DEVON ENERGY CORP/DE, 10-K filed on 2/17/2021
Annual Report
v3.20.4
Document And Entity Information - USD ($)
shares in Millions, $ in Billions
12 Months Ended
Dec. 31, 2020
Feb. 03, 2021
Jun. 30, 2020
Cover [Abstract]      
Document Type 10-K    
Document Period End Date Dec. 31, 2020    
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 2020    
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     $ 4.3
Entity Common Stock, Shares Outstanding   673.1  
ICFR Auditor Attestation Flag true    
Entity File Number 001-32318    
Entity Tax Identification Number 73-1567067    
Entity Address, Address Line One 333 West Sheridan Avenue    
Entity Address, City or Town Oklahoma City    
Entity Address, State or Province OK    
Entity Address, Postal Zip Code 73102-5015    
City Area Code 405    
Local Phone Number 235-3611    
Entity Interactive Data Current Yes    
Title of 12(b) Security Common stock, par value $0.10 per share    
Security Exchange Name NYSE    
Entity Incorporation, State or Country Code DE    
Document Annual Report true    
Document Transition Report false    
Documents Incorporated by Reference Portions of Registrant’s definitive Proxy Statement relating to Registrant’s 2020 annual meeting of stockholders have been incorporated by reference in Part III of this Annual Report on Form 10-K.    
v3.20.4
Consolidated Statements of Comprehensive Earnings - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Revenues $ 4,673 $ 6,674 $ 8,439
Oil, gas and NGL derivatives 155 (454) 457
Total revenues 4,828 6,220 8,896
Production expenses 1,123 1,197 1,153
Exploration expenses 167 58 128
Depreciation, depletion and amortization 1,300 1,497 1,228
Asset impairments 2,693   156
Asset dispositions (1) (48) (278)
General and administrative expenses 338 475 574
Financing costs, net 270 250 580
Restructuring and transaction costs 49 84 97
Other, net (34) 4 (7)
Total expenses 7,918 6,329 7,952
Earnings (loss) from continuing operations before income taxes (3,090) (109) 944
Income tax expense (benefit) (547) (30) 230
Net earnings (loss) from continuing operations (2,543) (79) 714
Net earnings (loss) from discontinued operations, net of income taxes (128) (274) 2,510
Net earnings (loss) (2,671) (353) 3,224
Net earnings attributable to noncontrolling interests 9 2 160
Net earnings (loss) attributable to Devon $ (2,680) $ (355) $ 3,064
Basic net earnings (loss) per share:      
Basic earnings (loss) from continuing operations per share $ (6.78) $ (0.21) $ 1.43
Basic earnings (loss) from discontinued operations per share (0.34) (0.68) 4.71
Basic net earnings (loss) per share (7.12) (0.89) 6.14
Diluted net earnings (loss) per share:      
Diluted earnings (loss) from continuing operations per share (6.78) (0.21) 1.42
Diluted earnings (loss) from discontinued operations per share (0.34) (0.68) 4.68
Diluted net earnings (loss) per share $ (7.12) $ (0.89) $ 6.10
Comprehensive earnings (loss):      
Net earnings (loss) $ (2,671) $ (353) $ 3,224
Other comprehensive earnings (loss), net of tax:      
Foreign currency translation, discontinued operations   78 (152)
Release of Canadian cumulative translation adjustment, discontinued operations [1]   (1,237)  
Pension and postretirement plans (8) 13 44
Other comprehensive loss, net of tax (8) (1,146) (108)
Comprehensive earnings (loss): (2,679) (1,499) 3,116
Comprehensive earnings attributable to noncontrolling interests 9 2 160
Comprehensive earnings (loss) attributable to Devon (2,688) (1,501) 2,956
Oil, Gas and NGL Sales [Member]      
Revenues 2,695 3,809 4,085
Marketing and Midstream Revenues [Member]      
Revenues 1,978 2,865 4,354
Marketing and Midstream Expenses [Member]      
Expenses $ 2,013 $ 2,812 $ 4,321
[1] In conjunction with the sale of substantially all of its oil and gas assets and operations in Canada, Devon released the cumulative translation adjustment as part of its gain on the disposition of its Canadian business. See Note 19 for additional details.
v3.20.4
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Cash flows from operating activities:      
Net earnings (loss) $ (2,671) $ (353) $ 3,224
Adjustments to reconcile net earnings (loss) to net cash from operating activities:      
Net (earnings) loss from discontinued operations, net of income taxes 128 274 (2,510)
Depreciation, depletion and amortization 1,300 1,497 1,228
Asset impairments 2,693   156
Leasehold impairments 152 18 94
Accretion on discounted liabilities 32 33 27
Total (gains) losses on commodity derivatives (155) 454 (457)
Cash settlements on commodity derivatives 316 166 (420)
Gains on asset dispositions (1) (48) (278)
Deferred income tax expense (benefit) (328) (25) 247
Share-based compensation 88 115 137
Early retirement of debt     312
Other 5 (6) (19)
Changes in assets and liabilities, net (95) (82) (158)
Net cash from operating activities - continuing operations 1,464 2,043 1,583
Cash flows from investing activities:      
Capital expenditures (1,153) (1,910) (2,116)
Acquisitions of property and equipment (8) (31) (55)
Divestitures of property and equipment 34 390 500
Net cash from investing activities - continuing operations (1,127) (1,551) (1,671)
Cash flows from financing activities:      
Repayments of long-term debt   (162) (922)
Early retirement of debt     (304)
Repurchases of common stock (38) (1,849) (2,956)
