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Discontinued Operations and Assets Held for Sale | 9 Months Ended
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Sep. 30, 2020
Discontinued Operations And Disposal Groups [Abstract] |
Discontinued Operations and Assets Held for Sale |
17. | Discontinued Operations and Assets Held For Sale
Barnett Shale On October 1, 2020, Devon completed the sale of its Barnett Shale assets to BKV for proceeds, net of purchase price adjustments, of $490 million, including a $170 million deposit previously received in April 2020. Additionally, the agreement provides for contingent earnout payments to Devon of up to $260 million based upon future commodity prices, with upside participation beginning at a $2.75 Henry Hub natural gas price or a $50 WTI oil price. The contingent payment period commences on January 1, 2021 and has a term of four years. In connection with the sale of its Barnett Shale assets, approximately $88 million of the U.S. reporting unit goodwill was allocated to the Barnett Shale assets. Additionally, Devon ceased depreciation for all property, plant and equipment classified as assets held for sale on the date the sales agreement was approved by the Board of Directors. Devon also recognized a $748 million asset impairment in the fourth quarter of 2019 related to these assets, primarily due to the difference between the net carrying value and the purchase price, net of estimated customary purchase price adjustments. Additionally, Devon recognized incremental asset impairments of $179 million and $3 million during the first quarter and third quarter of 2020, respectively. The valuation of the future contingent earnout payments included in the September 30, 2020 Barnett Shale impairment computation was $60 million. The value was derived utilizing a Monte Carlo valuation model and qualifies as a level 3 fair value measurement. As of September 30, 2020, Devon has classified as cash restricted for discontinued operations on the consolidated balance sheets approximately $20 million of cash for obligations associated with the abandonment of certain gas processing contracts related to divestitures of other Barnett Shale assets that occurred in 2018. Cash payments for these charges total approximately $2 million per quarter. Royalty Matter Devon is a party to a class action pending in the United States District Court for the Northern District of Texas styled Henry Seeligson et al. v. Devon Energy Production Company, L.P., Case No. 3:16-cv-00082-K. The Seeligson class has been certified and Devon’s request to appeal the class certification was recently denied. The Seeligson class is composed of royalty interest owners under approximately 4,500 oil and gas leases covering properties in the Barnett Shale field in northern Texas. The Seeligson class alleges that Devon breached an implied duty to market by selling natural gas produced from the subject oil and gas leases to a Devon affiliate and failing to obtain the best price reasonably available for the gas. The Seeligson class alleges that this breach resulted in Devon underpaying royalties to the class during the period from January 1, 2008 through March 1, 2014. Although Devon denies the allegations asserted in the Seeligson case, in order to avoid the uncertainty of litigation, Devon recently reached an agreement in principle to settle the class claims. Although this settlement is contingent upon the negotiation and execution of a final definitive settlement agreement and subject to approval by the District Court, Devon recorded a $28 million expense for this matter in its third quarter 2020 discontinued operations. The amount is included within discontinued operations in the consolidated statements of comprehensive earnings and consolidated balance sheets. Canada In the second quarter of 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 $223 million ($425 million net of tax, primarily due to a significant deferred tax benefit) in 2019. Current (cash) income and withholding taxes associated with the Canadian business were approximately $175 million and were paid in the first half of 2020. The disposition of substantially all of Devon’s Canadian oil and gas 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. During the third quarter of 2019, Devon utilized a portion of the sales proceeds to early retire $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 recognized a charge on the early retirement of these notes consisting of $52 million in cash retirement costs and $6 million of noncash charges. As of September 30, 2020, Devon has classified as cash restricted for discontinued operations on the consolidated balance sheets approximately $170 million of cash for obligations retained related to the Canadian business. The remaining obligations consist of a firm transportation agreement and office leases. Cash payments for these charges total approximately $8 million per quarter. The following table presents the amounts reported in the consolidated statements of comprehensive earnings as discontinued operations.
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | Barnett Shale |  |  | Canada |  |  | Total |  |  | Barnett Shale |  |  | Canada |  |  | Total |
2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Oil, gas and NGL sales |  | $ | 94 |  |  | $ | — |  |  | $ | 94 |  |  | $ | 263 |  |  | $ | — |  |  | $ | 263 |
