Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

Report of Independent Registered Public Accounting Firm		57
Consolidated Financial Statements
Consolidated Comprehensive Statements of Earnings		58
Consolidated Statements of Cash Flows		59
Consolidated Balance Sheets		60
Consolidated Statements of Stockholders’ Equity		61
Notes to Consolidated Financial Statements		62
Note 1 – Summary of Significant Accounting Policies		62
Note 2 – Acquisitions and Divestitures		70
Note 3 – Derivative Financial Instruments		75
Note 4 – Share-Based Compensation		77
Note 5 – Asset Impairments		81
Note 6 – Restructuring and Transaction Costs		81
Note 7 – Income Taxes		83
Note 8 – Net Earnings (Loss) Per Share Attributable to Devon		87
Note 9 – Other Comprehensive Earnings		88
Note 10 – Supplemental Information to Statements of Cash Flows		88
Note 11 – Accounts Receivable		89
Note 12 – Goodwill and Other Intangible Assets		89
Note 13 – Other Current Liabilities		91
Note 14 – Debt and Related Expenses		92
Note 15 – Asset Retirement Obligations		95
Note 16 – Retirement Plans		95
Note 17 – Stockholders’ Equity		102
Note 18 – Noncontrolling Interests		103
Note 19 – Commitments and Contingencies		104
Note 20 – Fair Value Measurements		106
Note 21 – Segment Information		107
Note 22 – Supplemental Information on Oil and Gas Operations (Unaudited)		109
Note 23 – Supplemental Quarterly Financial Information (Unaudited)		121

All financial statement schedules are omitted as they are inapplicable or the required information has been included in the consolidated financial statements or notes thereto.

Index to Financial Statements

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Devon Energy Corporation:

We have audited the accompanying consolidated balance sheets of Devon Energy Corporation and subsidiaries as of December 31, 2016 and 2015, and the related consolidated comprehensive statements of earnings, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2016. We also have audited Devon Energy Corporation’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Devon Energy Corporation’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report contained in “Item 9A. Controls and Procedures” of Devon Energy Corporation’s Annual Report on Form 10-K. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Devon Energy Corporation and subsidiaries as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Devon Energy Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ KPMG LLP

Oklahoma City, Oklahoma

February 15, 2017

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED COMPREHENSIVE STATEMENTS OF EARNINGS

		Year Ended December 31,
		2016				2015				2014
		(Millions, except per share amounts)
Oil, gas and NGL sales		$	4,182			$	5,382			$	9,910
Oil, gas and NGL derivatives			(201	)			503				1,989
Marketing and midstream revenues			6,323				7,260				7,667
Asset dispositions and other			1,893				—				1,072
Total revenues and other			12,197				13,145				20,638
Lease operating expenses			1,582				2,104				2,332
Marketing and midstream operating expenses			5,492				6,420				6,815
General and administrative expenses			645				855				847
Production and property taxes			275				388				535
Depreciation, depletion and amortization			1,792				3,129				3,319
Asset impairments			4,975				20,820				1,953
Restructuring and transaction costs			267				78				46
Other operating items			64				78				93
Total operating expenses			15,092				33,872				15,940
Operating income (loss)			(2,895	)			(20,727	)			4,698
Net financing costs			904				517				526
Other nonoperating items			78				24				113
Earnings (loss) before income taxes			(3,877	)			(21,268	)			4,059
Income tax expense (benefit)			(173	)			(6,065	)			2,368
Net earnings (loss)			(3,704	)			(15,203	)			1,691
Net earnings (loss) attributable to noncontrolling interests			(402	)			(749	)			84
Net earnings (loss) attributable to Devon		$	(3,302	)		$	(14,454	)		$	1,607
Net earnings (loss) per share attributable to Devon:
Basic		$	(6.52	)		$	(35.55	)		$	3.93
Diluted		$	(6.52	)		$	(35.55	)		$	3.91
Comprehensive earnings (loss):
Net earnings (loss)		$	(3,704	)		$	(15,203	)		$	1,691
Other comprehensive earnings (loss), net of tax:
Foreign currency translation			32				(559	)			(465	)
Pension and postretirement plans			22				10				(24	)
Other comprehensive earnings (loss), net of tax			54				(549	)			(489	)
Comprehensive earnings (loss)			(3,650	)			(15,752	)			1,202
Comprehensive earnings (loss) attributable to noncontrolling interests			(402	)			(749	)			84
Comprehensive earnings (loss) attributable to Devon		$	(3,248	)		$	(15,003	)		$	1,118

See accompanying notes to consolidated financial statements.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31,
		2016				2015				2014
		(Millions)
Cash flows from operating activities:
Net earnings (loss)		$	(3,704	)		$	(15,203	)		$	1,691
Adjustments to reconcile net earnings (loss) to net cash from operating activities:
Depreciation, depletion and amortization			1,792				3,129				3,319
Asset impairments			4,975				20,820				1,953
Gains and losses on asset sales			(1,887	)			—				(1,072	)
Deferred income tax expense (benefit)			(273	)			(5,828	)			1,891
Derivatives and other financial instruments			386				(738	)			(2,070	)
Cash settlements on derivatives and financial instruments			(142	)			2,688				104
Asset retirement obligation accretion			75				75				89
Amortization of stock-based compensation			194				181				163
Other			303				281				245
Net change in working capital			(8	)			(311	)			50
Change in long-term other assets			36				285				(421	)
Change in long-term other liabilities			(1	)			(6	)			79
Net cash from operating activities			1,746				5,373				6,021
Cash flows from investing activities:
Capital expenditures			(2,330	)			(5,308	)			(6,988	)
Acquisitions of property, equipment and businesses			(1,641	)			(1,107	)			(6,462	)
Divestitures of property and equipment			3,118				107				5,120
Redemptions of long-term investments			—				—				57
Other			(19	)			(16	)			89
Net cash from investing activities			(872	)			(6,324	)			(8,184	)
Cash flows from financing activities:
Borrowings of long-term debt, net of issuance costs			2,145				4,772				5,340
Repayments of long-term debt			(4,409	)			(2,634	)			(7,178	)
Net short-term debt repayments			(626	)			(307	)			(385	)
Early retirement of debt			(265	)			—				(51	)
Issuance of common stock			1,469				—				—
Sale of subsidiary units			—				654				—
Issuance of subsidiary units			892				25				410
Dividends paid on common stock			(221	)			(396	)			(386	)
Contributions from noncontrolling interests			168				16				6
Distributions to noncontrolling interests			(304	)			(254	)			(235	)
Other			(13	)			(18	)			85
Net cash from financing activities			(1,164	)			1,858				(2,394	)
Effect of exchange rate changes on cash			(61	)			(77	)			(29	)
Net change in cash and cash equivalents			(351	)			830				(4,586	)
Cash and cash equivalents at beginning of period			2,310				1,480				6,066
Cash and cash equivalents at end of period		$	1,959			$	2,310			$	1,480

See accompanying notes to consolidated financial statements.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		December 31, 2016				December 31, 2015
		(Millions, except share data)
ASSETS
Current assets:
Cash and cash equivalents		$	1,959			$	2,310
Accounts receivable			1,356				1,105
Assets held for sale			193				—
Other current assets			264				606
Total current assets			3,772				4,021
Property and equipment, at cost:
Oil and gas, based on full cost accounting:
Subject to amortization			75,648				78,190
Not subject to amortization			3,437				2,584
Total oil and gas			79,085				80,774
Midstream and other			10,455				10,380
Total property and equipment, at cost			89,540				91,154
Less accumulated depreciation, depletion and amortization			(73,350	)			(72,086	)
Property and equipment, net			16,190				19,068
Goodwill			3,964				5,032
Other long-term assets			1,987				1,330
Total assets		$	25,913			$	29,451
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	642			$	906
Revenues and royalties payable			908				763
Short-term debt			—				976
Other current liabilities			1,066				650
Total current liabilities			2,616				3,295
Long-term debt			10,154				12,056
Asset retirement obligations			1,226				1,370
Other long-term liabilities			894				853
Deferred income taxes			648				888
Stockholders’ equity:
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 523 million and 418 million shares in 2016 and 2015, respectively			52				42
Additional paid-in capital			7,237				4,996
Retained earnings (accumulated deficit)			(1,646	)			1,781
Accumulated other comprehensive earnings			284				230
Total stockholders’ equity attributable to Devon			5,927				7,049
Noncontrolling interests			4,448				3,940
Total stockholders’ equity			10,375				10,989
Total liabilities and stockholders’ equity		$	25,913			$	29,451

See accompanying notes to consolidated financial statements.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

																		Accumulated
										Additional				Retained				Other												Total
		Common Stock								Paid-In				Earnings				Comprehensive				Treasury				Noncontrolling				Stockholders’
		Shares				Amount				Capital				(Accumulated Deficit)				Earnings				Stock				Interests				Equity
		(Millions)
Balance as of December 31, 2013			406			$	41			$	3,780			$	15,410			$	1,268			$	—			$	—			$	20,499
Net earnings			—				—				—				1,607				—				—				84				1,691
Other comprehensive loss, net of tax			—				—				—				—				(489	)			—				—				(489	)
Stock option exercises			1				—				93				—				—				—				—				93
Restricted stock grants, net of cancellations			2				—				—				—				—				—				—				—
Common stock repurchased			—				—				—				—				—				(27	)			—				(27	)
Common stock retired			—				—				(27	)			—				—				27				—				—
Common stock dividends			—				—				—				(386	)			—				—				—				(386	)
Share-based compensation			—				—				151				—				—				—				—				151
Share-based compensation tax expense			—				—				(3	)			—				—				—				—				(3	)
Acquisition of noncontrolling interests			—				—				—				—				—				—				4,670				4,670
Subsidiary equity transactions			—				—				93				—				—				—				277				370
Distributions to noncontrolling interests			—				—				—				—				—				—				(235	)			(235	)
Other			—				—				1				—				—				—				6				7
Balance as of December 31, 2014			409			$	41			$	4,088			$	16,631			$	779			$	—			$	4,802			$	26,341
Net loss			—				—				—				(14,454	)			—				—				(749	)			(15,203	)
Other comprehensive loss, net of tax			—				—				—				—				(549	)			—				—				(549	)
Stock option exercises			—				—				4				—				—				—				—				4
Restricted stock grants, net of cancellations			2				—				—				—				—				—				—				—
Common stock repurchased			—				—				—				—				—				(35	)			—				(35	)
Common stock retired			—				—				(35	)			—				—				35				—				—
Common stock dividends			—				—				—				(396	)			—				—				—				(396	)
Common stock issued			7				1				198				—				—				—				—				199
Share-based compensation			—				—				165				—				—				—				—				165
Share-based compensation tax expense			—				—				(9	)			—				—				—				—				(9	)
Subsidiary equity transactions			—				—				585				—				—				—				141				726
Distributions to noncontrolling interests			—				—				—				—				—				—				(254	)			(254	)
Balance as of December 31, 2015			418			$	42			$	4,996			$	1,781			$	230			$	—			$	3,940			$	10,989
Net loss			—				—				—				(3,302	)			—				—				(402	)			(3,704	)
Other comprehensive earnings, net of tax			—				—				—				—				54				—				—				54
Restricted stock grants, net of cancellations			2				—				—				—				—				—				—				—
Common stock repurchased			—				—				—				—				—				(28	)			—				(28	)
Common stock retired			—				—				(28	)			—				—				28				—				—
Common stock dividends			—				—				(96	)			(125	)			—				—				—				(221	)
Common stock issued			103				10				2,117				—				—				—				—				2,127
Share-based compensation			—				—				168				—				—				—				—				168
Subsidiary equity transactions			—				—				80				—				—				—				1,214				1,294
Distributions to noncontrolling interests			—				—				—				—				—				—				(304	)			(304	)
Balance as of December 31, 2016			523			$	52			$	7,237			$	(1,646	)		$	284			$	—			$	4,448			$	10,375

See accompanying notes to consolidated financial statements.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	Summary of Significant Accounting Policies

Devon is a leading independent energy company engaged primarily in the exploration, development and production of oil, natural gas and NGLs. Devon’s operations are concentrated in various North American onshore areas in the U.S. and Canada. Devon also owns natural gas pipelines, plants and treatment facilities through its ownership in EnLink and the General Partner.

Accounting policies used by Devon and its subsidiaries conform to accounting principles generally accepted in the U.S. and reflect industry practices. The more significant of such policies are discussed below.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Devon and entities in which it holds a controlling interest. All intercompany transactions have been eliminated. Undivided interests in oil and natural gas exploration and production joint ventures are consolidated on a proportionate basis. Investments in non-controlled entities, over which Devon has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. In applying the equity method of accounting, the investments are initially recognized at cost and subsequently adjusted for Devon’s proportionate share of earnings, losses and distributions. Investments accounted for using the equity method and cost method are reported as a component of other long-term assets.

As discussed more fully in Note 2, Devon completed a business combination in 2014 whereby Devon controls both EnLink and the General Partner. Devon controls both the General Partner’s and EnLink’s operations; therefore, the General Partner’s and EnLink’s accounts are included in Devon’s accompanying consolidated financial statements subsequent to the completion of the transaction. The portions of the General Partner’s and EnLink’s net earnings and stockholders’ equity not attributable to Devon’s controlling interest are shown separately as noncontrolling interests in the accompanying consolidated comprehensive statements of earnings and consolidated balance sheets.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from these estimates, and changes in these estimates are recorded when known. Significant items subject to such estimates and assumptions include the following:

	•	proved reserves and related present value of future net revenues;

	•	the carrying value of oil and gas properties, midstream assets and product and equipment inventories;

	•	derivative financial instruments;

	•	the fair value of reporting units and related assessment of goodwill for impairment;

	•	the fair value of intangible assets other than goodwill;

	•	income taxes;

	•	asset retirement obligations;

	•	obligations related to employee pension and postretirement benefits;

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	•	legal and environmental risks and exposures; and

	•	general credit risk associated with receivables and other assets.

Revenue Recognition

Oil, gas and NGL sales are recognized when production is sold to a purchaser at a fixed or determinable price, delivery has occurred, title has transferred and collectability of the revenue is probable. Delivery occurs and title typically is transferred when production has been delivered to a pipeline, railcar or truck. Cash received relating to future production is deferred and recognized when all revenue recognition criteria are met. Taxes assessed by governmental authorities on oil, gas and NGL sales are presented separately from such revenues in the accompanying consolidated comprehensive statements of earnings.

Marketing and midstream revenues are recorded at the time products are sold or services are provided to third parties at a fixed or determinable price, delivery or performance has occurred, title has transferred and collectability of the revenue is probable. Revenues and expenses attributable to oil, gas and NGL purchases, transportation and processing contracts are reported on a gross basis when Devon takes title to the products and has risks and rewards of ownership.

During 2016, 2015 and 2014, no purchaser accounted for more than 10% of Devon’s consolidated sales revenue.

Derivative Financial Instruments

Devon is exposed to certain risks relating to its ongoing business operations, including risks related to commodity prices, interest rates and Canadian to U.S. dollar exchange rates. As discussed more fully below, Devon uses derivative instruments primarily to manage commodity price risk, interest rate risk and foreign exchange risk. Devon does not intend to issue or hold derivative financial instruments for speculative trading purposes.

Devon enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production to hedge future prices received. Additionally, Devon and EnLink periodically enter into derivative financial instruments with respect to a portion of their oil, gas and NGL marketing activities. These instruments are used to manage the inherent uncertainty of future revenues resulting from commodity price volatility. Devon’s derivative financial instruments typically include financial price swaps, basis swaps, costless price collars and call options. Under the terms of the price swaps, Devon receives a fixed price for its production and pays a variable market price to the contract counterparty. For the basis swaps, Devon receives a fixed differential between two regional index prices and pays a variable differential on the same two index prices to the contract counterparty. The price collars set a floor and ceiling price for the hedged production. If the applicable monthly price indices are outside of the ranges set by the floor and ceiling prices in the various collars, Devon will cash-settle the difference with the counterparty to the collars. The call options give counterparties the right to purchase production at a predetermined price.

Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility and foreign exchange forward contracts to manage its exposure to fluctuations in the U.S. and Canadian dollar exchange rates. As of December 31, 2016, Devon did not have any open foreign exchange contracts.

All derivative financial instruments are recognized at their current fair value as either assets or liabilities in the balance sheet. Changes in the fair value of these derivative financial instruments are recorded in earnings unless specific hedge accounting criteria are met. For derivative financial instruments held during the three-year period ended December 31, 2016, Devon chose not to meet the necessary criteria to qualify its derivative financial instruments for hedge accounting treatment. Cash settlements with counterparties on Devon’s derivative financial

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

instruments are also recorded in earnings. Cash settlements that Devon is entitled to are accrued for in other current assets in the accompanying consolidated balance sheets. As of December 31, 2015, Devon accrued $236 million that it received in January 2016 related to cash settlements.

