Devon Energy Corporation (DVN) pt 2 (1)

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Accounting

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Jan 9, 2024

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Devon Energy Corporation (DVN) pt 2 When I was researching information about Devon Energy Corporation’s accounting method I found that until the fourth quarter of 2017 they were using full-cost and changed it to successful efforts. Jeff Rienour the chief financial officer stated the reason for this change was one of many shareholder-friendly initiatives underway at Devon. Along with that Devon Energy Corporation “believes the conversion to successful efforts will provide greater transparency into our financial performance, allowing us to better showcase the top-tier returns we’re achieving with our disciplined capital program” I just wanted to highlight what the successful method is, it is when a company only capitalizes costs associated with the location of new oil and gas reserves when those reserves have been found. Opposed to full cost which accounts for all costs, both fixed and variable along with overhead, that go into a finished product. The choice to choose successful-efforts accounting is considered a conservative approach, it mandates immediate charges to expense when the “dry hole” is completed, which expense recognition is accelerated, the smallest amount of expenditures recorded as assets on the balance sheet. Devon Energy Corporation’s have been sufficient to satisfy their delivery commitments during the three most recent years, and they expect such reserves will continue to be the primary means of fulfilling their future commitments. Compared to last year Devon Energy Corporation has had an increase from 106 MMBbls of oil in 2021 to 109 MMBbls in 2022, as well as an increase from 325 Bcf of gas in 2021 to 356 Bcf in 2022. One thing that I found in the 10-K that is of importance to Devon Energy corporation is “the viability of production under varying economic conditions, including

commodity price declines, and variations in production levels and associated costs. For example, they recognized asset impairments of $2.7 billion in 2020 due to the significant decrease in commodity prices resulting primarily from the COVID-19 pandemic. Consequently, material revisions to their existing reserves estimates may occur as a result of changes in any of these or other factors.” To counter this Devon Energy Corporation has engaged in price risk management activities to protect themselves from commodity price declines, they will be prevented from fully realizing the benefits of commodity price increases above the prices established by their hedging contracts. Production totals at all different plants have risen in gas, oil and NGLs. Gas has risen by 3% from 2021 to 2022, oil 10% from 2021 to 2022 and NGLs have risen by 12% from 2021 to 2022. Devon Energy Corporation’s capital program for 2023 is expected to “maintain their oil production at similar levels as 2022, adjusted for acquisitions. To achieve these 2023 capital program objectives that maximize free cash flow approximately 60% of the 2023 spending is expected to be allocated to their highest margin U.S. oil play, the Delaware Basin. DVN expects to continue to leverage the strengths of their multi-basin strategy and deploy the remainder of their 2023 capital in their other core areas of Eagle Ford, Anadarko Basin, Powder River Basin and Williston Basin. 2023 capital is expected to be higher than last year partly due to a full year of planned capital spend on assets acquired during 2022. Along with that 2023 cash flow is partly protected from commodity price volatility due to their current hedge position that covers approximately 25% of their anticipated oil volumes and 20% of their anticipated gas volumes. Further insulating their cash flow, we continue to examine and, when appropriate, execute

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