DEVON ENERGY CORP/DE, 10-K filed on 2/20/2019
Annual Report
v3.10.0.1
Document And Entity Information - USD ($)
shares in Millions, $ in Billions
12 Months Ended
Dec. 31, 2018
Feb. 06, 2019
Jun. 29, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Amendment Flag false    
Trading Symbol DVN    
Entity Registrant Name DEVON ENERGY CORP/DE    
Entity Central Index Key 0001090012    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Well-known Seasoned Issuer Yes    
Current Fiscal Year End Date --12-31    
Document Fiscal Year Focus 2018    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Document Fiscal Period Focus FY    
Entity Public Float     $ 22.5
Entity Common Stock, Shares Outstanding   438.3  
v3.10.0.1
Consolidated Comprehensive Statements Of Earnings - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]      
Upstream revenues $ 6,285 $ 5,307 $ 3,981
Revenues $ 4,449 $ 3,571 $ 2,772
Type of Revenue [Extensible List] us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember
Total revenues $ 10,734 [1] $ 8,878 $ 6,753
Production expenses 2,225 1,823 1,805
Exploration expenses 177 380 215
Expenses $ 4,363 $ 3,619 $ 2,821
Type of Cost, Good or Service [Extensible List] us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember
Depreciation, depletion and amortization $ 1,658 $ 1,529 $ 1,592
Asset impairments 156   437
Asset dispositions (263) [2] (217) [2] (1,496)
General and administrative expenses 650 737 733
Financing costs, net 594 317 717
Restructuring and transaction costs 114   261
Other expenses 140 (83) 101
Total expenses 9,814 8,105 7,186
Earnings (loss) from continuing operations before income taxes 920 [3] 773 (433)
Income tax expense 156 15 141
Net earnings (loss) from continuing operations 764 758 (574)
Net earnings (loss) from discontinued operations, net of income tax expense 2,460 [4] 320 (884)
Net earnings (loss) 3,224 1,078 (1,458)
Net earnings (loss) attributable to noncontrolling interests 160 180 (402)
Net earnings (loss) attributable to Devon $ 3,064 $ 898 $ (1,056)
Basic net earnings (loss) per share:      
Basic earnings (loss) from continuing operations per share $ 1.53 $ 1.44 $ (1.14)
Basic earnings (loss) from discontinued operations per share 4.61 0.27 (0.95)
Basic net earnings (loss) per share 6.14 1.71 (2.09)
Diluted net earnings (loss) per share:      
Diluted earnings (loss) from continuing operations per share 1.52 1.43 (1.14)
Diluted earnings (loss) from discontinued operations per share 4.58 0.27 (0.95)
Diluted net earnings (loss) per share $ 6.10 $ 1.70 $ (2.09)
Comprehensive earnings (loss):      
Net earnings (loss) $ 3,224 $ 1,078 $ (1,458)
Other comprehensive earnings (loss), net of tax:      
Foreign currency translation (152) 83 11
Pension and postretirement plans 44 29 22
Other comprehensive earnings (loss), net of tax (108) 112 33
Comprehensive earnings (loss) 3,116 1,190 (1,425)
Comprehensive earnings (loss) attributable to noncontrolling interests 160 180 (402)
Comprehensive earnings (loss) attributable to Devon $ 2,956 $ 1,010 $ (1,023)
[1] Revenues from oil, gas and NGL sales and marketing revenues represent revenue from contracts with customers.
[2]

(1)

Additional discussion regarding asset dispositions can be found in Note 2.

 

[3]

(2)

Includes asset impairments of approximately $150 million in the second quarter of 2018. Additional discussion regarding asset impairments can be found in Note 5.

 

[4]

(3)

Includes a gain on sale associated with the divestment of Devon’s aggregate ownership interests in EnLink and the General Partner of approximately $2.2 billion (after-tax) in the third quarter of 2018, as discussed in Note 19.

 

v3.10.0.1
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities:      
Net earnings (loss) $ 3,224 $ 1,078 $ (1,458)
Adjustments to reconcile net earnings to net cash from operating activities:      
Net (earnings) loss from discontinued operations, net of income tax expense (2,460) [1] (320) 884
Depreciation, depletion and amortization 1,658 1,529 1,592
Asset impairments 156   437
Leasehold impairments 95 219 113
Accretion on discounted liabilities 61 63 75
Total (gains) losses on commodity derivatives (608) (157) 201
Cash settlements on commodity derivatives (84) 53 1
Gains on asset dispositions (263) (217) (1,496)
Deferred income tax expense (benefit) 226 (97) 43
Share-based compensation 161 150 203
Early retirement of debt 312   269
Total (gains) losses on foreign exchange 139 (132) (121)
Settlements of intercompany foreign denominated assets/liabilities (241) 9 63
Other (5) (1) 4
Changes in assets and liabilities, net (143) 32 24
Net cash from operating activities - continuing operations 2,228 2,209 834
Cash flows from investing activities:      
Capital expenditures (2,451) (1,968) (1,384)
Acquisitions of property and equipment (55) (46) (849)
Divestitures of property and equipment 1,013 426 3,020
Net cash from investing activities - continuing operations (1,493) (1,588) 787
Cash flows from financing activities:      
Repayments of long-term debt principal (922)   (2,492)
Net short-term debt repayments     (626)
Early retirement of debt (304)   (265)
Issuance of common stock     1,469
Repurchases of common stock (2,956)    
Dividends paid on common stock (149) (127) (221)
Shares exchanged for tax withholdings (48) (59) (35)
Other (7)    
Net cash from financing activities - continuing operations (4,386) (186) (2,170)
Effect of exchange rate changes on cash:      
Settlements of intercompany foreign denominated assets/liabilities 241 (9) (63)
Other (35) 15 2
Total effect of exchange rate changes on cash - continuing operations 206 6 (61)
Net change in cash, cash equivalents and restricted cash of continuing operations (3,445) 441 (610)
Cash flows from discontinued operations:      
Operating activities 476 700 666
Investing activities 2,548 (611) (1,381)
Financing activities 183 195 974
Net change in cash, cash equivalents and restricted cash of discontinued operations 3,207 284 259
Net change in cash, cash equivalents and restricted cash (238) 725 (351)
Cash, cash equivalents and restricted cash at beginning of period 2,684 1,959 2,310
Cash, cash equivalents and restricted cash at end of period 2,446 2,684 1,959
Reconciliation of cash, cash equivalents and restricted cash:      
Cash and cash equivalents 2,414 2,642 1,947
Restricted cash included in other current assets 32 11  
Cash and cash equivalents included in current assets held for sale   31 12
Cash, cash equivalents and restricted cash at end of period $ 2,446 $ 2,684 $ 1,959
[1]

