DEVON ENERGY CORP/DE, 10-Q filed on 5/2/2018
Quarterly Report
v3.8.0.1
Document And Entity Information - shares
shares in Millions
3 Months Ended
Mar. 31, 2018
Apr. 18, 2018
Document And Entity Information [Abstract]    
Document Type 10-Q  
Document Period End Date Mar. 31, 2018  
Amendment Flag false  
Trading Symbol DVN  
Entity Registrant Name DEVON ENERGY CORP/DE  
Entity Central Index Key 0001090012  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2018  
Entity Filer Category Large Accelerated Filer  
Document Fiscal Period Focus Q1  
Entity Common Stock, Shares Outstanding   523.4
v3.8.0.1
Consolidated Comprehensive Statements Of Earnings - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Income Statement [Abstract]    
Upstream revenues $ 1,319 $ 1,541
Marketing and midstream revenues 2,491 2,010
Total revenues 3,810 3,551
Production expenses 543 457
Exploration expenses 33 95
Marketing and midstream expenses 2,214 1,814
Depreciation, depletion and amortization 537 528
Asset impairments   7
Asset dispositions (12) (3)
General and administrative expenses 226 231
Financing costs, net 431 128
Other expenses 19 (31)
Total expenses 3,991 3,226
Earnings (loss) before income taxes (181) 325
Income tax expense (benefit) (28) 8
Net earnings (loss) (153) 317
Net earnings attributable to noncontrolling interests 44 14
Net earnings (loss) attributable to Devon $ (197) $ 303
Net earnings (loss) per share attributable to Devon:    
Basic $ (0.38) $ 0.58
Diluted $ (0.38) $ 0.58
Comprehensive earnings (loss):    
Net earnings (loss) $ (153) $ 317
Other comprehensive earnings, net of tax:    
Foreign currency translation and other (48) 8
Pension and postretirement plans 4 5
Other comprehensive earnings, net of tax (44) 13
Comprehensive earnings (loss) (197) 330
Comprehensive earnings attributable to noncontrolling interests 44 14
Comprehensive earnings (loss) attributable to Devon $ (241) $ 316
v3.8.0.1
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Cash flows from operating activities:    
Net earnings (loss) $ (153) $ 317
Adjustments to reconcile net earnings to net cash from operating activities:    
Depreciation, depletion and amortization 537 528
Asset impairments   7
Leasehold impairments 8 42
Accretion on discounted liabilities 16 24
Total (gains) losses on commodity derivatives 41 (232)
Cash settlements on commodity derivatives 11 8
Gain on asset dispositions (12) (3)
Deferred income taxes (32) (12)
Share-based compensation 44 55
Early retirement of debt 312  
Other 26 (24)
Changes in assets and liabilities, net 6 36
Net cash from operating activities 804 746
Cash flows from investing activities:    
Capital expenditures (832) (653)
Acquisitions of property and equipment (6) (20)
Divestitures of property and equipment 48 32
Proceeds from sale of investment   190
Other   (3)
Net cash from investing activities (790) (454)
Cash flows from financing activities:    
Borrowings of long-term debt, net of issuance costs 801 813
Repayments of long-term debt principal (1,236) (587)
Payment of installment payable (250) (250)
Early retirement of debt (304)  
Issuance of subsidiary units 1 55
Repurchases of common stock (71)  
Dividends paid on common stock (32) (32)
Contributions from noncontrolling interests 23 21
Distributions to noncontrolling interests (102) (81)
Shares exchanged for tax withholdings (43) (61)
Other   (2)
Net cash from financing activities (1,213) (124)
Effect of exchange rate changes on cash (15) (8)
Net change in cash, cash equivalents and restricted cash (1,214) 160
Cash, cash equivalents and restricted cash at beginning of period 2,684 1,959
Cash, cash equivalents and restricted cash at end of period 1,470 2,119
Reconciliation of cash, cash equivalents and restricted cash:    
Cash and cash equivalents 1,424 2,119
Restricted cash included in other current assets 46  
