OREANDA-NEWS. August 15, 2013. Devon Energy Corporation (NYSE:DVN) reported net earnings of USD683 million or USD 1.69 per common share (USD 1.68 per diluted share) for the quarter ended June 30, 2013. This compares with the second-quarter 2012 net earnings of USD 477 million or USD 1.18 per common share (USD 1.18 per diluted share).

Adjusting for items securities analysts typically exclude from their published estimates, the company earned USD 491 million or USD 1.21 per diluted share in the second quarter. This adjusted earnings result represents a 119 percent increase compared to the second quarter of 2012.

Record Production Driven By Strong Oil Growth
Total production increased to an average of 698,000 oil-equivalent barrels (Boe) per day in the second quarter of 2013, exceeding the top-end of the company’s guidance range by 8,000 barrels per day. This is the highest average daily rate in Devon’s history from its North American property base. Second-quarter production benefited from better than expected results from several core development areas, including the Permian Basin and Barnett Shale.

Devon’s strong growth in oil production continued in the second quarter. In aggregate, oil production averaged 169,000 barrels per day, a 14 percent increase compared to the second quarter of 2012 and a 4 percent increase compared to the first quarter of 2013. Driven by the Permian Basin, the most significant growth came from the company’s U.S. operations, where oil production increased 36 percent year over year.

“The second quarter was an outstanding one for Devon as we continued to successfully grow high-margin oil production,” said John Richels, president and chief executive officer. “We remain on track to deliver total companywide oil production growth in the high teens for 2013, led by light-oil growth of nearly 40 percent in the U.S.”

“In addition to delivering an excellent quarter, we achieved some exciting results in a new light-oil resource play,” said Dave Hager, chief operating officer. “We have now identified 400,000 net acres in the Mississippian Trend with Woodford Oil Shale potential.”

Key Operating Highlights
Mississippian-Woodford Trend - Devon commenced production on 36 operated wells in this emerging light-oil play during the second quarter. This activity was highlighted by 10 wells in the Woodford Oil Shale where initial 24-hour production rates averaged 840 Boe per day. Overall, production from Devon’s Mississippian-Woodford Trend exited June at nearly 7,000 Boe per day, representing more than a 100 percent increase from the first-quarter exit rate. The company now has 650,000 net acres in the greater Mississippian-Woodford Trend, prospective for both carbonate and shale opportunities.

Permian Basin - Production averaged a record 76,000 Boe per day in the second quarter. Oil production increased 32 percent compared to the second quarter of 2012 and now accounts for 60 percent of Devon’s total Permian production. The most significant contributor to this oil growth was the Bone Spring play in the Delaware Basin. Devon added 29 new Bone Spring wells to production in the second quarter with initial 30-day rates averaging 675 Boe per day. Also driving oil growth in the Permian was strong performance from the company’s Wolfcamp Shale position in the Midland Basin. Devon brought 19 Wolfcamp Shale wells online during the second quarter with initial 30-day production rates as high as 1,000 Boe per day.

Rockies - Devon’s oil exploration program in the Powder River Basin delivered notable results in the second quarter. Targeting the Parkman and Turner formations, the company commenced production on seven operated wells. Initial 30-day production from these wells averaged 675 Boe per day, of which more than 90 percent was light oil. Devon has identified 600 risked locations across the Powder River Basin and expects its drilling inventory to increase as the company de-risks this oil opportunity.

Canadian Oil Sands - Net production from Devon’s Jackfish 1 and Jackfish 2 oil sands projects averaged 53,000 barrels of oil per day in the second quarter of 2013, a 4 percent increase over the year-ago period. Construction of the company’s third Jackfish oil sands project is now approximately 70 percent complete. Jackfish 3 is expected to produce 35,000 barrels per day before royalties for more than 20 years with plant startup expected in the third quarter of 2014.

Granite Wash - Net production increased 33 percent compared to the previous quarter. This strong growth was driven by nine operated wells brought online in the second quarter, including two Hogshooter wells. The 30-day production from each of these nine wells averaged 1,600 Boe per day, including 900 barrels of oil and liquids per day.

Cana-Woodford Shale - Second-quarter production averaged 322 million cubic feet of natural gas equivalent per day. Oil and liquids production comprised nearly 40 percent of total Cana-Woodford production in the second quarter, representing a 48 percent increase compared to the prior-year quarter.

Barnett Shale - Continuing efforts to optimize production resulted in net production averaging 1.4 billion cubic feet of natural gas equivalent per day during the second quarter. Liquids production increased to 56,000 barrels per day, a 34 percent increase compared to the second quarter of 2012.

Midstream MLP Update
In June, Devon announced that its board of directors approved a plan to form a publicly traded midstream master limited partnership (MLP). The MLP is expected to initially own a minority interest in Devon’s U.S. midstream business. The company expects the MLP to file a registration statement with the Securities and Exchange Commission (SEC) by the end of the third quarter. Subject to market conditions, an offering of partnership units in the MLP would follow registration with the SEC.

In addition to the MLP announcement, the company divested non-core assets. Year to date, Devon has signed agreements to sell exploration and production and midstream assets totaling nearly USD 300 million. Estimated cash flow in 2013 from these divestiture assets is less than \\$15 million, and current production is essentially all dry gas, averaging around 20 million cubic feet of natural gas equivalent per day. The company expects to close these highly accretive transactions during the second half of 2013.

Upstream Revenue Increases 37 Percent; Costs Remain Essentially Flat
Revenue from oil, natural gas and natural gas liquids sales totaled \\$2.2 billion in the second quarter, a 37 percent increase from the second quarter of 2012. The significant increase in revenue was attributable to improved natural gas and oil price realizations combined with higher oil production. In the second quarter, oil sales increased to more than 50 percent of Devon’s total upstream revenues.

Devon’s marketing and midstream operating profit reached \\$121 million in the second quarter of 2013. This result exceeded the company’s guidance and represents a 79 percent increase compared to the second quarter of 2012. The year-over-year increase in operating profit was attributable to improved natural gas prices and higher utilization at the company’s fractionator facility in Mont Belvieu.

The company’s pre-tax expenses totaled USD 1.7 billion in the second quarter of 2013. On a unit of production basis, pre-tax expenses were 1 percent higher than the second quarter of 2012 but were 2 percent lower than the first quarter of 2013. Devon achieved these strong results through its focused cost management efforts offsetting the impact of increasing oil production. In general, oil projects are higher margin, but have higher operating costs than gas projects.

Cash Flow Increases 31 Percent; Devon Repatriates Foreign Cash
Devon generated \\$1.4 billion of cash flow before balance sheet changes in the second quarter of 2013, a 31 percent increase over the year-ago period. During the quarter, the company comfortably funded its total capital program and reduced its debt balances by USD 2.0 billion.

As of June 30, 2013, the company had repatriated USD 2.0 billion of foreign cash to the U.S. at an estimated tax rate of 5 percent. In addition, Devon transferred USD 500 million to Canada on a tax-free basis. The company exited the second quarter with cash and short-term investments totaling USD 4.2 billion and a net debt to adjusted capitalization of 23 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). Adjusted earnings, cash flow before balance sheet changes, net debt, and adjusted capitalization are non-GAAP financial measures referenced within this release. Reconciliations of these non-GAAP measures are provided beginning on page 11.