DEVON ENERGY CORP/DE, 10-Q filed on 8/1/2018
Quarterly Report
v3.10.0.1
Document And Entity Information - shares
shares in Millions
6 Months Ended
Jun. 30, 2018
Jul. 18, 2018
Document And Entity Information [Abstract]    
Document Type 10-Q  
Document Period End Date Jun. 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  
Document Fiscal Period Focus Q2  
Entity Common Stock, Shares Outstanding   508.8
v3.10.0.1
Consolidated Comprehensive Statements Of Earnings - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Income Statement [Abstract]        
Upstream revenues $ 1,069 $ 1,332 $ 2,388 $ 2,873
Marketing revenues 1,180 833 2,059 1,692
Total revenues 2,249 2,165 4,447 4,565
Production expenses 572 455 1,115 912
Exploration expenses 68 57 101 152
Marketing expenses 1,160 849 2,033 1,728
Depreciation, depletion and amortization 420 369 819 769
Asset impairments 154   154  
Asset dispositions 23 (22) 11 (30)
General and administrative expenses 153 181 352 376
Financing costs, net 62 77 449 160
Restructuring and transaction costs 94   94  
Other expenses 24 (8) 45 (22)
Total expenses 2,730 1,958 5,173 4,045
Earnings (loss) from continuing operations before income taxes (481) 207 (726) 520
Income tax benefit (7) (5) (41)  
Net earnings (loss) from continuing operations (474) 212 (685) 520
Net earnings from discontinued operations, net of income tax expense 139 33 197 42
Net earnings (loss) (335) 245 (488) 562
Net earnings attributable to noncontrolling interests 90 26 134 40
Net earnings (loss) attributable to Devon $ (425) $ 219 $ (622) $ 522
Basic net earnings (loss) per share:        
Basic earnings (loss) from continuing operations per share $ (0.92) $ 0.40 $ (1.33) $ 0.99
Basic earnings from discontinued operations per share 0.09 0.01 0.13  
Basic net earnings (loss) per share (0.83) 0.41 (1.20) 0.99
Diluted net earnings (loss) per share:        
Diluted earnings (loss) from continuing operations per share (0.92) 0.40 (1.33) 0.99
Diluted earnings from discontinued operations per share 0.09 0.01 0.13  
Diluted net earnings (loss) per share $ (0.83) $ 0.41 $ (1.20) $ 0.99
Comprehensive earnings (loss):        
Net earnings (loss) $ (335) $ 245 $ (488) $ 562
Other comprehensive earnings (loss), net of tax:        
Foreign currency translation (34) 28 (82) 36
Pension and postretirement plans 3 4 7 9
Other comprehensive earnings (loss), net of tax (31) 32 (75) 45
Comprehensive earnings (loss) (366) 277 (563) 607
Comprehensive earnings attributable to noncontrolling interests 90 26 134 40
Comprehensive earnings (loss) attributable to Devon $ (456) $ 251 $ (697) $ 567
v3.10.0.1
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Cash flows from operating activities:        
Net earnings (loss) $ (335) $ 245 $ (488) $ 562
Adjustments to reconcile net earnings to net cash from operating activities:        
Earnings from discontinued operations, net of tax (139) (33) (197) (42)
Depreciation, depletion and amortization 420 369 819 769
Asset impairments 154   154  
Leasehold impairments 53 22 61 64
Accretion on discounted liabilities 15 15 31 32
Total (gains) losses on commodity derivatives 497 (126) 538 (358)
Cash settlements on commodity derivatives (131) 11 (120) 19
(Gains) losses on asset dispositions 23 (22) 11 (30)
Deferred income tax expense (benefit) 20 (17) (18) (32)
Share-based compensation 58 45 96 81
Early retirement of debt     312  
Total (gains) losses on foreign exchange 31 (49) 81 (64)
Settlements of intercompany foreign denominated assets/liabilities (244) 1 (243) 10
Other (20) 23 (50) 11
Changes in assets and liabilities, net (133) 102 (108) 133
Net cash from operating activities - continuing operations 269 586 879 1,155
Cash flows from investing activities:        
Capital expenditures (602) (434) (1,253) (831)
Acquisitions of property and equipment (10) (13) (16) (33)
Divestitures of property and equipment 560 75 607 107
Net cash from investing activities - continuing operations (52) (372) (662) (757)
Cash flows from financing activities:        
Repayments of long-term debt principal     (807)  
Early retirement of debt     (304)  
Repurchases of common stock (428)   (499)  
Dividends paid on common stock (42) (33) (74) (65)
Shares exchanged for tax withholdings (6) (3) (44) (56)
Net cash from financing activities - continuing operations (476) (36) (1,728) (121)
Effect of exchange rate changes on cash:        
Settlements of intercompany foreign denominated assets/liabilities 244 (1) 243 (10)
Other (17) 9 (31) 10
Total effect of exchange rate changes on cash - continuing operations 227 8 212  
Net change in cash, cash equivalents and restricted cash of continuing operations (32) 186 (1,299) 277
Cash flows from discontinued operations:        
Operating activities 236 151 430 328
Investing activities (222) (215) (402) (284)
Financing activities 73 128 112 89
Net change in cash, cash equivalents and restricted cash of discontinued operations 87 64 140 133
Net change in cash, cash equivalents and restricted cash 55 250 (1,159) 410
Cash, cash equivalents and restricted cash at beginning of period 1,470 2,119 2,684 1,959
Cash, cash equivalents and restricted cash at end of period 1,525 2,369 1,525 2,369
Reconciliation of cash, cash equivalents and restricted cash:        
Cash and cash equivalents 1,460 2,358 1,460 2,358
Restricted cash included in other current assets 28   28  
Cash and cash equivalents included in current assets held for sale 37 11 37 11
