-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WeY1QBxVNGqJlg+00NqILrUXthETQ21s97/JRQpeWcaAjwjRYYUjx6Kyrx0xKHIo LsyvdVjZHPdr3eMrkx+5Ew== 0000837330-97-000009.txt : 19970423 0000837330-97-000009.hdr.sgml : 19970423 ACCESSION NUMBER: 0000837330-97-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970421 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEVON ENERGY CORP /OK/ CENTRAL INDEX KEY: 0000837330 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 731333969 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10067 FILM NUMBER: 97583935 BUSINESS ADDRESS: STREET 1: 20 N BROADWAY STE 1500 CITY: OKLAHOMA CITY STATE: OK ZIP: 73102-8260 BUSINESS PHONE: 4052353611 MAIL ADDRESS: STREET 1: 20 NORTH BROADWAY SUITE 1500 CITY: OKLAHOMA CITY STATE: OK ZIP: 73102-8260 10-Q 1 FORM 10-Q FOR 3-31-97 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 March 31, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-10067 DEVON ENERGY CORPORATION (Exact Name of Registrant as Specified in its Charter) Oklahoma 73-1474008 (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 April 14, 1997, was 32,141,295. 1 of 38 total pages (Exhibit Index is found at page 24) 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, March 31, 1997 (Unaudited) and December 31, 1996 4 Consolidated Statements of Operations (Unaudited), For the Three Months Ended March 31, 1997 and 1996 5 Consolidated Statements of Cash Flows (Unaudited), For the Three Months Ended March 31, 1997 and 1996 6 Notes to Consolidated Financial Statements. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 9 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 18 2 DEVON ENERGY CORPORATION Part I. Financial Information Item 1. Consolidated Financial Statements March 31, 1997 and 1996 (Forming a part of Form 10-Q Quarterly Report to the Securities and Exchange Commission) 3
DEVON ENERGY CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets March 31, December 31, 1997 1996 (Unaudited) Assets Current assets: Cash and cash equivalents $ 24,863,144 9,401,350 Accounts receivable 42,743,228 29,580,306 Inventories 2,005,919 2,103,486 Prepaid expenses 2,163,085 688,752 Deferred income taxes 1,600,000 1,600,000 Total current assets 73,375,376 43,373,894 Property and equipment, at cost, based on the full cost method of accounting for oil and gas properties 996,358,220 974,805,756 Less: Accumulated depreciation, depletion and amortization 301,173,988 281,959,410 695,184,232 692,846,346 Other assets 10,347,121 10,030,560 Total assets $778,906,729 746,250,800 Liabilities and Stockholders' Equity Current liabilities: Accounts payable: Trade 10,864,944 4,861,428 Revenues and royalties due to others 10,503,020 10,569,960 Income taxes payable 5,613,447 4,705,447 Accrued expenses 2,240,355 3,503,420 Total current liabilities 29,221,766 23,640,255 Revenues and royalties due to others 1,056,568 1,053,270 Other liabilities 10,796,183 10,325,999 Long-term debt - 8,000,000 Deferred revenue 103,475 205,859 Deferred income taxes 92,809,000 81,121,000 Company-obligated mandatorily redeemable convertible preferred securities of subsidiary trust holding solely 6.5% convertible junior subordinated debentures of Devon Energy Corporation 149,500,000 149,500,000 Stockholders' equity: Preferred stock of $1.00 par value. Authorized 3,000,000 shares; none issued - - Common stock of $.10 par value. Authorized 400,000,000 shares; issued 32,141,295 in 1997 and in 1996 3,214,130 3,214,130 Additional paid-in capital 388,090,930 388,090,930 Retained earnings 104,717,838 81,099,357 Cumulative currency translation adjustment (603,161) - Total stockholders' equity 495,419,737 472,404,417 Total liabilities and stockholders' equity $778,906,729 746,250,800 See accompanying notes to consolidated financial statements. 4
DEVON ENERGY CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Three Months Ended March 31, 1997 1996 (Unaudited) Revenues Oil sales $37,529,980 16,144,794 Gas sales 43,238,141 14,621,634 Natural gas liquids sales 5,803,921 2,967,801 Other 1,327,604 313,831 Total revenues 87,899,646 34,048,060 Costs and expenses Lease operating expenses 15,812,637 7,418,179 Production taxes 5,309,844 2,141,917 Depreciation, depletion and amortization 19,544,552 10,126,984 General and administrative expenses 2,629,885 2,135,898 Interest expense 130,807 2,481,156 Distributions on preferred securities of subsidiary trust 2,429,375 - Total costs and expenses 45,857,100 24,304,134 Earnings before income taxes 42,042,546 9,743,926 Income tax expense Current 5,045,000 1,267,000 Deferred 11,772,000 2,923,000 Total income tax expense 16,817,000 4,190,000 Net earnings $25,225,546 5,553,926 Net earnings per average common share outstanding (Note 2): Assuming no dilution $0.78 0.25 Assuming full dilution $0.71 0.25 Weighted average common shares outstanding 32,141,295 22,112,489 See accompanying notes to consolidated financial statements.
5
DEVON ENERGY CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Three Months Ended March 31, 1997 1996 (Unaudited) Cash flows from operating activities Net earnings $25,225,546 5,553,926 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation, depletion and amortization 19,544,552 10,126,984 Gain on sale of assets (22,114) (34,897) Deferred income taxes 11,772,000 2,923,000 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable (13,288,510) (190,855) Inventories 90,544 164,706 Prepaid expenses (1,476,820) (503,017) Other assets (218,505) 208,323 Increase (decrease) in: Accounts payable 6,655,857 (1,571,415) Income taxes payable 930,632 300,298 Accrued expenses (1,257,416) (954,397) Revenues and royalties due to others 3,298 222,260 Long-term other liabilities 129,995 85,648 Deferred revenue (102,384) (16,378) Net cash provided by operating activities 47,986,675 16,314,186 Cash flows from investing activities Proceeds from sale of property and equipment 91,276 84,283 Capital expenditures (23,299,647) (18,537,574) Net cash used in investing activities (23,208,371) (18,453,291) Cash flows from financing activities Proceeds from borrowings on revolving lines of credit 1,847,750 12,000,000 Principal payments on revolving lines of credit (9,843,750) - Issuance of common stock - 16,750 Dividends paid on common stock (1,607,065) (663,416) Increase in long-term other liabilities 340,189 266,385 Net cash provided (used) by financing activities (9,262,876) 11,619,719 Effect of exchange rate changes on cash (53,634) - Net increase in cash and cash equivalents 15,461,794 9,480,614 Cash and cash equivalents at beginning of period 9,401,350 8,897,891 Cash and cash equivalents at end of period $ 24,863,144 18,378,505 See accompanying notes to consolidated financial statements.