By using derivative financial instruments to hedge exposures to changes in commodity prices, interest rates and foreign currency rates, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon’s policy to enter into derivative contracts only with investment-grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon’s derivative contracts generally require cash collateral to be posted if either its or the counterparty’s credit rating falls below certain credit rating levels. As of December 31, 2016, Devon held no collateral from counterparties. As of December 31, 2015, Devon held $75 million of cash collateral, which represented the estimated fair value of certain derivative positions in excess of Devon’s credit guidelines. The collateral is reported in other current liabilities in the accompanying consolidated balance sheets. As a result of ratings downgrades for Devon during 2016, we were required to post $17 million of cash collateral under certain of our derivative contracts. The collateral is reported in other current assets in the accompanying December 31, 2016 consolidated balance sheet. In January 2017, this collateral was deemed to be no longer required and was returned to Devon. As of the date of this report, Devon has no cash collateral held by its counterparties.

General and Administrative Expenses

G&A is reported net of amounts reimbursed by working interest owners of the oil and gas properties operated by Devon and net of amounts capitalized pursuant to the full cost method of accounting.

Share-Based Compensation

Independent of EnLink, Devon grants share-based awards to members of its Board of Directors and select employees. EnLink and the General Partner also grant share-based awards to members of its Board of Directors and select employees. All such awards are measured at fair value on the date of grant and are generally recognized as a component of G&A in the accompanying consolidated comprehensive statements of earnings over the applicable requisite service periods. As a result of Devon’s restructuring activity discussed in Note 6, certain share-based awards were accelerated and recognized as a component of restructuring costs in the accompanying consolidated comprehensive statements of earnings.

Generally, Devon uses new shares from approved incentive programs to grant share-based awards and to issue shares upon stock option exercises. Shares repurchased under approved programs are available to be issued as part of Devon’s share-based awards. However, Devon has historically canceled these shares upon repurchase.

Income Taxes

Devon is subject to current income taxes assessed by the federal and various state jurisdictions in the U.S. and by other foreign jurisdictions. In addition, Devon accounts for deferred income taxes related to these jurisdictions using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Deferred tax assets are also recognized for the future tax benefits attributable to the expected utilization of existing tax net operating loss carryforwards and other types of carryforwards. If the future utilization of some portion of the deferred tax assets is determined to be unlikely, a valuation allowance is provided to reduce the recorded tax benefits from such assets. Devon periodically weighs the positive and negative evidence to determine if it is more likely than not that some or all of the deferred tax assets will be realized. Forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence, such as cumulative losses in recent years. See Note 7 for further discussion.

Devon does not recognize U.S. deferred income taxes on the unremitted earnings of its foreign subsidiaries that are deemed to be indefinitely reinvested. When such earnings are no longer deemed indefinitely reinvested, Devon recognizes the appropriate deferred, or even current, income tax liabilities.

Devon recognizes the financial statement effects of tax positions when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by a taxing authority. Recognized tax positions are initially and subsequently measured as the largest amount of tax benefit that is more likely than not of being realized upon ultimate settlement with a taxing authority. Liabilities for unrecognized tax benefits related to such tax positions are included in other long-term liabilities unless the tax position is expected to be settled within the upcoming year, in which case the liabilities are included in other current liabilities. Interest and penalties related to unrecognized tax benefits are included in current income tax expense.

Devon estimates its annual effective income tax rate in recording its provision for income taxes in the various jurisdictions in which it operates. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the period in which they occur.

Net Earnings (Loss) Per Share Attributable to Devon

Devon’s basic earnings per share amounts have been computed based on the average number of shares of common stock outstanding for the period. Basic earnings per share includes the effect of participating securities, which primarily consist of Devon’s outstanding restricted stock awards, as well as performance-based restricted stock awards that have met the requisite performance targets. Diluted earnings per share is calculated using the treasury stock method to reflect the assumed issuance of common shares for all potentially dilutive securities. Such securities primarily consist of outstanding stock options.

Cash and Cash Equivalents

Devon considers all highly liquid investments with original contractual maturities of three months or less to be cash equivalents.

Accounts Receivable

Devon’s accounts receivable balance primarily consists of oil and gas sales receivables, marketing and midstream revenue receivables and joint interest receivables for which Devon does not require collateral security. Devon has established an allowance for bad debts equal to the estimable portions of accounts receivable for which failure to collect is considered probable. When a portion of the receivable is deemed uncollectible, the write-off is made against the allowance.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Property and Equipment

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.

Capitalized costs are depleted by an equivalent unit-of-production method, converting gas to oil at the ratio of six Mcf of gas to one Bbl 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 their respective holding periods generally ranging from three to four years.

Sales or dispositions of oil and gas properties are generally accounted for as adjustments to capitalized costs with no gain or loss recognized. However, if a disposition or series of dispositions occurring in a quarterly reporting period significantly alters the relationship between capitalized costs and proved reserves in a particular country, a gain or loss is recognized. As discussed more fully in Note 2, the 2014 and 2016 divestitures of certain Canadian and U.S. non-core upstream assets significantly altered such relationship, and Devon recognized gains on these transactions. These gains are classified as asset dispositions and other in the accompanying consolidated statements of earnings. Furthermore, upon recognizing the gain on the 2016 divestitures and to be more consistent with industry practice, Devon began presenting gains on asset sales in the total revenues and other section of the accompanying consolidated statements of earnings, and has reclassified the 2014 gain on asset sales of $1.1 billion from operating expenses to total revenues and other to reflect consistent financial statement presentation.

Under the full cost method of accounting, capitalized costs of oil and gas properties, net of accumulated DD&A and deferred income taxes, may not exceed the full cost “ceiling” at the end of each quarter. The ceiling is calculated separately for each country and is based on the present value of estimated future net cash flows from proved oil and gas reserves, discounted at 10% per annum, net of related tax effects. The 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.

Estimated future net cash flows are calculated using end-of-period costs and an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months. 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, 2016 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.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Costs for midstream assets that are in use are depreciated over the assets’ estimated useful lives, using either the unit-of-production or straight-line method. Depreciation and amortization of other property and equipment, including corporate and leasehold improvements, are provided using the straight-line method based on estimated useful lives ranging from three to 60 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. Devon’s asset retirement obligations include estimated environmental remediation costs which arise from normal operations and are associated with the retirement of such long-lived assets. The asset retirement cost is depreciated using a systematic and rational method similar to that used for the associated property and equipment.

Goodwill

Goodwill represents the excess of the purchase price of business combinations over the fair value of the net assets acquired and is tested for impairment annually, or more frequently if events or changes in circumstances dictate that the carrying value of goodwill may not be recoverable. Such test includes an assessment of qualitative and quantitative factors. The impairment test requires allocating goodwill and all other assets and liabilities to assigned reporting units. The fair value of each reporting unit is estimated and compared to the net book value of the reporting unit. If the estimated fair value of the reporting unit is less than the net book value, including goodwill, then the goodwill is written down to the implied fair value of the goodwill through a charge to expense. Because quoted market prices are not available for Devon’s reporting units, the fair values of the reporting units are estimated based upon several valuation analyses, including comparable companies, comparable transactions and premiums paid.

Devon and EnLink performed annual impairment tests of goodwill in the fourth quarters of 2016, 2015 and 2014. No impairment write-down was required as a result of the annual tests in 2016; however, sustained weakness in the overall energy sector driven by low commodity prices, together with a decline in the EnLink unit price, caused a change in circumstances warranting an interim impairment test and write-down for certain of EnLink’s reporting units in the first quarter of 2016. Write-downs were also required in 2015 for certain EnLink reporting units and in 2014 for Devon’s Canadian reporting unit based on interim and annual impairment tests. See Note 12 for further discussion.

Intangible Assets

Unamortized capitalized intangible assets, consisting of EnLink customer relationships, are presented in other long-term assets in the accompanying consolidated balance sheets. These assets are amortized on a straight-line basis over the expected periods of benefits, which range from 10-20 years. During 2016 and 2015, EnLink’s customer relationships were also evaluated for impairment, and in 2015, a portion of these intangible assets was considered impaired. See Note 12 for further discussion.

Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Liabilities for

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

environmental remediation or restoration claims resulting from improper operation of assets are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. Expenditures related to such environmental matters are expensed or capitalized in accordance with Devon’s accounting policy for property and equipment.

Fair Value Measurements

Certain of Devon’s assets and liabilities are measured at fair value at each reporting date. Fair value represents the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants. This price is commonly referred to as the “exit price.” Fair value measurements are classified according to a hierarchy that prioritizes the inputs underlying the valuation techniques. This hierarchy consists of three broad levels:

	•	Level 1 – Inputs consist of unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority. When available, Devon measures fair value using Level 1 inputs because they generally provide the most reliable evidence of fair value.

	•	Level 2 – Inputs consist of quoted prices that are generally observable for the asset or liability. Common examples of Level 2 inputs include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in markets not considered to be active.

	•	Level 3 – Inputs are not observable from objective sources and have the lowest priority. The most common Level 3 fair value measurement is an internally developed cash flow model.

Foreign Currency Translation Adjustments

The U.S. dollar is the functional currency for Devon’s consolidated operations except its Canadian subsidiaries, which use the Canadian dollar as the functional currency. Assets and liabilities of the Canadian subsidiaries are translated to U.S. dollars using the applicable exchange rate as of the end of a reporting period. Revenues, expenses and cash flow are translated using an average exchange rate during the reporting period. Translation adjustments have no effect on net income and are included in accumulated other comprehensive earnings in stockholders’ equity.

Noncontrolling Interests

Noncontrolling interests represent third-party ownership in the net assets of Devon’s consolidated subsidiaries and are presented as a component of equity. Changes in Devon’s ownership interests in subsidiaries that do not result in deconsolidation are recognized in equity.

Recently Adopted Accounting Standards

In January 2016, Devon adopted ASU 2015-03, Interest – Imputation of Interest (Topic 835): Simplifying the Presentation of Debt Issuance Costs. This ASU requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability rather than as an asset. As a result of the adoption, Devon reclassified unamortized debt issuance costs of $81 million as of December 31, 2015 from other long-term assets to a reduction of long-term debt on the consolidated balance sheets.

The FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. Its objective is to clarify guidance and eliminate diversity in practice of classification on certain cash receipts and payments in the statement of cash flows. Devon early adopted this ASU as of September

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

30, 2016 using a retrospective transition method. As a result of the adoption, Devon has classified $265 million of debt retirement payments as cash flows from financing activities in the accompanying 2016 consolidated statement of cash flows and has reclassified $40 million of debt retirement payments previously classified as cash flows from operating activities to cash flows from financing activities in the accompanying 2014 consolidated statement of cash flows.

The FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Its objective is to provide guidance about management’s responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern. Certain disclosures are required should substantial doubt exist. This evaluation is performed each annual and interim reporting period to assess conditions or events within one year after the date that the financial statements are issued. This ASU was effective for Devon beginning December 31, 2016; however, no additional disclosures as contemplated by this ASU were warranted.

Recently Issued Accounting Standards

The FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition and industry-specific guidance in Subtopic 932-605, Extractive Activities – Oil and Gas – Revenue Recognition. This ASU provides guidance concerning the recognition and measurement of revenue from contracts with customers. Its objective is to increase the usefulness of information in the financial statements regarding the nature, timing and uncertainty of revenues. The effective date for ASU 2014-09 was delayed through the issuance of ASU 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date, to annual and interim periods beginning in 2018, with early adoption permitted in 2017. The ASU is required to be adopted using either the retrospective transition method, which requires restating previously reported results or the cumulative effect (modified retrospective) transition method, which utilizes a cumulative-effect adjustment to retained earnings in the period of adoption to account for prior period effects rather than restating previously reported results. Devon intends to use the cumulative effect transition method. Based on current evaluations to-date, Devon does not anticipate this ASU will have a material impact on its balance sheet or related consolidated statement of earnings, stockholders’ equity or cash flows. Devon is continuing to evaluate the disclosure requirements of this ASU and has begun transitioning to the implementation phase of the adoption. Devon does not plan on early adopting this ASU.

The FASB issued ASU 2016-02, Leases (Topic 842). This ASU will supersede the lease requirements in Topic 840, Leases. Its objective is to increase transparency and comparability among organizations. This ASU provides guidance requiring lessees to recognize most leases on their balance sheet. Lessor accounting does not significantly change, except for some changes made to align with new revenue recognition requirements. This ASU is effective for Devon beginning January 1, 2019 and will be applied using a modified retrospective transition method, which requires applying the new guidance to leases that exist or are entered into after the beginning of the earliest period in the financial statements. Early adoption is permitted. Devon is continuing to evaluate the impact this ASU will have on its consolidated financial statements and related disclosures and does not plan on early adopting.

The FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. Its objective is to simplify several aspects of the accounting for share-based payments, and associated income taxes, statutory withholding and forfeitures. Classification of these aspects on the statement of cash flows is also addressed. Devon adopted this ASU as of January 1, 2017. For recording periods following adoption, Devon will make certain income tax presentation changes, most notably prospectively presenting excess tax benefits as income tax expense in the consolidated comprehensive statements of earnings and as operating cash flows in the consolidated statements of cash flows. While Devon does not expect that these

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

changes will materially impact its consolidated financial statements and related disclosures, the adoption of this ASU could result in increased volatility in income tax expense and net earnings in Devon’s financial statements.

The FASB issued ASU No. 2016-13, Credit Losses, Measurement of Credit Losses on Financial Instruments. This ASU changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s incurred loss approach with an expected loss model for instruments measured at amortized cost. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. This ASU is effective for Devon beginning January 1, 2020, with early adoption permitted. Devon is evaluating the impact this ASU will have on its consolidated financial statements and related disclosures.

2.	Acquisitions and Divestitures

Devon Acquisitions

On January 7, 2016, Devon acquired approximately 80,000 net acres (unaudited) and assets in the STACK play for approximately $1.5 billion. Devon funded the acquisition with $849 million of cash and $659 million of equity. The allocation of the purchase price at December 31, 2016 was approximately $1.3 billion to unproved properties and approximately $200 million to proved properties.

On December 17, 2015, Devon acquired approximately 253,000 net acres (unaudited) and assets in the Powder River Basin for approximately $499 million. Devon funded the acquisition with $300 million of cash and $199 million of equity. The allocation of the purchase price was $393 million to unproved properties and $106 million to proved properties and gathering systems.

On February 28, 2014, Devon acquired approximately 82,000 net acres (unaudited) and assets located in DeWitt and Lavaca counties in south Texas from GeoSouthern for approximately $6.0 billion. Devon funded the acquisition with cash on hand and debt financing. The allocation of the purchase price was approximately $5.0 billion to proved properties and approximately $1.0 billion to unproved properties.

Devon Asset Divestitures

During 2016, Devon divested certain non-core upstream assets in the U.S. and its 50% interest in the Access Pipeline in Canada. Proceeds from the transactions have been utilized primarily for debt repayment and to support future capital investment in Devon’s core resource plays.

Upstream Assets

In the second quarter of 2016, Devon divested its non-core Mississippian assets for approximately $200 million. Estimated proved reserves associated with these assets were approximately 11 MMBoe, or less than 1% of total U.S. proved reserves.

During the third quarter of 2016, in several separate transactions with different purchasers, Devon divested non-core upstream assets located in east Texas, the Anadarko Basin and the Midland Basin for approximately $1.7 billion. Estimated proved reserves associated with these assets were approximately 146 MMBoe, or approximately 9% of total U.S. proved reserves.

Absent gain recognition, the divestiture transactions that closed in the third quarter of 2016 would have significantly altered the costs and reserves relationship of Devon’s U.S cost center. Therefore, Devon recognized a

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

$1.4 billion gain in the third quarter of 2016 associated with these divestitures. A summary of the gain computation follows.

		Three Months Ended September 30, 2016
		(Millions)
Proceeds received, net of purchase price adjustments and selling costs		$	1,653
Asset retirement obligation assumed by purchasers			250
Total consideration received			1,903
Allocated oil and gas property basis sold			355
Allocated goodwill			197
Total assets sold			552
Gains on asset sales		$	1,351

Access Pipeline

In October 2016, Devon divested Access Pipeline for $1.1 billion ($1.4 billion Canadian dollars) and recognized a gain of approximately $540 million on the transaction. In conjunction with the divestiture, Devon entered into a transportation agreement whereby Devon’s Canadian thermal-oil acreage is dedicated to Access Pipeline for an initial term of 25 years. Devon will be charged a market-based toll on its thermal-oil production over this term. Devon is committed to use less than 90% of the potential pipeline capacity. In addition, Devon is entitled to an incremental payment of approximately $150 million Canadian dollars following sanctioning and committing to the requisite volume increase in respect of a new thermal-oil project on Devon’s Pike lease in Alberta, with such incremental payment being received prior to tolls being payable on such volumes.

