2008-08-06 05:50:00
Devon Energy’s Second-Quarter 2008 Net Earnings Increase 44 Percent to $1.3 Billion
OKLAHOMA CITY, Aug. 6 /EMWNews/ -- Devon Energy Corporation (NYSE: DVN) today reported net earnings for the quarter ended June 30, 2008, of $1.3 billion, or $2.91 per common share ($2.88 per diluted common share). This is a 44 percent increase compared with Devon's second-quarter 2007 net earnings of $904 million, or $2.02 per common share ($2.00 per diluted common share). For the six months ended June 30, 2008, Devon reported net earnings of $2.1 billion, or $4.59 per common share ($4.55 per diluted common share). This compares with net earnings for the six months ended June 30, 2007, of $1.6 billion, or $3.48 per common share ($3.44 per diluted common share). Earnings $3.39 per Share Excluding Items Not Estimated by Analysts Second-quarter 2008 reported net earnings of $1.3 billion were affected by certain items securities analysts typically exclude from their published estimates. Excluding these adjusting items, Devon earned $1.5 billion or $3.39 per diluted common share. The most significant of the adjusting items impacting continuing operations was a non-cash, unrealized loss on oil and natural gas derivative instruments of $912 million pre-tax ($584 million after tax). Also impacting continuing operations was $312 million of income tax expense attributable to the repatriation of cash from outside the United States and to a related income tax policy election. The most significant adjusting item impacting discontinued operations was a $736 million pre-tax gain ($647 million after tax) on divestitures of assets in Africa. These and other adjusting items are discussed in more detail later in this news release. Oil and Gas Sales Increase by 65 Percent Sales of oil, natural gas and natural gas liquids from continuing operations increased 65 percent to $4 billion in the second quarter of 2008. The combined effects of increased oil and gas production and higher oil, natural gas and natural gas liquids prices led to the increase in sales. Combined oil, natural gas and natural gas liquids production from continuing operations reached 58.5 million oil-equivalent barrels (Boe) in the second quarter of 2008. This was a four percent increase compared with the second quarter of 2007. The company produced 643 thousand Boe per day in the second quarter of 2008. This compares with production of 618 thousand Boe per day in the second quarter of 2007 and 640 thousand Boe per day in the first quarter of 2008. Devon has increased oil and natural gas production from retained properties for nine consecutive quarters. U.S. Onshore and Canadian Operations Lead Quarterly Highlights Devon drilled 494 wells in the second quarter of 2008, with an overall success rate of 98 percent. Following are recent operating highlights: -- Devon's second-quarter net exit-rate production from the Barnett Shale field in north Texas reached almost 1.1 billion cubic feet of natural gas equivalent per day. Devon is the largest producer in the field and brought 189 new Barnett Shale wells on line in the second quarter of 2008. -- Devon plans to drill more than 650 wells in the Barnett Shale in 2008 and has set a net production target of 1.2 billion cubic feet of natural gas equivalent per day by year-end. -- In east Texas and northwest Louisiana, Devon added to its lease position in the Haynesville Shale play, bringing its total Haynesville lease holdings to 483,000 net acres. -- In the Groesbeck area in east Texas, Devon commenced production from three high-rate gas wells in the second quarter. Devon has 100-percent working interests in all three wells, with initial production rates averaging 16.2 million cubic feet of natural gas per day from each well. -- The company drilled two long-lateral horizontal wells in the Woodford Shale in Coal County, Oklahoma, in the second quarter with excellent results. Initial production rates from the two wells were 7.1 million and 6.7 million cubic feet of natural gas per day. Devon's working interests in the two wells are 66 percent and 73 percent, respectively. -- In Canada, Devon's wholly-owned Jackfish oil sands project reached a cumulative production milestone of one million