Total revenues |  |  | 94 |  |  |  | — |  |  |  | 94 |  |  |  | 263 |  |  |  | — |  |  |  | 263 |
Production expenses |  |  | 66 |  |  |  | — |  |  |  | 66 |  |  |  | 214 |  |  |  | — |  |  |  | 214 |
Asset impairments |  |  | 3 |  |  |  | — |  |  |  | 3 |  |  |  | 182 |  |  |  | — |  |  |  | 182 |
Asset dispositions |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (2 | ) |  |  | (2 | )
General and administrative expenses |  |  | — |  |  |  | 2 |  |  |  | 2 |  |  |  | — |  |  |  | 3 |  |  |  | 3 |
Financing costs, net |  |  | — |  |  |  | (1 | ) |  |  | (1 | ) |  |  | — |  |  |  | (3 | ) |  |  | (3 | )
Other expenses |  |  | 27 |  |  |  | (1 | ) |  |  | 26 |  |  |  | 16 |  |  |  | 3 |  |  |  | 19 |
Total expenses |  |  | 96 |  |  |  | — |  |  |  | 96 |  |  |  | 412 |  |  |  | 1 |  |  |  | 413 |
Earnings (loss) from discontinued operations before income taxes |  |  | (2 | ) |  |  | — |  |  |  | (2 | ) |  |  | (149 | ) |  |  | (1 | ) |  |  | (150 | )
Income tax benefit |  |  | — |  |  |  | (15 | ) |  |  | (15 | ) |  |  | (32 | ) |  |  | (15 | ) |  |  | (47 | )
Net earnings (loss) from discontinued operations, net of tax |  | $ | (2 | ) |  | $ | 15 |  |  | $ | 13 |  |  | $ | (117 | ) |  | $ | 14 |  |  | $ | (103 | )
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Oil, gas and NGL sales |  | $ | 101 |  |  | $ | 11 |  |  | $ | 112 |  |  | $ | 365 |  |  | $ | 741 |  |  | $ | 1,106 |
Oil, gas and NGL derivatives |  |  | — |  |  |  | (18 | ) |  |  | (18 | ) |  |  | — |  |  |  | (113 | ) |  |  | (113 | )
Marketing and midstream revenues |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 38 |  |  |  | 38 |
Total revenues |  |  | 101 |  |  |  | (7 | ) |  |  | 94 |  |  |  | 365 |  |  |  | 666 |  |  |  | 1,031 |
Production expenses |  |  | 75 |  |  |  | (1 | ) |  |  | 74 |  |  |  | 232 |  |  |  | 293 |  |  |  | 525 |
Exploration expenses |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 13 |  |  |  | 13 |
Marketing and midstream expenses |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 18 |  |  |  | 18 |
Depreciation, depletion and amortization |  |  | 20 |  |  |  | — |  |  |  | 20 |  |  |  | 60 |  |  |  | 128 |  |  |  | 188 |
Asset impairments |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 37 |  |  |  | 37 |
Asset dispositions |  |  | (1 | ) |  |  | (34 | ) |  |  | (35 | ) |  |  | 1 |  |  |  | (223 | ) |  |  | (222 | )
General and administrative expenses |  |  | — |  |  |  | 2 |  |  |  | 2 |  |  |  | — |  |  |  | 33 |  |  |  | 33 |
Financing costs, net |  |  | — |  |  |  | 59 |  |  |  | 59 |  |  |  | — |  |  |  | 85 |  |  |  | 85 |
Restructuring and transaction costs |  |  | — |  |  |  | 5 |  |  |  | 5 |  |  |  | — |  |  |  | 244 |  |  |  | 244 |
Other expenses |  |  | 3 |  |  |  | 5 |  |  |  | 8 |  |  |  | 9 |  |  |  | 8 |  |  |  | 17 |
Total expenses |  |  | 97 |  |  |  | 36 |  |  |  | 133 |  |  |  | 302 |  |  |  | 636 |  |  |  | 938 |
Earnings from discontinued operations before income taxes |  |  | 4 |  |  |  | (43 | ) |  |  | (39 | ) |  |  | 63 |  |  |  | 30 |  |  |  | 93 |
Income tax expense (benefit) |  |  | 1 |  |  |  | (13 | ) |  |  | (12 | ) |  |  | 13 |  |  |  | (298 | ) |  |  | (285 | )
Net earnings from discontinued operations, net of tax |  | $ | 3 |  |  | $ | (30 | ) |  | $ | (27 | ) |  | $ | 50 |  |  | $ | 328 |  |  | $ | 378 |
The following table presents the carrying amounts of the assets and liabilities associated with discontinued operations on the consolidated balance sheets.
|  | As of September 30, 2020 |  |  | As of December 31, 2019 |
|  | Barnett Shale |  |  | Canada |  |  | Total |  |  | Barnett Shale |  |  | Canada |  |  | Total |
Cash restricted for discontinued operations |  | $ | 20 |  |  | $ | 170 |  |  | $ | 190 |  |  | $ | 25 |  |  | $ | 355 |  |  | $ | 380 |
Accounts receivable |  | $ | 33 |  |  | $ | — |  |  | $ | 33 |  |  | $ | 38 |  |  | $ | 1 |  |  | $ | 39 |
Other current assets |  |  | 6 |  |  |  | — |  |  |  | 6 |  |  |  | 5 |  |  |  | 2 |  |  |  | 7 |
Oil and gas property and equipment, based on successful efforts accounting, net |  |  | 590 |  |  |  | — |  |  |  | 590 |  |  |  | 751 |  |  |  | — |  |  |  | 751 |
Other property and equipment, net |  |  | 11 |  |  |  | — |  |  |  | 11 |  |  |  | 11 |  |  |  | — |  |  |  | 11 |
Goodwill |  |  | 88 |  |  |  | — |  |  |  | 88 |  |  |  | 88 |  |  |  | — |  |  |  | 88 |
Other long-term assets |  |  | — |  |  |  | 81 |  |  |  | 81 |  |  |  | — |  |  |  | 81 |  |  |  | 81 |
Total assets associated with discontinued operations |  | $ | 728 |  |  | $ | 81 |  |  | $ | 809 |  |  | $ | 893 |  |  | $ | 84 |  |  | $ | 977 |
Accounts payable |  | $ | 17 |  |  | $ | 3 |  |  | $ | 20 |  |  | $ | 15 |  |  | $ | 4 |  |  | $ | 19 |
Revenues and royalties payable |  |  | 42 |  |  |  | 3 |  |  |  | 45 |  |  |  | 44 |  |  |  | 3 |  |  |  | 47 |
Other current liabilities |  |  | 215 |  |  |  | 38 |  |  |  | 253 |  |  |  | 19 |  |  |  | 233 |  |  |  | 252 |
Asset retirement obligations |  |  | 145 |  |  |  | — |  |  |  | 145 |  |  |  | 141 |  |  |  | — |  |  |  | 141 |
Other long-term liabilities |  |  | 14 |  |  |  | 143 |  |  |  | 157 |  |  |  | 16 |  |  |  | 169 |  |  |  | 185 |
Total liabilities associated with discontinued operations |  | $ | 433 |  |  | $ | 187 |  |  | $ | 620 |  |  | $ | 235 |  |  | $ | 409 |  |  | $ | 644 |

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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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