Devon Energy Reports Third-Quarter 2016 Results

Devon Energy Corp. (NYSE: DVN) today reported operational and financial results for the third quarter of 2016 and provided guidance for the fourth quarter of 2016.

Highlights
  • Achieved record-setting well results in U.S. resource plays
  • Increased STACK production 38 percent year over year
  • Decreased lease operating expenses 37 percent from peak rates
  • Expected cost savings to reach $1 billion in 2016
  • Completed $3.2 billion asset divestiture program
  • Repurchased $1.2 billion of debt

"Devon delivered an outstanding operational performance in the third quarter," said Dave Hager, president and CEO. "Our development programs generated the best quarterly drill-bit results in Devon's 45 year history. These prolific well results were centered in the STACK play, where production increased by 38 percent. We also continued to achieve significant cost savings in the quarter and we are on pace to reduce operating and G&A expenses by $1 billion in 2016."

"In addition to our strong operating performance, we were able to successfully complete our $3.2 billion divestiture program," Hager said. "These accretive transactions strengthened our investment-grade position and significantly reduced our leverage from earlier this year. This improved financial strength allows us to further accelerate investment in our best-in-class U.S. resource plays, led by the STACK and Delaware Basin."

Record-Setting Well Results in U.S. Resource Plays

Total production averaged 577,000 oil-equivalent barrels (Boe) per day in the third quarter of 2016. Excluding divestiture properties, production from Devon's retained asset base amounted to 550,000 Boe per day. With the shift to higher-margin production, oil is now the largest component of the company's product mix at 45 percent of total volumes. To further enhance the profitability of production, Devon rejected approximately 6,000 barrels per day of ethane during the third quarter.

The majority of Devon's retained asset production was attributable to its U.S. resource plays, which averaged 410,000 Boe per day. Production in the third quarter benefited from new well activity that achieved record-setting productivity. In aggregate, Devon commenced production on 20 development wells, with initial 30-day rates averaging an all-time quarterly high of 2,000 Boe per day. These prolific results were concentrated in the company's STACK play, where production increased 38 percent year over year.

In Canada, Devon's heavy-oil operations also delivered impressive results with net oil production reaching 137,000 barrels per day in the third quarter. Driven by the industry-leading performance of the Jackfish complex, Canadian oil production increased 13 percent compared to the third quarter of 2015.

In the upcoming fourth quarter, oil production from retained assets is expected to be relatively stable compared to the third quarter, ranging between 238,000 and 248,000 barrels per day. Key drivers of the stabilized oil production are high activity levels in the STACK and accelerated completion activity in the Eagle Ford. Top-line production from retained assets is projected to range between 524,000 and 546,000 Boe per day in the fourth quarter.

Operating and G&A Cost Savings to Reach $1 Billion in 2016

Devon's successful cost-reduction initiatives resulted in lease operating expenses (LOE) of $355 million in the third quarter, which was 7 percent below the low end of guidance. This strong cost result represents a decline of 37 percent from peak costs in mid-2015. The decrease in LOE was primarily driven by improved power and water-handling infrastructure, declining labor expense and lower supply chain costs.

The company also realized significant general and administrative (G&A) cost savings. Net G&A expenditures declined to $141 million in the third quarter. Including capitalized costs, total G&A expense declined to $195 million, a 44 percent improvement compared to peak rates in early 2015. The decrease was driven by reduced personnel costs.

Due to the strong cost performance achieved year to date, the company is lowering its full-year 2016 LOE outlook by $55 million to a midpoint of $1.6 billion. With this improved outlook, Devon is on track to reduce LOE, production taxes and G&A costs by $1 billion compared to 2015.

Upstream Revenue Rises; EnLink Profitability Expands

Improving commodity prices advanced the company's upstream revenue to $1.1 billion in the third quarter, with per-unit realizations increasing 13 percent compared to the previous quarter. Oil revenue increased to 67 percent of total upstream sales in the third quarter.

Devon's midstream results also improved, with operating profits totaling $210 million in the third quarter, bringing the year-to-date total to $619 million. This steady source of profitability was driven by the company's investment in EnLink Midstream. Year-to-date, EnLink-related operating profit has expanded 7 percent compared to the same period in 2015.

