UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 001-30176 DEVON ENERGY CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 73-1567067 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 20 N. Broadway, Suite 1500 Oklahoma City, Oklahoma 73102 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (405) 235-3611 Not applicable Former name, former address and former fiscal year, if changed from last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . The number of shares outstanding of Registrant's common stock, par value $.10, as of November 1, 1999, was 80,893,000. 1 of 226 total pages (Exhibit Index is found at page 39)
DEVON ENERGY CORPORATION Index to Form 10-Q Quarterly Report to the Securities and Exchange Commission Page No. Part I. Financial Information Item 1. Consolidated Financial Statements Consolidated Balance Sheets, September 30, 1999 4 (Unaudited) and December 31, 1998 Consolidated Statements of Operations (Unaudited) 5 for the Three Months and Nine Months Ended September 30, 1999 and 1998 Consolidated Statements of Comprehensive 6 Operations (Unaudited) for the Three Months and Nine Months Ended September 30, 1999 and 1998 Consolidated Statements of Cash Flows (Unaudited) 7 for the Nine Months Ended September 30, 1999 and 1998 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of 19 Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures 33 About Market Risk Part II. Other Information Item 4. Submission of Matters to a Vote of 34 Security Holders Item 6. Exhibits and Reports on Form 8-K 35 DEFINITIONS As used in this document: "Mcf" means thousand cubic feet "MMcf" means million cubic feet "Bcf" means billion cubic feet "Bbl" means barrel "MBbls" means thousand barrels "MMBbls" means million barrels "Boe" means equivalent barrels of oil "MBoe" means thousand equivalent barrels of oil "Oil" includes crude oil and condensate "NGLs" means natural gas liquids
DEVON ENERGY CORPORATION Part I. Financial Information Item 1. Consolidated Financial Statements September 30, 1999 and 1998 (Forming a part of Form 10-Q Quarterly Report to the Securities and Exchange Commission)
<TABLE> DEVON ENERGY CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (In Thousands, Except Share Data) <CAPTION> September 30, December 31, 1999 1998 (Unaudited) Assets Current assets: <S> <C> <C> Cash and cash equivalents $ 380,258 19,154 Accounts receivable 187,726 83,858 Inventories 16,849 2,750 Prepaid expenses 11,377 2,351 Deferred income taxes - 605 Investments and other assets 383 1,930 Total current assets 596,593 110,648 Property and equipment, at cost, based on the full cost method of accounting for oil and gas properties 5,561,881 2,610,511 Less accumulated depreciation, depletion and amortization 1,702,266 1,509,583 3,859,615 1,100,928 Investment in Chevron Corporation common stock, at market value 629,453 - Other assets 89,609 14,780 Total assets $5,175,270 1,226,356 Liabilities and stockholders' equity Current liabilities: Current maturities of long-term debt 200,000 - Accounts payable: Trade 117,387 40,177 Revenues and royalties due to others 38,974 12,508 Accrued liabilities 181,171 27,971 Deferred income taxes 3,823 - Total current liabilities 541,355 80,656 Other liabilities 191,044 34,747 Debentures exchangeable into shares of Chevron Corporation common stock 760,313 - Other long-term debt 1,022,727 405,271 Deferred income taxes 691,743 33,219 Company-obligated mandatorily redeemable convertible preferred securities of subsidiary trust holding solely 6.5% convertible junior subordinated debentures of Devon Energy Corporation 149,500 149,500 Stockholders' equity: Preferred stock of $1.00 par value. Authorized 4,500,000 shares; issued 1,500,000 in 1999 and none in 1998 1,500 - Common stock of $.10 par value. Authorized 400,000,000 shares; issued 80,394,000 in 1999 and 48,425,000 in 1998 8,039 4,842 Additional paid-in capital 2,074,731 796,992 Accumulated deficit (205,873) (242,909) Accumulated other comprehensive loss (59,809) (35,962) Total stockholders' equity 1,818,588 522,963 Total liabilities and stockholders' equity $5,175,270 1,226,356 See accompanying notes to consolidated financial statements. </TABLE>
<TABLE> DEVON ENERGY CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (In Thousands, Except Per Share Amounts) <CAPTION> Three Months EndedNine Months Ended September 30, September 30, 1999 1998 1999 1998 (Unaudited) Revenues <S> <C> <C> <C> <C> Oil sales $ 81,778 35,828 146,562 111,401 Gas sales 116,619 50,739 229,557 157,294 Natural gas liquids sales 15,844 3,902 25,608 13,589 Other 5,610 2,401 9,702 15,798 Total revenues 219,851 92,870 411,429 298,082 Costs and expenses Lease operating expenses 45,846 28,119 100,366 85,798 Production taxes 7,051 3,550 13,466 10,816 Depreciation, depletion and amortization 85,477 31,755 154,798 92,913 General and administrative expenses 19,338 5,896 32,513 17,680 Interest expense 21,459 5,507 35,238 16,344 Deferred effect of changes in foreign currency exchange rate on subsidiary's long-term debt (330) 8,512 (9,076) 15,433 Distributions on preferred securities of subsidiary trust 2,429 2,429 7,288 7,288 Reduction of carrying value of oil and gas properties - 126,900 - 126,900 Total costs and expenses 181,270 212,668 334,593 373,172 Earnings (loss) before income tax expense (benefit) 38,581 (119,798) 76,836 (75,090) Income tax expense (benefit) Current 4,573 1,183 8,875 6,514 Deferred 9,556 (37,786) 21,320 (24,807) Total income tax expense (benefit) 14,129 (36,603) 30,195 (18,293) Net earnings (loss) $ 24,452 (83,195) 46,641 (56,797) Net earnings (loss) applicable to common stockholders $ 23,235 (83,195) 45,424 (56,797) Net earnings (loss) per average common share outstanding (Note 5): Basic $0.39 (1.72) 0.87 (1.18) Diluted $0.38 (1.72) 0.86 (1.18) Weighted average common shares outstanding - basic (Note 5) 59,842 48,406 52,372 48,361 See accompanying notes to consolidated financial statements. </TABLE>
<TABLE> DEVON ENERGY CORPORATION AND SUBSIDIARIES Consolidated Statements of Comprehensive Operations (In Thousands) <CAPTION> Three Months EndedNine Months Ended September 30, September 30, 1999 1998 1999 1998 (Unaudited) <S> <C> <C> <C> <C> Net earnings (loss) $ 24,452 (83,195) 46,641 (56,797) Other comprehensive earnings (loss): Foreign currency translation adjustments 183 (4,805) 4,815 (7,909) Unrealized losses on marketable securities, net of tax benefit (28,662) - (28,662) - Comprehensive earnings (loss) $ (4,027) (88,000) 22,794 (64,706) See accompanying notes to consolidated financial statements. </TABLE>
<TABLE> DEVON ENERGY CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (In Thousands) <CAPTION> Nine Months Ended September 30, 1999 1998 (Unaudited) Cash flows from operating activities <S> <C> <C> Net earnings (loss) $ 46,641 (56,797) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation, depletion and amortization 154,798 92,913 Deferred effect of changes in foreign currency exchange rate on subsidiary's long-term debt (9,076) 15,433 (Gain) loss on sale of assets (87) (127) Deferred income taxes (benefit) 21,320 (24,807) Reduction of carrying value of oil and gas properties - 126,900 Other (332) 901 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable (30,099) 16,456 Inventories (1,022) 1,412 Prepaid expenses (1,105) 503 Other assets (1,306) 516 Increase (decrease) in: Accounts payable (13,798) (5,306) Accrued liabilities 28,526 (14,445) Long-term other liabilities (1,869) (1,158) Net cash provided by operating activities 192,591 152,394 Cash flows from investing activities Proceeds from sale of property and equipment 57,524 63,200 Payments made for acquisition of businesses, net of cash acquired (16,588) - Proceeds from sale of investments - 43,641 Capital expenditures (230,531) (248,377) Decrease (increase) in other assets 637 (3,065) Net cash used in investing activities (188,958) (144,601) Cash flows from financing activities Proceeds from borrowings on revolving lines of credit 1,031,291 985,241 Principal payments on revolving lines of credit (1,058,096) (1,030,987) Issuance of common stock, net of issuance costs 391,647 2,440 Dividends paid on common stock (8,388) (4,848) Dividends paid on preferred stock (1,217) - Increase in long-term other liabilities 2,072 5,977 Net cash provided (used) by financing activities 357,309 (42,177) Effect of exchange rate changes on cash 162 (531) Net increase (decrease) in cash and cash equivalents 361,104 (34,915) Cash and cash equivalents at beginning of period 19,154 42,065 Cash and cash equivalents at end of period $ 380,258 7,150 See accompanying notes to consolidated financial statements. </TABLE>
DEVON ENERGY CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Basis of Presentation On December 10, 1998, Devon Energy Corporation ("Devon") and Northstar Energy Corporation ("Northstar") closed a merger of the two companies (the "Northstar Combination"). At that date, Northstar became a wholly-owned subsidiary of Devon. Pursuant to the Northstar Combination, Northstar's common shareholders received approximately 16.1 million exchangeable shares (the "Exchangeable Shares") based on an exchange ratio of 0.235 Exchangeable Shares for each Northstar common share outstanding. The Exchangeable Shares were issued by Northstar, but are exchangeable at any time into Devon's common shares on a one-for- one basis. Prior to such exchange, the Exchangeable Shares have rights identical to those of Devon's common shares, including dividend, voting and liquidation rights. Between December 10, 1998 and September 30, 1999, approximately 11.3 million of the originally issued 16.1 million Exchangeable Shares had been exchanged for shares of Devon common stock. The Northstar Combination was accounted for under the pooling-of-interests method of accounting for business combinations. All operational and financial information contained herein includes the combined amounts of Devon and Northstar for all periods presented. The separate results of operations of Devon and Northstar for the three month and nine month periods ended September 30, 1998 are as follows: <TABLE> <CAPTION> Three Months Nine Months Ended Ended September 30, 1998 September 30, 1998 (In Thousands) Revenues: <S> <C> <C> Devon $ 57,072 184,506 Northstar 35,798 113,576 Combined $ 92,870 298,082 Net earnings (loss): Devon (83,086) (65,329) Northstar (109) 8,532 Combined $ (83,195) (56,797) </TABLE> The accompanying consolidated financial statements and notes thereto have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in Devon's 1998 annual report on Form 10-K. In the opinion of Devon's management, all adjustments (all of which are normal and recurring) have been made which are necessary to fairly state the consolidated financial position of Devon and its subsidiaries as of September 30, 1999, and the results of their operations and their cash flows for the three month and nine month periods ended September 30, 1999 and 1998. 