8-K
Devon Energy Corp/De (DVN)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 15, 2022
Devon Energy Corporation
(Exact name of registrant as specified in its charter)
| DELAWARE | 001-32318 | 73-1567067 |
|---|---|---|
| (State or other jurisdiction<br> <br>of incorporation) | (Commission<br> <br>File Number) | (IRS Employer<br> <br>Identification No.) |
| 333 W. SHERIDAN AVE.,<br>OKLAHOMA CITY, OKLAHOMA | 73102-5015 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (405) 235-3611
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br> <br>Symbol(s) | Name of each exchange<br>on which registered |
|---|---|---|
| Common Stock, par value $0.10 per share | DVN | The New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02 | Results of Operations and Financial Condition. |
|---|
On February 15, 2022, Devon Energy Corporation (the “Company”) announced its financial and operational results for the year and quarter ended December 31, 2021. In connection with this announcement, the Company provided an earnings release and certain supplemental financial information (including guidance and hedging information). Copies of these documents are furnished as Exhibits 99.1 and 99.2, respectively, to this report and, along with certain other materials, will be available on the Company’s website at www.devonenergy.com.
The information contained in this report and the exhibits hereto shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shall not be incorporated by reference into any filings made by the Company under the Securities Act of 1933, as amended, or the Exchange Act, except as may be expressly set forth by specific reference in such filing.
| Item 9.01 | Financial Statements and Exhibits. |
|---|
(d) Exhibits
| Exhibit<br>No. | Description of Exhibits |
|---|---|
| 99.1 | Earnings release, dated February 15, 2022. |
| 99.2 | Supplemental financial information (including guidance and hedging information). |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| DEVON ENERGY CORPORATION | |
|---|---|
| By: | /s/ Jeffrey L. Ritenour |
| Jeffrey L. Ritenour | |
| Executive Vice President and Chief Financial Officer |
Date: February 15, 2022
EX-99.1
Exhibit 99.1
| Devon Energy Corporation<br><br><br>333 West Sheridan Avenue<br> <br>Oklahoma City, OK 73102-5015 |
|---|
Devon Energy Reports Fourth-Quarter and Full-Year 2021 Financial and Operational Results
OKLAHOMA CITY – Feb. 15, 2022 – Devon Energy Corp. (NYSE: DVN) today reported financial and operational results for the fourth-quarter and full year 2021. Supplemental financial tables and forward-looking guidance are available on the company’s website at www.devonenergy.com.
KEY FINANCIAL AND OPERATIONAL HIGHLIGHTS
| • | Operating cash flow tripled in 2021 and free cash flow reached the highest level in Devon’s 50-year history |
|---|---|
| • | Disciplined capital allocation limited reinvestment rates to 32 percent of operating cash flow in the fourth<br>quarter |
| --- | --- |
| • | Delaware Basin production growth and margin expansion drove fourth-quarter operating results<br> |
| --- | --- |
| • | Fourth-quarter dividend payout improved to record high of $1.00 per share |
| --- | --- |
| • | Board approved a 45 percent increase to the fixed quarterly dividend |
| --- | --- |
| • | Share-repurchase program retired 14 million shares at a total cost of $589 million in the fourth<br>quarter |
| --- | --- |
| • | Board increased share-repurchase authorization by 60 percent to $1.6 billion |
| --- | --- |
CEO PERSPECTIVE
“2021 was a breakout year for Devon that can best be defined by our bold strategic consolidation, unyielding commitment to capital discipline and the successful deployment of our industry leading cash-return business model,” said Rick Muncrief, president and CEO.
“With our powerful suite of assets and financially-driven strategy, we delivered on exactly what we promised to do by generating a record-setting amount of free cash flow that was returned to shareholders through market-leading dividend payouts, opportunistic share buybacks, and improvements to our investment-grade financial strength during the year,” Muncrief commented.
“As I look ahead, the value proposition of Devon only strengthens,” Muncrief added. “Our business is streamlined to capture the benefits of higher commodity prices and we will remain extremely disciplined by prioritizing value over the pursuit of volume. This shareholder-friendly approach will once again translate into differentiated cash returns and excellent returns on capital employed.”
FINANCIAL SUMMARY
Devon reported net earnings of $1.5 billion, or $2.23 per diluted share, in the fourth quarter of 2021. Adjusting for items analysts typically exclude from estimates, the company’s core earnings were $935 million, or $1.39 per diluted share.
Operating cash flow was $1.6 billion in the fourth quarter, a 173 percent increase from the first quarter of 2021 when the WPX merger closed. This level of cash flow funded all capital requirements and resulted in $1.1 billion of free cash flow in the quarter. For the full-year 2021, operating cash flow totaled $4.9 billion, a more than three-fold increase versus 2020, and Devon generated $2.9 billion of free cash flow, representing the highest total in the company’s 50-year history.
Based on the fourth-quarter financial performance, Devon declared a record high fixed-plus-variable dividend payout of $1.00 per share. The dividend is payable on Mar. 31, 2022 to shareholders of record at the close of business on Mar. 14, 2022.
As part of the fourth-quarter dividend announcement, the board approved an increase in the fixed dividend of 45 percent or $0.05 per share. After the fixed dividend is funded, up to 50 percent of the excess free cash flow each quarter will be distributed to shareholders through the variable dividend.
The company also accelerated cash returns through the execution of its share-repurchase program. In the fourth quarter, Devon repurchased 14 million shares at a total cost of $589 million. Given this substantial progress, the board has expanded the company’s share-repurchase authorization by 60 percent to $1.6 billion, which is equivalent to 5 percent of Devon’s market capitalization.
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Devon possesses an investment-grade balance sheet and excellent liquidity. In 2021, the company took steps to strengthen its financial position by retiring $1.2 billion of outstanding debt. At Dec. 31, 2021, the company had $2.3 billion of cash on hand and intends to further improve its balance sheet by retiring low-premium debt of up to $1.0 billion in 2022 and 2023.
OPERATING RESULTS
Devon’s total production averaged 611,000 oil-equivalent barrels (Boe) per day in the fourth quarter, exceeding guidance by 3 percent. This positive variance was across all products and driven by high-margin production growth in the Delaware Basin.
The company’s fourth-quarter capital program averaged 16 operated drilling rigs and 4 completion crews, with over 80 percent of activity residing in the Delaware Basin. This level of capital investment was in-line with plan and resulted in an upstream capital spend of $486 million. Midstream, land and other capital requirements totaled $35 million in the quarter.
The benefits of an oil-weighted production mix, coupled with low operating costs, led to field-level cash margins expanding to $42.37 per Boe in the quarter. This result is a 14 percent improvement from the previous quarter.
The capture of merger synergies improved Devon’s corporate cost structure by 31 percent year-over-year, on a pro forma basis. This performance was driven by lower personnel expenses and reduced financing costs.
ASSET-LEVEL HIGHLIGHTS
Delaware Basin: Production averaged 416,000 Boe per day, a 34 percent increase from the first quarter of 2021 when the WPX merger closed. The volume growth in the quarter was driven by 65 new wells that achieved first production across Devon’s 400,000 net acre position in New Mexico and Texas.
A key operating highlight in the quarter was the development of the Avalon Shale within Devon’s Cotton Draw leasehold in New Mexico. This grouping of 6 wells significantly exceeded pre-drill expectations, with average 30-day rates reaching up to 3,600 Boe per day. In addition to the strong well productivity, returns were enhanced by completed well costs that averaged $6.5 million per well.
In 2022, Devon expects to operate an average of 14 rigs and bring online approximately 220 new wells in the Delaware Basin. Approximately 60 percent of activity will be directed toward development opportunities in New Mexico, with the remaining investment allocated to well-delineated opportunities across the company’s acreage in Texas.
Anadarko Basin: Production averaged 78,000 Boe per day, with gas and NGLs representing over 80 percent of the product mix. In 2021, Devon operated two drilling rigs in the basin supported by a $100 million drilling carry with Dow. This carry-enhanced activity resulted in the company spudding 31 wells, with 16 wells commencing first production during the year.
Per-well capital costs from activity in 2021 decreased by 25 percent versus legacy results in the field, and initial well productivity has exceeded type curve expectations by 35 percent. These positive operating results were driven by improvements in completion design and the up-spacing of development units.
In 2022, Devon plans to accelerate activity to a three-rig drilling program and bring online approximately 40 new wells across its acreage position. The carried returns from this program compete with any asset in the company’s portfolio.