Cash, cash equivalents and restricted cash at end of period $ 1,470 $ 2,119
v3.8.0.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 1,424 $ 2,673
Accounts receivable 1,695 1,670
Other current assets 516 448
Total current assets 3,635 4,791
Oil and gas property and equipment, based on successful efforts accounting, net 13,475 13,318
Midstream and other property and equipment, net 7,908 7,853
Total property and equipment, net 21,383 21,171
Goodwill 2,383 2,383
Other long-term assets 1,915 1,896
Total assets 29,316 30,241
Current liabilities:    
Accounts payable 862 819
Revenues and royalties payable 1,269 1,180
Short-term debt [1] 354 115
Other current liabilities 997 1,201
Total current liabilities 3,482 3,315
Long-term debt 9,628 10,291
Asset retirement obligations 1,141 1,113
Other long-term liabilities 567 583
Deferred income taxes 773 835
Equity:    
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 526 million and 525 million shares in 2018 and 2017, respectively 53 53
Treasury stock, at cost, 0.4 million shares in 2018 (12)  
Additional paid-in capital 7,269 7,333
Retained earnings 473 702
Accumulated other comprehensive earnings 1,122 1,166
Total stockholders’ equity attributable to Devon 8,905 9,254
Noncontrolling interests 4,820 4,850
Total equity 13,725 14,104
Total liabilities and equity $ 29,316 $ 30,241
[1] Short-term debt as of March 31, 2018 consists of Devon’s $20 million of 8.25% senior notes due July 1, 2018, $95 million of 2.25% senior notes due December 15, 2018 and $162 million of 6.30% senior notes due January 15, 2019 and $77 million of borrowings under the General Partner’s credit facility due March 7, 2019.
v3.8.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 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 1,000,000,000
Common stock, shares issued (in shares) 526,000,000 525,000,000
Treasury stock, shares 400,000  
v3.8.0.1
Consolidated Statements Of Equity - USD ($)
shares in Millions, $ in Millions
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings (Accumulated Deficit) [Member]
Accumulated Other Comprehensive Earnings [Member]
Treasury Stock [Member]
Noncontrolling Interests [Member]
Balance at Dec. 31, 2016 $ 12,722 $ 52 $ 7,237 $ (69) $ 1,054   $ 4,448
Balance, shares at Dec. 31, 2016   523          
Net earnings (loss) 317     303     14
Other comprehensive earnings (loss), net of tax 13       13    
Restricted stock grants, net of cancellations, value 1 $ 1          
Restricted stock grants, net of cancellations, shares   2          
Common stock repurchased (38)         $ (38)  
Common stock retired     (38)     38  
Common stock dividends (32)     (32)      
Share-based compensation 30   30        
Share-based compensation, shares   1          
Subsidiary equity transactions 85   10       75
Distributions to noncontrolling interests (81)           (81)
Balance at Mar. 31, 2017 13,017 $ 53 7,239 202 1,067   4,456
Balance, shares at Mar. 31, 2017   526          
Balance at Dec. 31, 2017 14,104 $ 53 7,333 702 1,166   4,850
Balance, shares at Dec. 31, 2017   525          
Net earnings (loss) (153)     (197)     44
Other comprehensive earnings (loss), net of tax (44)       (44)    
Restricted stock grants, net of cancellations, shares   3          
Common stock repurchased (111)         (111)  
Common stock retired     (99)     99  
Common stock retired, shares   (3)          
Common stock dividends (32)     (32)      
Share-based compensation 36   36        
Share-based compensation, shares   1          
Subsidiary equity transactions 27   (1)       28
Distributions to noncontrolling interests (102)           (102)
Balance at Mar. 31, 2018 $ 13,725 $ 53 $ 7,269 $ 473 $ 1,122 $ (12) $ 4,820
Balance, shares at Mar. 31, 2018   526          
v3.8.0.1
Summary Of Significant Accounting Policies
3 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies

1.Summary of Significant Accounting Policies

The accompanying unaudited interim financial statements and notes of Devon have been prepared pursuant to the rules and regulations of the SEC. Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. The accompanying unaudited interim financial statements and notes should be read in conjunction with the financial statements and notes included in Devon’s 2017 Annual Report on Form 10-K.

The accompanying unaudited interim financial statements furnished 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 periods ended March 31, 2018 and 2017 and Devon’s financial position as of March 31, 2018.

Recently Adopted Accounting Standards

 

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

 

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

 

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

Issued Accounting Standards Not Yet Adopted

The FASB issued ASU 2016-02, Leases (Topic 842). This ASU will supersede the lease requirements in Topic 840, Leases. Its objective is to increase transparency and comparability among organizations. This ASU provides guidance requiring lessees to recognize most leases on their balance sheet. Lessor accounting does not significantly change, except for some changes made to align with new revenue recognition requirements. This ASU is effective for Devon beginning January 1, 2019. Early adoption is permitted, but Devon does not plan to early adopt. Currently the guidance would be applied using a modified retrospective transition method, which requires applying the new guidance to leases that exist or are entered into after the beginning of the earliest period in the financial statements. However, the FASB recently issued Proposed ASU No. 2018-200, Leases (Topic 842), Targeted Improvements which would allow entities to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in the consolidated financial statements. The proposed ASU will allow entities to continue to apply the legacy guidance in Topic 840, including its disclosure requirements, in the comparative periods presented in the year the new leases standard is adopted. Entities that elect this option would still adopt the new leases standard using a modified retrospective transition method, but would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. Recently, the FASB issued ASU No. 2018-01, Leases (Topic 842), Land Easement Practical Expedient for Transition to Topic 842. This ASU would permit an entity not to apply Topic 842 to land easements and rights-of-way that exist or expired before the effective date of Topic 842 and that were not previously assessed under Topic 840. An entity would continue to apply its current accounting policy for accounting for land easements that existed before the effective date of Topic 842. Once an entity adopts Topic 842, it would apply that Topic prospectively to all new (or modified) land easements and rights-of-way to determine whether the arrangement should be accounted for as a lease. For Devon, these easement and right-of-way contracts represent a relatively small percentage of the aggregate value of contracts being evaluated but represent a significant number of contracts.

Devon has preliminarily determined its portfolio of leased assets and is reviewing all related contracts to determine the impact the adoption will have on its consolidated financial statements and related disclosures. Devon anticipates the adoption of this standard will significantly impact its consolidated financial statements, systems, processes and controls. Devon is in the process of designing processes and controls and implementing a technology solution needed to comply with the requirements of this ASU. While Devon cannot currently estimate the quantitative effect that ASU 2016-02 will have on its consolidated financial statements, the adoption will increase asset and liability balances on the consolidated balance sheets due to the required recognition of right-of-use assets and corresponding lease liabilities.

The FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU will expand hedge accounting for nonfinancial and financial risk components and amend measurement methodologies to more closely align hedge accounting with a company's risk management activities. The guidance also eliminates the requirement to separately measure and report hedge ineffectiveness. This ASU only applies to entities that elect hedge accounting, which Devon has not for derivative financial instruments. This ASU is effective for annual and interim periods beginning January 1, 2019, with early adoption permitted in 2018. The ASU is required to be adopted using a cumulative effect (modified retrospective) transition method, which utilizes a cumulative-effect adjustment to retained earnings in the period of adoption to account for prior period effects rather than restating previously reported results. Devon is currently evaluating the provisions of this ASU and assessing the impact it may have on its consolidated financial statements if hedge accounting were elected by Devon in the future. 

 

The FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220). This ASU allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Reform Legislation. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and allows for early adoption in any interim period after issuance of the update. Devon is currently assessing the impact this ASU will have on its consolidated financial statements.

 

v3.8.0.1
Revenue Recognition
3 Months Ended
Mar. 31, 2018
Revenue From Contract With Customer [Abstract]  
Revenue Recognition

2.

Revenue Recognition

 

Impact of ASC 606 Adoption

 

Devon adopted ASC 606 - Revenue from Contracts with Customers (ASC 606) using the modified retrospective method and has applied the standard to all existing contracts. ASC 606 supersedes previous revenue recognition requirements in ASC 605 and includes a five-step revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration in exchange for those goods or services.

 

The impact of adoption in the current period results is as follows:

 

 

 

Three Months Ended March 31, 2018

 

 

 

Under ASC 606

 

 

Under ASC 605

 

 

Increase/(Decrease)

 

Upstream revenues

 

$

1,319

 

 

$

1,257

 

 

$

62

 

Marketing and midstream revenues

 

 

2,491

 

 

 

2,629

 

 

 

(138

)

Total impacted revenues

 

$

3,810

 

 

$

3,886

 

 

$

(76

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Production expenses

 

$

543

 

 

$

481

 

 

$

62

 

Marketing and midstream expenses

 

 

2,214

 

 

 

2,352

 

 

 

(138

)

Total impacted expenses

 

$

2,757

 

 

$

2,833

 

 

$

(76

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

$

(181

)

 

$

(181

)

 

$

 

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.