Prior Year Divestitures

During 2014, Devon divested certain upstream properties located throughout Canada and the U.S. as part of its asset portfolio transformation for approximately $5 billion. A gain of $1.1 billion was recognized with the sale of the Canadian conventional assets. This gain is included as a separate item in the accompanying consolidated comprehensive statements of earnings. Devon repatriated the Canadian asset proceeds to the U.S. Between collecting the divestiture proceeds and repatriating the funds to the U.S., Devon recognized an $84 million foreign currency exchange loss and a $29 million foreign exchange currency derivative loss. These losses are included in other nonoperating items in the accompanying consolidated comprehensive statements of earnings. The proceeds were used to repay debt.

EnLink Acquisitions

On January 7, 2016, EnLink acquired Anadarko Basin gathering and processing midstream assets, along with dedicated acreage service rights and service contracts, for approximately $1.5 billion, subject to certain adjustments. EnLink funded the acquisition with approximately $215 million of General Partner common units and approximately $800 million of cash, primarily funded with the issuance of EnLink preferred units. The remaining $500 million of the purchase price is to be paid within one year with the option to defer $250 million of the final payment 24 months from the close date. The first $250 million of undiscounted future installment payment is reported in other current liabilities in the accompanying consolidated balance sheets with the remaining $250 million payment reported in other long-term liabilities. The accretion of the discount is reported within net financing costs in

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

the accompanying consolidated comprehensive statement of earnings. The first installment payment of $250 million was paid in January 2017 and was funded using divestiture proceeds, proceeds from equity issuances and borrowings under EnLink’s credit facility. The allocation of the purchase price at December 31, 2016 was $1.0 billion to intangible assets and approximately $400 million to property and equipment.

On August 1, 2016, EnLink formed a joint venture to operate and expand its midstream assets in the Delaware Basin. The joint venture is initially owned 50.1% by EnLink and 49.9% by the joint venture partner. As of December 31, 2016, EnLink contributed approximately $251 million of existing non-monetary assets and cash to the joint venture and had committed an additional $285 million in capital to fund potential future development projects and potential acquisitions. The joint venture partner committed an aggregate of approximately $400 million of capital, including cash contributions of approximately $144 million, and granted EnLink call rights beginning in 2021 to acquire increasing portions of the joint venture partner’s interest.

On November 9, 2016, EnLink entered into a gathering and compression joint venture with a commitment of approximately $40 million to expand its midstream assets in the STACK. The joint venture is initially owned 30% by EnLink and 70% by the joint venture partner. As of December 31, 2016, EnLink contributed approximately $29 million in cash for new infrastructure build. After the initial capital commitment, EnLink and the joint venture partner will be responsible for their proportionate share of capital expenses.

The following table presents a summary of EnLink’s acquisition activity for 2015.

				Purchase Price (Millions)								Allocation (Millions)
Date		Acquiree		Cash				EnLink Units				PP&E				Goodwill				Intangibles				Other
January 2015		LPC		$	108				—			$	30			$	30			$	43			$	5
March 2015		Coronado		$	240			$	360			$	302			$	18			$	281			$	(1	)
October 2015		Matador		$	141				—			$	36			$	11			$	99			$	(5)

EnLink Asset Divestitures and Dropdowns

In December 2016, EnLink entered into definitive agreements to divest approximately $278 million of certain non-core midstream assets. Certain of these transactions are expected to close during the first quarter of 2017. As of December 31, 2016, these assets were classified as held for sale.

In February 2015, EnLink acquired a 25% equity interest in EMH from the General Partner in exchange for units valued at approximately $925 million. In May 2015, EnLink acquired the remaining 25% equity interest in EMH from the General Partner in exchange for units valued at approximately $900 million.

In April 2015, EnLink acquired VEX from Devon for approximately $176 million in cash and equity. EnLink also assumed approximately $35 million in certain future construction costs to expand the system to full capacity. Because Devon controls EnLink and the General Partner, the acquisition of VEX by EnLink from Devon was accounted for as a transfer of net assets between entities under common control.

Formation of EnLink and the General Partner

On March 7, 2014, Devon and Crosstex completed a transaction to combine substantially all of Devon’s U.S. midstream assets with Crosstex’s assets to form a midstream business that consists of the General Partner and EnLink, which are both publicly traded.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In exchange for a controlling interest in both EnLink and the General Partner, Devon contributed its equity interest in a newly formed Devon subsidiary, EMH, and $100 million in cash. EMH owned midstream assets in the Barnett Shale in north Texas and the Cana- and Arkoma-Woodford Shales in Oklahoma, as well as an economic interest in Gulf Coast Fractionators in Mont Belvieu, Texas.

This business combination was accounted for using the acquisition method of accounting. Under the acquisition method of accounting, EMH was the accounting acquirer because its parent company, Devon, obtained control of EnLink and the General Partner as a result of the business combination. Consequently, EMH’s assets and liabilities retained their carrying values. Additionally, the Crosstex assets acquired and liabilities assumed by the General Partner and EnLink in the business combination, as well as the General Partner’s noncontrolling interest in EnLink, were recorded at their fair values which were measured as of the acquisition date, March 7, 2014. The excess of the purchase price over the estimated fair values of Crosstex’s net assets acquired was recorded as goodwill.

The following table summarizes the purchase price (millions, except unit price).

Crosstex Energy, Inc. outstanding common shares:
Held by public shareholders			48.0
Restricted shares			0.4
Total subject to conversion			48.4
Exchange ratio			1.0		x
Converted shares			48.4
Crosstex Energy, Inc. common share price (1)		$	37.60
Crosstex Energy, Inc. consideration		$	1,823
Fair value of noncontrolling interest in E2 (2)			18
Total Crosstex Energy, Inc. consideration and fair value of noncontrolling interests		$	1,841
Crosstex Energy, LP outstanding units:
Common units held by public unitholders			75.1
Preferred units held by third party (3)			17.1
Restricted units			0.4
Total			92.6
Crosstex Energy, LP common unit price (4)		$	30.51
Crosstex Energy, LP common units value		$	2,825
Crosstex Energy, LP outstanding unit options value			4
Total fair value of noncontrolling interests in the Crosstex Energy, LP (4)			2,829
Total consideration and fair value of noncontrolling interests		$	4,670

(1)	The final purchase price is based on the fair value of Crosstex Energy, Inc.’s common shares as of the closing date, March 7, 2014.

(2)	Represents the value of noncontrolling interests related to the General Partner’s equity investment in E2.

(3)	Crosstex Energy, LP converted the preferred units to common units in February 2014.

(4)	The final purchase price is based on the fair value of Crosstex Energy, LP’s common units as of the closing date, March 7, 2014.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The allocation of the purchase price is as follows (millions):

Assets acquired:
Current assets		$	437
Property, plant and equipment			2,438
Intangible assets			569
Equity investment			222
Goodwill (1)			3,283
Other long-term assets			1
Liabilities assumed:
Current liabilities			(515	)
Long-term debt			(1,454	)
Deferred income taxes			(210	)
Other long-term liabilities			(101	)
Total purchase price		$	4,670

(1)	Goodwill is the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill is not amortized and is not deductible for tax purposes.

Pro Forma Financial Information

The following unaudited pro forma financial information has been prepared assuming both the EnLink formation and the GeoSouthern acquisition occurred on January 1, 2014. The pro forma information is not intended to reflect the actual results of operations that would have occurred if the business combination and acquisition had been completed at the dates indicated. In addition, they do not project Devon’s results of operations for any future period.

		Year Ended December 31, 2014
		(Millions)
Total operating revenues		$	20,213
Net earnings		$	1,716
Noncontrolling interests		$	97
Net earnings attributable to Devon		$	1,619
Net earnings per common share attributable to Devon		$	3.94

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

3.	Derivative Financial Instruments

Commodity Derivatives

As of December 31, 2016, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The second table presents Devon’s oil derivatives that settle against the respective indices noted within the table.

		Price Swaps								Price Collars
Period		Volume (Bbls/d)				Weighted Average Price ($/Bbl)				Volume (Bbls/d)				Weighted Average Floor Price ($/Bbl)				Weighted Average Ceiling Price ($/Bbl)
Q1-Q4 2017			72,527			$	54.32				53,245			$	45.16			$	57.97
Q1-Q4 2018			2,600			$	53.38				6,189			$	46.97			$	56.97

		Oil Basis Swaps
Period		Index		Volume (Bbls/d)				Weighted Average Differential to WTI ($/Bbl)
Q1-Q4 2017		Midland Sweet			10,000			$	(0.43	)

As of December 31, 2016, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.

		Price Swaps								Price Collars
Period		Volume (MMBtu/d)				Weighted Average Price ($/MMBtu)				Volume (MMBtu/d)				Weighted Average Floor Price ($/MMBtu)				Weighted Average Ceiling Price ($/MMBtu)
Q1-Q4 2017			189,753			$	3.13				335,274			$	2.97			$	3.38
Q1-Q4 2018			29,705			$	3.17				19,110			$	3.20			$	3.50

		Natural Gas Basis Swaps
Period		Index		Volume (MMBtu/d)				Weighted Average Differential to Henry Hub ($/MMBtu)
Q1-Q4 2017		Panhandle Eastern Pipe Line			150,000			$	(0.34	)
Q1-Q4 2017		El Paso Natural Gas			80,000			$	(0.13	)
Q1-Q4 2017		Houston Ship Channel			35,000			$	0.06
Q1-Q4 2017		Transco Zone 4			205,000			$	0.03
Q1 2018		Panhandle Eastern Pipe Line			50,000			$	(0.29	)

As of December 31, 2016, EnLink had the following open derivative positions associated with gas processing and fractionation. EnLink’s NGL positions settle by purity product against the average of the prompt month OPIS Mont Belvieu, Texas index. EnLink’s natural gas positions settle against the Henry Hub Gas Daily index.

Period		Product		Volume (Total)					Weighted Average Price Paid		Weighted Average Price Received
Q1 2017-Q4 2017		Propane			434		MBbls		Index		$0.55/gal
Q1 2017-Q4 2017		Normal Butane			161		MBbls		Index		$0.70/gal
Q1 2017-Q4 2017		Natural Gas			21,685		MMBtu/d		Index		$3.14/MMbtu

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Interest Rate Derivatives

As of December 31, 2016, Devon had the following open interest rate derivative positions:

Notional				Rate Received				Rate Paid				Expiration
(Millions)
$	750			Three Month LIBOR					2.98%			December 2048 (1)
$	100				1.76%			Three Month LIBOR				January 2019

(1)	Mandatory settlement in December 2018.

Financial Statement Presentation

The following table presents the net gains and losses by derivative financial instrument type followed by the corresponding individual consolidated comprehensive statements of earnings caption.

		Year Ended December 31,
		2016				2015				2014
Commodity derivatives:		(Millions)
Oil, gas and NGL derivatives		$	(201	)		$	503			$	1,989
Marketing and midstream revenues			(13	)			9				22
Interest rate derivatives:
Other nonoperating items			(19	)			(20	)			(1	)
Foreign currency derivatives:
Other nonoperating items			(153	)			246				60
Net gains (losses) recognized		$	(386	)		$	738			$	2,070

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the derivative fair values by derivative financial instrument type followed by the corresponding individual consolidated balance sheet caption.

		December 31, 2016				December 31, 2015
		(Millions)
Commodity derivative assets:
Other current assets		$	9			$	34
Other long-term assets			1				1
Interest rate derivative assets:
Other current assets			1				1
Other long-term assets			—				1
Foreign currency derivative assets:
Other current assets			—				8
Total derivative assets		$	11			$	45
Commodity derivative liabilities:
Other current liabilities		$	187			$	14
Other long-term liabilities			16				4
Interest rate derivative liabilities:
Other long-term liabilities			41				22
Foreign currency derivative liabilities:
Other current liabilities			—				8
Total derivative liabilities		$	244			$	48

4.	Share-Based Compensation

In the second quarter of 2015, Devon’s stockholders approved the 2015 Long-Term Incentive Plan. The 2015 Plan replaces the 2009 Long-Term Incentive Plan, as amended. From the effective date of the 2015 Plan, no further awards may be made under the 2009 Plan, and awards previously granted will continue to be governed by the terms of the 2009 Plan. Subject to the terms of the 2015 Plan, awards may be made under the 2015 Plan for a total of 28 million shares of Devon common stock, plus the number of shares available for issuance under the 2009 Plan (including shares subject to outstanding awards under the 2009 Plan that are subsequently forfeited, canceled or expire). The 2015 Plan authorizes the Compensation Committee, which consists of independent, non-management members of Devon’s Board of Directors, to grant nonqualified and incentive stock options, restricted stock awards or units, Canadian restricted stock units, performance awards or units and stock appreciation rights to eligible employees. The 2015 Plan also authorizes the grant of nonqualified stock options, restricted stock awards or units and stock appreciation rights to non-employee directors. To calculate the number of shares that may be granted in awards under the 2015 Plan, options and stock appreciation rights represent one share and other awards represent three shares.

Devon also has a stock option plan that was adopted in 2005 under which stock options were issued to certain employees. Options granted under this plan remain exercisable by the employees owning such options, but no new options or restricted stock awards will be granted under this plan.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The table below presents the effects of share-based compensation included in Devon’s accompanying consolidated comprehensive statements of earnings. Gross G&A in 2016, 2015 and 2014 includes $24 million, $31 million and $17 million, respectively, of unit-based compensation related to grants made under EnLink’s long-term incentive plans.

The vesting for certain share-based awards was accelerated in 2016 in conjunction with the reduction of workforce described in Note 6. Approximately $60 million of associated expense for these accelerated awards is included in restructuring and transaction costs in the accompanying consolidated comprehensive statements of earnings. In 2014, vesting of certain share-based awards was accelerated in conjunction with the divestiture of Devon’s Canadian conventional assets. Approximately $15 million of associated expense for these accelerated awards is included in restructuring and transaction costs in the accompanying consolidated comprehensive statements of earnings.

		Year Ended December 31,
		2016				2015				2014
		(Millions)
Gross G&A for share-based compensation		$	154			$	225			$	199
Share-based compensation expense capitalized pursuant to the full cost method of accounting for oil and gas properties		$	39			$	63			$	53
Related income tax benefit		$	4			$	45			$	42

The following table presents a summary of Devon’s unvested restricted stock awards and units, performance-based restricted stock awards and performance share units granted under the plans.

		Restricted Stock								Performance-Based								Performance
		Awards and Units								Restricted Stock Awards								Share Units
		Awards and Units				Weighted Average Grant-Date Fair Value				Awards				Weighted Average Grant-Date Fair Value				Units						Weighted Average Grant-Date Fair Value
		(Thousands, except fair value data)
Unvested at 12/31/15			4,738			$	62.49				434			$	60.48				1,859					$	76.17
Granted			4,390			$	19.91				330			$	19.22				1,388					$	10.41
Vested			(2,473	)		$	61.44				(179	)		$	59.10				(602	)				$	63.37
Forfeited			(248	)		$	44.38				—			$	—				(41	)				$	43.88
Unvested at 12/31/16			6,407			$	34.40				585			$	37.60				2,604			(1	)	$	46.66

(1)	A maximum of 5.2 million common shares could be awarded based upon Devon’s final TSR ranking.

The following table presents the aggregate fair value of awards and units that vested during the indicated period.

		2016				2015				2014
		(Millions)
Restricted Stock Awards and Units		$	73			$	101			$	112
Performance-Based Restricted Stock Awards		$	5			$	8			$	10
Performance Share Units		$	13			$	22			$	—

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the unrecognized compensation cost and the related weighted average recognition period associated with unvested awards and units as of December 31, 2016.

						Performance-Based
		Restricted Stock				Restricted Stock				Performance
		Awards and Units				Awards				Share Units
Unrecognized compensation cost (millions)		$	131			$	5			$	21
Weighted average period for recognition (years)			2.3				2.2				1.6

Restricted Stock Awards and Units

Restricted stock awards and units are subject to the terms, conditions, restrictions and limitations, if any, that the Compensation Committee deems appropriate, including restrictions on continued employment. Generally, the service requirement for vesting ranges from one to four years. During the vesting period, recipients of restricted stock awards receive dividends that are not subject to restrictions or other limitations. Devon estimates the fair values of restricted stock awards and units as the closing price of Devon’s common stock on the grant date of the award or unit, which is expensed over the applicable vesting period.

Performance-Based Restricted Stock Awards

Performance-based restricted stock awards are granted to certain members of Devon’s senior management. Vesting of the awards is dependent on Devon meeting certain internal performance targets and the recipient meeting certain service requirements. Generally, the service requirement for vesting ranges from one to four years. In order for awards to vest, the performance target must be met in the first year, and if met, recipients are entitled to dividends on the awards over the remaining service vesting period. If the performance target and service period requirements are not met, the award does not vest. Devon estimates the fair values of the awards as the closing price of Devon’s common stock on the grant date of the award, which is expensed over the applicable vesting period.

