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Discontinued Operations and Assets Held for Sale | 6 Months Ended
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Jun. 30, 2019
Discontinued Operations And Disposal Groups [Abstract] |
Discontinued Operations and Assets Held for Sale |
18. | Discontinued Operations and Assets Held For Sale
Canada On May 29, 2019, Devon announced it had entered into an agreement to sell all of its operating assets and operations in Canada to Canadian Natural Resources Limited. Devon concluded that the transaction was a strategic shift and met the requirements of assets held for sale and discontinued operations upon the authorization to enter the agreement by Devon’s Board of Directors. As part of its assessment, Devon considered the following: 1) Devon is exiting its entire heavy oil and Canadian operations; 2) Devon’s Canadian operations is a separate reportable segment and is a component of Devon’s business; and 3) the transaction resulted in a material reduction in total assets, revenues, net earnings and total proved reserves. As a result, Devon has classified the results of operations and cash flows related to its Canadian operations as discontinued operations on its consolidated financial statements. Additionally, Devon ceased depreciation and amortization for all plant, property and equipment and intangible assets classified as assets held for sale on the date the sales agreement was approved by the Board of Directors. On June 27, 2019, Devon completed the sale of its Canadian business for $2.6 billion ($3.4 billion Canadian dollars), net of purchase price adjustments, and recognized a pre-tax gain of $189 million ($460 million net of tax, primarily due to a significant deferred tax benefit). Current (cash) income tax associated with the sale was approximately $110 million. The disposition of all of Devon’s Canadian operating assets resulted in Devon releasing its historical cumulative foreign currency translation adjustment of $1.2 billion from accumulated other comprehensive earnings to be included within the gain computation. The historical cumulative foreign currency translation portion of the gain is not taxable. Additionally, $370 million of the Canadian cash balance is restricted for funding certain tax and other obligations related to the Canadian business and is classified as cash restricted for discontinued operations on the consolidated balance sheets. In conjunction with the sale of Devon’s Canadian business, Devon recognized $273 million of restructuring and asset impairment related charges. Canadian Natural Resources Limited has reimbursed Devon for approximately $50 million of these restructuring costs, under the terms of the disposition agreement. Along with certain tax obligations, these costs will be funded with the restricted cash described above. These charges consist of $154 million related to a firm transportation agreement abandonment and $55 million related to office lease abandonment and related asset impairment charges. Cash payments for the abandonment charges total approximately $6 million per quarter. Additionally, there are $64 million of employee related costs, including approximately $40 million of noncash accelerated vesting of employee stock awards. As mentioned above, Canadian Natural Resources Limited reimbursed the Company for approximately $50 million of these costs pursuant to the disposition agreement and Devon expects to fund the remaining costs in the second half of 2019. Prior to the second quarter of 2019, Devon’s Canadian business maintained a valuation allowance against certain capital loss carryforwards and net operating losses. As a result of the sale of all of Devon’s Canadian operating assets and the lack of future forecasted income, all but approximately $34 million of the Canadian deferred tax assets have been offset with a valuation allowance. As announced on June 27, 2019, Devon utilized a portion of the sales proceeds to early retire its $500 million of the 4.00% senior notes due July 15, 2021 and $1.0 billion of the 3.25% senior notes due May 15, 2022. Devon expects to recognize a loss on the early retirement of these notes in the third quarter of 2019 consisting of $52 million in cash retirement costs and $6 million of noncash charges. EnLink On June 6, 2018, Devon announced that it had entered into an agreement to sell its aggregate ownership interests in EnLink and the General Partner for $3.125 billion. Upon entering into the agreement to sell its ownership interest in June 2018, Devon concluded that the transaction was a strategic shift and met the requirements of assets held for sale and discontinued operations. As a result, Devon classified the results of operations and cash flows related to EnLink and the General Partner as discontinued operations on its consolidated financial statements. On July 18, 2018, Devon completed the sale of its aggregate ownership interests in EnLink and the General Partner for $3.125 billion and recognized a gain of approximately $2.6 billion ($2.2 billion after-tax). Current (cash) income tax associated with the transaction was approximately $12 million. The vast majority of the tax effect relates to deferred tax expense offset by the valuation allowance adjustment. As part of the sale agreement, Devon extended its fixed-fee gathering and processing contracts with respect to the Bridgeport and Cana plants with EnLink through 2029. Although the agreements were extended to 2029, the minimum volume commitments for the Bridgeport and Cana plants expired at the end of 2018. Devon has minimum volume commitments for gathering and processing of 77-128 MMcf/d with EnLink at the Chisholm plant through early 2021. Prior to the divestment of Devon’s aggregate ownership of EnLink and the General Partner, certain activity between Devon and EnLink were eliminated in consolidation. Subsequent to the divestment, all activity related to EnLink represent third-party transactions and are no longer eliminated in consolidation. During the first six months of 2019, Devon had net outflows of approximately $280 million with EnLink, which primarily related to gathering and processing expenses. These net outflows represent gross cash amounts and not net working interest amounts. The following table presents the amounts reported in the consolidated comprehensive statements of earnings as discontinued operations.