barrels of oil in the second quarter of 2008. Second-quarter exit-rate production was about 14,500 barrels per day. Production is expected to reach plant capacity of 35,000 barrels per day in the first half of 2009. -- Also in Canada in the second quarter, Devon increased its lease position in the Horn River Shale play in British Columbia to more than 100,000 net acres. The company is now planning its upcoming winter drilling program for the Horn River area. African Divestitures Substantially Complete Devon has now completed substantially all of its planned divestitures in Africa. In May, the company closed the $205.5 million sale of its assets in Gabon. In June, Devon closed the $2.2 billion sale of its assets in Equatorial Guinea. In aggregate, the sale prices of the combined African divestures exceeded $3 billion before taxes. The company expects to close the remaining approximately $250 million in transactions later in 2008. In accordance with U.S. accounting standards, Devon has classified the assets, liabilities and results of its operations in Africa as discontinued operations for all accounting periods presented in this release. Included with 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 Rises with Product Prices Marketing and midstream operating profit increased 71 percent to $204 million in the second quarter of 2008. For comparison, marketing and midstream operating profit was $119 million in the second quarter of 2007. The increase was attributable to higher throughput and higher natural gas and natural gas liquids prices. Expenses Track Increased Production and Activity Levels Expenses in most categories were generally in line with expectations in the second quarter of 2008. However, second-quarter general and administrative expenses (G&A) exceeded previous estimates at $180 million. This compares with $113 million in the second quarter of 2007. Higher employee-related costs were the largest contributor to the year-over-year increase. In addition, $27 million of the increase was a one-time charge attributable to a change in the company's vesting policy for stock grants. Devon believes this modified benefits policy better reflects industry practices. Devon has also increased the size of its workforce to support expanding levels of investment in long cycle-time exploration and development projects. Interest expense decreased in the second quarter of 2008 to $90 million, compared with interest expense of $107 million in the second quarter of 2007. The decrease reflects a decline in outstanding debt as the company repaid all of its commercial paper and credit facility balances during the second quarter of 2008. Repatriation of International Cash Increases Current Income Tax Rate Current income tax expense on earnings from continuing operations was $414 million in the second quarter of 2008. This amount included $295 million of U.S. income tax attributable to the repatriation of cash from outside the United States and related income tax policy elections. During the second quarter, the proceeds from Devon's African divestitures combined with cash repatriated from foreign subsidiaries totaled approximately $3 billion. Record Cash Flow and Debt Repayments Further Strengthen Balance Sheet Cash flow before balance sheet changes reached a record $2.7 billion in the second quarter of 2008. This was a 48 percent increase compared with the second quarter of 2007. The company funded capital expenditures of $2 billion, including $1.7 billion of exploration and development capital, in the quarter. This resulted in free cash flow of approximately $700 million during the second quarter. In addition to free cash flow of $700 million, Devon also received $2.4 billion of pre-tax proceeds from its African divestitures in the second quarter. Utilizing free cash flow, proceeds of the divestitures and cash on hand, the company deployed $2.6 billion to retire commercial paper and other short-term borrowings and to repurchase over two million shares of its common stock. In the first seven months of 2008, Devon repurchased 5.7 million shares of its common stock at a cost of $590 million. Devon also redeemed its $150 million 6.49 percent Series A Cumulative Preferred Stock in the