filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | ||||||||||||||||
| Oil, gas and NGL sales | $ | 2,665 | $ | 2,882 | $ | 8,090 | $ | 8,054 | ||||||||
| Oil, gas and NGL derivatives | 227 | (194 | ) | 105 | (206 | ) | ||||||||||
| Marketing and midstream revenues | 1,132 | 1,148 | 3,342 | 3,265 | ||||||||||||
| Total revenues | 4,024 | 3,836 | 11,537 | 11,113 | ||||||||||||
| Production expenses | 763 | 757 | 2,302 | 2,169 | ||||||||||||
| Exploration expenses | 4 | 3 | 16 | 16 | ||||||||||||
| Marketing and midstream expenses | 1,149 | 1,160 | 3,390 | 3,316 | ||||||||||||
| Depreciation, depletion and amortization | 794 | 651 | 2,284 | 1,904 | ||||||||||||
| Asset dispositions | — | — | 16 | (41 | ) | |||||||||||
| General and administrative expenses | 117 | 99 | 345 | 297 | ||||||||||||
| Financing costs, net | 88 | 81 | 240 | 231 | ||||||||||||
| Restructuring and transaction costs | 8 | — | 8 | — | ||||||||||||
| Other, net | 37 | 13 | 64 | 28 | ||||||||||||
| Total expenses | 2,960 | 2,764 | 8,665 | 7,920 | ||||||||||||
| Earnings before income taxes | 1,064 | 1,072 | 2,872 | 3,193 | ||||||||||||
| Income tax expense | 239 | 152 | 583 | 572 | ||||||||||||
| Net earnings | 825 | 920 | 2,289 | 2,621 | ||||||||||||
| Net earnings attributable to noncontrolling interests | 13 | 10 | 37 | 26 | ||||||||||||
| Net earnings attributable to Devon | $ | 812 | $ | 910 | $ | 2,252 | $ | 2,595 | ||||||||
| Net earnings per share: | ||||||||||||||||
| Basic net earnings per share | $ | 1.31 | $ | 1.43 | $ | 3.60 | $ | 4.05 | ||||||||
| Diluted net earnings per share | $ | 1.30 | $ | 1.42 | $ | 3.59 | $ | 4.03 | ||||||||
| Comprehensive earnings: | ||||||||||||||||
| Net earnings | $ | 825 | $ | 920 | $ | 2,289 | $ | 2,621 | ||||||||
| Other comprehensive earnings, net of tax: | ||||||||||||||||
| Pension and postretirement plans | 1 | 1 | 3 | 3 | ||||||||||||
| Other comprehensive earnings, net of tax | 1 | 1 | 3 | 3 | ||||||||||||
| Comprehensive earnings: | 826 | 921 | 2,292 | 2,624 | ||||||||||||
| Comprehensive earnings attributable to noncontrolling interests | 13 | 10 | 37 | 26 | ||||||||||||
| Comprehensive earnings attributable to Devon | $ | 813 | $ | 911 | $ | 2,255 | $ | 2,598 |
See accompanying notes to consolidated financial statements.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET****S
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash, cash equivalents and restricted cash | $ | 676 | $ | 875 | ||||
| Accounts receivable | 1,779 | 1,573 | ||||||
| Inventory | 293 | 249 | ||||||
| Other current assets | 484 | 460 | ||||||
| Total current assets | 3,232 | 3,157 | ||||||
| Oil and gas property and equipment, based on successful efforts accounting, net | 23,155 | 17,825 | ||||||
| Other property and equipment, net ($164 million and $136 million related to CDM in 2024 and 2023, respectively) | 1,795 | 1,503 | ||||||
| Total property and equipment, net | 24,950 | 19,328 | ||||||
| Goodwill | 753 | 753 | ||||||
| Right-of-use assets | 317 | 267 | ||||||
| Investments | 718 | 666 | ||||||
| Other long-term assets | 293 | 319 | ||||||
| Total assets | $ | 30,263 | $ | 24,490 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 995 | $ | 760 | ||||
| Revenues and royalties payable | 1,423 | 1,222 | ||||||
| Short-term debt | — | 483 | ||||||
| Other current liabilities | 488 | 484 | ||||||
| Total current liabilities | 2,906 | 2,949 | ||||||
| Long-term debt | 8,884 | 5,672 | ||||||
| Lease liabilities | 328 | 295 | ||||||
| Asset retirement obligations | 765 | 643 | ||||||
| Other long-term liabilities | 820 | 876 | ||||||
| Deferred income taxes | 2,082 | 1,838 | ||||||
| Stockholders' equity: | ||||||||
| Common stock, $0.10 par value. Authorized 1.0 billion shares; issued658 million and 636 million shares in 2024 and 2023, respectively | 66 | 64 | ||||||
| Additional paid-in capital | 6,662 | 5,939 | ||||||
| Retained earnings | 7,670 | 6,195 | ||||||
| Accumulated other comprehensive loss | (121 | ) | (124 | ) | ||||
| Treasury stock, at cost, 0.3 million shares in 2023 | — | (13 | ) | |||||
| Total stockholders’ equity attributable to Devon | 14,277 | 12,061 | ||||||
| Noncontrolling interests | 201 | 156 | ||||||
| Total equity | 14,478 | 12,217 | ||||||
| Total liabilities and equity | $ | 30,263 | $ | 24,490 |
See accompanying notes to consolidated financial statements.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | ||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||
| Net earnings | $ | 825 | $ | 920 | $ | 2,289 | $ | 2,621 | ||||||||
| Adjustments to reconcile net earnings to net cash from operating activities: | ||||||||||||||||
| Depreciation, depletion and amortization | 794 | 651 | 2,284 | 1,904 | ||||||||||||
| Leasehold impairments | 1 | 1 | 2 | 4 | ||||||||||||
| Accretion (amortization) of liabilities | 2 | (2 | ) | 2 | (17 | ) | ||||||||||
| Total (gains) losses on commodity derivatives | (227 | ) | 194 | (105 | ) | 206 | ||||||||||
| Cash settlements on commodity derivatives | 61 | (11 | ) | 139 | 39 | |||||||||||
| (Gains) losses on asset dispositions | — | — | 16 | (41 | ) | |||||||||||
| Deferred income tax expense | 164 | 13 | 243 | 212 | ||||||||||||
| Share-based compensation | 24 | 22 | 75 | 70 | ||||||||||||
| Other | 3 | (2 | ) | 6 | (2 | ) | ||||||||||
| Changes in assets and liabilities, net | 16 | (61 | ) | (15 | ) | (189 | ) | |||||||||
| Net cash from operating activities | 1,663 | 1,725 | 4,936 | 4,807 | ||||||||||||
| Cash flows from investing activities: | ||||||||||||||||
| Capital expenditures | (877 | ) | (882 | ) | (2,719 | ) | (2,973 | ) | ||||||||
| Acquisitions of property and equipment | (3,602 | ) | (23 | ) | (3,692 | ) | (54 | ) | ||||||||
| Divestitures of property and equipment | — | 1 | 18 | 23 | ||||||||||||
| Grayson Mill acquired cash | 147 | — | 147 | — | ||||||||||||
| Distributions from investments | 13 | 7 | 35 | 24 | ||||||||||||
| Contributions to investments and other | (30 | ) | — | (78 | ) | (52 | ) | |||||||||
| Net cash from investing activities | (4,349 | ) | (897 | ) | (6,289 | ) | (3,032 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Borrowings of long-term debt, net of issuance costs | 3,219 | — | 3,219 | — | ||||||||||||
| Repayments of long-term debt | (472 | ) | (242 | ) | (472 | ) | (242 | ) | ||||||||
| Repurchases of common stock | (295 | ) | — | (756 | ) | (745 | ) | |||||||||
| Dividends paid on common stock | (272 | ) | (312 | ) | (794 | ) | (1,370 | ) | ||||||||
