DEVON ENERGY CORP/DE, 10-Q filed on 5/1/2019
Quarterly Report
v3.19.1
Document And Entity Information - shares
shares in Millions
3 Months Ended
Mar. 31, 2019
Apr. 17, 2019
Document And Entity Information [Abstract]    
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
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 2019  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Document Fiscal Period Focus Q1  
Entity Common Stock, Shares Outstanding   415.2
v3.19.1
Consolidated Comprehensive Statements Of Earnings - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Income Statement [Abstract]    
Upstream revenues $ 710 $ 1,319
Revenues $ 791 $ 879
Type of Revenue [Extensible List] us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember
Total revenues $ 1,501 $ 2,198
Production expenses 506 543
Exploration expenses 13 33
Expenses $ 759 $ 873
Type of Cost, Good or Service [Extensible List] us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember us-gaap:NaturalGasGatheringTransportationMarketingAndProcessingMember
Depreciation, depletion and amortization $ 459 $ 399
Asset dispositions (44) (12)
General and administrative expenses 153 199
Financing costs, net 73 387
Restructuring and transaction costs 54  
Other expenses (45) 21
Total expenses 1,928 2,443
Loss from continuing operations before income taxes (427) (245)
Income tax benefit (110) (34)
Net loss from continuing operations (317) (211)
Net earnings from discontinued operations, net of income tax expense   58
Net loss (317) (153)
Net earnings attributable to noncontrolling interests   44
Net loss attributable to Devon $ (317) $ (197)
Basic net loss per share:    
Basic loss from continuing operations per share $ (0.74) $ (0.41)
Basic earnings from discontinued operations per share   0.03
Basic net loss per share (0.74) (0.38)
Diluted net loss per share:    
Diluted loss from continuing operations per share (0.74) (0.41)
Diluted earnings from discontinued operations per share   0.03
Diluted net loss per share $ (0.74) $ (0.38)
Comprehensive loss:    
Net loss $ (317) $ (153)
Other comprehensive earnings (loss), net of tax:    
Foreign currency translation 35 (48)
Pension and postretirement plans 2 4
Other comprehensive earnings (loss), net of tax 37 (44)
Comprehensive loss (280) (197)
Comprehensive earnings attributable to noncontrolling interests   44
Comprehensive loss attributable to Devon $ (280) $ (241)
v3.19.1
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities:    
Net loss $ (317) $ (153)
Adjustments to reconcile net loss to net cash from operating activities:    
Net earnings from discontinued operations, net of income tax expense   (58)
Depreciation, depletion and amortization 459 399
Leasehold impairments 1 8
Accretion on discounted liabilities 17 16
Total losses on commodity derivatives 709 41
Cash settlements on commodity derivatives (43) 11
Gains on asset dispositions (44) (12)
Deferred income tax benefit (107) (38)
Share-based compensation 48 38
Early retirement of debt   312
Total (gains) losses on foreign exchange (34) 50
Other (10) (29)
Changes in assets and liabilities, net (302) 25
Net cash from operating activities - continuing operations 377 610
Cash flows from investing activities:    
Capital expenditures (548) (651)
Acquisitions of property and equipment (11) (6)
Divestitures of property and equipment 311 47
Net cash from investing activities - continuing operations (248) (610)
Cash flows from financing activities:    
Repayments of long-term debt principal (162) (807)
Early retirement of debt   (304)
Repurchases of common stock (999) (71)
Dividends paid on common stock (34) (32)
Shares exchanged for tax withholdings (26) (38)
Net cash from financing activities - continuing operations (1,221) (1,252)