|  | Three months ended June 30, |  |  | Six months ended June 30, |
|  | Canada |  |  | EnLink |  |  | Total |  |  | Canada |  |  | EnLink |  |  | Total |
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Upstream revenues |  | $ | 388 |  |  | $ | — |  |  | $ | 388 |  |  | $ | 635 |  |  | $ | — |  |  | $ | 635 |
Marketing and midstream revenues |  |  | 12 |  |  |  | — |  |  |  | 12 |  |  |  | 38 |  |  |  | — |  |  |  | 38 |
Total revenues |  |  | 400 |  |  |  | — |  |  |  | 400 |  |  |  | 673 |  |  |  | — |  |  |  | 673 |
Production expenses |  |  | 153 |  |  |  | — |  |  |  | 153 |  |  |  | 294 |  |  |  | — |  |  |  | 294 |
Exploration expenses |  |  | 4 |  |  |  | — |  |  |  | 4 |  |  |  | 13 |  |  |  | — |  |  |  | 13 |
Marketing and midstream expenses |  |  | 9 |  |  |  | — |  |  |  | 9 |  |  |  | 18 |  |  |  | — |  |  |  | 18 |
Depreciation, depletion and amortization |  |  | 49 |  |  |  | — |  |  |  | 49 |  |  |  | 128 |  |  |  | — |  |  |  | 128 |
Asset impairments |  |  | 37 |  |  |  | — |  |  |  | 37 |  |  |  | 37 |  |  |  | — |  |  |  | 37 |
Asset dispositions |  |  | (189 | ) |  |  | — |  |  |  | (189 | ) |  |  | (189 | ) |  |  | — |  |  |  | (189 | )
General and administrative expenses |  |  | 13 |  |  |  | — |  |  |  | 13 |  |  |  | 31 |  |  |  | — |  |  |  | 31 |
Financing costs, net |  |  | 13 |  |  |  | — |  |  |  | 13 |  |  |  | 26 |  |  |  | — |  |  |  | 26 |
Restructuring and transaction costs |  |  | 236 |  |  |  | — |  |  |  | 236 |  |  |  | 239 |  |  |  | — |  |  |  | 239 |
Other expenses |  |  | 31 |  |  |  | — |  |  |  | 31 |  |  |  | 3 |  |  |  | — |  |  |  | 3 |
Total expenses |  |  | 356 |  |  |  | — |  |  |  | 356 |  |  |  | 600 |  |  |  | — |  |  |  | 600 |
Earnings from discontinued operations before income taxes |  |  | 44 |  |  |  | — |  |  |  | 44 |  |  |  | 73 |  |  |  | — |  |  |  | 73 |
Income tax benefit |  |  | (285 | ) |  |  | — |  |  |  | (285 | ) |  |  | (285 | ) |  |  | — |  |  |  | (285 | )
Net earnings from discontinued operations, net of tax |  | $ | 329 |  |  | $ | — |  |  | $ | 329 |  |  | $ | 358 |  |  | $ | — |  |  | $ | 358 |
2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Upstream revenues |  | $ | 303 |  |  | $ | — |  |  | $ | 303 |  |  | $ | 605 |  |  | $ | — |  |  | $ | 605 |
Marketing and midstream revenues |  |  | 24 |  |  |  | 1,595 |  |  |  | 1,619 |  |  |  | 41 |  |  |  | 3,207 |  |  |  | 3,248 |
Total revenues |  |  | 327 |  |  |  | 1,595 |  |  |  | 1,922 |  |  |  | 646 |  |  |  | 3,207 |  |  |  | 3,853 |
Production expenses |  |  | 166 |  |  |  | — |  |  |  | 166 |  |  |  | 314 |  |  |  | — |  |  |  | 314 |
Exploration expenses |  |  | 6 |  |  |  | — |  |  |  | 6 |  |  |  | 18 |  |  |  | — |  |  |  | 18 |
Marketing and midstream expenses |  |  | 11 |  |  |  | 1,269 |  |  |  | 1,280 |  |  |  | 18 |  |  |  | 2,610 |  |  |  | 2,628 |
Depreciation, depletion and amortization |  |  | 78 |  |  |  | 106 |  |  |  | 184 |  |  |  | 172 |  |  |  | 244 |  |  |  | 416 |
General and administrative expenses |  |  | 18 |  |  |  | 31 |  |  |  | 49 |  |  |  | 42 |  |  |  | 58 |  |  |  | 100 |
Financing costs, net |  |  | (2 | ) |  |  | 45 |  |  |  | 43 |  |  |  | (4 | ) |  |  | 89 |  |  |  | 85 |
Restructuring and transaction costs |  |  | 9 |  |  |  | — |  |  |  | 9 |  |  |  | 9 |  |  |  | — |  |  |  | 9 |
