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Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2021
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-32318
DEVON ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 73-1567067 | |
|---|---|---|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer identification No.) | |
| 333 West Sheridan Avenue, Oklahoma City, Oklahoma | 73102-5015 | |
| (Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: (405) 235-3611
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
|---|---|---|---|---|
| Common stock, par value $0.10 per share | DVN | The New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | |||
|---|---|---|---|---|---|---|---|---|
| Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2021 was approximately $19.6 billion, based upon the closing price of $29.19 per share as reported by the New York Stock Exchange on such date. On February 2, 2022, 664.2 million shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant’s definitive Proxy Statement relating to Registrant’s 2022 annual meeting of stockholders have been incorporated by reference in Part III of this Annual Report on Form 10-K.
| Auditor Name: KPMG LLP | Auditor Location: Oklahoma City, Oklahoma | Audit Firm ID: 185 |
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DEVON ENERGY CORPORATION
FORM 10-K
TABLE OF CONTENTS
DEFINITIONS
Unless the context otherwise indicates, references to “us,” “we,” “our,” “ours,” “Devon,” the “Company” and “Registrant” refer to Devon Energy Corporation and its consolidated subsidiaries. All monetary values, other than per unit and per share amounts, are stated in millions of U.S. dollars unless otherwise specified. In addition, the following are other abbreviations and definitions of certain terms used within this Annual Report on Form 10-K:
“2015 Plan” means the Devon Energy Corporation 2015 Long-Term Incentive Plan.
“2017 Plan” means the Devon Energy Corporation 2017 Long-Term Incentive Plan.
“ASC” means Accounting Standards Codification.
“ASU” means Accounting Standards Update.
“Bbl” or “Bbls” means barrel or barrels.
“Bcf” means billion cubic feet.
“BKV” means Banpu Kalnin Ventures.
“BLM” means the United States Bureau of Land Management.
“Boe” means barrel of oil equivalent. Gas proved reserves and production are converted to Boe, at the pressure and temperature base standard of each respective state in which the gas is produced, at the rate of six Mcf of gas per Bbl of oil, based upon the approximate relative energy content of gas and oil. Bitumen and NGL proved reserves and production are converted to Boe on a one-to-one basis with oil.
“Btu” means British thermal units, a measure of heating value.
“Canada” means the division of Devon encompassing oil and gas properties located in Canada. All dollar amounts associated with Canada are in U.S. dollars, unless stated otherwise.
“Catalyst” means Catalyst Midstream Partners, LLC.
“CDM” means Cotton Draw Midstream, L.L.C.
“DD&A” means depreciation, depletion and amortization expenses.
“EHS” mean environmental, health and safety.
“EPA” means the United States Environmental Protection Agency.
“ESG” means environmental, social and governance.
“Federal Funds Rate” means the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.
“G&A” means general and administrative expenses.
“GAAP” means U.S. generally accepted accounting principles.
“GHG” means greenhouse gas.
“Inside FERC” refers to the publication Inside F.E.R.C.’s Gas Market Report.
“LIBOR” means London Interbank Offered Rate.
“LOE” means lease operating expenses.
“MBbls” means thousand barrels.
“MBoe” means thousand Boe.
“Mcf” means thousand cubic feet.
“Merger” means the merger of Merger Sub with and into WPX, with WPX continuing as the surviving corporation and a wholly-owned subsidiary of the Company, pursuant to the terms of the Merger Agreement.
“Merger Agreement” means that certain Agreement and Plan of Merger, dated September 26, 2020, by and among the Company, Merger Sub and WPX.
“Merger Sub” means East Merger Sub, Inc., a wholly-owned subsidiary of the Company.
“MMBbls” means million barrels.
“MMBoe” means million Boe.
“MMBtu” means million Btu.
“MMcf” means million cubic feet.
“N/M” means not meaningful.
“NGL” or “NGLs” means natural gas liquids.
“NYMEX” means New York Mercantile Exchange.
“NYSE” means New York Stock Exchange.
“OPEC” means Organization of the Petroleum Exporting Countries.
“SEC” means United States Securities and Exchange Commission.
“Senior Credit Facility” means Devon’s syndicated unsecured revolving line of credit, effective as of October 5, 2018.
“Standardized measure” means the present value of after-tax future net revenues discounted at 10% per annum.
“STEM” means science, technology, engineering and mathematics.
“S&P 500 Index” means Standard and Poor’s 500 index.