2. PennzEnergy Merger Devon closed its merger with PennzEnergy Company ("PennzEnergy") on August 17, 1999. The merger was accounted for using the purchase method of accounting for business combinations. Accordingly, the accompanying statements of operations for the third quarter and first nine months of 1999 include the effects of PennzEnergy operations for the last half of August and the entire month of September. Devon issued approximately 21.5 million shares of its common stock to the former stockholders of PennzEnergy. In addition, Devon assumed long-term debt and other obligations totaling approximately $2.2 billion on August 17, 1999. The calculation of the total purchase price and the preliminary allocation to assets and liabilities as of August 17, 1999, are shown below. Devon intends to sell in the near future certain of the assets acquired. Generally, the proceeds from such sales will reduce the gross purchase price allocated to oil and gas properties. The following is preliminary and is subject to change as various assumptions are finalized as information is evaluated or determined. <TABLE> <CAPTION> (In Thousands, Except Share Price) Calculation and preliminary allocation of purchase price: Shares of Devon common stock issued to <S> <C> PennzEnergy Stockholders 21,501 Average Devon stock price $33.40 Fair value of common stock issued $ 718,177 Plus preferred stock assumed by Devon 150,000 Plus estimated merger costs to be incurred 71,545 Plus fair value of PennzEnergy employees tock options assumed by Devon 18,295 Less stock registration and issuance costs incurred (4,985) Total purchase price 953,032 Plus fair value of liabilities assumed by Devon: Current liabilities 213,619 Debentures exchangeable into Chevron Corporation common stock 760,313 Other long-term debt 838,792 Other long-term liabilities 155,916 2,921,672 Less fair value of non oil and gas assets acquired by Devon: Current assets 108,164 Non oil and gas properties 17,370 Investment in common stock of Chevron Corporation 676,441 Other assets 73,983 Fair value allocated to oil and gas properties, including $111 million of undeveloped leasehold $2,045,714 </TABLE> In addition to the $2 billion allocated to oil and gas properties as shown in the previous table, $660.7 million was also added to oil and gas properties for deferred taxes created as a result of the merger. Due to the tax-free nature of the merger, Devon's tax basis in the assets acquired and liabilities assumed are the same as PennzEnergy's tax basis. The $660.7 million of deferred taxes recorded represent the deferred tax effect of the difference between the fair values assigned by Devon for financial reporting purposes to the former PennzEnergy assets and liabilities and their bases for income tax purposes. Pro Forma Information Set forth below is certain unaudited pro forma financial information for the nine months ended September 30, 1999 and 1998. This information has been prepared assuming the merger was consummated on January 1, 1998, and is based on estimates and assumptions deemed appropriate by Devon. The pro forma information is presented for illustrative purposes only. If the merger had occurred in the past, Devon's operating results might have been different from those presented in the following table. The pro forma information should not be relied upon as an indication of the operating results that Devon would have achieved if the merger had occurred on January 1, 1998. The pro forma information also should not be used as an indication of the future results that Devon will achieve after the merger. The pro forma information includes the effect of Devon's recent issuance of 10,332,100 shares of common stock as if such shares had been issued on January 1, 1998. (See Note 3 for additional information on this recent issuance of shares of common stock.) The pro forma information assumes that the approximate $402 million of net proceeds from the issuance of common stock was used to retire long-term debt and therefore reduce interest expense. The following should be considered in connection with the pro forma financial information presented: Expected annual cost savings of $50 to $60 million have not been reflected as an adjustment to the historical data in preparing the following pro forma information. These cost savings are expected to result from the consolidation of the corporate headquarters of Devon and PennzEnergy and the elimination of duplicate staff and expenses. The first nine months of 1999's pro forma results include a gain of $46.7 million ($29.8 million after- tax) from PennzEnergy's second quarter sale of land, timber and mineral rights in Pennsylvania and New York. In the 1998 third quarter, PennzEnergy realized pretax gains on the sale and exchange of Chevron Corporation common stock of $203.1 million. This gain is included in the 1998 pro forma financial information below. The pro forma financial information does not include the related $207.0 million after-tax extraordinary loss resulting from the early extinguishment of debt. The 1998 third quarter and year-to-date pro forma results include $20.9 million and $22.9 million, respectively, of nonrecurring general and administrative expenses in connection with the spin-off of Pennzoil-Quaker State Company on December 30, 1998. The 1998 third quarter and year-to-date pro forma results include a reduction of the carrying value of oil and gas properties incurred by Devon. This reduction, which was due to the full cost ceiling limitation, was $126.9 million ($88.0 million after- tax). <TABLE> <CAPTION> Pro Forma Information Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 (Dollars In Thousands, Except Per Share Amounts) Revenues <S> <C> <C> <C> <C> Oil sales $ 113,407 75,031 263,305 238,080 Gas sales 161,747 127,046 425,569 421,095 Natural gas liquids sales 22,997 13,058 51,493 50,725 Other 10,205 244,431 75,859 289,251 Total revenues 308,356 459,566 816,226 999,151 Costs and expenses Lease operating expenses 65,477 75,969 196,473 223,794 Production taxes 9,238 7,046 22,417 21,753 Depreciation, depletion and amortization 136,664 136,403 405,569 432,063 General and administrative expenses 30,101 56,624 87,996 111,160 Interest expense 36,524 35,496 91,667 105,551 Deferred effect of changes in foreign currency exchange rate on subsidiary's long-term debt (330) 8,512 (9,076) 15,433 Distributions on preferred securities of subsidiary trust 2,429 2,429 7,288 7,288 Reduction of carrying value of oil and gas properties - 126,900 - 126,900 Total costs and expenses 280,103 449,379 802,334 1,043,942 Earnings (loss) before income tax expense (benefit) 28,253 10,187 13,892 (44,791) Income tax expense (benefit) Current 4,870 118,421 9,138 118,701 Deferred 5,221 (107,372) (3,767) (132,618) Total income tax expense (benefit) 10,091 11,049 5,371 (13,917) Net earnings (loss) $ 18,162 (862) 8,521 (30,874) Net earnings (loss) applicable to common stockholders $ 15,728 (3,296) 1,219 (34,065) Net earnings (loss) per average common share outstanding - basic and diluted $0.19 (0.04) 0.02 (0.43) Weighted average common shares outstanding - basic 80,728 80,112 80,696 80,031 Production data Oil (MBbls) 6,109 6,648 18,071 19,878 Gas (MMcf) 76,282 73,796 229,734 229,258 NGLs (MBbls) 1,748 1,738 5,019 5,522 Mboe 20,571 20,685 61,379 63,610 </TABLE> 3. Equity Offering In late September and early October, 1999, Devon received $402.7 million from the sale of approximately 10.3 million shares of its common stock in a public offering. On September 27, 1999, Devon sold 9.9 million shares of its common stock in the initial public offering. The price to the public for these shares was $40.50 per share. Net of underwriters' discount and commissions, Devon received $38.98 per share, or $385.9 million. On October 4, 1999, the underwriters exercised their overallotment option for an additional 432,100 shares of Devon common stock. The net proceeds to Devon from this additional offering, at the net price of $38.98 per share, were approximately $16.8 million. Devon expects to pay approximately $0.8 million of expenses related to the equity offering, and these costs have been recorded as reductions of additional paid-in capital as of September 30, 1999. The $402 million of net proceeds from the offering will primarily be used to retire $350 million of long-term debt assumed in the PennzEnergy merger. This debt consists of $200 million that bears interest at 9.625% and matures on November 15, 1999, and $150 million that bears interest at 10.625% and matures on June 1, 2001. The $200 million will be retired at its stated maturity date. Devon called the $150 million for early redemption and retired this debt on October 28, 1999. There were no premiums required for this early redemption. The additional credit available to Devon as a result of the debt reductions will be used primarily for capital expenditures and acquisitions as they occur. The remainder of the equity offering proceeds will be used to retire debt under Devon's U.S. credit facility which totaled $30 million at September 30, 1999. Pending the use of the proceeds to retire the various debt, the proceeds are being invested in short-term investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government. 