EnLink's growing profitability is derived from an asset base that is positioned in some of the most attractive markets in North America, including the STACK, Midland Basin, Delaware Basin and an NGL business that services end-user demand along the Gulf Coast. In aggregate, the company's ownership in EnLink is valued at approximately $3.5 billion and will generate cash distributions of $270 million in 2016.

Third-Quarter 2016 Operations Report

For additional details on Devon's E&P operations, please refer to the company's third-quarter 2016 operations report at www.devonenergy.com. Highlights from the report include:
  • Record-setting well results in the STACK
  • Raising Meramec and Woodford type curves
  • Accelerating Delaware Basin rig activity
  • Wolfcamp drilling to ramp up in 2017
  • Eagle Ford resumes completion activity
  • Jackfish complex production exceeds nameplate capacity

Divestiture Program Complete: Proceeds Reach $3.2 Billion

Devon's divestiture program is now complete with total proceeds reaching $3.2 billion. During the quarter, the company closed on the sale of non-core assets in the Midland Basin, East Texas and Granite Wash for $1.8 billion. With the closing of these transactions, the company's upstream divestiture proceeds have reached $2.1 billion.

Subsequent to quarter end, on Oct. 6, 2016, the company closed on the sale of its 50 percent interest in the Access Pipeline for USD $1.1 billion. In addition to these initial proceeds, Devon also has the right to receive an incremental USD $120 million payment with the sanctioning and development of a new thermal-oil project on Devon's Pike lease in Alberta, Canada. The sale agreement further allows for Access Pipeline tolls to be reduced by as much as 30 percent with the future development of multiple projects at Pike.

Significant Liquidity and Financial Strength

Devon's financial position remains exceptionally strong, with investment-grade credit ratings and excellent liquidity. The company exited the third quarter with $2.4 billion of cash on hand. Adjusted for the Access Pipeline sale, cash balances reached $3.5 billion.

In August, the company successfully tendered for $1.2 billion of debt, which is expected to reduce interest expense by $54 million annually. With the tendering activity focused on near-term maturities, Devon has no significant long-term debt maturities until mid-2021.

At the end of September, the company's consolidated debt totaled $11.4 billion. Excluding non-recourse EnLink obligations and adjusting for Access Pipeline proceeds, adjusted net debt has declined to $4.7 billion.

Devon Increases Hedging Position in 2017

In recent months, Devon has had the opportunity to materially increase its hedging position in 2017. For oil volumes, Devon has utilized a combination of swaps and collars to hedge 83,000 barrels per day of production. For gas volumes, Devon now has 390 million cubic feet per day of production. These hedging positions represent more than 30 percent of current oil and natural gas production.

The company expects to continue to add to its hedging position and is targeting to have approximately 50 percent of its estimated revenues protected in 2017. This risk-management program will be a combination of systematic hedges added on a quarterly basis and discretionary hedges that take advantage of favorable market conditions.

Operating Cash Flow Grows 117 Percent; Earnings Beat Wall Street Consensus

Operating cash flow reached $726 million in the third quarter, a 117 percent increase compared to the second quarter of 2016. Combined with proceeds received from the sale of non-core assets, Devon's total cash inflows for the quarter reached $2.4 billion.

Devon's reported net earnings totaled $993 million or $1.89 per diluted share in the third quarter. These earnings results were impacted by certain items securities analysts typically exclude from their published estimates, with the most significant of these items being $1.4 billion in gains related to U.S. asset sales. Excluding these gains and other adjusting items, Devon's core earnings were $47 million or $0.09 per diluted share, exceeding consensus analyst estimates.

Devon's core earnings calculation in the third quarter was negatively impacted by an $85 million, non-cash tax charge. Excluding this charge, the company's core earnings would have been $0.16 per share higher, further widening the margin of outperformance versus analyst expectations.

Updated 2016 Outlook

Detailed forward-looking guidance for the fourth quarter of 2016 is provided later in the release. Based on year-to-date results and Devon's fourth-quarter outlook, most operating and financial metrics remain relatively unchanged compared to previous guidance disclosures.

Of note, in the fourth quarter, the company expects to increase its rig activity in the U.S. from five operated rigs running in the third quarter to as many as 10 operated rigs by year end. This activity is expected to result in approximately $400 million to $425 million of E&P capital expenditures in the fourth quarter.

