Hedging Losses Plague Devon Q1 Earnings

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Devon Energy, the Oklahoma-based independent oil and natural gas producer, said its first-quarter profit slumped 65% to $416 million, or 97 cents a share, down from $1.19 billion, or $2.66 a share, a year earlier, as hedging losses erased gains in production. Excluding one-time items Devon earned $1.34 a share. Revenue fell 33% to $2.15 billion.

Analysts were expecting a profit of $1.33 a share on revenue of $2.24 billion. After selling $10 billion worth of international and offshore assets since 2009, Devon (DVN) is focusing on onshore production in North America by boosting its exposure to shale plays such as the Eagle Ford and Tuscaloosa Shales.

While derivatives contracts used to hedge against volatile energy prices weighed on Devon's firs-quarter profits, the company has entered into swap and collar contracts for 76,000 barrels of oil per day throughout 2012, according to the Wall Street Journal.

Of that total, 22,000 barrels per day of oil production is swapped at a weighted average price of $107 per barrel. The remaining 54,000 barrels per day utilizes costless collars with a weighted average ceiling of $126 per barrel and a floor of $86 per barrel, the company said in a statement. For the remaining three quarters of 2011, Devon now has 900 million cubic feet per day protected through hedges at a weighted average floor price of $5.24 per thousand cubic feet, according to the statement.

Devon also said it expects to receive approval from regulators for its $3.2 billion asset sale in Brazil to BP (BP) sometime in the current quarter.

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