Devon Energy Reports Second-Quarter 2009 Results; $314 Million Net Earnings Driven by Record Production

Devon Energy Reports Second-Quarter 2009 Results; $314 Million Net Earnings Driven by Record Production

OKLAHOMA CITY, Aug. 5 /PRNewswire-FirstCall/ -- Devon Energy Corporation (NYSE: DVN) today 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. The adjusting items are discussed in more detail later in this news release.

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.


   

Marketing and Midstream Profit Reflects Lower Prices

Marketing and midstream operating profit was $125 million in the second quarter of 2009. This was a 39 percent decrease compared with the second quarter of 2008. The decrease was largely attributable to lower natural gas and natural gas liquids prices.

Positive Cost Comparisons Continue
Continuing a trend evidenced in the first quarter of 2009, expenses in several important categories decreased in the second quarter. Compared with the second quarter of 2008, quarterly unit lease operating expenses (LOE) decreased by 15 percent to $7.80 per Boe in 2009. The decrease in unit LOE reflects declines in oil field service, supply, power and fuel costs and lower Canadian exchange rates.

Depreciation, depletion and amortization (DD&A) of oil and gas properties decreased 35 percent to $494 million in the second quarter of 2009. Unit DD&A decreased 42 percent to $7.56 per Boe compared with the second quarter of 2008.

General and administrative expenses (G&A) increased two percent to $182 million compared with the second quarter of 2008. The increase resulted from employee severance costs following the consolidation of Devon's Gulf and International operations. The consolidation is expected to achieve operating efficiencies and reduce G&A costs in future periods.

Retaining Liquidity and Financial Strength
Second-quarter 2009 cash flow before balance sheet changes totaled $1.1 billion, fully funding capital expenditures and dividend payments for the quarter. The company ended the quarter with cash on hand and unused credit facilities of $2.6 billion and a net debt to adjusted capitalization ratio of 33 percent. Reconciliations of cash flow before balance sheet changes, net debt and adjusted capitalization, which are

non-GAAP measures, are provided in this release.
Items Excluded from Published Earnings Estimates
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. These items and their effects upon reported earnings for the second quarter of 2009 were as follows:

Items affecting continuing operations-

    --  A change in the fair value of oil and natural gas derivative
        instruments decreased second-quarter earnings by $101 million pre-tax
        ($65 million after tax).
    --  A change in the fair value of other financial instruments increased
        second-quarter earnings by $5 million pre-tax ($4 million after tax).

    --  Employee severance costs associated with consolidation of the Gulf and
        International operations decreased second-quarter net earnings by $33
        million pre-tax ($21 million after tax).


    Items affecting discontinued operations-

    --  A post-closing adjustment from the divestiture of West African assets
        in 2008 resulted in a second-quarter gain of $17 million pre-tax ($17
        million after tax).

The following tables summarize the effects of these items on second-quarter earnings and income taxes.

Summary of Items Typically Excluded by Securities Analysts (in millions)
    Quarter Ended June 30, 2009

    Continuing Operations
                                                                    Cash Flow
                                                                     Before
                                                                     Balance
                        Pre-tax    Income Tax Effect     After tax   Sheet
                       Earnings    -----------------      Earnings   Changes
                        Effect  Current  Deferred  Total   Effect    Effect
                        ------  -------  --------  -----   ------    ------
    Change in
     fair value of
     oil and gas
     derivative
     instruments        $(101)      -       (36)    (36)     (65)        -
    Change in
     fair value
     of other
     financial
     instruments            5       -         1       1        4         -
    Employee
     severance
     costs from
     consolidation
     of operations        (33)    (12)        -     (12)     (21)      (11)
                         ----    ----      ----    ----      ---       ---
          Totals        $(129)    (12)      (35)    (47)     (82)      (11)
          ------        -----    ----      ----    ----     ----      ----


    Discontinued Operations

                                                                    Cash Flow
                                                                     Before
                                                                     Balance
                        Pre-tax    Income Tax Effect     After tax   Sheet
                       Earnings    -----------------      Earnings   Changes
                        Effect  Current  Deferred  Total   Effect    Effect
                        ------  -------  --------  -----   ------    ------
    Post-closing
     adjustment on
     sale of
     West African
     assets               $17       -         -       -       17         -
                         ----    ----      ----    ----     ----      ----

In aggregate, these items decreased second-quarter 2009 net earnings by $65 million, or 14 cents per common share (15 cents per diluted share). These items and their associated tax effects decreased second-quarter 2009 cash flow before balance sheet changes by $11 million.

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