Williston Basin: Production averaged 55,000 Boe per day (64 percent oil). In 2021, with a capital program tailored to mitigate production declines and optimize margins, this asset generated approximately $700 million of free cash flow for the company. In the upcoming year, Devon plans to deploy comparable levels of capital activity and bring online 15 to 20 new wells.
Eagle Ford: Fourth-quarter production averaged 38,000 Boe per day. Capital activity in the quarter was highlighted by the commencement of production on 7 new wells in the volatile oil window of the play. This low-risk development activity resulted in average 30-day production rates of 2,700 Boe per day. Completed well costs for these wells averaged $6 million per well. Devon and its partner plan to run a two-rig drilling program in 2022 to maintain consistent production throughout the year.
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Powder River Basin: Production averaged 19,000 Boe per day (74 percent oil). Volumes in the quarter benefitted from 2 new Parkman wells that delivered average 30-day rates of 1,200 Boe per day. In 2022, the company expects to spud up to 10 new wells to advance the appraisal of this emerging resource opportunity across its 300,000 net acre position in the oil fairway.
PROVED RESERVES
Devon’s estimated proved reserves on a pro forma basis increased 15 percent to 1.6 billion Boe at year-end 2021, with proved undeveloped reserves accounting for 21 percent of the total. The extensions and discoveries from the company’s drilling program combined with positive revisions added 426 million Boe of reserves in 2021.
A key contributor to the reserve additions in 2021 was the drilling program in the Delaware Basin that organically replaced more than 200 percent of production during the year.
2022 OUTLOOK
Devon remains committed to a disciplined maintenance capital program in 2022 and has not made any modifications to its previously announced plan to sustain production in the range of 570,000 to 600,000 Boe per day, with an upstream capital investment of $1.9 billion to $2.2 billion.
Production in the first quarter of 2022 is estimated to be reduced by 3 percent or 15,000 Boe per day due to the impact of severe winter weather. Adjusting for this downtime, the company expects production to approximate 570,000 Boe per day in the first quarter.
Additional details of Devon’s forward-looking guidance for the first quarter and full-year 2022 are available on the company’s website at www.devonenergy.com.
SUSTAINABILITY UPDATE
Devon recently released its 2021 sustainability report highlighting efforts to deliver industry-leading results while being a good neighbor, valued and effective community partner, responsible environmental steward, and supportive employer. This report also details the progress Devon has made toward achieving key environmental targets focused on reducing the carbon intensity of its operations. For more information, please refer to the sustainability report at www.devonenergy.com/sustainability.
CONFERENCE CALL WEBCAST AND SUPPLEMENTALEARNINGS MATERIALS
Also provided with today’s release is the company’s detailed earnings presentation that is available on the company’s website at www.devonenergy.com. The company’s fourth-quarter conference call will be held at 10:00 a.m. Central (11:00 a.m. Eastern) on Wednesday, Feb. 16, 2022, and will serve primarily as a forum for analyst and investor questions and answers.
ABOUT DEVON ENERGY
Devon Energy is a leading oil and gas producer in the U.S. with a premier multi-basin portfolio headlined by a world-class acreage position in the Delaware Basin. Devon’s disciplined cash-return business model is designed to achieve strong returns, generate free cash flow and return capital to shareholders, while focusing on safe and sustainable operations. For more information, please visit www.devonenergy.com.
| Investor Contacts | Media Contact |
|---|---|
| Scott Coody, 405-552-4735 | Lisa Adams, 405-228-1732 |
| Chris Carr, 405-228-2496 |
NON-GAAP DISCLOSURES
This press release includes non-GAAP (generally accepted accounting principles) financial measures. Such non-GAAP measures are not alternatives to GAAP measures, and you should not consider these non-GAAP measures in isolation or as a substitute for analysis of results asreported under GAAP. Reconciliations of these non-GAAP measures and other disclosures are provided within the supplemental financial tables that are available on the company’s website and in the relatedForm 10-K filed with the SEC.
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FORWARD LOOKING STATEMENTS
This press release includes “forward-looking statements” within the meaning of the federal securities laws. Such statements include thoseconcerning strategic plans, our expectations and objectives for future operations, as well as other future events or conditions, and are often identified by use of the words and phrases “expects,” “believes,” “will,”“would,” “could,” “continue,” “may,” “aims,” “likely to be,” “intends,” “forecasts,” “projections,” “estimates,” “plans,”“expectations,” “targets,” “opportunities,” “potential,” “anticipates,” “outlook” and other similar terminology. All statements, other than statements of historical facts, included in thispress release that address activities, events or developments that Devon expects, believes or anticipates will or may occur in the future are forward looking statements. Such statements are subject to a number of assumptions, risks anduncertainties, many of which are beyond our control. Consequently, actual future results could differ materially and adversely from our expectations due to a number of factors, including, but not limited to: the volatility of oil, gas and NGLprices; risks relating to the COVID-19 pandemic or other future pandemics; uncertainties inherent in estimating oil, gas and NGL reserves; the extent to which we are successful in acquiring and discoveringadditional reserves; regulatory restrictions, compliance costs and other risks relating to governmental regulation, including with respect to federal lands and environmental matters; risks related to climate change; the uncertainties, costs andrisks involved in our operations, including as a result of employee misconduct; risks related to our hedging activities; counterparty credit risks; risks relating to our indebtedness; cyberattack risks; our limited control over third parties whooperate some of our oil and gas properties; midstream capacity constraints and potential interruptions in production; the extent to which insurance covers any losses we may experience; competition for assets, materials, people and capital; risksrelated to investors attempting to effect change; our ability to successfully complete mergers, acquisitions and divestitures; our ability to pay dividends and make share repurchases; and any of the other risks and uncertainties discussed inDevon’s 2021 Annual Report on Form 10-K (the “2021 Form 10-K”) or other SEC filings.
The forward-looking statements included in this press release speak only as of the date of this press release, represent management’s currentreasonable expectations as of the date of this press release and are subject to the risks and uncertainties identified above as well as those described in the 2021 Form 10-K and in other documents we file fromtime to time with the SEC. We cannot guarantee the accuracy of our forward-looking statements, and readers are urged to carefully review and consider the various disclosures made in the 2021 Form 10-K and inother documents we file from time to time with the SEC. All subsequent written and oral forward-looking statements attributable to Devon, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements above.We do not undertake, and expressly disclaim, any duty to update or revise our forward-looking statements based on new information, future events or otherwise.