Cash, cash equivalents and restricted cash at end of period $ 1,525 $ 2,369 $ 1,525 $ 2,369
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Jun. 30, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 1,460 $ 2,642
Accounts receivable 1,141 989
Current assets held for sale 10,764 760
Other current assets 455 400
Total current assets 13,820 4,791
Oil and gas property and equipment, based on successful efforts accounting, net 12,957 13,318
Other property and equipment, net 1,164 1,266
Total property and equipment, net 14,121 14,584
Goodwill 841 841
Other long-term assets 377 296
Long-term assets held for sale   9,729
Total assets 29,159 30,241
Current liabilities:    
Accounts payable 771 633
Revenues and royalties payable 959 748
Short-term debt [1] 277 115
Current liabilities held for sale 5,291 991
Other current liabilities 1,079 828
Total current liabilities 8,377 3,315
Long-term debt 5,790 6,749
Asset retirement obligations 1,088 1,099
Other long-term liabilities 624 549
Long-term liabilities held for sale   3,936
Deferred income taxes 432 489
Equity:    
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 515 million and 525 million shares in 2018 and 2017, respectively 51 53
Additional paid-in capital 6,888 7,333
Retained earnings 6 702
Accumulated other comprehensive earnings 1,091 1,166
Treasury stock, at cost, 0.5 million shares in 2018 (22)  
Total stockholders’ equity attributable to Devon 8,014 9,254
Noncontrolling interests 4,834 4,850
Total equity 12,848 14,104
Total liabilities and equity $ 29,159 $ 30,241
[1] Short-term debt as of June 30, 2018 consists of Devon’s $20 million of 8.25% senior notes due July 1, 2018, $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
Jun. 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 1,000,000,000
Common stock, shares issued (in shares) 515,000,000 525,000,000
Treasury stock, shares 500,000  
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 (loss) 562     522     40
Other comprehensive earnings (loss), net of tax 45       45    
Restricted stock grants, net of cancellations, value 1 $ 1          
Restricted stock grants, net of cancellations, shares   2          
Common stock repurchased (41)         $ (41)  
Common stock retired     (41)     41  
Common stock dividends (65)     (65)      
Share-based compensation 69   69        
Share-based compensation, shares   1          
Subsidiary equity transactions 117   11       106
Distributions to noncontrolling interests (163)           (163)
Balance at Jun. 30, 2017 13,247 $ 53 7,276 388 1,099   4,431
Balance, shares at Jun. 30, 2017   526          
Balance at Dec. 31, 2017 14,104 $ 53 7,333 702 1,166   4,850
Balance, shares at Dec. 31, 2017   525          
Net earnings (loss) (488)     (622)     134
Other comprehensive earnings (loss), net of tax (75)       (75)    
Restricted stock grants, net of cancellations, shares   3          
Common stock repurchased (556) $ (1)       (555)  
Common stock retired   $ (1) (532)     533  
Common stock retired, shares   (14)          
Common stock dividends (74)     (74)      
Share-based compensation 89   89        
Share-based compensation, shares   1          
Subsidiary equity transactions 67   (2)       69
Distributions to noncontrolling interests (219)           (219)
Balance at Jun. 30, 2018 $ 12,848 $ 51 $ 6,888 $ 6 $ 1,091 $ (22) $ 4,834
Balance, shares at Jun. 30, 2018   515          
v3.10.0.1
Summary Of Significant Accounting Policies
6 Months Ended
Jun. 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 six-month periods ended June 30, 2018 and 2017 and Devon’s financial position as of June 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 have now been 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 statement 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 statement 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. 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. Currently the guidance would be applied using a modified retrospective transition method, which requires applying the new guidance to leases that exist or are entered into after the beginning of the earliest period in the financial statements. However, the FASB recently issued Proposed ASU No. 2018-200, Leases (Topic 842), Targeted Improvements which would allow entities to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in the consolidated financial statements. The proposed ASU will allow entities 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. Entities that elect this option would still adopt the new leases standard using a modified retrospective transition method, but would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. The FASB issued ASU No. 2018-01, Leases (Topic 842), Land Easement Practical Expedient for Transition to Topic 842. This ASU would permit an entity not to apply Topic 842 to land easements and rights-of-way that exist or expired before the effective date of Topic 842 and that were not previously assessed under Topic 840. An entity would continue to apply its current accounting policy for accounting for land easements that existed before the effective date of Topic 842. Once an entity adopts Topic 842, it would apply that Topic prospectively to all new (or modified) land easements and rights-of-way to determine whether the arrangement should be accounted for as a lease. For Devon, these easement and right-of-way contracts represent a relatively small percentage of the aggregate value of contracts being evaluated but represent a significant number of contracts.

