Devon's Reserves Hit All-Time High; Cash Flow Totals $4.7B

Devon  reported 2009 full-year and fourth-quarter financial results. The company also reported that its 2009 full-year oil and gas production from continuing operations reached an all-time high. In addition, Devon reported record-high proved oil and natural gas reserves at December 31, 2009. Production and changes to proved reserves are discussed in more detail later in this report.

For the year ended December 31, 2009, Devon reported a net loss of $2.5 billion, or $5.58 per common share ($5.58 per diluted common share). Devon's 2009 financial results were impacted by certain items securities analysts typically exclude from their published estimates. The most significant of these items was a $4.2 billion after-tax reduction of the carrying value of oil and gas properties recorded in the first quarter of 2009. This was the result of a non-cash, full-cost ceiling adjustment. The charge resulted from application of the ceiling test as prescribed by the Securities and Exchange Commission for companies that follow the full-cost method of accounting.

Excluding the reduction of carrying value of oil and gas properties and other adjusting items, Devon earned $1.8 billion or $4.03 per diluted common share in 2009. The adjusting items are discussed in more detail later in this news release.

For the year ended December 31, 2008, Devon reported a net loss of $2.1 billion, or $4.85 per common share ($4.85 per diluted common share). The company's 2008 financial results included a $7.1 billion non-cash, after-tax reduction in the carrying value of oil and gas properties.

Devon reported net earnings of $667 million, or $1.50 per common share ($1.49 per diluted common share), for the quarter ended December 31, 2009. Excluding adjusting items, the company earned $713 million, or $1.60 per diluted common share in the fourth quarter of 2009.

For the quarter ended December 31, 2008, Devon reported a net loss of $6.8 billion or, $15.42 per common share ($15.42 per diluted common share).

North American Onshore Proved Reserves at Record 2.6 Billion Boe;

Drill-Bit Reserve Additions More than Double Record Production

"2009 was a pivotal year for Devon as we began repositioning the company to focus entirely on our high-return, North American onshore natural gas and oil portfolio," commented J. Larry Nichols, chairman and chief executive officer. "We grew North American onshore production by more than six percent in 2009 and replaced more than twice our production with the drill bit at very attractive costs. We expect to receive after-tax proceeds of $4.5 billion to $7.5 billion as we divest our offshore and international properties this year. This will further strengthen our rock-solid balance sheet and enable us to accelerate growth across our U.S. and Canadian asset base."

In accordance with accounting standards, Devon's year-end reserve reporting pertains to the company's continuing operations, which include its Gulf of Mexico properties. Following is a discussion of proved reserves pertaining only to Devon's North American onshore assets.

Devon increased North American onshore estimated proved reserves by 20 percent to a record 2,641 million oil-equivalent barrels (Boe) at December 31, 2009. The company added 669 million Boe to its North American onshore proved reserves from all sources. Costs incurred applicable to North American onshore properties were $3.3 billion.

Successful drilling (extensions, discoveries and performance revisions) accounted for 492 million Boe of North American onshore proved reserve additions. The company invested $3.2 billion of associated drill-bit capital during the year. Revisions related to changes in oil, natural gas and natural gas liquids prices increased 2009 North American onshore proved reserves by 176 million Boe.

North American onshore oil and gas production increased more than six percent to 220 million Boe in 2009. The reserve life index (proved reserves divided by annual production) for the North American onshore properties is approximately 12 years.

Proved developed reserves of 1,869 million Boe at December 31, 2009, represented 71 percent of total North American onshore proved reserves. Proved undeveloped reserves were 29 percent of the total. Year-end North American onshore proved reserves included 653 million barrels of crude oil, 9.4 trillion cubic feet of natural gas and 419 million barrels of natural gas liquids.

Divestitures Make Way for North American Onshore Growth

The company plans to direct the proceeds of the divestitures of its Gulf of Mexico and international properties to its U.S. and Canadian onshore operations and to retire debt. In accordance with accounting standards, Devon has reclassified the assets, liabilities and results of its international operations 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 are tables of revenues, expenses, production, proved reserves and costs incurred and the amounts reclassified as discontinued operations for each period presented.

In spite of Devon's plans to divest its Gulf of Mexico assets, these properties do not qualify as discontinued operations under accounting standards. However, information is provided in this release that will enable the reader to isolate certain results of the company's North American onshore operations.

Continuing Operations Show Strong Production Growth

Combined oil, gas and natural gas liquids production from continuing operations averaged 639 thousand Boe per day in 2009. This compares with 2008 average daily production of 610 thousand Boe per day.

Sharp declines in the average prices of oil, gas and natural gas liquids led to a 48 percent reduction in combined sales from continuing operations. Comparable sales for the years 2009 and 2008 were $6.1 billion and $11.7 billion, respectively. Furthermore, marketing and midstream operating profit decreased 25 percent to $512 million in 2009, reflecting lower prices for natural gas and natural gas liquids.

Cash Flow Totals $4.7 Billion

Cash flow before balance sheet changes decreased 50 percent to $4.7 billion in 2009. During the year Devon funded $5.1 billion of capital expenditures and paid $284 million in dividends utilizing cash flow and short-term borrowing. In spite of the increase in short-term borrowing, Devon's balance sheet remains strong with a ratio of net debt to adjusted capitalization of 29 percent.



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