| Contributions from noncontrolling interests | 20 | 10 | 44 | 18 | ||||||||||||
| Distributions to noncontrolling interests | (10 | ) | (9 | ) | (36 | ) | (33 | ) | ||||||||
| Shares exchanged for tax withholdings and other | 2 | — | (49 | ) | (96 | ) | ||||||||||
| Net cash from financing activities | 2,192 | (553 | ) | 1,156 | (2,468 | ) | ||||||||||
| Effect of exchange rate changes on cash | 1 | (2 | ) | (2 | ) | — | ||||||||||
| Net change in cash, cash equivalents and restricted cash | (493 | ) | 273 | (199 | ) | (693 | ) | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 1,169 | 488 | 875 | 1,454 | ||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 676 | $ | 761 | $ | 676 | $ | 761 | ||||||||
| Reconciliation of cash, cash equivalents and restricted cash: | ||||||||||||||||
| Cash and cash equivalents | $ | 645 | $ | 654 | $ | 645 | $ | 654 | ||||||||
| Restricted cash | 31 | 107 | 31 | 107 | ||||||||||||
| Total cash, cash equivalents and restricted cash | $ | 676 | $ | 761 | $ | 676 | $ | 761 |
See accompanying notes to consolidated financial statements.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
| Other | ||||||||||||||||||||||||||||||||
| Additional | Comprehensive | |||||||||||||||||||||||||||||||
| Common Stock | Paid-In | Retained | Earnings | Treasury | Noncontrolling | Total | ||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | (Loss) | Stock | Interests | Equity | |||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||
| Balance as of June 30, 2024 | 628 | $ | 63 | $ | 5,478 | $ | 7,132 | $ | (122 | ) | $ | — | $ | 178 | $ | 12,729 | ||||||||||||||||
| Net earnings | — | — | — | 812 | — | — | 13 | 825 | ||||||||||||||||||||||||
| Other comprehensive earnings, net of tax | — | — | — | — | 1 | — | — | 1 | ||||||||||||||||||||||||
| Common stock repurchased | — | (1 | ) | 4 | — | — | (295 | ) | — | (292 | ) | |||||||||||||||||||||
| Common stock retired | (7 | ) | — | (295 | ) | — | — | 295 | — | — | ||||||||||||||||||||||
| Common stock dividends | — | — | — | (274 | ) | — | — | — | (274 | ) | ||||||||||||||||||||||
| Common stock issued | 37 | 4 | 1,451 | — | — | — | — | 1,455 | ||||||||||||||||||||||||
| Share-based compensation | — | — | 24 | — | — | — | — | 24 | ||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | — | 20 | 20 | ||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | (10 | ) | (10 | ) | ||||||||||||||||||||||
| Balance as of September 30, 2024 | 658 | $ | 66 | $ | 6,662 | $ | 7,670 | $ | (121 | ) | $ | — | $ | 201 | $ | 14,478 | ||||||||||||||||
| Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | 641 | $ | 64 | $ | 6,131 | $ | 4,940 | $ | (114 | ) | $ | — | $ | 129 | $ | 11,150 | ||||||||||||||||
| Net earnings | — | — | — | 910 | — | — | 10 | 920 | ||||||||||||||||||||||||
| Other comprehensive earnings, net of tax | — | — | — | — | 1 | — | — | 1 | ||||||||||||||||||||||||
| Common stock dividends | — | — | — | (315 | ) | — | — | — | (315 | ) | ||||||||||||||||||||||
| Share-based compensation | — | — | 22 | — | — | — | — | 22 | ||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | — | 10 | 10 | ||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | (9 | ) | (9 | ) | ||||||||||||||||||||||
| Balance as of September 30, 2023 | 641 | $ | 64 | $ | 6,153 | $ | 5,535 | $ | (113 | ) | $ | — | $ | 140 | $ | 11,779 | ||||||||||||||||
| Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | 636 | $ | 64 | $ | 5,939 | $ | 6,195 | $ | (124 | ) | $ | (13 | ) | $ | 156 | $ | 12,217 | |||||||||||||||
| Net earnings | — | — | — | 2,252 | — | — | 37 | 2,289 | ||||||||||||||||||||||||
| Other comprehensive earnings, net of tax | — | — | — | — | 3 | — | — | 3 | ||||||||||||||||||||||||
| Restricted stock grants, net of cancellations | 2 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Common stock repurchased | — | — | — | — | — | (792 | ) | — | (792 | ) | ||||||||||||||||||||||
| Common stock retired | (18 | ) | (2 | ) | (803 | ) | — | — | 805 | — | — | |||||||||||||||||||||
| Common stock dividends | — | — | — | (777 | ) | — | — | — | (777 | ) | ||||||||||||||||||||||
| Common stock issued | 37 | 4 | 1,451 | — | — | — | — | 1,455 | ||||||||||||||||||||||||
| Share-based compensation | 1 | — | 75 | — | — | — | — | 75 | ||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | — | 44 | 44 | ||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | (36 | ) | (36 | ) | ||||||||||||||||||||||
| Balance as of September 30, 2024 | 658 | $ | 66 | $ | 6,662 | $ | 7,670 | $ | (121 | ) | $ | — | $ | 201 | $ | 14,478 | ||||||||||||||||
| Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | 653 | $ | 65 | $ | 6,921 | $ | 4,297 | $ | (116 | ) | $ | — | $ | 129 | $ | 11,296 | ||||||||||||||||
| Net earnings | — | — | — | 2,595 | — | — | 26 | 2,621 | ||||||||||||||||||||||||
| Other comprehensive earnings, net of tax | — | — | — | — | 3 | — | — | 3 | ||||||||||||||||||||||||
| Restricted stock grants, net of cancellations | 2 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Common stock repurchased | — | — | (6 | ) | — | — | (833 | ) | — | (839 | ) | |||||||||||||||||||||
| Common stock retired | (15 | ) | (1 | ) | (832 | ) | — | — | 833 | — | — | |||||||||||||||||||||
| Common stock dividends | — | — | — | (1,357 | ) | — | — | — | (1,357 | ) | ||||||||||||||||||||||
| Share-based compensation | 1 | — | 70 | — | — | — | — | 70 | ||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | — | 18 | 18 | ||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | (33 | ) | (33 | ) | ||||||||||||||||||||||
| Balance as of September 30, 2023 | 641 | $ | 64 | $ | 6,153 | $ | 5,535 | $ | (113 | ) | $ | — | $ | 140 | $ | 11,779 |
See accompanying notes to consolidated financial statements.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
S****ummary of Significant Accounting Policies
The accompanying unaudited interim financial statements and notes of Devon have been prepared pursuant to the rules and regulations of the SEC. Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. The accompanying unaudited interim financial statements and notes should be read in conjunction with the financial statements and notes included in Devon’s 2023 Annual Report on Form 10-K. The accompanying unaudited interim financial statements in this report reflect all adjustments that are, in the opinion of management, necessary for a fair statement of Devon’s results of operations and cash flows for the three-month and nine-month periods ended September 30, 2024 and 2023 and Devon’s financial position as of September 30, 2024.