(3)

Includes a gain on sale associated with the divestment of Devon’s aggregate ownership interests in EnLink and the General Partner of approximately $2.2 billion (after-tax) in the third quarter of 2018, as discussed in Note 19.

 

v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
ASSETS    
Cash and cash equivalents $ 2,414 $ 2,642
Accounts receivable 885 989
Current assets held for sale 197 760
Other current assets 941 400
Total current assets 4,437 4,791
Oil and gas property and equipment, based on successful efforts accounting, net 12,813 13,318
Other property and equipment, net 1,122 1,266
Total property and equipment, net 13,935 14,584
Goodwill 841 841
Other long-term assets 353 296
Long-term assets held for sale   9,729
Total assets 19,566 30,241
LIABILITIES AND EQUITY    
Accounts payable 662 633
Revenues and royalties payable 898 748
Short-term debt [1] 162 115
Current liabilities held for sale 69 991
Other current liabilities 435 828
Total current liabilities 2,226 3,315
Long-term debt 5,785 6,749
Asset retirement obligations 1,030 1,099
Other long-term liabilities 462 549
Long-term liabilities held for sale   3,936
Deferred income taxes 877 489
Equity:    
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 450 million and 525 million shares in 2018 and 2017, respectively 45 53
Additional paid-in capital 4,486 7,333
Retained earnings 3,650 702
Accumulated other comprehensive earnings 1,027 1,166
Treasury stock, at cost, 1.0 million shares in 2018 (22)  
Total stockholders’ equity attributable to Devon 9,186 9,254
Noncontrolling interests   4,850
Total equity 9,186 14,104
Total liabilities and equity $ 19,566 $ 30,241
[1] 2018 short-term debt consists of $162 million of 6.30% senior notes due January 15, 2019.
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
Statement Of Financial Position [Abstract]    
Common stock, par value (in dollars per share) $ 0.10 $ 0.10
Common stock, shares authorized (in shares) 1,000,000,000.0 1,000,000,000.0
Common stock, shares issued (in shares) 450,000,000 525,000,000
Treasury stock, shares 1,000,000.0  
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, 2015 $ 11,111 $ 42 $ 4,996 $ 1,112 $ 1,021   $ 3,940
Balance, shares at Dec. 31, 2015   418          
Net earnings (loss) (1,458)     (1,056)     (402)
Other comprehensive earnings (loss), net of tax 33       33    
Restricted stock grants, net of cancellations, shares   2          
Common stock repurchased (28)         $ (28)  
Common stock retired     (28)     28  
Common stock dividends (221)   (96) (125)      
Common stock issued 2,127 $ 10 2,117        
Common stock issued, shares   103          
Share-based compensation 168   168        
Subsidiary equity transactions 1,294   80       1,214
Distributions to noncontrolling interests (304)           (304)
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) 1,078     898     180
Other comprehensive earnings (loss), net of tax 112       112    
Restricted stock grants, net of cancellations, value 1 $ 1          
Restricted stock grants, net of cancellations, shares   1          
Common stock repurchased (44)         (44)  
Common stock retired     (44)     44  
Common stock dividends (127)     (127)      
Share-based compensation 126   126        
Share-based compensation, shares   1          
Subsidiary equity transactions 590   14       576
Distributions to noncontrolling interests (354)           (354)
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) 3,224     3,064     160
Other comprehensive earnings (loss), net of tax (108)       (108)    
Restricted stock grants, net of cancellations, shares   3          
Common stock repurchased (3,017)         (3,017)  
Common stock retired   $ (8) (2,987)     2,995  
Common stock retired, shares   (79)          
Common stock dividends (149)     (149)      
Share-based compensation 140   140        
Share-based compensation, shares   1          
Divestment of subsidiary equity investment (4,861)       2   (4,863)
Subsidiary equity transactions 72           72
Distributions to noncontrolling interests (219)           $ (219)
Other       33 (33)    
Balance at Dec. 31, 2018 $ 9,186 $ 45 $ 4,486 $ 3,650 $ 1,027 $ (22)  
Balance, shares at Dec. 31, 2018   450          
v3.10.0.1
Summary Of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies

1.

Summary of Significant Accounting Policies

Devon is a leading independent energy company engaged primarily in the exploration, development and production of oil, natural gas and NGLs. Devon’s operations are concentrated in various North American onshore areas in the U.S. and Canada.

As further discussed in Note 2, Devon sold its interests in EnLink and the General Partner on July 18, 2018. Activity relating to EnLink and the General Partner are classified as discontinued operations within Devon’s consolidated comprehensive statements of earnings and consolidated statements of cash flows. The associated assets and liabilities of EnLink and the General Partner are presented as assets and liabilities held for sale on the consolidated balance sheets.