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EX-99.2
Exhibit 99.2
Devon Energy Fourth-Quarter 2021
Supplemental Tables
| TABLE OF CONTENTS: | PAGE: | |
|---|---|---|
| Income Statement | 2 | |
| Supplemental Information for Income Statement | 3 | |
| Cash Flow Statement | 4 | |
| Balance Sheet | 5 | |
| Production by Asset | 6 | |
| Capital, Costs Incurred and Reserves Reconciliation | 7 | |
| Well Activity by Asset | 8 | |
| Realized Price by Asset | 9 | |
| Per-Unit Cash Margin by Asset | 10 | |
| Non-GAAP Core Earnings (Loss) | 11 | |
| Return on Capital Employed and Non-GAAP EBITDAX | 12 | |
| Net Debt, Net<br>Debt-to-EBITDAX, Free Cash Flow and Reinvestment Rate | 13 | |
| Variable Dividend | 14 |
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CONSOLIDATED STATEMENTS OF EARNINGS
| (in millions, except per share amounts) | 2021 | 2020 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quarter 4 | Quarter 3 | Quarter 2 | Quarter 1 | Quarter 4 | |||||||||||
| Oil, gas and NGL sales | $ | 2,985 | $ | 2,635 | $ | 2,154 | $ | 1,757 | $ | 786 | |||||
| Oil, gas and NGL derivatives ^(1)^ | 22 | (335 | ) | (703 | ) | (528 | ) | (117 | ) | ||||||
| Marketing and midstream revenues | 1,266 | 1,166 | 966 | 821 | 611 | ||||||||||
| Total revenues | 4,273 | 3,466 | 2,417 | 2,050 | 1,280 | ||||||||||
| Production expenses<br>^(2)^ | 605 | 555 | 513 | 458 | 271 | ||||||||||
| Exploration expenses | 5 | 3 | 3 | 3 | 4 | ||||||||||
| Marketing and midstream expenses | 1,266 | 1,165 | 965 | 842 | 618 | ||||||||||
| Depreciation, depletion and amortization | 577 | 578 | 536 | 467 | 301 | ||||||||||
| Asset impairments | — | — | — | — | 27 | ||||||||||
| Asset dispositions | (49 | ) | — | (87 | ) | (32 | ) | (1 | ) | ||||||
| General and administrative expenses | 95 | 95 | 94 | 107 | 82 | ||||||||||
| Financing costs, net<br>^(3)^ | 86 | 86 | 80 | 77 | 70 | ||||||||||
| Restructuring and transaction costs | 28 | 18 | 23 | 189 | 17 | ||||||||||
| Other, net | (2 | ) | 2 | (14 | ) | (29 | ) | 1 | |||||||
| Total expenses | 2,611 | 2,502 | 2,113 | 2,082 | 1,390 | ||||||||||
| Earnings (loss) from continuing operations before income taxes | 1,662 | 964 | 304 | (32 | ) | (110 | ) | ||||||||
| Income tax expense (benefit) | 150 | 120 | 43 | (248 | ) | (37 | ) | ||||||||
| Net earnings (loss) from continuing operations | 1,512 | 844 | 261 | 216 | (73 | ) | |||||||||
| Net loss from discontinued operations, net of taxes | — | — | — | — | (25 | ) | |||||||||
| Net earnings (loss) | 1,512 | 844 | 261 | 216 | (98 | ) | |||||||||
| Net earnings attributable to noncontrolling interests | 6 | 6 | 5 | 3 | 4 | ||||||||||
| Net earnings (loss) attributable to Devon | $ | 1,506 | $ | 838 | $ | 256 | $ | 213 | $ | (102 | ) | ||||
| Basic net earnings (loss) per share: | |||||||||||||||
| Continuing operations | $ | 2.24 | $ | 1.24 | $ | 0.38 | $ | 0.33 | $ | (0.20 | ) | ||||
| Discontinued operations | — | — | — | — | (0.07 | ) | |||||||||
| Basic net earnings (loss) per share | $ | 2.24 | $ | 1.24 | $ | 0.38 | $ | 0.33 | $ | (0.27 | ) | ||||
| Diluted net earnings (loss) per share: | |||||||||||||||
| Continuing operations | $ | 2.23 | $ | 1.24 | $ | 0.38 | $ | 0.32 | $ | (0.20 | ) | ||||
| Discontinued operations | — | — | — | — | (0.07 | ) | |||||||||
| Diluted net earnings (loss) per share | $ | 2.23 | $ | 1.24 | $ | 0.38 | $ | 0.32 | $ | (0.27 | ) | ||||
| Weighted average common shares outstanding: | |||||||||||||||
| Basic | 671 | 677 | 677 | 654 | 383 | ||||||||||
| Diluted | 673 | 679 | 679 | 656 | 383 |
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SUPPLEMENTAL INFORMATION FOR CONSLIDATED STATEMENTS OF EARNINGS
| (1) OIL, GAS AND NGL DERIVATIVES | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | 2021 | 2020 | |||||||||||||
| Quarter 4 | Quarter 3 | Quarter 2 | Quarter 1 | Quarter 4 | |||||||||||
| Derivative cash settlements | $ | (493 | ) | $ | (370 | ) | $ | (367 | ) | $ | (232 | ) | $ | (27 | ) |
| Derivative valuation changes | 515 | 35 | (336 | ) | (296 | ) | (90 | ) | |||||||
| Oil, gas and NGL derivatives | $ | 22 | $ | (335 | ) | $ | (703 | ) | $ | (528 | ) | $ | (117 | ) | |
| (2) PRODUCTION EXPENSES | |||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |||||
| (in millions) | 2021 | 2020 | |||||||||||||
| Quarter 4 | Quarter 3 | Quarter 2 | Quarter 1 | Quarter 4 | |||||||||||
| Lease operating expense | $ | 235 | $ | 215 | $ | 210 | $ | 199 | $ | 91 | |||||
| Gathering, processing & transportation | 173 | 157 | 147 | 129 | 130 | ||||||||||
| Production taxes | 197 | 176 | 143 | 117 | 47 | ||||||||||
| Property taxes | — | 7 | 13 | 13 | 3 | ||||||||||
| Production expenses | $ | 605 | $ | 555 | $ | 513 | $ | 458 | $ | 271 | |||||
| (3) FINANCING COSTS, NET | |||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |
| (in millions) | 2021 | 2020 | |||||||||||||
| Quarter 4 | Quarter 3 | Quarter 2 | Quarter 1 | Quarter 4 | |||||||||||
| Interest based on outstanding debt | $ | 92 | $ | 93 | $ | 98 | $ | 105 | $ | 65 | |||||
| Gain on early retirement of debt | — | — | (10 | ) | (20 | ) | — | ||||||||
| Interest income | — | (1 | ) | — | (1 | ) | — | ||||||||
| Other | (6 | ) | (6 | ) | (8 | ) | (7 | ) | 5 | ||||||
| Financing costs, net | $ | 86 | $ | 86 | $ | 80 | $ | 77 | $ | 70 |
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CONSOLIDATED STATEMENTS OF CASH FLOWS
| (in millions) | 2021 | 2020 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quarter 4 | Quarter 3 | Quarter 2 | Quarter 1 | Quarter 4 | |||||||||||
| Cash flows from operating activities: | |||||||||||||||
| Net earnings (loss) | $ | 1,512 | $ | 844 | $ | 261 | $ | 216 | $ | (98 | ) | ||||
| Adjustments to reconcile net earnings (loss) to net cash from operating activities: | |||||||||||||||
| Net loss from discontinued operations, net of income taxes | — | — | — | — | 25 | ||||||||||
| Depreciation, depletion and amortization | 577 | 578 | 536 | 467 | 301 | ||||||||||
| Asset impairments | — | — | — | — | 27 | ||||||||||
| Leasehold impairments | 1 | 1 | 1 | 1 | 3 | ||||||||||
| (Amortization) accretion of liabilities | (6 | ) | (7 | ) | (7 | ) | (7 | ) | 8 | ||||||
| Total (gains) losses on commodity derivatives | (22 | ) | 335 | 703 | 528 | 117 | |||||||||
| Cash settlements on commodity derivatives | (493 | ) | (370 | ) | (367 | ) | (232 | ) | (27 | ) | |||||
| Gains on asset dispositions | (49 | ) | — | (87 | ) | (32 | ) | (1 | ) | ||||||