4. Credit Facilities On October 15, 1999, Devon entered into new unsecured long- term credit facilities aggregating $750 million (the "Credit Facilities"). The Credit Facilities include a U.S. facility of $475 million (the "U.S. Facility") and a Canadian facility of $275 million (the "Canadian Facility"). The Credit Facilities replaced Devon's previous facilities that totaled $400 million. Amounts borrowed under the Credit Facilities bear interest at various fixed rate options that Devon may elect for periods up to six months. Such rates are generally less than the prime rate. Devon may also elect to borrow at the prime rate. The Credit Facilities provide for an annual facility fee of $0.9 million that is payable quarterly. The $475 million U.S. Facility consists of a Tranche A facility of $200 million and a Tranche B facility of $275 million. The Tranche A facility matures on October 15, 2004. Devon may borrow funds under the Tranche B facility until October 13, 2000 (the "Tranche B Revolving Period"). Devon may request that the Tranche B Revolving Period be extended an additional 364 days by notifying the agent bank of such request between 30 and 60 days prior to the end of the Tranche B Revolving Period. Debt borrowed under the Tranche B facility matures two years and one day following the end of the Tranche B Revolving Period. On October 15, 1999, there were no borrowings from the $475 million U.S. Facility. Devon may borrow funds under the $275 million Canadian Facility until October 13, 2000 (the "Canadian Facility Revolving Period"). Devon may request that the Canadian Facility Revolving Period be extended an additional 364 days by notifying the agent bank of such request between 45 and 90 days prior to the end of the Canadian Facility Revolving Period. Debt outstanding as of the end of the Canadian Facility Revolving Period is payable in semi-annual installments of 2.5% each for the following five years, with the final installment due five years and one day following the end of the Canadian Facility Revolving Period. On October 15, 1999, there was $131.3 million borrowed under the $275 million Canadian facility. The agreements governing the Credit Facilities contain certain covenants and restrictions, including a maximum allowed debt-to-capitalization ratio as defined in the agreements. 5. Earnings Per Share The following tables reconcile the net earnings and common shares outstanding used in the calculations of basic and diluted earnings per share for the three month and nine month periods ended September 30, 1999. The diluted loss per share calculations for the three and nine month periods ended September 30, 1998 produced results that were anti-dilutive. These calculations decreased the net loss by $1.5 million and $4.5 million in the three month and nine month periods ended September 30, 1998, respectively, and increased the common shares outstanding by 5.2 million shares in each of such respective periods. Options to purchase approximately 1.5 million shares of Devon's common stock with exercise prices ranging from $40.13 per share to $92.78 per share (with a weighted average price of $62.74 per share) were outstanding at September 30, 1999, but were not included in the computation of diluted earnings per share for the third quarter of 1999 because the options' exercise price exceeded the average market price of Devon's common stock during the third quarter. Similarly, options to purchase approximately 2.7 million shares of Devon's common stock with exercise prices ranging from $35.58 per share to $92.78 per share (with a weighted average price of $51.48 per share) were excluded from the diluted earnings per share calculation for the first nine months of 1999. The excluded options for both the quarter and the nine months period expire between December 10, 1999 and September 30, 2009. <TABLE> <CAPTION> Net Earnings Net Applicable Common Earnings To Common Shares Per Stockholders Outstanding Share (In Thousands) Three Months Ended September 30, 1999: <S> <C> <C> <C> Basic earnings per share $23,235 59,842 $0.39 Dilutive effect of: Potential common shares issuable upon the conversion of Trust Convertible Preferred Securities (the increase in net earnings is net of income tax expense of $963,000) 1,506 4,902 Potential common shares issuable upon the exercise of outstanding stock options - 790 Diluted earnings per share $24,741 65,534 $0.38 Nine Months Ended September 30, 1999: Basic earnings per share $45,424 52,372 $0.87 Dilutive effect of: Potential common shares issuable upon the conversion of Trust Convertible Preferred securities (the increase in net earnings is net of income tax expense of $2,889,000) 4,519 4,902 Potential common shares issuable upon the exercise of outstanding stock options - 553 Diluted earnings per share $49,943 57,827 $0.86 </TABLE> To arrive at net earnings applicable to common stockholders as shown in the previous tables, net earnings are reduced by the amount of dividends on the 6.49% cumulative preferred stock outstanding. Such dividends equal approximately $2.4 million per quarter. This preferred stock was assumed by Devon in the PennzEnergy merger. Therefore, the net earnings for the third quarter and first nine months of 1999 have been reduced by $1.2 million for half of the third quarter's preferred dividend because the merger was closed on August 17, 1999. 6. Segment Information Devon manages its business by country. As such, Devon identifies its segments based on geographic areas. Devon has two reportable segments: its operations in the U.S. and its operations in Canada. Substantially all of both segments' operations involve oil and gas producing activities. Following is certain financial information regarding Devon's segments. The revenues reported are all from external customers. <TABLE> <CAPTION> U.S. Canada Other Total (In Thousands) As of September 30, 1999: <S> <C> <C> <C> <C> Current assets $ 515,919 60,094 20,580 596,593 Property and equipment, net of accumulated depreciation, depletion and amortization 3,076,670 476,100 306,845 3,859,615 Investment in Chevron Corporation common stock 629,453 - - 629,453 Other assets 77,778 899 10,932 89,609 Total assets $4,299,820 537,093 338,357 5,175,270 Current liabilities 473,315 51,926 16,114 541,355 Debentures exchangeable into shares of Chevron Corporation common stock 760,313 - - 760,313 Other long-term debt 668,463 354,264 - 1,022,727 Deferred tax liabilities (assets) 670,403 (8,668) 30,008 691,743 Other liabilities 183,687 3,603 3,754 191,044 TCP Securities 149,500 - - 149,500 Stockholders' equity 1,394,139 135,968 288,481 1,818,588 Total liabilities and stockholders' equity $4,299,820 537,093 338,357 5,175,270 Three Months ended September 30, 1999: Revenues Oil sales $ 57,490 23,276 1,012 81,778 Gas sales 89,406 27,213 - 116,619 Natural gas liquids sales 12,972 2,872 - 15,844 Other 4,383 1,017 210 5,610 Total revenues 164,251 54,378 1,222 219,851 Costs and expenses Lease operating expenses 33,332 12,214 300 45,846 Production taxes 6,684 367 - 7,051 Depreciation, depletion and amortization 68,441 16,982 54 85,477 General and administrative expenses 15,251 2,777 1,310 19,338 Interest expense 15,384 6,091 (16) 21,459 Deferred effect of changes in foreign currency exchange rate on subsidiary's long-term debt - (330) - (330) Distributions on preferred securities of subsidiary trust 2,429 - - 2,429 Total costs and expenses 141,521 38,101 1,648 181,270 Earnings (loss) before income tax expense (benefit) 22,730 16,277 (426) 38,581 Income tax expense (benefit) Current 4,080 493 - 4,573 Deferred 2,853 6,864 (161) 9,556 Total income tax expense (benefit) 6,933 7,357 (161) 14,129 Net earnings (loss) $ 15,797 8,920 (265) 24,452 Capital expenditures $ 56,640 33,996 - 90,636 </TABLE>
6. Segment Information (Continued) <TABLE> <CAPTION> U.S. Canada Other Total (In Thousands) Three months ended September 30, 1998: Revenues <S> <C> <C> <C> <C> Oil sales $ 16,652 19,176 - 35,828 Gas sales 30,351 20,388 - 50,739 Natural gas liquids sales 2,808 1,094 - 3,902 Other 883 1,518 - 2,401 Total revenues 50,694 42,176 - 92,870 Costs and expenses Lease operating expenses 16,360 11,759 - 28,119 Production taxes 3,184 366 - 3,550 Depreciation, depletion and amortization 20,739 11,016 - 31,755 General and administrative expenses 2,758 3,138 - 5,896 Interest expense 133 5,374 - 5,507 Deferred effect of changes in foreign currency exchange rate on subsidiary's long-term debt - 8,512 - 8,512 Distributions on preferred securities of subsidiary trust 2,429 - - 2,429 Reduction of carrying value of oil and gas properties 126,900 - - 126,900 Total costs and expenses 172,503 40,165 - 212,668 Earnings (loss) before income tax expense (benefit) (121,809) 2,011 - (119,798) Income tax expense (benefit) Current 412 771 - 1,183 Deferred (38,177) 391 - (37,786) Total income tax expense (benefit) (37,765) 1,162 - (36,603) Net earnings (loss) $ (84,044) 849 - (83,195) Capital expenditures $ 47,143 29,736 - 76,879 Nine months ended September 30, 1999: Revenues Oil sales $ 91,887 53,663 1,012 146,562 Gas sales 150,015 79,542 - 229,557 Natural gas liquids sales 19,175 6,433 - 25,608 Other 5,761 3,731 210 9,702 Total revenues 266,838 143,369 1,222 411,429 Costs and expenses Lease operating expenses 62,598 37,468 300 100,366 Production taxes 12,441 1,025 - 13,466 Depreciation, depletion and amortization 105,212 49,532 54 154,798 General and administrative expenses 22,209 8,994 1,310 32,513 Interest expense 16,872 18,382 (16) 35,238 Deferred effect of changes in foreign currency exchange rate on subsidiary's long-term debt - (9,076) - (9,076) Distributions on preferred securities of subsidiary trust 7,288 - - 7,288 Total costs and expenses 226,620 106,325 1,648 334,593 Earnings (loss) before income tax expense (benefit) 40,218 37,044 (426) 76,836 Income tax expense (benefit) Current 6,790 2,085 - 8,875 Deferred 5,179 16,302 (161) 21,320 Total income tax expense (benefit) 11,969 18,387 (161) 30,195 Net earnings (loss) $ 28,249 18,657 (265) 46,641 Capital expenditures $ 138,244 92,287 - 230,531 </TABLE>
6. Segment Information (Continued) <TABLE> <CAPTION> U.S. Canada Other Total (In Thousands) Nine months ended September 30, 1998: Revenues <S> <C> <C> <C> <C> Oil sales $ 55,719 55,682 - 111,401 Gas sales 95,429 61,865 - 157,294 Natural gas liquids sales 9,808 3,781 - 13,589 Other 3,185 12,613 - 15,798 Total revenues 164,141 133,941 - 298,082 Costs and expenses Lease operating expenses 49,724 36,074 - 85,798 Production taxes 9,590 1,226 - 10,816 Depreciation, depletion and amortization 61,195 31,718 - 92,913 General and administrative expenses 8,491 9,189 - 17,680 Interest expense 183 16,161 - 16,344 Deferred effect of changes in foreign currency exchange rate on subsidiary's long-term debt - 15,433 - 15,433 Distributions on preferred securities of subsidiary trust 7,288 - - 7,288 Reduction of carrying value of oil and gas properties 126,900 - - 126,900 Total costs and expenses 263,371 109,801 - 373,172 Earnings (loss) before income tax expense (benefit) (99,230) 24,140 - (75,090) Income tax expense (benefit) Current 3,817 2,697 - 6,514 Deferred (34,156) 9,349 - (24,807) Total income tax expense (benefit) (30,339) 12,046 - (18,293) Net earnings (loss) $ (68,891) 12,094 - (56,797) Capital expenditures $ 130,737 117,640 - 248,377 </TABLE> 7. Early Redemption of Trust Convertible Preferred Securities Devon has outstanding $149.5 million of 6.5% Trust Convertible Preferred Securities (the "TCP Securities"). The TCP Securities are convertible into approximately 4.9 million shares of Devon's common stock, which equates to a conversion price of $30.50 per share of Devon common stock. The TCP Securities have a maturity date of June 15, 2026. However, on October 27, 1999, Devon issued notice to the holders of the TCP Securities that it was exercising its right to redeem such securities on November 30, 1999. The redemption price, including a required 4.55% premium, would total $156.3 million if all TCP Securities holders elected to receive the cash redemption price. However, based upon Devon's common stock price of $38.1875 per share as of November 5, 1999, the TCP Securities holders have an economic incentive to elect to convert their securities into shares of Devon common stock instead of receiving the cash redemption price. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion addresses material changes in results of operations for the three month and nine month periods ended September 30, 1999, compared to the three month and nine month periods ended September 30, 1998, and in financial condition since December 31, 1998. It is presumed that readers have read or have access to Devon's 1998 annual report on Form 10-K. Overview On December 10, 1998, Devon merged with Canadian-based Northstar. As a result of accounting for this combination as a "pooling-of-interests," the financial data for all periods presented herein represent the combined results of the two companies. The pooling-of-interests method of accounting requires historical information to be restated as if the combining companies had always been merged. The restated data varies significantly from the historical data Devon previously presented on a stand-alone basis. Devon's net earnings for 1999's third quarter were $24.5 million, compared to a net loss in 1998's third quarter of $83.2 million. The 1999 quarter's net earnings per share were $0.39 per share ($0.38 per share diluted), compared to 1998's quarterly net loss of $1.72 per share. Net earnings for the first nine months of 1999 were $46.6 million, compared to a net loss of $56.8 million for the same period of 1998. The 1999 year-to-date net earnings per share were $0.87 per share ($0.86 per share diluted), compared to a net loss of $1.18 per share for the first nine months of 1998. On August 17, 1999, Devon closed its merger with PennzEnergy Company. Devon issued 21.5 million shares to the former PennzEnergy stockholders and assumed debt and other obligations that brought the total amount of assets acquired to approximately $2.9 billion. The PennzEnergy merger was accounted for using the purchase method of accounting for business combinations. Accordingly, Devon began recognizing additional revenues and expenses from the PennzEnergy operations on August 17, 1999. Even though the PennzEnergy operations affected Devon's third quarter results for only 1 1/2 months, the additional revenues and expenses from such operations were significant in relation to Devon's historical amounts. The effects of the PennzEnergy merger, higher 1999 oil, gas and natural gas liquids ("NGLs") prices and a $126.9 million ($88 million after-tax) full cost writedown in 1998's third quarter were the primary factors behind the third quarter and year-to-date variances between 1999's results and those of the 1998 periods. On September 27 and October 4, 1999, Devon issued an aggregate 10.3 million shares of additional common stock in a public offering. The net proceeds from this issuance were approximately $402 million. These proceeds will be used primarily to retire $350 million of 10% interest bearing long- term debt assumed in the PennzEnergy merger. On October 15, 1999, Devon entered into $750 million of new unsecured long-term credit facilities which replaced its previous $400 million of facilities. As of October 15, 1999, Devon had approximately $619 million of unused borrowing capacity under the new facilities. Results of Operations Total revenues increased $127.0 million, or 137%, in the third quarter of 1999, and $113.3 million, or 38%, in the first nine months of 1999. Oil, gas and NGLs revenues increased $123.8 million, or 137%, for the third quarter of 1999, and $119.4 million, or 42%, for the first nine months of the year. The quarterly and year-to-date comparisons of production and price changes are shown in the following tables. (Note: Unless otherwise stated, all references in this report to dollar amounts regarding Devon's foreign operations are expressed in U.S. dollars.) <TABLE> <CAPTION> Total Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 Change 1999 1998 Change Production <S> <C> <C> <C> <C> <C> <C> Oil (MBbls) 4,324 2,945 +47% 9,395 9,050 +4% Gas (MMcf) 56,010 33,850 +65% 127,412 100,512 +27% NGL (MBbls) 1,142 504 +127% 2,133 1,547 +38% Oil, Gas and NGLs (MBoe) 114,801 9,091 +63% 32,763 27,349 +20% Average Prices Oil (Per Bbl) $18.91 12.17 +55% 15.60 12.31 +27% Gas (Per Mcf) 2.08 1.50 +39% 1.80 1.56 +15% NGL (Per Bbl) 13.87 7.74 +79% 12.01 8.78 +37% Oil, Gas and NGLs <FN> (Per Boe)1 14.47 9.95 +45% 12.26 10.32 +19% <CAPTION> (In Thousands) Revenues Oil $ 81,778 35,828 +128% 146,562 111,401 +32% Gas 116,619 50,739 +130% 229,557 157,294 +46% NGLs 15,844 3,902 +306% 25,608 13,589 +88% Combined $214,241 90,469 +137% 401,727 282,284 +42% <CAPTION> Domestic Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 Change 1999 1998 Change Production Oil (MBbls) 2,812 1,387 +103% 5,342 4,293 +24% Gas (MMcf) 37,233 16,752 +122% 70,527 49,353 +43% NGL (MBbls) 965 342 +182% 1,630 1,074 +52% Oil, Gas and NGLs (MBoe) 19,982 4,522 +121% 18,726 13,593 +38% Average Prices Oil (Per Bbl) $20.44 12.00 +70% 17.20 12.98 +33% Gas (Per Mcf) 2.40 1.81 +33% 2.13 1.93 +10% NGL (Per Bbl) 13.44 8.21 +64% 11.76 9.13 +29% Oil, Gas and NGLs <FN> (Per Boe)1 16.02 11.02 +45% 13.94 11.84 +18% <CAPTION> (In Thousands) Revenues Oil $57,490 16,652 +245% 91,887 55,719 +65% Gas 89,406 30,351 +195% 150,015 95,429 +57% NGLs 12,972 2,808 +362% 19,175 9,808 +96% Combined $159,868 49,811 +221% 261,077 160,956 +62% <CAPTION> Canada Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 Change 1999 1998 Change Production Oil (MBbls) 1,360 1,558 -13% 3,901 4,757 -18% Gas (MMcf) 18,777 17,098 +10% 56,885 51,159 +11% NGL (MBbls) 177 162 +9% 503 473 +6% Oil, Gas and NGLs (MBoe) 14,667 4,569 +2% 13,885 13,756 +1% Average Prices Oil (Per Bbl) $17.11 12.31 +39% 13.76 11.71 +18% Gas (Per Mcf) 1.45 1.19 +22% 1.40 1.21 +16% NGL (Per Bbl) 16.23 6.75 +140% 12.79 7.99 +60% Oil, Gas and NGLs <FN> (Per Boe)1 11.43 8.90 +28% 10.06 8.82 +14% <CAPTION> (In Thousands) Revenues Oil $23,276 19,176 +21% 53,663 55,682 -4% Gas 27,213 20,388 +33% 79,542 61,865 +29% NGLs 2,872 1,094 +163% 6,433 3,781 +70% Combined $53,361 40,658 +31% 139,638 121,328 +15% <FN> 1 Gas volumes are converted to Boe or MBoe at the rate of six Mcf of gas per barrel of oil, based upon the approximate relative energy content of natural gas and oil, which rate is not necessarily indicative of the relationship of oil and gas prices. The respective prices of oil, gas and NGLs are affected by market and other factors in addition to relative energy content. </TABLE> In addition to the volumes included in the prior tables for domestic and Canadian production, Devon also produced 152,000 barrels of oil in the third quarter and first nine months of 1999 in Venezuela. The oil revenues generated by this production were $1.0 million. This production was for the 1 1/2 months following the mid-August PennzEnergy merger closing. Oil Revenues. Oil revenues increased $46.0 million, or 128%, in the third quarter of 1999. An increase in the average price of $6.74 per barrel, or 55%, increased oil revenues by $29.2 million. An increase in production of 1.4 million barrels, or 47%, caused oil revenues to increase by $16.8 million in the 1999 quarter. Approximately 1.8 million barrels of 1999's third quarter oil production were added by the PennzEnergy properties' production for the last 1 1/2 months of the quarter following the closing of the PennzEnergy merger. This additional production was partially offset by a 0.4 million barrel decline from Devon's other properties. Natural decline and the deferral of many oil- related projects earlier in 1999 due to low prices were the primary causes for the decline in these properties' 1999 quarterly production. Oil revenues increased $35.2 million, or 32%, in the first nine months of 1999. Oil revenues increased $30.9 million due to an increase in the average price of $3.29 per barrel, or 27%. An increase in production of 0.4 million barrels, or 4%, caused oil revenues to increase by $4.3 million The 1.8 million barrels of production added by the PennzEnergy merger were partially offset by a 1.4 million barrel decline in production from Devon's other properties. The disposition of certain Canadian producing properties in 1998, the deferral of projects originally scheduled earlier in the year, natural decline, and the effect of some properties that were shut-in earlier in the year due to low prices were the primary reasons for this decline in production. Gas Revenues. Gas revenues increased $65.9 million, or 130%, in the third quarter of 1999. Production rose 22.2 Bcf, or 65%, in the 1999 period. This increase in production added $33.2 million to gas revenues in 1999's third quarter. The remaining $32.7 million of increased gas revenues was caused by an increase in the average gas price of $0.58 per Mcf, or 39%. Devon's San Juan Basin coal seam gas properties produced 6.1 Bcf in 1999's third quarter compared to 4.9 Bcf in the 1998 third quarter. Devon's other domestic properties produced 31.1 Bcf in the 1999 quarter compared to 11.9 Bcf in the 1998 quarter. Production for 1 1/2 months from the PennzEnergy properties accounted for 19.6 Bcf of the 1999 quarter's production increase. Canadian gas production increased 1.7 Bcf, or 10%, in 1999's third quarter. Production added from an acquisition in December 1998 was the primary cause of the increased production in 1999's third quarter. Devon's San Juan Basin coal seam gas properties averaged $1.82 per Mcf in the third quarter of 1999 compared to $1.64 per Mcf in the same quarter of 1998. Other domestic properties averaged $2.52 per Mcf in the 1999 quarter compared to $1.88 per Mcf in the 1998 quarter. Gas revenues increased $72.3 million, or 46%, in the first nine months of 1999. Production rose 26.9 Bcf, or 27%, in the 1999 period. This increase in production added $42.1 million to gas revenues in the 1999 period. Gas revenues were also increased $30.2 million by an increased in the average gas price of $0.24 per Mcf, or 15%, in the first nine months of 1999. Devon's San Juan Basin coal seam gas properties produced 17.4 Bcf in the first nine months of 1999 compared to 15.0 Bcf in the same period of 1998. Devon's other domestic properties produced 53.1 Bcf in the first