Devon Energy Underscores 2Q Financial Results
Devon Energy reported net earnings of $314 million for the quarter ended June 30, 2009, or 71 cents per common share (70 cents per diluted common share). For the quarter ended June 30, 2008, Devon reported net earnings of $1.3 billion, or $2.91 per common share ($2.88 per diluted common share). Production of oil, natural gas and natural gas liquids increased 12 percent to a record 65.4 million oil-equivalent barrels (Boe) in the second quarter of 2009. Lower realized prices for all three products led to the decrease in quarterly net earnings.
For the six months ended June 30, 2009, Devon reported a net loss of $3.6 billion, or $8.21 per common share ($8.21 per diluted common share). A $4.2 billion non-cash, after-tax reduction in the carrying value of oil and gas properties in the first quarter of 2009 drove the first-half loss. For the six months ended June 30, 2008, the company reported net earnings of $2.1 billion, or $4.60 per common share ($4.55 per diluted common share).
Earnings 85 Cents per Share Excluding Items Not Estimated by Analysts
Devon's second-quarter 2009 financial results were impacted by certain items securities analysts typically exclude from their published estimates. Excluding the adjusting items, Devon earned $379 million or 85 cents per diluted common share in the second quarter of 2009.
Production Growth in All Geographic Areas
Combined oil, gas and natural gas liquids production averaged 719 thousand Boe per day in the second quarter of 2009. This is the highest average daily production of any quarter in Devon's history and compares with 643 thousand Boe per day in the second quarter of 2008. Average daily production in the second quarter increased five percent sequentially, compared with 685 thousand Boe per day produced in the first quarter of 2009.
The 12 percent increase in year-over-year second-quarter production was driven by growth in all major operating segments. U.S. onshore natural gas production led by the Barnett Shale field in Texas demonstrated significant growth. Continuing ramp up of daily volumes from the Jackfish oil sands project led oil production growth in Canada. Canadian natural gas production increased principally due to lower government royalties. Canadian royalties are calculated on a sliding scale. At lower product prices, Devon's share of Canadian gas production increases.
Despite the strong production growth, revenues from oil, gas and natural gas liquids sales decreased 58 percent to $1.7 billion in the second quarter of 2009. Dramatically lower prices for all three products more than offset the increases in production.
Devon's average realized price for natural gas decreased 70 percent in the second quarter of 2009 compared to the second quarter of 2008, to $2.91 per thousand cubic feet. The company's average realized oil price decreased 53 percent to $52.44 per barrel in the second quarter of 2009. Devon's average second-quarter realized natural gas liquids price decreased 59 percent to $22.24 per barrel in 2009.
Climbing Jackfish Production Leads Operations Highlights
Devon drilled 198 wells (197 successful) in the second quarter of 2009 compared to 494 wells (483 successful) drilled in the second quarter of 2008. The company has reduced drilling activity and related capital expenditures in response to declines in natural gas and oil prices. In spite of the lower activity levels, Devon achieved several notable operational accomplishments in the second quarter:
- Devon continued to ramp up production from its 100 percent-owned Jackfish oil sands project in Alberta in the second quarter of 2009. Oil production at Jackfish averaged 28,000 barrels per day in June. Production hit a peak rate of 33,000 barrels per day during June, nearing its design capacity of 35,000 barrels per day.
- Construction of Jackfish 2, a nearly identical second phase of the project, is now about 40 percent complete. Devon commenced drilling the first producing wells for Jackfish 2 in July 2009.
- Devon maintained a four-rig drilling program in the Cana-Woodford Shale play in western Oklahoma in the second quarter of 2009 and added 13 new wells to production. The company increased its average net production from the Cana-Woodford to 34 million cubic feet of gas equivalent per day in the second quarter. This is a 10-fold increase compared with the second quarter of 2008. Devon is adding two additional drilling rigs in the third quarter.
- At Groesbeck in east Texas, Devon drilled another high-volume well in the Nan-Su-Gail field in the second quarter. The Hill-Crenshaw 3H (100 percent working interest) had a 24-hour initial production test of 18 million cubic feet of gas per day.
- Also in east Texas, Devon continued evaluating its Haynesville Shale acreage in the greater Carthage area. The company has substantially de-risked 74,000 of its 110,000 net acres within the Carthage area and has identified roughly 800 Haynesville drilling locations on this acreage. The company believes this 74,000 net acres has resource potential of more than three trillion cubic feet of natural gas equivalent. Devon is now drilling a well in San Augustine County as the company also evaluates its acreage in the southern region of the Haynesville Shale.
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