| Deferred income tax expense (benefit) | 149 | 119 | 24 | (243 | ) | (17 | ) | ||||||||
| Share-based compensation | 19 | 19 | 20 | 41 | 18 | ||||||||||
| Early retirement of debt | — | — | (10 | ) | (20 | ) | — | ||||||||
| Other | 2 | 11 | 2 | — | — | ||||||||||
| Changes in assets and liabilities, net | (74 | ) | 68 | 17 | (127 | ) | 2 | ||||||||
| Net cash from operating activities – continuing operations | 1,616 | 1,598 | 1,093 | 592 | 358 | ||||||||||
| Cash flows from investing activities: | |||||||||||||||
| Capital expenditures | (512 | ) | (474 | ) | (504 | ) | (499 | ) | (217 | ) | |||||
| Acquisitions of property and equipment | (3 | ) | (10 | ) | (5 | ) | — | (3 | ) | ||||||
| Divestitures of property and equipment | 14 | 1 | 49 | 15 | 5 | ||||||||||
| WPX acquired cash | — | — | — | 344 | — | ||||||||||
| Distributions from equity method investments | 8 | 9 | 8 | 10 | — | ||||||||||
| Contributions to equity method investments | (25 | ) | — | — | — | — | |||||||||
| Net cash from investing activities – continuing operations | (518 | ) | (474 | ) | (452 | ) | (130 | ) | (215 | ) | |||||
| Cash flows from financing activities: | |||||||||||||||
| Repayments of long-term debt | — | — | (710 | ) | (533 | ) | — | ||||||||
| Early retirement of debt | — | — | (32 | ) | (27 | ) | — | ||||||||
| Repurchases of common stock | (589 | ) | — | — | — | — | |||||||||
| Dividends paid on common stock | (554 | ) | (329 | ) | (229 | ) | (203 | ) | (138 | ) | |||||
| Contributions from noncontrolling interests | — | 1 | 3 | — | 9 | ||||||||||
| Distributions to noncontrolling interests | (6 | ) | (6 | ) | (5 | ) | (4 | ) | (4 | ) | |||||
| Acquisition of noncontrolling interests | — | — | — | (24 | ) | — | |||||||||
| Shares exchanged for tax withholdings and other | — | (3 | ) | (9 | ) | (33 | ) | (1 | ) | ||||||
| Net cash from financing activities – continuing operations | (1,149 | ) | (337 | ) | (982 | ) | (824 | ) | (134 | ) | |||||
| Effect of exchange rate changes on cash – continuing | 1 | (5 | ) | 2 | 3 | — | |||||||||
| Net change in cash, cash equivalents and restricted cash of continuing operations | (50 | ) | 782 | (339 | ) | (359 | ) | 9 | |||||||
| Cash flows from discontinued operations: | |||||||||||||||
| Operating activities | — | — | — | — | 19 | ||||||||||
| Investing activities | — | — | — | — | 310 | ||||||||||
| Effect of exchange rate changes on cash | — | — | — | — | 2 | ||||||||||
| Net change in cash, cash equivalents and restricted cash of discontinued operations | — | — | — | — | 331 | ||||||||||
| Net change in cash, cash equivalents and restricted cash | (50 | ) | 782 | (339 | ) | (359 | ) | 340 | |||||||
| Cash, cash equivalents and restricted cash at beginning of period | 2,321 | 1,539 | 1,878 | 2,237 | 1,897 | ||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 2,271 | $ | 2,321 | $ | 1,539 | $ | 1,878 | $ | 2,237 | |||||
| Reconciliation of cash, cash equivalents and restricted cash: | |||||||||||||||
| Cash and cash equivalents | $ | 2,099 | $ | 2,144 | $ | 1,348 | $ | 1,683 | $ | 2,047 | |||||
| Restricted cash | 172 | 177 | 191 | 195 | 190 | ||||||||||
| Total cash, cash equivalents and restricted cash | $ | 2,271 | $ | 2,321 | $ | 1,539 | $ | 1,878 | $ | 2,237 |
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CONSOLIDATED BALANCE SHEETS
| (in millions) | December 31, | December 31, | ||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Current assets: | ||||||
| Cash, cash equivalents and restricted cash | $ | 2,271 | $ | 2,237 | ||
| Accounts receivable | 1,543 | 601 | ||||
| Income tax receivable | 83 | 174 | ||||
| Other current assets | 352 | 248 | ||||
| Total current assets | 4,249 | 3,260 | ||||
| Oil and gas property and equipment, based on successful efforts accounting, net | 13,536 | 4,436 | ||||
| Other property and equipment, net | 1,472 | 957 | ||||
| Total property and equipment, net | 15,008 | 5,393 | ||||
| Goodwill | 753 | 753 | ||||
| Right-of-use<br>assets | 235 | 223 | ||||
| Investments | 402 | 12 | ||||
| Other long-term assets | 378 | 271 | ||||
| Total assets | $ | 21,025 | $ | 9,912 | ||
| Current liabilities: | ||||||
| Accounts payable | $ | 500 | $ | 242 | ||
| Revenues and royalties payable | 1,456 | 662 | ||||
| Other current liabilities | 1,131 | 536 | ||||
| Total current liabilities | 3,087 | 1,440 | ||||
| Long-term debt | 6,482 | 4,298 | ||||
| Lease liabilities | 252 | 246 | ||||
| Asset retirement obligations | 468 | 358 | ||||
| Other long-term liabilities | 1,050 | 551 | ||||
| Deferred income taxes | 287 | — | ||||
| Stockholders’ equity: | ||||||
| Common stock | 66 | 38 | ||||
| Additional paid-in capital | 7,636 | 2,766 | ||||
| Retained earnings | 1,692 | 208 | ||||
| Accumulated other comprehensive loss | (132 | ) | (127 | ) | ||
| Total stockholders’ equity attributable to Devon | 9,262 | 2,885 | ||||
| Noncontrolling interests | 137 | 134 | ||||
| Total equity | 9,399 | 3,019 | ||||
| Total liabilities and equity | $ | 21,025 | $ | 9,912 | ||
| Common shares outstanding | 663 | 382 |
5
PRODUCTION TREND
| 2021 | 2020 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Quarter 4 | Quarter 3 | Quarter 2 | Quarter 1 | Quarter 4 | ||||||
| Oil (MBbls/d) | ||||||||||
| Delaware Basin | 213 | 213 | 191 | 172 | 99 | |||||
| Anadarko Basin | 14 | 14 | 17 | 13 | 16 | |||||
| Williston Basin | 36 | 39 | 46 | 44 | — | |||||
| Eagle Ford | 19 | 20 | 18 | 16 | 18 | |||||
| Powder River Basin | 14 | 14 | 16 | 17 | 16 | |||||
| Other | 4 | 3 | 3 | 6 | 7 | |||||
| Total | 300 | 303 | 291 | 268 | 156 | |||||
| Natural gas liquids (MBbls/d) | ||||||||||
| Delaware Basin | 107 | 100 | 82 | 60 | 43 | |||||
| Anadarko Basin | 27 | 25 | 26 | 21 | 25 | |||||
| Williston Basin | 9 | 9 | 9 | 8 | — | |||||
| Eagle Ford | 9 | 11 | 9 | 6 | 9 | |||||
| Powder River Basin | 2 | 3 | 3 | 3 | 3 | |||||
| Other | — | — | — | 1 | — | |||||
| Total | 154 | 148 | 129 | 99 | 80 | |||||
| Gas (MMcf/d) | ||||||||||
| Delaware Basin | 577 | 578 | 513 | 471 | 267 | |||||
| Anadarko Basin | 222 | 219 | 225 | 200 | 233 | |||||
| Williston Basin | 64 | 59 | 61 | 49 | — | |||||
| Eagle Ford | 60 | 67 | 59 | 47 | 60 | |||||
| Powder River Basin | 19 | 19 | 21 | 21 | 22 | |||||
| Other | 1 | 1 | 2 | 3 | 2 | |||||
| Total | 943 | 943 | 881 | 791 | 584 | |||||
| Total oil equivalent (MBoe/d) | ||||||||||
| Delaware Basin | 416 | 409 | 358 | 310 | 186 | |||||