Dividends paid on common stock (257) (140) (149)
Contributions from noncontrolling interests 21 116  
Distributions to noncontrolling interests (14)    
Shares exchanged for tax withholdings (18) (25) (39)
Other   (1) (7)
Net cash from financing activities - continuing operations (306) (2,061) (4,377)
Net change in cash, cash equivalents and restricted cash of continuing operations 31 (1,569) (4,465)
Cash flows from discontinued operations:      
Operating activities (110) 28 1,121
Investing activities 481 2,472 2,726
Financing activities 0 (1,578) 174
Effect of exchange rate changes on cash (9) 45 206
Net change in cash, cash equivalents and restricted cash of discontinued operations 362 967 4,227
Net change in cash, cash equivalents and restricted cash 393 (602) (238)
Cash, cash equivalents and restricted cash at beginning of period 1,844 2,446 2,684
Cash, cash equivalents and restricted cash at end of period 2,237 1,844 2,446
Reconciliation of cash, cash equivalents and restricted cash:      
Cash and cash equivalents 2,047 1,464 2,414
Restricted cash 190 380 32
Cash, cash equivalents and restricted cash at end of period $ 2,237 $ 1,844 $ 2,446
v3.20.4
Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2020
Dec. 31, 2019
ASSETS    
Cash, cash equivalents and restricted cash $ 2,237 $ 1,844
Accounts receivable 601 832
Current assets associated with discontinued operations   896
Income taxes receivable 174 47
Other current assets 248 232
Total current assets 3,260 3,851
Oil and gas property and equipment, based on successful efforts accounting, net 4,436 7,558
Other property and equipment, net ($102 million and $80 million related to CDM in 2020 and 2019, respectively) [1] 957 1,035
Total property and equipment, net 5,393 8,593
Goodwill 753 753
Right-of-use assets 223 243
Other long-term assets 283 196
Long-term assets associated with discontinued operations   81
Total assets 9,912 13,717
LIABILITIES AND EQUITY    
Accounts payable 242 428
Revenues and royalties payable 662 730
Current liabilities associated with discontinued operations   459
Other current liabilities 536 310
Total current liabilities 1,440 1,927
Long-term debt 4,298 4,294
Lease liabilities 246 244
Asset retirement obligations 358 380
Other long-term liabilities 551 426
Long-term liabilities associated with discontinued operations   185
Deferred income taxes   341
Stockholders' equity:    
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 382 million and 382 million shares in 2020 and 2019, respectively 38 38
Additional paid-in capital 2,766 2,735
Retained earnings 208 3,148
Accumulated other comprehensive loss (127) (119)
Total stockholders’ equity attributable to Devon 2,885 5,802
Noncontrolling interests 134 118
Total equity 3,019 5,920
Total liabilities and equity $ 9,912 $ 13,717
[1] $102 million and $80 million related to CDM in 2020 and 2019, respectively
v3.20.4
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Dec. 31, 2020
Dec. 31, 2019
Other property and equipment, net [1] $ 957 $ 1,035
Common stock, par value (in dollars per share) $ 0.10 $ 0.10
Common stock, shares authorized (in shares) 1,000,000,000.0 1,000,000,000.0
Common stock, shares issued (in shares) 382,000,000 382,000,000
CDM [Member]    
Other property and equipment, net $ 102 $ 80
[1] $102 million and $80 million related to CDM in 2020 and 2019, respectively
v3.20.4
Consolidated Statements Of Equity - USD ($)
shares in Millions, $ in Millions
Total
Effect of Adoption of Lease Accounting [Member]
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earning [Member]
Retained Earning [Member]
Effect of Adoption of Lease Accounting [Member]
Other Comprehensive Earnings (Loss) [Member]
Treasury Stock [Member]
Noncontrolling Interests [Member]
Balance at Dec. 31, 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 $ (7) $ 45 4,486 3,650 $ (7) 1,027 (22)  
Balance, shares at Dec. 31, 2018     450            
Net earnings (loss) (353)       (355)       2
Other comprehensive earnings (loss), net of tax (1,146)           (1,146)    
Restricted stock grants, net of cancellations, shares     3            
Common stock repurchased (1,852)             (1,852)  
Common stock retired     $ (7) (1,867)       1,874  
Common stock retired, shares     (71)            
Common stock dividends (140)       (140)        
Share-based compensation 116     116          
Contributions from noncontrolling interests 116               116
Balance at Dec. 31, 2019 5,920   $ 38 2,735 3,148   (119)   118
Balance, shares at Dec. 31, 2019     382            
Net earnings (loss) (2,671)       (2,680)       9
Other comprehensive earnings (loss), net of tax (8)           (8)    
Restricted stock grants, net of cancellations, shares     3            
Common stock repurchased (57)             (57)  
Common stock retired       (57)       $ 57  
Common stock retired, shares     (3)            
Common stock dividends (260)       (260)        
Share-based compensation 88     88          
Contributions from noncontrolling interests 21               21
Distributions to noncontrolling interests (14)               (14)
Balance at Dec. 31, 2020 $ 3,019   $ 38 $ 2,766 $ 208   $ (127)   $ 134
Balance, shares at Dec. 31, 2020     382            
v3.20.4
Summary Of Significant Accounting Policies
12 Months Ended
Dec. 31, 2020
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 onshore areas in the U.S.