“TSR” means total shareholder return.
“U.S.” means United States of America.
“VIE” means variable interest entity.
“WPX” means WPX Energy, Inc.
“WTI” means West Texas Intermediate.
“/Bbl” means per barrel.
“/d” means per day.
“/MMBtu” means per MMBtu.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This report includes “forward-looking statements” within the meaning of the federal securities laws. Such statements include those concerning strategic plans, our expectations and objectives for future operations, as well as other future events or conditions, and are often identified by use of the words and phrases “expects,” “believes,” “will,” “would,” “could,” “continue,” “may,” “aims,” “likely to be,” “intends,” “forecasts,” “projections,” “estimates,” “plans,” “expectations,” “targets,” “opportunities,” “potential,” “anticipates,” “outlook” and other similar terminology. All statements, other than statements of historical facts, included in this report that address activities, events or developments that Devon expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control. Consequently, actual future results could differ materially and adversely from our expectations due to a number of factors, including, but not limited to:
| • | the volatility of oil, gas and NGL prices; |
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| • | risks relating to the COVID-19 pandemic or other future pandemics; |
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| • | uncertainties inherent in estimating oil, gas and NGL reserves; |
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| • | the extent to which we are successful in acquiring and discovering additional reserves; |
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| • | regulatory restrictions, compliance costs and other risks relating to governmental regulation, including with respect to federal lands and environmental matters; |
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| • | risks related to climate change; |
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| • | the uncertainties, costs and risks involved in our operations, including as a result of employee misconduct; |
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| • | risks related to our hedging activities; |
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| • | counterparty credit risks; |
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| • | risks relating to our indebtedness; |
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| • | cyberattack risks; |
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| • | our limited control over third parties who operate some of our oil and gas properties; |
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| • | midstream capacity constraints and potential interruptions in production; |
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| • | the extent to which insurance covers any losses we may experience; |
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| • | competition for assets, materials, people and capital; |
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| • | risks related to investors attempting to effect change; |
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| • | our ability to successfully complete mergers, acquisitions and divestitures; |
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| • | our ability to pay dividends and make share repurchases; and |
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| • | any of the other risks and uncertainties discussed in this report. |
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The forward-looking statements included in this filing speak only as of the date of this report, represent management’s current reasonable expectations as of the date of this filing and are subject to the risks and uncertainties identified above as well as those described elsewhere in this report and in other documents we file from time to time with the SEC. We cannot guarantee the accuracy of our forward-looking statements, and readers are urged to carefully review and consider the various disclosures made in this report and in other documents we file from time to time with the SEC. All subsequent written and oral forward-looking statements attributable to Devon, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements above. We do not undertake, and expressly disclaim, any duty to update or revise our forward-looking statements based on new information, future events or otherwise.
PART I
Items 1 and 2. Business and Properties
General
A Delaware corporation formed in 1971 and publicly held since 1988, Devon (NYSE: DVN) is an independent energy company engaged primarily in the exploration, development and production of oil, natural gas and NGLs. Our operations are concentrated in various onshore areas in the U.S.
On January 7, 2021, Devon and WPX completed an all-stock merger of equals. WPX was an oil and gas exploration and production company with assets in the Delaware Basin in Texas and New Mexico and the Williston Basin in North Dakota. This merger enhanced the scale of our operations, built a leading position in the Delaware Basin and accelerated our cash-return business model that prioritizes free cash flow generation and the return of capital to shareholders. In accordance with the Merger Agreement, WPX shareholders received a fixed exchange of 0.5165 shares of Devon common stock for each share of WPX common stock owned. The combined company continues to operate under the name Devon. Our principal and administrative offices are located at 333 West Sheridan, Oklahoma City, OK 73102-5015 (telephone 405-235-3611).
Devon files or furnishes annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments to these reports, with the SEC. Through our website, www.devonenergy.com, we make available electronic copies of the documents we file or furnish to the SEC, the charters of the committees of our Board of Directors and other documents related to our corporate governance. The corporate governance documents available on our website include our Code of Ethics for Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, and any amendments to and waivers from any provision of that Code will also be posted on our website. Access to these electronic filings is available free of charge as soon as reasonably practicable after filing or furnishing them to the SEC. Printed copies of our committee charters or other governance documents and filings can be requested by writing to our corporate secretary at the address on the cover of this report. Reports filed with the SEC are also made available on its website at www.sec.gov.
