OREANDA-NEWS. August 07, 2012. Devon Energy Corporation (NYSE:DVN) reported net earnings of USD 477 million for the quarter ended June 30, 2012, or USD 1.18 per common share (USD 1.18 per diluted share). This compares with second-quarter 2011 net earnings of USD 2.7 billion, or USD 6.50 per common share (USD 6.48 per diluted share), reported the press-centre of Devon Energy.

A one-time gain of USD 2.5 billion resulting from the divestiture of assets in Brazil enhanced the company’s second-quarter 2011 earnings.

Devon’s second-quarter 2012 financial results were impacted by certain items securities analysts typically exclude from their published estimates. Adjusting for these items, the company earned USD 224 million or USD 0.55 per diluted share in the second-quarter 2012. The adjusting items are discussed in more detail later in this news release.

Strong Oil Growth Drives Production Increase
Devon continued to deliver strong oil production growth in the second-quarter 2012. In aggregate, oil production averaged 149,000 barrels per day, a 26 percent increase compared to the second-quarter 2011. This increase is largely attributable to growth from the company’s Jackfish and Permian Basin projects.

Total production of oil, natural gas and natural gas liquids averaged 679,000 oil-equivalent barrels (Boe) per day in the second quarter. A number of production interruptions primarily related to natural gas processing facilities reduced the company’s second quarter production by 16,000 Boe per day. The most significant occurrence was maintenance downtime at Devon’s Bridgeport facility in North Texas which reduced natural gas liquids production by approximately 10,000 barrels per day in the quarter. Due to the low natural gas liquids price environment, the second quarter was an opportune time for plant maintenance activities. Other minor disruptions at third-party facilities in the Permian Basin, Mid-Continent and Gulf Coast regions also contributed to the reduced volumes. In spite of these issues, which have now been resolved, companywide production increased three percent compared to the second-quarter 2011.

Permian Basin and New Ventures Activity Lead Operating Highlights

Permian Basin oil production increased 24 percent over the second-quarter 2011. Oil production accounted for nearly 60 percent of the 59,000 Boe per day produced in the Permian Basin during the second quarter.

Devon brought 19 Bone Spring wells online in the second quarter. Initial 30-day production from these wells averaged 680 Boe per day.

Net production from Devon’s Jackfish 1 and Jackfish 2 oil sands projects in Canada averaged a record 51,000 barrels per day in the second quarter. This represents a 63 percent increase in oil production over the year-ago quarter.

Construction of Devon’s third Jackfish oil sands project is now approximately 40 percent complete. Plant startup is targeted for late 2014.

Devon filed a regulatory application in June for the first phase of Pike, an oil sands project with gross production capacity of 105,000 barrels per day. Pike is located immediately adjacent to the company’s highly successful Jackfish projects.

In April, Devon closed its USD 2.5 billion joint venture agreement with Sinopec. The transaction price included a USD 900 million cash payment at closing, recovering significantly more than 100 percent of the company’s initial land and exploration costs. The remaining USD 1.6 billion drilling carry will fund 80 percent of the joint venture’s capital requirements over the next few years.

Devon continued to increase its exposure in the Mississippian oil play by adding 400,000 net acres in Oklahoma. In total, Devon now has 545,000 net acres in this emerging light-oil resource play.

Devon brought six operated Granite Wash wells online in the second quarter. Initial 30-day production from these wells averaged 1,270 Boe per day.

Net production from the Cana-Woodford Shale averaged 280 million cubic feet of natural gas equivalent per day in the second-quarter 2012. Liquids production increased 59 percent year-over-year, accounting for 30 percent of total Cana-Woodford production.

Hedges Partially Offset Lower Realizations; Devon Adds Oil and Gas Hedges
In spite of increased production over the year-ago quarter, second quarter revenues from oil, natural gas and natural gas liquids sales declined 26 percent to USD 1.6 billion. Lower realized prices for all three products more than offset the production increase. However, cash settlements related to oil and natural gas hedges increased revenues by USD 267 million or USD 4.33 per Boe in the second-quarter 2012.

Devon continued to add to its oil and natural gas hedge positions for the second-half 2012. The company now has 128,000 barrels of oil per day protected at a weighted average floor price of USD 97 per barrel. Devon also has 1.7 billion cubic feet per day protected at a weighted average floor price of USD 3.76. These positions represent approximately 85 percent of Devon’s forecasted oil production and roughly 65 percent of the company’s expected natural gas production for the remaining two quarters of 2012.

Marketing and midstream operating profit was USD 68 million in the second-quarter 2012. This compares to USD 148 million in the second-quarter 2011. Downtime related to a planned expansion at the company’s Gulf Coast Fractionators facility at Mont Belvieu and lower commodity prices led to the year-over-year decline. The expansion at the Gulf Coast Fractionators facility is now complete, and operations have resumed.

Higher Costs Reflect Increased Oil Activity
Lease operating expenses (LOE) totaled USD 513 million in the second-quarter 2012. On a unit of production basis, LOE was USD 8.30 per Boe, or two percent higher than the first quarter and 10 percent higher than the year-ago period. The increase in LOE reflects higher industry costs coupled with increased activity levels in oil-focused basins. In general, oil projects are more expensive to produce and have higher operating costs than gas production.

Taxes other than income decreased 16 percent to USD 100 million in the second-quarter 2012. Lower ad valorem and production taxes drove the year-over-year decrease.

Interest expense for the second quarter totaled USD 99 million, a USD 14 million increase over the second-quarter 2011. The increase in interest expense was attributable to higher overall debt balances.

Depreciation, depletion and amortization expense (DD&A) increased 21 percent to USD 11.07 per Boe compared with the second-quarter 2011. Inflation in industry costs and increased investment in oil-focused projects drove DD&A expense higher.

Second quarter general and administrative expenses (G&A) increased to USD 176 million, or USD 2.85 per Boe. Higher personnel costs were the largest contributor to the increase. Devon has increased the size of its workforce to support its expanding oil-focused exploration and development activity. Non-recurring costs associated with the implementation of the company’s new enterprise-wide software platform also contributed to the increase.

Balance Sheet and Liquidity Remain Strong
Devon generated cash flow from operations of USD 1.4 billion in the second-quarter 2012. In addition, the company received a USD 900 million cash payment from the closing of its joint venture agreement with Sinopec. At June 30, 2012, the company’s cash and short-term investments totaled USD 7.0 billion, and its net debt to adjusted capitalization was 14 percent.

Non-GAAP Reconciliations
Pursuant to regulatory disclosure requirements, Devon is required to reconcile non-GAAP financial measures to the related GAAP information (GAAP refers to generally accepted accounting principles). Net debt and adjusted capitalization are non-GAAP financial measures referenced within this release. Reconciliations of these non-GAAP measures are provided on page 11.

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. The following table summarizes the effects of these items on second-quarter 2012 earnings. These adjusting items had no impact on second-quarter 2012 cash flow.