This excerpt taken from the DVN 10-K filed Feb 28, 2007.
Overview of 2006 Results and Outlook
2006 was one of the best years in Devons history. We achieved key operational successes and continued to execute our strategy to increase value per share. As a result, we delivered record amounts for earnings per share and operating cash flow and grew proved reserves to a new all-time high. Key measures of our financial and operating performance for 2006, as well as certain operational developments, are summarized below:
We produced 214 million Boe in 2006, representing a 4% decrease compared to 2005. Excluding the effects of production lost due to the sale of non-core properties in the first half of 2005, our year-over-year production remained constant. Operating costs increased due to inflationary pressure driven by the effects of
higher commodity prices and due to the weakened U.S. dollar compared to the Canadian dollar. Per unit lease operating expenses increased 17% to $6.95 per Boe.
During 2006, we utilized cash on hand, cash flow from operations, and $1.8 billion of commercial paper borrowings to fund our capital expenditures, repay $862 million in debt and repurchase $253 million of our common stock. We ended the year with $1.3 billion of cash and short-term investments.
From an operational perspective, our deepwater Gulf of Mexico exploration program has reached several important milestones related to the Lower Tertiary trend. To date, we have drilled four discovery wells in the Lower Tertiary Cascade in 2002, St. Malo in 2003, Jack in 2004 and Kaskida in the third quarter of 2006. Also in the third quarter of 2006, we announced the successful production test of the Jack No. 2 well in the Lower Tertiary. We currently hold 273 blocks in the Lower Tertiary and have identified 19 additional exploratory prospects within these blocks to date. These achievements support our positive view of the Lower Tertiary and demonstrate the growth potential of our high-impact exploration strategy on long-term production, reserves and value.
On June 29, 2006, we acquired Chiefs oil and gas assets located in the Barnett Shale area of Texas for $2.2 billion. This transaction added 99.7 million Boe of proved reserves and 169,000 net acres to our Barnett Shale assets. This acquisition combined with our organic growth continues to extend our leadership position in the Barnett Shale and provides years of additional drilling inventory.
On November 14, 2006, we announced our plans to divest our operations in Egypt. At December 31, 2006, Egypt had proved reserves of eight million Boe. Subsequently, on January 23, 2007, we announced our plans to divest our operations in West Africa, including Equatorial Guinea, Cote dIvoire, and other countries in the region. At December 31, 2006, our West Africa operations had proved reserves of 90 million Boe, or 4% of total proved reserves. We anticipate completing the sale of our Egyptian assets in the first half of 2007 and our West African assets in the third quarter of 2007. Divesting these properties will allow us to redeploy our financial and intellectual capital to the significant growth opportunities we have developed onshore in North America and in the deepwater Gulf of Mexico. Additionally, we will sharpen our focus in North America and concentrate our international operations in Brazil and China, where we have established competitive advantages.
Looking to 2007, we intend to use the proceeds from the sales of our operations in Egypt and West Africa to repay our outstanding commercial paper and resume common stock repurchases. In addition, our operational accomplishments to date have laid the foundation for continued growth in future years, at competitive unit costs, that we expect will continue to create additional value for our investors. In 2007, we expect to deliver reserve additions of 350 to 370 million Boe with related capital expenditures in the range of $5.3 to $5.7 billion. We expect production related to our continuing operations to increase approximately 10% from 2006 to 2007, which reflects the significant reserve additions in 2005 and 2006, and those expected in 2007.