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| DVN > SEC Filings for DVN > Form 10-Q on 7-Nov-2007 | All Recent SEC Filings |
7-Nov-2007
Quarterly Report
• Net cash provided by operating activities increased $227 million, or 5%, during the first nine months of 2007.
• Production increased 10% to 618 thousand barrels per day for the third quarter of 2007 and increased 12% to 608 thousand barrels per day for the first nine months of 2007.
• Combined realized price for oil, gas and NGLs increased 2% and 1% for the third quarter of 2007 and the first nine months of 2007, respectively.
• Marketing and midstream operating profit increased 19% and 7% during the third quarter of 2007 and the first nine months of 2007, respectively.
• Per unit operating costs increased 15% and 14% for the third quarter and first nine months of 2007, respectively.
• Capital expenditures for oil and gas exploration and development activities were $1.4 billion during the third quarter of 2007 and $4.1 billion during the first nine months of 2007.
On November 14, 2006, we announced our plans to divest our operations in
Egypt. On January 23, 2007, we announced our plans to divest our operations in
West Africa. Pursuant to accounting rules for discontinued operations, we have
classified all 2007 and prior period amounts related to our operations in Egypt
and West Africa as discontinued operations.
On October 4, 2007, we closed the sale of our Egyptian operations and
received proceeds of $341 million. As a result of this sale, we will record an
after-tax gain related to this transaction of approximately $130 million in the
fourth quarter of 2007.
We are finalizing purchase and sales agreements and obtaining the necessary
partner and government approvals for the properties in the West African
divestiture package. We expect to complete these sales during the first half of
2008.
On October 25, 2007, the Alberta government proposed increases to the royalty
rates on oil and natural gas production beginning in 2009. We believe this
proposal would reduce future earnings and cash flows from our oil and gas
properties located in Alberta. Additionally, assuming all other factors are
equal, higher royalty rates would likely result in lower levels of capital
investment in Alberta relative to our other areas of operation. However, the
magnitude of the potential impact, which will depend on the final form of
enacted legislation and other factors which impact the relative expected
economic returns of capital projects, cannot be reasonably estimated at this
time.
A more complete overview and discussion of full-year expectations can be
found in "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" in our 2006 Annual Report on Form 10-K and in our
Current Report on Form 8-K dated November 7, 2007.
Results of Operations
Revenues
The three-month and nine-month comparisons of production and price changes
are shown in the following tables. The amounts for all periods presented exclude
our Egyptian and West African operations. Unless otherwise stated, all dollar
amounts are expressed in U.S. dollars.
Total
Three Months Ended September 30, Nine Months Ended September 30,
2007 2006 Change(2) 2007 2006 Change(2)
Production
Oil (MMBbls) 13 11 +23 % 41 31 +35 %
Gas (Bcf) 223 210 +6 % 637 599 +6 %
NGLs (MMBbls) 7 5 +9 % 19 17 +8 %
Oil, Gas and NGLs
(MMBoe)(1) 57 52 +10 % 166 148 +12 %
Average Prices
Oil (Per Bbl) $ 67.41 63.77 +6 % $ 59.88 59.43 +1 %
Gas (Per Mcf) 5.31 5.63 -6 % 5.95 6.19 -4 %
NGLs (Per Bbl) 38.34 34.98 +10 % 34.31 32.99 +4 %
Oil, Gas and NGLs (Per
Boe)(1) 40.99 40.24 +2 % 41.53 41.23 +1 %
Revenues ($ in millions)
Oil $ 905 696 +30 % $ 2,461 1,806 +36 %