Non-GAAP Reconciliations

Pursuant to regulatory disclosure requirements, Devon is required to reconcile non-GAAP (generally accepted accounting principles) financial measures to the related GAAP information. Net debt, adjusted net debt, core earnings, and core earnings per share referenced within the commentary of this release are non-GAAP financial measures. Reconciliations and other important information regarding these non-GAAP measures are provided within the tables of this release.

Conference Call Webcast and Supplemental Earnings Materials

Please note that as soon as practicable today, Devon will post an operations report to its website at www.devonenergy.com. The company's third-quarter conference call will be held at 10 a.m. Central (11 a.m. Eastern) on Wednesday, Nov. 2, 2016, and will serve primarily as a forum for analyst and investor questions and answers.

Forward-Looking Statements

This press release includes "forward-looking statements" as defined by the Securities and Exchange Commission (SEC). Such statements include those concerning strategic plans, expectations and objectives for future operations, and are often identified by use of the words "expects," "believes," "will," "would," "could," "forecasts," "projections," "estimates," "plans," "expectations," "targets," "opportunities," "potential," "anticipates," "outlook" and other similar terminology. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the company expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Statements regarding our business and operations are subject to all of the risks and uncertainties normally incident to the exploration for and development and production of oil and gas. These risks include, but are not limited to: the volatility of oil, gas and NGL prices, including the currently depressed commodity price environment; uncertainties inherent in estimating oil, gas and NGL reserves; the extent to which we are successful in acquiring and discovering additional reserves; the uncertainties, costs and risks involved in exploration and development activities; risks related to our hedging activities; counterparty credit risks; regulatory restrictions, compliance costs and other risks relating to governmental regulation, including with respect to environmental matters; risks relating to our indebtedness; our ability to successfully complete mergers, acquisitions and divestitures; the extent to which insurance covers any losses we may experience; our limited control over third parties who operate our oil and gas properties; midstream capacity constraints and potential interruptions in production; competition for leases, materials, people and capital; cyberattacks targeting our systems and infrastructure; and any of the other risks and uncertainties identified in our Form 10-K and our other filings with the SEC. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. The forward-looking statements in this press release are made as of the date of this press release, even if subsequently made available by Devon on its website or otherwise. Devon does not undertake any obligation to update the forward-looking statements as a result of new information, future events or otherwise.

The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC's definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves. This release may contain certain terms, such as resource potential, potential locations, risk and unrisked locations, estimated ultimate recovery (or EUR), exploration target size and other similar terms. These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized. The SEC guidelines strictly prohibit us from including these estimates in filings with the SEC. Investors are urged to consider closely the disclosure in our Form 10-K, available at www.devonenergy.com . You can also obtain this form from the SEC by calling 1-800-SEC-0330 or from the SEC's website at www.sec.gov .

About Devon Energy

Devon Energy is a leading independent energy company engaged in finding and producing oil and natural gas. Based in Oklahoma City and included in the S&P 500, Devon operates in several of the most prolific oil and natural gas plays in the U.S. and Canada with an emphasis on a balanced portfolio. The company is the second-largest oil producer among North American onshore independents. For more information, please visit www.devonenergy.com.
           

DEVON ENERGY CORPORATION

FINANCIAL AND OPERATIONAL INFORMATION
 
Quarter Ended Nine Months Ended
PRODUCTION NET OF ROYALTIES September 30, September 30,
2016       2015 2016       2015
 
Oil and bitumen (MBbls/d)

 
U. S. - Core 108 140 124 143
Heavy Oil 137 121 128 107
Retained assets 245 261 252 250
Divested assets 6 21 13 24
Total 251 282 265 274
Natural gas liquids (MBbls/d)
U. S. - Core 96 108 107 109
Divested assets 8 26 17 27
Total 104 134 124 136
Gas (MMcf/d)
U. S. - Core 1,231 1,319 1,292 1,336
Heavy Oil 18 16 20 21
Retained assets 1,249 1,335 1,312 1,357
Divested assets 75 251 165 262
Total 1,324 1,586 1,477 1,619
Oil equivalent (MBoe/d)
U. S. - Core 410 467 446 474
Heavy Oil 140 124 132 111
Retained assets 550 591 578 585
Divested assets 27 89 57 95
Total 577 680 635 680
 
