DEVON ENERGY CORP/DE, 10-Q filed on 10/30/2020
Quarterly Report
v3.20.2
Document And Entity Information - shares
shares in Millions
9 Months Ended
Sep. 30, 2020
Oct. 21, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Period End Date Sep. 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 Q3  
Entity Common Stock, Shares Outstanding   382.5
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 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenues $ 1,154 $ 1,619 $ 3,276 $ 4,969
Oil, gas and NGL derivatives (87) 127 272 (338)
Total revenues 1,067 1,746 3,548 4,631
Production expenses 271 294 852 873
Exploration expenses 39 18 163 29
Depreciation, depletion and amortization 299 381 999 1,115
Asset impairments     2,666  
Asset dispositions   (1)   (48)
General and administrative expenses 75 107 256 356
Financing costs, net 66 60 200 186
Restructuring and transaction costs 32 10 32 73
Other expenses   3 (35) (12)
Total expenses 1,260 1,556 6,528 4,719
Earnings (loss) from continuing operations before income taxes (193) 190 (2,980) (88)
Income tax expense (benefit) (90) 54 (510) 3
Net earnings (loss) from continuing operations (103) 136 (2,470) (91)
Net earnings (loss) from discontinued operations, net of income taxes 13 (27) (103) 378
Net earnings (loss) (90) 109 (2,573) 287
Net earnings attributable to noncontrolling interests 2   5  
Net earnings (loss) attributable to Devon $ (92) $ 109 $ (2,578) $ 287
Basic net earnings (loss) per share:        
Basic earnings (loss) from continuing operations per share $ (0.29) $ 0.34 $ (6.58) $ (0.22)
Basic earnings (loss) from discontinued operations per share 0.04 (0.07) (0.27) 0.91
Basic net earnings (loss) per share (0.25) 0.27 (6.85) 0.69
Diluted net earnings (loss) per share:        
Diluted earnings (loss) from continuing operations per share (0.29) 0.34 (6.58) (0.22)
Diluted earnings (loss) from discontinued operations per share 0.04 (0.07) (0.27) 0.91
Diluted net earnings (loss) per share $ (0.25) $ 0.27 $ (6.85) $ 0.69
Comprehensive earnings (loss):        
Net earnings (loss) $ (90) $ 109 $ (2,573) $ 287
Other comprehensive earnings (loss), net of tax:        
Foreign currency translation, discontinued operations       78
Release of Canadian cumulative translation adjustment, discontinued operations [1]       (1,237)
Pension and postretirement plans 1 1 3 16
Other comprehensive earnings (loss), net of tax 1 1 3 (1,143)
Comprehensive earnings (loss): (89) 110 (2,570) (856)
Comprehensive earnings attributable to noncontrolling interests 2   5  
Comprehensive earnings (loss) attributable to Devon (91) 110 (2,575) (856)
Oil, Gas and NGL Sales [Member]        
Revenues 678 919 1,909 2,774
Marketing and Midstream Revenues [Member]        
Revenues 476 700 1,367 2,195
Marketing and Midstream Expenses [Member]        
Expenses $ 478 $ 684 $ 1,395 $ 2,147
[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 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Cash flows from operating activities:        
Net earnings (loss) $ (90) $ 109 $ (2,573) $ 287
Adjustments to reconcile net earnings (loss) to net cash from operating activities:        
Net (earnings) loss from discontinued operations, net of income taxes (13) 27 103 (378)
Depreciation, depletion and amortization 299 381 999 1,115
Asset impairments     2,666  
Leasehold impairments 36 13 149 15
Accretion on discounted liabilities 8 8 24 25
Total (gains) losses on commodity derivatives 87 (127) (272) 338
Cash settlements on commodity derivatives 10 71 343 125
