EARNINGS / Devon Energy Reports 1998 Financial Results and Year-End Reserves
OKLAHOMA CITY, Jan. 27 /CNW/ - Devon Energy Corporation (Amex: DVN,
Toronto: NSX) today reported a net loss for the year ended December 31, 1998
of $60.3 million, or $1.25 per share. Record oil and gas production was offset
by the effects of lower oil and gas prices. In addition to reducing total
revenues, the decline in oil and gas prices resulted in an $88 million
after-tax, non-cash ceiling adjustment charge. Excluding the ceiling
adjustment and certain unusual charges, Devon had net earnings of $48.2
million, or $1.00 per share for 1998.
The $60.3 million loss compares to a net loss of $300 million in 1997,
which included a $398 million after-tax full cost ceiling adjustment.
Excluding the full cost ceiling adjustment and other unusual charges in 1997,
Devon had net earnings of $101.2 million, or $2.15 per share.
For the fourth quarter ended December 31, 1998, Devon reported a net loss
of $3.5 million, or seven cents per share. Excluding $13.1 million of costs
attributable to the merger with Northstar Energy Corporation and $0.7 million
of foreign exchange losses, fourth quarter 1998 net earnings were $8.5
million, or 18 cents per share. In the fourth quarter of 1997, Devon reported
a net loss of $374 million, or $7.75 per share. The 1997 quarter included a
$398 million after-tax full cost ceiling adjustment to the book value of the
company's Canadian oil and gas properties and $5.5 million of foreign exchange
losses. The 1997 ceiling adjustment resulted from Northstar's application of
the full cost ''ceiling test'' required under U.S. accounting principles.
Excluding the ceiling adjustment and foreign exchange losses, in the 1997
fourth quarter Devon earned $26.9 million, or 56 cents per share.
As a result of accounting for the 1998 merger as a
''pooling-of-interests,'' financial statements for all periods presented
represent the financial results of Devon and Northstar combined. The
pooling-of-interests method of accounting requires all historical financial
statements to be restated as if the combining companies had always been
merged.
Eleventh Consecutive Production Record Set, but Revenues Decline
Devon increased total 1998 production of oil, gas and natural gas liquids
by six percent, to 36.0 million barrels of oil equivalent. This marks Devon's
eleventh consecutive record for total annual production. A nine percent
increase in natural gas production was supplemented by a slight increase in
oil and natural gas liquids production. The production increase was driven by
wells drilled and purchased during the last 12 months and by mechanical
improvements made on certain gas-producing properties.
Despite record production, Devon's sales of oil, gas and natural gas
liquids decreased 18 percent to $369.7 million in 1998. The decrease was due
primarily to lower oil, gas and natural gas liquids prices. The average price
the company received for its 1998 oil production fell 32 percent, from $17.63
per barrel in 1997 to $12.07 per barrel in 1998. The average price received
for the company's 1998 gas production decreased 13 percent, from $1.80 per
thousand cubic feet in 1997 to $1.57 per thousand cubic feet in 1998. Devon's
natural gas liquids price declined 35 percent in the most recent year, from
$13.18 per barrel in 1997 to $8.61 per barrel in 1998.
SEC ''Ceiling Test'' Results in Non-cash Charges
The non-cash full cost ceiling adjustments in 1997 and 1998 resulted from
the application of the ''ceiling test'' as prescribed by the Securities and
Exchange Commission for companies that follow the ''full cost'' method of
accounting. Under the full cost method of accounting, a company's net book
value of its oil and gas properties, less related deferred income taxes, may
not exceed a calculated ''ceiling''. The test is performed separately for each
country in which the company operates. The ceiling is the estimated after-tax
future net revenues, discounted at 10 percent per year, from proved oil and
gas properties. Any excess is written off as a non-cash expense. The expense
may not be reversed in future periods, even though higher oil and gas prices
may subsequently increase the ceiling. A company must use the prices in effect
at the end of each accounting quarter to calculate the ceiling value of
reserves. Future net revenues are calculated assuming continuation of prices
and costs in effect at the time of the calculation, except for changes that
are fixed and determinable by existing contracts.
Other Pre-tax Expenses Decline
Pre-tax expenses other than the ceiling adjustments decreased $11.6
million in 1998. Depreciation, depletion and amortization expense (DD&A)
decreased $45.3 million. This was partially offset by the effects of changes
in currency rates, the costs of the 1998 merger, higher interest expense and
an increase in production and operating expenses.
DD&A expense decreased $45.3 million during 1998 to $123.8 million. The
reduction was due to a lower DD&A rate in 1998, partially offset by higher
total production for the year. The decline in Devon's DD&A rate for 1998 was
primarily attributable to the full cost ceiling adjustment taken in the fourth
quarter of 1997.
Expense from the deferred effects of changes in foreign currency rates on
long-term debt increased $10.2 million in 1998, to $16.1 million. This
non-cash expense reflects the increase in the amount of Canadian dollars that
would be required to repay Northstar's U.S. dollar denominated debt over the
life of the loans, based on the year-end exchange rate.
Results for 1998 include $13.1 million of Northstar combination costs.
These are non-recurring expenses including professional and advisory fees,
registration and listing fees and printing costs related to the company's 1998
merger with Northstar.
Total production and operating expenses increased $7.3 million in 1998,
to $127.4 million. This increase was due to the costs associated with new
wells added during 1997 and 1998, partially offset by a reduction in
production taxes. Production taxes declined due primarily to lower oil, gas
and natural gas liquids prices in 1998.