                 
KEY OPERATING STATISTICS BY REGION
Quarter Ended September 30, 2016
Avg. Production Gross Wells Operated Rigs at
(MBoe/d) Drilled September 30, 2016
STACK 92 37 4
Delaware Basin 59 8 1
Eagle Ford 61 4
Heavy Oil 140 3 1
Barnett Shale 166
Rockies Oil 16
Other assets 16
Retained assets 550 52 6
Divested assets 27
Total 577 52 6
 
           
PRODUCTION TREND 2015 2016
Quarter 3       Quarter 4 Quarter 1       Quarter 2       Quarter 3
 
Oil and bitumen (MBbls/d)
STACK 7 9 15 19 21
Delaware Basin 41 42 38 36 31
Eagle Ford 62 60 59 41 33
Heavy Oil 121 121 126 121 137
Barnett Shale 1 1 1 1 1
Rockies Oil 16 15 17 15 11
Other assets 13 12 12 11 11
Retained assets 261 260 268 244 245
Divested assets 21 18 17 15 6
Total 282 278 285 259 251
Natural gas liquids (MBbls/d)
STACK 22 24 30 30 23
Delaware Basin 8 11 12 13 12
Eagle Ford 26 27 24 17 13
Barnett Shale 47 49 46 46 44
Rockies Oil 2 1 1 1 1
Other assets 3 3 2 3 3
Retained assets 108 115 115 110 96
Divested assets 26 24 22 21 8
Total 134 139 137 131 104
Gas (MMcf/d)
STACK 229 253 306 289 292
Delaware Basin 70 82 84 99 92
Eagle Ford 155 152 144 103 85
Heavy Oil 16 24 15 28 18
Barnett Shale 807 786 768 757 730
Rockies Oil 41 38 32 31 19
Other assets 17 16 17 14 13
Retained assets 1,335 1,351 1,366 1,321 1,249
Divested assets 251 232 215 206 75
Total 1,586 1,583 1,581 1,527 1,324
Oil equivalent (MBoe/d)
STACK 67 75 96 97 92
Delaware Basin 61 66 63 65 59
Eagle Ford 113 113 107 76 61
Heavy Oil 124 125 129 126 140
Barnett Shale 183 181 175 173 166
Rockies Oil 25 23 23 21 16
Other assets 18 18 18 16 16
Retained assets 591 601 611 574 550
Divested assets 89 80 74 70 27
Total 680 681 685 644 577
 
BENCHMARK PRICES                  
(average prices) Quarter 3 September YTD
2016 2015 2016 2015
Oil ($/Bbl) - West Texas Intermediate (Cushing) $ 45.02 $ 46.69 $ 41.41 $ 51.11
Natural Gas ($/Mcf) - Henry Hub $ 2.81 $ 2.77 $ 2.28 $ 2.80
 
REALIZED PRICES Quarter Ended September 30, 2016
Oil /Bitumen NGL Gas Total
(Per Bbl) (Per Bbl) (Per Mcf) (Per Boe)
United States $ 42.51 $ 9.80 $ 2.24 $ 20.26
Canada $ 23.71   N/M   N/M $ 23.23
Realized price without hedges $ 32.27 $ 9.80 $ 2.24 $ 20.98
Cash settlements $ 0.84 $ 0.10 $ (0.04 ) $ 0.32
Realized price, including cash settlements $ 33.11 $ 9.90 $ 2.20 $ 21.30
 
Quarter Ended September 30, 2015
Oil /Bitumen NGL Gas Total
(Per Bbl) (Per Bbl) (Per Mcf) (Per Boe)
United States $ 42.09 $ 8.80 $ 2.24 $ 20.66
Canada $ 25.10   N/M   N/M $ 24.55
Realized price without hedges $ 34.78 $ 8.80 $ 2.24 $ 21.37
Cash settlements $ 21.16 $ $ 0.47 $ 9.86
Realized price, including cash settlements $ 55.94 $ 8.80 $ 2.71 $ 31.23
 