Gains on asset dispositions   (1)   (48)
Deferred income tax expense (benefit)   52 (311) 2
Share-based compensation 31 23 70 92
Other 1 3 5 (9)
Changes in assets and liabilities, net 58 36 (97) (100)
Net cash from operating activities - continuing operations 427 595 1,106 1,464
Cash flows from investing activities:        
Capital expenditures (204) (526) (936) (1,502)
Acquisitions of property and equipment   (5) (5) (28)
Divestitures of property and equipment 1 9 29 347
Net cash from investing activities - continuing operations (203) (522) (912) (1,183)
Cash flows from financing activities:        
Repayments of long-term debt       (162)
Repurchases of common stock   (561) (38) (1,746)
Dividends paid on common stock (43) (35) (119) (106)
Contributions from noncontrolling interests 1   12  
Distributions to noncontrolling interests (4)   (10)  
Shares exchanged for tax withholdings and other   (1) (17) (23)
Net cash from financing activities - continuing operations (46) (597) (172) (2,037)
Net change in cash, cash equivalents and restricted cash of continuing operations 178 (524) 22 (1,756)
Cash flows from discontinued operations:        
Operating activities 45 (94) (129) 37
Investing activities 1 (5) 171 2,472
Financing activities 0 (1,571) 0 (1,579)
Effect of exchange rate changes on cash 4 (3) (11) 36
Net change in cash, cash equivalents and restricted cash of discontinued operations 50 (1,673) 31 966
Net change in cash, cash equivalents and restricted cash 228 (2,197) 53 (790)
Cash, cash equivalents and restricted cash at beginning of period 1,669 3,853 1,844 2,446
Cash, cash equivalents and restricted cash at end of period 1,897 1,656 1,897 1,656
Reconciliation of cash, cash equivalents and restricted cash:        
Cash and cash equivalents 1,707 1,375 1,707 1,375
Cash restricted for discontinued operations 190 280 190 280
Restricted cash included in other current assets   1   1
Cash, cash equivalents and restricted cash at end of period $ 1,897 $ 1,656 $ 1,897 $ 1,656
v3.20.2
Consolidated Balance Sheets - USD ($)
$ in Millions
Sep. 30, 2020
Dec. 31, 2019
ASSETS    
Cash and cash equivalents $ 1,707 $ 1,464
Cash restricted for discontinued operations 190 380
Accounts receivable 493 832
Current assets associated with discontinued operations 728 896
Other current assets 359 279
Total current assets 3,477 3,851
Oil and gas property and equipment, based on successful efforts accounting, net 4,553 7,558
Other property and equipment, net ($100 million and $80 million related to CDM in 2020 and 2019, respectively) [1] 1,003 1,035
Total property and equipment, net 5,556 8,593
Goodwill 753 753
Right-of-use assets 226 243
Other long-term assets 233 196
Long-term assets associated with discontinued operations 81 81
Total assets 10,326 13,717
LIABILITIES AND EQUITY    
Accounts payable 415 428
Revenues and royalties payable 562 730
Current liabilities associated with discontinued operations 463 459
Other current liabilities 269 310
Total current liabilities 1,709 1,927
Long-term debt 4,297 4,294
Lease liabilities 245 244
Asset retirement obligations 398 380
Other long-term liabilities 372 426
Long-term liabilities associated with discontinued operations 157 185
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 2,750 2,735
Retained earnings 351 3,148
Accumulated other comprehensive loss (116) (119)
Total stockholders’ equity attributable to Devon 3,023 5,802
Noncontrolling interests 125 118
Total equity 3,148 5,920
Total liabilities and equity $ 10,326 $ 13,717
