Asset Impairments

9 Months Ended

Sep. 30, 2014

5. Asset Impairments

In the first nine months of 2013, Devon recognized asset impairments related to its oil and gas property and equipment as presented below.



	Nine Months Ended September 30, 2013
	Gross		Net of Taxes

		(In millions)
U.S. oil and gas assets	$	1,110	$	707
Canada oil and gas assets		843		632
Midstream assets		7		4
Total asset impairments	$	1,960	$	1,343

Oil and Gas Impairments

Under the full-cost method of accounting, capitalized costs of oil and gas properties, net of accumulated DD&A and deferred income taxes, may not exceed the full-cost “ceiling” at the end of each quarter. The ceiling is calculated separately for each country and is based on the present value of estimated future net cash flows from proved oil and gas reserves, discounted at 10 percent per annum, net of related tax effects. Estimated future net cash flows are calculated using end-of-period costs and an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months.

The oil and gas impairments resulted primarily from declines in the U.S. and Canada full-cost ceilings. The lower ceiling values resulted primarily from decreases in the 12-month average trailing prices for oil, bitumen and NGLs, which reduced proved reserve values.

Midstream Impairments

In the third quarter of 2013, Devon determined that the carrying amounts of certain midstream facilities located in south and east Texas were not recoverable from estimated future cash flows due to declining natural gas production. Consequently, the assets were written down to their estimated fair values, which were determined using discounted cash flow models. The fair value of Devon’s midstream assets is considered a Level 3 fair value measurement.