second quarter. Cash and short-term investments were $1.8 billion at June 30, 2008. Net debt as a percentage of adjusted capitalization decreased to 11 percent at June 30, 2008. Reconciliations of cash flow before balance sheet changes, free cash flow, net debt and adjusted capitalization, which are non-GAAP measures, are provided in this release. Accounting for Derivative Instruments Devon accounts for derivative instruments using mark-to-market accounting. As a result, for each reporting period the company recognizes in earnings the unrealized changes in the fair values of its derivative instruments. A second-quarter unrealized loss on derivative instruments was the result of rising oil and natural gas prices during the quarter. The company could record unrealized gains or losses on oil and natural gas derivative instruments in subsequent quarters depending upon the direction of commodity prices. 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 2008 were as follows: Items affecting continuing operations - -- A change in fair value of non-oil and gas derivative financial instruments increased second-quarter earnings by $40 million pre-tax ($25 million after tax). -- An unrealized loss on oil and natural gas derivative financial instruments decreased second-quarter earnings by $912 million pre-tax ($584 million after tax). -- Income tax expense related to the repatriation of cash from outside the United States and a related change in an income tax election decreased second-quarter after-tax earnings by $312 million. -- A modification to the company's stock compensation vesting policy decreased second-quarter earnings by $27 million pre-tax ($17 million after tax). Items affecting discontinued operations - -- Divestitures of assets in Africa resulted in a second-quarter 2008 gain of $736 million pre-tax ($647 million after tax). -- The decisions to exit Africa generated other financial benefits that increased second-quarter earnings by $21 million pre-tax ($11 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, 2008 Continuing Pre-tax After tax Cash Flow Before Operations Earnings Income Tax Effect Earnings Balance Sheet Effect Current Deferred Total Effect Changes Effect Change in fair value of non-oil and gas derivative instruments $ 40 - 15 15 25 - Unrealized loss on oil and gas derivative financial instruments (912) - (328) (328) (584) - Taxes on repatriation and tax policy elections - 295 17 312 (312) (295) Stock compensation vesting (27) - (10) (10) (17) - Totals $(899) 295 (306) (11) (888) (295) Discontinued Pre-tax After tax Cash Flow Before Operations Earnings Income Tax Effect Earnings Balance Sheet Effect Current Deferred Total Effect Changes Effect Gain on sale of West African assets 736 518 (429) 89 647 - Financial benefits of decision to exit Africa 21 - 10 10 11 - Totals $757 518 (419) 99 658 - In aggregate, these items decreased second-quarter 2008 net earnings by $230 million, or 52 cents per common share (51 cents per diluted share). These items and their associated tax effects decreased second-quarter 2008 cash flow before balance sheet changes by $295 million. Conference Call to be Webcast Today Devon will discuss its second-quarter 2008 financial and operating results in a conference call webcast today. The webcast will begin at 10 a.m. Central Time (11 a.m. Eastern Time). The webcast may be accessed from Devon's internet home page at http://www.devonenergy.com. This press release includes "forward-looking statements" as defined by the Securities and Exchange Commission. Such statements are those concerning strategic plans, expectations and objectives for future operations. 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 future drilling and production 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, inflation or lack of availability of goods and services, environmental risks, drilling risks and regulatory changes. 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 United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. This release may contain certain terms, such as resource potential, reserve potential, probable reserves, possible reserves and exploration target size. The SEC guidelines strictly prohibit us from including these terms in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 10-K, File No. 001-32318, available from us at Devon Energy Corporation, Attn. Investor Relations, 20 North Broadway, Oklahoma City, OK 73102. You can also obtain this form from the SEC by calling 1-800-SEC-0330. Devon Energy Corporation is an Oklahoma City-based independent energy company engaged in oil and gas exploration and production. Devon is the largest U.S.-based independent oil and gas producer and is included in the S&P 500 Index. For more information about Devon, please visit our website at http://www.devonenergy.com.