On September 27, 2024, Devon acquired the Williston Basin business of Grayson Mill for total consideration of approximately $5.0 billion, consisting of $3.5 billion of cash and approximately 37.3 million shares of Devon common stock, including purchase price adjustments. The transaction has been accounted for using the acquisition method of accounting. See Note 2 for further discussion.
Variable Interest Entity
CDM is a joint venture entity formed by Devon and an affiliate of QL Capital Partners, LP. CDM provides gathering, compression and dehydration services for natural gas production in the Cotton Draw area of the Delaware Basin. Devon holds a controlling interest in CDM and the portions of CDM’s net earnings and equity not attributable to Devon’s controlling interest are shown separately as noncontrolling interests in the accompanying consolidated statements of comprehensive earnings and consolidated balance sheets. CDM is considered a VIE to Devon. The assets of CDM cannot be used by Devon for general corporate purposes and are included in, and disclosed parenthetically, on Devon's consolidated balance sheets. The carrying amount of liabilities related to CDM for which the creditors do not have recourse to Devon's assets are also included in, and disclosed parenthetically, if material, on Devon's consolidated balance sheets.
Investments
The following table presents Devon's investments.
| Carrying Amount | ||||||||||
| Investments | % Interest | September 30, 2024 | December 31, 2023 | |||||||
| Catalyst | 50% | $ | 282 | $ | 311 | |||||
| Water JV | 30% | 216 | 216 | |||||||
| Matterhorn | 12.5% | 90 | 90 | |||||||
| Fervo | 14% | 77 | — | |||||||
| Other | Various | 53 | 49 | |||||||
| Total | $ | 718 | $ | 666 |
Devon has an interest in Catalyst, which is a joint venture with an affiliate of Howard Energy Partners, LLC (“HEP”) and certain other investors, to develop oil gathering and natural gas processing infrastructure in the Stateline area of the Delaware Basin. Under the terms of the arrangement, Devon and a holding company owned by the other joint venture investors each have a 50% voting interest in the joint venture legal entity, and HEP serves as the operator. Through 2038, Devon’s production from 50,000 net acres in the Stateline area of the Delaware Basin has been dedicated to Catalyst subject to fixed-fee oil gathering and natural gas processing agreements. Devon accounts for the investment in Catalyst as an equity method investment. Devon's investment in Catalyst is shown within investments on the consolidated balance sheets and Devon's share of Catalyst earnings are reflected as a component of other, net in the accompanying consolidated statements of comprehensive earnings.
In the second quarter of 2023, Devon made an investment in the Water JV, a joint venture entity formed with an affiliate of WaterBridge NDB LLC (“WaterBridge”), for the purpose of providing increased capacity and flexibility in disposing of produced water in the Delaware Basin and Eagle Ford. Under terms of the arrangement, Devon contributed water infrastructure assets and committed to a water gathering and disposal dedication to the Water JV through 2038, in exchange for a 30% voting interest in the joint venture legal entity. WaterBridge contributed water infrastructure assets to the Water JV, in exchange for a 70% voting interest in the joint venture legal entity and will serve as the operator. In the second quarter of 2023, Devon recognized a $64 million gain in asset dispositions in the consolidated statements of comprehensive earnings, which represented the excess of the estimated fair value of Devon's interest in the Water JV over the carrying value of the water infrastructure assets Devon contributed to the Water JV.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Devon accounts for the investment in the Water JV as an equity method investment. Devon's investment in the Water JV is shown within investments on the consolidated balance sheets and Devon's share of the Water JV earnings are reflected as a component of other, net in the accompanying consolidated statements of comprehensive earnings.
Devon has an interest in Matterhorn, which is a joint venture in a natural gas pipeline which transports natural gas from the Permian Basin to the Katy, Texas area. Devon's investment in Matterhorn does not give it the ability to exercise significant influence over Matterhorn.
In the first quarter of 2024, Devon committed to invest approximately $100 million in Fervo, a company that generates energy from geothermal wells. As of September 30, 2024, Devon has funded approximately $78 million of the commitment and expects to fund the remaining $22 million commitment in the fourth quarter of 2024. The investment in Fervo allows Devon to exercise significant influence over Fervo, and the investment is accounted for under the equity method of accounting. Devon's investment in Fervo is shown within investments on the consolidated balance sheets and Devon's share of Fervo earnings are reflected as a component of other, net in the accompanying consolidated statements of comprehensive earnings.
Disaggregation of Revenue
The following table presents revenue from contracts with customers that are disaggregated based on the type of good or service.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Oil | $ | 2,273 | $ | 2,377 | $ | 6,875 | $ | 6,626 | ||||||||
| Gas | 49 | 189 | 234 | 524 | ||||||||||||
| NGL | 343 | 316 | 981 | 904 | ||||||||||||
| Oil, gas and NGL sales | 2,665 | 2,882 | 8,090 | 8,054 | ||||||||||||
| Oil | 815 | 795 | 2,423 | 2,260 | ||||||||||||
| Gas | 105 | 153 | 326 | 428 | ||||||||||||
| NGL | 212 | 200 | 593 | 577 | ||||||||||||
| Marketing and midstream revenues | 1,132 | 1,148 | 3,342 | 3,265 | ||||||||||||
| Total revenues from contracts with customers | $ | 3,797 | $ | 4,030 | $ | 11,432 | $ | 11,319 |
Recently Issued Accounting Standards Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. ASU 2023-09 intends to provide investors with enhanced information about an entity’s income taxes by requiring disclosure of items such as disaggregation of the effective tax rate reconciliation as well as information regarding income taxes paid. This ASU will result in additional disclosures for annual reporting periods beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued.
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segments Disclosures. Under this ASU, the scope and frequency of segment disclosures is increased to provide investors with additional detail about information utilized by an entity’s “Chief Operating Decision Maker.” This ASU will result in additional disclosures for Devon beginning with our 2024 annual reporting and interim periods beginning in 2025.
