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Devon's Merger with Ocean Helps Boost '03 Earnings 1,500%

Devon's Merger with Ocean Helps Boost '03 Earnings 1,500%

Top U.S.-based independent Devon Energy Corp.'s earnings and production surged in 2003 on higher commodity prices and its significant acquisition of Ocean Energy, the company said Thursday. Net earnings climbed more than 1,500%, assuring last year as the most profitable in Devon's history.

The Oklahoma City-based company reported 2003 net earnings of $1.7 billion ($8.32/share), compared with 2002's $104 million (61 cents). In the fourth quarter, Devon reported net earnings of $543 million ($2.32/share), compared with $84 million (52 cents) in 4Q2002.

Devon also scored highly in worldwide and domestic production. In the fourth quarter, U.S. natural gas production reached 160.9 Bcf, compared with 117.1 Bcf in 4Q2002. For the year, U.S. gas production also rose, to 589.3 Bcf, compared with 482.2 Bcf. Total gas production worldwide for the quarter was 232.2 Bcf, up from 185 Bcf, while for the year, it reached 863.3 Bcf, compared with 761.1 Bcf in 2002.

The most significant event last year was the merger with Ocean, said the company, and integration of the two companies was "substantially" accomplished by the end of the year. Devon announced the merger a year ago (see Daily GPI, Feb. 25, 2003).

"We hit our production growth targets, and now Devon's oil and gas property base is delivering record volumes at a time when oil, natural gas and natural gas liquids prices are very healthy," said CEO J. Larry Nichols. "Record earnings allowed us to fund our entire $2.5 billion drilling and facilities budget, while generating more than $1 billion for debt retirement."

Combined sales of oil, gas and natural gas liquids increased 78% last year, which Devon attributed to rising production and higher prices. Devon increased production 21% to a record 228 MMboe. The increase came from the Ocean merger as well as growth from development projects in North America, West Africa and China. The average price realized for its 2003 natural gas production increased 61% to $4.51/Mcf, up from $2.80 in 2002. Average realized price for oil increased 18%, while natural gas liquids prices increased 33%.

Estimated proved oil and gas reserves at the end of 2003 were 2,089 MMboe, a 30% increase over year-end 2002 estimated proved reserves of 1,609 MMboe. Devon acquired 556 MMboe in 2003, predominately through its merger with Ocean, and it added another 188 MMboe through discoveries and extensions.

After scrutinizing its proved reserve numbers, Devon revised downward its estimated total reserves by 11 MMboe. Oil and gas produced decreased total proved reserves by 228 MMboe, and Devon also sold non-core properties in 2003 with associated proved reserves of 25 MMboe. Proved reserves, which represented 76% of proved developed reserves in 2003, include 661 million bbl of crude, 7.3 Tcf and 209 million bbl of natural gas liquids. At the end of 2002, Devon's proved developed reserves represented 73% of total proved reserves.

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