[1] $100 million and $80 million related to CDM in 2020 and 2019, respectively.
v3.20.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Sep. 30, 2020
Dec. 31, 2019
Other property and equipment, net [1] $ 1,003 $ 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 $ 100 $ 80
[1] $100 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 Earning [Member]
Retained Earning [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) 287       287        
Other comprehensive earnings (loss), net of tax (1,143)           (1,143)    
Restricted stock grants, net of cancellations, shares     3            
Common stock repurchased (1,755)             (1,755)  
Common stock retired     $ (6) (1,763)       1,769  
Common stock retired, shares     (66)            
Common stock dividends (106)       (106)        
Share-based compensation 92     92          
Balance at Sep. 30, 2019 6,542   $ 39 2,815 3,812   (116) (8)  
Balance, shares at Sep. 30, 2019     387            
Balance at Jun. 30, 2019 6,994   $ 41 3,352 3,738   (117) (20)  
Balance, shares at Jun. 30, 2019     410            
Net earnings (loss) 109       109        
Other comprehensive earnings (loss), net of tax 1           1    
Common stock repurchased (549)             (549)  
Common stock retired     $ (2) (559)       561  
Common stock retired, shares     (23)            
Common stock dividends (35)       (35)        
Share-based compensation 22     22          
Balance at Sep. 30, 2019 6,542   $ 39 2,815 3,812   (116) (8)  
Balance, shares at Sep. 30, 2019     387            
Balance at Dec. 31, 2019 5,920   $ 38 2,735 3,148   (119)   $ 118
Balance, shares at Dec. 31, 2019     382            
Net earnings (loss) (2,573)       (2,578)       5
Other comprehensive earnings (loss), net of tax 3           3    
Restricted stock grants, net of cancellations, shares     3            
Common stock repurchased (55)             (55)  
Common stock retired       (55)       55  
Common stock retired, shares     (3)            
Common stock dividends (219)       (219)        
Share-based compensation 70     70          
Share-based compensation, shares     1            
Contributions from noncontrolling interests 12               12
Distributions to noncontrolling interests (10)               (10)
Balance at Sep. 30, 2020 3,148   $ 38 2,750 351   (116)   125
Balance, shares at Sep. 30, 2020     383            
Balance at Jun. 30, 2020 3,353   $ 38 2,720 586   (117)   126
Balance, shares at Jun. 30, 2020     383            
Net earnings (loss) (90)       (92)       2
Other comprehensive earnings (loss), net of tax 1           1    
Common stock repurchased (1)             (1)  
Common stock retired       (1)       $ 1  
Common stock dividends (143)       (143)        
Share-based compensation 31     31          
Contributions from noncontrolling interests 1               1
Distributions to noncontrolling interests (4)               (4)
Balance at Sep. 30, 2020 $ 3,148   $ 38 $ 2,750 $ 351   $ (116)   $ 125
Balance, shares at Sep. 30, 2020     383            
v3.20.2
Summary Of Significant Accounting Policies
9 Months Ended
Sep. 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 nine-month periods ended September 30, 2020 and 2019 and Devon’s financial position as of September 30, 2020. As further discussed in Note 17, Devon closed on the sale of its Barnett Shale assets on October 1, 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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Oil

