Devon Energy Corporation reported record net earnings of $3.6 billion for the year ended December 31, 2007, a 27 percent increase compared with full-year 2006 earnings. Earnings per share in 2007 increased 26 percent to a record $8.08 per common share ($8.00 per diluted common share). In the year ended December 31, 2006, Devon earned $2.8 billion, or $6.42 per common share ($6.34 per diluted common share).
For the quarter ended December 31, 2007, Devon earned a record $1.3 billion, or $2.96 per common share ($2.92 per diluted common share). This was 126 percent greater than reported net earnings of $582 million or, $1.31 per common share ($1.29 per diluted common share) in the fourth quarter of 2006.
"Devon's 2007 results were exceptional, both financially and operationally," said J. Larry Nichols, chairman and chief executive officer. "We set earnings and cash flow records, increased production by 12 percent and drilled 2,440 wells with a 98 percent success rate. Our 2007 drilling program added 390 million barrels of proved reserves at very competitive finding and development costs setting the stage for continued production growth in the future. In 2008 we expect to deliver similar organic growth of reserves and production."
Devon's estimated proved reserves attributable to continuing operations reached a record 2,496 million oil-equivalent barrels (Boe) at December 31, 2007. This was nine percent greater than year-end 2006 estimated proved reserves from continuing operations. Devon added 437 million Boe of proved reserves from all sources. Annual oil and gas production from continuing operations of 224 million Boe in 2007 was 12 percent more than in 2006. The company's reserve life index (proved reserves divided by annual production) is more than 11 years.
The company added 390 million Boe through successful drilling (discoveries, extensions and performance revisions) in 2007. Revisions related to changes in year-end oil and gas prices increased 2007 proved reserves by 44 million Boe.
Proved developed reserves were 1,874 million Boe at December 31, 2007. This represented 75 percent of total proved reserves. Year-end proved reserves included 677 million barrels of crude oil, nine trillion cubic feet of natural gas and 321 million barrels of natural gas liquids.
New Gulf of Mexico Field and Barnett Shale Growth Led 2007 Operating Achievements
Devon drilled 2,440 wells in 2007, with a 98 percent rate of success. In the third quarter of 2007, Devon commenced production from the Merganser field in the deepwater Gulf of Mexico. Combined initial production from the two Merganser natural gas wells was about 150 million cubic feet per day. The company has a 50% working interest in the Merganser field, which produces into the Independence Hub.
In the Barnett Shale in north Texas, Devon retained its position as the largest producer and largest lease holder. The company increased its net production from the Barnett by 33 percent in 2007, exiting the year at 950 million cubic feet of gas equivalent per day. The company holds approximately 727,000 net acres of Barnett Shale leases.
The company drilled 539 wells in the Barnett Shale in 2007. This included Devon's 1,000th horizontal well. Devon has interests in nearly 3,200 producing wells in the Barnett Shale. In Canada in 2007, Devon completed construction at the Jackfish project in the Alberta oil sands and commenced steam injection. Oil production from 100 percent-owned Jackfish is expected to ramp up throughout 2008 toward a peak production target of 35,000 barrels per day.
Also in Canada, the company increased production in 2007 from the Lloydminster area by 40 percent to approximately 33,500 Boe per day. Devon drilled 429 wells at Lloydminster in 2007.
Also in the third quarter, Devon began producing oil from the first of ten planned wells in the Polvo field offshore Brazil. Polvo, located in the Campos basin, was discovered in 2004 and is Devon's first operated development project in Brazil. Devon has a 60 percent working interest in Polvo.
The company commenced drilling the first Devon-operated exploratory well in the Lower Tertiary trend of the Gulf of Mexico in 2007. The Chuck exploratory well is currently drilling below 30,000 feet and nearing its objective. Devon has a 39.5 percent working interest in the Chuck prospect.
Devon made progress toward commercial development of four previous discoveries in the Lower Tertiary trend in 2007. This included sanctioning of phase one of the Cascade project and delineation drilling on the Jack, St. Malo and Kaskida prospects.
African Divestiture Update
In October 2007, Devon completed the sale of its operations in Egypt for an adjusted sales price of $341 million as of the closing date. In November 2007, the company announced an agreement to sell its operations in Gabon for $205.5 million. Devon is in the process of divesting its remaining assets and terminating all of its 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.
Oil and Gas Sales Increase 19 Percent
Sales from continuing operations of oil, gas and natural gas liquids increased 19 percent to $9.6 billion in the year ended December 31, 2007. This compares with sales for the year ended December 31, 2006, of $8.1 billion. The combined effects of increased oil and gas production and higher realized oil and natural gas liquids prices led to the increase in sales.
Combined oil, gas and natural gas liquids production from continuing operations averaged 614 thousand Boe per day in 2007. This was 12 percent more than Devon's 2006 average daily production from continuing operations of 549 thousand Boe per day. The increase in 2007 production reflects growth in all three of Devon's geographic producing areas: the United States, Canada and international.
Marketing and midstream operating profit was $509 million in 2007. This compares with marketing and midstream operating profit of $436 million in 2006. The 17 percent increase was largely attributable to higher natural gas processing margins.
Cash Flow Jumps 21 Percent to Top $7 Billion
Cash flow before balance sheet changes in 2007 increased 21 percent compared with 2006, to a record $7.3 billion. Utilizing cash flow and borrowings under the company's commercial paper and credit facilities, Devon funded $6.5 billion of capital expenditures, repurchased $326 million of common stock, paid $259 million in dividends and retired $567 million of long-term debt. The company ended 2007 with cash and short-term investments of $1.7 billion and a net debt to adjusted capitalization ratio of just 18 percent. Reconciliations of cash flow before balance sheet changes, net debt and adjusted capitalization, which are non-GAAP measures, are provided in this release.
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