Devon Energy Corporation (DVN)

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Devon Energy (DVN)

Q4 2011 Earnings Call

February 15, 2012 11:00 am ET


Vincent W. White - Senior Vice President of Investor Relations

John Richels - Chief Executive Officer, President and Director

David A. Hager - Executive Vice President of Exploration & Production

Jeffrey A. Agosta - Chief Financial Officer and Executive Vice President

Darryl G. Smette - Executive Vice President of Marketing & Midstream


Scott Hanold - RBC Capital Markets, LLC, Research Division

David W. Kistler - Simmons & Company International, Research Division

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Bob Brackett - Sanford C. Bernstein & Co., LLC., Research Division

Mark Gilman - The Benchmark Company, LLC, Research Division

Robert S. Morris - Citigroup Inc, Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division



Welcome to Devon Energy's Fourth Quarter and Full Year 2011 Earnings Conference Call. [Operator Instructions] This call is being recorded. At this time, I would like to turn the conference over to Mr. Vince White, Senior Vice President of Investor Relations. Sir, you may begin.

Vincent W. White

Thank you, operator, and welcome, everyone, to today's Year-End 2011 Earnings Call and Webcast. I'll begin today's call with a few preliminary housekeeping items and then turn the call over to our President and CEO, John Richels. John will provide an overview of our 2011 results and his thoughts on the year ahead; then Dave Hager, Head of Exploration and Production, will cover the operating highlights and the details of our 2012 capital program. And following that, Jeff Agosta, our Chief Financial Officer, will finish up with a review of our financial results. We'll conclude with a Q&A period, and as usual, we will tend to hold the call to 1 hour. Also with us today is Larry Nichols, our Executive Chairman, and other members of the Devon senior management team to help with the Q&A session.

A replay of this call will be available later today through a link on our homepage. In today's call, we'll be providing high-level guidance for 2012 capital, production and certain operating items. And as is our practice, after the call today, we will file an 8-K with all the detailed estimates for production by product category and geographic region, operating expense items and so forth as well as expected realized prices relative to benchmark oil, gas and NGL prices. The 8-K will also provide additional details of our 2012 capital plan.

Please note that all references in today's call to our plans, forecast, expectations and estimates are considered forward-looking statements under U.S. securities law. And while we always strive to give you the very best estimates possible, there are a lot of factors that could cause our actual results to differ from these estimates we're providing. A discussion of risk factors related to those estimates can be found in our SEC filing, that is, our 8-K that we'll file later today. Also in today's call, we will reference certain non-GAAP performance measures. When we use these measures, we're required to provide certain related disclosures and those are available on the Devon website.

Before I hand off the call, I want to officially announce that Devon will be hosting an analyst event in Houston. This is going to be half-day format on the morning of April 4. We'll provide an overview of Devon's corporate strategy, an update of the company's resource potential and inventory and provide an in-depth operational review of our key exploration and development projects. Invitations will be sent out in the next week or 2, I just wanted to let you know to save the date. Again, that will start the morning of Wednesday, April 4, at about 8 a.m. in Houston.

With those items out of the way, I'll turn the call over to John.

John Richels

Thanks, Vince, and good morning, everyone. 2011 was another outstanding year for Devon. We delivered strong financial results driven by the solid execution of our operational plans and the very successful completion of our strategic repositioning. Net earnings climbed to an all-time record $4.7 billion for the year. Fourth quarter adjusted net earnings totaled $1.55 per diluted share, exceeding the First Call estimate by $0.07. Cash flow totaled $6.5 billion for the year, and coupled with the final proceeds from our strategic repositioning, cash inflows reached nearly $10 billion.

In November, we concluded our $3.5 billion share buyback program, completing the repurchase of 11% of our outstanding shares. And I'll remind you, in total, over the past 8 years we've reduced our share count by over 20%. Production from our onshore North American asset base grew to an all-time record of 240 million equivalent barrels in 2011. Fourth quarter production increased 10% over the year-ago quarter, driven by an impressive 21% increase in oil and liquids production. Record production from each of our 4 core development areas, that's the Permian Basin, Jackfish, the Barnett and Cana, contributed to this strong liquids growth. In 2011, we continued to assemble high-impact positions across 5 oil and liquids-rich new venture plays. Subsequently, we entered into a joint venture with Sinopec, whereby they will invest $2.5 billion in exchange for 1/3 of our 1.4 million net acres in these plays.

And finally, excellent operating performance translated into another strong year of company-wide reserve growth, boosting year-end proved reserves to an all-time record 3 billion barrels equivalent. Looking more closely at our 2011 reserve activities, our drill-bit reserve additions, that's extensions, discoveries and performance revisions, totaled 386 million barrels and replaced 160% of our production for the year. With our 2011 program focused on oil and liquids-rich gas, our liquids reserve replacement rate reached 230%. This boosted oil and natural gas liquids to 42% of the company's total reserves, more than half of which is black oil. These results were achieved in spite of 2011 being a modest year for SAGD bookings. Significant oil reserve additions are expected from Jackfish 3 this year, and that will set up 2012 as another good year for company-wide reserve additions.

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