Nine Months Ended September 30, 2016
Oil /Bitumen NGL Gas Total
(Per Bbl) (Per Bbl) (Per Mcf) (Per Boe)
United States $ 36.89 $ 8.84 $ 1.70 $ 17.16
Canada $ 18.58   N/M   N/M $ 18.15
Realized price without hedges $ 28.03 $ 8.84 $ 1.70 $ 17.37
Cash settlements $ (0.57 ) $ (0.06 ) $ 0.12 $ 0.02
Realized price, including cash settlements $ 27.46 $ 8.78 $ 1.82 $ 17.39
 
Nine Months Ended September 30, 2015
Oil /Bitumen NGL Gas Total
(Per Bbl) (Per Bbl) (Per Mcf) (Per Boe)
United States $ 45.91 $ 9.50 $ 2.27 $ 22.18
Canada $ 27.84   N/M   N/M $ 27.06
Realized price without hedges $ 38.81 $ 9.50 $ 2.27 $ 22.98
Cash settlements $ 19.48 $ $ 0.53 $ 9.11
Realized price, including cash settlements $ 58.29 $ 9.50 $ 2.80 $ 32.09
 
                       
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share amounts) Quarter Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
Oil, gas and NGL sales $ 1,113 $ 1,338 $ 3,023 $ 4,264
Oil, gas and NGL derivatives 79 414 (30 ) 426
Marketing and midstream revenues 1,690 1,849 4,503 5,569
Gains on asset sales   1,351     -     1,351     -  
Total revenues and other   4,233     3,601     8,847     10,259  
Lease operating expenses 355 510 1,215 1,625
Marketing and midstream operating expenses 1,480 1,637 3,884 4,939
General and administrative expenses 141 198 482 661
Production and property taxes 67 91 220 315
Depreciation, depletion and amortization 394 744 1,420 2,488
Asset impairments 319 5,851 4,851 15,479
Restructuring and transaction costs (5 ) 266
Other operating items   17     14     41     54  
Total operating expenses   2,768     9,045     12,379     25,561  
Operating income (loss) 1,465 (5,444 ) (3,532 ) (15,302 )
Net financing costs 243 136 570 378
Other nonoperating items   44     43     150     46  
Earnings (loss) before income taxes 1,178 (5,623 ) (4,252 ) (15,726 )
Income tax expense (benefit)   171     (1,714 )   (228 )   (5,435 )
Net earnings (loss) 1,007 (3,909 ) (4,024 ) (10,291 )
Net earnings (loss) attributable to noncontrolling interests   14     (402 )   (391 )   (369 )
Net earnings (loss) attributable to Devon $ 993   $ (3,507 ) $ (3,633 ) $ (9,922 )
Net earnings (loss) per share attributable to Devon:
Basic $ 1.90 $ (8.64 ) $ (7.22 ) $ (24.45 )
Diluted $ 1.89 $ (8.64 ) $ (7.22 ) $ (24.45 )
 
Weighted average common shares outstanding:
Basic 524 411 509 411
Diluted 527 411 509 411
 
                       
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
 
Quarter Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
Cash flows from operating activities:
Net earnings (loss) $ 1,007 $ (3,909 ) $ (4,024 ) $ (10,291 )
Adjustments to reconcile net earnings (loss) to net cash

from operating activities:
Depreciation, depletion and amortization 394 744 1,420 2,488
Asset impairments 319 5,851 4,851 15,479
Gains on asset sales (1,351 ) - (1,351 ) -
Deferred income tax expense (benefit) 86 (1,708 ) (300 ) (5,348 )
Derivatives and other financial instruments (58 ) (481 ) 359 (606 )
Cash settlements on derivatives and financial instruments 15 730 (133 ) 1,913
Other 169 171 190 437
Net change in working capital 136 67 181 93
Change in long-term other assets (3 ) 52 10 211
Change in long-term other liabilities   12     36     7     (74 )
Net cash from operating activities   726     1,553     1,210     4,302  
Cash flows from investing activities:
Capital expenditures (421 ) (1,080 ) (1,659 ) (4,229 )
Acquisitions of property, equipment and businesses (3 ) (113 ) (1,641 ) (530 )
Divestitures of property and equipment 1,680 27 1,889 35
Other   34     (3 )   7     (8 )
Net cash from investing activities   1,290     (1,169 )   (1,404 )   (4,732 )
Cash flows from financing activities:
Borrowings of long-term debt, net of issuance costs 816 277 1,662 3,328
Repayments of long-term debt (2,173 ) (252 ) (2,722 ) (1,773 )
Net short-term debt repayments (169 ) (626 ) (932 )
Early retirement of debt (82 ) (82 )
Issuance of common stock 1,469
Sale of subsidiary units 654
Issuance of subsidiary units 59 9 835 13
Dividends paid on common stock (32 ) (99 ) (190 ) (296 )
Contributions from noncontrolling interests 146 5 151 12
Distributions to noncontrolling interests (77 ) (68 ) (224 ) (186 )
Other   (2 )   (3 )   (9 )   (18 )
Net cash from financing activities   (1,345 )   (300 )   264     802  
Effect of exchange rate changes on cash   (9 )   (22 )   5     (65 )
Net change in cash and cash equivalents 662 62 75 307
Cash and cash equivalents at beginning of period   1,723     1,725     2,310     1,480  
Cash and cash equivalents at end of period $ 2,385   $ 1,787   $ 2,385   $ 1,787  
 