Effect of exchange rate changes on cash - continuing operations 1 (15)
Net change in cash, cash equivalents and restricted cash of continuing operations (1,091) (1,267)
Cash flows from discontinued operations:    
Operating activities 0 194
Investing activities 0 (180)
Financing activities 0 39
Net change in cash, cash equivalents and restricted cash of discontinued operations   53
Net change in cash, cash equivalents and restricted cash (1,091) (1,214)
Cash, cash equivalents and restricted cash at beginning of period 2,446 2,684
Cash, cash equivalents and restricted cash at end of period 1,355 1,470
Reconciliation of cash, cash equivalents and restricted cash:    
Cash and cash equivalents 1,327 1,407
Restricted cash included in other current assets 28 46
Cash and cash equivalents included in current assets held for sale   17
Cash, cash equivalents and restricted cash at end of period $ 1,355 $ 1,470
v3.19.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2019
Dec. 31, 2018
ASSETS    
Cash and cash equivalents $ 1,327 $ 2,414
Accounts receivable 1,038 885
Current assets held for sale   197
Other current assets 338 941
Total current assets 2,703 4,437
Oil and gas property and equipment, based on successful efforts accounting, net 12,766 12,813
Other property and equipment, net 1,098 1,122
Total property and equipment, net 13,864 13,935
Goodwill 841 841
Right-of-use assets 365  
Other long-term assets 304 353
Total assets 18,077 19,566
LIABILITIES AND STOCKHOLDERS' EQUITY    
Accounts payable 603 662
Revenues and royalties payable 850 898
Short-term debt   162
Current liabilities held for sale   69
Other current liabilities 515 435
Total current liabilities 1,968 2,226
Long-term debt 5,786 5,785
Lease liabilities 298  
Asset retirement obligations 938 1,030
Other long-term liabilities 458 462
Deferred income taxes 772 877
Stockholders' equity:    
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 417 million and 450 million shares in 2019 and 2018, respectively 42 45
Additional paid-in capital 3,518 4,486
Retained earnings 3,280 3,650
Accumulated other comprehensive earnings 1,064 1,027
Treasury stock, at cost, 1.5 million and 1.0 million shares in 2019 and 2018, respectively (47) (22)
Total stockholders’ equity 7,857 9,186
Total liabilities and stockholders' equity $ 18,077 $ 19,566
v3.19.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2019
Dec. 31, 2018
Statement Of Financial Position [Abstract]    
Common stock, par value (in dollars per share) $ 0.10 $ 0.10
Common stock, shares authorized (in shares) 1,000,000,000.0 1,000,000,000.0
Common stock, shares issued (in shares) 417,000,000 450,000,000
Treasury stock, shares 1,500,000 1,000,000.0
v3.19.1
Consolidated Statements Of Equity - USD ($)
shares in Millions, $ in Millions
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Earnings [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) (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          
Effect of adoption of lease accounting (19)     (19)      
Balance at Dec. 31, 2018 9,186 $ 45 4,486 3,650 1,027 (22)  
Balance, shares at Dec. 31, 2018   450          
Net earnings (loss) (317)     (317)      
Other comprehensive earnings (loss), net of tax 37       37    
Restricted stock grants, net of cancellations, shares   3          
Common stock repurchased (1,042)         (1,042)  
Common stock retired   $ (3) (1,014)     1,017  
Common stock retired, shares   (36)          
Common stock dividends (34)     (34)      
Share-based compensation 46   46        
Balance at Mar. 31, 2019 $ 7,857 $ 42 $ 3,518 $ 3,280 $ 1,064 $ (47)  
Balance, shares at Mar. 31, 2019   417          
v3.19.1
Summary Of Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
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 2018 Annual Report on Form 10-K.