6 DEVON ENERGY CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Basis of Presentation 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 1996 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 March 31, 1997, and the results of their operations and their cash flows for the three month periods ended March 31, 1997 and 1996. Foreign Currency Translation Prior to December 31, 1996, Devon had no operations outside the United States. On December 31, 1996, Devon acquired certain Canadian oil and gas properties as part of a transaction in which Devon acquired all of Kerr-McGee Corporation's North American onshore oil and gas exploration and production properties and business in exchange for 9,954,000 shares of Devon common stock. The acquired Canadian properties are owned by a Canadian subsidiary which is wholly-owned by Devon. For purposes of foreign currency translation, the Canadian dollar is the functional currency for Devon's Canadian operations. Translation adjustments resulting from translating the Canadian subsidiary's foreign currency financial statements into U.S. dollar equivalents are reported separately and accumulated in a separate component of stockholders' equity. 2. Earnings Per Share The period ended March 31, 1997, includes a dilutive effect on earnings per share from Devon's 6.5% Trust Convertible Preferred Securities issued in July, 1996, and from employee stock options. The following table reconciles the net earnings and common shares outstanding used in the calculations of net earnings per share assuming no dilution, and assuming full dilution, for the three months ended March 31, 1997. (There was no dilutive effect on earnings per share in the first quarter of 1996.)
Net Common Earnings Net Shares Per Earnings Outstanding Share Net earnings per share, assuming no dilution $25,225,546 32,141,295 $0.78 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) 1,506,488 4,901,507 Potential common shares issuable upon the exercise of employee stock options (calculated using the treasury stock method) - 358,398 Net earnings per share, assuming full dilution $26,732,034 37,401,200 $0.71
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 months ended March 31, 1997, compared to the three months ended March 31, 1996, and in financial condition since December 31, 1996. It is presumed that readers have read or have access to Devon's 1996 annual report on Form 10-K. Overview On December 31, 1996, Devon acquired all of Kerr- McGee Corporation's North American onshore oil and gas exploration and production business and properties (the "KMG-NAOS Properties") in exchange for 9,954,000 shares of Devon common stock. This transaction added approximately 62 million barrels of oil equivalent ("Boe") to Devon's year-end 1996 proved reserves, as well as 370,000 net undeveloped acres of leasehold. The addition of the KMG-NAOS Properties in the first quarter of 1997 resulted in record quarterly results for Devon's production, revenues, net earnings and cash margin1. Production for the first quarter of 1997 totaled 5.0 million Boe of oil, gas and natural gas liquids ("NGL"). This was an increase of 91% over the first quarter of 1996. Revenues for the first three months of 1997 were $87.9 million, an increase of 158% over the prior year's quarter. Net earnings for the 1997 quarter were $25.2 million, or $0.78 per share. The 1997 net earnings were 354% above the prior year's quarterly results. The 1997 per share amount was 212% above the comparable 1996 total, with approximately 10 million more shares outstanding in the 1997 period. The cash margin for the first quarter of 1997 also increased significantly to $56.5 million, an increase of 204% over the 1996 first quarter's cash margin of $18.6 million. 1 "Cash margin" equals Devon's total revenues less cash expenses. Cash expenses are all expenses other than the non-cash expenses of depreciation, depletion and amortization and deferred income tax expense. Cash margin is an indicator which is commonly used in the oil and gas industry. This margin measures the net cash which is generated by a company's operations during a given period, without regard to the period such cash is actually physically received or spent by the company. This margin ignores the non-operations effects on a company's activities as an operator of oil and gas wells. Such activities produce net increases or decreases in temporary cash funds held by the operator which have no effect on net earnings of the company. Cash margin should be used as a supplement to, and not as a substitute for, net earnings and net cash provided by operating activities determined in accordance with generally accepted accounting principles in analyzing Devon's results of operations and liquidity. Results of Operations Total revenues increased by $53.9 million, or 158%, in the first quarter of 1997. This increase was primarily caused by substantial gains in oil, gas and NGL revenues. Oil, gas and NGL revenues were up $52.8 million, or 157%, for the quarter ended March 31, 1997. The relative contributions of production and price changes to the quarterly comparisons are shown in the tables below. (Note: Unless otherwise stated, all references in this report to dollar amounts regarding Devon's Canadian operations are expressed in U.S. dollars.)
Total Three Months Ended March 31, 1997 1996 Change Production Oil (Bbls) 1,755,265 874,515 +101% Gas (Mcf) 17,017,875 8,983,622 +89% NGL (Bbls) 368,105 227,593 +62% Oil, Gas and NGL (Boe)1 4,959,683 2,599,378 +91% Revenues Oil $37,529,980 16,144,794 +132% Gas 43,238,141 14,621,634 +196% NGL 5,803,921 2,967,801 +96% Combined $86,572,042 33,734,229 +157% Average Prices Oil (Per Bbl) $21.38 18.46 +16% Gas (Per Mcf) $2.54 1.63 +56% NGL (Per Bbl) $15.77 13.04 +21% Oil, Gas and NGL (Per Boe)1 $17.46 12.98 +35% Domestic Three Months Ended March 31, 1997 1996 Change Production Oil (Bbls) 1,513,582 874,515 +73% Gas (Mcf) 14,900,742 8,983,622 +66% NGL (Bbls) 333,615 227,593 +47% Oil, Gas and NGL (Boe)1 4,330,654 2,599,378 +67% Revenues Oil $32,454,825 16,144,794 +101% Gas 39,610,876 14,621,634 +171% NGL 5,190,768 2,967,801 +75% Combined $77,256,469 33,734,229 +129% Average Prices Oil (Per Bbl) $21.44 18.46 +16% Gas (Per Mcf) $2.66 1.63 +63% NGL (Per Bbl) $15.56 13.04 +19% Oil, Gas and NGL (Per Boe)1 $17.84 12.98 +37% Canada Three Months Ended March 31, 1997 1996 Change Production Oil (Bbls) 241,683 - NA Gas (Mcf) 2,117,133 - NA NGL (Bbls) 34,490 - NA Oil, Gas and NGL (Boe)1 629,029 - NA Revenues Oil $5,075,155 - NA Gas 3,627,265 - NA NGL 613,153 - NA Combined $9,315,573 - NA Average Prices Oil (Per Bbl) $21.00 - NA Gas (Per Mcf) $1.71 - NA NGL (Per Bbl) $17.78 - NA Oil, Gas and NGL (Per Boe)1 $14.81 - NA 1 Gas is converted to barrels of oil equivalent ("Boe") 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, gas and NGL prices. The respective prices of these products are affected by market and other factors in addition to relative energy content.