Changes to marketing and midstream revenues and expenses are due to the determination of when control is transferred. As a result, Devon has changed the classification of certain transactions from marketing and midstream revenues to expenses or from marketing and midstream expenses to revenues.

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 by calendar month based on volumes at contractually based rates with payment typically received within 30 days of the end of the production month. Taxes assessed by governmental authorities on oil, gas and NGL sales are presented separately from such revenues in the accompanying consolidated comprehensive statements of earnings.

Natural gas and NGL Sales

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

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

Oil sales

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


Marketing and Midstream Revenues

Marketing and midstream revenues are generated as a result of performing gathering, transmission, processing, fractionation, storage, condensate stabilization, brine services and marketing, through various contractual arrangements, which include fee-based arrangements or arrangements where Devon purchases and resells commodities in connection with providing the related service and earns a net margin for its fee. Marketing and midstream revenues are recognized when performance obligations are satisfied. This occurs at the time contract specified products are sold or services are provided 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. Control is transferred from the producer when the midstream processor has discretion on the sale or further processing of the liquids. 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 and midstream revenues and expenses attributable to oil, gas and NGL purchases, transportation and processing contracts are reported on a gross basis when Devon takes control of the products and has risks and rewards of ownership.

For contracts where control of commodities is transferred before the service is performed, Devon generally has no performance obligation for its services, and accordingly, does not consider these revenue-generating service contracts. Based on that determination, all fees or fee-equivalent deductions stated in such contracts reduce the cost to purchase commodities. Alternatively, for contracts where control of commodities is transferred after the service is performed, Devon considers these contracts to contain performance obligations for its services. Accordingly, Devon considers the satisfaction of these performance obligations as revenue-generating and recognizes these fees as midstream services revenue at the time its performance obligations are satisfied. For contracts where control of commodities is never transferred, Devon simply earns a fee for its services and recognizes these fees as midstream services revenue at the time its performance obligations are satisfied.


Satisfaction of Performance Obligations and Revenue Recognitions

Since Devon has a right to consideration from its customers in amounts that correspond directly to the value that the customer receives from the performance completed on each contract, Devon applies the practical expedient in ASC 606 that allows recognition of revenue in the amount to which there is a right to invoice and prevents the need to estimate a transaction price for each contract and allocating that transaction price to the performance obligations within each contract. Devon recognizes revenue for sales or services at the time the natural gas, NGLs, crude oil or condensate are delivered at a fixed or determinable price.

Transaction Price Allocated to Remaining Performance Obligations

Most of Devon’s contracts are short-term in nature with a contract term of one year or less. Devon applies the practical expedient in ASC 606 exempting the disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less. For contracts with terms greater than one year, Devon applies the practical expedient in ASC 606 exempting the disclosure of the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under Devon’s contracts, each unit of product typically represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

 

Contract Balances

 

Cash received relating to future performance obligations are deferred and recognized when all revenue recognition criteria are met. Contract liabilities generated from such deferred revenue are not considered material as of March 31, 2018. Devon’s product sales and marketing and midstream contracts do not give rise to contract assets under ASC 606.


Disaggregation of Revenue

 

Revenue from both upstream revenues and marketing and midstream revenues represent revenue from contracts with customers and these revenue line items are reflected in the consolidated comprehensive statements of earnings. The following table presents revenue from contracts with customers that are disaggregated based on the type of good or service. During the quarter ended March 31, 2018, no purchaser accounted for more than 10% of Devon’s consolidated sales revenue.

 

 

 

Three Months Ended March 31, 2018

 

 

 

U.S.

