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These excerpts taken from the DVN 10-K filed Feb 27, 2009. Business
and Industry Outlook
As previously mentioned, our current and future earnings depend
largely on our ability to replace and grow oil and gas reserves,
increase production and exert cost discipline. We must also
manage commodity pricing risks to achieve long-term success.
Oil and gas prices reached historical high levels in recent
years and during the first half of 2008. We have utilized the
record operating cash flows generated by high commodity prices,
along with proceeds from our African divestitures, to, among
other uses, repay outstanding debt. During 2008 and 2007, we
repaid outstanding debt totaling $3.9 billion. During this
same period, we also repurchased $1.0 billion of our common
stock and redeemed $150 million of preferred stock. High
commodity prices have also been a key factor driving cost
increases in the oil and gas industry that have exceeded general
inflation trends. We are no different from others in the
industry in that we have been impacted by these cost increases.
As we exited the third quarter of 2008, oil and gas prices had
declined sharply from their recent record levels and declined
even further through the end of 2008. In addition, recent
problems in the credit markets, steep stock market declines,
financial institution failures and government bail-outs provide
evidence of a weakening United States and global economy. As a
result of the market turmoil and price decreases, oil and gas
companies with high debt levels and lack of liquidity have been,
and will continue to be, negatively impacted. However, we do not
consider ourselves to be in this category based on our current
debt level and credit availability.
The only constant in the oil and gas business is volatility, and
2008 presented us with some remarkable reminders. Our response
to the current environment is to dramatically cut capital
expenditures. We are
Table of Contents
budgeting exploration and development capital at
$3.5 billion to $4.1 billion for 2009. This is less
than half of our 2008 investment in exploration and development.
With the addition of non-oil and gas capital and other
capitalized costs, we are forecasting total 2009 capital
expenditures of $4.7 billion to $5.4 billion.
Assuming average benchmark prices of $45.00 per barrel of crude
oil and $5.50 per Mcf of gas, our 2009 capital budget will
require deficit spending of about $1 billion. Our
philosophy has always been to live roughly within our cash flow,
and we clearly will not continue to spend at this rate in future
years without some improvement in oil and gas prices. However,
in order to preserve our business and maintain a level of
momentum that will allow us to take advantage of stronger prices
when markets recover, we believe it is prudent to use our
balance sheet strength to fund this additional $1 billion
of spending in 2009. If we see further price weakness in 2009 or
beyond, we are prepared to make further cuts.
We are dramatically decreasing our activity across most of our
near-term development projects in North America. We will
continue activity at a rate that will keep us competitive, but
at a far lower level than in 2008. However, we are going to
continue the momentum of some of our longer-term growth projects
that will position us to bring on new production when oil and
gas demand recovers. We are continuing to fund the second phase
of our operations at Jackfish and the evaluation and development
of our Lower Tertiary assets in the Gulf of Mexico. We will also
move forward with the evaluation of our sizable acreage
positions in several emerging natural gas plays in North America.
This decrease in development drilling will impact our oil and
gas production. We are currently forecasting our 2009 production
will be essentially flat with that of 2008.
We are fortunate that we are positioned to withstand the
downturn in the global economy and the resulting weakness in oil
and gas prices. The strength of our balance sheet and the
quality of our oil and gas properties position us to emerge from
the current environment and prosper in the future.
Business
and Industry Outlook
As previously mentioned, our current and future earnings depend
largely on our ability to replace and grow oil and gas reserves,
increase production and exert cost discipline. We must also
manage commodity pricing risks to achieve long-term success.
Oil and gas prices reached historical high levels in recent
years and during the first half of 2008. We have utilized the
record operating cash flows generated by high commodity prices,
along with proceeds from our African divestitures, to, among
other uses, repay outstanding debt. During 2008 and 2007, we
repaid outstanding debt totaling $3.9 billion. During this
same period, we also repurchased $1.0 billion of our common
stock and redeemed $150 million of preferred stock. High
commodity prices have also been a key factor driving cost
increases in the oil and gas industry that have exceeded general
inflation trends. We are no different from others in the
industry in that we have been impacted by these cost increases.