As further discussed in Note 19, Devon sold its Barnett Shale assets on October 1, 2020, sold its Canadian operations on June 27, 2019 and sold its ownership interests in EnLink and the General Partner on July 18, 2018. Prior to December 31, 2020, activity relating to Devon’s Barnett Shale assets, inclusive of properties divested as partial sales of the Barnett Shale common operating field in previous reporting periods located primarily in Johnson and Wise counties, Texas, Canadian operations and EnLink and the General Partner are classified as discontinued operations within Devon’s consolidated statements of comprehensive earnings and consolidated statements of cash flows.

Additionally, prior to December 31, 2020, the associated assets and liabilities of Devon’s Barnett Shale assets and Canadian operations are presented as assets and liabilities associated with discontinued operations on the consolidated balance sheets. Under the terms of the Canadian and Barnett disposition agreements, Devon retained certain long-term obligations for firm transportation, office leases and potential income tax matters. Appropriate assets and liabilities related to these obligations have been recognized on Devon’s consolidated balance sheet. Because these amounts will be settled over a period extending as far as 13 years in the future, these assets and liabilities have been reclassified as part of Devon’s continuing operations as of December 31, 2020.

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, entities in which it holds a controlling interest and VIEs for which Devon is the primary beneficiary. 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.

Devon entered into an agreement in the fourth quarter of 2019 to form Cotton Draw Midstream, L.L.C. or, “CDM”, a partnership in the Delaware Basin with an affiliate of QL Capital Partners, LP (“QLCP”). As part of this transaction, Devon contributed gathering system and compression assets in the Cotton Draw area to CDM in exchange for a $100 million cash distribution funded by QLCP. Devon will continue to operate the assets pursuant to the management services agreement. QLCP also committed $40 million of expansion capital to CDM to fund the build out of the assets over the next several years. As of December 31, 2020, QLCP has funded approximately $37 million of the $40 million committed expansion capital to CDM. Devon holds a controlling interest in CDM and the portions of CDM’s net earnings and equity not attributable to Devon’s controlling interest are shown separately as noncontrolling interests in the accompanying consolidated statements of comprehensive earnings and consolidated balance sheets. CDM is considered a VIE to Devon.