Performance Share Units

Performance share units are granted to certain members of Devon’s management and senior employees. Each unit that vests entitles the recipient to one share of Devon common stock. The vesting of these units is based on comparing Devon’s TSR to the TSR of a predetermined group of fourteen peer companies over the specified three-year performance period. The vesting of units may be between zero and 200% of the units granted depending on Devon’s TSR as compared to the peer group on the vesting date.

At the end of the vesting period, recipients receive dividend equivalents with respect to the number of units vested. The fair value of each performance share unit is estimated as of the date of grant using a Monte Carlo simulation with the following assumptions used for all grants made under the plan: (i) a risk-free interest rate based on U.S. Treasury rates as of the grant date; (ii) a volatility assumption based on the historical realized price volatility of Devon and the designated peer group; and (iii) an estimated ranking of Devon among the designated peer group. The fair value of the unit on the date of grant is expensed over the applicable vesting period. The following table presents the assumptions related to performance share units granted.

		2016										2015										2014
Grant-date fair value		$	9.24			—		$	10.61			$	81.99			—		$	85.05			$	70.18			—		$	81.05
Risk-free interest rate		0.94%										1.06%										0.54%
Volatility factor		37.7%										26.2%										28.8%
Contractual term (years)		2.83										2.89										2.89

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Stock Options

In accordance with Devon’s incentive plans, the exercise price of stock options granted may not be less than the market value of the stock at the date of grant. In addition, options granted are exercisable during a period established for each grant, which may not exceed eight years from the date of grant. The recipient must pay the exercise price in cash or in common stock, or a combination thereof, at the time that the option is exercised. Generally, the service requirement for vesting ranges from one to four years. The fair value of stock options on the date of grant is expensed over the applicable vesting period. Devon estimates the fair values of stock options granted using a Black-Scholes option valuation model, which requires Devon to make several assumptions, including a volatility factor, dividend yield rate, risk-free interest rate and expected term. No stock options were granted in 2016, 2015 and 2014. The following table presents a summary of Devon’s outstanding stock options.

						Weighted Average
		Options				Exercise Price				Remaining Term				Intrinsic Value
		(Thousands)								(Years)				(Millions)
Outstanding at December 31, 2015			3,448			$	67.98
Expired			(916	)		$	67.75
Outstanding at December 31, 2016			2,532			$	68.06				1.87			$	—
Vested and expected to vest at December 31, 2016			2,532			$	68.06				1.87			$	—
Exercisable at December 31, 2016			2,532			$	68.06				1.87			$	—

The aggregate intrinsic value of stock options that were exercised during 2015 and 2014 was $0.2 million and $9 million, respectively. As of December 31, 2016, Devon had no unrecognized compensation cost related to unvested stock options.

EnLink Share-Based Awards

The following table presents a summary of the unrecognized compensation cost and the related weighted average recognition period associated with the General Partner’s and EnLink’s unvested restricted incentive units and performance units as of December 31, 2016.

		General Partner								EnLink
		Restricted				Performance				Restricted				Performance
		Incentive Units				Units				Incentive Units				Units
Unrecognized compensation cost (millions)		$	14			$	4			$	14			$	4
Weighted average period for recognition (years)		1.6					1.8			1.7					1.8

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

5.	Asset Impairments

The following table presents the asset impairments recognized in 2016, 2015 and 2014.

		Year Ended December 31,
		2016				2015				2014
		(Millions)
U.S. oil and gas assets		$	2,809			$	17,992			$	—
Canada oil and gas assets			1,291				1,257				—
Canada goodwill			—				—				1,941
EnLink goodwill			873				1,328				—
EnLink other intangible assets			—				223				—
Other assets			2				20				12
Total asset impairments		$	4,975			$	20,820			$	1,953

Oil and Gas Impairments

Under the full cost method of accounting, capitalized costs of oil and gas properties are subject to a quarterly full cost ceiling test, which is discussed in Note 1.

The oil and gas impairments resulted from declines in the U.S. and Canada full cost ceilings. The lower ceiling values resulted primarily from significant decreases in the 12-month average trailing prices for oil, bitumen, natural gas and NGLs, which significantly reduced proved reserves values and, to a lesser degree, proved reserves. For further information, see Note 22.

Goodwill and Other Intangible Assets Impairments

In 2016 and 2015, Devon recognized goodwill and other intangible assets impairments related to EnLink’s business. Additional information regarding the impairments is discussed in Note 12.

In 2014, as a result of its annual impairment test of goodwill, Devon concluded the implied fair value of its Canadian goodwill was zero and wrote off the remaining goodwill.

6.	Restructuring and Transaction Costs

The following table summarizes Devon’s restructuring liabilities presented in the accompanying consolidated balance sheets.

		Other				Other
		Current				Long-term
		Liabilities				Liabilities				Total
		(Millions)
Balance as of December 31, 2014		$	13			$	7			$	20
Changes related to prior years' restructurings			—				56				56
Balance as of December 31, 2015		$	13			$	63			$	76
Changes due to 2016 workforce reductions			29				6				35
Changes related to prior years' restructurings			6				(7	)			(1	)
Balance as of December 31, 2016		$	48			$	62			$	110

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Reduction in Workforce

In 2016, Devon recognized employee-related and other costs associated with a reduction in workforce that was made in response to the depressed commodity price environment. The following table summarizes restructuring and transaction costs presented in the accompanying consolidated comprehensive statement of earnings.

		Year Ended December 31, 2016
		(Millions)
2016 reduction in workforce:
Employee related costs		$	227
Lease obligations			20
Asset impairments			3
Transaction costs			17
Restructuring and transaction costs		$	267

Of these employee-related costs, approximately $60 million resulted from accelerated vesting of share-based grants, which are noncash charges. Additionally, approximately $24 million resulted from estimated defined benefit settlements. These cash and noncash charges included estimates for employees released from service during 2016, as well as amounts based on the number of employees impacted by certain of its non-core asset divestitures.

Devon ceased using certain office space that was subject to non-cancellable operating lease arrangements. Consequently, Devon recognized restructuring costs that represent the present value of its future obligations under the leases. Additionally, Devon recognized asset impairment charges for leasehold improvements and furniture associated with the office space it ceased using.

Transaction Costs

In 2016, Devon and EnLink recognized transaction costs primarily associated with the closing of the acquisitions discussed in Note 2.

Prior Years’ Restructurings

In 2015, Devon recognized $24 million of employee-related and other costs associated with the reduction in workforce made subsequent to the completion of the Jackfish development projects and a decrease in planned Canadian capital investment resulting from the drop in commodity prices. Devon incurred employee severance, lease obligation and other costs related to the vacated office space as part of the cost reduction plan.

As part of the U.S. corporate headquarters office consolidation, Devon recognized an additional $54 million expense in 2015, due to a lack of demand for vacated office space and the inability to fully sublease remaining office space.

In 2014, Devon recognized $46 million of employee-related and other costs associated with its divestiture of certain Canadian assets. Approximately $15 million of the employee related costs resulted from accelerated vesting of share-based grants, which are noncash charges.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

7.	Income Taxes

Income Tax Expense (Benefit)

The following table presents Devon’s income tax components.

		Year Ended December 31,
		2016				2015				2014
		(Millions)
Current income tax expense (benefit):
U.S. federal		$	5			$	(243	)		$	152
Various states			(11	)			(8	)			18
Canada and various provinces			106				14				307
Total current tax expense (benefit)			100				(237	)			477
Deferred income tax expense (benefit):
U.S. federal			(3	)			(5,033	)			1,610
Various states			—				(336	)			93
Canada and various provinces			(270	)			(459	)			188
Total deferred tax expense (benefit)			(273	)			(5,828	)			1,891
Total income tax expense (benefit)		$	(173	)		$	(6,065	)		$	2,368

Total income tax expense (benefit) differed from the amounts computed by applying the U.S. federal income tax rate to earnings before income taxes as a result of the following:

		Year Ended December 31,
		2016				2015				2014
		(Millions)
Total income tax expense (benefit)		$	(173	)		$	(6,065	)		$	2,368
U.S. statutory income tax rate			35	%			35	%			35	%
Deferred tax asset valuation allowance			(22	%)			(4	%)			0	%
Non-deductible goodwill and intangible impairment			(8	%)			(2	%)			23	%
Change in unrecognized tax benefits			(2	%)			0	%			1	%
Taxation on Canadian operations			(3	%)			(1	%)			(4	%)
State income taxes			1	%			1	%			2	%
Other			3	%			0	%			1	%
Effective income tax rate			4	%			29	%			58	%

Devon and its subsidiaries are subject to U.S. federal income tax as well as income or capital taxes in various state and foreign jurisdictions. Devon’s tax reserves are related to tax years that may be subject to examinations by the relevant taxing authority. Devon is under audit in the U.S. and various foreign jurisdictions as part of its normal course of business.

Devon assesses the realizability of its deferred tax assets. If Devon concludes that it is more likely than not that some portion or all of the deferred tax assets will not be realized, the asset is reduced by a valuation allowance. Numerous judgements and assumptions are inherent in the determination of future taxable income, including factors such as future operating conditions (particularly as related to prevailing oil and gas prices) and changing tax laws.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

2016

During 2016, Devon’s U.S. segment recorded an additional $774 million valuation allowance against its deferred tax assets. The allowance results from continued financial losses resulting from additional full cost impairments in 2016. As of December 31, 2016, the allowance continues to represent a 100% valuation against the U.S. net deferred tax assets. Additionally, the Canadian segment recognized a $71 million partial valuation allowance resulting from continued financial losses. The valuation allowances impacted the effective tax rate and are discussed in the next section.

In the first quarter of 2016, EnLink recorded a goodwill impairment of approximately $873 million. Additionally, during the third quarter of 2016, Devon derecognized $197 million of goodwill related to its U.S. operations in conjunction with the divestiture of certain non-core U.S upstream oil and gas assets. These impairments are not deductible for purposes of calculating income tax and, therefore, impact the effective tax rate.

2015

In the third and fourth quarters of 2015, EnLink recorded goodwill and intangibles impairments of approximately $1.6 billion, which impacted the effective tax rate.

During 2015, Devon recorded approximately $18 billion of oil and gas impairments related to its U.S. operations. These impairments resulted in deferred tax assets against which Devon recognized a $967 million valuation allowance.

2014

In the second and fourth quarters of 2014, goodwill was removed in conjunction with the Canadian conventional asset divestitures, and Devon recorded a goodwill impairment in the Canadian reporting unit. These non-deductible goodwill reductions impacted the effective tax rate.

Additionally, during 2014, Devon repatriated to the U.S. $2.8 billion of cash relating to the Canadian asset divestiture. In conjunction with the repatriation, Devon recognized approximately $105 million of additional income tax expense for the full year. Prior to the repatriation, Devon had recognized a $143 million deferred income tax liability associated with the planned repatriation. When the repatriation was made, Devon retained a larger property basis in Canada than was previously estimated, resulting in the incremental tax. After the use of foreign tax credits, the current income tax on the repatriation was $67 million.

Furthermore, Devon completed its divestiture program of certain assets in the U.S. In conjunction with the divestitures, Devon recognized $294 million of current income tax expense. The current tax expense was entirely offset by the recognition of deferred tax benefits.

Devon also recorded a $46 million deferred tax liability in conjunction with the formation of EnLink in 2014.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Deferred Tax Assets and Liabilities

The following table presents the tax effects of temporary differences that gave rise to Devon’s deferred tax assets and liabilities.

		December 31,
		2016				2015
		(Millions)
Deferred tax assets:
Property and equipment		$	685			$	490
Asset retirement obligations			488				485
Accrued liabilities			130				160
Net operating loss carryforwards			777				175
Pension benefit obligations			98				106
Other			203				162
Total deferred tax assets before valuation allowance			2,381				1,578
Less: valuation allowance			(1,666	)			(967	)
Net deferred tax assets			715				611
Deferred tax liabilities:
Property and equipment			(884	)			(1,187	)
Long-term debt			(53	)			(36	)
Other			(426	)			(271	)
Total deferred tax liabilities			(1,363	)			(1,494	)
Net deferred tax liability		$	(648	)		$	(883	)

At December 31, 2016, Devon has recognized $777 million of deferred tax assets related to various net operating loss carryforwards available to offset future income taxes. The net operating loss carryforwards consist of $536 million of Canadian carryforwards that expire between 2029 and 2037, $1.5 billion of U.S. federal carryforward that expires in 2036, $689 million of U.S. state carryforwards that expire between 2018 and 2036 and $293 million of carryforwards related to EnLink’s operations that expire between 2028 and 2036. In the current environment, Devon expects tax benefits from the Canadian carryforwards to be utilized in 2017 and beyond and EnLink carryforwards to be utilized in 2018 and beyond. Devon currently does not anticipate utilizing the U.S. federal or state net operating loss carryforwards, as indicated by the full valuation allowance position in the U.S. segment. EnLink also has $1 million of deferred tax assets related to alternative minimum tax credits, which have no expiration date and will be available for use against tax on future taxable income.

As a result of Devon’s continued financial losses incurred largely by the additional full cost impairments, Devon recorded an additional $630 million of valuation allowance against the U.S. deferred tax assets in 2016 and remains in a full valuation allowance position. Also during 2016, Devon’s Canadian segment recorded a $69 million partial valuation allowance due to its continued financial losses. In the event Devon were to determine that it would be able to realize the deferred income tax assets in the future, Devon would adjust the valuation allowance, reducing the provision for income taxes in the period of such adjustment.

As of December 31, 2016, Devon’s unremitted foreign earnings from its international operations totaled approximately $1.0 billion. All but $47 million of the $1.0 billion was deemed to be indefinitely reinvested into the development and growth of Devon’s Canadian business. Therefore, Devon has not recognized a deferred tax liability for U.S. income taxes associated with such earnings. If such earnings were to be repatriated to the U.S., Devon may be subject to U.S. income taxes and foreign withholding taxes. However, it is not practical to estimate the amount of such additional taxes that may be payable due to the inter-relationship of the various factors involved in making such an estimate.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the remaining $47 million of unremitted earnings deemed not to be indefinitely reinvested, Devon has recognized a $13 million deferred tax liability associated with such unremitted earnings as of December 31, 2016.

Unrecognized Tax Benefits

The following table presents changes in Devon’s unrecognized tax benefits.

		December 31,
		2016				2015
		(Millions)
Balance at beginning of year		$	131			$	241
Tax positions taken in prior periods			36				(19	)
Tax positions taken in current year			—				31
Accrual of interest related to tax positions taken			39				(5	)
Settlements			—				(108	)
Lapse of statute of limitations			(5	)			—
Foreign currency translation			1				(9	)
Balance at end of year		$	202			$	131

Devon’s unrecognized tax benefit balance at December 31, 2016 and 2015 included $68 million and $29 million, respectively, of interest and penalties. If recognized, $202 million of Devon’s unrecognized tax benefits as of December 31, 2016 would affect Devon’s effective income tax rate. Further, Devon believes that within the next 12 months, it is reasonably possible that certain tax examinations will be resolved by settlement with the taxing authorities. During 2016, Devon recognized $88 million of unrecognized tax benefits, including $36 million of interest, associated with such tax examinations. Included below is a summary of the tax years, by jurisdiction, that remain subject to examination by taxing authorities.

Jurisdiction		Tax Years Open
U.S. Federal		2012-2016
Various U.S. states		2010-2016
Canada Federal		2003-2016
Various Canadian provinces		2003-2016

Certain statute of limitation expirations are scheduled to occur in the next twelve months. However, Devon is currently in various stages of the administrative review process for certain open tax years. In addition, Devon is currently subject to various income tax audits that have not reached the administrative review process.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

8.	Net Earnings (Loss) Per Share Attributable to Devon

The following table reconciles net earnings (loss) attributable to Devon and weighted-average common shares outstanding used in the calculations of basic and diluted net earnings per share.

		Year Ended December 31,
		2016				2015				2014
		(Millions, except per share amounts)
Net earnings (loss):
Net earnings (loss) attributable to Devon		$	(3,302	)		$	(14,454	)		$	1,607
Attributable to participating securities			(2	)			(5	)			(17	)
Basic and diluted earnings (loss)		$	(3,304	)		$	(14,459	)		$	1,590
Common shares:
Common shares outstanding - total			513				412				409
Attributable to participating securities			(6	)			(5	)			(4	)
Common shares outstanding - basic			507				407				405
Dilutive effect of potential common shares issuable			—				—				2
Common shares outstanding - diluted			507				407				407
Net earnings (loss) per share attributable to Devon:
Basic		$	(6.52	)		$	(35.55	)		$	3.93
Diluted		$	(6.52	)		$	(35.55	)		$	3.91
Antidilutive options (1)			3				4				3

(1)	Amounts represent options to purchase shares of Devon’s common stock that are excluded from the diluted net earnings per share calculations because the options are antidilutive.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

9.	Other Comprehensive Earnings

Components of other comprehensive earnings consist of the following:

		Year Ended December 31,
		2016				2015				2014
		(Millions)
Foreign currency translation:
Beginning accumulated foreign currency translation		$	424			$	983			$	1,448
Change in cumulative translation adjustment			45				(621	)			(499		)
Income tax benefit (expense)			(13	)			62				34
Ending accumulated foreign currency translation			456				424				983
Pension and postretirement benefit plans:
Beginning accumulated pension and postretirement benefits			(194	)			(204	)			(180		)
Net actuarial loss and prior service cost arising in current year			(28	)			(5	)			(57		)
Recognition of net actuarial loss and prior service cost in earnings (1)			26				21				20
Curtailment and settlement of pension benefits			24				—				—
Income tax benefit (expense)			—				(6	)			13
Ending accumulated pension and postretirement benefits			(172	)			(194	)			(204		)
Accumulated other comprehensive earnings, net of tax		$	284			$	230			$	779

(1)	These accumulated other comprehensive earnings components are included in the computation of net periodic benefit cost, which is a component of G&A on the accompanying consolidated comprehensive statements of earnings. See Note 16 for additional details.