As we exited the third quarter of 2008, oil and gas prices had
declined sharply from their recent record levels and declined
even further through the end of 2008. In addition, recent
problems in the credit markets, steep stock market declines,
financial institution failures and government bail-outs provide
evidence of a weakening United States and global economy. As a
result of the market turmoil and price decreases, oil and gas
companies with high debt levels and lack of liquidity have been,
and will continue to be, negatively impacted. However, we do not
consider ourselves to be in this category based on our current
debt level and credit availability.
The only constant in the oil and gas business is volatility, and
2008 presented us with some remarkable reminders. Our response
to the current environment is to dramatically cut capital
expenditures. We are
Table of Contents
budgeting exploration and development capital at
$3.5 billion to $4.1 billion for 2009. This is less
than half of our 2008 investment in exploration and development.
With the addition of non-oil and gas capital and other
capitalized costs, we are forecasting total 2009 capital
expenditures of $4.7 billion to $5.4 billion.
Assuming average benchmark prices of $45.00 per barrel of crude
oil and $5.50 per Mcf of gas, our 2009 capital budget will
require deficit spending of about $1 billion. Our
philosophy has always been to live roughly within our cash flow,
and we clearly will not continue to spend at this rate in future
years without some improvement in oil and gas prices. However,
in order to preserve our business and maintain a level of
momentum that will allow us to take advantage of stronger prices
when markets recover, we believe it is prudent to use our
balance sheet strength to fund this additional $1 billion
of spending in 2009. If we see further price weakness in 2009 or
beyond, we are prepared to make further cuts.
We are dramatically decreasing our activity across most of our
near-term development projects in North America. We will
continue activity at a rate that will keep us competitive, but
at a far lower level than in 2008. However, we are going to
continue the momentum of some of our longer-term growth projects
that will position us to bring on new production when oil and
gas demand recovers. We are continuing to fund the second phase
of our operations at Jackfish and the evaluation and development
of our Lower Tertiary assets in the Gulf of Mexico. We will also
move forward with the evaluation of our sizable acreage
positions in several emerging natural gas plays in North America.
This decrease in development drilling will impact our oil and
gas production. We are currently forecasting our 2009 production
will be essentially flat with that of 2008.
We are fortunate that we are positioned to withstand the
downturn in the global economy and the resulting weakness in oil
and gas prices. The strength of our balance sheet and the
quality of our oil and gas properties position us to emerge from
the current environment and prosper in the future.
Business and Industry Outlook As previously mentioned, our current and future earnings depend largely on our ability to replace and grow oil and gas reserves, increase production and exert cost discipline. We must also manage commodity pricing risks to achieve long-term success. Oil and gas prices reached historical high levels in recent years and during the first half of 2008. We have utilized the record operating cash flows generated by high commodity prices, along with proceeds from our African divestitures, to, among other uses, repay outstanding debt. During 2008 and 2007, we repaid outstanding debt totaling $3.9 billion. During this same period, we also repurchased $1.0 billion of our common stock and redeemed $150 million of preferred stock. High commodity prices have also been a key factor driving cost increases in the oil and gas industry that have exceeded general inflation trends. We are no different from others in the industry in that we have been impacted by these cost increases. As we exited the third quarter of 2008, oil and gas prices had declined sharply from their recent record levels and declined even further through the end of 2008. In addition, recent problems in the credit markets, steep stock market declines, financial institution failures and government bail-outs provide evidence of a weakening United States and global economy. As a result of the market turmoil and price decreases, oil and gas companies with high debt levels and lack of liquidity have been, and will continue to be, negatively impacted. However, we do not consider ourselves to be in this category based on our current debt level and credit availability. The only constant in the oil and gas business is volatility, and 2008 presented us with some remarkable reminders. Our response to the current environment is to dramatically cut capital expenditures. We are