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 the adoption of this standard will significantly impact its consolidated financial statements, systems, processes and controls. Devon is in the process of designing processes and controls and has implemented a technology solution needed to comply with the requirements of this ASU. While Devon cannot currently estimate the quantitative effect that ASU 2016-02 will have on its consolidated financial statements, 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 only applies to entities that elect hedge accounting, which Devon has not for derivative financial instruments. This ASU is effective for annual and interim periods beginning January 1, 2019, with early adoption permitted in 2018. The ASU is required to be adopted using a cumulative effect (modified retrospective) transition method, which utilizes a cumulative-effect adjustment to retained earnings in the period of adoption to account for prior period effects rather than restating previously reported results. Devon is currently evaluating the provisions of this ASU and assessing the impact it may have on its consolidated financial statements if hedge accounting were elected by Devon 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 after December 15, 2018, 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.

v3.10.0.1
Revenue Recognition
6 Months Ended
Jun. 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 June 30, 2018

 

 

Six Months Ended June 30, 2018

 

 

 

Under ASC

606

 

 

Under ASC

605

 

 

Increase/

(Decrease)

 

 

Under ASC

606

 

 

Under ASC

605

 

 

Increase/

(Decrease)

 

Upstream revenues

 

$

1,069

 

 

$

1,004

 

 

$

65

 

 

$

2,388

 

 

$

2,261

 

 

$

127

 

Marketing revenues

 

 

1,180

 

 

 

1,180

 

 

 

 

 

 

2,059

 

 

 

2,059

 

 

 

 

Total impacted revenues

 

$

2,249

 

 

$

2,184

 

 

$

65

 

 

$

4,447

 

 

$

4,320

 

 

$

127

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production expenses

 

$

572

 

 

$

507

 

 

$

65

 

 

$

1,115

 

 

$

988

 

 

$

127

 

Marketing expenses

 

 

1,160

 

 

 

1,160

 

 

 

 

 

 

2,033

 

 

 

2,033

 

 

 

 

Total impacted expenses

 

$

1,732

 

 

$

1,667

 

 

$

65

 

 

$

3,148

 

 

$

3,021

 

 

$

127

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

   before income taxes

 

$

(481

)

 

$

(481

)

 

$

 

 

$

(726

)

 

$

(726

)

 

$

 

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 statement 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 statement 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 statement 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 June 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. The difference between revenue from external customers in Note 22 and the totals listed below represents the net impact from commodity derivatives.