Our Strategy
Our business strategy is focused on delivering a consistently competitive shareholder return among our peer group. Because the business of exploring for, developing and producing oil and natural gas is capital intensive, delivering sustainable, capital efficient cash flow growth is a key tenet to our success. While our cash flow is highly dependent on volatile and uncertain commodity prices, we pursue our strategy throughout all commodity price cycles with four fundamental principles.
Proven and responsible operator – We operate our business with the interests of our stakeholders and our ESG values in mind. With our vision to be a premier independent oil and natural gas exploration and production company, the work our employees do every day contributes to the local, national and global economies. We produce a valuable commodity that is fundamental to society, and we endeavor to do so in a safe, environmentally responsible and ethical way, while striving to deliver strong returns to our shareholders. We have an ongoing commitment to transparency in reporting our ESG performance. We continue to establish new environmental performance targets for our company and further incorporate ESG initiatives into our compensation structure.
Premier, sustainable portfolio of assets – As discussed in more detail later in this section of this Annual Report, we own a portfolio of assets located in the United States. We strive to own premier assets capable of generating cash flows in excess of our capital and operating requirements, as well as competitive rates of return. We also desire to own a portfolio of assets that can provide sustainable production extending many years into the future. As a result of our recent Merger and acquisition and divestiture activity, our oil production, price realizations and field-level margins have continued to improve as we continue to sharpen our focus on five U.S. oil and liquids plays located in the Delaware Basin, Anadarko Basin, Williston Basin, Eagle Ford and Powder River Basin.
Superior execution – As we pursue cash flow growth, we continually work to optimize the efficiency of our capital programs and production operations, with an underlying objective of reducing absolute and per unit costs and enhancing our returns. We also strive to leverage our culture of health, safety and environmental stewardship in all aspects of our business.
With the Merger and continuous improvement initiatives, we have built a scalable, multi-basin portfolio of U.S. oil assets and continue to aggressively improve our cost structure to further expand margins. We have realized annualized cost savings by reducing well costs, production expenses, financing costs and G&A costs.
Financial strength and flexibility – Commodity prices are uncertain and volatile, so we strive to maintain a strong balance sheet, as well as adequate liquidity and financial flexibility, in order to operate competitively in all commodity price cycles. Our capital allocation decisions are made with attention to these financial stewardship principles, as well as the priorities of funding our core
operations, protecting our investment-grade credit ratings, and paying and growing our shareholder dividend. While maintaining financial strength is a top priority, we remain committed to maximizing shareholder value which is evidenced by instituting our fixed plus variable dividend strategy and making opportunistic share repurchases.
Environmental, Social and Governance
Devon is focused on producing reliable, affordable and accessible energy the world needs, while continuing to find ways to produce and deliver it more responsibly. We consider the potential impacts of our operations when planning activities and making decisions. We strive to comply with all applicable environmental laws and regulations, often going above and beyond what is required. In the process, Devon incorporates technology, tools and techniques that enable us to minimize or avoid effects on air, water, land and wildlife. We are also evaluating opportunities to create value in the transition to ever-cleaner forms of energy, seeking to leverage our strengths and partnerships.
We have a strong organization in place to manage environmental performance, from our Board of Directors to our EHS/ESG leadership team and field-level EHS and operations teams. In recent years, we have updated our governance practices to elevate EHS and ESG oversight and discussion, including those related to climate change and the energy transition. In 2021, we renamed Devon’s Board Governance Committee as the Governance, Environmental, and Public Policy Committee and expanded the Committee’s Charter to, among other things, underscore environmental performance and integration of sustainability into our business activities. The Committee frequently reviews our environmental initiatives and is keenly interested in the operational measures, technological advancements, and other actions that the Company takes in advancing our status in this important area.
Devon has established environmental performance targets that reflect our dedication and commitment to providing affordable energy while achieving meaningful emissions reductions and pursuing our ultimate goal of net zero GHG emissions for Scope 1 and 2. Our GHG and methane targets shown below are calculated from a 2019 baseline.
Devon is also focused on conserving and reusing water and interacting with our value chain on our overall environmental goals. We have set a target to advance our recycled water rate and use 90% or more non-freshwater for completions activities in our most active operating areas within the Delaware Basin. Devon is also actively engaged with our stakeholders upstream and downstream of our operations to improve ESG performance across our value chain. We are confident we can deliver strong operational and financial results in a manner that reduces our environmental impact while safeguarding our workforce and the communities in which we operate.