Accounting policies used by Devon and its subsidiaries conform to accounting principles generally accepted in the U.S. and reflect industry practices. The more significant of such policies are discussed below.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Devon and entities in which it holds a controlling interest. All intercompany transactions have been eliminated. Undivided interests in oil and natural gas exploration and production joint ventures are consolidated on a proportionate basis. Investments in non-controlled entities, over which Devon has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. In applying the equity method of accounting, the investments are initially recognized at cost and subsequently adjusted for Devon’s proportionate share of earnings, losses, contributions and distributions. Investments accounted for using the equity method and cost method are reported as a component of other long-term assets.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from these estimates, and changes in these estimates are recorded when known. Significant items subject to such estimates and assumptions include the following:

 

proved reserves and related present value of future net revenues;

 

evaluation of suspended well costs;

 

the carrying and fair values of oil and gas properties, other property and equipment and product and equipment inventories;

 

derivative financial instruments;

 

the fair value of reporting units and related assessment of goodwill for impairment;

 

income taxes;

 

asset retirement obligations;

 

obligations related to employee pension and postretirement benefits;

 

legal and environmental risks and exposures; and

 

general credit risk associated with receivables and other assets.

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:

 

 

Year Ended December 31, 2018

 

 

 

Under ASC

606

 

 

Under ASC

605

 

 

Increase/

(Decrease)

 

Upstream revenues

 

$

6,285

 

 

$

6,031

 

 

$

254

 

Marketing revenues

 

 

4,449

 

 

 

4,449

 

 

 

 

Total impacted revenues

 

$

10,734

 

 

$

10,480

 

 

$

254

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production expenses

 

$

2,225

 

 

$

1,971

 

 

$

254

 

Marketing expenses

 

 

4,363

 

 

 

4,363

 

 

 

 

Total impacted expenses

 

$

6,588

 

 

$

6,334

 

 

$

254

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing

   operations before income taxes

 

$

920

 

 

$

920

 

 

$

 

 

Changes to upstream revenues and production expenses are due to the conclusion that Devon represents the principal and controls a promised product before transferring it to the ultimate third party customer in accordance with the control model in ASC 606. This is a change from previous conclusions reached for these agreements utilizing the principal versus agent indicators under ASC 605 where the assessment was focused on Devon passing title and not control to the processing entity and Devon ultimately receiving a net price from the third-party end customer. As a result, Devon has changed the presentation of revenues and expenses for these agreements. Revenues related to these agreements are now presented on a gross basis for amounts expected to be received from third-party customers through the marketing process. Gathering, processing and transportation expenses related to these agreements, incurred prior to the transfer of control to the customer at the tailgate of the natural gas processing facilities, are now presented as production expenses.

Upstream Revenues

Upstream revenues include the sale of oil, gas and NGL production. Oil, gas and NGL sales are recognized when production is sold to a purchaser at a fixed or determinable price, delivery has occurred, control has transferred and collectability of the revenue is probable. Devon’s performance obligations are satisfied at a point in time. This occurs when control is transferred to the purchaser upon delivery of contract specified production volumes at a specified point. The transaction price used to recognize revenue is a function of the contract billing terms. Revenue is invoiced, if required, by calendar month based on volumes at contractually based rates with payment typically received within 30 days of the end of the production month. Taxes assessed by governmental authorities on oil, gas and NGL sales are presented separately from such revenues in the accompanying consolidated comprehensive statements of earnings.

 

Natural gas and NGL sales

Under Devon’s natural gas processing contracts, natural gas is delivered to a midstream processing entity at the wellhead or the inlet of the midstream processing entity’s system. The midstream processing entity gathers and processes the natural gas and remits proceeds for the resulting sales of NGLs and residue gas. In these scenarios, Devon evaluates whether it is the principal or the agent in the transaction. Devon has concluded it is the principal under these contracts and the ultimate third party is the customer. Revenue is recognized on a gross basis, with gathering, processing and transportation fees presented as a component of production expenses in the consolidated comprehensive statements of earnings.

In certain natural gas processing agreements, Devon may elect to take residue gas and/or NGLs in-kind at the tailgate of the midstream entity’s processing plant and subsequently market the product. Through the marketing process, the product is delivered to the ultimate third-party purchaser at a contractually agreed-upon delivery point, and Devon receives a specified index price from the purchaser. In this scenario, revenue is recognized when control transfers to the purchaser at the delivery point based on the index price received from the purchaser. The gathering, processing and compression fees attributable to the gas processing contract, as well as any transportation fees incurred to deliver the product to the purchaser, are presented as gathering, processing and transportation expense as a component of production expenses in the consolidated comprehensive statements of earnings.

Oil sales

Devon’s oil sales contracts are generally structured in one of two ways. First, production is sold at the wellhead at an agreed-upon index price, net of pricing differentials. In this scenario, revenue is recognized when control transfers to the purchaser at the wellhead at the net price received. Alternatively, production is delivered to the purchaser at a contractually agreed-upon delivery point at which the purchaser takes custody, title and risk of loss of the product. Under this arrangement, a third party is paid to transport the product and Devon receives a specified index price from the purchaser with no transportation deduction. In this scenario, revenue is recognized when control transfers to the purchaser at the delivery point based on the price received from the purchaser. The third-party costs are recorded as gathering, processing and transportation expense as a component of production expenses in the consolidated comprehensive statements of earnings.

Marketing Revenues

Marketing revenues are generated primarily as a result of Devon selling commodities purchased from third parties. Marketing revenues are recognized when performance obligations are satisfied. This occurs at the time contract specified products are sold to third parties at a contractually fixed or determinable price, delivery occurs at a specified point or performance has occurred, control has transferred and collectability of the revenue is probable. The transaction price used to recognize revenue and invoice customers is based on a contractually stated fee or on a third party published index price plus or minus a known differential. Devon typically receives payment for invoiced amounts within 30 days. Marketing revenues and expenses attributable to oil, gas and NGL purchases are reported on a gross basis when Devon takes control of the products and has risks and rewards of ownership.


Satisfaction of Performance Obligations and Revenue Recognitions

Because 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 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 is deferred and recognized when all revenue recognition criteria are met. Contract liabilities generated from such deferred revenue are not considered material as of December 31, 2018. Devon’s product sales and marketing contracts do not give rise to contract assets.