| Anadarko Basin | 78 | 75 | 80 | 68 | 81 | |||||
| Williston Basin | 55 | 58 | 66 | 61 | — | |||||
| Eagle Ford | 38 | 42 | 37 | 30 | 37 | |||||
| Powder River Basin | 19 | 20 | 22 | 23 | 22 | |||||
| Other | 5 | 4 | 4 | 7 | 7 | |||||
| Total | 611 | 608 | 567 | 499 | 333 |
6
CAPITAL EXPENDITURES
| (in millions) | 2021 | 2020 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Quarter 4 | Quarter 3 | Quarter 2 | Quarter 1 | Quarter 4 | ||||||
| Delaware Basin | $ | 392 | $ | 363 | $ | 394 | $ | 355 | $ | 153 |
| Anadarko Basin | 19 | 15 | 11 | 13 | 3 | |||||
| Williston Basin | 25 | 13 | 19 | 20 | — | |||||
| Eagle Ford | 21 | 34 | 36 | 29 | 2 | |||||
| Powder River Basin | 27 | 15 | 5 | 27 | 22 | |||||
| Other | 2 | 2 | 2 | 3 | 3 | |||||
| Total upstream capital | $ | 486 | $ | 442 | $ | 467 | $ | 447 | $ | 183 |
| Midstream | 14 | 11 | 22 | 24 | 3 | |||||
| Other | 21 | 28 | 20 | 16 | 3 | |||||
| Total capital | $ | 521 | $ | 481 | $ | 509 | $ | 487 | $ | 189 |
COSTS INCURRED AND RESERVES RECONCILIATION
| COSTS INCURRED | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | ||||||||||||
| (in millions) | 2021 | 2020 | ||||||||||
| Property acquisition costs: | ||||||||||||
| Proved properties | $ | 7,017 | $ | — | ||||||||
| Unproved properties | 2,381 | 8 | ||||||||||
| Exploration costs | 212 | 159 | ||||||||||
| Development costs | 1,643 | 820 | ||||||||||
| Costs incurred | $ | 11,253 | $ | 987 | ||||||||
| RESERVES RECONCILIATION | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Oil<br>(MMBbls) | Gas<br>(Bcf) | NGL<br>(MMBbls) | Total<br>(MMBoe) | |||||||||
| As of December 31, 2020: | ||||||||||||
| Proved developed | 194 | 1,244 | 173 | 574 | ||||||||
| Proved undeveloped | 88 | 268 | 45 | 178 | ||||||||
| Total Proved | **** | 282 | **** | **** | 1,512 | **** | **** | 218 | **** | **** | 752 | **** |
| Revisions due to prices | 55 | 382 | 36 | 155 | ||||||||
| Revisions other than price | (23 | ) | 11 | 64 | 43 | |||||||
| Extensions and discoveries | 112 | 348 | 58 | 228 | ||||||||
| Purchase of reserves | 393 | 961 | 110 | 663 | ||||||||
| Production | (106 | ) | (325 | ) | (48 | ) | (209 | ) | ||||
| Sale of reserves | (4 | ) | (11 | ) | (1 | ) | (7 | ) | ||||
| As of December 31, 2021: | ||||||||||||
| Proved developed | 544 | 2,361 | 348 | 1,285 | ||||||||
| Proved undeveloped | 165 | 517 | 89 | 340 | ||||||||
| Total Proved | **** | 709 | **** | **** | 2,878 | **** | **** | 437 | **** | **** | 1,625 | **** |
7
SUPPLEMENTAL INFORMATION FOR UPSTREAM CAPITAL EXPENDITURES
| GROSS OPERATED SPUDS | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||||||
| Quarter 4 | Quarter 3 | Quarter 2 | Quarter 1 | Quarter 4 | ||||||
| Delaware Basin | 54 | 50 | 55 | 60 | 21 | |||||
| Anadarko Basin | 6 | 9 | 8 | 8 | — | |||||
| Williston Basin | 9 | — | — | 7 | — | |||||
| Eagle Ford | 9 | 10 | 11 | 14 | — | |||||
| Powder River Basin | 4 | 9 | 1 | — | 2 | |||||
| Total | 82 | 78 | 75 | 89 | 23 | |||||
| GROSS OPERATED WELLS TIED-IN | ||||||||||
| 2021 | 2020 | |||||||||
| Quarter 4 | Quarter 3 | Quarter 2 | Quarter 1 | Quarter 4 | ||||||
| Delaware Basin | 65 | 52 | 88 | 52 | 23 | |||||
| Anadarko Basin | 12 | 4 | 6 | — | — | |||||
| Williston Basin | — | 4 | 13 | — | — | |||||
| Eagle Ford | 7 | 19 | 9 | 12 | — | |||||
| Powder River Basin | 2 | 2 | — | 10 | 2 | |||||
| Total | 86 | 81 | 116 | 74 | 25 | |||||
| AVERAGE LATERAL LENGTH | ||||||||||
| (based on wells tied-in) | 2021 | 2020 | ||||||||
| Quarter 4 | Quarter 3 | Quarter 2 | Quarter 1 | Quarter 4 | ||||||
| Delaware Basin | 10,100’ | 9,700’ | 10,000’ | 10,000’ | 9,800’ | |||||
| Anadarko Basin | 11,700’ | 9,200’ | 9,600’ | — | — | |||||
| Williston Basin | — | 9,600’ | 10,000’ | — | — | |||||
| Eagle Ford | 7,100’ | 6,300’ | 5,600’ | 4,400’ | — | |||||
| Powder River Basin | 9,600’ | 10,500’ | — | 9,800’ | 13,600’ | |||||
| Total | 10,100’ | 8,900’ | 9,600’ | 9,100’ | 10,100’ |
8
REALIZED PRICING
BENCHMARK PRICES
| (average prices) | 2021 | 2020 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quarter 4 | Quarter 3 | Quarter 2 | Quarter 1 | Quarter 4 | |||||||||||
| Oil ($/Bbl) – West Texas Intermediate (Cushing) | $ | 76.91 | $ | 70.64 | $ | 66.04 | $ | 57.87 | $ | 42.65 | |||||
| Natural Gas ($/Mcf) – Henry Hub | $ | 5.84 | $ | 4.02 | $ | 2.83 | $ | 2.71 | $ | 2.67 | |||||
| NGL ($/Bbl) – Mont Belvieu Blended | $ | 40.39 | $ | 36.85 | $ | 28.54 | $ | 25.81 | $ | 20.01 | |||||
| REALIZED PRICES | |||||||||||||||
| 2021 | 2020 | ||||||||||||||
| Quarter 4 | Quarter 3 | Quarter 2 | Quarter 1 | Quarter 4 | |||||||||||
| Oil (Per Bbl) | |||||||||||||||
| Delaware Basin | $ | 75.67 | $ | 68.44 | $ | 63.93 | $ | 56.07 | $ | 40.67 | |||||
| Anadarko Basin | 76.07 | 69.11 | 63.51 | 55.86 | 40.34 | ||||||||||
| Williston Basin | 74.02 | 66.60 | 62.00 | 52.74 | — | ||||||||||
| Eagle Ford | 75.35 | 68.32 | 64.04 | 54.90 | 37.83 | ||||||||||
| Powder River Basin | 72.86 | 65.81 | 62.36 | 53.77 | 36.42 | ||||||||||
| Other | 76.57 | 75.68 | 72.85 | 55.65 | 39.93 | ||||||||||
| Realized price without hedges | 75.36 | 68.19 | 63.63 | 55.28 | 39.84 | ||||||||||
| Cash settlements | (13.14 | ) | (10.60 | ) | (13.29 | ) | (9.13 | ) | (1.83 | ) | |||||
| Realized price, including cash settlements | $ | 62.22 | $ | 57.59 | $ | 50.34 | $ | 46.15 | $ | 38.01 | |||||
| Natural gas liquids (Per Bbl) | |||||||||||||||
| Delaware Basin | $ | 35.56 | $ | 31.34 | $ | 23.81 | $ | 26.25 | $ | 13.67 | |||||
| Anadarko Basin | 35.66 | 33.20 | 25.55 | 23.14 | 15.65 | ||||||||||
| Williston Basin | 24.97 | 19.36 | 14.76 | 18.51 | — | ||||||||||
| Eagle Ford | 38.17 | 32.80 | 25.46 | 24.44 | 15.66 | ||||||||||
| Powder River Basin | 47.30 | 40.66 | 35.46 | 30.19 | 19.39 | ||||||||||
| Other | 66.22 | 54.51 | 41.19 | 31.86 | 24.24 | ||||||||||
| Realized price without hedges | 35.36 | 31.25 | 23.89 | 25.01 | 14.77 | ||||||||||
| Cash settlements | (0.54 | ) | (0.45 | ) | (0.25 | ) | (0.20 | ) | (0.01 | ) | |||||
| Realized price, including cash settlements | $ | 34.82 | $ | 30.80 | $ | 23.64 | $ | 24.81 | $ | 14.76 | |||||
| Gas (Per Mcf) | |||||||||||||||
| Delaware Basin | $ | 4.60 | $ | 3.58 | $ | 2.31 | $ | 3.19 | $ | 1.51 | |||||
| Anadarko Basin | 5.37 | 4.05 | 3.15 | 2.49 | 2.29 | ||||||||||
| Williston Basin | 1.53 | 0.65 | (1.60 | ) | (0.48 | ) | — | ||||||||
| Eagle Ford | 5.76 | 4.08 | 3.25 | 3.15 | 2.38 | ||||||||||