2. Acquisitions and Dive****stitures
Acquisition
On September 27, 2024, Devon completed its acquisition of the Williston Basin business of Grayson Mill for total consideration of approximately $5.0 billion, consisting of $3.5 billion of cash and approximately 37.3 million shares of Devon common stock, including purchase price adjustments. Devon funded the cash portion of the purchase price through cash on hand and debt financing. For additional information regarding the debt financing, see Note 11.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Purchase Price Allocation
This transaction has been accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the assets and liabilities of Grayson Mill and its subsidiaries have been recorded at their respective fair values as of the date of completion of the acquisition and added to Devon’s. The preliminary purchase price assessment remains an ongoing process and is subject to change for up to one year subsequent to the closing date of the acquisition. Determining the fair value of the assets and liabilities of Grayson Mill requires judgment and certain assumptions to be made, the most significant of these being related to the valuation of Grayson Mill’s oil and gas properties. The inputs and assumptions related to the oil and gas properties are categorized as level 3 in the fair value hierarchy.
The following table represents the preliminary allocation of the total purchase price of Grayson Mill to the identifiable assets acquired and the liabilities assumed based on the fair values as of the acquisition date.
| Preliminary Purchase | ||||
| Price Allocation | ||||
| as of September 27, 2024 | ||||
| Consideration: | ||||
| Devon common stock issued | 37.3 | |||
| Devon closing price on September 27, 2024 | $ | 38.96 | ||
| Total common equity consideration | $ | 1,455 | ||
| Cash consideration | 3,567 | |||
| Total consideration | $ | 5,022 | ||
| Assets acquired: | ||||
| Cash, cash equivalents and restricted cash | $ | 147 | ||
| Accounts receivable | 226 | |||
| Inventory | 38 | |||
| Other current assets | 9 | |||
| Proved oil and gas property and equipment | 2,931 | |||
| Unproved oil and gas property and equipment | 1,905 | |||
| Other property and equipment, net | 210 | |||
| Right-of-use assets | 29 | |||
| Total assets acquired | $ | 5,495 | ||
| Liabilities assumed: | ||||
| Accounts payable | $ | 155 | ||
| Revenue and royalties payable | 209 | |||
| Other current liabilities | 16 | |||
| Asset retirement obligations | 75 | |||
| Lease liabilities | 18 | |||
| Total liabilities assumed | 473 | |||
| Net assets acquired | $ | 5,022 |
Grayson Mill Revenues and Earnings
From the date of the acquisition through September 30, 2024, revenues and net earnings included in Devon's consolidated statements of comprehensive earnings associated with these assets totaled $28 million and $4 million, respectively.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Pro Forma Financial Information
The following unaudited pro forma financial information is based on our historical consolidated financial statements adjusted to reflect as if the Grayson Mill acquisition had occurred on January 1, 2023. The information below reflects pro forma adjustments to conform Grayson Mill's historical financial information to Devon’s financial statement presentation. The unaudited pro forma financial information is not necessarily indicative of what would have occurred if the acquisition had been completed as of the beginning of the periods presented, nor is it indicative of future results.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Total revenues | $ | 4,691 | $ | 4,553 | $ | 13,563 | $ | 12,679 | ||||||||
| Net earnings | $ | 895 | $ | 1,044 | $ | 2,524 | $ | 2,827 |
Contingent Earnout Payments
Devon is entitled to contingent earnout payments associated with the sale of its Barnett Shale assets in 2020 with upside participation beginning at a $2.75 Henry Hub natural gas price or a $50 WTI oil price. The contingent payment period commenced on January 1, 2021 and has a term of four years. Devon received $20 million in contingent earnout payments related to this transaction in the first quarter of 2024 and $65 million in the first quarter of 2023. Devon could also receive up to an additional $65 million in contingent earnout payments for the remaining performance period depending on future commodity prices. The valuation of the future contingent earnout payment included within other current assets in the September 30, 2024 consolidated balance sheet was approximately $20 million. This value was derived utilizing a Monte Carlo valuation model and qualifies as a level 3 fair value measurement.
Devon also received $4 million in contingent earnout payments in the first quarter of 2023 related to the sale of non-core assets in the Rockies.
3.
Derivative Fin****ancial Instruments
Objectives and Strategies
Devon enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production to hedge future prices received. Additionally, Devon periodically enters into derivative financial instruments with respect to a portion of its oil, gas and NGL marketing activities. These commodity derivative financial instruments include financial price swaps, basis swaps and costless price collars. Devon also periodically enters into interest rate swaps to manage its exposure to interest rate volatility. As of September 30, 2024, Devon did not have any open interest rate contracts.
Devon does not intend to hold or issue derivative financial instruments for speculative trading purposes and has elected not to designate any of its derivative instruments for hedge accounting treatment.
Counterparty Credit Risk
By using derivative financial instruments, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon’s policy to enter into derivative contracts only with investment-grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon’s derivative contracts generally contain provisions that provide for collateral payments if Devon’s or its counterparty’s credit rating falls below certain credit rating levels. As of September 30, 2024, Devon neither held cash collateral of its counterparties nor posted cash collateral to its counterparties.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Commodity Derivatives
As of September 30, 2024, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The second table presents Devon’s oil derivatives that settle against the respective indices noted within the table.
| Price Swaps | Price Collars | ||||||||||||||||||||
| Period | Volume (Bbls/d) | Weighted Average Price ($/Bbl) | Volume (Bbls/d) | Weighted Average Floor Price ($/Bbl) | Weighted Average Ceiling Price ($/Bbl) | ||||||||||||||||
| Q4 2024 | 33,000 | $ | 78.38 | 98,000 | $ | 68.64 | $ | 83.73 | |||||||||||||
| Q1-Q4 2025 | 8,468 | $ | 71.90 | 26,992 | $ | 70.00 | $ | 76.58 |
| Oil Basis Swaps | ||||||||||
| Period | Index | Volume (Bbls/d) | Weighted Average Differential to WTI ($/Bbl) | |||||||
| Q4 2024 | Midland Sweet | 69,500 | $ | 1.17 | ||||||
| Q4 2024 | NYMEX Roll | 26,000 | $ | 0.82 | ||||||
| Q1-Q4 2025 | Midland Sweet | 63,000 | $ | 1.00 | ||||||
| Q1-Q4 2026 | Midland Sweet | 18,000 | $ | 1.21 |
As of September 30, 2024, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.
| Price Swaps | Price Collars | |||||||||||||||||||
| Period | Volume (MMBtu/d) | Weighted Average Price ($/MMBtu) | Volume (MMBtu/d) | Weighted Average Floor Price ($/MMBtu) | Weighted Average Ceiling Price ($/MMBtu) | |||||||||||||||
| Q4 2024 | 252,000 | $ | 3.16 | 15,000 | $ | 3.00 | $ | 3.65 | ||||||||||||
| Q1-Q4 2025 | 220,537 | $ | 3.34 | 55,000 | $ | 3.00 | $ | 3.69 | ||||||||||||
| Q1-Q4 2026 | 130,000 | $ | 3.78 | 50,000 | $ | 3.25 | $ | 4.18 |
| Natural Gas Basis Swaps | ||||||||||
| Period | Index | Volume (MMBtu/d) | Weighted Average Differential to Henry Hub ($/MMBtu) | |||||||
| Q4 2024 | El Paso Natural Gas | 10,000 | $ | (1.00 | ) | |||||
| Q4 2024 | Houston Ship Channel | 160,000 | $ | (0.28 | ) | |||||
| Q4 2024 | WAHA | 80,000 | $ | (0.74 | ) | |||||
| Q1-Q4 2025 | Houston Ship Channel | 170,000 | $ | (0.36 | ) | |||||
| Q1-Q4 2025 | WAHA | 50,000 | $ | (1.04 | ) | |||||
| Q1-Q4 2026 | Houston Ship Channel | 50,000 | $ | (0.29 | ) |
As of September 30, 2024, Devon had the following open NGL derivative positions. Devon's NGL positions settle against the average of the prompt month OPIS Mont Belvieu, Texas index.