Human Capital
Delivering strong operational and financial results in a safe, environmentally and socially responsible way requires the expertise and positive contributions of every Devon employee. Consequently, our people are the Company’s most important resource and we seek to hire the best people who share our core values of integrity, relationships, courage and results. To develop our workforce, we focus on training, safety, wellness, inclusion, diversity and equality. As of December 31, 2021, Devon and its consolidated subsidiaries had approximately 1,600 employees, all located in the U.S.
Employee Safety and Wellness
We prepare our workforce to work safely with comprehensive training and orientation, on-the-job guidance and tools, safety engagements, recognition and other resources. Employees and contractors are expected to comply with safety rules and regulations and are accountable for stopping at-risk work, immediately reporting incidents and near-miss events and informing visitors of emergency alarms and evacuation plans. To safeguard workers on our well sites and neighbors nearby, we plan, design, drill, complete and produce wells using proven best practices, technologies, tools and materials.
In response to the COVID-19 pandemic, we formally established a COVID-19 team focused on developing and implementing a number of safety measures to help our employees manage their work and personal responsibilities, with a strong focus on employee well-being, health and safety. The COVID-19 team established an information campaign to provide employees an understanding of the virus risk factors and safety measures, as well as timely updates from governmental regulations.
Beyond employee safety, Devon also prioritizes the physical, mental and financial wellness of our employees. We offer competitive health and financial benefits with incentives designed to promote well-being, including an Employee Assistance Program (“EAP”) that provides virtual counseling services for employees and their family members free of charge. Access to experienced counselors, financial experts, staff attorneys, elder-care consultants and concierge services is included in EAP services available 365 days a year, 24 hours a day. Devon encourages employees to take advantage of our wellness programs and activities by getting an annual physical exam, attending preventive health screenings and completing a financial wellness series at no cost to employees.
Employee Compensation, Benefits and Development
We strive to attract and retain high-performing individuals across our workforce. One way we do this is by providing competitive compensation and benefits, including annual bonuses; a 401(k) savings plan with a Devon contribution up to 14% of the employee’s earnings; stock awards for all employees; medical, dental and vision health care coverage; health savings and dependent-care flexible spending accounts; maternity and parental leave for the birth or adoption of a child; an adoption assistance program; alternate work schedules; flexible work hours; part-time work options; and telecommuting support; among other benefits.
Devon also looks to our core values to build the workforce we need. We develop our employees’ knowledge and creativity and advance continual learning and career development through ongoing performance, training and development conversations.
Diversity, Equity and Inclusion
Devon’s success depends on employees who demonstrate integrity, accountability, perseverance and a passion for building our business and delivering results. Our efforts to create a workforce with these qualities start with offering equal opportunity in all aspects of employment. We do this with company policies and leadership commitment, and by providing employees opportunities to help shape Devon’s diversity, equity and inclusion direction and actions.
We strive to demonstrate inclusion, equity and diversity throughout the Company to bring a range of thoughts, experiences and points of view to our problem-solving and decision-making. Along with senior leadership efforts, Devon’s Diversity, Equity and Inclusion (“DEI”) Team works to proactively increase diversity and inclusion awareness, identify challenges and find innovative ways to achieve Devon’s inclusion and diversity vision and priorities. In 2021, our workforce was comprised of 24% females and 22% minorities. Along with our workforce efforts, we invest in DEI through community partnerships. One way we are achieving this is by creating STEM centers in elementary schools in the areas in which we operate. Devon has helped open more than 100 STEM centers that orient children of all backgrounds to skills that will be essential for the future workforce. In 2021, Devon awarded nine Inclusion and Equity Grants, ranging from $5,000 to $25,000 to nine diverse community organizations throughout Oklahoma City. This program plans to expand in 2022 to reach additional organizations across more of the Company’s operational areas.
Compliance Culture
We reinforce the high expectations we have for ethical conduct by our employees through our Code of Business Conduct and Ethics (“Code”). The Code sets out basic principles for all employees to follow and incorporates specific guidance on critical areas such as our prohibition of harassment and discrimination, our protocols for avoiding conflicts of interest and our policies related to anti-corruption laws, privacy, cybersecurity and confidential information. On an annual basis, Devon employees, as well as our directors and officers, are required to acknowledge and agree to abide by our Code and complete a training course on the Code and its related policies. We encourage our employees to help enforce the Code and maintain reporting systems that are designed to minimize concerns that reports will result in retaliation.