Oil Revenues. Oil revenues increased by $21.4 million, or 132%, in the first quarter of 1997. Production gains of 881,000 barrels, or 101%, added $16.3 million of oil revenues in the 1997 period. An increase in the average price of $2.92 per barrel, or 16%, added the remaining $5.1 million of increased oil revenues. The KMG-NAOS Properties were responsible for the majority of the increased oil production. These properties produced 746,000 barrels of oil in the first quarter of 1997. Approximately 504,000 of these barrels were produced in the U.S. and another 242,000 barrels were produced in Canada. Devon's other domestic properties produced 1,009,000 barrels in the first three months of 1997. This is an increase of 134,000 barrels, or 15%, over the 875,000 barrels produced in the first quarter of 1996. Gas Revenues. Gas revenues increased by $28.6 million, or 196%, in the first quarter of 1997. An increase in the average gas price of $0.91 per Mcf, or 56%, added $15.5 million to the 1997 quarter's gas revenues. Also, an increase in gas production of 8.0 Bcf, or 89%, added the remaining $13.1 million of increased gas revenues. The KMG-NAOS Properties were the primary contributors to the increased production volumes in the 1997 quarter. These properties produced 7.7 Bcf in the first three months of 1997. The KMG-NAOS Properties produced approximately 5.6 Bcf in the U.S. and 2.1 Bcf in Canada. Devon's coal seam gas properties produced 4.1 Bcf in the first quarter of 1997 compared to 4.7 Bcf in the first quarter of 1996. Devon's other domestic properties produced 5.2 Bcf in the 1997 period compared to 4.3 Bcf in the 1996 quarter. Of this 0.9 Bcf increase, production from Permian Basin wells completed in the second half of 1996 contributed 0.6 Bcf and the Worland properties in Wyoming added 0.3 Bcf. The coal seam gas properties averaged $2.42 per Mcf in the first quarter of 1997 compared to $1.40 in the first quarter of 1996. Devon's domestic conventional gas properties averaged $2.75 per Mcf in the 1997 quarter compared to $1.88 per Mcf in the 1996 quarter. Devon's Canadian gas production averaged $1.71 per Mcf in the 1997 quarter. NGL Revenues. NGL revenues increased by $2.8 million, or 96%, in the first quarter of 1997. An increase in production of 141,000 barrels, or 62%, added $1.8 million to 1997's revenues. An increase in the average price of $2.73 per barrel, or 21%, added the remaining $1.0 million of increased NGL revenues. The KMG-NAOS Properties accounted for 95,000 barrels of the total 141,000 barrel increase in production. The KMG-NAOS Properties produced 61,000 barrels in the U.S. and 34,000 barrels in Canada. Other Revenues. Other revenues increased by $1.0 million, or 323%, in the first quarter of 1997. The addition of the KMG-NAOS Properties added $0.6 million of revenues from processing third party natural gas. The investment of excess cash on hand in the 1997 quarter added $0.2 million of interest income. Production and Operating Expenses. Production and operating expenses in the first quarter of 1997 varied compared to the first quarter of 1996 as shown in the tables below.
Total Three Months Ended March 31, 1997 1996 Change Absolute Recurring operations and maintenance expenses $14,861,219 6,546,242 +127% Well workover expenses 951,418 871,937 +9% Production taxes 5,309,844 2,141,917 +148% Total production and operating expenses $21,122,481 9,560,096 +121% Per Boe Recurring operations and maintenance expenses $3.00 2.52 +19% Well workover expenses 0.19 0.34 -44% Production taxes 1.07 0.82 +30% Total production and operating expenses $4.26 3.68 +16% Domestic Three Months Ended March 31, 1997 1996 Change Absolute Recurring operations and maintenance expenses $13,211,127 6,546,242 +102% Well workover expenses 918,560 871,937 +5% Production taxes 5,175,071 2,141,917 +142% Total production and operating expenses $19,304,758 9,560,096 +102% Per Boe Recurring operations and maintenance expenses $3.05 2.52 +21% Well workover expenses 0.21 0.34 -38% Production taxes 1.20 0.82 +46% Total production and operating expenses $4.46 3.68 +21% Canada Three Months Ended March 31, 1997 1996 Change Absolute Recurring operations and maintenance expenses $1,650,092 - NA Well workover expenses 32,858 - NA Production taxes 134,773 - NA Total production and operating expenses $1,817,723 - NA Per Boe Recurring operations and maintenance expenses $2.62 - NA Well workover expenses 0.05 - NA Production taxes 0.22 - NA Total production and operating expenses $2.89 - NA
Recurring operations and maintenance expenses increased by $8.3 million, or 127%, in the first quarter of 1997. The addition of the KMG-NAOS Properties accounted for $7.0 million of the increased expenses. Production taxes increased by $3.2 million, or 148%, in the first quarter of 1997. This increase was attributable to the 157% increase in combined oil, gas and NGL revenues in the 1997 period. Recurring expenses per Boe were up by $0.48, or 19%, in the first quarter of 1997 compared to the first quarter of 1996. This increase was caused by the reduction in the coal seam gas properties' share of total production. The recurring operating costs per Boe for these coal seam gas properties are extremely low ($0.36 per Boe in the first quarter of 1997 and $0.37 per Boe in the first quarter of 1996). However, as production from these properties declined and production from Devon's conventional properties increased in the 1997 quarter, the coal seam gas properties' percentage of overall production dropped from 30% in the first three months of 1996 to only 14% in the first three months of 1997. The result is that more of Devon's production in the 1997 period was attributable to its conventional oil and gas properties, which have a higher operating cost per Boe than the low-cost coal seam gas properties. The recurring operating costs per Boe for Devon's conventional properties actually dropped to $3.42 per Boe in the first quarter of 1997 from $3.45 per Boe in the first quarter of 1996. Even though both the coal seam and the conventional properties had lower costs per Boe in the 1997 quarter, the combined cost per Boe increased because of the shift in the production percentage toward the conventional properties. Production taxes per Boe increased by $0.25, or 30%, in the first quarter of 1997. This was primarily caused by the 35% increase in the average price per Boe for oil, gas and NGL production. Depreciation, Depletion and Amortization Expenses ("DD&A"). Oil and gas property related DD&A increased $9.2 million, or 95%, from $9.7 million in the first quarter of 1996 to $18.9 million in the first quarter of 1997. The increase in total oil, gas and NGL production of 2.4 Boe, or 91%, accounted for $8.8 million of the increased DD&A. The remaining $0.4 million of increased expense was caused by an increase in the DD&A rate from $3.73 per Boe in the 1996 quarter to $3.81 per Boe in the 1997 quarter. General and Administrative Expenses ("G&A"). G&A increased $0.5 million, or 23%, in the first quarter of 1997. Employee salaries and related overhead costs, including