| Price Swaps | ||||||||||
| Period | Product | Volume (Bbls/d) | Weighted Average Price ($/Bbl) | |||||||
| Q4 2024 | Natural Gasoline | 3,000 | $ | 69.11 | ||||||
| Q4 2024 | Normal Butane | 3,350 | $ | 37.58 | ||||||
| Q4 2024 | Propane | 5,250 | $ | 33.01 |
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Financial Statement Presentation
All derivative financial instruments are recognized at their current fair value as either assets or liabilities in the consolidated balance sheets. Amounts related to contracts allowed to be netted upon payment subject to a master netting arrangement with the same counterparty are reported on a net basis in the consolidated balance sheets. The table below presents a summary of these positions as of September 30, 2024 and December 31, 2023.
| September 30, 2024 | December 31, 2023 | ||||||||||||||||||
| Gross Fair Value | Amounts Netted | Net Fair Value | Gross Fair Value | Amounts Netted | Net Fair Value | Balance Sheet Classification | |||||||||||||
| Commodity derivatives: | |||||||||||||||||||
| Short-term derivative asset | $ | 153 | $ | (12 | ) | $ | 141 | $ | 213 | $ | (5 | ) | $ | 208 | Other current assets | ||||
| Long-term derivative asset | 32 | (5 | ) | 27 | — | — | — | Other long-term assets | |||||||||||
| Short-term derivative liability | (14 | ) | 12 | (2 | ) | (7 | ) | 5 | (2 | ) | Other current liabilities | ||||||||
| Long-term derivative liability | (6 | ) | 5 | (1 | ) | (7 | ) | — | (7 | ) | Other long-term liabilities | ||||||||
| Total derivative asset | $ | 165 | $ | — | $ | 165 | $ | 199 | $ | — | $ | 199 |
4.
Share-Base****d Compensation
The table below presents the share-based compensation expense included in Devon’s accompanying consolidated statements of comprehensive earnings.
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| G&A | $ | 74 | $ | 70 | ||||
| Exploration expenses | 1 | — | ||||||
| Total | $ | 75 | $ | 70 | ||||
| Related income tax benefit | $ | 21 | $ | 31 |
Under its approved long-term incentive plan, Devon grants share-based awards to its employees. The following table presents a summary of Devon’s unvested restricted stock awards and units and performance share units granted under the plan.
| Restricted Stock Awards & Units | Performance Share Units | |||||||||||||||
| Awards/Units | Weighted Average Grant-Date Fair Value | Units | Weighted Average Grant-Date Fair Value | |||||||||||||
| (Thousands, except fair value data) | ||||||||||||||||
| Unvested at 12/31/23 | 4,033 | $ | 42.10 | 1,547 | $ | 43.25 | ||||||||||
| Granted | 1,936 | $ | 42.53 | 858 | $ | 40.41 | ||||||||||
| Vested | (1,805 | ) | $ | 34.83 | (1,226 | ) | $ | 18.08 | ||||||||
| Forfeited | (79 | ) | $ | 45.44 | — | $ | — | |||||||||
| Unvested at 9/30/24 | 4,085 | $ | 45.45 | 1,179 | (1) | $ | 67.38 |
(1)
A maximum of 2.4 million common shares could be awarded based upon Devon’s final TSR ranking.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
The following table presents the assumptions related to the performance share units granted in 2024, as indicated in the previous summary table. The grants in the previous summary table also include the impacts of performance share units granted in a prior year that vested higher than 100% of target due to Devon's TSR performance compared to our peers.
| 2024 | ||||
| Grant-date fair value | $ | 56.99 | ||
| Risk-free interest rate | 4.28 | % | ||
| Volatility factor | 46.03 | % | ||
| Contractual term (years) | 2.89 |
The following table presents a summary of the unrecognized compensation cost and the related weighted average recognition period associated with unvested awards and units as of September 30, 2024.
| Restricted Stock | Performance | |||||||
| Awards/Units | Share Units | |||||||
| Unrecognized compensation cost | $ | 116 | $ | 26 | ||||
| Weighted average period for recognition (years) | 2.6 | 1.7 |
5. Inco****me Taxes
The following table presents Devon’s total income tax expense and a reconciliation of its effective income tax rate to the U.S. statutory income tax rate.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||
| Earnings before income taxes | $ | 1,064 | $ | 1,072 | $ | 2,872 | $ | 3,193 | |||||
| Current income tax expense | $ | 75 | $ | 139 | $ | 340 | $ | 360 | |||||
| Deferred income tax expense | 164 | 13 | 243 | 212 | |||||||||
| Total income tax expense | $ | 239 | $ | 152 | $ | 583 | $ | 572 | |||||
| U.S. statutory income tax rate | 21 | % | 21 | % | 21 | % | 21 | % | |||||
| State income taxes | 3 | % | 1 | % | 2 | % | 1 | % | |||||
| Income tax credits | (2 | %) | (8 | %) | (3 | %) | (4 | %) | |||||
| Effective income tax rate | 22 | % | 14 | % | 20 | % | 18 | % |
In the first nine months of 2024 and 2023, Devon recognized income tax credits associated with its qualified research activities.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
6.
Net Earnings Per Share
The following table reconciles net earnings available to common shareholders and weighted-average common shares outstanding used in the calculations of basic and diluted net earnings per share.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net earnings available to common shareholders - basic and diluted | $ | 812 | $ | 910 | $ | 2,252 | $ | 2,595 | ||||||||
| Common shares: | ||||||||||||||||
| Average common shares outstanding - basic | 622 | 637 | 626 | 640 | ||||||||||||
| Dilutive effect of potential common shares issuable | 1 | 2 | 2 | 3 | ||||||||||||
| Average common shares outstanding - diluted | 623 | 639 | 628 | 643 | ||||||||||||
| Net earnings per share available to common shareholders: | ||||||||||||||||
| Basic | $ | 1.31 | $ | 1.43 | $ | 3.60 | $ | 4.05 | ||||||||
| Diluted | $ | 1.30 | $ | 1.42 | $ | 3.59 | $ | 4.03 |
7. Other Comprehensive Earnings (Loss)
Components of other comprehensive earnings (loss) consist of the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Pension and postretirement benefit plans: | ||||||||||||||||
| Beginning accumulated pension and postretirement benefits | $ | (122 | ) | $ | (114 | ) | $ | (124 | ) | $ | (116 | ) | ||||
| Recognition of net actuarial loss and prior service cost in earnings (1) | 1 | 1 | 4 | 4 | ||||||||||||
| Income tax expense | — | — | (1 | ) | (1 | ) | ||||||||||
| Accumulated other comprehensive loss, net of tax | $ | (121 | ) | $ | (113 | ) | $ | (121 | ) | $ | (113 | ) |
(1)
Recognition of net actuarial loss and prior service cost are included in the computation of net periodic benefit cost, which is a component of other, net in the accompanying consolidated statements of comprehensive earnings.