           
CONSOLIDATED BALANCE SHEETS
(in millions) September 30, December 31,
2016 2015
Current assets:
Cash and cash equivalents $ 2,385 $ 2,310
Accounts receivable 1,092 1,105
Assets held for sale 717
Other current assets   257     606  
Total current assets   4,451     4,021  
Property and equipment, at cost:
Oil and gas, based on full cost accounting:
Subject to amortization 75,431 78,190
Not subject to amortization   3,637     2,584  
Total oil and gas 79,068 80,774
Midstream and other   10,320     10,380  
Total property and equipment, at cost 89,388 91,154
Less accumulated depreciation, depletion and amortization   (73,219 )   (72,086 )
Property and equipment, net   16,169     19,068  
Goodwill 3,963 5,032
Other long-term assets   2,230     1,330  
Total assets $ 26,813   $ 29,451  
 
Current liabilities:
Accounts payable $ 529 $ 906
Revenues and royalties payable 860 763
Short-term debt 350 976
Liabilities held for sale 202
Other current liabilities   910     650  
Total current liabilities   2,851     3,295  
Long-term debt 11,004 12,056
Asset retirement obligations 1,230 1,370
Other long-term liabilities 1,036 853
Deferred income taxes 631 888
Stockholders' equity:
Common stock 52 42
Additional paid-in capital 7,487 4,996
Retained earnings (accumulated deficit) (1,977 ) 1,781
Accumulated other comprehensive earnings   278     230  
Total stockholders' equity attributable to Devon 5,840 7,049
Noncontrolling interests   4,221     3,940  
Total stockholders' equity   10,061     10,989  
Total liabilities and stockholders' equity $ 26,813   $ 29,451  
Common shares outstanding 524 418
 
                       
CONSOLIDATING STATEMENTS OF OPERATIONS
(in millions)
Quarter Ended September 30, 2016

Devon U.S. & Canada
EnLink Eliminations Total
Oil, gas and NGL sales $ 1,113 $ $ $ 1,113
Oil, gas and NGL derivatives 79 79
Marketing and midstream revenues

766
1,104 (180 ) 1,690
Gains on asset sales   1,351             1,351  
Total revenues and other   3,309     1,104     (180 )   4,233  
Lease operating expenses 355 355
Marketing and midstream operating expenses 784 876 (180 ) 1,480
General and administrative expenses 111 30 141
Production and property taxes 57 10 67
Depreciation, depletion and amortization 268 126 394
Asset impairments 319 319
Restructuring and transaction costs (5 ) (5 )
Other operating items   20     (3 )       17  
Total operating expenses   1,909     1,039     (180 )   2,768  
Operating income 1,400 65 1,465
Net financing costs 195 48 243
Other nonoperating items   46     (2 )       44  
Earnings before income taxes 1,159 19 1,178
Income tax expense   164     7         171  
Net earnings 995 12 1,007
Net earnings attributable to noncontrolling interests       14         14  
Net earnings (loss) attributable to Devon $ 995   $ (2 ) $   $ 993  
 
     
OTHER KEY STATISTICS
(in millions) Quarter Ended September 30, 2016

Devon U.S. & Canada
      EnLink       Eliminations       Total
Cash flow statement related items:
Operating cash flow $ 517 $ 209 $ $ 726
Capital expenditures $ (285 ) $ (136 ) $ $ (421 )
Divestitures of property and equipment $ 1,676 $ 4 $ $ 1,680
EnLink distributions received (paid) $ 66 $ (143 ) $ $ (77 )
Issuance of subsidiary units $ $ 59 $ $ 59
 
Balance sheet statement items:

Net debt (1)
$ 5,784 $ 3,185 $ $ 8,969
 

(1) Net debt is a non-GAAP measure. For a reconciliation of the comparable GAAP measure, see "Non-GAAP Financial Measures" later in this release.
           