Devon, through its controlling interest in CDM, has the power to direct the activities that significantly affect the economic performance of CDM and the obligation to absorb losses or the right to receive benefits that could be significant to CDM; therefore, Devon is considered the primary beneficiary and consolidates CDM. CDM maintains its own capital structure that is separate from Devon. During 2020, QLCP contributions to and distributions from CDM were approximately $21 million and $14 million, respectively. During 2019, QLCP contributions to CDM were approximately $116 million.

The assets of CDM cannot be used by Devon for general corporate purposes and are included in and disclosed parenthetically on Devon's consolidated balance sheets. The carrying amount of liabilities related to CDM for which the creditors do not have recourse to Devon's assets are also included in and disclosed parenthetically on Devon's consolidated balance sheets, if material.

 

Segment Information

 

Subsequent to the sale of Devon’s Canadian business in 2019 discussed in Note 19, Devon’s oil and gas exploration and production activities are solely focused in the U.S. For financial reporting purposes, Devon aggregates its U.S. operating segments into one reporting segment due to the similar nature of its business.

 

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

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 statements of comprehensive 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 where 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 statements of comprehensive 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 statements of comprehensive 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 statements of comprehensive 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.

Midstream Revenues

 

Devon’s midstream activity relates entirely to its interest in CDM. CDM provides gathering, compression and dehydration services to Devon and other producers’ natural gas production. An evaluation is performed to determine whether CDM is a principal or agent in these transactions. Under the terms of these gathering, compression and dehydration contracts, CDM has concluded it is the agent as title to the gas production remains with the CDM affiliate producer or a third-party producer. Revenue is recognized on a net basis since CDM is strictly providing a service. Costs to maintain CDM’s assets are presented as marketing and midstream expenses in the consolidated statements of comprehensive earnings. Revenue is recognized for sales at the time the gathering, compression and dehydration service has been rendered or performed.

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 crude oil, natural gas or NGLs 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 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 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, 2020. Devon’s product sales and marketing contracts do not give rise to contract assets.

 

Disaggregation of Revenue

 

The following table presents revenue from contracts with customers that are disaggregated based on the type of good.

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Oil

 

$

2,034

 

 

$

2,988

 

 

$

2,941

 

Gas

 

 

326

 

 

 

391

 

 

 

482

 

NGL

 

 

335

 

 

 

430

 

 

 

662

 

Oil, gas and NGL sales

 

 

2,695

 

 

 

3,809

 

 

 

4,085

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

 

936

 

 

 

1,534

 

 

 

2,745

 

Gas

 

 

488

 

 

 

645

 

 

 

738

 

NGL

 

 

554

 

 

 

686

 

 

 

871

 

Marketing and midstream revenues

 

 

1,978

 

 

 

2,865

 

 

 

4,354

 

Total revenues from contracts with customers

 

$

4,673

 

 

$

6,674

 

 

$

8,439

 

 

Customers

 

During 2020, Devon had two customers that accounted for approximately 13% and 10% of Devon’s consolidated sales revenue, respectively.

 

During 2019, no purchaser accounted for more than 10% of Devon’s consolidated sales revenue.

 

During 2018, Devon had one purchaser that accounted for approximately 11% 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 and interest rates. As discussed more fully below, Devon uses derivative instruments primarily to manage commodity price 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 two-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.

Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. As of December 31, 2020, Devon did not have any open interest rate swap contracts.

All derivative financial instruments are recognized at their current fair value as either assets or liabilities in the balance sheet. Amounts related to contracts allowed to be netted upon payment subject to a master netting arrangement with the same counterparty are reported on a net basis 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, 2020, 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 and interest 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, 2020, 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, management and 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 statements of comprehensive 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 and transaction costs in the accompanying consolidated statements of comprehensive 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 significant 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, Cash Equivalents and Restricted Cash

Devon considers all highly liquid investments with original contractual maturities of three months or less to be cash equivalents. Subsequent to the sale of its Canadian operations in June 2019 and the sale of its Barnett Shale assets in October 2020, management presented approximately $190 million of Devon’s cash balance as of December

31, 2020, as restricted to fund retained long-term obligations related to the disposed assets. These obligations primarily relate to abandoned Canadian firm transportation and office lease agreements. This cash is not legally restricted and can be used by Devon for other general corporate purposes. Additionally, this restricted cash is included within continuing operations on the consolidated balance sheets at December 31, 2020.