 

Disaggregation of Revenue

 

Revenue from oil, gas and NGL sales and marketing revenues represent revenue from contracts with customers. Disaggregation of revenue disclosures can be found in Note 22.

 

Customers

 

During 2018, Devon had one purchaser that accounted for approximately 11% of Devon’s consolidated sales revenue.

 

During 2017 and 2016, no purchaser accounted for more than 10% of Devon’s consolidated sales revenue.

 

Derivative Financial Instruments

Devon is exposed to certain risks relating to its ongoing business operations, including risks related to commodity prices, interest rates and Canadian to U.S. dollar exchange rates. As discussed more fully below, Devon uses derivative instruments primarily to manage commodity price risk, interest rate risk and foreign exchange risk. Devon does not intend to issue or hold derivative financial instruments for speculative trading purposes.

Devon enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production to hedge future prices received. These instruments are used to manage the inherent uncertainty of future revenues resulting from commodity price volatility. Devon’s derivative financial instruments typically include financial price swaps, basis swaps and costless price collars. Under the terms of the price swaps, Devon receives a fixed price for its production and pays a variable market price to the contract counterparty. For the basis swaps, Devon receives a fixed differential between two regional index prices and pays a variable differential on the same two index prices to the contract counterparty. For price collars, Devon utilizes both two-way price collars and three-way price collars. The two-way price collars set a floor and ceiling price for the hedged production. If the applicable monthly price indices are outside of the ranges set by the floor and ceiling prices in the various collars, Devon will cash-settle the difference with the counterparty. The three-way price collars consist of a two-way collar with an additional short put option sold by Devon, and cash-settle similarly to the two-way collars unless the market price falls below the additional short put causing the company to receive the market price plus the long put to short put price differential.

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 December 31, 2018, Devon did not have any open foreign exchange contracts.

All derivative financial instruments are recognized at their current fair value as either assets or liabilities in the balance sheet. Changes in the fair value of these derivative financial instruments are recorded in earnings unless specific hedge accounting criteria are met. For derivative financial instruments held during the three-year period ended December 31, 2018, Devon chose not to meet the necessary criteria to qualify its derivative financial instruments for hedge accounting treatment. Cash settlements with counterparties on Devon’s derivative financial instruments are also recorded in earnings.

By using derivative financial instruments to hedge exposures to changes in commodity prices, interest rates and foreign currency rates, 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 require cash collateral to be posted if either its or the counterparty’s credit rating falls below certain credit rating levels. As of December 31, 2018, Devon held no cash collateral of its counterparties nor posted collateral to its counterparties.

General and Administrative Expenses

G&A is reported net of amounts reimbursed by working interest owners of the oil and gas properties operated by Devon.

Share-Based Compensation

Devon grants share-based awards to members of its Board of Directors and select employees. All such awards are measured at fair value on the date of grant and are generally recognized as a component of G&A in the accompanying consolidated comprehensive statements of earnings over the applicable requisite service periods. As a result of Devon’s restructuring activity discussed in Note 6, certain share-based awards were accelerated and recognized as a component of restructuring costs in the accompanying consolidated comprehensive statements of earnings.

Generally, Devon uses new shares from approved incentive programs to grant share-based awards and to issue shares upon stock option exercises. Shares repurchased under approved programs are generally available to be issued as part of Devon’s share-based awards. However, Devon has historically canceled these shares upon repurchase.

Income Taxes

Devon is subject to current income taxes assessed by the federal and various state jurisdictions in the U.S. and by other foreign jurisdictions. In addition, Devon accounts for deferred income taxes related to these jurisdictions using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

Deferred tax assets are also recognized for the future tax benefits attributable to the expected utilization of existing tax net operating loss carryforwards and other types of carryforwards. If the future utilization of some portion of the deferred tax assets is determined to be unlikely, a valuation allowance is provided to reduce the recorded tax benefits from such assets. Devon periodically weighs the positive and negative evidence to determine if it is more likely than not that some or all of the deferred tax assets will be realized. Forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence, such as cumulative losses in recent years. See Note 8 for further discussion.

Devon recognizes the financial statement effects of tax positions when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by a taxing authority. Recognized tax positions are initially and subsequently measured as the largest amount of tax benefit that is more likely than not of being realized upon ultimate settlement with a taxing authority. Liabilities for unrecognized tax benefits related to such tax positions are included in other long-term liabilities unless the tax position is expected to be settled within the upcoming year, in which case the liabilities are included in other current liabilities. Interest and penalties related to unrecognized tax benefits are included in current income tax expense.

Devon estimates its annual effective income tax rate in recording its provision for income taxes in the various jurisdictions in which it operates. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the period in which they occur.

Net Earnings (Loss) Per Share Attributable to Devon

Devon’s basic earnings per share amounts have been computed based on the average number of shares of common stock outstanding for the period. Basic earnings per share includes the effect of participating securities, which primarily consist of Devon’s outstanding restricted stock awards, as well as performance-based restricted stock awards that have met the requisite performance targets. Diluted earnings per share is calculated using the treasury stock method to reflect the assumed issuance of common shares for all potentially dilutive securities. Such securities primarily consist of unvested performance share units.

Cash and Cash Equivalents

Devon considers all highly liquid investments with original contractual maturities of three months or less to be cash equivalents.

Accounts Receivable

Devon’s accounts receivable balance primarily consists of oil and gas sales receivables, marketing revenue receivables and joint interest receivables for which Devon does not require collateral security. Devon has established an allowance for bad debts equal to the estimable portions of accounts receivable, including joint interest receivables, for which failure to collect is considered probable. When a portion of the receivable is deemed uncollectible, the write-off is made against the allowance.