 

$

504

 

 

$

751

 

 

$

1,462

 

 

$

2,160

 

Gas

 

 

79

 

 

 

80

 

 

 

221

 

 

 

291

 

NGL

 

 

95

 

 

 

88

 

 

 

226

 

 

 

323

 

Oil, gas and NGL sales

 

 

678

 

 

 

919

 

 

 

1,909

 

 

 

2,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

 

233

 

 

 

407

 

 

 

702

 

 

 

1,157

 

Gas

 

 

97

 

 

 

140

 

 

 

268

 

 

 

530

 

NGL

 

 

143

 

 

 

151

 

 

 

390

 

 

 

506

 

Total marketing revenues

 

 

473

 

 

 

698

 

 

 

1,360

 

 

 

2,193

 

Midstream revenues

 

 

3

 

 

 

2

 

 

 

7

 

 

 

2

 

Marketing and midstream revenues

 

 

476

 

 

 

700

 

 

 

1,367

 

 

 

2,195

 

Total revenues from contracts with customers

 

$

1,154

 

 

$

1,619

 

 

$

3,276

 

 

$

4,969

 

 

 


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
Acquisition and Divestitures
9 Months Ended
Sep. 30, 2020
Business Combinations [Abstract]  
Acquisition and Divestitures

2.Acquisitions and Divestitures

 

Divestitures

 

Discontinued Operations – Upstream Assets

 

On October 1, 2020, Devon completed the sale of its Barnett Shale assets to BKV for proceeds, net of purchase price adjustments, of $490 million, including a $170 million deposit previously received in April 2020. The agreement with BKV also provides for contingent earnout payments to Devon of up to $260 million based upon future commodity prices, with upside participation beginning at a $2.75 Henry Hub natural gas price or a $50 WTI oil price. The contingent payment period commences on January 1, 2021 and has a term of four years. Devon recognized a $748 million asset impairment related to these assets in the fourth quarter of 2019 and incremental asset impairments of $179 million and $3 million during the first quarter and third quarter of 2020, respectively. Additional information can be found in Note 17.

 

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.

 

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 nine 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.

 

Pending Merger

On September 26, 2020, Devon and WPX entered into the Merger Agreement, providing for an all-stock merger of equals. WPX is an oil and gas exploration and production company with assets in the Delaware Basin in Texas and New Mexico and the Williston Basin in North Dakota. On the closing date of the Merger, each share of WPX common stock will be automatically converted into the right to receive 0.5165 of a share of Devon common stock. No fractional shares of Devon’s common stock will be issued in the Merger, and holders of shares of WPX common stock will, instead, receive cash in lieu of fractional shares of Devon common stock, if any. The Merger has been unanimously approved by Devon and WPX Boards of Directors and is still subject to the approval of both Devon and WPX shareholders. The Merger is expected to close in the first quarter of 2021 subject to shareholder and regulatory approvals and other customary closing conditions.

v3.20.2
Derivative Financial Instruments
9 Months Ended
Sep. 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 September 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 September 30, 2020, Devon neither held cash collateral of its counterparties nor posted cash collateral to its counterparties.

Commodity Derivatives

As of September 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)

 

Q4 2020

 

 

88,000

 

 

$

36.28

 

 

 

39,500

 

 

$

50.93

 

 

$

60.93

 

Q1-Q4 2021

 

 

23,810

 

 

$

35.79

 

 

 

19,367

 

 

$

40.66

 

 

$

50.66

 

Q1 2022

 

 

500

 

 

$

45.00

 

 

 

6,750

 

 

$

37.93

 

 

$

47.93

 

 

 

 

 

Oil Basis Swaps

 

Period

 

Index

 

Volume

(Bbls/d)

 

 

Weighted Average

Differential to WTI

($/Bbl)

 

Q4 2020

 

Argus MEH

 

 

50,000

 

 

$

0.47

 

Q4 2020

 

Midland Sweet

 

 

32,000

 

 

$

(1.23

)

Q4 2020

 

NYMEX Roll

 

 

54,000

 

 

$

0.38

 

Q1-Q4 2021

 

Midland Sweet

 

 

7,000

 

 

$

1.27

 

 

As of September 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)

 

Q4 2020

 

 

69,000

 

 

$

2.69

 

 

 

141,000

 

 

$

2.35

 

 

$

2.85

 

Q1-Q4 2021

 

 

32,699

 

 

$

2.76

 

 

 

142,055

 

 

$

2.38

 

 

$

2.88

 

Q1 2022

 

 

14,000

 

 

$

2.85

 

 

 

36,000

 

 

$

2.60

 

 

$

3.10

 

 

 

 

Natural Gas Basis Swaps

 

Period

 

Index

 

Volume

(MMBtu/d)

 

 

Weighted Average

Differential to

Henry Hub

($/MMBtu)

 

Q4 2020

 

Panhandle Eastern Pipe Line

 

 

30,000

 

 

$

(0.47

)

Q4 2020

 

El Paso Natural Gas

 

 

65,000

 

 

$

(0.78

)

Q4 2020

 

Houston Ship Channel

 

 

30,000

 

 

$

(0.02

)

Q1-Q4 2021

 

El Paso Natural Gas

 

 

35,000

 

 

$

(0.92

)

 

 

As of September 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)

 

Q4 2020

 

Natural Gasoline

 

 

1,000

 

 

$

44.84

 

Q4 2020

 

Normal Butane

 

 

1,500

 

 

$

23.56

 

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.