Accounts Receivable

Devon’s accounts receivable balance primarily consists of oil and gas sales receivables, marketing and midstream revenue receivables and joint interest receivables for which Devon does not require collateral security.

Devon records an allowance for credit losses based on a forward-looking “expected loss” model. Credit risk is assessed by class of account type, which includes cash equivalents and oil and gas, marketing and midstream, joint interest and other accounts receivable. These classes are further evaluated using a probability-weighted scenario assessment based on historical losses and a probability of future default. This evaluation is supported by an assessment of risk factors such as the age of the receivable, current macro-economic conditions, credit rating of the counterparty and our historical loss rate.

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.

Proved properties are assessed for impairment when 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 reserve 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 that are attributable to material unproved oil and gas properties and major development projects of oil and gas properties.

Other Property and Equipment

Costs for midstream assets that are in use are depreciated over the assets’ estimated useful lives, using the straight-line method. 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.

Leases

 

Devon adopted ASU No. 2016-02, Leases (Topic 842), as of January 1, 2019, using the modified retrospective transition approach. ASC 842 supersedes the previous lease accounting requirements in ASC 840 and requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. ASC 842 establishes a right-of-use model that requires a lessee to recognize a right-of-use asset and lease liability on the

balance sheet for all leases with a term longer than 12 months. At adoption, using the modified retrospective transition approach, Devon recorded right-of-use lease assets of $410 million and lease liabilities of $380 million. Additionally, Devon recorded a $8 million before tax, $7 million net of tax, cumulative-effect adjustment to reduce retained earnings.

Devon’s right-of-use operating lease 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. Devon’s right-of-use financing lease assets are related to real estate. Certain of Devon’s lease agreements include variable payments based on usage or rental payments adjusted periodically for inflation. Devon’s lease agreements do not contain any material residual value guarantees or restrictive covenants.

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 the 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. The fair value of the reporting unit is estimated based upon market capitalization, comparable transactions of similar companies and premiums paid.

Devon performed impairment tests of goodwill in the fourth quarters of 2020, 2019 and 2018. No impairment was required as a result of the annual tests in these time periods. Additionally, because the trading price of our common stock decreased 73% during the first quarter of 2020 in response to the COVID-19 pandemic, we performed a goodwill impairment test as of March 31, 2020. While the cushion narrowed significantly since the 2019 impairment evaluation, we concluded an impairment was not required as of March 31, 2020. Due to substantial recovery in the price of Devon’s common stock subsequent to the first quarter of 2020, there was no risk associated with the impairment of goodwill as of December 31, 2020.

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. Devon’s divested Canadian operations used the Canadian dollar as the functional currency. Prior to completing the divestiture in 2019, assets and liabilities of the Canadian operations were translated to U.S. dollars using the applicable exchange rate as of the end of a reporting period. Revenues, expenses and cash flow were translated using an average exchange rate during the reporting period.

The disposition of substantially all of Devon’s Canadian oil and gas assets and operations in 2019 resulted in Devon releasing its historical cumulative foreign currency translation adjustment of $1.2 billion from accumulated other comprehensive earnings to be included within the gain computation.

 

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.

 

v3.20.4
Acquisitions and Divestitures
12 Months Ended
Dec. 31, 2020
Business Combinations [Abstract]  
Acquisition and Divestitures

2.

Acquisitions and Divestitures

WPX Merger

On January 7, 2021, Devon and WPX completed an all-stock merger of equals. WPX is an oil and gas exploration and production company with assets in the Delaware Basin in Texas and New Mexico and the Williston Basin in North Dakota. On the closing date of the Merger, each share of WPX common stock was automatically converted into the right to receive 0.5165 of a share of Devon common stock. No fractional shares of Devon’s common stock were issued in the Merger, and holders of WPX common stock instead received cash in lieu of fractional shares of Devon common stock, if any. Based on the closing price of Devon’s common stock on January 7, 2021, the total value of Devon common stock issued to holders of WPX common stock as part of this transaction was approximately $5.4 billion.