| Powder River Basin | 6.10 | 4.15 | 3.54 | 5.27 | 2.70 | ||||||||||
| Other | 4.11 | 2.60 | 2.74 | 2.57 | 2.87 | ||||||||||
| Realized price without hedges | 4.68 | 3.55 | 2.35 | 2.84 | 1.96 | ||||||||||
| Cash settlements | (1.42 | ) | (0.78 | ) | (0.15 | ) | (0.15 | ) | 0.00 | ||||||
| Realized price, including cash settlements | $ | 3.26 | $ | 2.77 | $ | 2.20 | $ | 2.69 | $ | 1.96 | |||||
| Total oil equivalent (Per Boe) | |||||||||||||||
| Delaware Basin | $ | 54.28 | $ | 48.29 | $ | 42.84 | $ | 40.95 | $ | 26.94 | |||||
| Anadarko Basin | 41.39 | 35.62 | 30.34 | 25.35 | 19.79 | ||||||||||
| Williston Basin | 53.44 | 48.55 | 43.98 | 40.79 | — | ||||||||||
| Eagle Ford | 56.06 | 47.40 | 42.84 | 38.90 | 25.97 | ||||||||||
| Powder River Basin | 63.45 | 55.93 | 52.55 | 47.58 | 31.08 | ||||||||||
| Other | 73.63 | 70.49 | 65.37 | 50.58 | 37.67 | ||||||||||
| Realized price without hedges | 53.12 | 47.08 | 41.75 | 39.14 | 25.63 | ||||||||||
| Cash settlements | (8.78 | ) | (6.60 | ) | (7.11 | ) | (5.17 | ) | (0.86 | ) | |||||
| Realized price, including cash settlements | $ | 44.34 | $ | 40.48 | $ | 34.64 | $ | 33.97 | $ | 24.77 |
9
ASSET MARGINS
BENCHMARK PRICES
| (average prices) | 2021 | 2020 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quarter 4 | Quarter 3 | Quarter 2 | Quarter 1 | Quarter 4 | |||||||||||
| Oil ($/Bbl) – West Texas Intermediate (Cushing) | $ | 76.91 | $ | 70.64 | $ | 66.04 | $ | 57.87 | $ | 42.65 | |||||
| Natural Gas ($/Mcf) – Henry Hub | $ | 5.84 | $ | 4.02 | $ | 2.83 | $ | 2.71 | $ | 2.67 | |||||
| NGL ($/Bbl) – Mont Belvieu Blended | $ | 40.39 | $ | 36.85 | $ | 28.54 | $ | 25.81 | $ | 20.01 | |||||
| PER-UNIT CASH MARGIN BY ASSET (per Boe) | |||||||||||||||
| 2021 | 2020 | ||||||||||||||
| Quarter 4 | Quarter 3 | Quarter 2 | Quarter 1 | Quarter 4 | |||||||||||
| Delaware Basin | |||||||||||||||
| Realized price | $ | 54.28 | $ | 48.29 | $ | 42.84 | $ | 40.95 | $ | 26.94 | |||||
| Lease operating expenses | (4.02 | ) | (3.52 | ) | (3.91 | ) | (3.97 | ) | (2.38 | ) | |||||
| Gathering, processing & transportation | (2.27 | ) | (2.18 | ) | (2.06 | ) | (1.96 | ) | (2.40 | ) | |||||
| Production & property taxes | (3.40 | ) | (3.31 | ) | (3.08 | ) | (2.95 | ) | (2.08 | ) | |||||
| Field-level cash margin | $ | 44.59 | $ | 39.28 | $ | 33.79 | $ | 32.07 | $ | 20.08 | |||||
| Anadarko Basin | |||||||||||||||
| Realized price | $ | 41.39 | $ | 35.62 | $ | 30.34 | $ | 25.35 | $ | 19.79 | |||||
| Lease operating expenses | (2.70 | ) | (2.58 | ) | (2.96 | ) | (3.82 | ) | (2.57 | ) | |||||
| Gathering, processing & transportation | (6.60 | ) | (6.14 | ) | (6.06 | ) | (6.31 | ) | (8.39 | ) | |||||
| Production & property taxes | (2.44 | ) | (1.70 | ) | (1.46 | ) | (1.21 | ) | (0.55 | ) | |||||
| Field-level cash margin | $ | 29.65 | $ | 25.20 | $ | 19.86 | $ | 14.01 | $ | 8.28 | |||||
| Williston Basin | |||||||||||||||
| Realized price | $ | 53.44 | $ | 48.55 | $ | 43.98 | $ | 40.79 | $ | — | |||||
| Lease operating expenses | (5.76 | ) | (5.83 | ) | (4.87 | ) | (5.13 | ) | — | ||||||
| Gathering, processing & transportation | (2.09 | ) | (2.13 | ) | (1.86 | ) | (2.14 | ) | — | ||||||
| Production & property taxes | (4.64 | ) | (4.47 | ) | (4.27 | ) | (3.82 | ) | — | ||||||
| Field-level cash margin | $ | 40.95 | $ | 36.12 | $ | 32.98 | $ | 29.70 | $ | — | |||||
| Eagle Ford | |||||||||||||||
| Realized price | $ | 56.06 | $ | 47.40 | $ | 42.84 | $ | 38.90 | $ | 25.97 | |||||
| Lease operating expenses | (3.78 | ) | (3.43 | ) | (3.47 | ) | (3.89 | ) | (2.79 | ) | |||||
| Gathering, processing & transportation | (6.65 | ) | (4.17 | ) | (5.56 | ) | (6.73 | ) | (5.89 | ) | |||||
| Production & property taxes | (2.93 | ) | (1.99 | ) | (1.93 | ) | (1.71 | ) | (0.16 | ) | |||||
| Field-level cash margin | $ | 42.70 | $ | 37.81 | $ | 31.88 | $ | 26.57 | $ | 17.13 | |||||
| Powder River Basin | |||||||||||||||
| Realized price | $ | 63.45 | $ | 55.93 | $ | 52.55 | $ | 47.58 | $ | 31.08 | |||||
| Lease operating expenses | (7.49 | ) | (8.09 | ) | (6.65 | ) | (7.45 | ) | (5.47 | ) | |||||
| Gathering, processing & transportation | (2.86 | ) | (2.93 | ) | (3.02 | ) | (2.66 | ) | (3.01 | ) | |||||
| Production & property taxes | (7.49 | ) | (6.73 | ) | (6.10 | ) | (5.48 | ) | (3.91 | ) | |||||
| Field-level cash margin | $ | 45.61 | $ | 38.18 | $ | 36.78 | $ | 31.99 | $ | 18.69 | |||||
| Other | |||||||||||||||
| Realized price | $ | 73.63 | $ | 70.49 | $ | 65.37 | $ | 50.58 | $ | 37.67 | |||||
| Lease operating expenses | (13.34 | ) | (16.42 | ) | (16.69 | ) | (17.15 | ) | (15.35 | ) | |||||
| Gathering, processing & transportation | (0.31 | ) | (0.35 | ) | (0.58 | ) | (0.62 | ) | (0.59 | ) | |||||
| Production & property taxes | (4.84 | ) | (4.19 | ) | (5.25 | ) | (4.60 | ) | (3.38 | ) | |||||
| Field-level cash margin | $ | 55.14 | $ | 49.53 | $ | 42.85 | $ | 28.21 | $ | 18.35 | |||||
| Devon – Total | |||||||||||||||
| Realized price | $ | 53.12 | $ | 47.08 | $ | 41.75 | $ | 39.14 | $ | 25.63 | |||||
| Lease operating expenses | (4.18 | ) | (3.85 | ) | (4.06 | ) | (4.44 | ) | (2.97 | ) | |||||
| Gathering, processing & transportation | (3.08 | ) | (2.81 | ) | (2.85 | ) | (2.87 | ) | (4.23 | ) | |||||
| Production & property taxes | (3.49 | ) | (3.25 | ) | (3.05 | ) | (2.88 | ) | (1.66 | ) | |||||
| Field-level cash margin | $ | 42.37 | $ | 37.17 | $ | 31.79 | $ | 28.95 | $ | 16.77 |
10
NON-GAAP MEASURES
(all monetary values in millions, except per share amounts)
Devon’s earnings materials include non-GAAP financial measures. These non-GAAP measures are not alternatives to GAAP measures, and you should not consider these non-GAAP measures in isolation or as a substitute for analysis of our results as reported under GAAP. Below is additional disclosure regarding each of the non-GAAP measures used in the earnings materials, including reconciliations to their most directly comparable GAAP measure.
The earnings materials may include forward-looking non-GAAP measures. The company is unable to provide reconciliations of these forward-looking non-GAAP measures, because components of the calculations are inherently unpredictable, such as changes to current assets and liabilities, the timing of changes in capital accruals, unknown future events and estimating certain future GAAP measures. The inability to reliably quantify certain components of the calculation would significantly affect the usefulness and accuracy of a reconciliation.
