Devon Energy reports largest loss in its history
By KRISTEN HAYS Copyright 2009 Houston Chronicle
Feb. 4, 2009, 12:11PM

Devon Energy took a $6.8 billion hit on the value of its oil and natural gas properties in the last three months of 2008 because of the plunge in oil and gas prices from triple-digit highs.

The Oklahoma City-based independent explorer and producer recorded a net quarterly loss of $6.8 billion, or $15.42 per share, compared to a profit of $1.3 billion, or $2.92 per share, because it had to write down book values of assets based on year-end prices under Securities and Exchange Commission rules.

The SEC recently approved changes to those rules which will allow companies to value their assets based on average annual prices rather than the closing price on the final trading day of the year, but the change doesn't take effect until the end of this year. Oil closed at $44.60 a barrel on Dec. 31, while the 2008 average price was about $99 a barrel because crude was in triple digits for the first nine months of 2008.

Because of the rule, Devon's results reflected a noncash charge of $7.1 billion for the writedowns.

Excluding those writedowns, Devon earned $297 million, or 67 cents per share, in the quarter, far below Wall Street expectations of $1.08 per share. Devon shares fell $2.83, or 4.5 percent, to $59.08 in midday trading today on the New York Stock Exchange.

“Three months ago, we recorded the largest quarterly earnings in our history. Now we recorded our largest-ever quarterly loss,” Larry Nichols, Devon’s chairman and CEO, told analysts today. “It’s important to remember that Devon’s underlying assets have not been diminished one iota.”

Had the new SEC rule been in effect, “we would not have announced any writedown at all,” he said.

Annual results also reflected the writedowns. Including them, reported a net loss of $2.1 billion, or $4.85 per share. Excluding those items, the company earned $4.4 billion, or $9.91 per share, in 2008.

Nichols also told analysts that Devon is slashing its capital spending by more than half this year in accordance with the most severe recession in decades. He said Devon is budgeting $3.5 billion to $4.1 billion, compared to $9 billion spent last year. The reduced spending reflects oil prices of $45 a barrel and gas at $5.50 per thousand cubic feet, Nichols said.

The pullback largely reflects reduced onshore drilling while Devon moves forward with long-term projects in the deepwater Gulf of Mexico, offshore Brazil and Canada’s oil sands.

“We will continue activity at a rate that will keep us in the game, but at a far lower level than in 2008,” he said.

Devon is the nation’s largest independent, which focuses on exploration and production and lacks refining operations that larger integrated oil majors have.

A slew of other independents last year announced significant 2009 spending reductions, but Devon and Houston-based Anadarko Petroleum held off. Anadarko will announce 2009 capital spending next week.

Apache doesn’t typically publish a full-year budget, but announces quarter by quarter. The company, which will announce 2008 results Feb. 19, spent about $6 billion last year and aims to spend $1 billion this quarter, spokesman Bill Mintz said.

Devon said its oil and gas production rose 6 percent in 2008 to 238 million barrels of oil equivalent. However, lower year-end prices forced the company to write down reserves by 473 million barrels of oil equivalent from its oil sands operations.

kristen.hays@chron.com