The accompanying unaudited interim financial statements in this report reflect all adjustments that are, in the opinion of management, necessary for a fair statement of Devon’s results of operations and cash flows for the three-month periods ended March 31, 2019 and 2018 and Devon’s financial position as of March 31, 2019. As further discussed in Note 19, Devon sold its interests in EnLink and the General Partner on July 18, 2018. Activity relating to EnLink and the General Partner are classified as discontinued operations within Devon’s consolidated comprehensive statements of earnings and consolidated statements of cash flows.

Recently Adopted Accounting Standards

 

In January 2019, Devon adopted ASU 2016-02, Leases (Topic 842), using the modified retrospective method. See Note 15 for further discussion regarding Devon’s adoption of the leases standard.

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

Issued Accounting Standards Not Yet Adopted

 

The FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement. This ASU will eliminate, add and modify certain disclosure requirements for fair value measurement. The ASU is effective for annual and interim periods beginning January 1, 2020, with early adoption permitted for either the entire standard or only the provisions that eliminate or modify requirements. The ASU requires the additional disclosure requirements to be adopted using a retrospective approach. Devon is currently evaluating the provisions of this ASU and assessing the impact it may have on its disclosures in the notes to the consolidated financial statements.

 

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

 

The SEC released Final Rule Release No. 33-10618, FAST Act Modernization and Simplification of Regulation S-K, which amends Regulation S-K to modernize and simplify certain disclosure requirements in a manner that reduces costs and burdens on registrants while continuing to provide all material information to investors. The rule is effective May 2, 2019. The rule amends numerous SEC rules, items and forms covering a diverse group of topics. As the changes are generally expected to reduce or eliminate disclosures, Devon is currently evaluating and assessing the impact it may have on its disclosures.

 

v3.19.1
Divestitures
3 Months Ended
Mar. 31, 2019
Business Combinations [Abstract]  
Divestitures

2.Divestitures

2019 Asset Divestitures

In the first quarter of 2019, Devon received proceeds of approximately $300 million and recognized a net gain on asset dispositions of approximately $44 million, primarily from sales of non-core assets in the Permian Basin. In aggregate, the total estimated proved reserves associated with these divested assets were approximately 25 MMBoe, or less than 2% of total U.S. proved reserves. As of December 31, 2018, assets and liabilities associated with these divested assets were classified as held for sale in the accompanying consolidated balance sheet.

 

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

 

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

v3.19.1
Derivative Financial Instruments
3 Months Ended
Mar. 31, 2019
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

 

3.Derivative Financial Instruments

Objectives and Strategies

Devon enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production to hedge future prices received. Additionally, Devon periodically enters into derivative financial instruments with respect to a portion of its oil, gas and NGL marketing activities. These commodity derivative financial instruments include financial price swaps, basis swaps and costless price collars. Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility and foreign exchange forward contracts to manage its exposure to fluctuations in the U.S. and Canadian dollar exchange rates. As of March 31, 2019, Devon did not have any open interest rate swap or 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, 2019, Devon had the following open oil derivative positions. The first two tables present Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The third table presents Devon’s oil derivatives that settle against the respective indices noted within the table.

 

 

 

Price Swaps

 

 

Price Collars

 

Period

 

Volume

(Bbls/d)

 

 

Weighted

Average

Price ($/Bbl)

 

 

Volume

(Bbls/d)

 

 

Weighted

Average Floor

Price ($/Bbl)

 

 

Weighted

Average

Ceiling Price

($/Bbl)

 

Q2-Q4 2019

 

 

46,891

 

 

$

59.97

 

 

 

87,484

 

 

$

54.60

 

 

$

64.62

 

Q1-Q4 2020

 

 

3,238

 

 

$

60.13

 

 

 

17,186

 

 

$

51.97

 

 

$

62.12

 

 

 

 

Three-Way Price Collars

 

Period

 

Volume

(Bbls/d)

 

 

Weighted

Average Floor Sold

Price ($/Bbl)

 

 

Weighted

Average Floor Purchased

Price ($/Bbl)

 

 

Weighted

Average

Ceiling Price

($/Bbl)

 

Q2-Q4 2019

 

 

5,000

 

 

$

50.00

 

 

$

63.00

 

 

$

74.80

 

 

 

 

Oil Basis Swaps

 

Period

 

Index

 

Volume

(Bbls/d)

 

 

Weighted Average

Differential to WTI

($/Bbl)

 

Q2-Q4 2019

 

Midland Sweet

 

 

24,945

 

 

$

(0.46

)

Q2-Q4 2019

 

Argus LLS

 

 

8,900

 

 

$

5.10

 

Q2-Q4 2019

 

Argus MEH

 

 

20,945

 

 

$

3.24

 

Q2-Q4 2019

 

NYMEX Roll

 

 

38,000

 

 

$

0.45

 

Q2-Q4 2019

 

Western Canadian Select

 

 

62,762

 

 

$

(19.21

)

Q1-Q4 2020

 

NYMEX Roll

 

 

38,000

 

 

$

0.31

 

Q1-Q4 2020

 

Western Canadian Select

 

 

4,577

 

 

$

(20.80

)

 

As of March 31, 2019, 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)

 

Q2-Q4 2019

 

 

262,525

 

 

$

2.81

 

 

 

213,884

 

 

$

2.64

 

 

$

3.02

 

Q1-Q4 2020

 

 

51,409

 

 

$

2.86

 

 

 

40,071

 

 

$

2.73

 

 

$

3.03

 

 

 

 

Natural Gas Basis Swaps

 

Period

 

Index

 

Volume

(MMBtu/d)

 

 