Gas 1,182 1,186 - 3,788 3,709 +2 %
NGLs 242 204 +19 % 643 573 +12 %
Oil, Gas and NGLs $ 2,329 2,086 +12 % $ 6,892 6,088 +13 %
Domestic
Three Months Ended September 30, Nine Months Ended September 30,
2007 2006 Change(2) 2007 2006 Change(2)
Production
Oil (MMBbls) 5 5 +2 % 14 15 -4 %
Gas (Bcf) 164 149 +10 % 465 415 +12 %
NGLs (MMBbls) 6 4 +15 % 16 14 +13 %
Oil, Gas and NGLs
(MMBoe)(1) 38 35 +9 % 107 98 +10 %
Average Prices
Oil (Per Bbl) $ 73.19 68.27 +7 % $ 63.01 64.30 -2 %
Gas (Per Mcf) 5.28 5.73 -8 % 5.88 6.21 -5 %
NGLs (Per Bbl) 36.78 32.41 +13 % 32.68 30.06 +9 %
Oil, Gas and NGLs (Per
Boe)(1) 37.81 38.86 -3 % 38.56 40.34 -4 %
Revenues ($ in millions)
Oil $ 359 328 +9 % $ 898 956 -6 %
Gas 867 856 +1 % 2,733 2,577 +6 %
NGLs 196 151 +30 % 509 414 +23 %
Oil, Gas and NGLs $ 1,422 1,335 +6 % $ 4,140 3,947 +5 %
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Canada
Three Months Ended September 30, Nine Months Ended September 30,
2007 2006 Change(2) 2007 2006 Change(2)
Production
Oil (MMBbls) 4 3 +32 % 12 9 +24 %
Gas (Bcf) 59 61 -5 % 171 183 -7 %
NGLs (MMBbls) 1 1 -16 % 3 3 -12 %
Oil, Gas and NGLs
(MMBoe)(1) 15 14 +2 % 43 43 -1 %
Average Prices
Oil (Per Bbl) $ 53.40 54.85 -3 % $ 48.01 49.06 -2 %
Gas (Per Mcf) 5.40 5.40 - 6.16 6.14 -
NGLs (Per Bbl) 46.77 45.23 +3 % 42.36 44.20 -4 %
Oil, Gas and NGLs (Per
Boe)(1) 39.28 38.34 +2 % 40.33 40.11 +1 %
Revenues ($ in millions)
Oil $ 224 174 +29 % $ 562 463 +21 %
Gas 312 329 -5 % 1,048 1,122 -7 %
NGLs 46 53 -13 % 134 159 -16 %
Oil, Gas and NGLs $ 582 556 +5 % $ 1,744 1,744 -
International
Three Months Ended September 30, Nine Months Ended September 30,
2007 2006 Change(2) 2007 2006 Change(2)
Production
Oil (MMBbls) 4 3 +48 % 15 7 +149 %
Gas (Bcf) - - +74 % 1 1 -19 %
NGLs (MMBbls) - - N/M - - N/M
Oil, Gas and NGLs
(MMBoe)(1) 4 3 +48 % 16 7 +142 %
Average Prices
Oil (Per Bbl) $ 74.43 66.00 +13 % $ 66.10 63.59 +4 %
Gas (Per Mcf) 6.61 5.11 +29 % 5.73 6.34 -10 %
NGLs (Per Bbl) - - N/M - - N/M
Oil, Gas and NGLs (Per
Boe)(1) 73.77 65.42 +13 % 65.66 62.53 +5 %
Revenues ($ in millions)
Oil $ 322 194 +67 % $ 1,001 387 +159 %
Gas 3 1 +125 % 7 10 -26 %
NGLs - - N/M - - N/M
Oil, Gas and NGLs $ 325 195 +67 % $ 1,008 397 +154 %
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(1) Gas volumes are converted to Boe or MMBoe at the rate of six Mcf of gas per barrel of oil, based upon the approximate relative energy content of natural gas and oil, which rate is not necessarily indicative of the relationship of oil and gas prices. NGL volumes are converted to Boe on a one-to-one basis with oil.
(2) All percentage changes included in this table are based on actual figures and are not calculated using the rounded figures included in this table.
N/M Not meaningful.
The following tables include the effect of our financial hedging activities for the three months and nine months ended September 30, 2007 and 2006, respectively.
Three Months Nine Months
Ended September 30, 2007 Ended September 30, 2007
With Without With Without
Hedges Hedges Hedges Hedges
Oil (per Bbl) $ 67.41 67.41 59.88 59.88
Gas (per Mcf) $ 5.31 (1) 5.28 5.95 (1) 5.94
NGLs (per Bbl) $ 38.34 38.34 34.31 34.31
Oil, Gas and NGLs (per Boe) $ 40.99 40.86 41.53 41.52
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(1) The average gas sales price with the effect of hedges includes both the effect due to unrealized losses and the effect due to cash settlements on our hedging contracts. Excluding an unrealized loss of $6 million for the three months ended September 30, 2007 and an unrealized loss of $30 million for the nine months ended September 30, 2007, our average realized gas sales price would have been $5.34 and $6.00, respectively.