Other expenses |  |  | 39 |  |  |  | (5 | ) |  |  | 34 |  |  |  | 109 |  |  |  | (7 | ) |  |  | 102 |
Total expenses |  |  | 325 |  |  |  | 1,446 |  |  |  | 1,771 |  |  |  | 678 |  |  |  | 2,994 |  |  |  | 3,672 |
Earnings (loss) from discontinued operations before income taxes |  |  | 2 |  |  |  | 149 |  |  |  | 151 |  |  |  | (32 | ) |  |  | 213 |  |  |  | 181 |
Income tax expense (benefit) |  |  | (20 | ) |  |  | 10 |  |  |  | (10 | ) |  |  | (51 | ) |  |  | 16 |  |  |  | (35 | )
Net earnings from discontinued operations, net of tax |  |  | 22 |  |  |  | 139 |  |  |  | 161 |  |  |  | 19 |  |  |  | 197 |  |  |  | 216 |
Net earnings attributable to noncontrolling interests |  |  | — |  |  |  | 90 |  |  |  | 90 |  |  |  | — |  |  |  | 134 |  |  |  | 134 |
Net earnings from discontinued operations, attributable to Devon |  | $ | 22 |  |  | $ | 49 |  |  | $ | 71 |  |  | $ | 19 |  |  | $ | 63 |  |  | $ | 82 |
The following table presents the carrying amounts of the assets and liabilities associated with discontinued operations on the consolidated balance sheets. The assets and liabilities associated with discontinued operations at June 30, 2019 and December 31, 2018 are primarily related to the divestiture of Devon’s Canadian business. Included within assets and liabilities associated with discontinued operations at December 31, 2018 are $197 million of assets and $69 million of liabilities related to the divestiture of non-core upstream Permian Basin assets which closed in January 2019 as further discussed in Note 2.
|  | June 30, 2019 |  |  | December 31, 2018 |
Accounts receivable |  | $ | 111 |  |  | $ | 37 |
Other current assets |  |  | 20 |  |  |  | 246 |
Current assets associated with discontinued operations |  |  | 131 |  |  |  | 283 |
Oil and gas property and equipment, based on successful efforts accounting, net |  |  | — |  |  |  | 3,829 |
Other property and equipment, net |  |  | — |  |  |  | 78 |
Other long-term assets |  |  | 99 |  |  |  | 79 |
Long-term assets associated with discontinued operations |  |  | 99 |  |  |  | 3,986 |
Total assets associated with discontinued operations |  | $ | 230 |  |  | $ | 4,269 |
Accounts payable |  | $ | 97 |  |  | $ | 101 |
Revenues and royalties payable |  |  | 16 |  |  |  | 67 |
Short-term debt (1) |  |  | 1,494 |  |  |  | — |
Other current liabilities |  |  | 287 |  |  |  | 170 |
Current liabilities associated with discontinued operations |  |  | 1,894 |  |  |  | 338 |
Long-term debt (1) |  |  | — |  |  |  | 1,493 |
Asset retirement obligations |  |  | — |  |  |  | 424 |
Other long-term liabilities |  |  | 189 |  |  |  | 20 |
Deferred income taxes |  |  | — |  |  |  | 348 |
Long-term liabilities associated with discontinued operations |  |  | 189 |  |  |  | 2,285 |
Total liabilities associated with discontinued operations |  | $ | 2,083 |  |  | $ | 2,623 |
| (1) | Includes the $500 million 4.00% Senior Notes due July 15, 2021 and $1.0 billion 3.25% Senior Notes due May 15, 2022 that were retired early in July 2019 utilizing a portion of the proceeds from the sale of Devon’s Canadian business.

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- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI http://asc.fasb.org/topic&trid=2155823 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 + Details
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