 

 

Canada

 

 

EnLink (1)

 

 

Total

 

Revenues from contracts with customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

$

677

 

 

$

230

 

 

$

 

 

$

907

 

Gas

 

 

255

 

 

 

 

 

 

 

 

 

255

 

NGL

 

 

198

 

 

 

 

 

 

 

 

 

198

 

Oil, gas and NGL sales

 

 

1,130

 

 

 

230

 

 

 

 

 

 

1,360

 

Oil, gas and NGL derivatives

 

 

(113

)

 

 

72

 

 

 

 

 

 

(41

)

Total upstream revenues

 

 

1,017

 

 

 

302

 

 

 

 

 

 

1,319

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gathering and transportation

 

 

 

 

 

 

 

 

56

 

 

 

56

 

Processing

 

 

 

 

 

 

 

 

15

 

 

 

15

 

NGL services

 

 

 

 

 

 

 

 

16

 

 

 

16

 

Oil services

 

 

 

 

 

 

 

 

6

 

 

 

6

 

Total midstream services revenue

 

 

 

 

 

 

 

 

93

 

 

 

93

 

Oil and condensate

 

 

531

 

 

 

17

 

 

 

632

 

 

 

1,180

 

Gas

 

 

155

 

 

 

 

 

 

286

 

 

 

441

 

NGL

 

 

176

 

 

 

 

 

 

601

 

 

 

777

 

Total product sales

 

 

862

 

 

 

17

 

 

 

1,519

 

 

 

2,398

 

Total marketing and midstream revenues

 

 

862

 

 

 

17

 

 

 

1,612

 

 

 

2,491

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues from contracts with customers

 

$

1,879

 

 

$

319

 

 

$

1,612

 

 

$

3,810

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Amounts presented net of eliminations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

v3.8.0.1
Acquisitions And Divestitures
3 Months Ended
Mar. 31, 2018
Business Combinations [Abstract]  
Acquisitions and Divestitures

3.

Acquisitions and Divestitures

 

Devon Divestitures

In March 2018, Devon entered into a definitive agreement to sell a portion of its Barnett Shale assets, primarily located in Johnson County for $553 million, before purchase price adjustments. The transaction is expected to close in the second quarter of 2018. Estimated proved reserves associated with these assets are approximately 10% of total proved reserves. Devon anticipates the impact of the Johnson County divestiture will result in an adjustment to its capitalized costs with no gain recognition in the consolidated statement of earnings. In conjunction with the divestiture, Devon will settle certain gas processing contracts and expects to recognize an approximate $40 million settlement expense. 

EnLink Divestitures

During the first quarter of 2017, EnLink divested its ownership interest in Howard Energy Partners for approximately $190 million.

v3.8.0.1
Derivative Financial Instruments
3 Months Ended
Mar. 31, 2018
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

4.

Derivative Financial Instruments

Objectives and Strategies

Devon enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production to hedge future prices received. Additionally, Devon and EnLink periodically enter into derivative financial instruments with respect to a portion of their oil, gas and NGL marketing activities. These commodity derivative financial instruments include financial price swaps, basis swaps and costless price collars. Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility and foreign exchange forward contracts to manage its exposure to fluctuations in the U.S. and Canadian dollar exchange rates. As of March 31, 2018, Devon did not have any open foreign exchange contracts.

Devon does not intend to hold or issue derivative financial instruments for speculative trading purposes and has elected not to designate any of its derivative instruments for hedge accounting treatment.

Counterparty Credit Risk

By using derivative financial instruments, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon’s policy to enter into derivative contracts only with investment-grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon’s derivative contracts generally contain provisions that provide for collateral payments if Devon’s or its counterparty’s credit rating falls below certain credit rating levels.

Commodity Derivatives

As of March 31, 2018, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The second table presents Devon’s oil derivatives that settle against the respective indices noted within the table.

 

 

Price Swaps

 

 

Price Collars

 

Period

 

Volume

(Bbls/d)

 

 

Weighted

Average

Price ($/Bbl)

 

 

Volume

(Bbls/d)

 

 

Weighted

Average Floor

Price ($/Bbl)

 

 

Weighted

Average

Ceiling Price

($/Bbl)

 

Q2-Q4 2018

 

 

58,855

 

 

$

53.74

 

 

 

83,167

 

 

$

50.28

 

 

$

60.28

 

Q1-Q4 2019

 

 

17,030

 

 

$

55.37

 

 

 

43,290

 

 

$

50.94

 

 

$

60.94

 

 

 

 

Oil Basis Swaps

 