insurance and pension expense, increased $1.2 million in the 1997 quarter. This increase was primarily related to the approximately 65 permanent and 15 temporary personnel added at Devon's Oklahoma City and Calgary offices as a result of the acquisition of the KMG-NAOS Properties. The expansion in personnel also caused office-related costs such as rent, dues, travel, supplies, telephone, etc., to increase by $0.4 million in the first three months of 1997. The higher salary, overhead and office costs were partially offset by an increase in Devon's overhead reimbursements. As the operator of a property, Devon receives these reimbursements from the property's working interest owners. Devon records the reimbursements as reductions to G&A. Due to the addition of the KMG-NAOS Properties, many of which Devon operates, Devon's overhead reimbursements increased by $1.0 million in the first quarter of 1997. Interest Expense. Interest expense decreased $2.4 million, or 95%, in the first quarter of 1997 due to a substantial reduction in the average debt outstanding. The average debt balance outstanding dropped from $149.9 million in the first quarter of 1996 to $3.0 million in the first quarter of 1997. Devon issued $149.5 million of 6.5% Trust Convertible Preferred Securities ("TCP Securities") in July, 1996. The proceeds from this issuance were used to substantially retire Devon's long-term bank debt. (The TCP Securities are discussed further below.) Distributions on Preferred Securities of Subsidiary Trust. As mentioned in the above discussion of interest expense, Devon, through an affiliate, issued $149.5 million of 6.5% TCP Securities in July, 1996. Distributions on the TCP Securities accrue at the rate of 1.625% per quarter. Distributions on the TCP Securities were $2.4 million in the first quarter of 1997. There were no distributions in the first quarter of 1996, as the TCP Securities were not issued until the third quarter of 1996. Income Taxes. During interim periods, income tax expense is based on the estimated effective tax rate which is expected for the entire fiscal year. The estimated effective tax rate in the first quarter of 1997 was 40%, compared to 43% estimated in the first quarter of 1996. However, the eventual actual tax rate for the year 1996 was reduced to 41%, which was only slightly higher than the current estimated rate for 1997. 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 at March 31, 1997, were approximately $11 million of various tax carryforwards. Of this amount, $5 million were for net operating loss carryforwards which expire between 1998 and 2008. The remaining $6 million of carryforward benefits related to depletion and minimum tax credit carryforwards which do not have expiration dates. To assess the likelihood of realizing tax benefits from the future utilization of these carryforwards, management considered four primary factors: (1) estimates of future yearly taxable income which Devon is expected to generate; (2) the level of future taxable income necessary to utilize the carryforwards; (3) the expiration dates, if any, of such carryforwards, and (4) certain limitations on the annual utilization of the carryforwards as set forth by federal tax regulations. Based upon current estimates of future production, average prices and pre-tax expenses, management believes that taxable income during the carryforward periods will be sufficient to utilize all of the carryforwards currently available. Devon expects the tax benefits from its net operating loss carryforwards to be utilized between 1997 and 1999. This is well before the 2006 expiration date for the majority of such benefits. Management's assessment of the future utilization of Devon's deferred tax assets is based upon current estimates of taxable income to be generated in 1997 and beyond. Significant changes in such estimates from variables such as future oil and gas prices or capital expenditures could alter the timing of the eventual utilization of such assets. There can be no assurance that Devon will generate any specific level of continuing taxable earnings. 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 elsewhere herein. Capital Expenditures. Cash used for capital expenditures increased 26% from $18.5 million in the first quarter of 1996 to $23.3 million in the first quarter of 1997. Approximately $22.5 million was spent in 1997 on acquisition, exploration and development costs, compared to $18.3 million spent in the 1996 quarter. The 1996 total included $4.3 million to acquire additional interests in the Worland properties in Wyoming. 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 quarter of 1997. Operating cash flow in the first quarter of 1997 was $48.0 million, compared to $16.3 million in the first quarter of 1996. Because of the amount of operating cash flow generated in the first quarter of 1997, Devon's credit lines were not used as a significant source of capital. Long-term debt at the end of 1996 was $8 million. During the first quarter of 1997, operating cash flow was utilized to eliminate this debt balance. Devon's domestic long-term credit facilities were amended effective March 15, 1997. At Devon's request, the borrowing base of the facilities was lowered from $260 million to $210 million. This will lower Devon's future cost of borrowings. If future capital needs arise, Devon believes that its lenders would increase its domestic credit lines to approximately $500 million. The amendment to the credit agreement also lowered the annual facilities fee from 0.25% of the borrowing base to 0.20%, and extended the final maturity date of loans outstanding by one year to August 31, 2003. Also, the lenders' required amount of minimum tangible net worth was reduced. Impact of Recently Issued Accounting Standards Not Yet Adopted. In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, and restatement of prior-period earnings per share data is required. The new standard will not apply to Devon's financial statements until the fourth quarter of 1997. SFAS No. 128 revises the current calculation methods and presentation of primary and fully diluted earnings per share. Devon has reviewed the requirements of SFAS No. 128, and has concluded that they will not affect Devon's historical primary earnings per share data. However, SFAS No. 128 will lower Devon's historical fully diluted earnings per share amounts by $0.01 per share in each of the following periods: the year 1994, the year 1995, the second quarter of 1996 and the third quarter of 1996. DEVON ENERGY CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 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 None 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. 2.1 Agreement and Plan of Merger and Reorganization by and among Registrant and Devon Energy Corporation, a Delaware corporation, dated as of April 13, 1995 (incorporated by reference to Exhibit A to Registrant's definitive Proxy Statement for its 1995 Annual Meeting of Shareholders filed on April 21, 1995). 