10.	Supplemental Information to Statements of Cash Flows

		Year Ended December 31,
		2016				2015				2014
		(Millions)
Net change in working capital accounts, net of assets and liabilities assumed:
Accounts receivable		$	(176	)		$	942			$	128
Income taxes receivable			130				384				(467	)
Other current assets			215				(57	)			(222	)
Accounts payable			(167	)			(190	)			(68	)
Revenues and royalties payable			96				(526	)			133
Other current liabilities			(106	)			(864	)			546
Net change in working capital		$	(8	)		$	(311	)		$	50
Interest paid (net of capitalized interest)		$	566			$	494			$	514
Income taxes paid (received)		$	(159	)		$	(279	)		$	899

In 2016, Devon’s acquisition of certain STACK assets included the noncash issuance of Devon common stock. Further, in 2016, EnLink’s acquisition of Anadarko Basin gathering and processing midstream assets included noncash issuance of General Partner common units. Additionally, EnLink’s formation of a joint venture during the third quarter of 2016 included non-monetary asset contributions. See Note 2 for additional details.

In 2015, Devon’s acquisition of certain Powder River Basin assets included noncash common stock issuance totaling $199 million. EnLink’s acquisitions in 2015 also included $360 million of noncash equity.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

On March 7, 2014, Devon completed a business combination to form EnLink. With the exception of a $100 million cash payment to noncontrolling interests, the business combination was a non-monetary transaction.

11.	Accounts Receivable

Components of accounts receivable include the following:

		December 31, 2016				December 31, 2015
		(Millions)
Oil, gas and NGL sales		$	487			$	362
Joint interest billings			110				211
Marketing and midstream revenues			708				520
Other			69				30
Gross accounts receivable			1,374				1,123
Allowance for doubtful accounts			(18	)			(18	)
Net accounts receivable		$	1,356			$	1,105

12.	Goodwill and Other Intangible Assets

Goodwill

The following table presents a summary of Devon’s goodwill.

		U.S.				EnLink				Total
		(Millions)
Balance as of December 31, 2014		$	2,618			$	3,685			$	6,303
Acquired during period			—				57				57
Impairment			—				(1,328	)			(1,328	)
Balance as of December 31, 2015		$	2,618			$	2,414			$	5,032
Acquired during period			—				2				2
Asset divestitures			(197	)			—				(197	)
Impairment			—				(873	)			(873	)
Balance as of December 31, 2016		$	2,421			$	1,543			$	3,964

The following table presents the General Partner’s and EnLink’s goodwill activity by reporting unit.

		Texas				Louisiana				Oklahoma				Crude and Condensate				General Partner						Total
		(Millions)
Balance as of December 31, 2014		$	1,168			$	787			$	190			$	113				$	1,427						$	3,685
Acquired during period			28				—				—				29					—							57
Impairment			(492	)			(787	)			—				(49	)				—							(1,328		)
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

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Asset Divestitures

In conjunction with the U.S. non-core upstream asset divestitures in 2016 discussed in Note 2, Devon removed $197 million of goodwill, which was 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 a noncash goodwill impairment.

During 2015, as a result of interim and annual impairment tests of goodwill, noncash goodwill impairments were recorded related to EnLink’s Texas, Louisiana and Crude and Condensate reporting units.

Other Intangible Assets

In the third quarter of 2015, Devon recorded a $223 million noncash impairment of intangible assets related to EnLink’s Crude and Condensate reporting unit resulting from an assessment of EnLink’s customer relationships. Fair value measurements were utilized for the impairment analysis of definite-lived intangible assets, which included discounted cash flow estimates, consistent with those utilized in the goodwill impairment assessment.

The following table presents other intangible assets reported in other long-term assets in the accompanying consolidated balance sheets.

		December 31, 2016				December 31, 2015
		(Millions)
Customer relationships		$	1,796			$	745
Accumulated amortization			(172	)			(55	)
Net intangibles		$	1,624			$	690

The weighted-average amortization period for the customer relationships is 14 years. Amortization expense for intangibles was approximately $117 million, $56 million and $36 million for the years ended 2016, 2015 and 2014, respectively. The remaining aggregate amortization expense is estimated to be approximately $118 million in each of the next five years.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

13.	Other Current Liabilities

Components of other current liabilities include the following:

	December 31, 2016				December 31, 2015
	(Millions)
Installment payment - see Note 2	$	249			$	—
Derivative liabilities		187				22
Accrued interest payable		130				149
Restructuring liabilities		48				13
Other		452				466
Other current liabilities	$	1,066			$	650

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

14.	Debt and Related Expenses

See below for a summary of debt instruments and balances. The notes and debentures are senior, unsecured obligations of Devon.

		December 31, 2016				December 31, 2015
		(Millions)
Devon debt:
Commercial paper		$	—			$	626
Floating rate due December 15, 2016			—				350
8.25% due July 1, 2018 (1)(2)			20				125
2.25% due December 15, 2018 (1)			95				750
6.30% due January 15, 2019 (1)			162				700
4.00% due July 15, 2021			500				500
3.25% due May 15, 2022			1,000				1,000
5.85% due December 15, 2025 (1)			485				850
7.50% due September 15, 2027 (1)(2)			73				150
7.875% due September 30, 2031 (1)(3)			1,059				1,250
7.95% due April 15, 2032 (1)			789				1,000
5.60% due July 15, 2041			1,250				1,250
4.75% due May 15, 2042			750				750
5.00% due June 15, 2045			750				750
Net discount on debentures and notes			(30	)			(28	)
Debt issuance costs			(44	)			(57	)
Total Devon debt			6,859				9,966
EnLink and General Partner debt:
Credit facilities			148				414
2.70% due April 1, 2019			400				400
7.125% due June 1, 2022			163				163
4.40% due April 1, 2024			550				550
4.15% due June 1, 2025			750				750
4.85% due July 15, 2026			500				—
5.60% due April 1, 2044			350				350
5.05% due April 1, 2045			450				450
Net premium on debentures and notes			9				13
Debt issuance costs			(25	)			(24	)
Total EnLink and General Partner debt			3,295				3,066
Total debt			10,154				13,032
Less amount classified as short-term debt (4)			—				976
Total long-term debt		$	10,154			$	12,056

(1)	These senior notes were included in 2016 tender offer redemptions discussed below.

(2)	These instruments were assumed by Devon in April 2003 in conjunction with the merger with Ocean Energy. The fair value and effective rates of these 8.25% notes and 7.50% notes at the time assumed was $147 million and 5.5%, respectively, and $169 million and 6.5%, respectively.

(3)	Issued in October 2001, these are unsecured and unsubordinated obligations of Devon Financing, a wholly owned finance subsidiary of Devon. These instruments are fully and unconditionally guaranteed by Devon.

(4)	2015 short-term debt consists of commercial paper balances and floating rate debt that was retired upon maturity in December 2016.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Debt maturities as of December 31, 2016, excluding debt issuance costs, premiums and discounts, are as follows (millions):

2017		$	—
2018			115
2019			590
2020			120
2021			500
Thereafter			8,919
Total		$	10,244

Credit Lines

Devon has a $3.0 billion Senior Credit Facility. The facility matures as follows: $30 million on October 24, 2017, $164 million on October 24, 2018 and the remaining $2.8 billion on October 24, 2019. Amounts borrowed under the Senior Credit Facility may, at the election of Devon, bear interest at various fixed rate options for periods of up to twelve months. Such rates are generally less than the prime rate. However, Devon may elect to borrow at the prime rate. The Senior Credit Facility currently provides for an annual facility fee of $7.6 million. As of December 31, 2016, Devon had $140 million in outstanding letters of credit, including $57 million in outstanding letters of credit under the Senior Credit Facility. There were no borrowings under the Senior Credit Facility as of December 31, 2016.

The Senior Credit Facility contains only one material financial covenant. This covenant requires Devon’s ratio of total funded debt to total capitalization, as defined in the credit agreement, to be no greater than 65%. The credit agreement contains definitions of total funded debt and total capitalization that include adjustments to the respective amounts reported in the accompanying consolidated financial statements. Also, total capitalization is adjusted to add back noncash financial write-downs such as asset impairments. As of December 31, 2016, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 18.7%.

Commercial Paper

Devon’s Senior Credit Facility supports its $3.0 billion of short-term credit under its commercial paper program. Commercial paper debt generally has a maturity of between 1 and 90 days, although it can have a maturity of up to 365 days, and bears interest at rates agreed to at the time of the borrowing. The interest rate is generally based on a standard index such as the Federal Funds Rate, LIBOR or the money market rate as found in the commercial paper market. During 2016, Devon reduced commercial paper borrowings by $626 million. As of December 31, 2016, Devon had no outstanding commercial paper borrowings.

Retirement of Senior Notes

During 2016, Devon completed tender offers to repurchase $2.1 billion of debt securities, using proceeds from the asset divestitures discussed in Note 2. Devon recognized a loss on early retirement of debt, primarily consisting of $265 million in cash retirement costs and other fees. These costs, along with other minimal noncash charges associated with retiring the debt, are included in net financing costs in the consolidated comprehensive statements of earnings.

In November 2014, Devon redeemed $1.9 billion of senior notes prior to their scheduled maturity, primarily with proceeds received from asset divestitures. Devon recognized a loss on the early retirement of debt, primarily

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

consisting of $40 million in cash retirement costs and other noncash charges. These costs are included in net financing costs in the consolidated comprehensive statement of earnings.

Issuance of Senior Notes

In December 2015, in conjunction with the announcement of the Powder River Basin and STACK acquisitions, Devon issued $850 million of 5.85% senior notes due 2025 that are unsecured and unsubordinated obligations. Devon used the net proceeds to partially fund the cash portion of these acquisitions.

In June 2015, Devon issued $750 million of 5.0% senior notes due 2045 that are unsecured and unsubordinated obligations. Devon used the net proceeds to repay the floating rate senior notes that matured on December 15, 2015, as well as outstanding commercial paper balances.

EnLink Debt

All of EnLink’s and the General Partner’s debt is non-recourse to Devon.

EnLink has a $1.5 billion unsecured revolving credit facility that will mature on March 6, 2020. As of December 31, 2016, there were $12 million in outstanding letters of credit and $120 million outstanding borrowings, with a weighted-average borrowing rate of 2.3%, under the $1.5 billion credit facility. The General Partner has a $250 million revolving credit facility that will mature on March 7, 2019. As of December 31, 2016, the General Partner had $28 million outstanding borrowings under the $250 million credit facility at a weighted average borrowing rate of 3.4%. EnLink and the General Partner were in compliance with all financial covenants in their respective credit facilities as of December 31, 2016.

In July 2016, EnLink issued $500 million of 4.85% unsecured senior notes due 2026. EnLink used the net proceeds to repay outstanding borrowings under its revolving credit facility and for general partnership purposes.

In May 2015, EnLink issued $900 million principal amount of unsecured senior notes, consisting of $750 million principal amount of its 4.15% senior notes due 2025 and an additional $150 million principal amount of its 5.05% senior notes due 2045. EnLink used the net proceeds to repay outstanding revolving credit facility borrowings, for capital expenditures and for general operations.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Net Financing Costs

The following schedule includes the components of net financing costs.

		Year Ended December 31,
		2016				2015				2014
		(Millions)
Devon net financing costs:
Interest based on debt outstanding		$	488			$	450			$	468
Early retirement of debt			269				—				48
Capitalized interest			(64	)			(54	)			(58	)
Other			21				14				15
Total Devon net financing costs			714				410				473
EnLink net financing costs:
Interest based on debt outstanding			144				115				64
Interest accretion on deferred installment payment			52				—				—
Other			(6	)			(8	)			(11	)
Total EnLink net financing costs			190				107				53
Total net financing costs		$	904			$	517			$	526

15.	Asset Retirement Obligations

The following table presents the changes in asset retirement obligations.

		Year Ended December 31,
		2016				2015
		(Millions)
Asset retirement obligations as of beginning of period		$	1,414			$	1,399
Liabilities incurred and assumed through acquisitions			27				63
Liabilities settled and divested			(324	)			(89	)
Revision of estimated obligation			66				62
Accretion expense on discounted obligation			75				75
Foreign currency translation adjustment			14				(96	)
Asset retirement obligations as of end of period			1,272				1,414
Less current portion			46				44
Asset retirement obligations, long-term		$	1,226			$	1,370

During 2016, Devon reduced its asset retirement obligation by $287 million for those obligations that were assumed by purchasers of certain upstream U.S. assets.

16.	Retirement Plans

Devon has various non-contributory defined benefit pension plans, including qualified plans and nonqualified plans. The qualified plans provide retirement benefits for certain U.S. and Canadian employees meeting certain age and service requirements. Benefits for the qualified plans are based on the employees’ years of service and compensation and are funded from assets held in the plans’ trusts.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The nonqualified plans provide retirement benefits for certain employees whose benefits under the qualified plans are limited by income tax regulations. The nonqualified plans’ benefits are based on the employees’ years of service and compensation. For certain nonqualified plans, Devon has established trusts to fund these plans’ benefit obligations. The total value of these trusts was $16 million and $22 million at December 31, 2016 and 2015, respectively and is included in other long-term assets in the accompanying consolidated balance sheets. For the remaining nonqualified plans for which trusts have not been established, benefits are funded from Devon’s available cash and cash equivalents.

Devon also has defined benefit postretirement plans that provide benefits for substantially all qualifying U.S. retirees. The plans provide medical and, in some cases, life insurance benefits and are either contributory or non-contributory, depending on the type of plan. Benefit obligations for such plans are estimated based on Devon’s future cost-sharing intentions. Devon’s funding policy for the plans is to fund the benefits as they become payable with available cash and cash equivalents.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Benefit Obligations and Funded Status

The following table presents the funded status of Devon’s qualified and nonqualified pension and postretirement benefit plans. The benefit obligation for pension plans represents the projected benefit obligation, while the benefit obligation for the postretirement benefit plans represents the accumulated benefit obligation. The accumulated benefit obligation differs from the projected benefit obligation in that the former includes no assumption about future compensation levels. The accumulated benefit obligation for pension plans was $1.2 billion at December 31, 2016 and 2015. Devon’s benefit obligations and plan assets are measured each year as of December 31.

		Pension Benefits								Postretirement Benefits
		2016				2015				2016				2015
		(Millions)
Change in benefit obligation:
Benefit obligation at beginning of year		$	1,308			$	1,377			$	23			$	24
Service cost			15				33				—				1
Interest cost			42				52				1				1
Actuarial loss (gain)			63				(68	)			(1	)			(2	)
Plan amendments			2				—				—				1
Plan curtailments			(31	)			—				—				—
Plan settlements			(94	)			—				—				—
Foreign exchange rate changes			1				(6	)			—				—
Participant contributions			—				—				—				2
Benefits paid			(57	)			(80	)			(2	)			(4	)
Benefit obligation at end of year			1,249				1,308				21				23
Change in plan assets:
Fair value of plan assets at beginning of year			1,059				1,149				—				—
Actual return on plan assets			61				(16	)			—				—
Employer contributions			16				11				2				2
Participant contributions			—				—				—				2
Plan settlements			(94	)			—				—				—
Benefits paid			(57	)			(80	)			(2	)			(4	)
Foreign exchange rate changes			—				(5	)			—				—
Fair value of plan assets at end of year			985				1,059				—				—
Funded status at end of year		$	(264	)		$	(249	)		$	(21	)		$	(23	)
Amounts recognized in balance sheet:
Other long-term assets		$	3			$	2			$	—			$	—
Other current liabilities			(13	)			(12	)			(3	)			(3	)
Other long-term liabilities			(254	)			(239	)			(18	)			(20	)
Net amount		$	(264	)		$	(249	)		$	(21	)		$	(23	)
Amounts recognized in accumulated other comprehensive earnings:
Net actuarial loss (gain)		$	285			$	302			$	(11	)		$	(11	)
Prior service cost (credit)			8				14				(5	)			(6	)
Total		$	293			$	316			$	(16	)		$	(17	)

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The plan assets for pension benefits in the table above exclude the assets held in trusts for the nonqualified plans. However, employer contributions for pension benefits in the table above include $13 million and $11 million for 2016 and 2015, respectively, which were funded from the trusts established for the nonqualified plans.