Weighted Average

Differential to

Henry Hub

($/MMBtu)

 

Q2-Q4 2019

 

Panhandle Eastern Pipe Line

 

 

63,018

 

 

$

(0.71

)

Q2-Q4 2019

 

El Paso Natural Gas

 

 

130,000

 

 

$

(1.46

)

Q2-Q4 2019

 

Houston Ship Channel

 

 

162,500

 

 

$

0.01

 

Q1-Q4 2020

 

Panhandle Eastern Pipe Line

 

 

30,000

 

 

$

(0.47

)

Q1-Q4 2020

 

El Paso Natural Gas

 

 

40,000

 

 

$

(0.67

)

Q1-Q4 2020

 

Houston Ship Channel

 

 

10,000

 

 

$

0.02

 

 

 

As of March 31, 2019, 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 2019

 

Ethane

 

 

1,000

 

 

$

11.55

 

Q2-Q4 2019

 

Natural Gasoline

 

 

4,500

 

 

$

55.93

 

Q2-Q4 2019

 

Normal Butane

 

 

4,000

 

 

$

33.69

 

Q2-Q4 2019

 

Propane

 

 

8,500

 

 

$

30.01

 

 

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,

 

 

 

2019

 

 

2018

 

Commodity derivatives:

 

 

 

 

 

 

 

 

Upstream revenues

 

$

(709

)

 

$

(41

)

Marketing revenues

 

 

1

 

 

 

 

Interest rate derivatives:

 

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

46

 

Net gains (losses) recognized

 

$

(708

)

 

$

5

 

 

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

 

 

March 31, 2019

 

 

December 31, 2018

 

Commodity derivative assets:

 

 

 

 

 

 

 

 

Other current assets

 

$

30

 

 

$

637

 

Other long-term assets

 

 

6

 

 

 

40

 

Total derivative assets

 

$

36

 

 

$

677

 

Commodity derivative liabilities:

 

 

 

 

 

 

 

 

Other current liabilities

 

$

91

 

 

$

67

 

Other long-term liabilities

 

 

6

 

 

 

1

 

Total derivative liabilities

 

$

97

 

 

$

68

 

 

v3.19.1
Share-Based Compensation
3 Months Ended
Mar. 31, 2019
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Share-Based Compensation

4.Share-Based Compensation

 

The table below presents the share-based compensation expense included in Devon’s accompanying consolidated comprehensive statements of earnings. The vesting for certain share-based awards was accelerated in conjunction with the reduction of workforce described in Note 5 and is included in restructuring and transaction costs in the accompanying consolidated comprehensive statements of earnings.

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

G&A

 

$

26

 

 

$

37

 

Exploration expenses

 

 

1

 

 

 

2

 

Restructuring and transaction costs

 

 

22

 

 

 

 

Total

 

$

49

 

 

$

39

 

Related income tax benefit

 

$

10

 

 

$

1

 

 

Under its approved long-term incentive plan, Devon granted share-based awards to certain employees in the first three months of 2019. 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 12/31/18

 

 

5,963

 

 

$

35.47

 

 

 

302

 

 

$

35.93

 

 

 

2,868

 

 

 

 

 

$

30.14

 

Granted

 

 

4,271

 

 

$

25.47

 

 

 

 

 

$

 

 

 

741

 

 

 

 

 

$

28.97

 

Vested

 

 

(2,505

)

 

$

35.05

 

 

 

(137

)

 

$

37.44

 

 

 

 

 

 

 

 

$

 

Forfeited

 

 

(442

)

 

$

26.83

 

 

 

 

 

$

 

 

 

(1,267

)

 

 

 

 

$

11.15

 

Unvested at 3/31/19

 

 

7,287

 

 

$

30.27

 

 

 

165

 

 

$

34.67

 

 

 

2,342

 

 

(1

)

 

$

40.05

 

 

(1)

A maximum of 4.7 million common shares could be awarded based upon Devon’s final TSR ranking.

The following table presents the assumptions related to the performance share units granted in 2019, as indicated in the previous summary table.

 

 

 

2019

 

Grant-date fair value

 

$

28.43

 

 

 

$

29.53

 

Risk-free interest rate

 

2.48%

 

Volatility factor

 

39.1%

 

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, 2019.