8.
Supplemental Information to Statements of Cash Flows
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Changes in assets and liabilities, net: | ||||||||||||||||
| Accounts receivable | $ | 41 | $ | (334 | ) | $ | 26 | $ | (86 | ) | ||||||
| Other current assets | (13 | ) | 27 | (120 | ) | 31 | ||||||||||
| Other long-term assets | (9 | ) | (31 | ) | 24 | (13 | ) | |||||||||
| Accounts payable and revenues and royalties payable | (64 | ) | 194 | 121 | (36 | ) | ||||||||||
| Other current liabilities | 57 | 88 | (51 | ) | (53 | ) | ||||||||||
| Other long-term liabilities | 4 | (5 | ) | (15 | ) | (32 | ) | |||||||||
| Total | $ | 16 | $ | (61 | ) | $ | (15 | ) | $ | (189 | ) | |||||
| Supplementary cash flow data: | ||||||||||||||||
| Interest paid | $ | 90 | $ | 77 | $ | 265 | $ | 266 | ||||||||
| Income taxes paid | $ | 92 | $ | 50 | $ | 476 | $ | 309 |
Devon's non-cash investing activities for the nine months ended September 30, 2023, included approximately $150 million of contributions of other property and equipment for the formation of the Water JV.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
9.
Accounts Receivable
Components of accounts receivable include the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Oil, gas and NGL sales | $ | 989 | $ | 965 | ||||
| Joint interest billings | 321 | 251 | ||||||
| Marketing and midstream revenues | 442 | 342 | ||||||
| Other | 34 | 22 | ||||||
| Gross accounts receivable | 1,786 | 1,580 | ||||||
| Allowance for doubtful accounts | (7 | ) | (7 | ) | ||||
| Net accounts receivable | $ | 1,779 | $ | 1,573 |
10. Property, Plan****t and Equipment
The following table presents the aggregate capitalized costs related to Devon’s oil and gas and non-oil and gas activities.
| September 30, 2024 | December 31, 2023 | |||||||
| Property and equipment: | ||||||||
| Proved | $ | 52,190 | $ | 46,659 | ||||
| Unproved and properties under development | 3,286 | 1,279 | ||||||
| Total oil and gas | 55,476 | 47,938 | ||||||
| Less accumulated DD&A | (32,321 | ) | (30,113 | ) | ||||
| Oil and gas property and equipment, net | 23,155 | 17,825 | ||||||
| Other property and equipment | 2,630 | 2,289 | ||||||
| Less accumulated DD&A | (835 | ) | (786 | ) | ||||
| Other property and equipment, net (1) | 1,795 | 1,503 | ||||||
| Property and equipment, net | $ | 24,950 | $ | 19,328 |
(1)
$164 million and $136 million related to CDM in 2024 and 2023, respectively.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
11.
Debt and Re****lated Expenses
See below for a summary of debt instruments and balances. The notes, debentures and Term Loan reflected below are senior, unsecured obligations of Devon.
| September 30, 2024 | December 31, 2023 | |||||||
| 5.25% due September 15, 2024 | $ | — | $ | 472 | ||||
| 5.85% due December 15, 2025 | 485 | 485 | ||||||
| 7.50% due September 15, 2027 | 73 | 73 | ||||||
| 5.25% due October 15, 2027 | 390 | 390 | ||||||
| 5.875% due June 15, 2028 | 325 | 325 | ||||||
| 4.50% due January 15, 2030 | 585 | 585 | ||||||
| 7.875% due September 30, 2031 | 675 | 675 | ||||||
| 7.95% due April 15, 2032 | 366 | 366 | ||||||
| 5.20% due September 15, 2034 | 1,250 | — | ||||||
| 5.60% due July 15, 2041 | 1,250 | 1,250 | ||||||
| 4.75% due May 15, 2042 | 750 | 750 | ||||||
| 5.00% due June 15, 2045 | 750 | 750 | ||||||
| 5.75% due September 15, 2054 | 1,000 | — | ||||||
| Term Loan due September 25, 2026 | 1,000 | — | ||||||
| Net premium on debentures and notes | 41 | 64 | ||||||
| Debt issuance costs | (56 | ) | (30 | ) | ||||
| Total debt | $ | 8,884 | $ | 6,155 | ||||
| Less amount classified as short-term debt | — | 483 | ||||||
| Total long-term debt | $ | 8,884 | $ | 5,672 |
Credit Lines
In 2023, Devon amended and restated its 2018 Senior Credit Facility to provide for a new $3.0 billion revolving 2023 Senior Credit Facility. In the first quarter of 2024, Devon exercised its option to extend the 2023 Senior Credit Facility maturity date from March 24, 2028 to March 24, 2029. Devon has the option to extend the March 24, 2029 maturity date by two additional one-year periods subject to lender consent. As of September 30, 2024, Devon had no outstanding borrowings under the 2023 Senior Credit Facility and had issued $4 million in outstanding letters of credit under this facility. The 2023 Senior Credit Facility contains only one material financial covenant. This covenant requires Devon's ratio of total funded debt to total capitalization, as defined in the credit agreement, to be no greater than 65%. Under the terms of the credit agreement, total capitalization is adjusted to add back non-cash financial write-downs such as impairments. As of September 30, 2024, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 26.7%
Term Loan Credit Agreement
On August 12, 2024, Devon entered into a delayed draw term loan credit agreement (the “Term Loan Credit Agreement”), providing for delayed draw term loans in an aggregate principal amount not to exceed $2.0 billion, including a 364-day tranche of $500 million and a two-year tranche of $1.5 billion. On September 27, 2024, Devon borrowed $1.0 billion on the two-year tranche (the “Term Loan”) to partially fund the closing of the Grayson Mill acquisition. In connection with the borrowing of the Term Loan, the undrawn commitments under the Term Loan Credit Agreement automatically terminated. The Term Loan bears interest at a rate based on term SOFR plus a spread adjustment that varies based on Devon's credit ratings. The interest rate on the Term Loan was 6.33% as of September 30, 2024.
The Term Loan Credit Agreement contains substantially the same financial covenant as the 2023 Senior Credit Facility. As of September 30, 2024, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 26.7%.
Issuance of Senior Notes
On August 28, 2024, Devon issued $1.25 billion of 5.20% senior notes due 2034 and $1.0 billion of 5.75% senior notes due 2054. Devon used the net proceeds to partially fund the Grayson Mill acquisition. For additional information, see Note 2.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Retirement of Senior Notes
On September 15, 2024 and August 1, 2023, Devon repaid the $472 million of 5.25% senior notes and $242 million of 8.25% senior notes at maturity, respectively.
