Despite reporting record high second quarter oil and gas production and revenues, Oklahoma City-based Devon Energy Corp. said that lower oil and natural gas prices caused net earnings to fall below year-ago levels. In addition, “sharply lower” gas prices in Canada also resulted in a non-cash full cost ceiling adjustment of $371 million, net of an income tax benefit.

For the 2002 second quarter, Devon reported a net earnings loss of $104 million, or 68 cents per share, compared to a gain of $136 million, or $1.01 per share, for the similar time period in 2001. Net income excluding special one-time items was $144 million or 90 cents per common share (88 cents per diluted common share). This compares to net earnings, excluding special items, of $194 million or $1.48 per common share ($1.43 per diluted common share) in the second quarter of 2001. According to Thomson First Call, industry analysts had expected earnings per share before special items to be in the range of 53 cents to $1.05 a share.

For the first six months of the year, Devon reported net earnings, excluding special items, of $214 million or $1.37 per common share ($1.35 per diluted common share). This compares to net earnings for the six months ended June 30, 2001, excluding special items, of $550 million or $4.22 per common share ($4.06 per diluted common share).

The company reported that its combined production of oil, gas and natural gas liquids reached 50 MMBoe in the second quarter of 2002, marking a 72% increase over production of 29 MMBoe in the second quarter of 2001. The company attributed the sizeable increase in production primarily to the acquisition of Anderson Exploration in October 2001 and Mitchell Energy in January 2002. The company noted that its reported production figures for both periods exclude Indonesian production, which Devon sold in April 2002. Those results have been reclassified as a discontinued operation.

Oil, gas and natural gas liquids sales also increased, jumping 31% to $898 million in the second quarter of 2002 compared to the second quarter of 2001. This was the result of increased production more than offsetting lower product prices. The average price Devon received for its second quarter natural gas production decreased 31% to $2.83/Mcf in 2002 from $4.08/Mcf in 2001. The average price received for natural gas liquids was $13.61 per barrel in the second quarter of 2002, or 31% less than the $19.63 per barrel received in the second quarter of 2001.

With the acquisitions of Anderson and Mitchell, Devon assumed substantially all of the acquired companies’ operations. Consequently, expenses in nearly all expense categories increased in 2002. However, lease operating expenses per barrel of oil equivalent (Boe) produced decreased 11 percent. Lease operating expenses were $3.31 per Boe in the second quarter of 2002 versus $3.74 in 2001. Lower unit operating costs reflect the high quality of the producing properties acquired through the Anderson and Mitchell transactions, Devon said.

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