 

 

Three Months Ended June 30, 2018

 

 

Six Months Ended June 30, 2018

 

 

 

U.S.

 

 

Canada

 

 

Total

 

 

U.S.

 

 

Canada

 

 

Total

 

Revenues from contracts with

   customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

$

808

 

 

$

313

 

 

$

1,121

 

 

$

1,485

 

 

$

543

 

 

$

2,028

 

Gas

 

 

207

 

 

 

 

 

 

207

 

 

 

462

 

 

 

 

 

 

462

 

NGL

 

 

238

 

 

 

 

 

 

238

 

 

 

436

 

 

 

 

 

 

436

 

Oil, gas and NGL sales

 

 

1,253

 

 

 

313

 

 

 

1,566

 

 

 

2,383

 

 

 

543

 

 

 

2,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

 

766

 

 

 

24

 

 

 

790

 

 

 

1,297

 

 

 

41

 

 

 

1,338

 

Gas

 

 

160

 

 

 

 

 

 

160

 

 

 

315

 

 

 

 

 

 

315

 

NGL

 

 

230

 

 

 

 

 

 

230

 

 

 

406

 

 

 

 

 

 

406

 

Total marketing revenues

 

 

1,156

 

 

 

24

 

 

 

1,180

 

 

 

2,018

 

 

 

41

 

 

 

2,059

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues from contracts with

   customers

 

$

2,409

 

 

$

337

 

 

$

2,746

 

 

$

4,401

 

 

$

584

 

 

$

4,985

 

 

v3.10.0.1
Divestitures
6 Months Ended
Jun. 30, 2018
Business Combinations [Abstract]  
Divestitures

 


3.

Divestitures

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 statement 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 statement of earnings.

In June 2018, Devon announced the sale of its aggregate ownership interests in EnLink and the General Partner for approximately $3.1 billion. The proceeds from the sale will be utilized to increase Devon’s share repurchase program to $4.0 billion, which is discussed further in Note 18. Devon completed the sale of its interests in EnLink and the General Partner in July 2018 and expects to recognize a gain of approximately $2.5 billion in the third quarter. Additional information on these discontinued operations can be found in Note 19.

 

v3.10.0.1
Derivative Financial Instruments
6 Months Ended
Jun. 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 June 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 June 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)

 

Q3-Q4 2018

 

 

89,300

 

 

$

57.96

 

 

 

100,200

 

 

$

52.23

 

 

$

62.83

 

Q1-Q4 2019

 

 

50,130

 

 

$

58.95

 

 

 

65,790

 

 

$

52.60

 

 

$

62.60

 

 

 

 

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)

 

Q3-Q4 2018

 

Midland Sweet

 

 

23,000

 

 

$

(1.02

)

 

 

 

 

$

 

 

$

 

Q3-Q4 2018

 

Argus LLS

 

 

12,000

 

 

$

3.95

 

 

 

 

 

$

 

 

$

 

Q3-Q4 2018

 

Argus MEH

 

 

15,832

 

 

$

2.82

 

 

 

 

 

$

 

 

$

 

Q3-Q4 2018

 

NYMEX Roll

 

 

19,989

 

 

$

0.60

 

 

 

 

 

$

 

 

$

 

Q3-Q4 2018

 

Western Canadian Select

 

 

64,859

 

 

$

(14.91

)

 

 

1,663

 

 

$

(15.50

)

 

$

(13.93

)

Q1-Q4 2019

 

Midland Sweet

 

 

28,000

 

 

$

(0.46

)

 

 

 

 

$

 

 

$

 

Q1-Q4 2019

 

Argus LLS

 

 

1,000

 

 

$

4.60

 

 

 

 

 

$

 

 

$

 

Q1-Q4 2019

 