Certain of Devon’s pension plans are unfunded and have a combined projected benefit obligation and accumulated benefit obligation of $234 million and $211 million, respectively, at December 31, 2016 and $244 million and $199 million, respectively, at December 31, 2015.

Net Periodic Benefit Cost and Other Comprehensive Earnings

The following table presents the components of net periodic benefit cost and other comprehensive earnings.

		Pension Benefits												Postretirement Benefits
		2016				2015				2014				2016				2015				2014
		(Millions)
Net periodic benefit cost:
Service cost		$	15			$	33			$	30			$	—			$	1			$	1
Interest cost			42				52				55				1				1				1
Expected return on plan assets			(55	)			(58	)			(54	)			—				—				—
Curtailment and settlement expense			—				—				1				—				—				—
Recognition of net actuarial loss (gain) (1)			25				20				18				(1	)			(1	)			(1	)
Recognition of prior service cost (1)			3				4				4				(1	)			(2	)			(2	)
Total net periodic benefit cost (2)			30				51				54				(1	)			(1	)			(1	)
Other comprehensive loss (earnings):
Actuarial loss (gain) arising in current year			26				5				57				—				(1	)			—
Prior service cost (credit) arising in current year			2				—				—				—				1				—
Recognition of net actuarial loss, including settlement expense, in net periodic benefit cost (3)			(43	)			(20	)			(19	)			1				1				1
Recognition of prior service cost, including curtailment, in net periodic benefit cost (3)			(9	)			(4	)			(4	)			1				1				2
Total other comprehensive loss (earnings)			(24	)			(19	)			34				2				2				3
Total recognized		$	6			$	32			$	88			$	1			$	1			$	2

(1)	These net periodic benefit costs were reclassified out of other comprehensive earnings in the current period.

(2)	Net periodic benefit cost is a component of G&A on the accompanying consolidated comprehensive statements of earnings.

(3)	These amounts include restructuring costs that were reclassified out of other comprehensive earnings in the current period. See Note 6 for further discussion.

The estimated net actuarial loss and prior service cost for our pension and postretirement benefits that will be amortized from accumulated other comprehensive earnings into net periodic benefit cost during 2017 are $18 million and $1 million, respectively.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Assumptions

The following table presents the weighted-average actuarial assumptions used to determine obligations and periodic costs.

		Pension Benefits												Postretirement Benefits
		2016				2015				2014				2016				2015				2014
Assumptions to determine benefit obligations:
Discount rate			4.07%				4.25%				3.90%				3.46%				3.63%				3.25%
Rate of compensation increase			4.49%				4.49%				4.49%			N/A				N/A				N/A
Assumptions to determine net periodic benefit cost:
Discount rate			4.39%				3.90%				4.80%				3.63%				3.25%				3.65%
Rate of compensation increase			4.49%				4.49%				4.49%			N/A				N/A				N/A
Expected return on plan assets			5.20%				5.22%				5.42%			N/A				N/A				N/A

Discount rate – Future pension and postretirement obligations are discounted at the end of each year based on the rate at which obligations could be effectively settled, considering the timing of estimated future cash flows related to the plans. This rate is based on high-quality bond yields, after allowing for call and default risk.

At the end of 2015, Devon changed the approach used to measure service and interest costs for pension and other postretirement benefits. For 2015, Devon measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. For 2016, Devon elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. Devon believes the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of the plan obligations nor the funded status of the plans. The change in the service and interest costs going forward is not expected to be significant. This change has been accounted for as a change in accounting estimate.

Rate of compensation increase – For measurement of the 2016 benefit obligation for the pension plans, a 4.49% compensation increase was assumed.

Expected return on plan assets – The expected rate of return on plan assets was determined by evaluating input from external consultants and economists, as well as long-term inflation assumptions. Devon expects the long-term asset allocation to approximate the targeted allocation. Therefore, the expected long-term rate of return on plan assets is based on the target allocation of investment types. See the pension plan assets section below for more information on Devon’s target allocations.

Mortality rate assumptions – In 2014, the Society of Actuaries issued updated versions of its mortality tables and mortality improvement scale, reflecting the increasing life expectancies in the U.S. While not required to strictly adhere to this data, Devon utilized actuary-produced mortality tables and an improvement scale derived from the updated tables and the actuary’s best estimate of mortality for the population of participants in Devon’s plans.

Other assumptions – For measurement of the 2016 benefit obligation for the other postretirement medical plans, a 7.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2017. The rate was assumed to decrease annually to an ultimate rate of 5% in the year 2029 and remain at that level thereafter. A one percentage point change in assumed health care cost trend rates would not have a material impact on periodic benefit cost or benefit obligations.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Pension Plan Assets

Devon’s overall investment objective for its pension plans’ assets is to achieve stability of the plans’ funded status while providing long-term growth of invested capital and income to ensure benefit payments can be funded when required. To assist in achieving this objective, Devon has established certain investment strategies, including target allocation percentages and permitted and prohibited investments, designed to mitigate risks inherent with investing. Derivatives or other speculative investments considered high risk are generally prohibited. Devon’s target allocations for its pension plan assets are 70% fixed income, 20% equity and 10% other.

The following tables present the fair values of Devon’s pension assets by asset class.

		As of December 31, 2016
										Fair Value Measurements Using:
		Actual Allocation				Total				Level 1 Inputs				Level 2 Inputs				Level 3 Inputs
		(Millions)
Fixed-income securities:
U.S. Treasury obligations			35	%		$	343			$	68			$	275			$	—
Corporate bonds			30	%			297				205				92				—
Other bonds			4	%			38				38				—				—
Total fixed-income securities			69	%			678				311				367				—
Equity securities:
Global (large, mid, small cap)			17	%			171				—				171				—
Other securities:
Hedge fund and alternative investments			11	%			112				—				—				112
Short-term investments			3	%			24				8				16				—
Total other securities			14	%			136				8				16				112
Total investments			100	%		$	985			$	319			$	554			$	112

		As of December 31, 2015
										Fair Value Measurements Using:
		Actual Allocation				Total				Level 1 Inputs				Level 2 Inputs				Level 3 Inputs
		(Millions)
Fixed-income securities:
U.S. Treasury obligations			17	%		$	179			$	88			$	91			$	—
Corporate bonds			48	%			507				371				136				—
Other bonds			3	%			35				35				—				—
Total fixed-income securities			68	%			721				494				227				—
Equity securities:
Global (large, mid, small cap)			18	%			186				—				186				—
Other securities:
Hedge fund and alternative investments			11	%			120				—				—				120
Short-term investments			3	%			32				6				26				—
Total other securities			14	%			152				6				26				120
Total investments			100	%		$	1,059			$	500			$	439			$	120

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following methods and assumptions were used to estimate the fair values in the tables above.

Fixed-income securities – Devon’s fixed-income securities consist of U.S. Treasury obligations, bonds issued by investment-grade companies from diverse industries and asset-backed securities. These fixed-income securities are actively traded securities that can be redeemed upon demand. The fair values of these Level 1 securities are based upon quoted market prices.

Devon’s fixed income securities also include commingled funds that primarily invest in long-term bonds and U.S. Treasury securities. These fixed income securities can be redeemed on demand but are not actively traded. The fair values of these Level 2 securities are based upon the net asset values provided by the investment managers.

Equity securities – Devon’s equity securities include a commingled global equity fund that invests in large, mid and small capitalization stocks across the world’s developed and emerging markets. These equity securities can be redeemed on demand but are not actively traded. The fair values of these Level 2 securities are based upon the net asset values provided by the investment managers.

Other securities – Devon’s other securities include cash and commingled, short-term investment funds. The short-term investment funds’ securities can be redeemed on demand but are not actively traded. The fair values of these Level 2 securities are based upon the net asset values provided by investment managers.

Devon’s hedge fund and alternative investments include an investment in an actively traded global mutual fund that focuses on alternative investment strategies and a hedge fund of funds that invests both long and short using a variety of investment strategies. Devon’s hedge fund of funds is not actively traded, and Devon is subject to redemption restrictions with regards to this investment. The fair value of this Level 3 investment represents the fair value as determined by the hedge fund manager.

The following table presents a summary of the changes in Devon’s Level 3 plan assets (millions).

December 31, 2014		$	112
Purchases			5
Investment returns			3
December 31, 2015			120
Investments sold			(12	)
Investment returns			4
December 31, 2016		$	112

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Expected Cash Flows

The table below presents contributions expected to be made to Devon’s qualified plans, nonqualified plans and postretirement plans. Of the benefits expected to be paid in 2017, $13 million of pension benefits is expected to be funded from the trusts established for the nonqualified plans, and the $3 million of postretirement benefits is expected to be funded from Devon’s available cash and cash equivalents. Expected employer contributions and benefit payments for other postretirement benefits are presented net of employee contributions.

		Pension Benefits				Postretirement Benefits
		(Millions)
2017		$	60			$	3
2018		$	61			$	3
2019		$	62			$	3
2020		$	64			$	2
2021		$	67			$	2
2022 to 2026		$	374			$	7

Defined Contribution Plans

Independent of EnLink, Devon maintains defined contribution plans covering its employees in the U.S. and Canada. Such plans include Devon’s 401(k) plan, enhanced contribution plan and Canadian pension and savings plan. Contributions are primarily based upon percentages of annual compensation and years of service. In addition, each plan is subject to regulatory limitations by each respective government. EnLink also maintains a 401(k) plan covering eligible employees. The following table presents expense related to these defined contribution plans.

		Year Ended December 31,
		2016				2015				2014
		(Millions)
401(k) and enhanced contribution plans		$	53			$	63			$	49
Canadian pension and savings plans			11				16				20
Total		$	64			$	79			$	69

17.	Stockholders’ Equity

The authorized capital stock of Devon consists of 1.0 billion shares of common stock, par value $0.10 per share, and 4.5 million shares of preferred stock, par value $1.00 per share. The preferred stock may be issued in one or more series, and the terms and rights of such stock will be determined by the Board of Directors.

Common Stock Issued

In January 2016, Devon issued approximately 23 million shares of common stock in conjunction with the STACK asset acquisition discussed in Note 2. Additionally, in February 2016, Devon issued 79 million shares of common stock to the public, inclusive of 10 million shares sold as part of the underwriters’ option. Net proceeds from the offering were $1.5 billion.

In December 2015, Devon issued approximately 7 million shares of common stock as part of the Powder River Basin asset acquisition discussed in Note 2.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Dividends

The table below summarizes the dividends Devon paid on its common stock.

	Amounts				Rate
	(Millions)				(Per Share)
Year Ended 2016:
First quarter 2016	$	125			$	0.24
Second quarter 2016		33			$	0.06
Third quarter 2016		32			$	0.06
Fourth quarter 2016		31			$	0.06
Total year-to-date	$	221
Year Ended 2015:
First quarter 2015	$	99			$	0.24
Second quarter 2015		98			$	0.24
Third quarter 2015		99			$	0.24
Fourth quarter 2015		100			$	0.24
Total year-to-date	$	396
Year Ended 2014:
First quarter 2014	$	90			$	0.22
Second quarter 2014		99			$	0.24
Third quarter 2014		98			$	0.24
Fourth quarter 2014		99			$	0.24
Total year-to-date	$	386

18.	Noncontrolling Interests

Subsidiary Equity Transactions

During the first quarter of 2016, EnLink issued common units in conjunction with the Tall Oak acquisition discussed in Note 2. Through its equity distribution agreements, EnLink has the ability to sell common units through an “at the market” equity offering program. During 2016, 2015 and 2014, EnLink issued and sold approximately 10.0 million, 1.3 million and 14.8 million common units through its at the market program and general public offerings, generating net proceeds of $167 million, $25 million and $410 million, respectively. Furthermore, in October 2015, EnLink issued approximately 2.8 million common units in a private placement transaction with the General Partner, generating approximately $50 million in proceeds. In 2015, Devon conducted an underwritten secondary public offering of 26.2 million common units representing limited partner interests in EnLink, raising net proceeds of $654 million. As a result of these transactions and EnLink’s acquisition and dropdown activity discussed further in Note 2, the table below shows the ownership interest activity in the General Partner and EnLink since inception.

		EnLink												General Partner
Ownership interest as of		Devon				Non-Devon Unitholders				General Partner				Devon				Non-Devon Unitholders
March 7, 2014			52%				41%				7%				70%				30%
December 31, 2014			49%				43%				8%				70%				30%
December 31, 2015			28%				45%				27%				70%				30%
December 31, 2016			24%				53%				23%				64%				36%

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Distributions to Noncontrolling Interests

In conjunction with the formation of the General Partner in 2014, Devon made a payment of $100 million to noncontrolling interests. Furthermore, EnLink and the General Partner distributed $304 million, $254 million and $135 million to non-Devon unitholders during 2016, 2015 and 2014, respectively.

19.	Commitments and Contingencies

Devon is party to various legal actions arising in the normal course of business. Matters that are probable of unfavorable outcome to Devon and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, Devon’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. None of the actions are believed by management to involve future amounts that would be material to Devon’s financial position or results of operations after consideration of recorded accruals. Actual amounts could differ materially from management’s estimates.

Royalty Matters

Numerous natural gas producers and related parties, including Devon, have been named in various lawsuits alleging royalty underpayments. The suits allege that the producers and related parties used below-market prices, made improper deductions, used improper measurement techniques and entered into gas purchase and processing arrangements with affiliates that resulted in underpayment of royalties in connection with oil, natural gas and NGLs produced and sold. Devon is also involved in governmental agency proceedings and is subject to related contracts and regulatory controls in the ordinary course of business, some that may lead to additional royalty claims. Devon does not currently believe that it is subject to material exposure with respect to such royalty matters.

Environmental Matters

Devon is subject to certain laws and regulations relating to environmental remediation activities associated with past operations, such as the Comprehensive Environmental Response, Compensation, and Liability Act and similar state statutes. In response to liabilities associated with these activities, loss accruals primarily consist of estimated uninsured remediation costs. Devon’s monetary exposure for environmental matters is not expected to be material.

Other Matters

Devon is involved in other various legal proceedings incidental to its business. However, to Devon’s knowledge, there were no other material pending legal proceedings to which Devon is a party or to which any of its property is subject.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Commitments

The following table presents Devon’s commitments that have initial or remaining noncancelable terms in excess of one year as of December 31, 2016.

Year Ending December 31,		Purchase Obligations				Drilling and Facility Obligations				Operational Agreements				Office and Equipment Leases				EnLink Obligations
		(Millions)
2017		$	609			$	76			$	1,145			$	50			$	50
2018			649				66				1,134				85				51
2019			762				67				627				83				33
2020			748				57				457				59				18
2021			181				37				285				39				17
Thereafter			—				85				2,667				55				102
Total		$	2,949			$	388			$	6,315			$	371			$	271

Purchase obligation amounts represent contractual commitments primarily to purchase condensate at market prices for use at Devon’s heavy oil projects in Canada. Devon has entered into these agreements because condensate is an integral part of the heavy oil transportation process. Any disruption in Devon’s ability to obtain condensate could negatively affect its ability to transport heavy oil at these locations. Devon’s total obligation related to condensate purchases expires in 2021. The value of the obligation in the table above is based on the contractual volumes and Devon’s internal estimate of future condensate market prices.

Devon has certain drilling and facility obligations under contractual agreements with third-party service providers to procure drilling rigs and other related services for developmental and exploratory drilling and facilities construction. The value of the drilling obligations reported is based on gross contractual value.

Devon has certain operational agreements whereby Devon has committed to transport or process certain volumes of oil, gas and NGLs for a fixed fee. Devon has entered into these agreements to aid the movement of its production to downstream markets.

Devon leases certain office space and equipment under operating lease arrangements. Total rental expense included in G&A under operating leases, net of sublease income, was $78 million, $88 million and $64 million in 2016, 2015 and 2014, respectively.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

20.	Fair Value Measurements

The following table provides carrying value and fair value measurement information for certain of Devon’s financial assets and liabilities. None of the items below are measured using Level 3 inputs. The carrying values of cash, accounts receivable, other current receivables, accounts payable, other current payables and accrued expenses included in the accompanying consolidated balance sheets approximated fair value at December 31, 2016 and December 31, 2015. Therefore, such financial assets and liabilities are not presented in the following table. Additionally, the fair values of oil and gas assets, goodwill and other intangible assets and related impairments are measured as of the impairment date using Level 3 inputs. More information on these items and the pension plan assets is provided in Note 5, Note 12 and Note 16, respectively.