2.2 Agreement and Plan of Merger among Registrant, Devon Energy Corporation (Nevada), Kerr-McGee Corporation, Kerr-McGee North American Onshore Corporation and Kerr-McGee Canada Onshore Ltd., dated October 17, 1996 (incorporated by reference to Addendum A to Registrant's definitive proxy statement for a special meeting of shareholders, filed on November 6, 1996). 3.1 Registrant's Certificate of Incorporation, as amended (incorporated by reference to Exhibit B to Registrant's definitive Proxy Statement for its 1995 Annual Meeting of Shareholders filed on April 21, 1995). 3.2 Registrant's Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 2 to Registrant's Current Report on Form 8-K dated December 31, 1996). 3.3 Registrant's Bylaws (incorporated by reference to Exhibit 3.2 to Registrant's Registration Statement on Form 8-B filed on June 7, 1995). 4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Registrant's Registration Statement on Form 8-B filed on June 7, 1995). 4.2 Rights Agreement between Registrant and The First National Bank of Boston (incorporated by reference to Exhibit 4.2 to Registrant's Registration Statement on Form 8-B filed on June 7, 1995). 4.3 First Amendment to Rights Agreement between Registrant and The First National Bank of Boston dated October 16, 1996 (incorporated by reference to Exhibit H-1 to Addendum A to Registrant's definitive proxy statement for a special meeting of shareholders, filed on November 6, 1996). 4.4 Second Amendment to Rights Agreement between Registrant and the First National Bank of Boston, dated December 31, 1996 (incorporated by reference to Exhibit 4.2 to Registrant's Current Report on Form 8-K dated December 31, 1996). 4.5 Certificate of Designations of Series A Junior Participating Preferred Stock of Registrant (incorporated by reference to Exhibit 3.3 to Registrant's Registration Statement on Form 8-B filed on June 7, 1995). 4.6 Certificate of Trust of Devon Financing Trust [incorporated by reference to Exhibit 4.5 to Amendment No. 1 to Registrant's Registration Statement on Form S-3 (No. 333-00815)]. 4.7 Amended and Restated Declaration of Trust of Devon Financing Trust dated as of July 3, 1996, by J. Larry Nichols, H. Allen Turner, William T. Vaughn, The Bank of New York (Delaware) and The Bank of New York as Trustees and the Registrant as Sponsor [incorporated by reference to Exhibit 4.6 to Amendment No. 1 to Registrant's Registration Statement on Form S-3 (No. 333-00815)]. 4.8 Indenture dated as of July 3, 1996, between the Registrant and The Bank of New York [incorporated by reference to Exhibit 4.7 to Amendment No. 1 to Registrant's Registration Statement on Form S-3 (No. 333-00815)]. 4.9 First Supplemental Indenture dated as of July 3, 1996, between the Registrant and The Bank of New York [incorporated by reference to Exhibit 4.8 to Amendment No. 1 to Registrant's Registration Statement on Form S-3 (No. 333-00815)]. 4.10 Form of 6 1/2% Preferred Convertible Securities (included as Exhibit A-1 to Exhibit 4.5 above). 4.11 Form of 6 1/2% Convertible Junior Subordinated Debentures (included in Exhibit 4.7 above). 4.12 Preferred Securities Guarantee Agreement dated July 3, 1996, between Registrant, as Guarantor, and The Bank of New York, as Preferred Guarantee Trustee [incorporated by reference to Exhibit 4.11 to Amendment No. 1 to Registrant's Registration Statement on Form S-3 (No. 333- 00815)]. 4.13 Stock Rights and Restrictions Agreement dated as of December 31, 1996, between Registrant and Kerr-McGee Corporation (incorporated by reference to Exhibit 4.3 to Registrant's Current Report on Form 8-K dated December 31, 1996). 4.14 Registration Rights Agreement, dated December 31, 1996, by and between Registrant and Kerr-McGee Corporation (incorporated by reference to Exhibit 4.4 to Registrant's Current Report on Form 8-K dated December 31, 1996). 10.1 Credit Agreement dated August 30, 1996, among Devon Energy Corporation (Nevada), as Borrower, the Registrant and Devon Energy Operating Corporation, as Guarantors, NationsBank of Texas, N.A., as Agent, and NationsBank of Texas, N.A., Bank One, Texas, N.A., Bank of Montreal, and First Union National Bank of North Carolina, as Lenders (incorporated by reference to Exhibit 10.1 to Registrant s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996). 10.2 First Amendment, dated March 15, 1997, to Credit Agreement among Devon Energy Corporation (Nevada), as Borrower, the Registrant, as Guarantor, NationsBank of Texas, N.A., as Agent, and NationsBank of Texas, N.A., Bank One, Texas, N.A., Bank of Montreal and First Union National Bank of North Carolina, as Lenders. 10.3 Devon Energy Corporation 1988 Stock Option Plan [incorporated by reference to Exhibit 10.4 to Registrant's Registration Statement on Form S-4 (No. 33-23564)].* 10.4 Devon Energy Corporation 1993 Stock Option Plan (incorporated by reference to Exhibit A to Registrant's Proxy Statement for the 1993 Annual Meeting of Shareholders filed on May 6, 1993).* 10.5 Severance Agreement between Devon Energy Corporation (Nevada), Devon Energy Corporation (Delaware) and Mr. J. Larry Nichols, dated December 3, 1992 (incorporated by reference to Exhibit 10.10 to Registrant's Amendment No. 1 to Annual Report on Form 10-K for the year ended December 31, 1992).* 10.6 Severance Agreement between Devon Energy Corporation (Nevada), Devon Energy Corporation (Delaware) and Mr. H. R. Sanders, Jr., dated December 3, 1992 (incorporated by reference to Exhibit 10.11 to Registrant's Amendment No. 1 to Annual Report on Form 10-K for the year ended December 31, 1992).* 10.7 Severance Agreement between Devon Energy Corporation (Nevada), Devon Energy Corporation (Delaware) and Mr. J. Michael Lacey, dated December 3, 1992 (incorporated by reference to Exhibit 10.12 to Registrant's Amendment No. 1 to Annual Report on Form 10-K for the year ended December 31, 1992).* 10.8 Severance Agreement between Devon Energy Corporation (Nevada), Devon Energy Corporation (Delaware) and Mr. H. Allen Turner, dated December 3, 1992 (incorporated by reference to Exhibit 10.13 to Registrant's Amendment No. 1 to Annual Report on Form 10-K for the year ended December 31, 1992).* 10.9 Severance Agreement between Devon Energy Corporation (Nevada), Devon Energy Corporation (Delaware) and Mr. Darryl G. Smette, dated December 3, 1992 (incorporated by reference to Exhibit 10.14 to Registrant's Amendment No. 1 to Annual Report on Form 10-K for the year ended December 31, 1992).* 10.10 Severance Agreement between Devon Energy Corporation (Nevada), Devon Energy Corporation (Delaware) and Mr. William T. Vaughn, dated December 3, 1992 (incorporated by reference to Exhibit 10.15 to Registrant's Amendment No. 1 to Annual Report on Form 10-K for the year ended December 31, 1992).* 10.11 Sale and Purchase Agreement relating to Registrant's San Juan Basin gas properties (incorporated by reference to Exhibit 10.15 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995). 10.12 Second Restatement of and Amendment to Sale and Purchase Agreement relating to Registrant's San Juan Basin gas properties (incorporated by reference to Exhibit 10.16 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995). 