DEVON ENERGY CORPORATION UNAUDITED FINANCIAL AND OPERATIONAL INFORMATION PRODUCTION (net of royalties) Quarter Ended Six Months Ended Excludes discontinued operations June 30, June 30, 2008 2007 2008 2007 Total Period Production Natural Gas (Bcf) U.S. Onshore 162.3 135.9 314.8 263.6 U.S. Offshore 14.2 18.9 32.5 37.5 Total U.S. 176.5 154.8 347.3 301.1 Canada 53.0 57.0 104.7 112.3 International 0.4 0.5 1.0 0.8 Total Natural Gas 229.9 212.3 453.0 414.2 Oil (MMBbls) U.S. Onshore 2.8 2.9 5.7 5.7 U.S. Offshore 1.8 2.0 3.6 3.7 Total U.S. 4.6 4.9 9.3 9.4 Canada 5.3 4.0 9.9 7.5 International 3.3 5.5 8.1 10.8 Total Oil 13.2 14.4 27.3 27.7 Natural Gas Liquids (MMBbls) U.S. Onshore 5.8 5.1 11.6 9.9 U.S. Offshore 0.2 0.2 0.4 0.3 Total U.S. 6.0 5.3 12.0 10.2 Canada 1.0 1.1 1.9 2.2 International - - - - Total Natural Gas Liquids 7.0 6.4 13.9 12.4 Oil Equivalent (MMBoe) U.S. Onshore 35.7 30.7 69.7 59.5 U.S. Offshore 4.4 5.3 9.4 10.3 Total U.S. 40.1 36.0 79.1 69.8 Canada 15.1 14.6 29.4 28.4 International 3.3 5.6 8.3 10.9 Total Oil Equivalent 58.5 56.2 116.8 109.1 Average Daily Production Natural Gas (MMcf) U.S. Onshore 1,783.0 1,493.7 1,729.7 1,456.3 U.S. Offshore 156.1 207.6 178.7 207.0 Total U.S. 1,939.1 1,701.3 1,908.4 1,663.3 Canada 582.6 626.2 575.0 620.7 International 4.8 5.6 5.4 4.3 Total Natural Gas 2,526.5 2,333.1 2,488.8 2,288.3 Oil (MBbls) U.S. Onshore 30.9 31.5 31.0 31.1 U.S. Offshore 19.9 22.0 19.9 20.5 Total U.S. 50.8 53.5 50.9 51.6 Canada 58.0 44.0 54.7 41.5 International 35.8 60.9 44.6 59.8 Total Oil 144.6 158.4 150.2 152.9 Natural Gas Liquids (MBbls) U.S. Onshore 64.1 56.4 63.7 54.8 U.S. Offshore 2.1 2.2 2.0 1.8 Total U.S. 66.2 58.6 65.7 56.6 Canada 10.7 11.7 10.8 12.0 International - - - - Total Natural Gas Liquids 76.9 70.3 76.5 68.6 Oil Equivalent (MBoe) U.S. Onshore 392.2 336.9 382.9 328.7 U.S. Offshore 48.0 58.8 51.7 56.8 Total U.S. 440.2 395.7 434.6 385.5 Canada 165.8 160.1 161.3 157.0 International 36.6 61.8 45.6 60.5 Total Oil Equivalent 642.6 617.6 641.5 603.0 Quarter Ended Six Months Ended BENCHMARK PRICES June 30, June 30, (average prices) 2008 2007 2008 2007 Natural Gas ($/Mcf) - Henry Hub $10.94 $7.55 $9.49 $7.16 Oil ($/Bbl) - West Texas Intermediate (Cushing) $124.28 $65.08 $110.98 $61.71 REALIZED PRICES (Excludes the effects of unrealized gains and losses from hedging) Quarter Ended June 30, 2008 Oil Gas NGLs Total (Per Bbl) (Per Mcf) (Per Bbl) (Per Boe) U.S. Onshore $120.69 $9.40 $50.56 $60.51 U.S. Offshore $125.24 $11.43 $53.63 $91.38 Total U.S. $122.47 $9.56 $50.66 $63.88 Canada $94.35 $9.76 $75.10 $72.14 International $119.87 $11.00 $- $118.70 Realized price without hedges $110.56 $9.61 $54.08 $69.14 Cash settlements $(0.01) $(1.32) $- $(5.18) Realized price, including cash settlements $110.55 $8.29 $54.08 $63.96 Quarter Ended June 30, 2007 Oil Gas NGLs Total (Per Bbl) (Per Mcf) (Per Bbl) (Per Boe) U.S. Onshore $60.82 $6.14 $33.35 $38.52 U.S. Offshore $65.35 $7.82 $31.14 $53.24 Total U.S. $62.68 $6.35 $33.26 $40.71 Canada $46.32 $6.66 $43.82 $41.99 International $67.57 $6.19 $- $67.11 Realized price without hedges $60.01 $6.43 $35.03 $43.68 Cash settlements $- $0.03 $- $0.10 Realized price, including cash settlements $60.01 $6.46 $35.03 $43.78 Six Months Ended June 30, 2008 Oil Gas NGLs Total (Per Bbl) (Per Mcf) (Per Bbl) (Per Boe) U.S. Onshore $107.15 $8.26 $47.65 $53.91 U.S. Offshore $112.07 $9.94 $51.77 $79.52 Total U.S. $109.08 $8.42 $47.78 $56.95 Canada $84.16 $8.66 $68.86 $64.01 International $105.63 $9.56 $- $104.68 Realized price without hedges $98.98 $8.48 $50.76 $62.12 Cash settlements $- $(0.69) $- $(2.67) Realized price, including cash settlements $98.98 $7.79 $50.76 $59.45 Six Months Ended June 30, 2007 Oil Gas NGLs Total (Per Bbl) (Per Mcf) (Per Bbl) (Per Boe) U.S. Onshore $56.02 $6.04 $30.54 $37.15 U.S. Offshore $60.16 $7.51 $30.52 $50.05 Total U.S. $57.67 $6.22 $30.54 $39.05 Canada $45.01 $6.55 $40.37 $40.88 International $62.76 $5.16 $- $62.39 Realized price without hedges $56.22 $6.31 $32.26 $41.87 Cash settlements $- $0.04 $- $0.16 Realized price, including cash settlements $56.22 $6.35 $32.26 $42.03 CONSOLIDATED STATEMENTS OF OPERATIONS Quarter Ended Six Months Ended (in millions, except per share June 30, June 30, amounts) 2008 2007 2008 2007 Revenues Oil sales $1,455 $865 $2,705 $1,556 Gas sales 2,210 1,366 3,840 2,612 NGL sales 379 224 707 401 Net (loss) gain on oil and gas derivative financial instruments (1,215) 14 (2,003) (6) Marketing and midstream revenues 719 460 1,274 839 Total revenues 3,548 2,929 6,523 5,402 Expenses and other income, net Lease operating expenses 537 439 1,043 869 Production taxes 176 90 310 170 Marketing and midstream operating costs and expenses 515 341 897 611 Depreciation, depletion and amortization of oil and gas properties 762 645 1,499 1,232 Depreciation and amortization of non-oil and gas properties 62 49 119 95 Accretion of asset retirement obligation 22 18 44 36 General and administrative expenses 180 113 328 232 Interest expense 90 107 192 217 Change in fair value of non-oil and gas derivative financial instruments (40) (10) (24) (9) Other income, net (17) (17) (38) (43) Total expenses and other income, net 2,287 1,775 4,370 3,410 Earnings from continuing operations before income tax expense 1,261 1,154 2,153 1,992 Income tax expense Current 414 174 517 363 Deferred 253 156 391 231 Total income tax expense 667 330 908 594 Earnings from continuing operations 594 824 1,245 1,398 Discontinued operations Earnings from discontinued operations before income tax expense 851 128 1,040 265 Income tax expense 144 48 235 108 Earnings from discontinuing operations 707 80 805 157 Net earnings 1,301 904 2,050 1,555 Preferred stock dividends 3 3 5 5 Net earnings applicable to common stockholders $1,298 $901 $2,045 $1,550 Basic net earnings per share Earnings from continuing operations $1.33 $1.84 $2.79 $3.13 Earnings from discontinued operations $1.58 $0.18 $1.80 $0.35 Net earnings $2.91 $2.02 $4.59 $3.48 Diluted net earnings per share Earnings from continuing operations $1.31 $1.82 $2.76 $3.09 Earnings from discontinued operations $1.57 $0.18 $1.79 $0.35 Net earnings $2.88 $2.00 $4.55 $3.44 Weighted average common shares outstanding Basic 446 446 445 445 Diluted 450 450 450 450 CONSOLIDATED BALANCE SHEETS (in millions) June 30, December 31, 2008 2007 Assets (Audited) Current assets Cash and cash equivalents $1,837 $1,364 Short-term investments, at fair value 1 372 Accounts receivable 2,460 1,779 Deferred income taxes 775 44 Current assets held for sale 105 120 Other current assets 255 235 Total current assets 5,433 3,914 Property and equipment, at cost, based on the full cost method of accounting for oil and gas properties ($3,741 and $3,417 excluded from amortization in 2008 and 2007, respectively) 51,953 48,473 Less accumulated depreciation, depletion and amortization 21,769 20,394 Net property and equipment 30,184 28,079 Investment in Chevron Corporation common stock, at fair value 1,406 1,324 Goodwill 6,081 6,172 Long-term assets held for sale 84 1,512 Other long-term assets, including $126 million at fair value in 2008 592 455 Total Assets $43,780 $41,456 Liabilities and Stockholders' Equity Current liabilities Accounts payable - trade $1,525 $1,360 Revenues and royalties due to others 966 578 Income taxes payable 306 97 Debentures exchangeable into shares of Chevron Corporation common stock 621 - Other short-term debt - 1,004 Derivative financial instruments, at fair value 2,125 - Current portion of asset retirement obligation, at fair value 63 82 Current liabilities associated with assets held for sale 16 145 Accrued expenses and other current liabilities 410 391 Total current liabilities 6,032 3,657 Debentures exchangeable into shares of Chevron Corporation common stock - 641 Other long-term debt 4,829 6,283 Derivative financial instruments, at fair value 83 488 Asset retirement