The transaction will be accounted for using the acquisition method of accounting, with Devon being treated as the accounting acquirer. Under the acquisition method of accounting, the assets and liabilities of WPX and its subsidiaries will be recorded at their respective fair values as of the date of completion of the Merger and added to Devon’s. The preliminary purchase price assessment remains an ongoing process and is subject to change for up to one year subsequent to the closing date of the Merger. Determining the fair value of the assets and liabilities of WPX requires judgment and certain assumptions to be made, the most significant of these being related to the valuation of WPX’s oil and gas properties. The Merger is structured as a tax-free reorganization for United States federal income tax purposes.

In February 2021, Devon redeemed bonds issued by WPX with a maturity date of 2022 pursuant to a make whole provision in the related indenture. The total principal related to this redemption was approximately $43 million, with an additional $2 million cash premium paid to complete the make whole redemption.

 

Discontinued Operations

 

On October 1, 2020, Devon completed the sale of its Barnett Shale assets to BKV for proceeds, net of purchase price adjustments, of $490 million, including a $170 million deposit previously received in April 2020. The agreement with BKV also provides for contingent earnout payments to Devon of up to $260 million based upon future commodity prices, with upside participation beginning at a $2.75 Henry Hub natural gas price or a $50 WTI oil price. The contingent payment period commences on January 1, 2021 and has a term of four years. Devon recognized a $748 million asset impairment related to these assets in the fourth quarter of 2019 and incremental asset impairments totaling $182 million during 2020. Additional information can be found in Note 19.

 

In June 2019, Devon completed the sale of substantially all of its oil and gas assets and operations in Canada to Canadian Natural Resources Limited for proceeds, net of purchase price adjustments, of $2.6 billion ($3.4 billion Canadian dollars), and recognized a pre-tax gain of $223 million ($425 million, net of tax, primarily due to a significant deferred tax benefit) in 2019. Additional information can be found in Note 19.

During 2018, Devon received proceeds of approximately $500 million and recognized a $26 million net gain on asset dispositions from the sales of non-core assets in the Barnett Shale, located primarily in Johnson and Wise counties, Texas. In conjunction with these divestitures, Devon settled certain gas processing contracts and recognized $40 million in settlement expense, which is included in asset dispositions within discontinued operations. For additional information, see Note 19.

 

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 activities, which are discussed further in Note 18. Additional information on these discontinued operations can be found in Note 19.

Continuing Operations

In the fourth quarter of 2020, Devon entered into an agreement to divest non-core assets in the Rockies for proceeds of approximately $12 million. The transaction includes contingent earnout payments of up to approximately $8 million and is expected to close in the first quarter of 2021. As of December 31, 2020, the associated assets and liabilities were classified as assets held for sale and included in other current assets and other current liabilities, respectively, in the accompanying consolidated balance sheet. Estimated total proved reserves related to these assets were approximately 3 MMBoe as of December 31, 2020. The December 31, 2020 assets and liabilities held for sale primarily relate to oil and gas property and equipment and asset retirement obligations, respectively.

 

During the first quarter of 2020, Devon entered into a farmout agreement in which the third party to the agreement can participate in the development of certain Devon-owned, non-operated interests in the Delaware Basin. Under the agreement, Devon will periodically transfer working interests to the third party, who will then fund its share of operating and development costs. Once certain investment hurdles are met, a portion of the working interest held by the third party will revert to Devon. No material activity occurred during 2020.

 

During 2019, Devon received proceeds of approximately $390 million and recognized a $48 million net gain on asset dispositions, primarily from sales of non-core assets in the Permian Basin. In aggregate, the total estimated proved reserves associated with these divested assets were approximately 54 MMBoe.

During 2018, Devon received proceeds totaling approximately $500 million, primarily from the sales of non-core assets in the Delaware Basin, and recognized a net gain on asset dispositions of $278 million. In aggregate, the total estimated proved reserves associated with these divested assets were approximately 24 MMBoe.

v3.20.4
Derivative Financial Instruments
12 Months Ended
Dec. 31, 2020
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

3.

Derivative Financial Instruments

Commodity Derivatives

As of December 31, 2020, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The second table presents Devon’s oil derivatives that settle against the respective indices noted within the table.