Three Months Nine Months
Ended September 30, 2006 Ended September 30, 2006
With Without With Without
Hedges Hedges Hedges Hedges
Oil (per Bbl) $ 63.77 63.77 59.43 59.43
Gas (per Mcf) $ 5.63 (1) 5.61 6.19 (1) 6.18
NGLs (per Bbl) $ 34.98 34.98 32.99 32.99
Oil, Gas and NGLs (per Boe) $ 40.24 40.14 41.23 41.19
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(1) The average gas sales price with the effect of hedges includes both the effect due to unrealized gains and the effect due to cash settlements on our hedging contracts. Excluding an unrealized gain of $5 million for both the three months and nine months ended September 30, 2006, our average realized gas sales price would have been $5.61 and $6.18, respectively.
The following tables summarize the changes in our oil, gas and NGL revenues between the three months ended September 30, 2007 and 2006 and the nine months ended September 30, 2007 and 2006.
Three Months Ended September 30, 2007
Oil Gas NGL Total
(In millions)
2006 revenues $ 696 1,186 204 2,086
Changes due to volumes 160 67 18 245
Changes due to prices 49 (60 ) 20 9
Changes due to unrealized hedge losses - (11 ) - (11 )
2007 revenues $ 905 1,182 242 2,329
Nine Months Ended September 30, 2007
Oil Gas NGL Total
(In millions)
2006 revenues $ 1,806 3,709 573 6,088
Changes due to volumes 637 230 46 913
Changes due to prices 18 (116 ) 24 (74 )
Changes due to unrealized hedge losses - (35 ) - (35 )
2007 revenues $ 2,461 3,788 643 6,892
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Oil Revenues
Production increases of 23% and 35% in the third quarter of 2007 and first
nine months of 2007 were the primary causes of our increased oil revenues in
these periods. The increased 2007 production was primarily from our properties
in Azerbaijan where we achieved payout of certain carried interests in the last
half of 2006. The remainder of the 2007 increases were primarily related to
increased production from our Lloydminster area in Canada.
Gas Revenues
A 13 Bcf increase in production caused gas revenues to increase by
$67 million during the third quarter of 2007. Our drilling and development
program in the Barnett Shale field in north Texas contributed 17 Bcf to the gas
production increase. This increase and the effect of new drilling and
development in our other North American properties were partially offset by
natural production declines.
A 38 Bcf increase in production caused gas revenues to increase by
$230 million during the first nine months of 2007. Our drilling and development
program in the Barnett Shale field in north Texas contributed 36 Bcf to the gas
production increase. The June 2006 Chief Holdings LLC ("Chief") acquisition also
contributed 12 Bcf of increased production. These increases and the effect of
new drilling and development in our other North American properties were
partially offset by natural production declines.
Marketing and Midstream Revenues and Operating Costs and Expenses
The following table details the changes in our marketing and midstream
revenues and operating costs and expenses between the three months ended
September 30, 2007 and 2006 and the nine months ended September 30, 2007 and
2006. The changes due to prices in the table represent the effect on both
revenues and expenses due to changes in the market prices for natural gas and
NGLs.
Three Months Nine Months
Ended September 30, Ended September 30,
Revenues Expenses Revenues Expenses
2006 marketing and midstream $ 413 301 1,261 924
Changes due to volumes 30 6 41 33
Changes due to prices (9 ) (6 ) (30 ) (45 )
Other - - 1 -
2007 marketing and midstream $ 434 301 1,273 912
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Volume increases in our third-party crude oil and NGL marketing activities caused both revenues and expenses to increase in the third quarter of 2007 and first nine months of 2007. Lower natural gas prices partially offset by higher NGL prices caused revenues and expenses to decrease in the third quarter of 2007 and the first nine months of 2007.
Oil, Gas and NGL Production and Operating Expenses The three-month and nine-month comparisons of oil, gas and NGL production and operating expenses are shown in the table below.