Argus MEH

 

 

16,000

 

 

$

2.84

 

 

 

 

 

$

 

 

$

 

Q1-Q4 2019

 

NYMEX Roll

 

 

22,000

 

 

$

0.53

 

 

 

 

 

$

 

 

$

 

Q1-Q4 2020

 

NYMEX Roll

 

 

22,000

 

 

$

0.32

 

 

 

 

 

$

 

 

$

 

 

As of June 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)

 

Q3-Q4 2018

 

 

273,750

 

 

$

2.91

 

 

 

242,250

 

 

$

2.76

 

 

$

3.09

 

Q1-Q4 2019

 

 

181,122

 

 

$

2.81

 

 

 

146,810

 

 

$

2.65

 

 

$

3.04

 

 

 

 

Natural Gas Basis Swaps

 

Period

 

Index

 

Volume

(MMBtu/d)

 

 

Weighted Average

Differential to

Henry Hub

($/MMBtu)

 

Q3-Q4 2018

 

Panhandle Eastern Pipe Line

 

 

120,000

 

 

$

(0.51

)

Q3-Q4 2018

 

El Paso Natural Gas

 

 

100,000

 

 

$

(1.25

)

Q3-Q4 2018

 

Houston Ship Channel

 

 

115,000

 

 

$

0.01

 

Q3-Q4 2018

 

Transco Zone 4

 

 

15,000

 

 

$

(0.03

)

Q1-Q4 2019

 

Panhandle Eastern Pipe Line

 

 

54,548

 

 

$

(0.78

)

Q1-Q4 2019

 

El Paso Natural Gas

 

 

110,000

 

 

$

(1.50

)

Q1-Q4 2019

 

Houston Ship Channel

 

 

92,500

 

 

$

(0.01

)

Q1-Q4 2019

 

Transco Zone 4

 

 

7,397

 

 

$

(0.03

)

 


As of June 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)

 

Q3-Q4 2018

 

Ethane

 

 

6,000

 

 

$

11.73

 

Q3-Q4 2018

 

Natural Gasoline

 

 

6,500

 

 

$

56.13

 

Q3-Q4 2018

 

Normal Butane

 

 

7,000

 

 

$

38.69

 

Q3-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 June 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 June 30,

 

 

Six Months

Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Commodity derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream revenues

 

$

(497

)

 

$

126

 

 

$

(538

)

 

$

358

 

Marketing revenues

 

 

(1

)

 

 

2

 

 

 

(1

)

 

 

3

 

Interest rate derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses

 

 

19

 

 

 

(20

)

 

 

65

 

 

 

(15

)

Net gains (losses) recognized

 

$

(479

)

 

$

108

 

 

$

(474

)

 

$

346

 

 

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

 

 

June 30, 2018

 

 

December 31, 2017

 

Commodity derivative assets:

 

 

 

 

 

 

 

 

Other current assets

 

$

213

 

 

$

203

 

Other long-term assets

 

 

27

 

 

 

2

 

Interest rate derivative assets:

 

 

 

 

 

 

 

 

Other current assets

 

 

1

 

 

 

1

 

Total derivative assets

 

$

241

 

 

$

206

 

Commodity derivative liabilities:

 

 

 

 

 

 

 

 

Other current liabilities

 

$

647

 

 

$

259

 

Other long-term liabilities

 

 

93

 

 

 

27

 

Interest rate derivative liabilities:

 

 

 

 

 

 

 

 

Other current liabilities

 

 

1

 

 

 

64

 

Total derivative liabilities

 

$

741

 

 

$

350

 

 

v3.10.0.1
Share-Based Compensation
6 Months Ended
Jun. 30, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Share-Based Compensation

5.

Share-Based Compensation

The table below presents the share-based compensation expense included in Devon’s accompanying consolidated comprehensive statements of earnings. The vesting for certain share-based awards was accelerated in the second quarter of 2018 in conjunction with the reduction of workforce described in Note 7 and is included in restructuring and transaction costs in the accompanying consolidated comprehensive statement of earnings.

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

G&A

 

$

68

 

 

$

75

 

Exploration expenses

 

 

2

 

 

 

4

 

Restructuring and transaction costs