Devon Energy Corporation reported a net loss of $4 billion for the quarter ended March 31, 2009, or $8.92 per common share ($8.92 per diluted common share). A $4.2 billion non-cash, after-tax reduction in the carrying value of oil and gas properties led to the quarterly net loss. In the first quarter of 2008, Devon reported net earnings of $749 million, or $1.68 per common share ($1.66 per diluted common share).
Devon's first-quarter 2009 financial results were impacted by certain items securities analysts typically exclude from their published estimates. The most significant of these items was a $4.2 billion after-tax reduction in the carrying value of oil and gas properties. Excluding the reduction in carrying value of oil and gas properties and other adjusting items, Devon earned $216 million or 48 cents per diluted common share in the first quarter of 2009.
The non-cash charge resulted from application of the ceiling test as prescribed by the Securities and Exchange Commission (SEC) 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 stream of future net revenues from proved oil and gas properties, discounted at 10 percent per year using costs and prices held flat, plus the cost of unevaluated 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. Full-cost companies 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. Although the SEC recently modified its rules applicable to the ceiling test, the new rules do not take effect until year-end 2009.
Combined oil, gas and natural gas liquids production averaged 685 thousand oil-equivalent barrels (Boe) per day in the first quarter of 2009. This was a seven percent increase in production compared with the first quarter of 2008.
The production growth was concentrated in onshore fields within the United States and Canada.
Although production increased, sales of oil, gas and natural gas liquids decreased 53 percent to $1.5 billion in the first quarter of 2009. Significantly lower prices for all three products more than offset the quarter-over-quarter increase in oil-equivalent production.
Devon's realized price for natural gas decreased 49 percent in the first quarter of 2009, to $3.73 per thousand cubic feet. This compares with $7.31 per thousand cubic feet in the first quarter of 2008. Devon's average realized oil price decreased 62 percent to $33.61 per barrel in the first quarter of 2009 compared with $88.23 per barrel in the prior-year period. Devon's realized natural gas liquids price decreased 61 percent to $18.60 per barrel from $47.40 per barrel in the first quarter of 2008.
Devon drilled 451 wells in the first quarter of 2009 compared with 646 wells it drilled in the first quarter of 2008.
Devon increased its net production from the Barnett Shale field in North Texas to an all-time high of 1.2 billion cubic feet of bas equivalent per day.