 

Oil Basis Collars

 

Period

 

Index

 

Volume

(Bbls/d)

 

 

Weighted Average

Differential to WTI

($/Bbl)

 

 

Volume

(Bbls/d)

 

 

Weighted

Average Floor

Differential to WTI ($/Bbl)

 

 

Weighted

Average Ceiling

Differential to WTI ($/Bbl)

 

Q2-Q4 2018

 

Midland Sweet

 

 

23,000

 

 

$

(1.02

)

 

 

 

 

$

 

 

$

 

Q2-Q4 2018

 

Argus LLS

 

 

12,000

 

 

$

3.95

 

 

 

 

 

$

 

 

$

 

Q2-Q4 2018

 

Western Canadian Select

 

 

69,018

 

 

$

(14.91

)

 

 

1,775

 

 

$

(15.50

)

 

$

(13.93

)

Q1-Q4 2019

 

Midland Sweet

 

 

28,000

 

 

$

(0.46

)

 

 

 

 

$

 

 

$

 

 

As of March 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 swaps that settle against the NYMEX last day settle natural gas index. The third 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)

 

Q2-Q4 2018

 

 

378,033

 

 

$

2.97

 

 

 

201,867

 

 

$

2.79

 

 

$

3.10

 

Q1-Q4 2019

 

 

52,622

 

 

$

2.90

 

 

 

52,844

 

 

$

2.77

 

 

$

3.07

 

 

 

 

 

 

 

 

 

 

 

 

 

Price Swaps

 

Period

 

Volume (MMBtu/d)

 

 

Weighted Average Price ($/MMBtu)

 

Q1-Q4 2019

 

 

128,164

 

 

$

2.78

 

Q1-Q4 2020

 

 

116,364

 

 

$

2.73

 

 

 

 

Natural Gas Basis Swaps

 

Period

 

Index

 

Volume

(MMBtu/d)

 

 

Weighted Average

Differential to

Henry Hub

($/MMBtu)

 

Q2-Q4 2018

 

Panhandle Eastern Pipe Line

 

 

90,000

 

 

$

(0.43)

 

Q2-Q4 2018

 

El Paso Natural Gas

 

 

30,000

 

 

$

(0.85)

 

Q2-Q4 2018

 

Houston Ship Channel

 

 

60,000

 

 

$

(0.01)

 

Q2-Q4 2018

 

Transco Zone 4

 

 

10,036

 

 

$

(0.03)

 

Q1-Q4 2019

 

Houston Ship Channel

 

 

32,500

 

 

$

(0.02)

 

Q1-Q4 2019

 

Transco Zone 4

 

 

7,397

 

 

$

(0.03)

 

 

As of March 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)

 

Q2-Q4 2018

 

Ethane

 

 

6,500

 

 

$

11.86

 

Q2-Q4 2018

 

Natural Gasoline

 

 

5,500

 

 

$

54.24

 

Q2-Q4 2018

 

Normal Butane

 

 

6,750

 

 

$

38.46

 

Q2-Q4 2018

 

Propane

 

 

10,500

 

 

$

33.30

 

As of March 31, 2018, EnLink had the following open derivative positions associated with gas processing and fractionation. EnLink’s NGL positions settle by purity product against the average of the prompt month OPIS Mont Belvieu, Texas index. EnLink’s natural gas positions settle against the Henry Hub Gas Daily index.

 

Period

 

Product

 

Volume (Total)

 

Weighted Average Price Paid

 

Weighted Average Price Received

Q2 2018-Q1 2019

 

Propane

 

 

688

 

MBbls

 

Index

 

$0.75/gal

Q2 2018-Q4 2019

 

Natural Gas

 

 

71,418

 

MMBtu/d

 

Index

 

$2.10/MMBtu

 


Interest Rate Derivatives

As of March 31, 2018, Devon had the following open interest rate derivative positions:

 

Notional

 

 

Rate Received

 

 

Rate Paid

 

 

Expiration

$

750

 

 

Three Month LIBOR

 

 

2.98%

 

 

December 2048 (1)

$

100

 

 

1.76%

 

 

Three Month LIBOR

 

 

January 2019

 

 

(1)

Mandatory settlement in December 2018.

