Property sales and to a lesser degree, the recent hurricanes, sent Oklahoma City-based Devon Energy Inc.'s combined oil and natural gas production down from a year ago, but even with the divested assets, high commodity prices lifted net earnings 44%, to $744 million ($1.63/share), compared with $517 million ($1.03) in 3Q2004.
The $744 million in net earnings includes special items which reduced profit by $108 million (24 cents/share). The most significant of these items, changes in the fair value of derivatives, reduced profit by $134 million pre-tax ($86 million after tax). Quarterly earnings also fell by $51 million pre-tax ($34 million after tax) for additional interest costs associated with the early debt redemption.
Worldwide oil, gas and natural gas liquids production in the quarter was 598,000 boe/d, compared with 679,000 boe/d in 3Q2004. Total U.S. gas production fell almost 9%, to 136.6 Bcf from 150 Bcf, and in Canada, gas output was down 5%, to 66.7 Bcf from 70.1 Bcf. Total gas production worldwide was 205.8 Bcf, down from 222.1 Bcf.
Excluding divested assets, Devon reported total U.S. gas production in the quarter was 135.9 Bcf, up from 129.8 Bcf. In Canada, its "retained" properties showed an increase to 66.6 Bcf, from 60.1 Bcf. Worldwide, total gas production for the "retained" properties was 205 Bcf, compared with 191.9 Bcf in 3Q2004.
"We had record earnings in the third quarter, despite the disruptions caused by the Gulf hurricanes," said CEO J. Larry Nichols. "Devon's strong financial results are allowing us to expand our search for new oil and gas reserves in the United States, Canada and abroad. Through the first nine months of 2005 we have invested a record $2.6 billion, enabling us to drill 1,837 wells. This was 20% more wells than we drilled in the first nine months of 2004."
A big part of Devon's 3Q production increases are from the drillbit. Devon drilled 644 productive wells overall in the quarter, with a 98% success rate. Among other things, production began on Devon's 2,000th operated well in the Barnett Shale of North Texas, where it is the largest producer. Devon also completed its third successful well in Matagorda County, TX, which is currently producing 22 MMcf/d. And it continued its drilling programs in two promising gas exploration areas onshore, in the northern Louisiana Bossier play, where it holds 200,000 net areas, and the 70,000 net acres in the Arkoma shale play in eastern Oklahoma.
Oil, gas and natural gas liquids sales increased 24% to $2.3 billion from $1.9 billion a year ago, Devon said. Marketing and midstream operating margins also increased 24% to $111 million, compared with $89 million in 3Q2004. Marketing and midstream revenues decreased 1% to $405 million, while related expenses decreased 8% to $294 million.
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