obligation, at fair value 1,430 1,236 Long-term liabilities associated with assets held for sale 24 404 Other long-term liabilities 905 699 Deferred income taxes 7,044 6,042 Stockholders' equity Preferred stock - 1 Common stock 44 44 Additional paid-in capital 6,591 6,743 Retained earnings 14,717 12,813 Accumulated other comprehensive income 2,131 2,405 Treasury stock (50) - Total Stockholders' Equity 23,433 22,006 Total Liabilities and Stockholders' Equity $43,780 $41,456 Common Shares Outstanding 445 444 CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Six Months Ended June 30, 2008 2007 Cash Flows From Operating Activities Net earnings $2,050 $1,555 Earnings from discontinued operations, net of tax (805) (157) Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities: Depreciation, depletion and amortization 1,618 1,327 Deferred income tax expense 391 231 Net unrealized loss on oil and gas derivative financial instruments 1,692 23 Other noncash charges 122 71 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable (604) 32 Other current assets (44) (27) Other long-term assets (40) (46) Increase (decrease) in: Accounts payable 120 64 Revenues and royalties due to others 348 (17) Income taxes payable 136 178 Other current liabilities (99) (96) Other long-term liabilities 181 14 Cash provided by operating activities - continuing operations 5,066 3,152 Cash provided by operating activities - discontinued operations 120 197 Net cash provided by operating activities 5,186 3,349 Cash Flows From Investing Activities Proceeds from sales of property and equipment 108 37 Capital expenditures (3,867) (2,990) Purchases of short-term investments (50) (589) Redemptions of short-term and long-term investments 295 848 Cash used in investing activities - continuing operations (3,514) (2,694) Cash used in investing activities - discontinued operations 1,709 (115) Net cash used in investing activities (1,805) (2,809) Cash Flows From Financing Activities Credit facility repayments (3,070) - Credit facility borrowings 1,620 - Net commercial paper repayments (1,004) (183) Principal payments on debt (47) - Preferred stock redemption (150) - Proceeds from stock options exercises 104 60 Repurchases of common stock (252) (10) Dividends paid on common and preferred stock (146) (129) Excess tax benefits related to share-based compensation 55 17 Net cash used in financing activities (2,890) (245) Effect of exchange rate changes on cash (19) 16 Net increase in cash and cash equivalents 472 311 Cash and cash equivalents at beginning of period (including assets held for sale) 1,373 756 Cash and cash equivalents at end of period (including assets held for sale) $1,845 $1,067 Supplementary cash flow data: Interest paid (net of capitalized interest) $189 $202 Income taxes paid - continuing and discontinued operations $826 $159 DRILLING ACTIVITY Quarter Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Exploration Wells Drilled U.S. 8 5 17 27 Canada 7 9 58 64 International 1 - 7 1 Total 16 14 82 92 Exploration Wells Success Rate U.S. 88% 100% 71% 81% Canada 86% 67% 95% 95% International 0% - 0% 0% Total 81% 91% 82% 90% Development Wells Drilled U.S. 405 360 777 624 Canada 61 54 259 306 International 12 6 22 9 Total 478 420 1,058 939 Development Wells Success Rate U.S. 98% 98% 98% 98% Canada 100% 100% 100% 100% International 92% 100% 91% 100% Total 98% 99% 98% 99% Total Wells Drilled U.S. 413 365 794 651 Canada 68 63 317 370 International 13 6 29 10 Total 494 434 1,140 1,031 Total Wells Success Rate U.S. 98% 98% 98% 98% Canada 99% 95% 99% 99% International 85% 100% 69% 90% Total 98% 98% 97% 98% COMPANY OPERATED RIGS June 30, 2008 2007 Number of Company Operated Rigs Running U.S. 79 77 Canada 12 10 International 1 1 Total 92 88 CAPITAL EXPENDITURES (in millions) Quarter Ended June 30, 2008 U.S. U.S. Onshore Offshore Canada International Total Capital Expenditures Exploration $128 259 52 71 $510 Development 956 112 101 56 1,225 Exploration and development capital $1,084 371 153 127 $1,735 Capitalized G&A 100 Capitalized interest 22 Discontinued operations 9 Midstream capital 99 Other capital 30 Total Capital Expenditures $1,995 CAPITAL EXPENDITURES (in millions) Six Months Ended June 30, 2008 U.S. U.S. Onshore