nine months of 1999 compared to 34.4 Bcf in the first nine months of 1998. Production for 1 1/2 months from the PennzEnergy properties accounted for 19.6 Bcf of the 1999 year-to-date production increase. Canadian gas production increased 5.7 Bcf, or 11%, in the first nine months of 1999. Production from two 1998 acquisitions was the primary cause of the increase in 1999 production. Devon's San Juan Basin coal seam gas properties averaged $1.75 per Mcf in the first nine months of 1999 compared to $1.74 per Mcf in the same period of 1998. Other domestic properties averaged $2.25 per Mcf in the first nine months of 1999 compared to $2.02 per Mcf in the first nine months of 1998. NGLs Revenues. NGLs revenues increased $11.9 million, or 306%, in the third quarter of 1999. An increase in the average price of $6.13 per barrel, or 79%, caused NGLs revenues to increase $7.0 million in the 1999 quarter. An increase in production of 638,000 barrels, or 127%, caused NGLs revenues to increase by $4.9 million in the 1999 quarter. Production for 1 1/2 months from the PennzEnergy properties contributed 577,000 barrels of the 1999 quarterly production. NGLs revenues increased $12.0 million, or 88%, in the first nine months of 1999. An increase in the average price of $3.23 per barrel, or 37%, caused NGLs revenues to increase $6.9 million in the first nine months of 1999. An increase in production of 586,000 barrels, or 38%, caused NGLs revenues to increase by $5.1 million in the year-to-date period. Other Revenues. Other revenues increased $3.2 million, or 134%, in the third quarter of 1999 compared to the same period in 1998. Dividend income of $2.1 million from the investment in Chevron Corporation common stock accounted for most of the increase. This amount represents approximately half of the actual $4.3 million dividend received which was attributable to the period following the August 17, 1999, closing of the PennzEnergy merger. An increase in third party gas processing income of $0.6 million in the 1999 quarter was also a primary contributor to the quarterly increase in other revenues. Other revenues decreased $6.1 million, or 39% in the first nine months of 1999 compared to the first nine months of 1998. The reduction was primarily due to two nonrecurring revenue items recognized in 1998's second quarter. In the second quarter of 1998, Northstar received a one-time payment of $5.0 million from a gas purchaser related to the termination of a gas contract. Also, Northstar received $2.8 million in 1998's second quarter in return for the termination of a management arrangement with a third party. Production and Operating Expenses. The components of production and operating expenses are set forth in the following tables. <TABLE> <CAPTION> Total Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 Change 1999 1998 Change Absolute (Thousands) <S> <C> <C> <C> <C> <C> <C> Recurring operations and maintenance expenses $44,665 27,048 +65% 96,473 81,787 +18% Well workover expenses 1,181 1,071 +10% 3,893 4,011 -3% Production taxes 7,051 3,550 +99% 13,466 10,816 +25% Total production and operating expenses $52,897 31,669 +67% 113,832 96,614 +18% Per Boe Recurring operations and maintenance expenses 3.02 2.97 +2% 2.94 2.99 -2% Well workover expenses 0.08 0.12 -33% 0.12 0.15 -20% Production taxes 0.47 0.39 +21% 0.41 0.39 +5% Total production and operating expenses $3.57 3.48 +3% 3.47 3.53 -2% <CAPTION> Domestic Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 Change 1999 1998 Change Absolute (Thousands) Recurring operations and maintenance expenses $32,317 15,345 +111% 59,615 46,224 +29% Well workover expenses 1,015 1,015 -% 2,983 3,500 -15% Production taxes 6,684 3,184 +110% 12,441 9,590 +30% Total production and operating expenses $40,016 19,544 +105% 75,039 59,314 +27% Per Boe Recurring operations and maintenance expenses 3.24 3.39 -4% 3.18 3.40 -6% Well workover expenses 0.10 0.23 -57% 0.16 0.26 -38% Production taxes 0.67 0.70 -4% 0.67 0.70 -4% Total production and operating expenses $4.01 4.32 -7% 4.01 4.36 -8% <CAPTION> Canada Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 Change 1999 1998 Change Absolute (Thousands) Recurring operations and maintenance expenses $12,048 11,703 +3% 36,558 35,563 +3% Well workover expenses 166 56 +196% 910 511 +78% Production taxes 367 366 -% 1,025 1,226 -16% Total production and operating expenses $12,581 12,125 +4% 38,493 37,300 +3% Per Boe Recurring operations and maintenance expenses 2.58 2.56 +1% 2.63 2.58 +2% Well workover expenses 0.04 0.01 +300% 0.07 0.04 +75% Production taxes 0.08 0.08 -% 0.07 0.09 -22% Total production and operating expenses $2.70 2.65 +2% 2.77 2.71 +2% </TABLE> Recurring operations and maintenance expenses increased $17.6 million, or 65%, in the third quarter of 1999. Domestic expenses increased $17.0 million in the 1999 quarter due to $19.1 million of expenses for 1 1/2 months of the 1999 quarter from the PennzEnergy properties. Other than the added costs from the PennzEnergy properties, Devon's domestic properties' recurring costs declined $2.1 million in the third quarter of 1999. Various efficiencies achieved in certain of Devon's oil producing properties contributed to this cost reduction. Recurring operations and maintenance expenses increased $14.7 million, or 18%, in the first nine months of 1999. Domestic expenses increased $13.4 million in the 1999 period due to $19.1 million of expenses for 1 1/2 months of operations from the PennzEnergy properties. Excluding the costs added by the PennzEnergy properties, Devon's domestic properties' recurring costs declined $5.7 million in the 1999 year-to-date period. The efficiencies referred to in the prior paragraph were the primary contributors to these reductions. Production taxes increased $3.5 million in the third quarter of 1999 and $2.6 million in the first nine months of 1999. The increases in oil, gas and NGLs revenues in these periods were the primary reason for the increased production taxes. In addition to the amounts shown in the prior tables for domestic and Canadian expenses, Devon incurred $0.3 million of recurring operations and maintenance expenses in Venezuela for the third quarter and first nine months of 1999. These expenses, which were at a rate of $1.97 per barrel, were for the 1 1/2 months following the mid-August PennzEnergy merger closing. Depreciation, Depletion and Amortization Expenses ("DD&A"). Oil and gas property related DD&A increased $52.4 million, or 171%, from $30.7 million in the third quarter of 1998 to $83.1 million in the third quarter of 1999. An increase in the combined DD&A rate from $3.38 per Boe in the 1998 quarter to $5.62 per Boe in the 1999 quarter caused oil and gas property related DD&A to increase $33.1 million. The 1999 quarterly DD&A rate of $5.62 per Boe was a blended rate for half of the quarter before the PennzEnergy merger and half of the quarter after the merger. The DD&A rate for the last half of the quarter after the PennzEnergy merger was $6.50 per Boe. DD&A increased $19.3 million in the 1999 quarter due to the 63% increase in combined oil, gas and NGLs production in the 1999 quarter. Oil and gas property related DD&A increased $60.7 million, or 68%, from $89.8 million in the first nine months of 1998 to $150.5 million in the first nine months of 1999. An increase in the combined DD&A rate from $3.28 per Boe in the year-to-date 1998 period to $4.59 per Boe in the year-to-date 1999 period caused oil and gas property related DD&A to increase $42.9 million. DD&A increased $17.8 million in the year-to-date 1999 period due to the 20% increase in combined oil, gas and NGLs production in the first nine months of 1999. General and Administrative Expenses ("G&A"). Devon's G&A consists of three primary components. The largest of these components is the gross amount of expenses incurred for personnel costs, office expenses, professional fees and other G&A items. The gross amount of these expenses is partially reduced by two offsetting components of G&A. One is the amount of G&A capitalized pursuant to the full cost method of accounting. The other is the amount of G&A reimbursed by working interest owners of properties for which Devon serves as the operator. These reimbursements are received during both the drilling and operational stages of a property's life. The gross amount of G&A incurred, less the amounts capitalized and reimbursed, is recorded as G&A in the consolidated statements of operations. G&A increased $13.4 million, or 228%, in the third quarter of 1999 compared to the same quarter of 1998. Approximately $13.7 million of the 1999 quarter's G&A was related to 1 1/2 months of G&A related to the PennzEnergy operations. Included in this amount was $4.4 million of nonrecurring retention bonuses paid to certain PennzEnergy employees as an inducement for them to remain with Devon for two months following the merger closing. Gross G&A increased $18.7 million, or 151%, in the 1999 quarter. The PennzEnergy operations added $17.9 million to the quarter's gross G&A. G&A was reduced $1.8 million in the third quarter of 1999 due to an increase in the amount of reimbursements on operated properties. G&A was also reduced $3.5 million in the third quarter of 1999 due to an increase in the amount capitalized as part of oil and gas properties. The amount capitalized increased from $2.4 million in the third quarter of 1998 to $5.9 million in the third quarter of 1999. G&A increased $14.8 million, or 84%, in the first nine months of 1999. Included in this increase was the $13.7 million of expenses related to the PennzEnergy operations referred to above. Gross G&A increased $19.6 million, or 51%, in the 1999 period. G&A was reduced due to a $0.5 million increase in the amount of reimbursements on operated properties. G&A was also lowered $4.3 million in the first nine months of 1999 due to an increase in the amount capitalized as part of oil and gas properties. The amount capitalized increased from $7.2 million in the first nine months of 1998 to $11.5 million in the first nine months of 1999. Interest Expense. Interest expense increased $16.0 million, or 290%, in 1999's third quarter. An increase in the average debt balance outstanding from $311.4 million in the third quarter of 1998 to $1.2 billion in the third quarter of 1999 caused interest expense to increase by $15.9 million. The average annualized interest rate on outstanding debt was 6.8% in the third quarters of both years. The remaining $0.1 million increase in interest expense was caused by an increase in other components of interest expense such as facility and agency fees and the amortization of capitalized