Table of Contentsbudgeting exploration and development capital at $3.5 billion to $4.1 billion for 2009. This is less than half of our 2008 investment in exploration and development. With the addition of non-oil and gas capital and other capitalized costs, we are forecasting total 2009 capital expenditures of $4.7 billion to $5.4 billion. Assuming average benchmark prices of $45.00 per barrel of crude oil and $5.50 per Mcf of gas, our 2009 capital budget will require deficit spending of about $1 billion. Our philosophy has always been to live roughly within our cash flow, and we clearly will not continue to spend at this rate in future years without some improvement in oil and gas prices. However, in order to preserve our business and maintain a level of momentum that will allow us to take advantage of stronger prices when markets recover, we believe it is prudent to use our balance sheet strength to fund this additional $1 billion of spending in 2009. If we see further price weakness in 2009 or beyond, we are prepared to make further cuts. We are dramatically decreasing our activity across most of our near-term development projects in North America. We will continue activity at a rate that will keep us competitive, but at a far lower level than in 2008. However, we are going to continue the momentum of some of our longer-term growth projects that will position us to bring on new production when oil and gas demand recovers. We are continuing to fund the second phase of our operations at Jackfish and the evaluation and development of our Lower Tertiary assets in the Gulf of Mexico. We will also move forward with the evaluation of our sizable acreage positions in several emerging natural gas plays in North America. This decrease in development drilling will impact our oil and gas production. We are currently forecasting our 2009 production will be essentially flat with that of 2008. We are fortunate that we are positioned to withstand the downturn in the global economy and the resulting weakness in oil and gas prices. The strength of our balance sheet and the quality of our oil and gas properties position us to emerge from the current environment and prosper in the future. Business and Industry Outlook As previously mentioned, our current and future earnings depend largely on our ability to replace and grow oil and gas reserves, increase production and exert cost discipline. We must also manage commodity pricing risks to achieve long-term success. Oil and gas prices reached historical high levels in recent years and during the first half of 2008. We have utilized the record operating cash flows generated by high commodity prices, along with proceeds from our African divestitures, to, among other uses, repay outstanding debt. During 2008 and 2007, we repaid outstanding debt totaling $3.9 billion. During this same period, we also repurchased $1.0 billion of our common stock and redeemed $150 million of preferred stock. High commodity prices have also been a key factor driving cost increases in the oil and gas industry that have exceeded general inflation trends. We are no different from others in the industry in that we have been impacted by these cost increases. As we exited the third quarter of 2008, oil and gas prices had declined sharply from their recent record levels and declined even further through the end of 2008. In addition, recent problems in the credit markets, steep stock market declines, financial institution failures and government bail-outs provide evidence of a weakening United States and global economy. As a result of the market turmoil and price decreases, oil and gas companies with high debt levels and lack of liquidity have been, and will continue to be, negatively impacted. However, we do not consider ourselves to be in this category based on our current debt level and credit availability. The only constant in the oil and gas business is volatility, and 2008 presented us with some remarkable reminders. Our response to the current environment is to dramatically cut capital expenditures. We are
Table of Contentsbudgeting exploration and development capital at $3.5 billion to $4.1 billion for 2009. This is less than half of our 2008 investment in exploration and development. With the addition of non-oil and gas capital and other capitalized costs, we are forecasting total 2009 capital expenditures of $4.7 billion to $5.4 billion. Assuming average benchmark prices of $45.00 per barrel of crude oil and $5.50 per Mcf of gas, our 2009 capital budget will require deficit spending of about $1 billion. Our philosophy has always been to live roughly within our cash flow, and we clearly will not continue to spend at this rate in future years without some improvement in oil and gas prices. However, in order to preserve our business and maintain a level of momentum that will allow us to take advantage of stronger prices when markets recover, we believe it is prudent to use our balance sheet strength to fund this additional $1 billion of spending in 2009. If we see further price weakness in 2009 or beyond, we are prepared to make further cuts. We are dramatically decreasing our activity across most of our near-term development projects in North America. We will continue activity at a rate that will keep us competitive, but at a far lower level than in 2008. However, we are going to continue the momentum of some of our longer-term growth projects that will position us to bring on new production when oil and gas demand recovers. We are continuing to fund the second phase of our operations at Jackfish and the evaluation and development of our Lower Tertiary assets in the Gulf of Mexico. We will also move forward with the evaluation of our sizable acreage positions in several emerging natural gas plays in North America. This decrease in development drilling will impact our oil and gas production. We are currently forecasting our 2009 production will be essentially flat with that of 2008. We are fortunate that we are positioned to withstand the downturn in the global economy and the resulting weakness in oil and gas prices. The strength of our balance sheet and the quality of our oil and gas properties position us to emerge from the current environment and prosper in the future. | EXCERPTS ON THIS PAGE:
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