Oil and Gas Properties
Property Profiles
Key summary data from each of our areas of operation as of and for the year ended December 31, 2021 are detailed in the map below.
Delaware Basin – The Delaware Basin is our most active program in the portfolio. We acquired additional acreage in the Delaware Basin through the Merger, creating an industry leading position in this basin. Through capital efficient drilling programs, it offers exploration and low-risk development opportunities from many geologic reservoirs and play types, including the oil-rich Wolfcamp, Bone Spring, Avalon and Delaware formations. With a significant inventory of oil and liquids-rich drilling opportunities that have multi-zone development potential, Devon has a robust platform to deliver high-margin drilling programs for many years to come. At December 31, 2021, we had 13 operated rigs developing this asset in the Wolfcamp, Bone Spring and Avalon formations. The Delaware Basin is our top funded asset and is expected to receive approximately 75% of our capital allocation in 2022.
Anadarko Basin – Our Anadarko Basin development, located primarily in Oklahoma’s Canadian, Kingfisher and Blaine counties, provides long-term optionality through its significant inventory. Our Anadarko Basin position is one of the largest in the industry, providing visible long-term production. We have an agreement with Dow to jointly develop a portion of our Anadarko Basin acreage and, as of December 31, 2021, we had a two operated rig program associated with this joint venture. Dow will fund approximately 65% of the partnership capital requirements through a remaining drilling carry of approximately $65 million over the next three years.
Williston Basin – We acquired our position in the Williston Basin through the Merger in 2021. It is located entirely on the Fort Berthold Indian Reservation, and its operations are focused in the oil-prone Bakken and Three Forks formations. The Williston Basin
is a high-margin oil resource located in the core of the play and generated substantial cash flow in 2021. At December 31, 2021, we had one operated rig developing this asset.
Eagle Ford – Our Eagle Ford operations are located in DeWitt County, Texas, situated in the economic core of the play. Its production is leveraged to oil and has low-cost access to premium Gulf Coast pricing, providing for strong operating margins.
Powder River Basin – This asset is focused on emerging oil opportunities in the Powder River Basin. We are currently targeting several Cretaceous oil objectives, including the Turner, Parkman, Teapot and Niobrara formations. At December 31, 2021, we had one operated rig developing this asset.
Proved Reserves
Proved oil and gas reserves are those quantities of oil, gas and NGLs which can be estimated with reasonable certainty to be economically producible from known reservoirs under existing economic conditions, operating methods and government regulations. To be considered proved, oil and gas reserves must be economically producible before contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain. Also, the project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence within a reasonable time. We establish our proved reserves estimates using standard geological and engineering technologies and computational methods, which are generally accepted by the petroleum industry. We primarily prepare our proved reserves additions by analogy using type curves that are based on decline curve analysis of wells in analogous reservoirs. We further establish reasonable certainty of our proved reserves estimates by using one or more of the following methods: geological and geophysical information to establish reservoir continuity between penetrations, rate-transient analysis, analytical and numerical simulations, or other proprietary technical and statistical methods. For estimates of our proved developed and proved undeveloped reserves and the discussion of the contribution by each property, see Note 22 in “Item 8. Financial Statements and Supplementary Data” of this report.
The process of estimating oil, gas and NGL reserves is complex and requires significant judgment, as discussed in “Item 1A. Risk Factors” of this report. As a result, we have developed internal policies for estimating and recording reserves in compliance with applicable SEC definitions and guidance. Our policies assign responsibilities for compliance in reserves bookings to our Reserve Evaluation Group (the “Group”). The Group, which is led by Devon’s Manager of Reserves and Economics, is responsible for the internal review and certification of reserves estimates. We ensure the Manager and key members of the Group have appropriate technical qualifications to oversee the preparation of reserves estimates and are independent of the operating groups. The Manager of the Group has over 15 years of industry experience, a degree in engineering and is a registered professional engineer. The Group also oversees audits and reserves estimates performed by a qualified third-party petroleum consulting firm. During 2021, we engaged LaRoche Petroleum Consultants, Ltd. to audit approximately 88% of our proved reserves. Additionally, our Board of Directors has a Reserves Committee that provides additional oversight of our reserves process. The committee consists of five independent members of our Board of Directors who collectively have skills and backgrounds that are relevant to the reserves estimation processes, reporting systems and disclosure requirements.