loan costs. Interest expense increased $18.9 million, or 116%, in the first nine months of 1999. An increase in the average debt balance outstanding from $332.1 million in the first nine months of 1998 to $703.9 million in the first nine months of 1999 caused interest expense to increase by $18.3 million. The average annualized interest rate on outstanding debt was 6.5% in the first nine months of both years. The remaining $0.6 million increase in interest expense was caused by an increase in other components of interest expense such as facility and agency fees and the amortization of capitalized loan costs. The increase in average debt outstanding and average interest expense in the third quarter and first nine months of 1999 was attributable to the long-term debt assumed in the PennzEnergy merger on August 17, 1999. At that date, Devon assumed $1.6 billion of long-term debt with a weighted average interest rate of 7.2%. On September 27 and October 4, 1999, Devon received approximately $402 million of net proceeds from the issuance of approximately 10.3 million shares of its common stock. These proceeds will primarily be used to retire $350 million of the assumed PennzEnergy debt that bears interest at approximately 10% per year. This debt consists of $200 million that bears interest at 9.625% and matures on November 15, 1999, and $150 million that bears interest at 10.625% and matures on June 1, 2001. The $200 million will be retired at its stated maturity date. Devon called the $150 million for early redemption and retired this debt on October 28, 1999. There were no premiums required for this early redemption. The additional credit available to Devon as a result of the debt reductions will be used primarily for capital expenditures and acquisitions as they occur. The following schedule includes the components of interest expense for the third quarter and first nine months of 1999 and 1998. <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 (In Thousands) <S> <C> <C> <C> <C> Interest based on debt outstanding $21,186 5,277 34,370 16,075 Facility and agency fees 292 201 591 460 Amortization of capitalized loan costs 81 24 246 69 Hedging gains - - - (188) Other (100) 5 31 (72) Total interest expense $21,459 5,507 35,238 16,344 </TABLE> Deferred Effect of Changes in Foreign Currency Exchange Rate on Subsidiary's Long-term Debt. Devon's Canadian subsidiary Northstar has certain fixed rate senior notes which are denominated in U.S. dollars. The outstanding principal amount of these notes is $225 million. Changes in the exchange rate between the U.S. dollar and the Canadian dollar from the dates the notes were issued to the dates of repayment will increase or decrease the expected amount of Canadian dollars eventually required to repay the notes. Such changes in the Canadian dollar equivalent balance of the debt are required to be included in determining net earnings for the period in which the exchange rate changes. The rate of converting Canadian dollars to U.S. dollars increased from $0.6793 at June 30, 1999, to $0.6803 at September 30, 1999, and from $0.6535 at the end of 1998 to $0.6803 at September 30, 1999. These increases in the exchange rate reduced the Canadian dollar equivalent of debt recorded by Northstar. Therefore, $0.3 million and $9.1 million of reduced expenses were recognized in 1999's third quarter and first nine months, respectively. The rate of converting Canadian dollars to U.S. dollars decreased from $0.6813 at June 30, 1998, to $0.6554 at September 30, 1998, and from $0.6997 at the end of 1997 to $0.6554 at September 30, 1998. These decreases in the exchange rate increased the Canadian dollar equivalent of debt recorded by Northstar during the respective periods. Therefore, $8.5 million and $15.4 million of increased expenses were recognized in 1998's third quarter and first nine months, respectively. Distributions on Preferred Securities of Subsidiary Trust. Devon has $149.5 million of 6.5% Trust Convertible Preferred Securities outstanding. Distributions on these securities accrue and are paid at the rate of 1.625% per quarter. The TCP Securities are convertible into approximately 4.9 million shares of Devon's common stock, which equates to a conversion price of $30.50 per share of Devon common stock. The TCP Securities have a maturity date of June 15, 2026. However, on October 27, 1999, Devon issued notice to the holders of the TCP Securities that it was exercising its right to redeem such securities on November 30, 1999. The redemption price, including a required 4.55% premium, would total $156.3 million if all TCP Securities holders elected to receive the cash redemption price. However, based upon Devon's common stock price of $38.1875 per share as of November 5, 1999, the TCP Securities holders have an economic incentive to elect to convert their securities into shares of Devon common stock instead of receiving the cash redemption price. Reduction of Carrying Value of Oil and Gas Properties. Under the full cost method of accounting, the net book value of oil and gas properties, less related deferred income taxes, may not exceed a calculated "ceiling." The ceiling limitation is the discounted estimated after-tax future revenues from proved oil and gas properties. The ceiling is imposed separately by country. In calculating future net revenues, current prices and costs are generally held constant indefinitely. The net book value, less deferred tax liabilities, is compared to the ceiling on a quarterly and annual basis. Any excess of the net book value, less deferred taxes, above the ceiling is written off as an expense. Due to a reduction in oil and gas prices from the beginning of 1998 to September 30, 1998, Devon's net book value, less deferred taxes, of its domestic oil and gas properties exceeded the September 30, 1998, ceiling by approximately $88 million. Accordingly, the carrying value of Devon's domestic oil and gas properties was reduced by $126.9 million in the third quarter of 1998. This reduction was partially offset by a deferred income tax benefit of $38.9 million, resulting in a net effect of $88 million. Income Taxes. During interim periods, income tax expense is based on the estimated effective income tax rate that is expected for the entire fiscal year. The effective tax rates estimated for the third quarter and first nine months of 1999 were 37% and 39%, respectively. The benefit rates for the losses incurred in the third quarter and first nine months of 1998 were 31% and 24%, respectively. The benefit rates in 1998 were significantly below the federal statutory rate of 35% due to $27.2 million of financial expenses incurred which were not deductible for income tax purposes. The $27.2 million of financial deductions were part of the $126.9 million reduction of carrying value of oil and gas properties recorded in 1998's third quarter. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement 109"), requires that the tax benefit of available tax carryforwards be recorded as an asset to the extent that management assesses the utilization of such carryforwards to be "more likely than not." When the future utilization of some portion of the carryforwards is determined not to be "more likely than not," Statement 109 requires that a valuation allowance be provided to reduce the recorded tax benefits from such assets. Included as deferred tax assets as of September 30, 1999, were approximately $145 million of net operating loss carryforwards. The carryforwards include U.S. federal net operating loss carryforwards, the majority of which do not begin to expire until 2018, U.S. state net operating loss carryforwards which expire primarily between 2000 and 2012, and Canadian carryforwards which expire primarily between 2000 and 2005. Devon expects the tax benefits from the net operating loss carryforwards to be utilized between 1999 and 2007. Such expectation is based upon current estimates of taxable income during this period, considering limitations on the annual utilization of these benefits as set forth by federal tax regulations. Significant changes in such estimates caused by variables such as future oil and gas prices or capital expenditures could alter the timing of the eventual utilization of such carryforwards. There can be no assurance that Devon will generate any specific level of continuing taxable earnings. However, Devon's management believes that future taxable income will more likely than not be sufficient to utilize substantially all its tax carryforwards prior to their expirations. Capital Expenditures, Capital Resources and Liquidity The following discussion of capital expenditures, capital resources and liquidity should be read in conjunction with the consolidated statements of cash flows included in Part 1, Item 1 included elsewhere herein. Capital Expenditures. Approximately $230.5 million was spent in the first nine months of 1999 for capital expenditures. This total included $170.2 million for the acquisition, drilling and development of oil and gas properties, $58.7 million related to the construction of an extensive gas gathering system, related CO2 removal facilities and gas processing project all located in the Powder River Basin of Wyoming, and $1.6 million for other fixed assets. Approximately $248.4 million was spent for capital expenditures in the first nine months of 1998. This total included $246.3 million for the acquisition, drilling and development of oil and gas properties and $2.1 million for other fixed assets. Capital Resources and Liquidity. Net cash provided by operating activities ("operating cash flow") continued to be the primary source of capital and liquidity in the first nine months of 1999. Operating cash flow in the first nine months was $192.6 million, compared to $152.4 million in the first nine months of 1998. For the first nine months of 1999, Devon reduced its borrowings under its credit facilities by approximately $21 million. As of September 30, 1999, Devon had $159.3 million borrowed under its credit facilities. On October 15, 1999, Devon entered into new unsecured long- term credit facilities aggregating $750 million (the "Credit Facilities"). The Credit Facilities include a U.S. facility of $475 million (the "U.S. Facility") and a Canadian facility of $275 million (the "Canadian Facility"). The Credit Facilities replaced Devon's previous facilities that totaled $400 million. Amounts borrowed under the Credit Facilities bear interest at various fixed rate options that Devon may elect for periods up to six months. Such rates are generally less than the prime rate. Devon may also elect to borrow at the