For the nine months ended September 30, 2007, Devon reported net earnings of $2.3 billion, or $5.13 per common share ($5.07 per diluted common share). For the nine months ended September 30, 2006, Devon earned $2.3 billion, or $5.11 per common share ($5.05 per diluted common share).
Securities analysts typically exclude certain items from their published estimates. In aggregate, these items increased Devon's third-quarter 2007 net earnings by $35 million, or eight cents per diluted share. The adjusting items are discussed in detail later in this news release.
Oil and natural gas production from continuing operations increased in the third quarter of 2007 to 56.8 million oil-equivalent barrels (Boe). This was a 10% increase over third quarter 2006 production and was driven by organic production growth in each of the company's producing segments: the United States, Canada and International. The third quarter of 2007 marks the sixth consecutive quarter that Devon has increased oil and gas production from retained properties.
Devon also announced today that it has decided not to proceed at this time with its plans to form a publicly-traded master limited partnership (MLP). The MLP was to own a minority interest in Devon's U.S. onshore marketing and midstream business. The company cited changing financial market conditions for MLPs as the principal reason for the decision.
Devon drilled 599 wells in the third quarter of 2007 with an overall success rate of 98%. Following are highlights of third-quarter operations.
Devon commenced drilling its 1,000th operated horizontal well in the Barnett Shale in north Texas during the third quarter. Horizontal drilling, initiated by Devon about five years ago in the field, has played an important role in unlocking more of the vast potential of the company's 735,000 net acres in the Barnett Shale.
Devon's net production from the Barnett Shale averaged 856 million cubic feet of natural gas equivalent per day in the third quarter, representing a 32 percent increase over the third quarter of 2006.
Devon commenced production from the Merganser field in the deepwater Gulf of Mexico in August. Combined initial production from the two Merganser wells was about 150 million cubic feet of gas per day. Devon has a 50% working interest in the field, which produces into the Independence Hub.
Devon has sanctioned development of the Cascade project in the deepwater Lower Tertiary trend of the Gulf of Mexico. Cascade is expected to be one of the first two development projects to establish production in the Gulf's Lower Tertiary trend.
Also in the Gulf of Mexico, Devon commenced drilling its first company-operated Lower Tertiary exploratory well in the third quarter. The Chuck well, in 6,500 feet of water, is drilling to a target depth of 31,500 feet. Devon has a 39.5 percent working interest in the Chuck prospect.
In east Texas, net production in the company's Carthage area climbed to a new high in the third quarter, averaging 260 million cubic feet of natural gas equivalent per day. Based on the success of its vertical and horizontal programs, Devon has increased its rig count in Carthage to 13.
In Canada, Devon continued an active 5-rig program in the third quarter, drilling 125 new wells in the company's Lloydminster oil play. The company's production in Lloydminster has increased by 50 percent over the past 12 months to 34,600 barrels per day.
In Brazil, the offshore Polvo project began first production in the third quarter. Three of 10 planned producing wells have now been completed. Gross combined production reached about 9,500 barrels of oil per day from the first three wells. The project is expected to produce up to 50,000 barrels per day at its peak in 2008. Devon has a 60% working interest in Polvo. Oil and Gas Revenues Increase 12 Percent
Sales of oil, natural gas and natural gas liquids were $2.3 billion in the third quarter of 2007. This was a 12 percent increase compared with the third quarter of 2006. The increase in sales was the result of greater production and higher realized liquids prices, partially offset by lower natural gas prices.
The average realized price for natural gas decreased six percent in the third quarter of 2007 to $5.31 per thousand cubic feet. This compares with $5.63 per thousand cubic feet in the third quarter of 2006. Devon's average realized oil price increased six percent to $67.41 per barrel in the third quarter of 2007 compared with $63.77 per barrel in the prior-year period. Devon's realized natural gas liquids price increased 10 percent to $38.34 per barrel from $34.98 per barrel in the third quarter of 2006.
Marketing and midstream operating profit was $133 million, compared with $112 million in the third quarter of 2006. The 19 percent increase resulted primarily from higher gas processing margins.
Higher Expenses Reflect High Activity Levels and Resulting Growth
Driven by higher production and activity levels coupled with rising industry costs, expenses in most categories increased in the third quarter of 2007. With the exception of depreciation, depletion and amortization (DD&A) expense, Devon's expenses in the third quarter of 2007 were generally in line with expectations. DD&A expense associated with oil and gas properties increased to $12.41 per Boe in the third quarter. The higher than expected third quarter DD&A rate was attributable to the impact of unusually low natural gas prices in the Rocky Mountain producing region at September 30, 2007.
In October, Devon completed the sale of its operations in Egypt for an adjusted sales price of $341 million as of the closing date. The company is also in the process of divesting its assets and terminating operations in West Africa. In accordance with accounting standards, Devon has reclassified the assets, liabilities and results of its operations in Egypt and West Africa as discontinued operations for all accounting periods presented in this release. Although revenues and expenses for prior periods were reclassified, there was no impact upon previously reported net earnings. Included with the financial information that follows is a table of revenues, expenses and production categories and the amounts reclassified as discontinued operations for each period presented.
Cash Flow Before Balance Sheet Changes Increases 15 Percent to $1.8 Billion
Third quarter cash flow before balance sheet changes rose 15% to $1.8 billion in 2007. During the third quarter, Devon utilized cash flow to fund $1.6 billion of capital expenditures and returned more than $180 million to shareholders through share repurchases and dividends. The company's balance sheet continued to strengthen during the third quarter with net debt to adjusted capitalization declining to 19% at September 30, 2007. Reconciliations of cash flow before balance sheet changes, net debt and adjusted capitalization, which are non-GAAP measures, are provided in this release.
Most Popular Articles
From the Career Center
Jobs that may interest you