Devon Reports Record Net Earnings of $4.6B in 2010

Devon reported record net earnings for the year ended December 31, 2010, of $4.6 billion, or $10.35 per common share ($10.31 per diluted common share). This compares to a full-year 2009 net loss of $2.5 billion, or $5.58 per common share ($5.58 per diluted common share). The company's 2009 financial results were impacted by a $4.2 billion non-cash, after-tax reduction in the carrying value of oil and gas properties.

For the quarter ended December 31, 2010, Devon reported net earnings of $562 million, or $1.30 per common share ($1.29 per diluted common share). In the fourth quarter of 2009, the company reported net earnings of $667 million, or $1.50 per common share ($1.49 per diluted common share).

Devon's fourth-quarter 2010 financial results were impacted by certain items securities analysts typically exclude from their published estimates. Excluding these adjusting items, the company earned $683 million, or $1.57 per diluted common share. The adjusting items are discussed in detail later in this news release.

"2010 was an outstanding year for Devon. The company's record earnings were accompanied by excellent operating results and the successful execution of our strategic repositioning," commented John Richels, president and chief executive officer. "Our focused North American onshore capital program helped grow proved reserves to an all-time record of 2.9 billion equivalent barrels, and we are nearing completion of our strategic repositioning with total asset sales of more than $10 billion."

Proved Oil and Gas Reserves Climb to Record Levels

In accordance with accounting standards, Devon's year-end 2009 reserve balances include the reserves associated with the company's Gulf of Mexico properties that were divested in 2010. Following is a discussion of proved reserves related only to Devon's retained North American onshore assets, excluding the impact of the divested properties.

At year-end 2010, Devon's North American onshore estimated proved reserves were a record 2,873 million oil-equivalent barrels (Boe), a nine percent increase over year-end 2009. During 2010 Devon added 389 million oil-equivalent barrels through successful drilling (discoveries, extensions and performance revisions). Drill-bit capital applicable to its North American onshore properties totaled $6.1 billion, including $1.2 billion of unproved leasehold capture. Revisions related to changes in oil, natural gas, and natural gas liquids prices increased North American onshore proved reserves by an additional 71 million Boe.

Proved developed reserves were 2,042 million Boe at December 31, 2010, or 71 percent of total proved reserves. Year-end proved reserves were composed of 681 million barrels of crude oil, 10.3 trillion cubic feet of natural gas and 479 million barrels of natural gas liquids.

"Devon delivered outstanding results with our North American onshore drilling program in 2010," said Dave Hager, executive vice president, exploration and production. "Our drill-bit reserve additions were 175 percent of our production output for the year. In addition, the reserves were added at very competitive finding costs in spite of adding $1.2 billion of unproved acreage during the year."

Liquids Production Growth and Cana-Woodford Development Lead 2010 Operating Highlights

Devon drilled 1,588 wells in 2010 applicable to its continuing operations with a 99 percent success rate. Following are operational highlights from the past year:

  • Devon increased oil and natural gas liquids production from its North American onshore properties by six percent in 2010, to an average of 193,000 barrels per day.
  • During the year, Devon completed 87 wells in the Cana-Woodford Shale play in western Oklahoma and more than doubled its industry-leading leasehold position in the play to 243,000 net acres. Fourth-quarter production from the Cana-Woodford increased more than 200 percent over the year-ago quarter to an average of 137 million cubic feet of gas equivalent per day. The company also completed construction and commenced operation of its Cana gas processing plant in 2010.
  • In the Permian Basin, Devon increased fourth-quarter production 16 percent over the fourth quarter of 2009, to 45,000 Boe per day. Devon has nearly 1 million net acres of leasehold in the region targeting various oil and liquids-rich play types. In 2011, the company plans to run 17 operated rigs and drill approximately 300 wells to continue de-risking and developing these plays.
  • In 2010, production from the Devon-operated Jackfish oil sands project averaged 26,000 gross barrels per day or 25,000 barrels per day net to the company. Following scheduled facilities maintenance in the third quarter and the Enbridge pipeline system outage in the fourth quarter, Jackfish production ramped back up to 31,000 gross barrels per day at year-end.
  • Construction of the company's second Jackfish project is now complete. Devon expects to begin injecting steam at Jackfish 2 in the second quarter, with first oil production expected by the end of 2011. Devon applied for regulatory approval of a third phase of Jackfish in the third quarter of 2010.
  • During the year, Devon added to its Canadian oil position by acquiring a 50 percent interest in the Pike oil sands leases. The Pike acreage lies immediately adjacent to the company's highly successful Jackfish project and has estimated gross recoverable resources of up to 1.5 billion barrels. Devon is the operator of the project and is currently drilling appraisal wells to determine an optimal development configuration.
  • The company's net production from the Barnett Shale field in north Texas averaged 1.2 billion cubic feet of natural gas equivalent per day in the fourth quarter, including 42,000 barrels per day of liquids production. This represents a 14 percent increase in production compared to fourth quarter of 2009.

Oil and Gas Sales Increase 19 Percent

Sales of oil, gas and natural gas liquids from continuing operations increased 19 percent to $7.3 billion in the year ended December 31, 2010. Comparable sales for the year ended December 31, 2009, were $6.1 billion. Devon's average full-year 2010 realized price per Boe, including the impact of hedges, increased 26 percent over the prior year to $35.81 per barrel. Higher commodity prices more than offset a decrease in production resulting from the Gulf of Mexico properties that were divested during 2010.

Full-year 2010 production from the company's North American onshore properties grew by 3 million Boe over the prior year to a total of 223 million oil-equivalent barrels. The improvement was driven entirely by higher oil and natural gas liquids production.

Devon's fourth quarter production was impacted by a number of minor operational issues including volume curtailments attributable to the Enbridge pipeline outage, completion delays, and interruptions due to severe weather. In aggregate, these items reduced fourth quarter production by 11,000 equivalent barrels per day. In spite of these operational issues, North American onshore production in the fourth quarter averaged 619,000 Boe per day, an eight percent increase over the fourth quarter of 2009.