prime rate. The Credit Facilities provide for an annual facility fee of $0.9 million that is payable quarterly. The $475 million U.S. Facility consists of a Tranche A facility of $200 million and a Tranche B facility of $275 million. The Tranche A facility matures on October 15, 2004. Devon may borrow funds under the Tranche B facility until October 13, 2000 (the "Tranche B Revolving Period"). Devon may request that the Tranche B Revolving Period be extended an additional 364 days by notifying the agent bank of such request between 30 and 60 days prior to the end of the Tranche B Revolving Period. Debt borrowed under the Tranche B facility matures two years following the end of the Tranche B Revolving Period. On October 15, 1999, there were no borrowings from the $475 million U.S. Facility. Devon may borrow funds under the $275 million Canadian Facility until October 13, 2000 (the "Canadian Facility Revolving Period"). Devon may request that the Canadian Facility Revolving Period be extended an additional 364 days by notifying the agent bank of such request between 45 and 90 days prior to the end of the Canadian Facility Revolving Period. Debt outstanding as of the end of the Canadian Facility Revolving Period is payable in semi-annual installments of 2.5% each for the following five years, with the final installment due five years and one day following the end of the Canadian Facility Revolving Period. On October 15, 1999, there was $131.3 million borrowed under the $275 million Canadian Facility. The agreements governing the Credit Facilities contain certain covenants and restrictions, including a maximum allowed debt-to-capitalization ratio as defined in the agreements. Year 2000 Status. Devon's company-wide Year 2000 Project ("the Project") is proceeding on schedule. The Project is addressing the Year 2000 issue caused by computer programs being written utilizing two digits rather than four to define an applicable year. As a result, Devon's computer equipment, software (all of which is externally developed), and devices with embedded technology that are time sensitive may misinterpret the actual date beginning on January 1, 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, but not limited to, a temporary inability to process transactions. Devon has undertaken various initiatives intended to ensure that its computer equipment and software will function properly with respect to dates in the Year 2000 and thereafter. In planning and developing the Project, Devon has considered both its information technology ("IT") and its non-IT systems. The term "computer equipment and software" includes systems that are commonly thought of as IT systems, including accounting, data processing, telephone systems, scanning equipment, and other miscellaneous systems. Those items not to be considered as IT technology include alarm systems, fax machines, monitors for field operations, or other miscellaneous systems. Both IT and non-IT systems may contain embedded technology, which complicates Devon's Year 2000 identification, assessment, remediation, and testing efforts. Based upon its identification and assessment efforts to date, Devon is in the process of replacing the computer equipment and software it currently uses to become Year 2000 compliant. In addition, in the ordinary course of replacing computer equipment and software, Devon plans to obtain replacements that are in compliance with year 2000. Devon has also mailed letters to its significant vendors and service providers and has verbally communicated with many strategic customers to determine the extent to which interfaces with such entities are vulnerable to Year 2000 issues and whether the products and services purchased from or by such entities are year 2000 compliant. Devon has received an overall favorable response from such third parties and it is anticipated that their significant Year 2000 issues will be addressed on a timely basis. With regard to IT and non-IT systems and communications with third parties, the Project was substantially completed as of September 30, 1999. As noted above, Devon is in the process of replacing certain computer equipment and software because of the Year 2000 issue. Devon estimates that the total cost of such replacements will approximate $1.0 million. Substantially all of the personnel being used on the Project are existing Devon employees. Devon does not separately track the time that its own employees spend on the Project. Therefore, the internal costs incurred on the Project are not known. Such costs would consist almost entirely of the payroll costs associated with the time spent on the Project. Third party consulting costs of Devon's Year 2000 identification, assessment, remediation and testing efforts, as well as currently anticipated costs to be incurred with respect to Year 2000 issues of third parties, are expected to be approximately $0.3 million. Devon has performed a comprehensive analysis of the operational problems and costs that would be reasonably likely to result from the failure by Devon and significant third parties to complete efforts necessary to achieve Year 2000 compliance on a timely basis. Various contingency plans have been developed for dealing with the most reasonably likely worst case scenario. Devon plans to review such analysis and contingency planning, and make any necessary revisions, during November, 1999. Devon presently does not expect to incur significant operational problems due to the Year 2000 issue. However, if all Year 2000 issues are not properly and timely identified, assessed, remediated and tested, there can be no assurances that the Year 2000 issue will not materially impact Devon's results of operations or adversely affect its relationships with customers, vendors, or others. Additionally, there can be no assurance that the Year 2000 issues of other entities will not have a material impact on Devon's systems or results of operations. Impact of Recently Issued Accounting Standards Not Yet Adopted. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain recognition of all derivatives as either assets or liabilities in the balance sheet and measurement of those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and whether it qualifies as a hedge. A subsequent pronouncement, SFAS 137, was issued in July 1999 that delayed the effective date of SFAS 133 until the fiscal year beginning after June 15, 2000. Devon plans to adopt the provisions of SFAS 133 in the first quarter of the year ending December 31, 2001, and is currently evaluating the effects of this pronouncement. Revisions to 1999 Estimates On October 1, 1999, Devon filed a Form 8-K that contained forward-looking estimates for the year 1999 including the effect of the August 17, 1999, PennzEnergy merger. Subsequently, revisions were made in the allocation of the PennzEnergy purchase price and various assumptions regarding the deferred tax effect of the merger. As a result of these revisions in assumptions, the forward-looking information contained in the October 1, 1999, Form 8-K with regard to 1999 depreciation, depletion and amortization expense is no longer applicable and is replaced by the following revised information. The following revised forward-looking statement regarding depreciation, depletion and amortization expense is based on the December 31, 1998 reserve reports of independent petroleum engineers, other data in Devon's possession or available from third parties and actual results for the first nine months of 1999. Devon cautions that its estimated 1999 depreciation, depletion and amortization expense and rates per unit of production are subject to certain risks and uncertainties normally incident to the exploration for and development and production and sale of oil and gas. These risks include, but are not limited to, the uncertainty inherent in estimating future oil and gas production and reserves. Depreciation, Depletion and Amortization ("DD&A") The 1999 oil and gas property DD&A rate will depend on various factors. Most notable among such factors are the amount of proved reserves that could be added from drilling or acquisition efforts in 1999 compared to the costs incurred for such efforts, and the revisions to Devon's 1998 year-end reserve estimates that will be made during 1999. The proved reserves added in the PennzEnergy merger will have a significant effect on Devon's DD&A rate for the last 4 1/2 months of 1999. Devon's consolidated DD&A rate for the first 7 1/2 months of 1999 was $3.78 per Boe. After the PennzEnergy merger, it is estimated that Devon's DD&A rate during the last 4 1/2 months of the year will be between $6.50 and $6.80 per Boe on a consolidated basis. On average for the total year, Devon expects its consolidated DD&A rate will be between $5.20 and $5.50 per Boe. This range of full-year DD&A rates should result in oil and gas property related DD&A expense for 1999 of between $275 million and $295 million. The domestic DD&A rate for the year is expected to be between $6.25 and $6.55 per Boe. Domestic DD&A expense for oil and gas properties for 1999 is expected to be between $210 million and $230 million. The Canadian DD&A rate for the year is expected to be between $3.50 and $3.75 per Boe. Canadian DD&A expense for oil and gas properties for 1999 is expected to be between $64 million and $66 million. Additionally, Devon expects its 1999 non-oil and gas property related DD&A expense to total between $7.5 million and $8.7 million in the U.S. and between $0.6 million and $0.7 million in Canada. Item 3. Quantitative and Qualitative Disclosures About Market Risk The information included in "Quantitative and Qualitative Disclosures About Market Risk" in item 7A of Devon's 1998 Annual Report on Form 10-K is incorporated herein by reference. Such information includes a description of Devon's potential exposure to market risks, including commodity price risk, interest rate risk and foreign currency risk. As of September 30, 1999, there have been no material changes in Devon's market risk exposure from that disclosed in the 1998 Form 10-K except for the acquisition of 7.1 million shares of Chevron Corporation common stock as a result of the PennzEnergy merger. These shares are held for other than trading purposes and are included in Devon's consolidated balance sheet as noncurrent assets at their aggregate market value as of the balance sheet date. As of the August 17, 1999, PennzEnergy merger closing date, the Chevron Corporation common stock acquired by Devon had a market value of approximately $676.4 million. As of September 30, 1999, the fair value of such investment was $629.5 million.
