Devon reported net earnings of $1.0 billion for the quarter ended September 30, 2011, or $2.51 per common share ($2.50 per diluted share). This compares with third-quarter 2010 net earnings of $2.1 billion, or $4.81 per common share ($4.79 per diluted share). The company's third-quarter 2010 earnings were enhanced by a one-time gain of $1.5 billion resulting from the divestiture of assets in Azerbaijan.
Earnings Increased to $1.54 per Share Excluding Items Not Estimated by Analysts
Devon's third-quarter 2011 financial results were impacted by certain items securities analysts typically exclude from their published estimates. The most significant of the adjusting items was an unrealized gain on oil, gas and natural gas liquids derivatives of $642 million before-tax ($415 million after-tax). Excluding these adjusting items, the company earned $638 million or $1.54 per diluted share in the third quarter. The adjusting items are discussed in more detail later in this news release.
Strong Liquids Production Growth and Higher Prices Drive Sales
Devon continued to deliver strong oil and natural gas liquids production growth in the third quarter of 2011. In aggregate, liquids production averaged 226,000 barrels per day. This represents a 17 percent increase in liquids production compared to the third quarter of 2010.
Total production of oil, natural gas and natural gas liquids averaged 661,000 oil-equivalent barrels (Boe) per day in the third quarter of 2011, an eight percent increase over the year-ago quarter.
Higher overall production and improved oil and natural gas liquids prices drove sales of oil, natural gas and natural gas liquids to $2.1 billion in the third quarter of 2011. This represents a 25 percent increase over the year-ago quarter.
Devon's marketing and midstream operating profit rose 11 percent over the third quarter of 2010, to $138 million. The increase was attributable to higher natural gas liquids prices and production.
Oil and Natural Gas Liquids Production Growth Leads Operating Highlights
Balance Sheet and Liquidity Remain Strong; Share Repurchase Plan on Schedule
Devon generated $1.9 billion of cash flow before balance sheet changes in the third quarter of 2011, a six percent increase over the year-ago quarter. The company comfortably funded its total capital program during the third quarter and returned nearly $800 million to its shareholders in the form of stock buybacks and dividend payments.
In May 2010, Devon commenced a program to repurchase $3.5 billion of its common stock. During the third-quarter 2011 the company repurchased $697 million of common stock. As of September 30, 2011, the company had repurchased $3.2 billion of stock and expects to complete the stock repurchase program during the fourth quarter of 2011.
Devon exited the third quarter of 2011 with cash and short-term investments of $6.8 billion and a net debt to adjusted capitalization ratio of 10 percent. Reconciliations of cash flow before balance sheet changes, net debt and adjusted capitalization, which are non-GAAP measures, are provided in this release.
Expenses in Line with Forecasts
The company's lease operating expenses (LOE) totaled $475 million in the third quarter. On a unit of production basis, LOE increased six percent compared to the third quarter of 2010. The increase in LOE reflects higher industry costs and the impact of a stronger Canadian dollar.
Taxes other than income were $108 million in the third quarter of 2011. The year-over-year increase of 14 percent was driven by higher production taxes resulting from the significant increase in oil and natural gas liquids revenues.
Third-quarter 2011 general and administrative expenses (G&A) totaled $138 million, or $2.27 per Boe. G&A per Boe declined three percent compared to the third quarter of 2010.
Total depreciation, depletion and amortization expenses (DD&A) were $566 million in the third quarter of 2011. Compared to the year-ago quarter, unit DD&A increased 14 percent, to $9.32 per Boe.
Interest expense for the third quarter was $104 million, a $21 million increase over the third quarter of 2010. Higher average debt balances drove the increase.
Third-quarter income tax expense from continuing operations totaled $498 million, or 32 percent of pre-tax earnings. After adjusting for items generally excluded by securities analysts, Devon's third quarter tax rate was 35 percent of pre-tax earnings from continuing operations.
Divestitures Impact Reported Financial and Operational Results
In accordance with accounting standards, Devon has classified the assets, liabilities, and results of its international segment as discontinued operations for all accounting periods presented in this release. Included with this release is a table of revenues, expenses, production by category, and the amounts classified as discontinued operations for each period presented.
Items Typically Excluded from Analyst's Published Earnings Estimates
Devon's reported net earnings include items of income and expense that are typically excluded by securities analysts in their published estimates of the company's financial results. These items and their effects upon reported earnings for the third-quarter 2011 are described below:
Items affecting continuing operations:
Most Popular Articles
From the Career Center
Jobs that may interest you