CAPITAL EXPENDITURES
(in millions)
Quarter Ended September 30, 2016 Nine Months Ended September 30, 2016
Exploration and development capital $ 231 $ 816
Capitalized G&A and interest 71 230
Acquisitions 16 1,547
Other   7   19
Devon capital expenditures (1) $ 325 $ 2,612
 

(1) Excludes $132 million and $816 million attributable to EnLink for the third quarter and first nine months of 2016, respectively.

NON-GAAP FINANCIAL MEASURES

This press release includes non-GAAP financial measures. These non-GAAP measures are not alternatives to GAAP measures, and you should not consider these non-GAAP measures in isolation or as a substitute for analysis of our results as reported under GAAP. Below is additional disclosure regarding each of the non-GAAP measures used in this press release, including reconciliations to their most directly comparable GAAP measure.

CORE EARNINGS

Devon's reported net earnings include items of income and expense that are typically excluded by securities analysts in their published estimates of the company's financial results. Accordingly, the company also uses the measures of core earnings and core earnings per share attributable to Devon. Devon believes these non-GAAP measures facilitate comparisons of its performance to earnings estimates published by securities analysts. Devon also believes these non-GAAP measures can facilitate comparisons of its performance between periods and to the performance of its peers. The following table summarizes the effects of these items on third-quarter 2016 earnings.
     
(in millions, except per share amounts) Quarter Ended September 30, 2016
Before-tax       After-tax      

After Noncontrolling Interests
      Per Share
(Millions)
Earnings attributable to Devon (GAAP) $ 1,178 $ 1,007 $ 993 $ 1.89
Adjustments:
Gains on asset sales (1,351 ) (787 ) (787 ) (1.48 )
Deferred tax asset valuation allowance (408 ) (408 ) (0.78 )
Fair value changes in financial instruments and foreign currency (16 ) (3 ) (3 ) (0.01 )
Restructuring and transaction costs (5 ) (3 ) (3 ) (0.01 )
Early retirement of debt 84 53 53 0.10
Asset impairments   319     202     202     0.38  
Core earnings attributable to Devon (Non-GAAP) (1) $ 209   $ 61   $ 47   $ 0.09  
 

(1) Devon's core earning calculation was negatively impacted by an $85 million, non-cash tax charge or $0.16 per share.

NET DEBT AND ADJUSTED NET DEBT

Devon defines net debt as debt less cash and cash equivalents and net debt attributable to the consolidation of EnLink Midstream as presented in the following table. Adjusted net debt is net debt further adjusted for the proceeds Devon received from the Access Pipeline divestiture transaction that closed in October of 2016 or the cash consideration for the Felix acquisition. Devon believes that adjusting for these items, including the asset sale proceeds and the Felix cash consideration, against debt and adjusting for EnLink net debt provides a clearer picture of the future demands on cash from Devon to repay debt.
     
(in millions) September 30, 2016
Devon U.S. & Canada       EnLink       Devon Consolidated
Total debt (GAAP) $ 8,109 $ 3,245 $ 11,354
Less cash and cash equivalents   (2,325 )   (60 )   (2,385 )
Net debt (Non-GAAP) 5,784 3,185 8,969
Proceeds from asset sales   (1,100 )       (1,100 )
Adjusted net debt (Non-GAAP) $ 4,684   $ 3,185   $ 7,869  
 
     
(in millions) December 31, 2015
Devon U.S. & Canada       EnLink       Devon Consolidated
Total debt (GAAP) $ 10,023 $ 3,090 $ 13,113
Less cash and cash equivalents   (2,292 )   (18 )   (2,310 )
Net debt (Non-GAAP) 7,731 3,072 10,803
Cash consideration for Felix acquisition   850         850  
Adjusted net debt (Non-GAAP) $ 8,581   $ 3,072   $ 11,653  
 
