DEVON ENERGY CORP/DE Goodwill & Intangibles Disclosure
14.Goodwill and Other Intangible Assets
Goodwill
The following table presents a summary of Devon’s goodwill. For the year ended December 31, 2017, there were no changes to the carrying amount of goodwill.
|
|
|
U.S. |
|
|
EnLink |
|
|
Total |
|
|||
|
Balance as of December 31, 2015 |
|
$ |
923 |
|
|
$ |
2,414 |
|
|
$ |
3,337 |
|
|
Acquired during period |
|
|
— |
|
|
|
2 |
|
|
|
2 |
|
|
Asset divestitures |
|
|
(83 |
) |
|
|
— |
|
|
|
(83 |
) |
|
Impairment |
|
|
— |
|
|
|
(873 |
) |
|
|
(873 |
) |
|
Balance as of December 31, 2016 |
|
$ |
840 |
|
|
$ |
1,543 |
|
|
$ |
2,383 |
|
The following table presents the General Partner’s and EnLink’s goodwill activity by reporting unit. For the year ended December 31, 2017, there were no changes to the carrying amount of goodwill.
|
|
|
Texas |
|
|
Oklahoma |
|
|
Crude and Condensate |
|
|
General Partner |
|
|
Total |
|
|||||
|
Balance as of December 31, 2015 |
|
$ |
704 |
|
|
$ |
190 |
|
|
$ |
93 |
|
|
$ |
1,427 |
|
|
$ |
2,414 |
|
|
Acquired during period |
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
Impairment |
|
|
(473 |
) |
|
|
— |
|
|
|
(93 |
) |
|
|
(307 |
) |
|
|
(873 |
) |
|
Balance as of December 31, 2016 |
|
$ |
233 |
|
|
$ |
190 |
|
|
$ |
— |
|
|
$ |
1,120 |
|
|
$ |
1,543 |
|
Asset Divestitures
In conjunction with the U.S. non-core upstream asset divestitures in 2016 discussed in Note 3, Devon removed goodwill allocated to these assets.
Impairment
As further discussed in Note 1, Devon performs an annual impairment test of goodwill at October 31, or more frequently if events or changes in circumstances indicate that the carrying value of a reporting unit may not be recoverable. Sustained weakness in the overall energy sector driven by low commodity prices, together with a decline in EnLink’s unit price, caused a change in circumstances warranting an interim impairment test of EnLink’s reporting units in the first quarter of 2016. Based on that test, EnLink recorded noncash goodwill impairments related to its Texas, Crude and Condensate and General Partner reporting units.
Additionally, during 2015, EnLink recorded noncash goodwill impairments related to its Texas, Louisiana and Crude and Condensate reporting units.
Other Intangible Assets
The following table presents other intangible assets reported in other long-term assets in the accompanying consolidated balance sheets.
|
|
|
December 31, 2017 |
|
|
December 31, 2016 |
|
||
|
Customer relationships |
|
$ |
1,796 |
|
|
$ |
1,796 |
|
|
Accumulated amortization |
|
|
(299 |
) |
|
|
(172 |
) |
|
Net intangibles |
|
$ |
1,497 |
|
|
$ |
1,624 |
|
The weighted-average amortization period for the customer relationships is 15 years. Amortization expense for intangibles was approximately $127 million, $117 million and $56 million for the years ended 2017, 2016 and 2015, respectively. The remaining aggregate amortization expense is estimated to be approximately $123 million in each of the next five years.
About Goodwill & Intangibles Disclosures
Goodwill and intangible asset disclosures reveal the premium paid in acquisitions and how management assesses whether that premium retains its value. Since goodwill is no longer amortized under US GAAP, the annual impairment test is the only mechanism that adjusts carrying values downward — making the assumptions behind that test critically important for investors.
Key signals: a history of goodwill impairments suggests management consistently overpays for acquisitions. Watch the gap between reporting unit fair value and carrying amount — when fair value exceeds carrying amount by less than 10-20%, a small decline in business performance could trigger a write-down. For finite-lived intangibles, examine useful life assumptions across customer relationships, technology, and trade names; aggressive estimates inflate near-term earnings. Compare total intangibles-to-total-assets ratios against peers to assess acquisition dependency. Rising goodwill as a percentage of equity can signal balance sheet fragility.