 

 

 

 

 

 

 

Performance-Based

 

 

 

 

 

 

 

Restricted Stock

 

 

Restricted Stock

 

 

Performance

 

 

 

Awards and Units

 

 

Awards

 

 

Share Units

 

Unrecognized compensation cost

 

$

162

 

 

$

 

 

$

33

 

Weighted average period for recognition (years)

 

 

2.8

 

 

 

2.2

 

 

 

1.9

 

 

v3.19.1
Restructuring and Transaction Costs
3 Months Ended
Mar. 31, 2019
Restructuring And Related Activities [Abstract]  
Restructuring and Transaction Costs

 

5.Restructuring and Transaction Costs

Workforce Reductions

During the first quarter of 2019, Devon announced workforce reductions and other initiatives designed to enhance its operational focus and cost structure in conjunction with the portfolio transformation announcement further discussed in Note 2. As a result, Devon recognized $54 million of restructuring expenses during the first three months of 2019. Of these expenses, $22 million resulted from accelerated vesting of share-based grants, which are noncash charges. Devon anticipates recognizing additional restructuring charges in 2019 primarily when the separation of the Canadian and Barnett Shale assets are completed.

The following table summarizes Devon’s restructuring liabilities.

 

 

Other

 

 

Other

 

 

 

 

 

 

 

Current

 

 

Long-term

 

 

 

 

 

 

 

Liabilities

 

 

Liabilities

 

 

Total

 

Balance as of December 31, 2018

 

$

47

 

 

$

16

 

 

$

63

 

Changes related to 2019 workforce reductions

 

 

30

 

 

 

 

 

 

30

 

Changes related to prior years' restructurings

 

 

(18

)

 

 

(3

)

 

 

(21

)

Balance as of March 31, 2019

 

$

59

 

 

$

13

 

 

$

72

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2017

 

$

19

 

 

$

31

 

 

$

50

 

Changes related to prior years' restructurings

 

 

(1

)

 

 

(4

)

 

 

(5

)

Balance as of March 31, 2018

 

$

18

 

 

$

27

 

 

$

45

 

 

 

v3.19.1
Other Expenses
3 Months Ended
Mar. 31, 2019
Other Income And Expenses [Abstract]  
Other Expenses

6.

Other Expenses

 

The following table summarizes Devon’s other expenses presented in the accompanying consolidated comprehensive statements of earnings.

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Foreign exchange (gain) loss, net

 

$

(34

)

 

$

50

 

Asset retirement obligation accretion

 

 

14

 

 

 

16

 

Other, net

 

 

(25

)

 

 

(45

)

Total

 

$

(45

)

 

$

21

 

Foreign exchange (gain) loss, net

 

The U.S. dollar is the functional currency for Devon’s consolidated operations except its Canadian subsidiaries, which use the Canadian dollar as the functional currency. The amounts in the table above include both unrealized and realized foreign exchange impacts of foreign currency denominated monetary assets and liabilities, including intercompany loans between subsidiaries with different functional currencies. Unrealized gains and losses arise from the remeasurement of these foreign currency denominated monetary assets and liabilities and intercompany loans. Realized gains and losses arise when there are settlements of these foreign currency denominated monetary assets and liabilities and intercompany loans.

v3.19.1
Income Taxes
3 Months Ended
Mar. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

7.

Income Taxes

The following table presents Devon’s total income tax expense (benefit) and a reconciliation of its effective income tax rate to the U.S. statutory income tax rate.

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Current income tax expense (benefit)

 

$

(3

)

 

$

4

 

Deferred income tax benefit

 

 

(107

)

 

 

(38

)

Total income tax benefit

 

$

(110

)

 

$

(34

)

 

 

 

 

 

 

 

 

 

U.S. statutory income tax rate

 

 

21

%

 

 

21

%

State income taxes

 

 

7

%

 

 

1

%

Other

 

 

(2

%)

 

 

(8

%)

Effective income tax rate

 

 

26

%

 

 

14

%

 

Devon estimates its annual effective income tax rate to record its quarterly 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 quarter in which they occur.

In the table above, the “other” effect is primarily composed of permanent differences for which dollar amounts do not increase or decrease in relation to the change in pre-tax earnings. Generally, such items have an insignificant impact on Devon’s effective income tax rate. However, these items had a more noticeable impact to the rate in the first three months of 2018 due to the low relative net loss during the period.