10.13 Purchase and Sale Agreement between Union Oil Company of California and Devon Energy Corporation (Nevada) (incorporated by reference to Exhibit 2 to Registrant's Current Report on Form 8-K dated December 18, 1995). 10.14 Registration Rights Agreement dated July 3, 1996, by and among the Registrant, Devon Financing Trust and Morgan Stanley & Co. Incorporated [incorporated by reference to Exhibit 10.1 to Amendment No. 1 to Registrant's Registration Statement on Form S-3 (No. 333- 00815)]. 11 Computation of earnings per share * Compensatory plans or arrangements. (b) Reports on Form 8-K - A Current Report on Form 8-K dated January 14, 1997, was filed by the Registrant regarding the December 31, 1996, acquisition of the KMG-NAOS Properties. 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: April 21, 1997 /s/William T. Vaughn William T. Vaughn Vice President - Finance INDEX TO EXHIBITS Page 2.1 Agreement and Plan of Merger and Reorganization # by and among Registrant and Devon Energy Corporation, a Delaware corporation, dated as of April 13, 1995 2.2 Agreement and Plan of Merger among Registrant, # Devon Energy Corporation (Nevada), Kerr-McGee Corporation, Kerr-McGee North American Onshore Corporation and Kerr-McGee Canada Onshore Ltd., dated October 17, 1996 3.1 Registrant's Certificate of Incorporation, as # amended 3.2 Registrant's Certificate of Amendment of # Certificate of Incorporation 3.3 Registrant's Bylaws # 4.1 Form of Common Stock Certificate # 4.2 Rights Agreement between Registrant and The First # National Bank of Boston 4.3 First Amendment to Rights Agreement between # Registrant and The First National Bank of Boston dated October 16, 1996 4.4 Second Amendment to Rights Agreement between # Registrant and the First National Bank of Boston, dated December 31, 1996 4.5 Certificate of Designations of Series A Junior # Participating Preferred Stock of Registrant 4.6 Certificate of Trust of Devon Financing Trust # 4.7 Amended and Restated Declaration of Trust of # Devon Financing Trust dated as of July 3, 1996, by J. Larry Nichols, H. Allen Turner, William T. Vaughn, The Bank of New York (Delaware) and The Bank of New York as Trustees and the Registrant as Sponsor 4.8 Indenture dated as of July 3, 1996, between the # Registrant and The Bank of New York 4.9 First Supplemental Indenture dated as of July 3, # 1996, between the Registrant and The Bank of New York 4.10 Form of 6 1/2% Preferred Convertible Securities # (included as Exhibit A-1 to Exhibit 4.5 above) 4.11 Form of 6 1/2% Convertible Junior Subordinated # Debentures (included in Exhibit 4.7 above) 4.12 Preferred Securities Guarantee Agreement dated # July 3, 1996, between Registrant, as Guarantor, and The Bank of New York, as Preferred Guarantee Trustee 4.13 Stock Rights and Restrictions Agreement dated as # of December 31, 1996, between Registrant and Kerr-McGee Corporation 4.14 Registration Rights Agreement, dated December 31, # 1996, by and between Registrant and Kerr-McGee Corporation 10.1 Credit Agreement dated August 30, 1996, among # Devon Energy Corporation (Nevada), as Borrower, the Registrant and Devon Energy Operating Corporation, as Guarantors, NationsBank of Texas, N.A., as Agent, and NationsBank of Texas, N.A., Bank One, Texas, N.A., Bank of Montreal, and First Union National Bank of North Carolina, as Lenders 10.2 First Amendment, dated March 15, 1997, to Credit 27 Agreement among Devon Energy Corporation (Nevada), as Borrower, the Registrant, as Guarantor, NationsBank of Texas, N.A., as Agent, and NationsBank of Texas, N.A., Bank One, Texas, N.A., Bank of Montreal, and First Union National Bank of North Carolina, as Lenders 10.3 Devon Energy Corporation 1988 Stock Option Plan # 10.4 Devon Energy Corporation 1993 Stock Option Plan # 10.5 Severance Agreement between Devon Energy # Corporation (Nevada), Devon Energy Corporation (Delaware) and Mr. J. Larry Nichols, dated December 3, 1992 10.6 Severance Agreement between Devon Energy # Corporation (Nevada), Devon Energy Corporation (Delaware) and Mr. H. R. Sanders, Jr., dated December 3, 1992 10.7 Severance Agreement between Devon Energy # Corporation (Nevada), Devon Energy Corporation (Delaware) and Mr. J. Michael Lacey, dated December 3, 1992 10.8 Severance Agreement between Devon Energy # Corporation (Nevada), Devon Energy Corporation (Delaware) and Mr. H. Allen Turner, dated December 3, 1992 10.9 Severance Agreement between Devon Energy # Corporation (Nevada), Devon Energy Corporation (Delaware) and Mr. Darryl G. Smette, dated December 3, 1992 10.10 Severance Agreement between Devon Energy # Corporation (Nevada), Devon Energy Corporation (Delaware) and Mr. William T. Vaughn, dated December 3, 1992 10.11 Sale and Purchase Agreement relating to # Registrant's San Juan Basin gas properties 10.12 Second Restatement of and Amendment to Sale # and Purchase Agreement relating to Registrant's San Juan Basin gas properties 10.13 Purchase and Sale Agreement between Union # Oil Company of California and Devon Energy Corporation (Nevada) 10.14 Registration Rights Agreement dated July 3, # 1996, by and among the Registrant, Devon Financing Trust and Morgan Stanley & Co. Incorporated 11 Computation of earnings per share 38 ____________________________________ # Incorporated by reference. EX-11 2
DEVON ENERGY CORPORATION Exhibit 11 Computation of Earnings Per Share Three Months Ended March 31, 1997 1996 PRIMARY EARNINGS PER SHARE Computation for Statement of Operations Net earnings per statement of operations $25,225,546 5,553,926 Weighted average common shares outstanding 32,141,295 22,112,489 Primary earnings per share $0.78 0.25 Additional Primary Computation (A) Net earnings per statement of operations $25,225,546 5,553,926 Adjustment to weighted average common shares outstanding: Weighted average as shown above in primary computation 32,141,295 22,112,489 Add dilutive effect of outstanding stock options (as determined using the treasury stock method) 358,398 135,253 Weighted average common shares outstanding, as adjusted 32,499,693 22,247,742 Net earnings per common share, as adjusted $0.78 0.25 FULLY DILUTED EARNINGS PER SHARE (A) Net earnings per statement of operations $25,225,546 5,553,926 Increase in net earnings from assumed conversion of Trust Convertible Preferred Securities (net of tax effect) 1,506,488 - Net earnings, as adjusted $26,732,034 5,553,926 Weighted average common shares outstanding as shown in primary computation above 32,141,295 22,112,489 Add fully dilutive effect of outstanding stock options (as determined using the treasury stock method) 358,398 147,146 Add weighted average of additional shares issued from assumed conversion of Trust Convertible Preferred Securities 4,901,507 - Weighted average common shares outstanding, as adjusted 37,401,200 22,259,635 Fully diluted earnings per common share $0.71 0.25 (A) The additional primary computations for both periods, and the fully diluted computations for the 1996 period, are submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because they result in dilution of less than 3%.