CORE EARNINGS
Devon’s reported net earnings include items of income and expense that are typically excluded by securities analysts in their published estimates of the company’s financial results. Accordingly, the company also uses the measures of core earnings (loss) and core earnings (loss) per share attributable to Devon. Devon believes these non-GAAP measures facilitate comparisons of its performance to earnings estimates published by securities analysts. Devon also believes these non-GAAP measures can facilitate comparisons of its performance between periods and to the performance of its peers. The following table summarizes the effects of these items on full year and fourth-quarter 2021 earnings.
| Year Ended December 31, 2021 | Quarter Ended December 31, 2021 | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Before-<br>tax | After-<br>tax | AfterNoncontrollingInterests | PerDilutedShare | Before-<br>tax | After-<br>tax | AfterNoncontrollingInterests | PerDilutedShare | |||||||||||||||||
| Total | ||||||||||||||||||||||||
| Earnings (GAAP) | $ | 2,898 | $ | 2,833 | $ | 2,813 | $ | 4.19 | $ | 1,662 | $ | 1,512 | $ | 1,506 | $ | 2.23 | ||||||||
| Adjustments: | ||||||||||||||||||||||||
| Asset dispositions | (168 | ) | (129 | ) | (129 | ) | (0.19 | ) | (49 | ) | (38 | ) | (38 | ) | (0.06 | ) | ||||||||
| Asset and exploration impairments | 6 | 5 | 5 | 0.01 | 3 | 3 | 3 | — | ||||||||||||||||
| Deferred tax asset valuation allowance | — | (639 | ) | (639 | ) | (0.95 | ) | — | (160 | ) | (160 | ) | (0.23 | ) | ||||||||||
| Change in tax legislation | — | 60 | 60 | 0.09 | — | (2 | ) | (2 | ) | — | ||||||||||||||
| Fair value changes in financial instruments | 82 | 63 | 63 | 0.09 | (515 | ) | (397 | ) | (397 | ) | (0.59 | ) | ||||||||||||
| Restructuring and transaction costs | 258 | 224 | 224 | 0.33 | 28 | 23 | 23 | 0.04 | ||||||||||||||||
| Early retirement of debt | (30 | ) | (23 | ) | (23 | ) | (0.04 | ) | — | — | — | — | ||||||||||||
| Core earnings (Non-GAAP) | $ | 3,046 | $ | 2,394 | $ | 2,374 | $ | 3.53 | $ | 1,129 | $ | 941 | $ | 935 | $ | 1.39 |
11
RETURN ON CAPITAL EMPLOYED
Devon defines return on capital employed as pre-interest core earnings divided by average capital employed. Devon believes return on capital employed provides a useful measure of how efficiently the company is using its capital to generate profits. Average capital employed is the average of the capital employed as of the beginning and ending of the relevant period, with capital employed calculated as debt plus stockholders’ equity attributable to Devon less cash and cash equivalents. The beginning balance of capital employed is calculated pro forma for the WPX merger, which closed on January 7, 2021.
| Year Ended | |||
|---|---|---|---|
| December 31, 2021 | |||
| Earnings (GAAP) | $ | 2,813 | |
| Non-GAAP adjustments ^(1)^ | (439 | ) | |
| Core earnings (Non-GAAP) | 2,374 | ||
| Net financing costs (GAAP) | 329 | ||
| Less gain on early retirement of debt | 30 | ||
| Adjusted net financing costs (Non-GAAP) | 359 | ||
| Less tax impact (21%) | (77 | ) | |
| After-tax adjusted net financing costs (Non-GAAP) | 282 | ||
| Pre-interest core earnings (Non-GAAP) | $ | 2,656 | |
| Beginning balance: | |||
| Devon legacy | $ | 4,298 | |
| Assumed in merger | 3,562 | ||
| Gross debt | 7,860 | ||
| Devon legacy | 2,885 | ||
| Equity consideration in merger | 5,432 | ||
| Stockholders’ equity | 8,317 | ||
| Devon legacy | (2,237 | ) | |
| Acquired in merger | (344 | ) | |
| Less cash | (2,581 | ) | |
| Beginning capital employed | $ | 13,596 | |
| Ending balance: | |||
| Gross debt | $ | 6,482 | |
| Stockholders’ equity | 9,262 | ||
| Less cash | (2,271 | ) | |
| Ending capital employed | $ | 13,473 | |
| Average capital employed | $ | 13,535 | |
| ROCE | **** | 20 | % |
| (1) | Non-GAAP adjustments detail can be found in the core earnings table on<br>previous page. | ||
| --- | --- |
EBITDAX
Devon believes EBITDAX provides information useful in assessing operating and financial performance across periods. Devon computes EBITDAX as net earnings from continuing operations before income tax expense; financing costs, net; exploration expenses; depreciation, depletion and amortization; asset impairments; asset disposition gains and losses; non-cash share-based compensation; non-cash valuation changes for derivatives and financial instruments; restructuring and transaction costs; accretion on discounted liabilities; and other items not related to normal operations. EBITDAX as defined by Devon may not be comparable to similarly titled measures used by other companies and should be considered in conjunction with net earnings from continuing operations.
| FY ‘21 | Q4 ‘21 | Q3 ‘21 | Q2 ‘21 | Q1 ‘21 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net earnings (GAAP) | $ | 2,833 | $ | 1,512 | $ | 844 | $ | 261 | $ | 216 | |||||
| Financing costs, net | 329 | 86 | 86 | 80 | 77 | ||||||||||
| Income tax expense (benefit) | 65 | 150 | 120 | 43 | (248 | ) | |||||||||
| Exploration expenses | 14 | 5 | 3 | 3 | 3 | ||||||||||
| Depreciation, depletion and amortization | 2,158 | 577 | 578 | 536 | 467 | ||||||||||
| Asset dispositions | (168 | ) | (49 | ) | — | (87 | ) | (32 | ) | ||||||
| Share-based compensation | 77 | 19 | 18 | 20 | 20 | ||||||||||
| Derivative and financial instrument non-cash valuation<br>changes | 82 | (515 | ) | (35 | ) | 336 | 296 | ||||||||
| Restructuring and transaction costs | 258 | 28 | 18 | 23 | 189 | ||||||||||
| Accretion on discounted liabilities and other | (43 | ) | (2 | ) | 2 | (14 | ) | (29 | ) | ||||||
| EBITDAX (Non-GAAP) | $ | 5,605 | $ | 1,811 | $ | 1,634 | $ | 1,201 | $ | 959 | |||||
| Annualized EBITDAX for first-quarter(Non-GAAP) | $ | 3,836 |
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NET DEBT
Devon defines net debt as debt less cash, cash equivalents and cash restricted for discontinued operations. Devon believes that netting these sources of cash against debt provides a clearer picture of the future demands on cash from Devon to repay debt.
| December 31, 2021 | September 30, 2021 | June 30, 2021 | March 31, 2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total debt (GAAP) | $ | 6,482 | $ | 6,492 | $ | 6,502 | $ | 7,268 | ||||
| Less: | ||||||||||||
| Cash, cash equivalents and restricted cash | (2,271 | ) | (2,321 | ) | (1,539 | ) | (1,878 | ) | ||||
| Net debt (Non-GAAP) | $ | 4,211 | $ | 4,171 | $ | 4,963 | $ | 5,390 |
NET DEBT-TO-EBITDAX
Devon defines net debt-to-EBITDAX as net debt divided by an annualized EBITDAX measure. Devon believes this ratio provides information useful to investors in assessing the company’s credit position and debt leverage.
| December 31, 2021 | March 31, 2021 | |||
|---|---|---|---|---|
| Net debt (Non-GAAP) | $ | 4,211 | $ | 5,390 |
| 2021 EBITDAX (Non-GAAP) ^(1)^ | $ | 5,605 | $ | 3,836 |
| Net<br>debt-to-EBITDAX (Non-GAAP) | 0.8 | 1.4 | ||
| (1) | The first quarter EBITDAX is an annualized measure. See the EBITDAX table on the previous page for details.<br> | |||
| --- | --- |
FREE CASH FLOW AND ADJUSTED FREE CASH FLOW
Devon defines free cash flow as total operating cash flow less capital expenditures, and Devon defines adjusted free cash flow as free cash flow less cash restructuring and transaction costs. Devon believes that free cash flow and adjusted free cash flow provide a useful measure of available cash generated by operating activities for other investing and financing activities.
