Besides its record oil and natural gas production and revenues in 2002, Devon Energy Corp. also could boast Thursday that it pumped up its oil, gas and natural gas liquids (NGL) reserve replacements last year by 278% at a cost of $7.18/boe.

Combined production of oil, gas and NGLs climbed to 188 MMboe in 2002 — the highest production in Devon’s history and 50% more than the 126 MMboe produced in 2001 — driven by the company’s acquisitions of Anderson Exploration in October 2001 and Mitchell Energy & Development Corp. in January 2002.

Sales of oil, gas and NGLs increased 19% to $3.3 billion last year over 2001. Sales were up on higher oil and gas production, partially offset by lower natural gas prices. The average price received for Devon’s 2002 natural gas production decreased 27% to $2.80/Mcf in 2002 from $3.84/Mcf in 2001. The average price received for 2002 oil production increased 1% to $21.71/bbl, from $21.41/bbl in 2001. The average price received for NGLs was $14.05/bbl in 2002, or 17% less than the $16.99 in 2001.

For the fourth quarter of 2002, Devon reported net earnings of $84 million (52 cents/share), compared with a net loss for the same period of 2001 of $518 million (minus $4.13). For the full year 2002, Devon reported net earnings of $104 million (61 cents/share), compared with 2001 net earnings of $103 million (73 cents). Excluding special items, full-year earnings in 2002 were $549 million ($3.41), versus 1001, when net earnings minus the special items were $660 million ($5.09; $4.92/diluted share).

With the Mitchell acquisition, Devon significantly expanded its midstream business, primarily gas transportation and processing. Marketing and midstream revenue increased to $999 million in 2002 from $71 million in 2001. Related marketing and midstream costs were $808 million in 2002 compared to $47 million in 2001, resulting in a $191 million contribution to Devon’s operating margins in 2002, a 696% increase over 2001.

Because of the North American acquisitions, expenses in nearly every category increased in 2002. Lease operating expenses and transportation costs increased 41% from $550 million in 2001 to $775 million in 2002. However, on a unit of production basis, these expenses decreased from $4.37/boe in 2001 to $4.12 during 2002. This is a result of acquiring properties with lower unit operating costs and divesting some higher-cost properties. General and administrative expense increased 92% also last year, while interest expense was up 142%.

Devon’s estimated proved oil and gas reserves as of Dec. 31, 2002, were 1,609 MMboe compared with 1,472 MMboe a year earlier. Devon acquired 405 MMboe in 2002, primarily through the Mitchell acquisition. The company added 142 MMboe through drilling (extensions and discoveries) and produced 188 MMboe. Revisions of prior estimates reduced reserves by 23 MMboe. Most of the revisions were due to higher oil and gas prices.

Estimated proved reserves at the end of last year included 444 million barrels of oil, 5.8 Tcf of gas and 192 million bbl of natural gas liquids. These proved reserves had an estimated pre-tax present value discounted at 10% of $15 billion, compared with an estimated pre-tax present value of $7 billion the year before. The increase, said Devon, reflected larger reserve volumes and higher oil and gas prices at the end of last year.

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