										Fair Value
										Measurements Using:
		Carrying				Total Fair				Level 1				Level 2
		Amount				Value				Inputs				Inputs
		(Millions)
December 31, 2016 assets (liabilities):
Cash equivalents		$	1,542			$	1,542			$	1,298			$	244
Commodity derivatives		$	10			$	10			$	—			$	10
Commodity derivatives		$	(203	)		$	(203	)		$	—			$	(203	)
Interest rate derivatives		$	1			$	1			$	—			$	1
Interest rate derivatives		$	(41	)		$	(41	)		$	—			$	(41	)
Debt		$	(10,154	)		$	(10,760	)		$	—			$	(10,760	)
Installment payment		$	(473	)		$	(477	)		$	—			$	(477	)
Capital lease obligations		$	(7	)		$	(6	)		$	—			$	(6	)
December 31, 2015 assets (liabilities):
Cash equivalents		$	1,871			$	1,871			$	1,471			$	400
Commodity derivatives		$	35			$	35			$	—			$	35
Commodity derivatives		$	(18	)		$	(18	)		$	—			$	(18	)
Interest rate derivatives		$	2			$	2			$	—			$	2
Interest rate derivatives		$	(22	)		$	(22	)		$	—			$	(22	)
Foreign currency derivatives		$	8			$	8			$	—			$	8
Foreign currency derivatives		$	(8	)		$	(8	)		$	—			$	(8	)
Debt		$	(13,032	)		$	(11,927	)		$	—			$	(11,927	)
Capital lease obligations		$	(17	)		$	(16	)		$	—			$	(16	)

The following methods and assumptions were used to estimate the fair values in the tables above.

Level 1 Fair Value Measurements

Cash equivalents – Amounts consist primarily of U.S. and Canadian treasury securities and money market investments. The fair value approximates the carrying value.

Level 2 Fair Value Measurements

Cash equivalents – Amounts consist primarily of commercial paper and Canadian agency and provincial securities investments. The fair value approximates the carrying value.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Commodity, interest rate and foreign currency derivatives – The fair values of commodity, interest rate and foreign currency derivatives are estimated using internal discounted cash flow calculations based upon forward curves and data obtained from independent third parties for contracts with similar terms or data obtained from counterparties to the agreements.

Debt – Devon’s debt instruments do not actively trade in an established market. The fair values of its debt are estimated based on rates available for debt with similar terms and maturity. The fair values of commercial paper and credit facility balances are the carrying values.

Installment payment – The fair value of the EnLink installment payment as of December 31, 2016 was based on Level 2 inputs from third-party market quotations.

Capital lease obligations – The fair value was calculated using inputs from third-party banks.

21.	Segment Information

Devon manages its operations through distinct operating segments, which are defined primarily by geographic areas. For financial reporting purposes, Devon aggregates its U.S. operating segments into one reporting segment due to the similar nature of the businesses. However, Devon’s Canadian exploration and production operating segment is reported as a separate reporting segment primarily due to the significant differences between the U.S. and Canadian regulatory environments. Devon’s U.S. and Canadian segments are both primarily engaged in oil and gas exploration and production activities, and certain information regarding such activities for each segment is included in Note 22.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Devon considers EnLink, combined with the General Partner, to be an operating segment that is distinct from the U.S. and Canadian operating segments. EnLink’s operations consist of midstream assets and operations located across the U.S. Additionally, EnLink has a management team that is primarily responsible for capital and resource allocation decisions. Therefore, EnLink is presented as a separate reporting segment.

		U.S. (1)				Canada				EnLink (1)				Eliminations				Total
		(Millions)
Year Ended December 31, 2016:
Revenues from external customers		$	5,722			$	1,031			$	3,551			$	—			$	10,304
Asset dispositions and other		$	1,367			$	542			$	(16)			$	—			$	1,893
Intersegment revenues		$	—			$	—			$	701			$	(701	)		$	—
Depreciation, depletion and amortization		$	928			$	360			$	504			$	—			$	1,792
Asset impairments		$	2,809			$	1,293			$	873			$	—			$	4,975
Restructuring and transaction costs		$	242			$	19			$	6			$	—			$	267
Interest expense		$	624			$	181			$	190			$	(84	)		$	911
Loss before income taxes		$	(2,051	)		$	(942	)		$	(884	)		$	—			$	(3,877	)
Income tax benefit		$	(8	)		$	(165	)		$	—			$	—			$	(173	)
Net loss		$	(2,043	)		$	(777	)		$	(884	)		$	—			$	(3,704	)
Net earnings (loss) attributable to noncontrolling interests		$	1			$	—			$	(403	)		$	—			$	(402	)
Net loss attributable to Devon		$	(2,044	)		$	(777	)		$	(481	)		$	—			$	(3,302	)
Property and equipment, net		$	7,358			$	2,575			$	6,257			$	—			$	16,190
Total assets		$	12,163			$	3,536			$	10,276			$	(62	)		$	25,913
Capital expenditures, including acquisitions		$	2,880			$	229			$	1,082			$	—			$	4,191
Year Ended December 31, 2015:
Revenues from external customers		$	8,360			$	1,012			$	3,773			$	—			$	13,145
Intersegment revenues		$	—			$	—			$	679			$	(679	)		$	—
Depreciation, depletion and amortization		$	2,220			$	522			$	387			$	—			$	3,129
Asset impairments		$	18,000			$	1,257			$	1,563			$	—			$	20,820
Restructuring and transaction costs		$	54			$	24			$	—			$	—			$	78
Interest expense		$	368			$	94			$	107			$	(46	)		$	523
Loss before income taxes		$	(18,214	)		$	(1,670	)		$	(1,384	)		$	—			$	(21,268	)
Income tax expense (benefit)		$	(5,650	)		$	(445	)		$	30			$	—			$	(6,065	)
Net loss		$	(12,564	)		$	(1,225	)		$	(1,414	)		$	—			$	(15,203	)
Net earnings (loss) attributable to noncontrolling interests		$	1			$	—			$	(750	)		$	—			$	(749	)
Net loss attributable to Devon		$	(12,565	)		$	(1,225	)		$	(664	)		$	—			$	(14,454	)
Property and equipment, net		$	8,811			$	4,590			$	5,667			$	—			$	19,068
Total assets		$	14,550			$	5,457			$	9,541			$	(97	)		$	29,451
Capital expenditures, including acquisitions		$	4,575			$	680			$	978			$	—			$	6,233
Year Ended December 31, 2014:
Revenues from external customers		$	14,854			$	2,063			$	2,649			$	—			$	19,566
Asset dispositions and other		$	(5	)		$	1,077			$	—			$	—			$	1,072
Intersegment revenues		$	—			$	—			$	859			$	(859	)		$	—
Depreciation, depletion and amortization		$	2,475			$	560			$	284			$	—			$	3,319
Asset impairments		$	12			$	1,941			$	—			$	—			$	1,953
Restructuring and transaction costs		$	—			$	46			$	—			$	—			$	46
Interest expense		$	441			$	85			$	54			$	(44	)		$	536
Earnings (loss) before income taxes		$	4,390			$	(657	)		$	326			$	—			$	4,059
Income tax expense		$	1,797			$	495			$	76			$	—			$	2,368
Net earnings (loss)		$	2,593			$	(1,152	)		$	250			$	—			$	1,691
Net earnings attributable to noncontrolling interests		$	1			$	—			$	83			$	—			$	84
Net earnings (loss) attributable to Devon		$	2,592			$	(1,152	)		$	167			$	—			$	1,607
Property and equipment, net		$	24,463			$	6,790			$	5,043			$	—			$	36,296
Total assets		$	31,994			$	8,509			$	10,189			$	(124	)		$	50,568
Capital expenditures, including acquisitions		$	11,214			$	1,344			$	1,001			$	—			$	13,559

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(1)

Due to Devon’s control of EnLink through its control of the General Partner, the acquisition of VEX by EnLink from Devon in the second quarter of 2015 was considered a transfer of net assets between entities under common control, and EnLink was required to recast its financial statements as of December 31, 2015 to include the activities of such assets from the date of common control. Therefore, the results of VEX have been moved from the U.S. segment to the EnLink segment for the recasted periods.

22.	Supplemental Information on Oil and Gas Operations (Unaudited)

Supplemental unaudited information regarding Devon’s oil and gas activities is presented in this note. The information is provided separately by country.

Costs Incurred

The following tables reflect the costs incurred in oil and gas property acquisition, exploration and development activities.

		Year Ended December 31, 2016
		U.S.				Canada				Total
		(Millions)
Property acquisition costs:
Proved properties		$	237			$	—			$	237
Unproved properties			1,356				2				1,358
Exploration costs			345				49				394
Development costs			1,034				109				1,143
Costs incurred		$	2,972			$	160			$	3,132
		Year Ended December 31, 2015
		U.S.				Canada				Total
		(Millions)
Property acquisition costs:
Proved properties		$	193			$	2			$	195
Unproved properties			634				83				717
Exploration costs			478				109				587
Development costs			3,269				402				3,671
Costs incurred		$	4,574			$	596			$	5,170
		Year Ended December 31, 2014
		U.S.				Canada				Total
		(Millions)
Property acquisition costs:
Proved properties		$	5,210			$	—			$	5,210
Unproved properties			1,176				1				1,177
Exploration costs			270				52				322
Development costs			4,400				1,063				5,463
Costs incurred		$	11,056			$	1,116			$	12,172

Development costs in the tables above include additions and revisions to Devon’s asset retirement obligations.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Pursuant to the full cost method of accounting, Devon capitalizes certain of its G&A that is related to property acquisition, exploration and development activities. Such capitalized expenses, which are included in the costs shown in the preceding tables, were $244 million, $372 million and $376 million in 2016, 2015 and 2014, respectively. Also, Devon capitalizes interest costs incurred and attributable to unproved oil and gas properties and major development projects of oil and gas properties. Capitalized interest expenses, which are included in the costs shown in the preceding tables, were $64 million, $54 million and $45 million in 2016, 2015 and 2014, respectively.

Capitalized Costs

The following tables reflect the aggregate capitalized costs related to oil and gas activities.

		December 31, 2016
		U.S.				Canada				Total
		(Millions)
Proved properties		$	61,401			$	14,247			$	75,648
Unproved properties			2,092				1,345				3,437
Total oil and gas properties			63,493				15,592				79,085
Accumulated DD&A			(57,323	)			(13,107	)			(70,430	)
Net capitalized costs		$	6,170			$	2,485			$	8,655
		December 31, 2015
		U.S.				Canada				Total
		(Millions)
Proved properties		$	64,443			$	13,747			$	78,190
Unproved properties			1,352				1,232				2,584
Total oil and gas properties			65,795				14,979				80,774
Accumulated DD&A			(58,312	)			(11,185	)			(69,497	)
Net capitalized costs		$	7,483			$	3,794			$	11,277

The following table presents a summary of Devon’s oil and gas properties not subject to amortization as of December 31, 2016.

		Costs Incurred In
		2016				2015				2014				Prior to 2014				Total
		(Millions)
Acquisition costs		$	1,176			$	579			$	246			$	464			$	2,465
Exploration costs			107				134				89				206				536
Development costs			12				—				23				150				185
Capitalized interest			63				52				37				99				251
Total oil and gas properties not subject to amortization		$	1,358			$	765			$	395			$	919			$	3,437

Included in the $3.4 billion of oil and gas properties not subject to amortization are approximately $2.9 billion of costs that Devon deems significant for individual assessment. These costs primarily relate to investments in the Pike thermal oil project in Canada, the assets acquired in the STACK play during 2016 and the Powder River Basin assets acquired in 2015. Devon continues to assess its Pike development timeline with its 50% partner. Based on the development plans, Pike costs will begin to be included in the amortization computation when the first phase of this project is fully approved and Devon subsequently begins recognizing the associated proved reserves. Devon is

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

evaluating and plans to develop the newly acquired STACK and Powder River Basin properties over the next four to five years.

Results of Operations

The following tables include revenues and expenses associated with Devon’s oil and gas producing activities. They do not include any allocation of Devon’s interest costs or general corporate overhead and, therefore, are not necessarily indicative of the contribution to net earnings of Devon’s oil and gas operations. Income tax expense has been calculated by applying statutory income tax rates to oil, gas and NGL sales after deducting costs, including DD&A and after giving effect to permanent differences.

		December 31, 2016
		U.S.				Canada				Total
		(Millions)
Oil, gas and NGL sales		$	3,198			$	984			$	4,182
Lease operating expenses			(1,123	)			(459	)			(1,582	)
General and administrative expenses			(148	)			(20	)			(168	)
Production and property taxes			(200	)			(31	)			(231	)
Depreciation, depletion and amortization			(817	)			(326	)			(1,143	)
Gains on asset sales			1,351				—				1,351
Asset impairments			(2,809	)			(1,291	)			(4,100	)
Accretion of asset retirement obligations			(49	)			(25	)			(74	)
Income tax benefit			—				245				245
Results of operations		$	(597	)		$	(923	)		$	(1,520	)
Depreciation, depletion and amortization per Boe		$	4.68			$	6.65			$	5.11
		December 31, 2015
		U.S.				Canada				Total
		(Millions)
Oil, gas and NGL sales		$	4,356			$	1,026			$	5,382
Lease operating expenses			(1,551	)			(553	)			(2,104	)
General and administrative expenses			(196	)			(28	)			(224	)
Production and property taxes			(309	)			(33	)			(342	)
Depreciation, depletion and amortization			(2,107	)			(474	)			(2,581	)
Asset impairments			(17,992	)			(1,257	)			(19,249	)
Accretion of asset retirement obligations			(47	)			(27	)			(74	)
Income tax benefit			5,547				314				5,861
Results of operations		$	(12,299	)		$	(1,032	)		$	(13,331	)
Depreciation, depletion and amortization per Boe		$	10.21			$	11.30			$	10.40

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

		December 31, 2014
		U.S.				Canada				Total
		(Millions)
Oil, gas and NGL sales		$	7,867			$	2,043			$	9,910
Lease operating expenses			(1,559	)			(773	)			(2,332	)
General and administrative expenses			(153	)			(57	)			(210	)
Production and property taxes			(466	)			(37	)			(503	)
Depreciation, depletion and amortization			(2,365	)			(531	)			(2,896	)
Gains on asset sales			—				1,077				1,077
Accretion of asset retirement obligations			(49	)			(39	)			(88	)
Income tax expense			(1,199	)			(568	)			(1,767	)
Results of operations (1)		$	2,076			$	1,115			$	3,191
Depreciation, depletion and amortization per Boe		$	11.41			$	13.80			$	11.79

(1)	During 2014, Devon recognized a Canadian goodwill impairment, which is not reflected in these tables. See Note 5 for additional information.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Proved Reserves

The following tables present Devon’s estimated proved reserves by product by country.