In the first quarter of 2019, the deferred tax asset representing Devon’s U.S. state net operating loss subject to a valuation allowance decreased by $13 million. The corresponding decrease in the valuation allowance against the state net operating loss resulted in a deferred tax benefit, which is included within state income taxes in the table above.

As of the first quarter of 2018, Devon’s U.S. segment maintained a 100% valuation allowance against its U.S. deferred tax assets resulting from prior year cumulative financial losses, oil and gas impairments, and significant net operating losses for U.S. federal and state income tax. However, upon closing the EnLink divestiture in the third quarter of 2018, Devon reassessed its position and determined that its U.S. segment was no longer in a full valuation allowance position, maintaining only valuation allowances against certain deferred tax assets, including certain tax credits and state net operating losses. Devon’s Canadian segment maintains a valuation allowance against certain capital loss carryforwards.

During the first quarter of 2019, Devon announced its intent to separate all Canadian assets. As a result, Devon’s foreign earnings were no longer considered indefinitely reinvested as of March 31, 2019. However, the deferred tax asset of its Canadian investment will not be recorded until the form of the separation is certain.

 

v3.19.1
Net Loss Per Share from Continuing Operations
3 Months Ended
Mar. 31, 2019
Earnings Per Share [Abstract]  
Net Loss Per Share from Continuing Operations

8.

Net Loss Per Share from Continuing Operations

The following table reconciles net loss from continuing operations and weighted-average common shares outstanding used in the calculations of basic and diluted net loss per share from continuing operations.

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Net loss from continuing operations:

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$

(317

)

 

$

(211

)

Attributable to participating securities

 

 

 

 

 

 

Basic and diluted loss from continuing operations

 

$

(317

)

 

$

(211

)

Common shares:

 

 

 

 

 

 

 

 

Common shares outstanding - total

 

 

434

 

 

 

527

 

Attributable to participating securities

 

 

(6

)

 

 

(7

)

Common shares outstanding - basic and diluted

 

 

428

 

 

 

520

 

Net loss per share from continuing operations:

 

 

 

 

 

 

 

 

Basic

 

$

(0.74

)

 

$

(0.41

)

Diluted

 

$

(0.74

)

 

$

(0.41

)

Antidilutive options (1)

 

 

1

 

 

 

2

 

 

(1)

Amounts represent options to purchase shares of Devon’s common stock that are excluded from the diluted net earnings per share calculations because the options are antidilutive.

v3.19.1
Other Comprehensive Earnings
3 Months Ended
Mar. 31, 2019
Other Comprehensive Income Loss Net Of Tax Period Increase Decrease [Abstract]  
Other Comprehensive Earnings

 

9.

Other Comprehensive Earnings

Components of other comprehensive earnings consist of the following:

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Foreign currency translation:

 

 

 

 

 

 

 

 

Beginning accumulated foreign currency translation and other

 

$

1,159

 

 

$

1,309

 

Change in cumulative translation adjustment

 

 

35

 

 

 

(61

)

Income tax benefit

 

 

 

 

 

13

 

Ending accumulated foreign currency translation

 

 

1,194

 

 

 

1,261

 

Pension and postretirement benefit plans:

 

 

 

 

 

 

 

 

Beginning accumulated pension and postretirement benefits

 

 

(132

)

 

 

(143

)

Recognition of net actuarial loss and prior service cost in earnings (1)

 

 

3

 

 

 

4

 

Income tax expense

 

 

(1

)

 

 

 

Ending accumulated pension and postretirement benefits

 

 

(130

)

 

 

(139

)

Accumulated other comprehensive earnings, net of tax

 

$

1,064

 

 

$

1,122

 

 

(1)

These accumulated other comprehensive earnings components are included in the computation of net periodic benefit cost, which is a component of other expenses in the accompanying consolidated comprehensive statements of earnings. See Note 17 for additional details.

 

v3.19.1
Supplemental Information To Statements Of Cash Flows
3 Months Ended
Mar. 31, 2019
Supplemental Cash Flow Elements [Abstract]  
Supplemental Information To Statements Of Cash Flows

10.

Supplemental Information to Statements of Cash Flows

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Changes in assets and liabilities, net

 

 

 

 

 

 

 

 

Accounts receivable

 

$

(152

)

 

$

37

 

Other current assets

 

 

(7

)

 

 

(88

)

Other long-term assets