Three Months Nine Months
Ended September 30, Ended September 30,
2007 2006 Change(1) 2007 2006 Change(1)
Production and operating
expenses ($ in
millions):
Lease operating expenses $ 457 363 +26 % $ 1,326 1,036 +28 %
Production taxes 85 92 -8 % 255 261 -2 %
Total production and
operating expenses $ 542 455 +19 % $ 1,581 1,297 +22 %
Production and operating
expenses per Boe:
Lease operating expenses $ 8.04 7.01 +15 % $ 7.99 7.02 +14 %
Production taxes 1.49 1.77 -16 % 1.54 1.77 -13 %
Total production and
operating expenses per
Boe $ 9.53 8.78 +9 % $ 9.53 8.79 +8 %
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(1) All percentage changes included in this table are based on actual figures and are not calculated using the rounded figures included in this table.
Lease operating expenses increased $94 million and $290 million in the third
quarter of 2007 and the first nine months of 2007 largely due to the continued
effects of higher commodity prices. Commodity price increases in 2005 and the
first nine months of 2006 contributed to industry-wide inflationary pressures on
materials and personnel costs. Although commodity prices have somewhat
stabilized compared to the first nine months of 2006, demand for materials,
equipment and personnel continued to increase subsequent to September 30, 2006.
In addition, consideration of continued higher commodity prices contributed to
our decision to perform more well workovers and maintenance projects in 2007 to
maintain or improve production volumes.
Lease operating expenses also increased $16 million and $77 million in the
third quarter of 2007 and the first nine months ended 2007, respectively, as a
result of payouts of our carried interests in Azerbaijan in the last half of
2006. The June 2006 Chief acquisition also increased our lease operating
expenses by $15 million in the first nine months ended 2007. Our 10% and 12%
production growth in the third quarter and the first nine months of 2007,
respectively, were also key contributors to the increase in our lease operating
expenses. Furthermore, changes in the exchange rate between the U.S. and
Canadian dollar also caused lease operating expenses to increase $12 million and
$13 million in the third quarter of 2007 and the first nine months of 2007,
respectively.
The following table details the changes in production taxes between the three
months ended September 30, 2007 and 2006 and the nine months ended September 30,
2007 and 2006.
Three Months Nine Months
Ended September 30, Ended September 30,
(In millions)
2006 production taxes $ 92 261
Change due to revenues 11 35
Change due to rate (18 ) (41 )
2007 production taxes $ 85 255
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Our lower production tax rates in 2007 are primarily due to the increase in Azerbaijan revenues subsequent to the payouts of our carried interests in Azerbaijan in the last half of 2006. Our Azerbaijan revenues are not subject to production taxes. Therefore, the increased revenues generated in Azerbaijan in 2007 caused our overall rate of production taxes to decrease.
Depreciation, Depletion and Amortization Expenses ("DD&A") The following table details the changes in DD&A of oil and gas properties between the three months ended September 30, 2007 and 2006 and the nine months ended September 30, 2007 and 2006.
Three Months Nine Months
Ended September 30, Ended September 30,
(In millions)
2006 DD&A $ 547 1,480
Change due to volumes 53 184
Change due to rate 105 273
2007 DD&A $ 705 1,937
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Oil and gas property related DD&A increased $105 million in the third quarter of 2007 due to an increase in the DD&A rate from $10.55 per Boe to $12.41 per Boe. Oil and gas property related DD&A increased $273 million in the first nine months of 2007 due to an increase in the DD&A rate from $10.03 per Boe to $11.67 per Boe. The largest contributor to the rate increases were inflationary pressure on both the costs incurred during 2006 and 2007 as well as the estimated development costs to be spent in future periods on proved undeveloped reserves. Rising estimates for future asset retirement obligations also caused the rate to increase. Other factors contributing to the rate increase include the transfer of previously unproved costs to the depletable base as a result of drilling activities subsequent to September 30, 2006 and the effects of changes in the exchange rate between the U.S. and Canadian dollar. General and Administrative Expenses ("G&A") The following schedule includes the components of G&A expense for the three months ended September 30, 2007 and 2006 and the nine months ended September 30, 2007 and 2006.
Three Months Nine Months
Ended September 30, Ended September 30,
2007 2006 2007 2006
(In millions)
Gross G&A $ 239 190 673 526
Capitalized G&A (84 ) (59 ) (230 ) (162 )
Reimbursed G&A (29 ) (27 ) (85 ) (80 )
Net G&A $ 126 104 358 284
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Gross G&A increased $49 million and $147 million in the third quarter and first nine months of 2007, respectively, compared to the same periods of 2006. . . .
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