		Oil (MMBbls)
		U.S.				Canada				Total
Proved developed and undeveloped reserves:
December 31, 2013			229				56				285
Revisions due to prices			(1	)			—				(1	)
Revisions other than price			(38	)			1				(37	)
Extensions and discoveries			94				5				99
Purchase of reserves			132				—				132
Production			(48	)			(10	)			(58	)
Sale of reserves			(17	)			(29	)			(46	)
December 31, 2014			351				23				374
Revisions due to prices			(53	)			4				(49	)
Revisions other than price			(52	)			2				(50	)
Extensions and discoveries			51				3				54
Purchase of reserves			5				—				5
Production			(60	)			(10	)			(70	)
December 31, 2015			242				22				264
Revisions due to prices			(18	)			(2	)			(20	)
Revisions other than price			(2	)			3				1
Extensions and discoveries			36				2				38
Purchase of reserves			8				—				8
Production			(47	)			(8	)			(55	)
Sale of reserves			(25	)			—				(25	)
December 31, 2016			194				17				211
Proved developed reserves as of:
December 31, 2013			194				56				250
December 31, 2014			255				23				278
December 31, 2015			203				22				225
December 31, 2016			160				17				177
Proved developed-producing reserves as of:
December 31, 2013			178				51				229
December 31, 2014			224				19				243
December 31, 2015			192				19				211
December 31, 2016			143				13				156
Proved undeveloped reserves as of:
December 31, 2013			35				—				35
December 31, 2014			96				—				96
December 31, 2015			39				—				39
December 31, 2016			34				—				34

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

		Bitumen (MMBbls)
		U.S.				Canada				Total
Proved developed and undeveloped reserves:
December 31, 2013			—				552				552
Revisions due to prices			—				(37	)			(37	)
Revisions other than price			—				18				18
Extensions and discoveries			—				8				8
Production			—				(20	)			(20	)
December 31, 2014			—				521				521
Revisions due to prices			—				103				103
Revisions other than price			—				(84	)			(84	)
Extensions and discoveries			—				11				11
Production			—				(31	)			(31	)
December 31, 2015			—				520				520
Revisions due to prices			—				23				23
Revisions other than price			—				(19	)			(19	)
Production			—				(40	)			(40	)
December 31, 2016			—				484				484
Proved developed reserves as of:
December 31, 2013			—				111				111
December 31, 2014			—				137				137
December 31, 2015			—				219				219
December 31, 2016			—				190				190
Proved developed-producing reserves as of:
December 31, 2013			—				111				111
December 31, 2014			—				137				137
December 31, 2015			—				219				219
December 31, 2016			—				190				190
Proved undeveloped reserves as of:
December 31, 2013			—				441				441
December 31, 2014			—				384				384
December 31, 2015			—				301				301
December 31, 2016			—				294				294

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

		Gas (Bcf)
		U.S.				Canada				Total
Proved developed and undeveloped reserves:
December 31, 2013			8,550				758				9,308
Revisions due to prices			191				45				236
Revisions other than price			(299	)			4				(295	)
Extensions and discoveries			335				8				343
Purchase of reserves			457				—				457
Production			(660	)			(41	)			(701	)
Sale of reserves			(923	)			(738	)			(1,661	)
December 31, 2014			7,651				36				7,687
Revisions due to prices			(1,412	)			(9	)			(1,421	)
Revisions other than price			(3	)			(6	)			(9	)
Extensions and discoveries			171				—				171
Purchase of reserves			17				—				17
Production			(579	)			(8	)			(587	)
Sale of reserves			(37	)			—				(37	)
December 31, 2015			5,808				13				5,821
Revisions due to prices			(103	)			—				(103	)
Revisions other than price			628				10				638
Extensions and discoveries			280				—				280
Purchase of reserves			33				—				33
Production			(510	)			(7	)			(517	)
Sale of reserves			(521	)			—				(521	)
December 31, 2016			5,615				16				5,631
Proved developed reserves as of:
December 31, 2013			7,707				752				8,459
December 31, 2014			6,948				36				6,984
December 31, 2015			5,694				13				5,707
December 31, 2016			5,361				16				5,377
Proved developed-producing reserves as of:
December 31, 2013			7,425				680				8,105
December 31, 2014			6,746				34				6,780
December 31, 2015			5,546				13				5,559
December 31, 2016			5,243				16				5,259
Proved undeveloped reserves as of:
December 31, 2013			843				6				849
December 31, 2014			703				—				703
December 31, 2015			114				—				114
December 31, 2016			254				—				254

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

		Natural Gas Liquids (MMBbls)
		U.S.				Canada				Total
Proved developed and undeveloped reserves:
December 31, 2013			552				23				575
Revisions due to prices			7				1				8
Revisions other than price			2				—				2
Extensions and discoveries			47				—				47
Purchase of reserves			57				—				57
Production			(50	)			(1	)			(51	)
Sale of reserves			(37	)			(23	)			(60	)
December 31, 2014			578				—				578
Revisions due to prices			(119	)			—				(119	)
Revisions other than price			(6	)			—				(6	)
Extensions and discoveries			24				—				24
Purchase of reserves			1				—				1
Production			(50	)			—				(50	)
December 31, 2015			428				—				428
Revisions due to prices			(13	)			—				(13	)
Revisions other than price			48				—				48
Extensions and discoveries			42				—				42
Purchase of reserves			7				—				7
Production			(42	)			—				(42	)
Sale of reserves			(45	)			—				(45	)
December 31, 2016			425				—				425
Proved developed reserves as of:
December 31, 2013			468				23				491
December 31, 2014			486				—				486
December 31, 2015			411				—				411
December 31, 2016			387				—				387
Proved developed-producing reserves as of:
December 31, 2013			442				21				463
December 31, 2014			467				—				467
December 31, 2015			393				—				393
December 31, 2016			370				—				370
Proved undeveloped reserves as of:
December 31, 2013			84				—				84
December 31, 2014			92				—				92
December 31, 2015			17				—				17
December 31, 2016			38				—				38

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

		Total (MMBoe) (1)
		U.S.				Canada				Total
Proved developed and undeveloped reserves:
December 31, 2013			2,205				758				2,963
Revisions due to prices			38				(29	)			9
Revisions other than price			(86	)			21				(65	)
Extensions and discoveries			197				14				211
Purchase of reserves			265				—				265
Production			(207	)			(39	)			(246	)
Sale of reserves			(207	)			(176	)			(383	)
December 31, 2014			2,205				549				2,754
Revisions due to prices			(408	)			106				(302	)
Revisions other than price			(59	)			(83	)			(142	)
Extensions and discoveries			104				14				118
Purchase of reserves			9				—				9
Production			(206	)			(42	)			(248	)
Sale of reserves			(7	)			—				(7	)
December 31, 2015			1,638				544				2,182
Revisions due to prices			(48	)			21				(27	)
Revisions other than price			151				(14	)			137
Extensions and discoveries			124				2				126
Purchase of reserves			20				—				20
Production			(174	)			(49	)			(223	)
Sale of reserves			(157	)			—				(157	)
December 31, 2016			1,554				504				2,058
Proved developed reserves as of:
December 31, 2013			1,947				315				2,262
December 31, 2014			1,900				165				2,065
December 31, 2015			1,563				243				1,806
December 31, 2016			1,439				210				1,649
Proved developed-producing reserves as of:
December 31, 2013			1,857				297				2,154
December 31, 2014			1,815				162				1,977
December 31, 2015			1,509				240				1,749
December 31, 2016			1,386				207				1,593
Proved undeveloped reserves as of:
December 31, 2013			258				443				701
December 31, 2014			305				384				689
December 31, 2015			75				301				376
December 31, 2016			115				294				409

(1)	Gas reserves are converted to Boe at the rate of six Mcf per Bbl of oil, based upon the approximate relative energy content of gas and oil. This rate is not necessarily indicative of the relationship of natural gas and oil prices. Bitumen and NGL reserves are converted to Boe on a one-to-one basis with oil.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Proved Undeveloped Reserves

The following table presents the changes in Devon’s total proved undeveloped reserves during 2016 (MMBoe).

		U.S.				Canada				Total
Proved undeveloped reserves as of December 31, 2015			75				301				376
Extensions and discoveries			78				—				78
Revisions due to prices			(8	)			10				2
Revisions other than price			(1	)			(4	)			(5	)
Sale of reserves			(1	)			—				(1	)
Conversion to proved developed reserves			(28	)			(13	)			(41	)
Proved undeveloped reserves as of December 31, 2016			115				294				409

Proved undeveloped reserves increased 9% from 2015 to 2016, and the year-end 2016 balance represents 20% of total proved reserves. Drilling and development activities in the STACK and Delaware Basin increased Devon’s proved undeveloped reserves by 78 MMBoe. Continued development of Devon’s Eagle Ford and Jackfish properties led to the conversion of 41 MMBoe, or 11%, of the 2015 proved undeveloped reserves to proved developed reserves. Costs incurred to develop and convert Devon’s proved undeveloped reserves were approximately $586 million for 2016.

A significant amount of Devon’s proved undeveloped reserves at the end of 2016 related to its Jackfish operations. At December 31, 2016 and 2015, Devon’s Jackfish proved undeveloped reserves were 294 MMBoe and 301 MMBoe, respectively. Development schedules for the Jackfish reserves are primarily controlled by the need to keep the processing plants at their 35 MBbl daily facility capacity. Processing plant capacity is controlled by factors such as total steam processing capacity and steam-oil ratios. Furthermore, development of these projects involves the up-front construction of steam injection/distribution and bitumen processing facilities. Due to the large up-front capital investments and large reserves required to provide economic returns, the project conditions meet the specific circumstances requiring a period greater than 5 years for conversion to developed reserves. As a result, these reserves are classified as proved undeveloped for more than five years. Currently, the development schedule for these reserves extends through 2029. At the end of 2016, approximately 199 MMBoe of proved undeveloped reserves at Jackfish have remained undeveloped for five years or more since the initial booking. No other projects have proved undeveloped reserves that have remained undeveloped more than five years from the initial booking of the reserves. Furthermore, approximately 119 MMBoe of proved undeveloped reserves at Jackfish will require in excess of five years, from the date of this filing, to develop.

Price Revisions

Reserves decreased 27 MMBoe and 302 MMBoe during 2016 and 2015, respectively, primarily due to lower commodity prices for oil, bitumen and gas. The lower bitumen price increased Canadian reserves due to the decline in royalties, which increases Devon’s after-royalty volumes.

In 2014, price revisions increased Devon’s total proved reserves less than 1% due to higher commodity prices.

Revisions Other Than Price

Total revisions other than price in 2016 primarily related to Devon’s evaluation of certain dry gas regions and NGLs, with the largest revisions being made in the Barnett Shale and STACK (Cana-Woodford Shale). Revisions

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

other than price for 2015 primarily related to evaluations of Eagle Ford and Jackfish. Negative revisions other than price at Jackfish were primarily due to a refined reserves methodology that resulted in a reduced recovery factor. Revisions other than price in 2014 primarily related to Devon’s evaluation of certain dry gas regions, with the largest revisions being made in the Cana-Woodford Shale and Barnett Shale.

Extensions and Discoveries

2016 – Of the 126 MMBoe of extensions and discoveries, 97 MMBoe related to STACK, 18 MMBoe related to the Delaware Basin and 7 MMBoe related to the Eagle Ford.

The 2016 extensions and discoveries included 74 MMBoe related to additions from Devon’s infill drilling activities, primarily consisting of 73 MMBoe related to STACK.

2015 – Of the 118 MMBoe of extensions and discoveries, 38 MMBoe related to the Delaware Basin, 30 MMBoe related to the Anadarko Basin, 21 MMBoe related to the Eagle Ford and 11 MMBoe related to Jackfish.

The 2015 extensions and discoveries included 13 MMBoe related to additions from Devon’s infill drilling activities, primarily consisting of 11 MMBoe at Jackfish.

2014 – Of the 211 MMBoe of extensions and discoveries, 70 MMBoe related to the Permian Basin, 54 MMBoe related to the Eagle Ford, 36 MMBoe related to the Barnett Shale, 14 MMBoe related to the Anadarko Basin, 8 MMBoe related to Jackfish and 14 MMBoe related to the Mississippian-Woodford Trend.

The 2014 extensions and discoveries included 5 MMBoe related to additions from Devon’s infill drilling activities, primarily consisting of 4 MMBoe at the Permian Basin.

Purchase of Reserves

2016 – Primarily related to Devon’s acquisition in the STACK play.

2015 – Primarily related to Devon’s acquisition in the Powder River Basin.

2014 – Of the 265 MMBoe of reserves purchases, 246 MMBoe related to Devon’s GeoSouthern acquisition in the Eagle Ford.

Sale of Reserves

2016 – The 157 MMBoe of reserves sales related to Devon’s non-core upstream asset divestitures discussed further in Note 2.

2015 – The 7 MMBoe of reserves sales related to Devon’s asset divestitures in the San Juan Basin.

2014 – The 383 MMBoe of reserves sales related to Devon’s asset divestitures in the U.S. and Canada.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Standardized Measure

The following tables reflect Devon’s standardized measure of discounted future net cash flows from its proved reserves.

		Year Ended December 31, 2016
		U.S.				Canada				Total
		(Millions)
Future cash inflows		$	22,847			$	9,672			$	32,519
Future costs:
Development			(2,784	)			(2,201	)			(4,985	)
Production			(14,484	)			(6,287	)			(20,771	)
Future income tax expense			—				(57	)			(57	)
Future net cash flow			5,579				1,127				6,706
10% discount to reflect timing of cash flows			(2,128	)			(380	)			(2,508	)
Standardized measure of discounted future net cash flows		$	3,451			$	747			$	4,198
		Year Ended December 31, 2015
		U.S.				Canada				Total
		(Millions)
Future cash inflows		$	27,398			$	13,047			$	40,445
Future costs:
Development			(3,306	)			(2,759	)			(6,065	)
Production			(17,251	)			(6,891	)			(24,142	)
Future income tax expense			—				(475	)			(475	)
Future net cash flow			6,841				2,922				9,763
10% discount to reflect timing of cash flows			(1,973	)			(1,102	)			(3,075	)
Standardized measure of discounted future net cash flows		$	4,868			$	1,820			$	6,688
		Year Ended December 31, 2014
		U.S.				Canada				Total
		(Millions)
Future cash inflows		$	75,847			$	31,371			$	107,218
Future costs:
Development			(7,168	)			(3,619	)			(10,787	)
Production			(29,740	)			(14,232	)			(43,972	)
Future income tax expense			(11,021	)			(3,026	)			(14,047	)
Future net cash flow			27,918				10,494				38,412
10% discount to reflect timing of cash flows			(12,819	)			(5,119	)			(17,938	)
Standardized measure of discounted future net cash flows		$	15,099			$	5,375			$	20,474

Future cash inflows, development costs and production costs were computed using the same assumptions for prices and costs that were used to estimate Devon’s proved oil and gas reserves at the end of each year. For 2016 estimates, Devon’s future realized prices were assumed to be $37.37 per Bbl of oil, $15.74 per Bbl of bitumen, $1.98 per Mcf of gas and $9.91 per Bbl of NGLs. Of the $5.0 billion of future development costs as of the end of 2016, $0.4 billion, $0.8 billion and $0.5 billion are estimated to be spent in 2017, 2018 and 2019, respectively.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Future development costs include not only development costs but also future asset retirement costs. Included as part of the $5.0 billion of future development costs are $1.3 billion of future asset retirement costs. The future income tax expenses have been computed using statutory tax rates, giving effect to allowable tax deductions and tax credits under current laws.

The principal changes in Devon’s standardized measure of discounted future net cash flows are as follows:

		Year Ended December 31,
		2016				2015				2014
		(Millions)
Beginning balance		$	6,688			$	20,474			$	15,741
Net changes in prices and production costs			(2,128	)			(20,756	)			2,561
Oil, bitumen, gas and NGL sales, net of production costs			(2,163	)			(2,704	)			(6,865	)
Changes in estimated future development costs			112				1,313				(768	)
Extensions and discoveries, net of future development costs			660				1,129				4,836
Purchase of reserves			222				95				6,422
Sales of reserves in place			(560	)			(79	)			(2,384	)
Revisions of quantity estimates			(32	)			(1,451	)			(746	)
Previously estimated development costs incurred during the period			663				2,158				1,933
Accretion of discount			403				567				1,746
Foreign exchange and other			105				(1,254	)			(107	)
Net change in income taxes			228				7,196				(1,895	)
Ending balance		$	4,198			$	6,688			$	20,474

23.	Supplemental Quarterly Financial Information (Unaudited)

The following tables present a summary of Devon’s unaudited interim results of operations.

		2016
		First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Full Year
		(Millions, except per share amounts)
Total revenues and other		$	2,126			$	2,488			$	4,233			$	3,350			$	12,197
Earnings (loss) before income taxes		$	(3,685	)		$	(1,745	)		$	1,178			$	375			$	(3,877	)
Net earnings (loss) attributable to Devon		$	(3,056	)		$	(1,570	)		$	993			$	331			$	(3,302	)
Basic net earnings (loss) per share attributable to Devon		$	(6.44	)		$	(3.04	)		$	1.90			$	0.63			$	(6.52	)
Diluted net earnings (loss) per share attributable to Devon		$	(6.44	)		$	(3.04	)		$	1.89			$	0.63			$	(6.52	)
		2015
		First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Full Year
		(Millions, except per share amounts)
Total revenues and other		$	3,265			$	3,393			$	3,601			$	2,886			$	13,145
Loss before income taxes		$	(5,624	)		$	(4,479	)		$	(5,623	)		$	(5,542	)		$	(21,268	)
Net loss attributable to Devon		$	(3,599	)		$	(2,816	)		$	(3,507	)		$	(4,532	)		$	(14,454	)
Basic net loss per share attributable to Devon		$	(8.88	)		$	(6.94	)		$	(8.64	)		$	(11.12	)		$	(35.55	)
Diluted net loss per share attributable to Devon		$	(8.88	)		$	(6.94	)		$	(8.64	)		$	(11.12	)		$	(35.55	)

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Net Earnings (Loss) Attributable to Devon

The 2016 quarterly results include asset impairments of $3.0 billion (or $6.40 per diluted share), $1.5 billion (or $2.89 per diluted share), $0.3 billion (or $0.61 per diluted share) and $0.1 billion (or $0.24 per diluted share) for the first quarter through the fourth quarter of 2016, respectively, as discussed in Note 5. Additionally, the 2016 quarterly results include gains from asset dispositions of approximately $1.4 billion (or $2.59 per diluted share) and $540 million (or $1.04 per diluted share) during the third and fourth quarter of 2016, respectively, as discussed in Note 2.

The 2015 quarterly results include asset impairments of $5.5 billion (or $13.46 per diluted share), $4.2 billion (or $10.27 per diluted share), $5.9 billion (or $14.41 per diluted share) and $5.3 billion (or $13.09 per diluted share) for the first quarter through the fourth quarter of 2015, respectively, as discussed in Note 5.

Index to Financial Statements