The following tables present production, price and cost information for each significant field in our asset portfolio and the total company.
| Production | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | Oil (MMBbls) | Gas (Bcf) | NGLs (MMBbls) | Total (MMBoe) | ||||||||||||
| 2021 | ||||||||||||||||
| Delaware Basin | 72 | 195 | 32 | 136 | ||||||||||||
| Anadarko Basin | 5 | 79 | 9 | 27 | ||||||||||||
| Total | 106 | 325 | 48 | 209 | ||||||||||||
| 2020 | ||||||||||||||||
| Delaware Basin | 31 | 91 | 13 | 60 | ||||||||||||
| Anadarko Basin | 7 | 92 | 10 | 33 | ||||||||||||
| Total | 57 | 221 | 29 | 122 | ||||||||||||
| 2019 | ||||||||||||||||
| Delaware Basin | 26 | 65 | 10 | 46 | ||||||||||||
| Anadarko Basin | 11 | 114 | 13 | 43 | ||||||||||||
| Total | 55 | 219 | 28 | 119 |
| Average Sales Price | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | Oil (Per Bbl) | Gas (Per Mcf) | NGLs (Per Bbl) | Production Cost (Per Boe) (1) | ||||||||||||
| 2021 | ||||||||||||||||
| Delaware Basin | $ | 66.67 | $ | 3.47 | $ | 30.02 | $ | 5.97 | ||||||||
| Anadarko Basin | $ | 66.29 | $ | 3.80 | $ | 29.73 | $ | 9.26 | ||||||||
| Total | $ | 65.98 | $ | 3.40 | $ | 29.52 | $ | 7.02 | ||||||||
| 2020 | ||||||||||||||||
| Delaware Basin | $ | 37.25 | $ | 1.08 | $ | 10.64 | $ | 5.76 | ||||||||
| Anadarko Basin | $ | 35.80 | $ | 1.66 | $ | 12.11 | $ | 9.61 | ||||||||
| Total | $ | 35.95 | $ | 1.48 | $ | 11.72 | $ | 7.66 | ||||||||
| 2019 | ||||||||||||||||
| Delaware Basin | $ | 54.01 | $ | 0.99 | $ | 13.54 | $ | 6.43 | ||||||||
| Anadarko Basin | $ | 55.13 | $ | 1.97 | $ | 15.90 | $ | 7.36 | ||||||||
| Total | $ | 54.73 | $ | 1.79 | $ | 15.21 | $ | 7.75 |
| (1) | Represents production expense per Boe excluding production and property taxes. |
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Drilling Statistics
The following table summarizes our development and exploratory drilling results. We did not have any dry development or exploratory wells drilled for the years 2021, 2020 or 2019.
| Development Wells (1) | Exploratory Wells (1) | Total Wells (1) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | Productive | Productive | Total | |||||||||
| 2021 (2) | 236.3 | 18.8 | 255.1 | |||||||||
| 2020 | 106.5 | 26.6 | 133.2 | |||||||||
| 2019 | 161.7 | 27.2 | 188.9 |
| (1) | Well counts represent net wells completed during each year. Gross wells are the sum of all wells in which we own a working interest. Net wells are gross wells multiplied by our fractional working interests in each well. |
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| (2) | As of December 31, 2021, there were 137 gross and 105.7 net wells that have been spud and are in the process of drilling, completing or waiting on completion. |
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Productive Wells
The following table sets forth our producing wells as of December 31, 2021.
| Oil Wells | Natural Gas Wells | Total Wells | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross (1)(3) | Net (2) | Gross (1)(3) | Net (2) | Gross (1)(3) | Net (2) | |||||||||||||||||||
| Total | 10,012 | 3,298 | 3,420 | 1,410 | 13,432 | 4,708 |
| (1) | Gross wells are the sum of all wells in which we own a working interest. |
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| (2) | Net wells are gross wells multiplied by our fractional working interests in each well. |
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| (3) | Includes 32 and 46 gross oil and gas wells, respectively, which had multiple completions. |
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The day-to-day operations of oil and gas properties are the responsibility of an operator designated under pooling or operating agreements. The operator supervises production, maintains production records, employs field personnel and performs other functions. We are the operator of approximately 5,134 gross wells. As operator, we receive reimbursement for direct expenses incurred to perform our duties, as well as monthly per-well producing, drilling and construction overhead reimbursement at rates customarily charged in the respective areas. In presenting our financial data, we record the monthly overhead reimbursements as a reduction of G&A, which is a common industry practice.
