil

 

$

296

 

 

$

750

 

 

$

958

 

 

$

1,409

 

Gas

 

 

72

 

 

 

73

 

 

 

142

 

 

 

211

 

NGL

 

 

56

 

 

 

113

 

 

 

131

 

 

 

235

 

Oil, gas and NGL sales

 

 

424

 

 

 

936

 

 

 

1,231

 

 

 

1,855

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

 

140

 

 

 

394

 

 

 

469

 

 

 

750

 

Gas

 

 

79

 

 

 

172

 

 

 

171

 

 

 

390

 

NGL

 

 

110

 

 

 

164

 

 

 

247

 

 

 

355

 

Total marketing revenues

 

 

329

 

 

 

730

 

 

 

887

 

 

 

1,495

 

Midstream revenues

 

 

2

 

 

 

 

 

 

4

 

 

 

 

Marketing and midstream revenues

 

 

331

 

 

 

730

 

 

 

891

 

 

 

1,495

 

Total revenues from contracts with customers

 

$

755

 

 

$

1,666

 

 

$

2,122

 

 

$

3,350

 

 

 


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.

 

v3.20.2
Divestitures
6 Months Ended
Jun. 30, 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) in 2019. 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 is scheduled for October 1, 2020. Under the terms of the agreement, Devon received deposit funds of $170 million in April 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 six months 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.

v3.20.2
Derivative Financial Instruments
6 Months Ended
Jun. 30, 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 June 30, 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 June 30, 2020, Devon did not hold any cash collateral of its counterparties.

Commodity Derivatives

As of June 30, 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)

 

Q3-Q4 2020

 

 

87,750

 

 

$

36.65

 

 

 

43,500

 

 

$

50.96

 

 

$

60.96

 

Q1-Q4 2021

 

 

23,558

 

 

$

35.69

 

 

 

15,964

 

 

$

41.24

 

 

$

51.24

 

 

 

 

 

Oil Basis Swaps

 

Period

 

Index

 

Volume

(Bbls/d)

 

 

Weighted Average

Differential to WTI

($/Bbl)

 

Q3-Q4 2020

 

Argus MEH

 

 

52,500

 

 

$

0.42

 

Q3-Q4 2020

 

Midland Sweet

 

 

32,000

 

 

$

(1.23

)

Q3-Q4 2020

 

NYMEX Roll

 

 

54,000

 

 

$

0.38

 

Q1-Q4 2021

 

Midland Sweet

 

 

7,000

 

 

$

1.27

 

 

As of June 30, 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)

 

Q3-Q4 2020

 

 

59,150

 

 

$

2.69

 

 

 

180,000

 

 

$

1.96

 

 

$

2.45

 

Q1-Q4 2021

 

 

18,699

 

 

$

2.69

 

 

 

106,055

 

 

$

2.31

 

 

$

2.81

 

 

 

 

Natural Gas Basis Swaps

 

Period

 

Index

 

Volume

(MMBtu/d)

 

 

Weighted Average

Differential to

Henry Hub

($/MMBtu)

 

Q3-Q4 2020

 

Panhandle Eastern Pipe Line

 

 

30,000

 

 

$

(0.47

)

Q3-Q4 2020

 

El Paso Natural Gas

 

 

65,000

 

 

$

(0.78

)

Q3-Q4 2020

 

Houston Ship Channel

 

 

30,000

 

 

$

(0.02

)

Q1-Q4 2021

 

El Paso Natural Gas

 

 

35,000

 

 

$

(0.92

)

 

 

As of June 30, 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)

 

Q3-Q4 2020

 

Ethane

 

 

7,500

 

 

$

5.62

 

Q3-Q4 2020

 

Natural Gasoline

 

 

1,000

 

 

$

44.84

 

Q3-Q4 2020

 

Normal Butane

 

 

1,500

 

 

$

23.56

 

Q3-Q4 2020

 

Propane

 

 

4,500

 

 

$

25.18

 

 

Financial Statement Presentation

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

 

 

June 30, 2020

 

 

December 31, 2019

 

Commodity derivative assets:

 

 

 

 

 

 

 

 

Other current assets

 

$

95

 

 

$

49

 

Other long-term assets

 

 

6

 

 

 

1

 

Total derivative assets

 

$

101

 

 

$

50

 

Commodity derivative liabilities:

 

 

 

 

 

 

 

 

Other current liabilities

 

$

49

 

 

$

30

 

Other long-term liabilities

 

 

9

 

 

 

1

 

Total derivative liabilities

 

$

58

 

 

$

31

 

 

v3.20.2
Share-Based Compensation
6 Months Ended
Jun. 30, 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.

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

G&A

 

$

39

 

 

$

44

 

Exploration expenses

 

 

 

 

 

1

 

Restructuring and transaction costs

 

 

 

 

 

24

 

Total

 

$

39

 

 

$

69

 

Related income tax benefit

 

$

 

 

$

10

 

 

Under its approved long-term incentive plan, Devon granted share-based awards to certain employees in the first six 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

 

 

3,051

 

 

$

21.93

 

 

 

 

 

$

 

 

 

688

 

 

 

 

 

$

27.89

 

Vested

 

 

(1,847

)

 

$

29.26

 

 

 

(109

)

 

$

29.51

 

 

 

(455

)

 

 

 

 

$

52.56

 

Forfeited

 

 

(162

)

 

$

25.01

 

 

 

 

 

$

 

 

 

(364

)

 

 

 

 

$

48.66

 

Unvested at 6/30/20

 

 

6,026

 

 

$

25.98

 

 

 

44

 

 

$

44.70

 

 

 

2,024

 

 

(1

)

 

$

31.87

 

 

(1)

A maximum of 4.0 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 June 30, 2020.

 

 

 

 

 

 

 

Performance-Based

 

 

 

 

 

 

 

Restricted Stock

 

 

Restricted Stock

 

 

Performance

 

 

 

Awards

 

 

Awards

 

 

Share Units

 

Unrecognized compensation cost

 

$

107

 

 

$

 

 

$

19

 

Weighted average period for recognition (years)

 

 

2.7

 

 

 

0.9

 

 

 

1.8

 

 

v3.20.2
Asset Impairments
6 Months Ended
Jun. 30, 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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Proved oil and gas assets

 

$

 

 

$

 

 

$

2,664

 

 

$

 

Other assets

 

 

 

 

 

 

 

 

2

 

 

 

 

Total asset impairments

 

$

 

 

$

 

 

$

2,666

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unproved impairments

 

$

3

 

 

$

1

 

 

$

113

 

 

$

2

 

 


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. These inputs are categorized as level 3 in the fair value hierarchy.

Devon recognized approximately $2.7 billion of proved asset impairments during the first quarter 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. During the first quarter of 2020, Devon recognized $2 million of product line fill impairments.

Unproved Impairments

Due to the downturn in the commodity price environment and reduced near-term investment as discussed above, Devon also recognized $113 million of unproved impairments during the first six months of 2020, primarily in the Rockies field.

v3.20.2
Restructuring and Transaction Costs
6 Months Ended
Jun. 30, 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 discussed in Note 2. As a result, Devon recognized $63 million of restructuring expenses during the first six months of 2019. Of these expenses, $24 million resulted from accelerated vesting of share-based grants, which are noncash charges. Additionally, $5 million resulted from settlements of defined retirement benefits.

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

 

 

(13

)

 

 

 

 

 

(13

)

Balance as of June 30, 2020

 

$

7

 

 

$

1

 

 

$

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2018

 

$

39

 

 

$

3

 

 

$

42

 

Changes related to prior years' restructurings

 

 

 

 

 

(2

)