       

DEVON ENERGY CORPORATION

FORWARD LOOKING GUIDANCE
 
PRODUCTION GUIDANCE Quarter 4
Low       High
Oil and bitumen (MBbls/d)

 
U.S. 103 108
Heavy Oil 135 140
Total 238 248
Natural gas liquids (MBbls/d)
Total 85 90
Gas (MMcf/d)
U.S. 1,190 1,230
Heavy Oil 14 16
Total 1,204 1,246
Oil equivalent (MBoe/d)
U.S.

387
403
Heavy Oil 137 143
Total 524 546
 
     
PRICE REALIZATIONS GUIDANCE Quarter 4
Low       High
Oil and bitumen - % of WTI
U.S. 86 % 96 %
Canada 50 % 60 %
NGL - realized price $

8
$

13
Natural gas - % of Henry Hub 78 % 88 %
 
     
OTHER GUIDANCE ITEMS Quarter 4
($ millions, except %) Low       High
Marketing & midstream operating profit $ 205 $ 225
Lease operating expenses $ 360 $ 400
General & administrative expenses $ 140 $ 160
Production and property taxes $ 55 $ 65
Depreciation, depletion and amortization $ 400 $ 450
Other operating items $ 20 $ 30
Net financing costs (1) $ 140 $ 160
Current income tax rate 0.0 % 0.0 %
Deferred income tax rate   35.0 %   45.0 %

Total income tax rate
  35.0 %   45.0 %
 
Net earnings attributable to noncontrolling interests $ - $ -
 

(1) Fourth quarter includes $13 million of non-cash accretion on EnLink's installment purchase obligations.
     
CAPITAL EXPENDITURES GUIDANCE Quarter 4
(in millions) Low       High
Exploration and development $ 400 $ 425
Capitalized G&A 50 60
Capitalized interest 15 20
Other   5   15
Devon capital expenditures (2) $ 470 $ 520
 

(2) Excludes capital expenditures related to EnLink.
                                         
COMMODITY HEDGES
 
Oil Commodity Hedges
Price Swaps Price Collars Call Options Sold
Period

Volume(Bbls/d)

WeightedAveragePrice($/Bbl)

Volume(Bbls/d)

WeightedAverageFloor Price($/Bbl)

WeightedAverageCeiling Price($/Bbl)

Volume(Bbls/d)

WeightedAverage Price($/Bbl)
Q4-2016 40,848 $ 49.02 20,000 $ 40.85 $ 50.85 18,500 $ 55.00
Q1-Q4 2017 31,075 $ 52.48 51,744 $ 45.06 $ 57.96 - $ -
Q1-Q4 2018 740 $ 51.26 1,973 $ 45.96 $ 55.96 - $ -
                 
Oil Basis Swaps
Period Index Volume (Bbls/d)

Weighted Average Differential toWTI ($/Bbl)
Q4-2016 Western Canadian Select 33,000 (13.40)
 
     
Natural Gas Commodity Hedges
Price Swaps       Price Collars       Call Options Sold
Period

Volume(MMBtu/d)
     

WeightedAveragePrice($/MMBtu)

Volume(MMBtu/d)
     

WeightedAverageFloor Price($/MMBtu)
     

WeightedAverageCeiling Price($/MMBtu)

Volume(MMBtu/d)
     

WeightedAveragePrice($/MMBtu)
Q4 2016 155,000 $ 2.83 385,000 $ 2.74 $ 2.97 400,000 $ 2.80
Q1-Q4 2017 159,151 $ 3.08 230,904 $ 2.91 $ 3.31 - $ -
Q1-Q4 2018 11,096 $ 3.35 8,630 $ 3.18 $ 3.48 - $ -
 

Devon's oil derivatives settle against the average of the prompt month NYMEX West Texas Intermediate futures price. Devon's natural gas derivatives settle against the Inside FERC first of the month Henry Hub index. Commodity hedge positions are shown as of October 28, 2016.

View source version on businesswire.com: http://www.businesswire.com/news/home/20161101006642/en/

Copyright Business Wire 2010

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