DEVON ENERGY CORP/DE - FORM 8-K - EX-99.2 - July 18, 2018

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Exhibit 99.2

DEVON ENERGY CORPORATION

Unaudited Pro Forma Consolidated Financial Information

Introduction

On July 18, 2018, the Company completed the previously announced sale of its ownership interests in EnLink Midstream, LP (“EnLink”), EnLink Midstream, LLC (the “General Partner”) and EnLink Midstream Manager, LLC, the managing member of the General Partner (and together with EnLink and the General Partner, the “EnLink Entities”). The transaction was completed pursuant to the terms of the Agreement and the Company sold its aggregate ownership interest in the EnLink Entities to Global Infrastructure Partners for $3.125 billion. Due to the disposition transaction, the EnLink Entities’ financial information is being recast as discontinued operations.

The unaudited pro forma consolidated financial information has been prepared in conformity with Article 11 of Regulation S-X. In addition, this unaudited pro forma consolidated financial information is based on currently available information and assumptions that the Company believes are reasonable. This unaudited pro forma consolidated financial information is presented for informational purposes only, and does not purport to represent what the Company’s results of operations or financial position would have been had the disposition of the EnLink Entities occurred on the dates indicated, or to project the results of operations for any future periods.

 

1

DEVON ENERGY CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2018

(In millions, except per share amounts)

 

     As Reported     Pro Forma
Adjustments (a)		     Pro Forma  
ASSETS       

Current assets:

       

Cash and cash equivalents

    $ 1,424     $ (17 )    $ 4,507  
       (25 )   
       3,125    

Accounts receivable

      1,695       (745 )      950  

Other current assets

      516       (38 )      478  
  

 

 

    

 

 

    

 

 

  

Total current assets

      3,635       2,300       5,935  

Oil and gas property and equipment, based on successful efforts accounting, net

      13,475       —         13,475  

Midstream and other property and equipment, net

      7,908       (6,659 )      1,249  
  

 

 

    

 

 

    

 

 

  

Total property and equipment, net

      21,383       (6,659 )      14,724  

Goodwill

      2,383       (1,543 )      840  

Other long-term assets

      1,915       (1,566 )      349  
  

 

 

    

 

 

    

 

 

  

Total assets

    $ 29,316     $ (7,468 )    $ 21,848  
  

 

 

    

 

 

    

 

 

  
LIABILITIES AND EQUITY       

Current liabilities:

       

Accounts payable

    $ 862     $ (187 )    $ 675  

Revenues and royalties payable

      1,269       (456 )      813  

Short-term debt

      354       (77 )      277  

Other current liabilities

      997       (137 )      860  
  

 

 

    

 

 

    

 

 

  

Total current liabilities

      3,482       (857 )      2,625  
  

 

 

    

 

 

    

 

 

  

Long-term debt

      9,628       (3,839 )      5,789  

Asset retirement obligations

      1,141       (14 )      1,127  

Other long-term liabilities

      567       (29 )      538  

Deferred income taxes

      773       (352 )      421  

Equity:

       

Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 526 million in 2018

      53       —         53  

Treasury stock

      (12 )      —         (12 ) 

Additional paid-in capital

      7,269       (1,153 )      6,116  

Retained earnings

      473       3,594       4,067  

Accumulated other comprehensive earnings

      1,122       2       1,124  
  

 

 

    

 

 

    

 

 

  

Total stockholders’ equity attributable to Devon

      8,905       2,443       11,348  

Noncontrolling interests

      4,820       (4,820 )      —    
  

 

 

    

 

 

    

 

 

  

Total equity

      13,725       (2,377 )      11,348  
  

 

 

    

 

 

    

 

 

  

Total liabilities and equity

    $ 29,316     $ (7,468 )    $ 21,848  
  

 

 

    

 

 

    

 

 

  

 

2

DEVON ENERGY CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMPREHENSIVE STATEMENTS OF EARNINGS

Quarter Ended March 31, 2018

(In millions, except per share amounts)

 

     As Reported     Pro Forma
Adjustments (b)		     Pro Forma  

Upstream revenues

    $ 1,319     $ —       $ 1,319  

Marketing and midstream revenues

      2,491       (1,612 )      879  
  

 

 

    

 

 

    

 

 

  

Total revenues

      3,810       (1,612 )      2,198  
  

 

 

    

 

 

    

 

 

  

Production expenses

      543       —         543  

Exploration expenses

      33       —         33  

Marketing and midstream expenses

      2,214       (1,341 )      873  

Depreciation, depletion and amortization

      537       (138 )      399  

Asset dispositions

      (12 )      —         (12 ) 