EX-27 3 QTR 1 FDS
5 3-MOS DEC-31-1997 MAR-31-1997 24863144 0 42743228 0 2005919 73375376 996358220 301173988 778906729 29221766 0 3214130 0 0 492205607 778906729 86572042 87899646 0 0 21122481 0 130807 42042546 16817000 25225546 0 0 0 25225546 0.78 0.71
EX-99 4 AMENDMENT TO CREDIT AGMT FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made as of the 15th day of March, 1997, by and among DEVON ENERGY CORPORATION (NEVADA), as Borrower ("Borrower"), DEVON ENERGY CORPORATION ("Parent"), as guarantor, NATIONSBANK OF TEXAS, N.A., as Agent ("Agent"), and NATIONSBANK OF TEXAS, N.A., BANK ONE, TEXAS, N.A., BANK OF MONTREAL and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Lenders ("Lenders"). WHEREAS, Borrower, Parent, Devon Energy Operating Corporation ("DEOC"), Agent and Lenders have entered into that certain Credit Agreement dated as of August 30, 1996 (the "Original Agreement"); and WHEREAS, DEOC and Avon Energy Corporation have been liquidated; and WHEREAS, Parent has guaranteed to Agent and Lenders the payment of the Notes and of all other sums payable under the Credit Agreement and the other Loan Documents pursuant to its Guaranty; and WHEREAS, Borrower, Parent, Agent and Lenders desire to amend the Original Agreement as herein provided; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein and in the Original Agreement, in consideration of the loans which may hereafter be made by Lenders to Borrower, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE I -- Definitions and References 1.1. Terms Defined in the Original Agreement. Unless the context otherwise requires or unless otherwise expressly defined herein, the terms defined in the Original Agreement shall have the same meanings whenever used in this Amendment. 1.2. Other Defined Terms. Unless the context otherwise requires, the following terms when used in this Amendment shall have the meanings assigned to them in this 1.2. "Amendment" means this First Amendment to Credit Agreement. "Credit Agreement" means the Original Agreement as amended hereby. ARTICLE II -- Amendments 2.1. Defined Terms. (a) Section 1.1 of the Original Agreement is hereby amended by adding the definitions of "Canadian Facility", "DBC" and "Devon Canada" to read as follows: -1- "Canadian Facility" means an unsecured revolving credit facility, between Devon Canada and Bank of Montreal, in an aggregate amount not to exceed U.S. $50,000,000, and any unsecured guaranty by Parent, Borrower and/or other Guarantors, guaranteeing such facility. "DBC" means DBC, Inc., an Oklahoma corporation. "Devon Canada" means Devon Energy Canada Corporation, a Canadian corporation organized under the laws of Alberta. (b) Section 1.1 of the Original Agreement is hereby amended by amending the definitions of "Commitment Period", "Guarantor" and Maximum Loan Amount to read as follows: "Commitment Period" means the period from and including the date on which the Notes are delivered and accepted as contemplated in Section 2.4 until and including August 31, 2003 (or any date on which the Notes otherwise become due and payable in full as provided in the Loan Documents). "Guarantor" means any Person who has guaranteed some or all of the Obligations and who has been recognized in writing by Agent as a Guarantor. Parent and DBC are each hereby recognized as a Guarantor. "Maximum Loan Amount" means, with respect to each Lender, the amount set forth opposite its name on the signature pages hereto, and "Maximum Loan Amounts" means the sum of all such amounts; provided, (a) on August 31, 2000, the Maximum Loan Amounts shall be automatically ratably reduced to the Available Borrowing Base which is in effect on such date; and (b) on the last day of each November, February, May and August, commencing November 30, 2000, the Maximum Loan Amounts shall be further automatically ratably reduced by the Quarterly Reduction Amount; and (c) on August 31, 2003, the Maximum Loan Amounts shall be automatically reduced to zero. As used herein, "Quarterly Reduction Amount" shall mean an amount equal to eight and one-third percent (8.33%) of the Available Borrowing Base as of August 31, 2000. (c) Section 1.1 of the Original Agreement is hereby amended by deleting the definitions of "Avon" and "DEOC". 2.2. Facility Fees. The reference to "one quarter percent (0.25%)" set forth in Section 2.8(a) of the Original Agreement is hereby amended to refer instead to "one-fifth percent (0.2%)". 2.3. Restricted Debt - Operating Leases. Clause (ii) of Section 5.2(a) of the Original Agreement is hereby amended in its entirety to read as follows: -2- (ii) operating lease or capital lease obligations (excluding oil, gas or mineral leases) entered into in the ordinary course of the Restricted Persons' businesses in arm's length transactions at competitive market rates under competitive terms and conditions in all respects; 2.4. Restricted Debt - Canadian Facility and Miscellaneous. Section 5.2(a) of the Original Agreement is hereby amended as follows: clause (xi) is renumbered clause (xii), a new clause (xi) is added, and renumbered clause (xii) is amended in its entirety, all to read as follows: (xi) the Canadian Facility; and (xii) miscellaneous items of Restricted Debt not described in subsections (i) through (xi) of this subsection (a) which do not in the aggregate (taking into account all such Restricted Debt of all Restricted Persons) exceed $10,000,000 at any one time outstanding; provided, that after giving effect to such Restricted Debt outstanding from time to time, Borrower is not in violation of Sections 5.2(j) and (k). 2.5. Limitation on Intercompany Transfers. The parenthetical in the first clause of clause (ii) of Section 5.2(c) of the Original Agreement is hereby amended in its entirety to read as follows: (other than Borrower, Guarantors, Devon Trust and Devon Canada) 2.6. Limitation on Intercompany Transfers. Clauses (iii) through (v) of Section 5.2(c) of the Original Agreement are hereby renumbered (iv) through (vi), and a new clause (iii) is hereby added to read as follows: (iii) Parent may make loans or capital contributions to, purchase shares of common stock from, or otherwise provide funds to Devon Canada, provided that (A) the aggregate amount of all such loans, capital contributions, purchases of shares, and other provisions of funds to Devon Canada shall not exceed $25,000,000, and (B) no Default exists immediately before or immediately after such transaction; 2.7. Tangible Net Worth. Section 5.2(k)(i), (ii) and (iii) of the Original Agreement is hereby amended in its entirety to read as follows: (k) Tangible Net Worth. Parent's Consolidated Tangible Net Worth will never be less than: (i) $551,000,000, plus (ii) one hundred percent (100%) of the proceeds (net only of costs of sale) from any issuance after January 1, 1997 of any shares of Parent's common or preferred stock or any other securities, other than the -3- Subordinated Parent Debentures (including any options, warrants or other rights to acquire such stock) which Parent issues after such date, provided that Parent shall comply with the provisions of Section 5.2(e) hereof in connection with any such issuance. 