 

 

 

Price Swaps

 

 

Price Collars

 

Period

 

Volume

(Bbls/d)

 

 

Weighted

Average

Price ($/Bbl)

 

 

Volume

(Bbls/d)

 

 

Weighted

Average Floor

Price ($/Bbl)

 

 

Weighted

Average

Ceiling Price

($/Bbl)

 

Q1-Q4 2021

 

 

28,040

 

 

$

37.60

 

 

 

32,726

 

 

$

40.77

 

 

$

50.77

 

Q1-Q2 2022

 

 

1,249

 

 

$

45.16

 

 

 

9,856

 

 

$

38.24

 

 

$

48.24

 

 

 

 

Oil Basis Swaps

 

Period

 

Index

 

Volume

(Bbls/d)

 

 

Weighted Average

Differential to WTI

($/Bbl)

 

Q1-Q4 2021

 

Midland Sweet

 

 

7,000

 

 

$

1.27

 

 

As of December 31, 2020, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.

 

 

 

Price Swaps

 

 

Price Collars

 

Period

 

Volume (MMBtu/d)

 

 

Weighted Average Price ($/MMBtu)

 

 

Volume (MMBtu/d)

 

 

Weighted Average Floor Price ($/MMBtu)

 

 

Weighted Average

Ceiling Price ($/MMBtu)

 

Q1-Q4 2021

 

 

32,699

 

 

$

2.76

 

 

 

179,055

 

 

$

2.45

 

 

$

2.95

 

Q1-Q4 2022

 

 

6,961

 

 

$

2.85

 

 

 

54,901

 

 

$

2.66

 

 

$

3.16

 

 

 

 

Natural Gas Basis Swaps

 

Period

 

Index

 

Volume

(MMBtu/d)

 

 

Weighted Average

Differential to

Henry Hub

($/MMBtu)

 

Q1-Q4 2021

 

El Paso Natural Gas

 

 

35,000

 

 

$

(0.92

)

 

As of December 31, 2020, Devon did not have any open NGL derivative positions.

 

 

Financial Statement Presentation

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

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Commodity derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Oil, gas and NGL derivatives

 

$

155

 

 

$

(454

)

 

$

457

 

Marketing and midstream revenues

 

 

 

 

 

1

 

 

 

(1

)

Interest rate derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

 

 

 

65

 

Net gains (losses) recognized

 

$

155

 

 

$

(453

)

 

$

521

 

 

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

 

 

 

December 31, 2020

 

 

December 31, 2019

 

Commodity derivative assets:

 

 

 

 

 

 

 

 

Other current assets

 

$

5

 

 

$

49

 

Other long-term assets

 

 

1

 

 

 

1

 

Total derivative assets

 

$

6

 

 

$

50

 

Commodity derivative liabilities:

 

 

 

 

 

 

 

 

Other current liabilities

 

$

143

 

 

$

30

 

Other long-term liabilities

 

 

5

 

 

 

1

 

Total derivative liabilities

 

$

148

 

 

$

31

 

v3.20.4
Share-Based Compensation
12 Months Ended
Dec. 31, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Share-Based Compensation

4.

Share-Based Compensation

In 2017, Devon’s stockholders approved the 2017 Plan. 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, 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 2020, 2019 and 2018 in conjunction with the reduction of workforce activities described in Note 6 and is included in restructuring and transaction costs in the accompanying consolidated statements of comprehensive earnings.

 

 

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

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

G&A

 

$

76

 

 

$

83

 

 

$

104

 

Exploration expenses

 

 

1

 

 

 

1

 

 

 

2

 

Restructuring and transaction costs

 

 

11

 

 

 

31

 

 

 

31

 

Total

 

$

88

 

 

$

115

 

 

$

137

 

Related income tax benefit

 

$

 

 

$

13

 

 

$

17

 

 

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

 

 

 

 

 

 

Performance-Based

 

 

Performance

 

 

 

Restricted Stock Awards

 

 

Restricted Stock Awards

 

 

Share Units

 

 

 

Awards

 

 

Weighted

Average

Grant-Date

Fair Value

 

 

Awards

 

 

Weighted

Average

Grant-Date

Fair Value

 

 

Units

 

 

 

 

 

Weighted

Average

Grant-Date

Fair Value

 

 

 

(Thousands, except fair value data)

 

Unvested at 12/31/19

 

 

4,984

 

 

$

29.65

 

 

 

153

 