General and administrative expenses

      226       (27 )      199  

Financing costs, net

      431       (44 )      387  

Other expenses

      19       2       21  
  

 

 

    

 

 

    

 

 

  

Total expenses

      3,991       (1,548 )      2,443  
  

 

 

    

 

 

    

 

 

  

Loss before income taxes

      (181 )      (64 )      (245 ) 

Income tax benefit

      (28 )      (6 )      (34 ) 
  

 

 

    

 

 

    

 

 

  

Net loss from continuing operations

      (153 )      (58 )      (211 ) 

Net earnings attributable to noncontrolling interests

      44       (44 )      —    
  

 

 

    

 

 

    

 

 

  

Net loss attributable to Devon from continuing operations

    $ (197 )    $ (14 )    $ (211 ) 
  

 

 

    

 

 

    

 

 

  

Net loss per share attributable to Devon from continuing operations:

       

Basic

    $ (0.38 )    $ (0.03 )    $ (0.41 ) 

Diluted

    $ (0.38 )    $ (0.03 )    $ (0.41 ) 

 

3

DEVON ENERGY CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMPREHENSIVE STATEMENTS OF EARNINGS

Year Ended December 31, 2017

(In millions, except per share amounts)

 

     As Reported     Pro Forma
Adjustments (b)		     Pro Forma  

Upstream revenues

    $ 5,307     $ —       $ 5,307  

Marketing and midstream revenues

      8,642       (5,071 )      3,571  
  

 

 

    

 

 

    

 

 

  

Total revenues

      13,949       (5,071 )      8,878  
  

 

 

    

 

 

    

 

 

  

Production expenses

      1,823       —         1,823  

Exploration expenses

      380       —         380  

Marketing and midstream expenses

      7,730       (4,111 )      3,619  

Depreciation, depletion and amortization

      2,074       (545 )      1,529  

Asset impairments

      17       (17 )      —    

Asset dispositions

      (217 )      —         (217 ) 

General and administrative expenses

      872       (128 )      744  

Financing costs, net

      498       (182 )      316  

Other expenses

      (124 )      35       (89 ) 
  

 

 

    

 

 

    

 

 

  

Total expenses

      13,053       (4,948 )      8,105  
  

 

 

    

 

 

    

 

 

  

Earnings before income taxes

      896       (123 )      773  

Income tax expense (benefit)

      (182 )      197       15  
  

 

 

    

 

 

    

 

 

  

Net earnings from continuing operations

      1,078       (320 )      758  

Net earnings attributable to noncontrolling interests

      180       (180 )      —    
  

 

 

    

 

 

    

 

 

  

Net earnings attributable to Devon from continuing operations

    $ 898     $ (140 )    $ 758  
  

 

 

    

 

 

    

 

 

  

Net earnings per share attributable to Devon from continuing operations:

       

Basic

    $ 1.71     $ (0.27 )    $ 1.44  

Diluted

    $ 1.70     $ (0.27 )    $ 1.43  

 

4

DEVON ENERGY CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMPREHENSIVE STATEMENTS OF EARNINGS

Year Ended December 31, 2016

(In millions, except per share amounts)

 

     As Reported     Pro Forma
Adjustments (b)		     Pro Forma  

Upstream revenues

    $ 3,981     $ —       $ 3,981  

Marketing and midstream revenues

      6,323       (3,551 )      2,772  
  

 

 

    

 

 

    

 

 

  

Total revenues

      10,304       (3,551 )      6,753  
  

 

 

    

 

 

    

 

 

  

Production expenses

      1,803       2       1,805  

Exploration expenses

      215       —         215  

Marketing and midstream expenses

      5,533       (2,712 )      2,821  

Depreciation, depletion and amortization

      2,096       (504 )      1,592  

Asset impairments

      1,310       (873 )      437  

Asset dispositions

      (1,483 )      (13 )      (1,496 ) 

General and administrative expenses

      865       (118 )      747  

Financing costs, net

      907       (190 )      717  

Other expenses

      375       (26 )      349  
  

 

 

    

 

 

    

 

 

  

Total expenses

      11,621       (4,434 )      7,187  
  

 

 

    

 

 

    

 

 

  

Loss before income taxes

      (1,317 )      883       (434 ) 

Income tax expense

      141       —         141  
  

 

 

    

 

 

    

 

 

  

Net loss from continuing operations

      (1,458 )      883       (575 ) 

Net loss attributable to noncontrolling interests

      (402 )      402       —    
  

 

 

    

 

 

    

 

 

  

Net loss attributable to Devon from continuing operations

    $ (1,056 )    $ 481     $ (575 ) 
  

 

 

    

 

 

    

 

 

  