Acreage Statistics
The following table sets forth our developed and undeveloped lease and mineral acreage as of December 31, 2021. Of our 1.9 million net acres, approximately 1.2 million acres are held by production. The acreage in the table below does not include any
material net acres subject to leases that are scheduled to expire during 2022, 2023 and 2024. For the net acres that are set to expire by December 31, 2024, we anticipate performing operational and administrative actions to continue the lease terms for portions of the acreage that we intend to further assess. However, we do expect to allow a portion of the acreage to expire in the normal course of business. Less than 20% of our total net acres are located on federal lands.
| Developed | Undeveloped | Total | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross (1) | Net (2) | Gross (1) | Net (2) | Gross (1) | Net (2) | |||||||||||||||||||
| (Thousands) | ||||||||||||||||||||||||
| Total | 1,177 | 665 | 3,102 | 1,281 | 4,279 | 1,946 |
| (1) | Gross acres are the sum of all acres in which we own a working interest. |
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| (2) | Net acres are gross acres multiplied by our fractional working interests in the acreage. |
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Title to Properties
Title to properties is subject to contractual arrangements customary in the oil and gas industry, liens for taxes not yet due and, in some instances, other encumbrances. We believe that such burdens do not materially detract from the value of properties or from the respective interests therein or materially interfere with their use in the operation of the business.
As is customary in the industry, a preliminary title investigation, typically consisting of a review of local title records, is made at the time of acquisitions of undeveloped properties. More thorough title investigations, which generally include a review of title records and the preparation of title opinions by outside legal counsel, are made prior to the consummation of an acquisition of producing properties and before commencement of drilling operations on undeveloped properties.
Marketing Activities
Oil, Gas and NGL Marketing
The spot markets for oil, gas and NGLs are subject to volatility as supply and demand factors fluctuate. As detailed below, we sell our production under both long-term (one year or more) and short-term (less than one year) agreements at prices negotiated with third parties. Regardless of the term of the contract, the vast majority of our production is sold at variable, or market-sensitive, prices.
Additionally, we may enter into financial hedging arrangements or fixed-price contracts associated with a portion of our oil, gas and NGL production. These activities are intended to support targeted price levels and to manage our exposure to price fluctuations. See Note 3 in “Item 8. Financial Statements and Supplementary Data” of this report for further information.
As of January 2022, our production was sold under the following contract terms.
| Short-Term | Long-Term | |||||||||||||||
| Variable | Fixed | Variable | Fixed | |||||||||||||
| Oil | 39 | % | — | 61 | % | — | ||||||||||
| Natural gas | 52 | % | 3 | % | 45 | % | — | |||||||||
| NGLs | 72 | % | 16 | % | 12 | % | — |
Delivery Commitments
A portion of our production is sold under certain contractual arrangements that specify the delivery of a fixed and determinable quantity. As of December 31, 2021, we were committed to deliver the following fixed quantities of production.
| Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Oil (MMBbls) | 74 | 26 | 23 | 22 | 3 | |||||||||||||||
| Natural gas (Bcf) | 462 | 101 | 110 | 87 | 164 | |||||||||||||||
| NGLs (MMBbls) | 11 | 11 | — | — | — | |||||||||||||||
| Total (MMBoe) | 162 | 54 | 42 | 36 | 30 |
We expect to fulfill our delivery commitments primarily with production from our proved developed reserves. Moreover, our proved reserves have generally been sufficient to satisfy our delivery commitments during the three most recent years, and we expect such reserves will continue to be the primary means of fulfilling our future commitments. However, where our proved reserves are not sufficient to satisfy our delivery commitments, we can and may use spot market purchases to satisfy the commitments.
Competition
See “Item 1A. Risk Factors.”
Public Policy and Government Regulation
Our industry is subject to a wide range of regulations. Laws, rules, regulations, taxes, fees and other policy implementation actions affecting our industry have been pervasive and are under constant review for amendment or expansion. Numerous government agencies have issued extensive regulations which are binding on our industry and its individual members, some of which carry substantial penalties for failure to comply. These laws and regulations increase the cost of doing business and consequently affect profitability. Because public policy changes are commonplace, and changes to existing laws and regulations are frequently proposed or implemented, we are unable to predict the future cost or impact of compliance. However, we do not expect that any of these laws and regulations will affect our operations materially differently than they would affect other companies with similar operations, size and financial strength. The following are significant areas of government control and regulation affecting our operations.