Offshore Canada International Total Capital Expenditures Exploration $181 404 183 142 $910 Development 1,821 200 433 115 2,569 Exploration and development capital $2,002 604 616 257 $3,479 Capitalized G&A 199 Capitalized interest 42 Discontinued operations 23 Midstream capital 198 Other capital 46 Total Capital Expenditures $3,987 PRODUCTION FROM DISCONTINUED OPERATIONS Quarter Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Total Period Production Oil (MMBbls) 1.1 3.2 3.2 6.3 Natural Gas (Bcf) 1.1 1.2 2.2 2.6 Total Oil Equivalent (MMBoe) 1.3 3.4 3.6 6.7 STATEMENTS OF DISCONTINUED OPERATIONS Quarter Ended Six Months Ended (in millions) June 30, June 30, 2008 2007 2008 2007 Revenues Oil sales $122 $205 $318 $375 Gas sales 5 4 9 8 Marketing and midstream revenues - 6 5 7 Total revenues 127 215 332 390 Expenses and other income, net Lease operating expenses 10 19 24 39 Marketing and midstream operating costs and expenses 2 2 3 3 Depreciation, depletion and amortization of oil and gas properties - 2 - 18 Accretion of asset retirement obligation - 1 1 2 Gain on sale of oil and gas properties (736) - (736) - Reduction of carrying value of oil and gas properties - 63 - 63 Total expenses and other income, net (724) 87 (708) 125 Earnings before income tax expense 851 128 1,040 265 Income tax expense (benefit) Current 574 71 641 115 Deferred (430) (23) (406) (7) Total income tax expense 144 48 235 108 Earnings from discontinued operations $707 $80 $805 $157 NON-GAAP FINANCIAL MEASURES The United States Securities and Exchange Commission has adopted disclosure requirements for public companies such as Devon concerning Non-GAAP financial measures. (GAAP refers to generally accepted accounting principles.) The company must reconcile the Non-GAAP financial measure to related GAAP information. Cash flow before balance sheet changes and free cash flow are Non-GAAP financial measures. Devon believes cash flow before balance sheet changes is relevant because it is a measure of cash available to fund the company's capital expenditures, dividends and to service its debt. Devon believes free cash flow is relevant because it is a measure of cash available to service debt. Cash flow before balance sheet changes and free cash flow are used by certain securities analysts as a measure of Devon's financial results.
RECONCILIATION TO GAAP INFORMATION Quarter Ended Six Months Ended (in millions) June 30, June 30, 2008 2007 2008 2007 Net Cash Provided By Operating Activities (GAAP) $2,931 $1,832 $5,186 $3,349 Changes in assets and liabilities - continuing operations (365) (59) 2 (102) Changes in assets and liabilities - discontinued operations 124 43 61 37 Cash flow before balance sheet changes (Non-GAAP) $2,690 $1,816 $5,249 $3,284 Less: Capital expenditures 1,995 1,428 3,987 3,005 Free cash flow (Non-GAAP) $695 $388 $1,262 $279 Devon believes that using net debt for the calculation of "net debt to adjusted capitalization" provides a better measure than using debt. Devon defines net debt as debt less cash and short-term investments and debentures exchangeable into shares of Chevron Corporation common stock. Devon believes that because cash and short-term investments can be used to repay indebtedness, netting cash and short-term investments against debt provides a clearer picture of the future demands on cash to repay debt. Devon also believes that excluding debentures exchangeable into shares of Chevron Corporation common stock provides a clearer view of net debt. Devon owns 14.2 million shares of Chevron Corporation common stock. The majority of these shares are on deposit with an exchange agent for the possible exchange on the $621 million principal amount of exchangeable debentures.
RECONCILIATION TO GAAP INFORMATION (in millions) June 30, 2008 2007 Total debt (GAAP) $5,450 $7,596 Adjustments: Cash and short-term investments (1,838) (1,357) Debentures exchangeable into Chevron stock (621) (737) Net Debt (Non-GAAP) $2,991 $5,502 Total debt $5,450 $7,596 Stockholders' equity 23,433 19,686 Total Capitalization (GAAP) $28,883 $27,282 Net debt $2,991 $5,502 Stockholders' equity 23,433 19,686 Adjusted Capitalization (Non-GAAP) $26,424 $25,188
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