Devon Energy Q1 2010 Earnings Call Transcript

Devon Energy Q1 2010 Earnings Call Transcript
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Devon Energy (DVN)

Q1 2010 Earnings Call

May 05, 2010 11:00 am ET


Vincent White - Senior Vice President of Investor Relations

J. Nichols - Co-Founder, Chairman, Chief Executive Officer and Chairman of Dividend Committee

Jeffrey Agosta - Chief Financial Officer and Executive Vice President

David Hager - Executive Vice President of Exploration & Production

John Richels - President and Director


Rehan Rashid - FBR Capital Markets & Co.

Monroe Helm - CM Energy Partners

Allen Chan

Philip Dodge - Stanford Group Company

Mark Gilman - The Benchmark Company, LLC

Raymond Deacon - Pritchard Capital Partners, LLC

David Tameron - Wells Fargo Securities, LLC

Harry Mateer - Lehman Bothers

Douglas Leggate - BofA Merrill Lynch

David Heikkinen - Tudor, Pickering, Holt

Scott Wilmoth - Simmons

Brian Singer - Goldman Sachs Group Inc.



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Welcome to Devon Energy's First Quarter 2010 Earnings Conference Call. [Operator Instructions] At this time, I'd like to turn the conference over to Mr. Vince White, Senior Vice President of Investor Relations. Sir, you may begin.

Vincent White

Thank you, and good morning, everyone. Welcome to Devon's First Quarter 2010 Earnings Conference Call and Webcast. Today's call will follow our usual format. I'll take care of a couple of housekeeping items and then Larry Nichols, our CEO, will give his thoughts on the quarter, as well as an update on our strategic repositioning. Following Larry's remarks, our President, John Richels, will provide a financial review and then Dave Hager, our Executive Vice President of Exploration and Production, will cover our capital budget and the operating highlights. We will follow with a Q&A period and as usual, we will hold the call to about an hour. As always, we ask that participants on the call to keep their questions in the Q&A session to one question and one follow-up. A replay of this call will be available later today through a link on our homepage.

And also during the call, we will update some of our forward-looking estimates based on actual results for the first quarter. Since the revisions are pretty minor, we are not planning on issuing a new 8-K, but we will post these changes to the guidance area of our website. To find that, just click on the Guidance link found in the Investor Relations section of Devon's website.

Please note that all references in today's call to our plans, forecasts, expectations and estimates are forward-looking statements under U.S. securities law. And there are many factors that could cause our actual results to differ from those estimates. We encourage you to review the discussion of risk factors and uncertainties that is provided with our forecast in our Form 8-K.

One other compliance note, we'll use certain non-GAAP performance measures in today's call. When we use those measures, we're required to provide certain related disclosures. Those disclosures are also available on the Devon website.

Finally, I want to remind you that our financial and operational reporting has been complicated by the restructuring that we're undergoing. Our plan to divest our international operations has triggered accounting rules for discontinued operations. Under those rules, we're required to exclude our international oil and gas production from our reported production volumes for all of the periods presented. The related revenues and expenses for our international operations are collapsed into a single line item at the end of our statement of operations. That line item is filed discontinued operations. For those of you interested in a more detailed review of the international results, we have supplied additional tables in our news release.

And to make matters worse, even though we are selling our assets in the Gulf of Mexico, the accounting standards for discontinued operations do not apply to this Gulf assets. The results of operations from those divestiture assets reside in our continuing operations up to the date of closing of the sale of those properties. Throughout the call, our comments will generally be directed to results from continuing operations but wherever possible, we'll provide additional commentary specifically targeting our North American onshore results or our keeper properties. Information is also provided in our press release to enable you to isolate certain results from Devon's North American onshore operations.

The accounting treatment of the divestiture properties also complicates the comparability of earnings estimates. About 2/3 of the analysts that reported estimates the first call this quarter excluded the impact of the discontinued operations. The mean estimate of earnings per share from analysts that excluded discontinued operations is $1.43 for the first quarter. That compares to our non-GAAP earnings from continuing operations of $1.65 per diluted share for the first quarter. For those analysts that included discontinued operations in their estimate, the mean estimate was $1.50 per share as compared to our adjusted diluted earnings per share of $1.85. So in either case, our first quarter results were significantly better than the Street's expectations.

At this point, I'll turn the call over to Larry.

J. Nichols

Thanks, Vince, and good morning, everyone. Clearly, the first quarter of this year was a very good one for Devon. First quarter production from our retained properties and that is, of course, the North American onshore properties grew to 587,000 Boe per day, which is up nearly 3% over the fourth quarter of 2009. And it's worth pointing out that 186,000 barrels per day of this production were roughly 1/3 is oil and NGLs.

With production near the top end of our guidance and with strong price realizations relative to benchmark prices and with lower costs in nearly every expense category, first quarter earnings handily beat Street estimates. Also our Marketing and Administering business delivered another solid quarter generating $133 million in operating profit. And finally, we continue to maintain a very strong financial position. We ended the quarter with one of the strongest balance sheets in the NP sector, following the repayment of $1.2 billion of commercial paper and ending the quarter with cash on hand of nearly $1.2 billion.

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