 

Financial Statement Presentation

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

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Commodity derivatives:

 

 

 

 

 

 

 

 

Upstream revenues

 

$

(41

)

 

$

232

 

Marketing and midstream revenues

 

 

1

 

 

 

4

 

Interest rate derivatives:

 

 

 

 

 

 

 

 

Other expenses

 

 

46

 

 

 

5

 

Net gains recognized

 

$

6

 

 

$

241

 

 

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

 

 

March 31, 2018

 

 

December 31, 2017

 

Commodity derivative assets:

 

 

 

 

 

 

 

 

Other current assets

 

$

193

 

 

$

209

 

Other long-term assets

 

 

22

 

 

 

2

 

Interest rate derivative assets:

 

 

 

 

 

 

 

 

Other current assets

 

 

1

 

 

 

1

 

Total derivative assets

 

$

216

 

 

$

212

 

Commodity derivative liabilities:

 

 

 

 

 

 

 

 

Other current liabilities

 

$

328

 

 

$

267

 

Other long-term liabilities

 

 

27

 

 

 

27

 

Interest rate derivative liabilities:

 

 

 

 

 

 

 

 

Other current liabilities

 

 

22

 

 

 

64

 

Total derivative liabilities

 

$

377

 

 

$

358

 

 

v3.8.0.1
Share-Based Compensation
3 Months Ended
Mar. 31, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Share-Based Compensation

5.

Share-Based Compensation

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

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

G&A

 

$

37

 

 

$

34

 

Exploration expenses

 

 

2

 

 

 

2

 

Total Devon

 

 

39

 

 

 

36

 

G&A

 

 

3

 

 

 

14

 

Marketing and midstream expenses

 

 

2

 

 

 

5

 

Total EnLink

 

 

5

 

 

 

19

 

Total

 

$

44

 

 

$

55

 

Related income tax benefit

 

$

1

 

 

$

1

 

 

Under its approved long-term incentive plan, Devon granted share-based awards to certain employees in the first three months of 2018. 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 plan.

 

 

 

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

 

 

3,425

 

 

$

35.77

 

 

 

 

 

$

 

 

 

845

 

 

 

 

 

$

37.40

 

Vested

 

 

(2,286

)

 

$

38.82

 

 

 

(227

)

 

$

43.14

 

 

 

(571

)

 

 

 

 

$

84.22

 

Forfeited

 

 

(85

)

 

$

35.13

 

 

 

 

 

$

 

 

 

(3

)

 

 

 

 

$

27.12

 

Unvested at 3/31/18

 

 

7,382

 

 

$

35.72

 

 

 

348

 

 

$

36.17

 

 

 

3,029

 

 

(1

)

 

$

30.35

 

 

(1)

A maximum of 6.1 million common shares could be awarded based upon Devon’s final TSR ranking relative to Devon’s peer group established under applicable award agreements.

The following table presents the assumptions related to the performance share units granted in 2018, as indicated in the previous summary table.

 

 

 

2018

 

Grant-date fair value

 

 

$36.23

 

 

 

$

37.88

 

Risk-free interest rate

 

2.28%

 

Volatility factor

 

45.8%

 

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 March 31, 2018.

 

 

 

 

 

 

 

Performance-Based

 

 

 

 

 

 

 

Restricted Stock

 

 

Restricted Stock

 

 

Performance

 

 

 

Awards and Units

 

 

Awards

 

 

Share Units

 

Unrecognized compensation cost

 

$

213

 

 

$

3

 

 

$

53

 

Weighted average period for recognition (years)

 

 

2.9

 

 

 

1.5

 

 

 

2.2

 

EnLink Share-Based Awards

The General Partner and EnLink issue restricted incentive units as bonus payments to officers and certain employees in the first quarter each year for the prior year’s performance. For the first quarter of 2018 and the first quarter of 2017, the combined grant date fair value for these awards was $6 million and $10 million, respectively.

The following table presents a summary of the unrecognized compensation cost and the related weighted average recognition period associated with the General Partner’s and EnLink’s unvested restricted incentive units and performance units as of March 31, 2018.

 

 

 

General Partner

 

 

EnLink

 

 

 

Restricted

 

 

Performance

 

 

Restricted

 

 

Performance

 

 

 

Incentive Units

 

 

Units

 

 

Incentive Units