Net Financing Costs
The following schedule includes the components of net financing costs.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Interest based on debt outstanding | $ | 98 | $ | 93 | $ | 273 | $ | 282 | ||||||||
| Interest income | (19 | ) | (11 | ) | (46 | ) | (43 | ) | ||||||||
| Other | 9 | (1 | ) | 13 | (8 | ) | ||||||||||
| Total net financing costs | $ | 88 | $ | 81 | $ | 240 | $ | 231 |
12. Le****ases
The following table presents Devon’s right-of-use assets and lease liabilities as of September 30, 2024 and December 31, 2023.
| September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||
| Finance | Operating | Total | Finance | Operating | Total | |||||||||||||||||||
| Right-of-use assets | $ | 257 | $ | 60 | $ | 317 | $ | 246 | $ | 21 | $ | 267 | ||||||||||||
| Lease liabilities: | ||||||||||||||||||||||||
| Current lease liabilities (1) | $ | 27 | $ | 30 | $ | 57 | $ | 21 | $ | 12 | $ | 33 | ||||||||||||
| Long-term lease liabilities | 298 | 30 | 328 | 286 | 9 | 295 | ||||||||||||||||||
| Total lease liabilities (2) | $ | 325 | $ | 60 | $ | 385 | $ | 307 | $ | 21 | $ | 328 |
(1)
Current lease liabilities are included in other current liabilities on the consolidated balance sheets.
(2)
Devon has entered into certain leases of equipment related to the exploration, development and production of oil and gas that had terms not yet commenced as of September 30, 2024 and are therefore excluded from the amounts shown above.
Devon’s operating lease right-of-use assets relate to real estate, drilling rigs and other equipment related to the exploration, development and production of oil and gas. Devon’s financing lease right-of-use assets primarily relate to real estate.
13.
Asset Retir****ement Obligations
The following table presents the changes in Devon’s asset retirement obligations.
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Asset retirement obligations as of beginning of period | $ | 665 | $ | 529 | ||||
| Assumed Grayson Mill obligations | 75 | — | ||||||
| Liabilities incurred | 21 | 104 | ||||||
| Liabilities settled and divested | (25 | ) | (24 | ) | ||||
| Revision of estimated obligation | 35 | 27 | ||||||
| Accretion expense on discounted obligation | 28 | 21 | ||||||
| Asset retirement obligations as of end of period | 799 | 657 | ||||||
| Less current portion | 34 | 16 | ||||||
| Asset retirement obligations, long-term | $ | 765 | $ | 641 |
During the first nine months of 2024, Devon increased its asset retirement obligations by approximately $35 million primarily due to changes in current cost estimates and future retirement dates for its oil and gas assets. During the first nine months of 2023,
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Devon increased its asset retirement obligations by approximately $27 million primarily due to inflation-driven increases in cost estimates.
Devon's asset retirement obligations recorded during the first nine months of 2023 included a potential obligation to decommission two California offshore oil and gas production platforms and related facilities pursuant to an order of the Department of the Interior, Bureau of Safety and Environmental Enforcement.
14.
Stockhol****ders’ Equity
Share Issuance
On September 27, 2024, Devon completed its acquisition of the Williston Basin business of Grayson Mill for total consideration of approximately $5.0 billion. The transaction consisted of $3.5 billion of cash and approximately 37.3 million shares of Devon common stock at $38.96 per share for total equity consideration of approximately $1.5 billion, including purchase price adjustments.
Share Repurchases
In July 2024, Devon's Board of Directors authorized an expansion to the Company's share repurchase program from $3.0 billion to $5.0 billion and extended the expiration date from December 31, 2024 to June 30, 2026. The table below provides information regarding purchases of Devon’s common stock under the $5.0 billion share repurchase program (shares in thousands).
| Total Number of Shares Purchased | Dollar Value of Shares Purchased | Average Price Paid per Share | ||||||||||
| $5.0 Billion Plan | ||||||||||||
| 2021 | 13,983 | $ | 589 | $ | 42.15 | |||||||
| 2022 | 11,708 | 718 | $ | 61.36 | ||||||||
| 2023: | ||||||||||||
| First quarter | 10,090 | 545 | $ | 53.96 | ||||||||
| Second quarter | 3,795 | 200 | $ | 52.70 | ||||||||
| Fourth quarter | 5,465 | 247 | $ | 45.17 | ||||||||
| 2023 Total | 19,350 | 992 | $ | 51.23 | ||||||||
| 2024: | ||||||||||||
| First quarter | 4,428 | 193 | $ | 43.47 | ||||||||
| Second quarter | 5,188 | 256 | $ | 49.40 | ||||||||
| Third quarter | 6,675 | 295 | $ | 44.23 | ||||||||
| 2024 Total | 16,291 | 744 | $ | 45.67 | ||||||||
| Total plan | 61,332 | $ | 3,043 | $ | 49.62 |
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Dividends
Devon pays a quarterly dividend which can be comprised of a fixed dividend and a variable dividend. The variable dividend is dependent on quarterly cash flows, among other factors. Devon has raised its fixed dividend multiple times over the past two calendar years and most recently raised it by 10% from $0.20 to $0.22 per share in the first quarter of 2024. The following table summarizes Devon’s dividends for the first nine months of 2024 and 2023, respectively.
| Fixed | Variable | Total | Rate Per Share | ||||||||||||
| 2024: | |||||||||||||||
| First quarter | $ | 143 | $ | 156 | $ | 299 | $ | 0.44 | |||||||
| Second quarter | 138 | 85 | 223 | $ | 0.35 | ||||||||||
| Third quarter | 136 | 136 | 272 | $ | 0.44 | ||||||||||
| Total year-to-date | $ | 417 | $ | 377 | $ | 794 | |||||||||
| 2023: | |||||||||||||||
| First quarter | $ | 133 | $ | 463 | $ | 596 | $ | 0.89 | |||||||
| Second quarter | 128 | 334 | 462 | $ | 0.72 | ||||||||||
| Third quarter | 127 | 185 | 312 | $ | 0.49 | ||||||||||
| Total year-to-date | $ | 388 | $ | 982 | $ | 1,370 |
In November 2024, Devon announced a fixed cash dividend in the amount of $0.22 per share for approximately $144 million payable in the fourth quarter of 2024.
Noncontrolling Interests
The noncontrolling interests’ share of CDM’s net earnings and the contributions from and distributions to the noncontrolling interests are presented as components of equity.
15.
Com****mitments and Contingencies
Devon is party to various legal actions arising in connection with its business. Matters that are probable of unfavorable outcome to Devon and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, Devon’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. None of the actions are believed by management to likely involve future amounts that would be material to Devon’s financial position or results of operations after consideration of recorded accruals. Actual amounts could differ materially from management’s estimates.
Royalty Matters
Numerous oil and natural gas producers and related parties, including Devon, have been named in various lawsuits alleging royalty underpayments. Devon is currently named as a defendant in a number of such lawsuits, including some lawsuits in which the plaintiffs seek to certify classes of similarly situated plaintiffs. Among the allegations typically asserted in these suits are claims that Devon used below-market prices, made improper deductions, paid royalty proceeds in an untimely manner without including required interest, used improper measurement techniques and entered into gas purchase and processing arrangements with affiliates that resulted in underpayment of royalties in connection with oil, natural gas and NGLs produced and sold. Devon is also involved in governmental agency proceedings and royalty audits and is subject to related contracts and regulatory controls in the ordinary course of business, some that may lead to additional royalty claims. As of September 30, 2024, Devon has accrued approximately $60 million in other current liabilities pertaining to such royalty matters.