Interest expense increased $3.8 million in 1998, to $22.6 million. This
increase was due to higher average outstanding debt balances and higher
overall interest rates in 1998.
Devon recognized a $15.5 million income tax benefit during 1998. A $23.2
million deferred tax benefit was partially offset by $7.7 million of currently
payable income taxes. The deferred tax benefit was a result of the pre-tax
loss reported for 1998.
Year-end 1998 Reserve Estimates
Devon's year-end 1998 reserves were estimated to be 1.2 trillion cubic
feet of gas, 83.5 million barrels of oil and 16.1 million barrels of natural
gas liquids. Converted at 6:1 gas-to-oil ratio, the year-end reserves totaled
299.4 million barrels of oil equivalent (MMBoe). Some 264.4 MMBoe, or 88
percent of Devon's year-end 1998 reserves are classified as proved developed.
Devon's year-end 1998 reserves had an estimated pre-tax 10 percent
present value of $1.0 billion. This compares to an estimated pre-tax 10
percent present value of $1.3 billion in the previous year. The after tax
present value (Standardized Measure) was $932 million at year-end 1998
compared to $1.1 billion at year-end 1997. The decrease in the 1998 present
value was due primarily to lower year-end oil and gas prices for 1998. These
figures were computed using Securities and Exchange Commission guidelines;
that is, an essentially unescalated or ''flat'' oil and gas price case based
on year-end prices. Devon's year-end 1998 prices averaged $9.89 per barrel of
oil, $1.70 per thousand cubic feet of gas and $7.25 per barrel of natural gas
liquids. This compares to year-end 1997 average prices of $16.22 per barrel of
oil, $1.64 per thousand cubic feet of gas and $13.32 per barrel of natural gas
liquids.
Drilling (extensions and discoveries) contributed 21.8 MMBoe of reserves
during 1998. Proved property acquisitions contributed an additional 33.4
MMBoe. These increases were partially offset by divestitures of 8.2 MMBoe and
downward revisions of prior estimates totaling 17.6 MMBoe. A significant
portion of these revisions were due to the lower prices assumed in the
year-end 1998 reserve report, which shortened the economic life of certain
properties.
Financial Condition Remains Strong
Devon's cash margin (revenues less cash expenses) totaled $183.4 million
in 1998. With significant cash margins, $1.2 billion in total assets, $30
million in working capital and several hundred million dollars in unused
credit capacity, Devon continues to maintain a high degree of financial
liquidity.
Devon Energy Corporation is an independent energy company engaged in oil
and gas property acquisition, exploration and production. It is one of the top
15 public independent oil and gas companies in the United States and Canada,
as measured by oil and gas reserves. Devon's Canadian operations are conducted
by its subsidiary, Northstar Energy Corporation. Devon's common shares trade
on the American Stock Exchange and Toronto Stock Exchange under the symbols
DVN and NSX, respectively.
DEVON ENERGY CORPORATION
INCOME STATEMENT DATA(x) (US$)
(in thousands, except per share and % change data)
Year Ended December 31, Quarter Ended December 31,
1998 1997 % Change 1998 1997 % Change
(unaudited)
Oil sales $143,624 $207,725 -31% $32,223 $53,852 -40%
Gas sales 209,344 219,459 -5% 52,050 67,588 -23%
Natural gas
liquids sales 16,692 24,920 -33% 3,103 7,006 -56%
Other 17,848 47,555 -62% 2,050 4,817 -57%
Total revenues $387,508 $499,659 -22% $89,426 $133,263 -33%
Net loss $(60,285) $(299,991) -80% $(3,488)$(374,032) -99%
Net loss
per common share
Basic and Diluted $(1.25) $(6.38) -80% $(0.07) $(7.75) -99%
Weighted average
common shares
outstanding
Basic 48,376 47,040 3% 48,419 48,262 --%
BALANCE SHEET DATA(x) (US$)
(in thousands, except % change data)
December 31, December 31,
1998 1997 % Change
Total assets $1,226,356 $1,248,986 -2%
Long-term debt $405,271 $305,337 33%
Trust convertible
preferred securities $149,500 $149,500 --%
Stockholders' equity $522,963 $596,546 -12%
Working capital $29,992 $76,943 -61%
Common shares
outstanding 48,425 48,290 --%
RESERVE ESTIMATE DATA(x)
December 31, 1998 December 31, 1997
U.S. Canada Total U.S. Canada Total
Oil (MMBbls) 44.5 39.0 83.5 60.9 36.1 97.0
Gas (Bcf) 597.0 601.9 1,198.9 567.8 582.8 1,150.6
Natural gas
liquids (MMBbls) 11.5 4.6 16.1 12.1 5.1 17.2
Equivalent
barrels (MMBoe)(A)155.5 143.9 299.4 167.6 138.4 306.0
10% Present
Worth 546.1 462.9 1,009.0 820.4 520.2 1,340.6
(US$ Millions)
% Change
U.S. Canada Total
Oil (MMBbls) -27% 8% -14%
Gas (Bcf) 5% 3% 4%
Natural gas
liquids (MMBbls) -5% -10% -6%
Equivalent
barrels (MMBoe)(A) -7% 4% -2%
10% Present
Worth -33% -11% -25%
(US$ Millions)
(x) Represents the results of Devon and Northstar combined in accordance
with the pooling-of-interests method of accounting.
(A) Gas converted to oil equivalent at the ratio of 6 Mcf : 1 Bbl. |