Property and Equipment

Oil and Gas Property and Equipment

Devon follows the successful efforts method of accounting for its oil and gas properties. Exploration costs, such as exploratory geological and geophysical costs, and costs associated with nonproductive exploratory wells, delay rentals and exploration overhead are charged against earnings as incurred. Costs of drilling successful

exploratory wells along with acquisition costs and the costs of drilling development wells, including those that are unsuccessful, are capitalized. Devon groups its oil and gas properties with a common geological structure or stratigraphic condition (“common operating field”) for purposes of computing DD&A, assessing proved property impairments and accounting for asset dispositions.

Exploratory drilling costs and exploratory-type stratigraphic test wells are initially capitalized, or suspended, pending the determination of proved reserves. If proved reserves are found, drilling costs remain capitalized as proved properties. Costs of unsuccessful wells are charged to exploration expense. For exploratory wells that find reserves that cannot be classified as proved when drilling is completed, costs continue to be capitalized as suspended exploratory well costs if there have been sufficient reserves found to justify completion as a producing well and sufficient progress is being made in assessing the reserves and the economic and operating viability of the project. If management determines that future appraisal drilling or development activities are unlikely to occur, associated suspended exploratory well costs are expensed. In some instances, this determination may take longer than one year. Devon reviews the status of all suspended exploratory drilling costs quarterly.

 

Capitalized costs of proved oil and gas properties are depleted by an equivalent unit-of-production method, converting gas to oil at the ratio of six Mcf of gas to one Bbl of oil. Proved leasehold acquisition costs, less accumulated amortization, are depleted over total proved reserves, which includes proved undeveloped reserves. Capitalized costs of wells and related equipment and facilities, including estimated asset retirement costs, net of estimated salvage values and less accumulated amortization are depreciated over proved developed reserves associated with those capitalized costs. Depletion is calculated by applying the DD&A rate (amortizable base divided by beginning of period proved reserves) to current period production.

Costs associated with unproved properties are excluded from the depletion calculation until it is determined whether or not proved reserves can be assigned to such properties. Devon assesses its unproved properties for impairment annually, or more frequently if events or changes in circumstances dictate that the carrying value of those assets may not be recoverable. Significant unproved properties are assessed individually. Costs of insignificant unproved properties are amortized to exploration expense on a group basis using estimated lease surrender rates over average lease terms.

Proved properties are assessed for impairment annually, or more frequently if events or changes in circumstances dictate that the carrying value of those assets may not be recoverable. Individual assets are grouped for impairment purposes based on a common operating field. If there is an indication the carrying amount of an asset may not be recovered, the asset is assessed for potential impairment by management through an established process. If, upon review, the sum of the undiscounted pre-tax cash flows is less than the carrying value of the asset, the carrying value is written down to estimated fair value. Because there is usually a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined based on the present values of expected future cash flows using discount rates believed to be consistent with those used by principal market participants or by comparable transactions. The expected future cash flows used for impairment reviews and related fair value calculations are typically based on judgmental assessments of future production volumes, commodity prices, operating costs, and capital investment plans, considering all available information at the date of review.

Gains or losses are recorded for sales or dispositions of oil and gas properties which constitute an entire common operating field or which result in a significant alteration of the common operating field’s DD&A rate. These gains and losses are classified as asset dispositions in the accompanying consolidated statements of earnings. Partial common operating field sales or dispositions deemed not to significantly alter the DD&A rates are generally accounted for as adjustments to capitalized costs with no gain or loss recognized.

Devon capitalizes interest costs incurred and attributable to material unproved oil and gas properties and major development projects of oil and gas properties.

Other Property and Equipment

Depreciation and amortization of other property and equipment, including corporate and leasehold improvements, are provided using the straight-line method based on estimated useful lives ranging from three to 60 years. Interest costs incurred and attributable to major corporate construction projects are also capitalized.

 

Asset Retirement Obligations

Devon recognizes liabilities for retirement obligations associated with tangible long-lived assets, such as producing well sites when there is a legal obligation associated with the retirement of such assets and the amount can be reasonably estimated. The initial measurement of an asset retirement obligation is recorded as a liability at its fair value, with an offsetting asset retirement cost recorded as an increase to the associated property and equipment on the consolidated balance sheet. When the assumptions used to estimate a recorded asset retirement obligation change, a revision is recorded to both the asset retirement obligation and the asset retirement cost. Devon’s asset retirement obligations also include estimated environmental remediation costs which arise from normal operations and are associated with the retirement of such long-lived assets. The asset retirement cost is depreciated using a systematic and rational method similar to that used for the associated property and equipment.

Goodwill

Goodwill represents the excess of the purchase price of business combinations over the fair value of the net assets acquired and is tested for impairment annually, or more frequently if events or changes in circumstances dictate that the carrying value of goodwill may not be recoverable. Such test includes a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, then a quantitative goodwill impairment test is performed. The quantitative goodwill impairment test requires the fair value of each reporting unit be compared to the carrying value of the reporting unit. If the fair value of the reporting unit is less than the carrying value, an impairment charge will be recognized for the amount by which the carrying amount exceeds the fair value. Because quoted market prices are not available for Devon’s reporting units, the fair values of the reporting units are estimated based upon several valuation analyses, including comparable companies, comparable transactions and premiums paid.

Devon performed impairment tests of goodwill in the fourth quarters of 2018, 2017 and 2016. No impairment was required as a result of the annual tests in these time periods.

Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Liabilities for environmental remediation or restoration claims resulting from allegations of improper operation of assets are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. Expenditures related to such environmental matters are expensed or capitalized in accordance with Devon’s accounting policy for property and equipment.

Fair Value Measurements

Certain of Devon’s assets and liabilities are measured at fair value at each reporting date. Fair value represents the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants. This price is commonly referred to as the “exit price.” Fair value measurements are classified according to a hierarchy that prioritizes the inputs underlying the valuation techniques. This hierarchy consists of three broad levels:

 

Level 1 – Inputs consist of unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority. When available, Devon measures fair value using Level 1 inputs because they generally provide the most reliable evidence of fair value.

 

Level 2 – Inputs consist of quoted prices that are generally observable for the asset or liability. Common examples of Level 2 inputs include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in markets not considered to be active.

