Devon Sees the Highest Quarterly Net Earnings in Company's History
Devon has reported net earnings for the quarter ended September 30, 2008, of $2.6 billion, or $5.92 per common share ($5.87 per diluted common share). Third-quarter 2008 net earnings were 256 percent greater than Devon's third-quarter 2007 net earnings of $735 million, or $1.65 per common share ($1.63 per diluted common share). This is the highest quarterly net earnings in the company's history.
For the nine months ended September 30, 2008, Devon reported net earnings of $4.7 billion, or $10.50 per common share ($10.40 per diluted common share). 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).
Earnings $3.09 per Share Excluding Items Not Estimated by Analysts
Devon's third-quarter 2008 reported net earnings of $2.6 billion were affected by certain items securities analysts typically exclude from their published estimates. Excluding these adjusting items, Devon earned $1.4 billion, or $3.09 per diluted common share. The most significant of the adjusting items was a non-cash, unrealized gain on oil and natural gas derivative instruments of $1.8 billion pre-tax ($1.2 billion after tax). This and other adjusting items are discussed in more detail later in this news release.
Third-Quarter Oil and Gas Sales Increase 62 Percent; Production Trimmed by Hurricanes
Sales of oil, natural gas and natural gas liquids from continuing operations was $3.8 billion in the quarter ended September 30, 2008, compared with $2.3 billion in the same period in 2007. This 62 percent increase in sales was attributable to higher natural gas production combined with increased oil, natural gas and natural gas liquids pricing.
Despite reduced production volumes resulting from weather and operational down time, Devon's third-quarter production increased compared with 2007. Combined oil, natural gas and natural gas liquids production from continuing operations reached 58.6 million oil-equivalent barrels (Boe) in the third quarter of 2008. This was a three percent increase compared with the same quarter in 2007. Devon produced 637 thousand Boe per day in the third quarter of 2008 compared with 618 thousand Boe per day in the third quarter of 2007.
Much of Devon's U.S. offshore oil and gas production and a portion of its U.S. onshore oil and gas production was curtailed in the month of September as a result of Hurricanes Gustav and Ike. The company estimates that the hurricanes reduced third-quarter 2008 oil and gas production by approximately 1.5 million Boe.
Third-quarter oil production was also curtailed by approximately 400,000 barrels at the ACG field in Azerbaijan. Transportation interruptions and a subsea natural gas leak required the operator to reduce production from the offshore Azeri platforms.
Third-Quarter Operations Highlight U.S., Canada and Brazil
Devon drilled 636 wells in the third quarter of 2008, with an overall success rate of 97 percent. Following are recent operating highlights:
- Devon's net production from the Barnett Shale field in north Texas averaged a record 1.1 billion cubic feet of natural gas equivalent per day in the third quarter of 2008. The company expects to exit the year producing approximately 1.2 billion cubic feet equivalent per day from about 3,800 Barnett Shale wells.
- Devon has completed construction of its Northridge gas processing plant in the Woodford Shale field in eastern Oklahoma. The plant, which commenced operations in early October, can process up to 200 million cubic feet of natural gas per day. Devon is rapidly growing its production from the Woodford Shale and exited the third quarter producing about 50 million cubic feet of natural gas per day from the field.
- In the third quarter, Devon completed two high-volume natural gas wells in the company's new Haynesville Lime drilling program in the Carthage area of east Texas. The two 100-percent Devon-owned wells achieved initial production rates of 26 million and 22 million cubic feet of natural gas per day.
- In the Groesbeck area in east Texas, Devon initiated production on three significant horizontal natural gas wells in the third quarter. Initial daily production from the three wells averaged approximately 17 million cubic feet of gas equivalent per well. Devon owns 100-percent working interests in two of the wells and 96 percent in the third.
- In Wyoming, Devon's net production from the Powder River Basin coalbed natural gas field exceeded 100 million cubic feet of gas per day in the third quarter. This was an all-time production record for Devon in the Powder River Basin.
- In Alberta, oil production from the first phase of Devon's wholly-owned Jackfish Canadian oil sands project continued to ramp up toward an expected peak rate of 35,000 barrels per day. Jackfish 2 received regulatory approval in September. Combined production from both phases of the project is expected to reach 70,000 barrels of oil per day in 2012.
- In Brazil, Devon is evaluating the results of a pre-salt exploratory well in the offshore Campos Basin. The well on the Wahoo prospect encountered more than 150 feet of potential net oil pay. Devon has a 25 percent working interest in the prospect.
$3 Billion in African Divestitures To Date
In September, Devon closed the sale of its operations in Cote d'Ivoire for $205 million. The aggregate pre-tax value of the combined African divestitures to date is approximately $3 billion.
In accordance with U.S. accounting standards, the company has classified the assets, liabilities and results of its operations in Africa as discontinued operations for all accounting periods presented in this release. Included in this release is a table of revenues, expenses and production categories and amounts reclassified as discontinued operations for each period presented.
Marketing and Midstream Profit at $169 Million
Marketing and midstream operating profit in the third quarter of 2008 reached $169 million. This was a 28 percent increase compared with the third quarter of 2007. The increase in operating profit reflects higher throughput and higher natural gas and natural gas liquids prices.
Expenses Generally in Line with Expectations
Expenses in most categories were generally in line with expectations in the third quarter of 2008. However, hurricane-related production curtailments led to higher than anticipated unit lease operating expense (LOE). Third-quarter LOE also included $14 million of costs associated with post-hurricane inspections and repairs.
On a unit basis, third-quarter LOE was $10.09 per Boe compared with $8.04 per Boe in the third quarter of 2007.
Interest expense in the third quarter of 2008 decreased by 36 percent compared with the third quarter of 2007. The decrease was attributable to lower overall debt balances.
Cash Flow $2.6 Billion; Debt Repayment and Share Repurchases Total $1.3 Billion
Cash flow before balance sheet changes increased 49 percent to $2.6 billion in the third quarter of 2008. Devon funded $2.4 billion of capital expenditures in the third quarter, leaving $265 million of free cash flow. During the third quarter, the company used free cash flow and cash on hand to redeem $983 million of exchangeable debentures.
Also in the third quarter of 2008, Devon repurchased approximately 3.6 million shares of its common stock for approximately $363 million. The company repurchased a total of 6.5 million shares of its common stock in the first nine months of 2008. The company held cash and short-term investments of $1.2 billion at September 30, 2008.
- US Shale Producers Promise both Higher Output and Returns (Nov 03)
- Devon Energy 3Q Profit Beats Estimates (Oct 31)
- Shale Drillers Show Few Signs of Slowing as Profits Expand (Aug 02)