Net loss per share attributable to Devon from continuing operations:

       

Basic

    $ (2.09 )    $ 0.95     $ (1.14 ) 

Diluted

    $ (2.09 )    $ 0.95     $ (1.14 ) 

 

5

DEVON ENERGY CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMPREHENSIVE STATEMENTS OF EARNINGS

Year Ended December 31, 2015

(In millions, except per share amounts)

 

     As Reported     Pro Forma
Adjustments (b)		     Pro Forma  

Upstream revenues

    $ 5,885     $ —       $ 5,885  

Marketing and midstream revenues

      7,260       (3,773 )      3,487  
  

 

 

    

 

 

    

 

 

  

Total revenues

      13,145       (3,773 )      9,372  
  

 

 

    

 

 

    

 

 

  

Production expenses

      2,439       —         2,439  

Exploration expenses

      451       —         451  

Marketing and midstream expenses

      6,461       (2,986 )      3,475  

Depreciation, depletion and amortization

      4,022       (387 )      3,635  

Asset impairments

      17,647       (1,563 )      16,084  

Asset dispositions

      7       (1 )      6  

General and administrative expenses

      1,193       (137 )      1,056  

Financing costs, net

      519       (107 )      412  

Other expenses

      264       25       289  
  

 

 

    

 

 

    

 

 

  

Total expenses

      33,003       (5,156 )      27,847  
  

 

 

    

 

 

    

 

 

  

Loss before income taxes

      (19,858 )      1,383       (18,475 ) 

Income tax benefit

      (6,213 )      (30 )      (6,243 ) 
  

 

 

    

 

 

    

 

 

  

Net loss from continuing operations

      (13,645 )      1,413       (12,232 ) 

Net loss attributable to noncontrolling interests

      (749 )      749       —    
  

 

 

    

 

 

    

 

 

  

Net loss attributable to Devon from continuing operations

    $ (12,896 )    $ 664     $ (12,232 ) 
  

 

 

    

 

 

    

 

 

  

Net loss per share attributable to Devon from continuing operations:

       

Basic

    $ (31.72 )    $ 1.63     $ (30.09 ) 

Diluted

    $ (31.72 )    $ 1.63     $ (30.09 ) 

 

6

NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS:

 

1. Basis of Presentation

The historical consolidated balance sheet as of March 31, 2018 and historical consolidated statement of earnings for the three months ended March 31, 2018 is derived from and should be read in conjunction with the Company’s unaudited financial statements in its March  31, 2018 Quarterly Report on Form 10-Q, which was filed on May 2, 2018. The historical consolidated statement of earnings for the years ended December 31, 2017, December 31, 2016 and December 31, 2015, is derived from and should be read in conjunction with the Company’s audited financial statements in its December 31, 2017 Annual Report on Form 10-K, which was filed on February 21, 2018.

Due to the disposition transaction, the EnLink Entities’ financial information is being recast as discontinued operations in Devon’s historical financial statements, and the accompanying unaudited pro forma statements of earnings do not include discontinued operations. The unaudited pro forma consolidated balance sheet of the Company as of March 31, 2018 is presented as if the disposition of the EnLink Entities had occurred on March 31, 2018. The unaudited pro forma consolidated statements of earnings for the three months ended March 31, 2018 as well as for the years ended December 31, 2017, December 31, 2016, and December 31, 2015, are presented as if the disposition of the EnLink Entities had occurred on January 1, 2015, the beginning of the earliest period presented.

The Company’s historical consolidated financial statements have been adjusted in the unaudited pro forma consolidated financial information to present events that are (i) directly attributable to the sale of the EnLink Entities, (ii) factually supportable and (iii) are expected to have a continuing impact on the Company’s consolidated results following EnLink and the General Partner disposition. The pro forma consolidated financial statements do not reflect the application of cash proceeds to future share repurchases.

These pro forma financial statements do not purport to be indicative of the financial position or results of earnings of the Company as of such date or for such periods, nor are they necessarily indicative of future results.

 

2. Pro Forma Adjustments

The following pro forma adjustments are included in the Company’s unaudited pro forma consolidated financial information:

 

(a) Reflect the disposition of the ownership interest of the EnLink Entities for $3.125 billion in cash. Adjustments include derecognizing the EnLink Entities’ assets, liabilities and non-controlling interest. The adjustment to retained earnings reflects an estimated $2.5 billion after-tax gain net of approximately $25 million of transaction-related costs.

 

(b) Reflect the elimination of revenues and expenses associated with the EnLink Entities. Devon does not expect the disposition will impact income tax expense. Therefore, no pro forma adjustment is provided for income tax expense.

 

7

DEVON ENERGY CORP/DE Reports