 

Level 3 – Inputs are not observable from objective sources and have the lowest priority. The most common Level 3 fair value measurement is an internally developed cash flow model.

Foreign Currency Translation Adjustments

The U.S. dollar is the functional currency for Devon’s consolidated operations except its Canadian subsidiaries, which use the Canadian dollar as the functional currency. Assets and liabilities of the Canadian subsidiaries are translated to U.S. dollars using the applicable exchange rate as of the end of a reporting period. Revenues, expenses and cash flow are translated using an average exchange rate during the reporting period. Translation adjustments have no effect on net income and are included in accumulated other comprehensive earnings in stockholders’ equity.

Noncontrolling Interests

Noncontrolling interests represent third-party ownership in the net assets of Devon’s consolidated subsidiaries and are presented as a component of equity. Changes in Devon’s ownership interests in subsidiaries that do not result in deconsolidation are recognized in equity.

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 revenue recognition section above for further discussion regarding Devon’s adoption of this revenue recognition standard.

In January 2018, Devon adopted ASU 2017-07, Compensation – Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires entities to present the service cost component of net periodic benefit cost in the same line item as other employee compensation costs. Only the service cost component of net periodic benefit cost is eligible for capitalization. As a result of the adoption of this ASU, consolidated statements of earnings presentation changes were applied retrospectively, while service cost component capitalization was applied prospectively. Upon adoption, Devon reclassified $7 million and $14 million of non-service cost components of net periodic benefit costs for 2017 and 2016, respectively, from G&A to other expenses.

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

In the fourth quarter of 2018, Devon early adopted 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. As a result of adopting this ASU, Devon reclassified $33 million from accumulated other comprehensive income to retained earnings in the December 31, 2018 consolidated balance sheet.

In the fourth quarter of 2018, Devon early adopted ASU 2018-14, Compensation, Retirement Benefits and Defined Benefit Plans (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU eliminated and added certain disclosure requirements for employers that sponsors defined benefit plans and/or other postretirement plans. Other than changes to required disclosures, this ASU did not have a material impact on Devon’s consolidated financial statements and related disclosures.

The SEC released Final Rule No. 33 -10532, Disclosure Update and Simplification, which amends various SEC disclosure requirements determined to be redundant, duplicative, overlapping, outdated or superseded as part of the SEC’s ongoing disclosure effectiveness initiative. The rule was effective November 5, 2018. The rule amended numerous SEC rules, items and forms covering a diverse group of topics. Devon has implemented these required changes to disclosures which generally reduced or eliminated disclosures. Devon will adopt the requirement of presenting a current and comparative year-to-date change in stockholder’s equity roll forward during the first quarter of 2019.

Issued Accounting Standards Not Yet Adopted

The FASB issued ASU 2016-02, Leases (Topic 842). This ASU will supersede the lease requirements in Topic 840, Leases. Its objective is to increase transparency and comparability among organizations. This ASU provides guidance requiring lessees to recognize most leases on their balance sheet. Short-term leases can continue being accounted for off balance sheet based on a policy election. Lessor accounting does not significantly change, except for some changes made to align with new revenue recognition requirements. Devon is adopting this ASU beginning January 1, 2019.

Devon will apply the guidance using a modified retrospective transition method at the adoption date. Devon has elected the practical expedient provided in the standard that allows the new guidance to be applied prospectively to all new or modified land easements and rights-of-way. Devon also has elected a policy not to recognize right-of-use assets and lease liabilities related to short-term leases. Devon will be allowed to continue to apply the legacy guidance in Topic 840, including its disclosure requirements, in the comparative periods presented with the 2019 adoption year. Devon has implemented processes, controls, and a technology solution needed to comply with the requirements of this ASU.

To adopt Topic 842, Devon expects to recognize right-of-use assets of approximately $400 million with a corresponding lease liability based on the present value of the remaining term minimum lease payments. Devon’s right-of-use assets are for certain leases related to real estate, drilling rigs and other equipment related to the exploration, development and production of oil and gas. Additionally, Devon will recognize a $24 million before tax, $19 million net of tax cumulative-effect adjustment to reduce retained earnings.

 

The FASB issued ASU 2018-04, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement. This ASU will eliminate, add and modify certain disclosure requirements for fair value measurement. The ASU is effective for annual and interim periods beginning January 1, 2020, with early adoption permitted for either the entire standard or only the provisions that eliminate or modify requirements. The ASU requires the additional disclosure requirements to be adopted using a retrospective approach. Devon is currently evaluating the provisions of this ASU and assessing the impact it may have on its disclosures in the notes to the consolidated financial statements.

 

The FASB issued ASU 2018-05-15, Intangibles, Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This ASU will require a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. This ASU is effective for annual and interim periods beginning January 1, 2020, with early adoption permitted. Entities have the option to adopt the ASU using either a retrospective approach or a prospective approach applied to all implementation costs incurred after the date of the adoption. Devon is currently evaluating the provisions of this ASU and assessing the impact it may have on its consolidated financial statements.

v3.10.0.1
Acquisitions And Divestitures
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Acquisitions And Divestitures

2.

Acquisitions and Divestitures

Acquisitions

In January 2016, Devon acquired approximately 80,000 net acres and assets in the STACK play for approximately $1.5 billion. Devon funded the acquisition with $849 million of cash, after adjustments, and $659 million of equity. The allocation of the purchase price was approximately $1.3 billion to unproved properties and approximately $200 million to proved properties.

Divestitures

 

EnLink and General Partner

 

During the third quarter of 2018, Devon completed the sale of its aggregate ownership interests in EnLink and the General Partner for $3.125 billion and recognized a gain of approximately $2.6 billion ($2.2 billion after-tax). The proceeds from the sale were utilized to increase Devon’s share repurchase program to $4.0 billion, which is discussed further in Note 18. Additional information on these discontinued operations can be found in Note 19.

