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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 Devon’s 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
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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 Chief’s 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 d’Ivoire, 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.
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