 

$

33.88

 

 

 

2,155

 

 

 

 

 

$

40.35

 

Granted

 

 

3,056

 

 

$

21.90

 

 

 

 

 

$

 

 

 

688

 

 

 

 

 

$

27.89

 

Vested

 

 

(2,388

)

 

$

28.96

 

 

 

(109

)

 

$

29.51

 

 

 

(455

)

 

 

 

 

$

52.56

 

Forfeited

 

 

(336

)

 

$

24.52

 

 

 

 

 

$

 

 

 

(394

)

 

 

 

 

$

47.30

 

Unvested at 12/31/20

 

 

5,316

 

 

$

25.82

 

 

 

44

 

 

$

44.70

 

 

 

1,994

 

 

(1

)

 

$

31.89

 

 

(1)

A maximum of 3.2 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.

 

 

 

2020

 

 

2019

 

 

2018

 

Restricted Stock Awards and Units

 

$

44

 

 

$

127

 

 

$

111

 

Performance-Based Restricted Stock Awards

 

$

2

 

 

$

4

 

 

$

10

 

Performance Share Units

 

$

10

 

 

$

4

 

 

$

20

 

 

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, 2020.

 

 

 

 

 

 

 

Performance-Based

 

 

 

 

 

 

 

Restricted Stock

 

 

Restricted Stock

 

 

Performance

 

 

 

Awards

 

 

Awards

 

 

Share Units

 

Unrecognized compensation cost

 

$

70

 

 

$

 

 

$

10

 

Weighted average period for recognition (years)

 

 

2.4

 

 

 

0.4

 

 

 

1.7

 

 

Restricted Stock Awards

Restricted stock awards are subject to the terms, conditions, restrictions and limitations, if any, that the Compensation Committee deems appropriate, including restrictions on continued employment. Generally, the

service requirement for vesting ranges from one to four years. Dividends declared during the vesting period with respect to restricted stock awards will not be paid until the underlying award vests. Devon estimates the fair values of restricted stock awards as the closing price of Devon’s common stock on the grant date of the award, which is expensed over the applicable vesting period.

Performance-Based Restricted Stock Awards

Performance-based restricted stock awards were granted to certain members of Devon’s senior management. Vesting of the awards is dependent on Devon meeting certain internal performance targets and the recipient meeting certain service requirements. Generally, the service requirement for vesting ranges from one to four years. In order for awards to vest, the performance target must be met in the first year. If the performance target is met, the recipient is entitled to dividends under the same terms described above for nonperformance-based restricted stock. If the performance target and service period requirements are not met, the award does not vest. Devon estimates the fair values of the awards as the closing price of Devon’s common stock on the grant date of the award, which is expensed over the applicable vesting period. No performance-based restricted stock awards were granted in 2020, 2019 and 2018.

Performance Share Units

Performance share units are granted to certain members of Devon’s management and employees. Each unit that vests entitles the recipient to one share of Devon common stock. The vesting of these units is based on comparing Devon’s TSR to the TSR of a predetermined group of peer companies over the specified three-year performance period. The vesting of units may be between zero and 200% of the units granted depending on Devon’s TSR as compared to the peer group on the vesting date.

At the end of the vesting period, recipients receive dividend equivalents with respect to the number of units vested. The fair value of each performance share unit is estimated as of the date of grant using a Monte Carlo simulation with the following assumptions used for all grants made under the plan: (i) a risk-free interest rate based on U.S. Treasury rates as of the grant date; (ii) a volatility assumption based on the historical realized price volatility of Devon and the designated peer group; and (iii) an estimated ranking of Devon among the designated peer group. The fair value of the unit on the date of grant is expensed over the applicable vesting period. The following table presents the assumptions related to performance share units granted.

 

 

 

2020

 

2019

 

 

2018

 

Grant-date fair value

 

 

$

27.89

 

 

 

$

28.43

 

 

 

$

29.53

 

 

$

36.23

 

 

 

$  

37.88

 

Risk-free interest rate

 

1.36%

 

2.48%

 

 

2.28%

 

Volatility factor

 

38.4%

 

39.1%

 

 

45.8%

 

Contractual term (years)

 

2.89

 

2.89

 

 

2.89

 

 

v3.20.4
Asset Impairments
12 Months Ended
Dec. 31, 2020
Asset Impairm