 

Upstream Assets

During 2018, Devon received proceeds of approximately $1.0 billion and recognized a net gain on asset dispositions of approximately $260 million, primarily from sales of non-core assets in the Barnett Shale and Delaware Basin. As part of the transactions, approximately $84 million of asset retirement obligations were assumed by the purchasers. In conjunction with the divestitures, Devon settled certain gas processing contracts and recognized $40 million in settlement expense, which is included in asset dispositions within the 2018 consolidated statements of earnings. In aggregate, the total estimated proved reserves associated with these divested assets were approximately 267 MMBoe, or 18%, of total U.S. proved reserves.  

Additionally, in the first quarter of 2019, Devon completed two separate divestitures of non-core assets in the Permian Basin totaling $300 million. One of the divestitures related to the sale of an entire common operating field, and Devon expects to recognize a gain of approximately $35 million during the first quarter of 2019. As of December 31, 2018, these associated assets and liabilities were classified as held for sale in the accompanying consolidated balance sheet. See Note 19 for additional information. In aggregate, the total estimated proved reserves associated with these divested assets were approximately 25 MMBoe, or less than 2%, of total U.S. proved reserves.

During 2017, Devon received proceeds totaling approximately $420 million, and recognized a net gain on asset dispositions of $212 million. Estimated proved reserves associated with these assets were less than 1% of total U.S. proved reserves.

During 2016, Devon received proceeds totaling approximately $1.9 billion and recognized a net gain on asset dispositions of $809 million, primarily from sales of non-core assets in the Mississippian, east Texas, the Anadarko Basin and the Midland Basin. Estimated proved reserves associated with these assets were approximately 157 MMBoe, or 10%, of total U.S. proved reserves. As part of the transactions, approximately $290 million of asset retirement obligations were assumed by purchasers and approximately $80 million of goodwill was allocated to these divested assets.

 

Access Pipeline

In October 2016, Devon divested its 50% interest in Access Pipeline for $1.1 billion ($1.4 billion Canadian dollars) and recognized a gain of approximately $540 million on the transaction. In conjunction with the divestiture, Devon entered into a transportation agreement whereby Devon’s Canadian thermal-oil acreage is dedicated to Access Pipeline for an initial term of 25 years. Devon will be charged a market-based toll on its thermal-oil production over this term. Devon is committed to use less than 90% of the potential pipeline capacity. In addition, Devon is entitled to an incremental payment of approximately $150 million Canadian dollars following sanctioning and committing to the requisite volume increase in respect of a new thermal-oil project on Devon’s Pike lease in Alberta, with such incremental payment being received prior to tolls being payable on such volumes.

Canada and Barnett Shale (Subsequent Event)

In February 2019, Devon announced its intent to separate its Canadian business and Barnett Shale assets from the Company, based on authorizations provided by its Board of Directors subsequent to December 31, 2018. Devon will evaluate multiple methods of separation for these assets, including potential sales or spin-offs. Devon is in the early stages of marketing these assets and does not currently have any indications that it would recognize an impairment upon separating its Canadian business or its Barnett Shale assets.

Devon anticipates reporting all financial information for its Canadian business and Barnett Shale assets as discontinued operations in 2019 when all the requisite criteria are met for such financial statement presentation.

v3.10.0.1
Derivative Financial Instruments
12 Months Ended
Dec. 31, 2018
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

3.

Derivative Financial Instruments

Commodity Derivatives

As of December 31, 2018, Devon had the following open oil derivative positions. The first two tables present Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The third 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)

 

Q1-Q4 2019

 

 

51,719

 

 

$

59.48

 

 

 

87,921

 

 

$

54.48

 

 

$

64.49

 

Q1-Q4 2020

 

 

1,740

 

 

$

62.88

 

 

 

8,951

 

 

$

52.85

 

 

$

63.13

 

 

 

 

Three-Way Price Collars

 

Period

 

Volume

(Bbls/d)

 

 

Weighted

Average Floor Sold

Price ($/Bbl)

 

 

Weighted

Average Floor Purchased

Price ($/Bbl)

 

 

Weighted

Average

Ceiling Price

($/Bbl)

 

Q1-Q4 2019

 

 

5,000

 

 

$

50.00

 

 

$

63.00

 

 

$

74.80

 

 

 

 

Oil Basis Swaps

 

Period

 

Index

 

Volume

(Bbls/d)

 

 

Weighted Average

Differential to WTI

($/Bbl)

 

Q1-Q4 2019

 

Midland Sweet

 

 

28,000

 

 

$

(0.46

)

Q1-Q4 2019

 

Argus LLS

 

 

17,500

 

 

$

5.00

 

Q1-Q4 2019

 

Argus MEH

 

 

16,000

 

 

$

2.84

 

Q1-Q4 2019

 

NYMEX Roll

 

 

38,000

 

 

$

0.45

 

Q1-Q4 2019

 

Western Canadian Select

 

 

31,505

 

 

$

(21.73

)

Q1-Q4 2020

 

NYMEX Roll

 

 

38,000

 

 

$

0.31

 

Q1-Q4 2020

 

Western Canadian Select

 

 

915

 

 

$

(20.75

)

 

As of December 31, 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)

 

Q1-Q4 2019

 

 

266,293

 

 

$

2.86

 

 

 

231,474

 

 

$

2.69

 

 

$

3.06

 

Q1-Q4 2020

 

 

26,480

 

 

$

2.92

 

 

 

24,490

 

 

$

2.74

 

 

$

3.04

 

 

 

 

Natural Gas Basis Swaps

 

Period

 

Index

 

Volume

(MMBtu/d)

 

 

Weighted Average

Differential to

Henry Hub

($/MMBtu)

 

Q1-Q4 2019

 

Panhandle Eastern Pipe Line

 

 

84,466

 

 

$

(0.73

)

Q1-Q4 2019

 

El Paso Natural Gas

 

 

130,000

 

 

$

(1.46

)

Q1-Q4 2019

 

Houston Ship Channel

 

 

142,637

 

 

$

0.01

 

Q1-Q4 2019

 

Transco Zone 4

 

 

7,397

 

 

$

(0.03

)

 

As of December 31, 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)

 

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 December 31, 2018, Devon had the following open interest rate derivative positions:

 

Notional

 

 

Rate Received

 

 

Rate Paid

 

Expiration

$

100

 

 

1.76%

 

 

Three Month LIBOR

 

January 2019

 

In January 2019, this interest rate derivative position settled.