 

 

September 30, 2020

 

 

December 31, 2019

 

Commodity derivative assets:

 

 

 

 

 

 

 

 

Other current assets

 

$

27

 

 

$

49

 

Other long-term assets

 

 

1

 

 

 

1

 

Total derivative assets

 

$

28

 

 

$

50

 

Commodity derivative liabilities:

 

 

 

 

 

 

 

 

Other current liabilities

 

$

70

 

 

$

30

 

Other long-term liabilities

 

 

10

 

 

 

1

 

Total derivative liabilities

 

$

80

 

 

$

31

 

 

v3.20.2
Share-Based Compensation
9 Months Ended
Sep. 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.

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

G&A

 

$

58

 

 

$

64

 

Exploration expenses

 

 

1

 

 

 

1

 

Restructuring and transaction costs

 

 

11

 

 

 

27

 

Total

 

$

70

 

 

$

92

 

Related income tax benefit

 

$

 

 

$

13

 

 

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

 

 

3,056

 

 

$

21.90

 

 

 

 

 

$

 

 

 

688

 

 

 

 

 

$

27.89

 

Vested

 

 

(2,093

)

 

$

29.11

 

 

 

(109

)

 

$

29.51

 

 

 

(455

)

 

 

 

 

$

52.56

 

Forfeited

 

 

(294

)

 

$

24.44

 

 

 

 

 

$

 

 

 

(385

)

 

 

 

 

$

47.68

 

Unvested at 9/30/20

 

 

5,653

 

 

$

25.93

 

 

 

44

 

 

$

44.70

 

 

 

2,003

 

 

(1

)

 

$

31.89

 

 

(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 September 30, 2020.

 

 

 

 

 

 

 

Performance-Based

 

 

 

 

 

 

 

Restricted Stock

 

 

Restricted Stock

 

 

Performance

 

 

 

Awards

 

 

Awards

 

 

Share Units

 

Unrecognized compensation cost

 

$

81

 

 

$

 

 

$

15

 

Weighted average period for recognition (years)

 

 

2.6

 

 

 

0.7

 

 

 

1.7

 

 

v3.20.2
Asset Impairments
9 Months Ended
Sep. 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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Proved oil and gas assets

 

$

 

 

$

 

 

$

2,664

 

 

$

 

Other assets

 

 

 

 

 

 

 

 

2

 

 

 

 

Total asset impairments

 

$

 

 

$

 

 

$

2,666

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unproved impairments

 

$

36

 

 

$

13

 

 

$

149

 

 

$

15

 

 

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 $149 million of unproved impairments during the first nine months of 2020. Of these unproved impairments, $113 million related primarily to the Rockies field and $36 million related to certain non-core acreage Devon no longer intends to pursue for exploration opportunities. During the first nine months of 2019, Devon recognized $15 million of unproved impairments related to certain non-core acreage it no longer intended to pursue for exploration opportunities.

v3.20.2
Restructuring and Transaction Costs
9 Months Ended
Sep. 30, 2020
Restructuring And Related Activities [Abstract]  
Restructuring and Transaction Costs

6.Restructuring and Transaction Costs

In August 2020, Devon announced a cost reduction plan designed to deliver sustainable cost savings by year-end 2020. As a result, Devon recognized $32 million of restructuring expenses during the third quarter of 2020. Of these expenses, $11 million resulted from accelerated vesting of share-based grants, which are noncash charges.

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 $73 million of restructuring expenses during the first nine months of 2019. Of these expenses, $27 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 2020 workforce reductions

 

 

11

 

 

 

 

 

 

11

 

Changes related to prior years' restructurings

 

 

(14

)

 

 

 

 

 

(14