Environmental and Climate Change Matters
Devon’s business is subject to numerous federal, state, tribal and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal fines and penalties, as well as remediation costs. Although Devon believes that it is in substantial compliance with applicable environmental laws and regulations and that continued compliance with existing requirements will not have a material adverse impact on its business, there can be no assurance that this will continue in the future.
As previously disclosed, the Company received separate notices of violation (“NOV”) from the EPA alleging emissions and permitting violations relating to certain of our historic operations in North Dakota, western Texas and New Mexico, respectively. The
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Company has been engaging with the EPA to resolve each of these matters, and Devon is actively negotiating a draft consent decree with the EPA and the Department of Justice with respect to the North Dakota NOV matter. If finalized, the consent decree may include monetary sanctions and obligations to complete mitigation projects and implement specific injunctive relief. Given that negotiations of the draft consent decree are ongoing and the uncertainty as to the ultimate result of the North Dakota NOV matter, we are currently unable to provide an estimate of potential loss; however, the costs associated with the resolution of the North Dakota NOV matter or any of the other NOV matters could be significant in amount and may include monetary penalties.
Beginning in 2013, various parishes in Louisiana filed suit against numerous oil and gas companies, including Devon, alleging that the companies’ operations and activities in certain fields violated the State and Local Coastal Resource Management Act of 1978, as amended, and caused substantial environmental contamination, subsidence and other environmental damages to land and water bodies located in the coastal zone of Louisiana. The plaintiffs’ claims against Devon relate primarily to the operations of several of Devon’s corporate predecessors. The plaintiffs seek, among other things, payment of the costs necessary to clear, re-vegetate and otherwise restore the allegedly impacted areas. Although Devon cannot predict the ultimate outcome of these matters, Devon denies the allegations in these lawsuits and intends to vigorously defend against these claims.
The State of Delaware has filed legal proceedings against numerous oil and gas companies, including Devon, seeking relief to abate alleged impacts of climate change. These proceedings include far-reaching claims for monetary damages and injunctive relief. Although Devon cannot predict the ultimate outcome of this matter, Devon denies the allegations asserted in this lawsuit and intends to vigorously defend against these claims.
Other Indemnifications and Legacy Matters
Pursuant to various sale agreements relating to divested businesses and assets, Devon has indemnified various purchasers against liabilities that they may incur with respect to the businesses and assets acquired from Devon. Additionally, federal, state and other laws in areas of former operations may require previous operators (including corporate successors of previous operators) to perform or make payments in certain circumstances where the current operator may no longer be able to satisfy the applicable obligation. Such obligations may include plugging and abandoning wells, removing production facilities, undertaking other restorative actions or performing requirements under surface agreements in existence at the time of disposition. For example, a predecessor entity of a Devon subsidiary previously sold certain private, state and federal oil and gas leases covering properties in shallow waters off the coast of Louisiana in the Gulf of Mexico. These assets are generally referred to as the East Bay Field. The current operator of the East Bay Field has filed for protection under Chapter 11 of the U.S. Bankruptcy Code and may be unable to satisfy the eventual decommissioning obligations associated with the East Bay Field. Other companies in the chain of title of the East Bay Field have also sought bankruptcy protection and may be similarly unable to satisfy the eventual decommissioning obligations associated with the East Bay Field. Depending upon the outcome of these bankruptcy proceedings, amounts available under decommissioning bonds and a cash security account and other factors, Devon may be required to perform or fund certain decommissioning obligations associated with the East Bay Field under state and federal regulations applicable to predecessor operators. As a result of these factors and uncertainties, we are currently unable to provide an estimate of potential loss.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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16.
Fair Value Measurements
The following table provides carrying value and fair value measurement information for certain of Devon’s financial assets and liabilities. The carrying values of cash, accounts receivable, other current receivables, accounts payable, other current payables, accrued expenses and lease liabilities included in the accompanying consolidated balance sheets approximated fair value at September 30, 2024 and December 31, 2023, as applicable. Therefore, such financial assets and liabilities are not presented in the following table.
| Fair Value Measurements Using: | ||||||||||||||||||||
| Carrying | Total Fair | Level 1 | Level 2 | Level 3 | ||||||||||||||||
| Amount | Value | Inputs | Inputs | Inputs | ||||||||||||||||
| September 30, 2024 assets (liabilities): | ||||||||||||||||||||
| Cash equivalents | $ | 164 | $ | 164 | $ | 164 | $ | — | $ | — | ||||||||||
| Commodity derivatives | $ | 168 | $ | 168 | $ | — | $ | 168 | $ | — | ||||||||||
| Commodity derivatives | $ | (3 | ) | $ | (3 | ) | $ | — | $ | (3 | ) | $ | — | |||||||
| Debt | $ | (8,884 | ) | $ | (8,883 | ) | $ | — | $ | (8,883 | ) | $ | — | |||||||
| Contingent earnout payments | $ | 20 | $ | 20 | $ | — | $ | — | $ | 20 | ||||||||||
| December 31, 2023 assets (liabilities): | ||||||||||||||||||||
| Cash equivalents | $ | 306 | $ | 306 | $ | 306 | $ | — | $ | — | ||||||||||
| Commodity derivatives | $ | 208 | $ | 208 | $ | — | $ | 208 | $ | — | ||||||||||
| Commodity derivatives | $ | (9 | ) | $ | (9 | ) | $ | — | $ | (9 | ) | $ | — | |||||||
| Debt | $ | (6,155 | ) | $ | (6,090 | ) | $ | — | $ | (6,090 | ) | $ | — | |||||||
| Contingent earnout payments | $ | 55 | $ | 55 | $ | — | $ | — | $ | 55 |
The following methods and assumptions were used to estimate the fair values in the table above.
Level 1 Fair Value Measurements
Cash equivalents – Amounts consist primarily of money market investments and the fair value approximates the carrying value.
Level 2 Fair Value Measurements
Commodity derivatives – The fair value of commodity derivatives is estimated using internal discounted cash flow calculations based upon forward curves and data obtained from independent third parties for contracts with similar terms or data obtained from counterparties to the agreements.
Debt – Devon’s debt instruments do not consistently trade actively in an established market. The fair values of its debt are estimated based on rates available for debt with similar terms and maturity when active trading is not available. Our variable rate debt is non-public and consists of our Term Loan. The fair value of our variable rate debt approximates the carrying value as the underlying SOFR resets every month based on the prevailing market rate.
Level 3 Fair Value Measurements
Contingent Earnout Payments – Devon has the right to receive contingent consideration related to the Barnett asset divestiture based on future oil and gas prices. These values were derived using a Monte Carlo valuation model and qualify as a level 3 fair value measurement. For additional information, see Note 2.
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