Property, Plant and Equipment Accounting Policy
Devon follows the full cost method of accounting for its oil and gas properties. Accordingly, all costs incidental to the acquisition, exploration and development of oil and gas properties, including costs of undeveloped leasehold, dry holes and leasehold equipment, are capitalized. Internal costs incurred that are directly identified with acquisition, exploration and development activities undertaken by Devon for its own account, and that are not related to production, general corporate overhead or similar activities, are also capitalized. Interest costs incurred and attributable to unproved oil and gas properties under current evaluation and major development projects of oil and gas properties are also capitalized. All costs related to production activities, including workover costs incurred solely to maintain or increase levels of production from an existing completion interval, are charged to expense as incurred.
Under the full cost method of accounting, the net book value of oil and gas properties, less related deferred income taxes, may not exceed a calculated "ceiling". The ceiling limitation is the estimated after-tax future net revenues, discounted at 10 percent per annum, from proved oil, gas and NGL reserves plus the cost of properties not subject to amortization. Estimated future net revenues exclude future cash outflows associated with settling asset retirement obligations included in the net book value of oil and gas properties. Such limitations are tested quarterly and imposed separately on a country-by-country basis.
Future net revenues are calculated using prices that represent the average of the first-day-of-the-month price for the 12-month period prior to the end of the period. Prices are held constant indefinitely and are not changed except where different prices are fixed and determinable from applicable contracts for the remaining term of those contracts, including derivative contracts in place that qualify for hedge accounting treatment. None of Devon's derivative contracts held during the three-year period ended December 31, 2011, qualified for hedge accounting treatment.
Any excess of the net book value, less related deferred taxes, over the ceiling is written off as an expense. An expense recorded in one period may not be reversed in a subsequent period even though higher commodity prices may have increased the ceiling applicable to the subsequent period.
Capitalized costs are depleted by an equivalent unit-of-production method, converting gas to oil at the ratio of six thousand cubic feet of gas to one barrel of oil. Depletion is calculated using the capitalized costs, including estimated asset retirement costs, plus the estimated future expenditures (based on current costs) to be incurred in developing proved reserves, net of estimated salvage values.
Costs associated with unproved properties are excluded from the depletion calculation until it is determined whether or not proved reserves can be assigned to such properties. Devon assesses its unproved properties for impairment quarterly. Significant unproved properties are assessed individually. Costs of insignificant unproved properties are transferred into the depletion calculation over holding periods ranging from three to six years.
No gain or loss is recognized upon disposal of oil and gas properties unless such disposal significantly alters the relationship between capitalized costs and proved reserves in a particular country.
Depreciation of midstream pipelines are provided on a unit-of-production basis. Depreciation and amortization of other property and equipment, including corporate and other midstream assets and leasehold improvements, are provided using the straight-line method based on estimated useful lives ranging from three to 39 years. Interest costs incurred and attributable to major midstream and corporate construction projects are also capitalized.
Devon recognizes liabilities for retirement obligations associated with tangible long-lived assets, such as producing well sites and midstream pipelines and processing plants when there is a legal obligation associated with the retirement of such assets and the amount can be reasonably estimated. The initial measurement of an asset retirement obligation is recorded as a liability at its fair value, with an offsetting asset retirement cost recorded as an increase to the associated property and equipment on the consolidated balance sheet. When the assumptions used to estimate a recorded asset retirement obligation change, a revision is recorded to both the asset retirement obligation and the asset retirement cost. The asset retirement cost is depreciated using a systematic and rational method similar to that used for the associated property and equipment.
Source: Devon Energy Corp., Annual Report
Property, Plant and Equipment Disclosure
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Devon Energy Corp., Statement of Financial Position, Property, Plant and Equipment
Source: Based on data from Devon Energy Corp. Annual Reports
| Item |
Description |
The company |
| Property and equipment, at cost |
Carrying amount at the balance sheet date for long-lived physical assets used in the normal conduct of business and not intended for resale. This can include land, physical structures, machinery, vehicles, furniture, computer equipment, construction in progress, and similar items. Amount does not include depreciation. |
Devon Energy Corp.'s property and equipment, at cost increased from 2009 to 2010 and from 2010 to 2011.
|
| Property and equipment, net |
Tangible assets that are held by an entity for use in the production or supply of goods and services, for rental to others, or for administrative purposes and that are expected to provide economic benefit for more than one year; net of accumulated depreciation. Examples include land, buildings, and production equipment. |
Devon Energy Corp.'s property and equipment, net increased from 2009 to 2010 and from 2010 to 2011.
|
Property, Plant and Equipment Ratios (Summary)
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Devon Energy Corp., Property, Plant and Equipment Ratios
| Ratio |
Description |
The company |
| Average age |
As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company's fixed asset base is old or new. Newer assets are likely to be more efficient. |
Devon Energy Corp.'s average age of depreciable property, plant and equipment deteriorated from 2009 to 2010 but then improved from 2010 to 2011 exceeding 2009 level.
|
| Estimated total useful life |
Over longer time periods, this ratio is a useful measure of company's depreciation policy and can be used for comparisons with competitors. |
Devon Energy Corp.'s estimated total useful life of depreciable property, plant and equipment increased from 2009 to 2010 but then slightly declined from 2010 to 2011.
|
| Estimated time elapsed since purchase |
The approximate age in years of a company's fixed assets. Useful for comparison purposes. |
Devon Energy Corp.'s estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2009 to 2010 but then improved from 2010 to 2011 not reaching 2009 level.
|
| Estimated remaining life |
|
Devon Energy Corp.'s estimated remaining life of depreciable property, plant and equipment increased from 2009 to 2010 and from 2010 to 2011.
|
Average Age
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2011 Calculations
| Ratio |
Description |
The company |
| Average age |
As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company's fixed asset base is old or new. Newer assets are likely to be more efficient. |
Devon Energy Corp.'s average age of depreciable property, plant and equipment deteriorated from 2009 to 2010 but then improved from 2010 to 2011 exceeding 2009 level.
|
Estimated Total Useful Life
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2011 Calculations
| Ratio |
Description |
The company |
| Estimated total useful life |
Over longer time periods, this ratio is a useful measure of company's depreciation policy and can be used for comparisons with competitors. |
Devon Energy Corp.'s estimated total useful life of depreciable property, plant and equipment increased from 2009 to 2010 but then slightly declined from 2010 to 2011.
|
Estimated Age, Time Elapsed Since Purchase
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2011 Calculations
| Ratio |
Description |
The company |
| Estimated time elapsed since purchase |
The approximate age in years of a company's fixed assets. Useful for comparison purposes. |
Devon Energy Corp.'s estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2009 to 2010 but then improved from 2010 to 2011 not reaching 2009 level.
|
Estimated Remaining Life
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2011 Calculations
| Ratio |
Description |
The company |
| Estimated remaining life |
|
Devon Energy Corp.'s estimated remaining life of depreciable property, plant and equipment increased from 2009 to 2010 and from 2010 to 2011.
|