| Quarter Ended<br>Dec. 31, 2021 | Quarter Ended<br>Sep. 30, 2021 | Quarter Ended<br>Jun. 30, 2021 | Quarter Ended<br>Mar. 31, 2021 | Quarter Ended<br>Dec. 31, 2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total operating cash flow (GAAP) | $ | 1,616 | $ | 1,598 | $ | 1,093 | $ | 592 | $ | 358 | |||||
| Less capital expenditures: | |||||||||||||||
| Capital expenditures | (512 | ) | (474 | ) | (504 | ) | (499 | ) | (217 | ) | |||||
| Free cash flow (Non-GAAP) | 1,104 | 1,124 | 589 | 93 | 141 | ||||||||||
| Cash restructuring and transaction costs<br>(Non-GAAP) | 28 | 14 | 23 | 167 | 17 | ||||||||||
| Adjusted free cash flow (Non-GAAP) | $ | 1,132 | $ | 1,138 | $ | 612 | $ | 260 | $ | 158 |
REINVESTMENT RATE
Devon defines reinvestment rate as accrued capital expenditures divided by operating cash flow. Devon believes this measure provides useful information to our investors as an indicator of the capital demands of our business relative to the cash flow generated from normal business operations.
| Quarter Ended<br>December 31, 2021 | |||
|---|---|---|---|
| Capital expenditures (accrued) | $ | 521 | |
| Operating cash flow | $ | 1,616 | |
| Reinvestment rate (Non-GAAP) | 32 | % |
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VARIABLE DIVIDEND CALCULATION
Devon may pay a variable dividend up to 50 percent of its excess cash flow. Each quarter’s excess cash flow is computed as adjusted cash flow less capital expenditures and the fixed dividend.
| Operating cash flow (GAAP) | 1,616 | |
| Changes in assets and liabilities, net | 74 | |
| Cash from operations before balance sheet changes<br>(Non-GAAP) | 1,690 | |
| Cash restructuring and transaction costs<br>(Non-GAAP) | 28 | |
| Adjusted cash flow (Non-GAAP) | 1,718 | |
| Capital expenditures (Accrued) | (521 | ) |
| Adjusted free cash flow (Non-GAAP) | 1,197 | |
| Fixed quarterly dividend (0.11/share) | (73 | ) |
| Excess free cash flow (Non-GAAP) | 1,124 | |
| ~50% Pay out (Board Discretion: Up to 50%) | ~50 | % |
| Total variable dividend | 557 |
All values are in US Dollars.
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FIRST-QUARTER AND FULL-YEAR 2022 GUIDANCE
PRODUCTIONGUIDANCE^(1)^
| Quarter 1 ^(1)^ | Full Year^^ | |||||||
|---|---|---|---|---|---|---|---|---|
| Low | High | Low | High | |||||
| Oil (MBbls/d) | 280 | 290 | 285 | 295 | ||||
| Natural gas liquids (MBbls/d) | 133 | 137 | 138 | 148 | ||||
| Gas (MMcf/d) | 880 | 920 | 880 | 940 | ||||
| Total oil equivalent (MBoe/d) | 560 | 580 | 570 | 600 | ||||
| (1) | Production in the first quarter of 2022 is estimated to be reduced by 3 percent or 15,000 Boe per day due<br>to the impact of severe winter weather. | |||||||
| --- | --- |
CAPITAL EXPENDITURES GUIDANCE
| Quarter 1 | Full Year | |||||||
|---|---|---|---|---|---|---|---|---|
| (in millions) | Low | High | Low | High | ||||
| Upstream capital | $ | 475 | $ | 515 | $ | 1,900 | $ | 2,200 |
| Environmental capital | 25 | 35 | 80 | 120 | ||||
| Midstream & other capital | 40 | 60 | 80 | 120 | ||||
| Total capital | $ | 540 | $ | 610 | $ | 2,060 | $ | 2,440 |
PRICE REALIZATIONS GUIDANCE
| Quarter 1 | Full Year | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Low | High | Low | High | |||||||||
| Oil - % of WTI | 92 | % | 100 | % | 92 | % | 100 | % | ||||
| NGL - % of WTI | 35 | % | 45 | % | 35 | % | 45 | % | ||||
| Natural gas - % of Henry Hub | 80 | % | 90 | % | 80 | % | 90 | % |
OTHER GUIDANCE ITEMS
| Quarter 1 | Full Year | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ millions, except Boe and %) | Low | High | Low | High | ||||||||
| Marketing & midstream operating profit | $ | (10 | ) | $ | 10 | $ | (30 | ) | $ | — | ||
| LOE & GP&T per BOE | $ | 7.50 | $ | 7.90 | $ | 7.25 | $ | 7.75 | ||||
| Production & property taxes as % of upstream sales | 7.0 | % | 8.0 | % | 7.0 | % | 8.0 | % | ||||
| Exploration expenses | $ | — | $ | 5 | $ | 5 | $ | 15 | ||||
| Depreciation, depletion and amortization | $ | 475 | $ | 525 | $ | 2,050 | $ | 2,150 | ||||
| General & administrative expenses | $ | 85 | $ | 95 | $ | 330 | $ | 350 | ||||
| Net financing costs, net | $ | 80 | $ | 90 | $ | 335 | $ | 345 | ||||
| Other expenses | $ | — | $ | 10 | $ | — | $ | 40 | ||||
| Total income tax rate^(2)^ | 20 | % | 25 | % | 20 | % | 25 | % | ||||
| (2) | Assumes a mid-single digit current tax rate for the first quarter and<br>full-year 2022. | |||||||||||
| --- | --- |
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CONTINGENT PAYMENTS FOR BARNETT SHALE DIVESTITURE (4-year period beginning in 2021)
| WTI Threshold | WTI Annual Earnout Amount | Henry Hub Threshold | Henry Hub Annual EarnoutAmount | ||||
|---|---|---|---|---|---|---|---|
| $ | 50.00 | $ | 10,000,000 | $ | 2.75 | $ | 20,000,000 |
| $ | 55.00 | $ | 12,500,000 | $ | 3.00 | $ | 25,000,000 |
| $ | 60.00 | $ | 15,000,000 | $ | 3.25 | $ | 35,000,000 |
| $ | 65.00 | $ | 20,000,000 | $ | 3.50 | $ | 45,000,000 |
2022 & 2023 HEDGING POSITIONS
Oil CommodityHedges
| Price Swaps | Price Collars | ||||||
|---|---|---|---|---|---|---|---|
| Period | Volume (Bbls/d) | WeightedAverage Price(/Bbl) | Volume<br>(Bbls/d) | WeightedAverage FloorPrice (/Bbl) | WeightedAverage CeilingPrice (/Bbl) | ||
| Q1 2022 | 38,500 | 32,250 | |||||
| Q2 2022 | 36,000 | 36,000 | |||||
| Q3 2022 | 35,000 | 38,500 | |||||
| Q4 2022 | 35,000 | 24,000 | |||||
| Q1-Q4 2023 | — | 2,589 |
All values are in US Dollars.
Oil Basis Swaps
| Period | Index | Volume (Bbls/d) | Weighted AverageDifferential to WTI(/Bbl) | ||
|---|---|---|---|---|---|
| Q1-Q4 2022 | BRENT/WTI Spread | 1,000 | ) | ||
| Q1-Q4 2022 | NYMEX Roll | 29,000 |
All values are in US Dollars.
Natural Gas Commodity Hedges - Henry Hub
| Price Swaps | Price Collars | ||||||
|---|---|---|---|---|---|---|---|
| Period | Volume (MMBtu/d) | WeightedAverage Price(/MMBtu) | Volume<br>(MMBtu/d) | WeightedAverage FloorPrice (/MMBtu) | WeightedAverage CeilingPrice(/MMBtu) | ||
| Q1 2022 | 114,000 | 173,000 | |||||
| Q2 2022 | 110,000 | 221,000 | |||||
| Q3 2022 | 110,000 | 184,000 | |||||
| Q4 2022 | 110,000 | 128,000 | |||||
| Q1-Q4 2023 | 4,959 | 34,967 |
All values are in US Dollars.
Natural Gas Basis Swaps
| Period | Index | Volume (MMBtu/d) | Weighted AverageDifferential to HenryHub (/MMBtu) | ||
|---|---|---|---|---|---|
| Q1-Q4 2022 | WAHA | 70,000 | ) | ||
| Q1-Q4 2023 | WAHA | 70,000 | ) |
All values are in US Dollars.
Devon’s oil derivatives settle against the average of the prompt month NYMEX West Texas Intermediate futures price. Devon’s natural gas derivatives settle against the Inside FERC first of the month Henry Hub index. Commodity hedge positions are shown as of February 11, 2022.
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