Part II. Other Information Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders (a) Devon held a Special Meeting of Stockholders in Oklahoma City, Oklahoma at 10:00 a.m. local time, on August 17, 1999. (b) Proxies for the meeting were solicited pursuant to Regulation 14 under the Securities and Exchange Act of 1934, as amended. There was no solicitation in opposition to the proposals as listed in the proxy statement and both propo- sals were approved. (c) Out of a total of 48,830,782 shares outstanding and entitled to vote 40,848,189 shares were present at the meeting in person or by proxy, representing approximately 84 percent of the total outstanding. (d) The vote tabulation with respect to the proposal to approve the amended and restated merger agreement dated as of May 19, 1999, between Devon and PennzEnergy Company, and the transactions contemplated by it was 40,802,995 shares for, 19,848 shares against, with 25,346 shares abstaining. (e) The vote tabulation with respect to the proposal to approve a stock option plan amendment which was to increase the number of shares available for grant under the plan from 3,000,000 to 6,000,000 was 37,474,258 shares for, 3,087,685 shares against, with 286,410 shares abstaining. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits required by Item 601 of Regulation S-K are as follows: Exhibit No. 2.2 Amended and Restated Agreement and Plan of Merger among Registrant, Devon Energy Corporation (Oklahoma) (formerly Devon Energy Corporation, an Oklahoma corporation), Devon Oklahoma Corporation and PennzEnergy Company dated as of May 19, 1999 (incorporated by reference to Exhibit 2 to Registrant's Form S-4, File No. 33-82903 and by reference to Exhibit 2.1 to Registrant's Form 8-K filed on August 31, 1999). 3.1 Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit 3 to Registrant's Form 8-K filed on August 18, 1999). 3.2 Registrant's Bylaw (incorporated by reference to Exhibit 3.3 to Registrant's Registration Statement on Form S-4, No. 333-82903 as filed on July 15, 1999). 4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Registrant's Form 8-K filed on August 18, 1999). 4.2 Rights Agreement dated as of August 17, 1999 between Registrant and BankBoston, N.A. (incorporated by reference to Exhibit 4.2 to Registrant's Form 8-K filed on august 18, 1999). 4.3 Certificate of Designations of Series A Junior Participating Preferred Stock of Registrant (incorporated by reference to Exhibit 4.3 to Registrant's Form 8-K filed on August 18, 1999). 4.4 Certificate of Designations of the 6.49% Cumulative Preferred Stock, Series A of Registrant (incorporated by reference to Exhibit 4.4 to Registrant's Form 8-K filed on August 18, 1999). 4.5 Description of Capital Stock (incorporated by reference to Exhibit 4.9 to Registrant's Form 8-K filed on August 18, 1999). 4.6 Second Supplemental Indenture dated as of August 17, 1999 between Registrant, Devon Energy Corporation (Oklahoma) and The Bank of New York (incorporated by reference to Exhibit 4.6 to Registrant's Form 8-K filed on August 18, 1999). 4.7 Fifth Supplemental Indenture dated as of August 17, 1999 to Indenture dated as of December 15, 1992 among Registrant (as successor by Merger to PennzEnergy) and Chase Bank of Texas, National Association (incorporated by reference to Exhibit 4.6 to Registrant's Form 8-K filed on August 18, 1999). 4.8 First Supplemental Indenture dated as of August 17, 1999 to Indenture dated as of February 15, 1986 between Registrant (as successor by Merger to PennzEnergy) and Chase Bank of Texas, National Association (incorporated by reference to Exhibit 4.8 to Registrant's Form 8-K filed on August 18, 1999). 4.9 Amending Voting and Exchange Trust Agreement dated as of August 17, 1999 between Registrant, Devon Energy Corporation (Oklahoma) and Northstar Energy Corporation (incorporated by reference to Exhibit 9 to Registrant's Form 8-K filed on August 18, 1999). 4.10 Amending Support Agreement dated as of August 17, 1999 between Registrant, Devon Energy Corporation (Oklahoma) and Northstar Energy Corporation (incorporated by reference to Exhibit 4.5 to Registrant's Form 8-K filed on August 18, 1999). 10.1 U.S. Credit Agreement, dated October 15, 1999 among the Registrant, as U.S. Borrower, Bank of America, N.A., as Administrative Agent, Bank of America Securities, LLC, as Lead Arranger, Bank One, Texas, N.A., as Syndication Agent, The Chase Manhattan Bank, as Documentation Agent, First Union National Bank, as Co-Documentation Agent, and Certain Financial Institutions, as Lenders. 10.2 Canadian Credit Agreement dated October 15, 1999, among Northstar Energy Corporation and Devon Energy Corporation, as Canadian Borrowers, Bank of America Canada, as Administrative Agent Bank of America Securities, LLC, as Lead Arranger, BancOne Capital Markets, Inc., as Syndication Agent, The Chase Manhattan Bank, as Documentation Agent, First Union National Bank, as Co-Documentation Agent, and Certain Financial Institutions, as Lenders. 10.3 Severance Agreement between Devon Energy Corporation (Nevada), Devon Energy Corporation, Devon Delaware Corporation and Mr. J. Larry Nichols, dated May 19, 1999 * 10.4 Form of Severance Agreement between Devon Energy Corporation (Nevada), Devon Energy Corporation, Devon Delaware Corporation and Messrs. Darryl G. Smette, Duke R. Ligon, H. Allen Turner, William T. Vaughn and Ms. Marian J. Moon, dated May 19, 1999 * * Compensatory plans or arrangements. (b) Reports on Form 8-K -A Current Report on Form 8-K was filed on July 22, 1999, regarding the termination of certain agreements previously entered into with Kerr-McGee Corporation. A Current Report on Form 8-K was filed on August 13, 1999, regarding certain supplemental information to the PennzEnergy merger proxy statement. Current Reports on Form 8-K were filed on August 18, 1999, and August 31, 1999, regarding the closing of the PennzEnergy merger. On September 24, 1999, a Current Report on Form 8-K was filed regarding the underwriting agreement executed in connection with Devon's equity offering. A Current Report on Form 8-K was filed on October 1, 1999, and amended by a Current Report on Form 8-K/A filed on October 5, 1999, regarding revisions to Devon's forward- looking information for the year 1999.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DEVON ENERGY CORPORATION Date: November 8, 1999 /s/Danny J. Heatly Danny J. Heatly Vice President - Accounting Chief Accounting Officer
INDEX TO EXHIBITS Page 2.2 Amended and Restated Agreement and Plan of # Merger among Registrant, Devon Energy Corporation (Oklahoma) (formerly Devon Energy Corporation, an Oklahoma corporation), Devon Oklahoma Corporation and PennzEnergy Company dated as of May 19, 1999 (incorporated by reference to Exhibit 2 to Registrant's Form S-4, File No. 33-82903 and by reference to Exhibit 2.1 to Registrant's Form 8-K filed on August 31, 1999). 3.1 Registrant's Restated Certificate of # Incorporation (incorporated by reference to Exhibit 3 to Registrant's Form 8-K filed on August 18, 1999). 3.2 Registrant's Bylaws (incorporated by reference # to Exhibit 3.3 to Registrant's Registration Statement on Form S-4, No. 333-82903 as filed on July 15, 1999). 4.1 Form of Common Stock Certificate (incorporated # by reference to Exhibit 4.1 to Registrant's Form 8-K filed on August 18, 1999). 4.2 Rights Agreement dated as of August 17, 1999 # between Registrant and BankBoston, N.A. (incorporated by reference to Exhibit 4.2 to Registrant's Form 8-K filed on august 18, 1999). 4.3 Certificate of Designations of Series A Junior # Participating Preferred Stock of Registrant (incorporated by reference to Exhibit 4.3 to Registrant's Form 8-K filed on August 18, 1999). 4.4 Certificate of Designations of the 6.49% # Cumulative Preferred Stock, Series A of Registrant (incorporated by reference to Exhibit 4.4 to Registrant's Form 8-K filed on August 18, 1999). 4.5 Description of Capital Stock (incorporated by # reference to Exhibit 4.9 to Registrant's Form 8-K filed on August 18, 1999). 4.6 Second Supplemental Indenture dated as of # August 17, 1999 between Registrant, Devon Energy Corporation (Oklahoma) and The Bank of New York (incorporated by reference to Exhibit 4.6 to Registrant's Form 8-K filed on August 18, 1999). 4.7 Fifth Supplemental Indenture dated as of # August 17, 1999 to Indenture dated as of December 15, 1992 among Registrant (as successor by Merger to PennzEnergy) and Chase Bank of Texas, National Association (incorporated by reference to Exhibit 4.6 to Registrant's Form 8-K filed on August 18, 1999). 4.8 First Supplemental Indenture dated as of # August 17, 1999 to Indenture dated as of February 15, 1986 between Registrant (as successor by Merger to PennzEnergy) and Chase Bank of Texas, National Association (incorporated by reference to Exhibit 4.8 to Registrant's Form 8-K filed on August 18, 1999). 4.9 Amending Voting and Exchange Trust Agreement # dated as of August 17, 1999 between Registrant, Devon Energy Corporation (Oklahoma) and Northstar Energy Corporation (incorporated by reference to Exhibit 9 to Registrant's Form 8-K filed on August 18, 1999). 4.10 Amending Support Agreement dated as of August # 17, 1999 between Registrant, Devon Energy Corporation (Oklahoma) and Northstar Energy Corporation (incorporated by reference to Exhibit 4.5 to Registrant's Form 8-K filed on August 18, 1999). 10.1 U.S. Credit Agreement, dated October 15, 42 1999 among the Registrant,as U.S. Borrower, Bank of America, N.A., as Administrative Agent, Bank of America Securities, LLC, as Lead Arranger, Bank One, Texas, N.A., as Syndication Agent, The Chase Manhattan Bank, as Documentation Agent, First Union National Bank, as Co-Documentation Agent, and Certain Financial Institutions, as Lenders. 10.2 Canadian Credit Agreement dated October 15, 116 1999, among Northstar Energy Corporation and Devon Energy Corporation, as Canadian Borrowers, Bank of America Canada, as Administrative Agent Bank of America Securities, LLC, as Lead Arranger, BancOne Capital Markets, Inc., as Syndication Agent, The Chase Manhattan Bank, as Documentation Agent, First Union National Bank, as Co- Documentation Agent, and Certain Financial Institutions, as Lenders. 10.3 Severance Agreement between Devon Energy 199 Corporation (Nevada), Devon Energy Corporation, Devon Delaware Corporation and Mr. J. Larry Nichols, dated May 19, 1999 * 10.4 Form of Severance Agreement between Devon 213 Energy Corporation (Nevada), Devon Energy Corporation, Devon Delaware Corporation and Messrs. Darryl G. Smette, Duke R. Ligon, H. Allen Turner, William T. Vaughn and Ms. Marian J. Moon, dated May 19, 1999 * # Incorporated by reference.