Exploration and Production Regulation
Our operations are subject to various federal, state, tribal and local laws and regulations relating to exploration and production activities, including with respect to:
| • | acquisition of seismic data; |
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| • | location, drilling and casing of wells; |
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| • | well design; |
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| • | hydraulic fracturing; |
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| • | well production; |
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| • | spill prevention plans; |
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| • | emissions and discharge permitting; |
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| • | use, transportation, storage and disposal of fluids and materials incidental to oil and gas operations; |
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| • | surface usage and the restoration of properties upon which wells have been drilled; |
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| • | calculation and disbursement of royalty payments and production taxes; |
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| • | plugging and abandoning of wells; |
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| • | transportation of production; and |
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| • | endangered species and habitat. |
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Our operations also are subject to conservation regulations, including the regulation of the size of drilling and spacing units or proration units; the number of wells that may be drilled in a unit; the rate of production allowable from oil and gas wells; and the unitization or pooling of oil and gas properties. Some states allow the forced pooling or unitization of tracts to facilitate exploration and development, while other states rely on voluntary pooling of lands and leases. Such rules may impact the ultimate timing of our exploration and development plans. In addition, federal and state conservation laws generally limit the venting or flaring of natural gas, and state conservation laws impose certain requirements regarding the ratable purchase of production. These regulations limit the amounts of oil and gas we can produce from our wells and the number of wells or the locations at which we can drill.
Certain of our leases are granted or approved by the federal government and administered by the BLM or Bureau of Indian Affairs of the Department of the Interior. Such leases require compliance with detailed federal regulations and orders that regulate, among other matters, drilling and operations on lands covered by these leases and calculation and disbursement of royalty payments to the federal government, tribes or tribal members. Moreover, the permitting process for oil and gas activities on federal and Indian lands can sometimes be subject to delay, which can hinder development activities or otherwise adversely impact operations. The
federal government has, from time to time, evaluated and, in some cases, promulgated new rules and regulations regarding competitive lease bidding, venting and flaring, oil and gas measurement and royalty payment obligations for production from federal lands.
Environmental, Pipeline Safety and Occupational Regulations
We strive to conduct our operations in a socially and environmentally responsible manner, which includes compliance with applicable law. We are subject to many federal, state, tribal and local laws and regulations concerning occupational safety and health as well as the discharge of materials into, and the protection of, the environment and natural resources. Environmental, health and safety laws and regulations relate to:
| • | the discharge of pollutants into federal and state waters; |
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| • | assessing the environmental impact of seismic acquisition, drilling or construction activities; |
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| • | the generation, storage, transportation and disposal of waste materials, including hazardous substances and wastes; |
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| • | the emission of methane and certain other gases into the atmosphere; |
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| • | the monitoring, abandonment, reclamation and remediation of well and other sites, including sites of former operations; |
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| • | the development of emergency response and spill contingency plans; |
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| • | the monitoring, repair and design of pipelines used for the transportation of oil and natural gas; |
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| • | the protection of threatened and endangered species; and |
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| • | worker protection. |
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Failure to comply with these laws and regulations can lead to the imposition of remedial liabilities, administrative, civil or criminal fines or penalties or injunctions limiting our operations in affected areas. Moreover, multiple environmental laws provide for citizen suits, which can allow environmental organizations to sue operators for alleged violations of environmental law. Environmental organizations also can assert legal and administrative challenges to certain actions of oil and gas regulators, such as the BLM, for allegedly failing to comply with environmental laws, which can result in delays in obtaining permits or other necessary authorizations. In recent years, federal and state policy makers and regulators have increasingly implemented or proposed new laws and regulations designed to reduce methane emissions and other GHG, which have included mandates for new leak detection and retrofitting requirements, stricter emission standards and a proposed fee on methane emission leaks. For example, in November 2021, the Pipeline and Hazardous Materials Safety Administration issued a final rule significantly expanding reporting and safety requirements for operators of gas gathering pipelines, including previously unregulated pipelines.
Environmental protection and health and safety compliance are necessary parts of our business that we historically have been able to plan for and comply with without materially altering our operating strategy or incurring significant unreimbursed expenditures. However, based on regulatory trends and increasingly stringent laws and permitting requirements, our capital expenditures and operating expenses related to the protection of the environment and safety and health compliance have increased over the years and may continue to increase.