2.8. Subsidiary Guaranties. The parenthetical contained in the first sentence of Section 6.2 of the Original Agreement is hereby amended in its entirety to read as follows: (other than Borrower, Parent, the other Guarantors, Devon Trust or Devon Canada) 2.9. Designation of Borrowing Base. Pursuant to Section 2.13 of the Credit Agreement, Agent, with the concurrence of Evaluating Lenders, hereby designates the new Borrowing Base as $200,000,000, effective for the period beginning on the date hereof, a Determination Date, and continuing until but not including the next date as of which the Borrowing Base is redetermined. 2.10. Exhibits. Exhibit A to the Original Agreement is hereby amended in its entirety to read as set forth in Exhibit A attached hereto. 2.11. DEOC and Avon. Agent and Lenders hereby acknowledge that DEOC and Avon have been liquidated. All references to DEOC or Avon in any Loan Document are hereby deleted. ARTICLE III. -- Conditions of Effectiveness 3.1. Effective Date. This Amendment shall become effective as of the date first above written when, and only when, (i) Agent shall have received, at Agent's office, a counterpart of this Amendment executed and delivered by Borrower and each Lender, (ii) Borrower shall have issued and delivered to Agent, for subsequent delivery to each Lender, a Note with appropriate insertions in the form attached hereto as Exhibit A payable to the order of such Lender on or before August 31, 2003, duly executed on behalf of Borrower, dated the date hereof, and in a principal amount equal to the stated principal amount of the Note heretofore delivered to such Lender under the Original Agreement, and (iii) Agent shall have additionally received all of the following documents, each document (unless otherwise indicated) being dated the date of receipt thereof by Agent, duly authorized, executed and delivered, and in form and substance satisfactory to Agent: (a) Opinion of Counsel for Borrower. Agent shall have received the written opinion of McAfee & Taft, P.C., dated as of the date of this Amendment, addressed to Agent, in the form of Exhibit B attached hereto. (b) Officer's Certificate. Agent shall have received a certificate of a duly authorized officer of Borrower and Parent to the effect that all of the representations and warranties set forth in Article IV hereof are true and correct at and as of the time of such effectiveness. -4- (c) Supporting Documents. Agent shall have received (i) a certificate of the Secretary or Assistant Secretary of Borrower and Parent dated the date of this Amendment certifying that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of Borrower and Parent authorizing the execution, delivery and performance of this Amendment and the Notes, certifying the names and true signatures of the officers of Borrower and Parent authorized to sign this Amendment and the Notes, and certifying that the charter documents and bylaws of Borrower and Parent attached to that certain Omnibus Certificate dated August 30, 1996 are true, correct and complete as of the date hereof, and (ii) such supporting documents as Agent may reasonably request. ARTICLE IV -- Miscellaneous 4.1. Ratification of Agreements. The Original Agreement is hereby ratified and confirmed in all respects. Any reference to the Credit Agreement in any Loan Document shall be deemed to refer to the Original Agreement as amended hereby. Any reference to the Notes in any other Loan Document shall be deemed to be a reference to the Notes issued and delivered pursuant to this Amendment. Parent hereby consents to the provisions of this Amendment and the Notes and hereby ratifies and confirms its Guaranty and agrees that its obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. 4.2. Representations. Each of Borrower and Parent represent and warrant that the representations and warranties contained in Section 4.1 and Section 9.1(b) of the Credit Agreement are true and correct at and as of the date hereof (taking into account the fact that this Amendment and the Notes issued in connection herewith are each a Loan Document as referred to in such Sections). Each of Borrower and Parent represent and warrant that the resolutions of their respective Boards of Directors, attached as Exhibits A and B to that certain Omnibus Certificate dated as of August 30, 1996, given on behalf of Borrower and Parent in connection with the Original Agreement, remain in full force and effect on the date hereof. 4.3. Survival of Agreements. All representations, warranties, covenants and agreements of Borrower or Parent herein shall survive the execution and delivery of this Amendment and the Notes issued in connection herewith and the performance hereof and shall further survive until all of the Obligations are paid in full. 4.4. Delivery of Prior Notes. Each Lender shall promptly deliver to Agent, for subsequent delivery to Borrower, the Note heretofore delivered to it under the Original Agreement. 4.5. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Texas and any applicable laws of the United States of America in all respects, including construction, validity and performance. -5- 4.6. Counterparts. This Amendment may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Amendment. This Amendment shall, when executed by each party hereto, take effect as of the date first above written. 4.7. Loan Documents. This Amendment and each Note is a Loan Document, and all provisions in the Credit Agreement applying to Loan Documents (including, without limitation, Section 9.1(b) thereof) apply hereto and thereto. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, this Amendment is executed as of the date first above written. DEVON ENERGY CORPORATION (NEVADA) By: William T. Vaughn, Vice President - Finance DEVON ENERGY CORPORATION By: William T. Vaughn, Vice President - Finance NATIONSBANK OF TEXAS, N.A. By: Dale T. Wilson, Vice President BANK ONE, TEXAS, N.A. By: Christopher S. Parada, Asst. Vice President -6- BANK OF MONTREAL By: Michael P. Stuckey, Director FIRST UNION NATIONAL BANK OF NORTH CAROLINA By: Michael J. Kolosowsky, Vice President -7- CONSENT OF GUARANTOR DBC, Inc. hereby consents to the foregoing Amendment and the transactions contemplated therein and hereby ratifies and confirms its obligations under its certain Guaranty dated as of December 31, 1996 in favor of Agent, as agent for the Lenders. This Consent is executed as of the date of the Amendment. DBC, INC. By: William T. Vaughn, Vice President - Finance -8- -----END PRIVACY-ENHANCED MESSAGE-----