 

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.

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Commodity derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Upstream revenues

 

$

608

 

 

$

157

 

 

$

(201

)

Marketing revenues

 

 

(1

)

 

 

3

 

 

 

(2

)

Interest rate derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses

 

 

65

 

 

 

(22

)

 

 

(19

)

Foreign currency derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

 

 

 

(153

)

Net gains (losses) recognized

 

$

672

 

 

$

138

 

 

$

(375

)

 

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

 

 

 

December 31, 2018

 

 

December 31, 2017

 

Commodity derivative assets:

 

 

 

 

 

 

 

 

Other current assets

 

$

637

 

 

$

203

 

Other long-term assets

 

 

40

 

 

 

2

 

Interest rate derivative assets:

 

 

 

 

 

 

 

 

Other current assets

 

 

 

 

 

1

 

Total derivative assets

 

$

677

 

 

$

206

 

Commodity derivative liabilities:

 

 

 

 

 

 

 

 

Other current liabilities

 

$

67

 

 

$

259

 

Other long-term liabilities

 

 

1

 

 

 

27

 

Interest rate derivative liabilities:

 

 

 

 

 

 

 

 

Other current liabilities

 

 

 

 

 

64

 

Total derivative liabilities

 

$

68

 

 

$

350

 

v3.10.0.1
Share-Based Compensation
12 Months Ended
Dec. 31, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Share-Based Compensation

4.

Share-Based Compensation

In 2017, Devon’s stockholders approved the 2017 Plan. The 2017 Plan replaces the 2015 Plan. From the effective date of the 2017 Plan, no further awards may be made under the 2015 Plan, and awards previously granted will continue to be governed by the terms of the respective award documents. Subject to the terms of the 2017 Plan, awards may be made for a total of 33.5 million shares of Devon common stock, plus the number of shares available for issuance under the 2015 Plan (including shares subject to outstanding awards that were transferred to the 2017 Plan in accordance with its terms). The 2017 Plan authorizes the Compensation Committee, which consists of independent, non-management members of Devon’s Board of Directors, to grant nonqualified and incentive stock options, restricted stock awards or units, Canadian restricted stock units, performance units and stock appreciation rights to eligible employees. The 2017 Plan also authorizes the grant of nonqualified stock options, restricted stock awards or units and stock appreciation rights to non-employee directors. To calculate the number of shares that may be granted in awards under the 2017 Plan, options and stock appreciation rights represent one share and other awards represent 2.3 shares.

The vesting for certain share-based awards was accelerated in 2018 and 2016 in conjunction with the reduction of workforce activities described in Note 6 and is included in restructuring and transaction costs in the accompanying consolidated comprehensive statements of earnings.

 

The table below presents the share-based compensation expense included in Devon’s accompanying consolidated comprehensive statements of earnings.

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

G&A

 

$

122

 

 

$

141

 

 

$

124

 

Exploration expenses

 

 

4

 

 

 

7

 

 

 

6

 

Restructuring and transaction costs

 

 

31

 

 

 

 

 

 

60

 

Total

 

$

157

 

 

$

148

 

 

$

190

 

Related income tax benefit

 

$

22

 

 

$

6

 

 

$

6

 

 

The following table presents a summary of Devon’s unvested restricted stock awards and units, performance-based restricted stock awards and performance share units granted under the plans.

 

 

 

Restricted Stock

 

 

Performance-Based

 

 

Performance

 

 

 

Awards and Units

 

 

Restricted Stock Awards

 

 

Share Units

 

 

 

Awards and

Units

 

 

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 12/31/17

 

 

6,328

 

 

$

36.81

 

 

 

575

 

 

$

38.92

 

 

 

2,758

 

 

 

 

 

$

41.21

 

Granted

 

 

3,592

 

 

$

35.98

 

 

 

 

 

$

 

 

 

845

 

 

 

 

 

$

37.40

 

Vested

 

 

(3,114

)

 

$

38.75

 

 

 

(273

)

 

$

42.22

 

 

 

(571

)

 

 

 

 

$

84.22

 

Forfeited

 

 

(843

)

 

$

35.58

 

 

 

 

 

$

 

 

 

(164

)

 

 

 

 

$

33.92

 

Unvested at 12/31/18

 

 

5,963

 

 

$

35.47

 

 

 

302

 

 

$

35.93

 

 

 

2,868

 

 

(1

)

 

$

30.14

 

 

(1)

A maximum of 5.7 million common shares could be awarded based upon Devon’s final TSR ranking.

 

The following table presents the aggregate fair value of awards and units that vested during the indicated period.

 

 

 

2018

 

 

2017

 

 

2016

 

Restricted Stock Awards and Units

 

$

111

 

 

$

105

 

 

$

73

 

Performance-Based Restricted Stock Awards

 

$

10

 

 

$

10

 

 

$

5

 

Performance Share Units

 

$

20

 

 

$

38

 

 

$

13

 

 

The following table presents the unrecognized compensation cost and the related weighted average recognition period associated with unvested awards and units as of December 31, 2018.

 

 

 

 

 

 

 

Performance-Based

 

 

 

 

 

 

 

Restricted Stock

 

 

Restricted Stock

 

 

Performance

 

 

 

Awards and Units

 

 

Awards

 

 

Share Units

 

Unrecognized compensation cost

 

$

117

 

 

$

1

 

 

$

23

 

Weighted average period for recognition (years)

 

 

2.4

 

 

 

1.0