Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

Report of Independent Registered Public Accounting Firm		45
Consolidated Financial Statements
Consolidated Statements of Comprehensive Earnings		48
Consolidated Statements of Cash Flows		49
Consolidated Balance Sheets		50
Consolidated Statements of Equity		51
Notes to Consolidated Financial Statements		52
Note 1 – Summary of Significant Accounting Policies		52
Note 2 – Acquisitions and Divestitures		62
Note 3 – Derivative Financial Instruments		65
Note 4 – Share-Based Compensation		66
Note 5 – Asset Impairments		68
Note 6 – Restructuring and Transaction Costs		69
Note 7 – Other, Net		70
Note 8 – Income Taxes		70
Note 9 – Net Earnings (Loss) Per Share From Continuing Operations		75
Note 10 – Other Comprehensive Earnings		76
Note 11 – Supplemental Information to Statements of Cash Flows		77
Note 12 – Accounts Receivable		77
Note 13 – Property, Plant and Equipment		78
Note 14 – Debt and Related Expenses		79
Note 15 – Leases		81
Note 16 – Asset Retirement Obligations		83
Note 17 – Retirement Plans		83
Note 18 – Stockholders’ Equity		87
Note 19 – Discontinued Operations		89
Note 20 – Commitments and Contingencies		91
Note 21 – Fair Value Measurements		93
Note 22 – Supplemental Information on Oil and Gas Operations (Unaudited)		94

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.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors Devon Energy Corporation:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Devon Energy Corporation and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of comprehensive earnings, equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company’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 the accompanying Management’s Annual Report on Internal Control Over Financial Reporting contained in “Item 9A. Controls and Procedures”. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.

Definition and Limitations of Internal Control Over Financial Reporting

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Fair value measurement of oil and gas properties acquired in the WPX business combination

As discussed in Note 2 to the consolidated financial statements, on January 7, 2021, the Company and WPX completed an all-stock merger of equals. The Company was treated as the accounting acquirer, and as a result of the transaction, the Company acquired both proved and unproved oil and gas properties. The acquisition-date fair value for the oil and gas properties was $9.4 billion.

We identified the evaluation of the initial fair value measurement of the oil and gas properties acquired in the WPX transaction as a critical audit matter. The Company used the income approach methodology in estimating the initial fair value of the acquired oil and gas properties. There was a high degree of subjective auditor judgment in evaluating the key assumptions used to estimate the discounted future cash flows of the proved and unproved oil and gas properties as changes to the assumptions used could have a significant effect on the determination of the initial fair values. The key assumptions used in these estimates were forecasted commodity prices, forecasted operating and capital costs, future production quantities, risk adjustment factors associated with the proved and unproved reserve volumes, and the discount rate applied to determine fair value.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s acquisition-date valuation process to develop and analyze the key assumptions, as listed above, used to measure the initial fair value of the acquired oil and gas properties. We assessed compliance of the methodology used by the Company’s internal reservoir engineers to estimate proved and unproved oil and gas reserves with industry and regulatory standards. We compared the estimated future proved and unproved production quantities used by the Company to historical WPX production volumes. We evaluated the professional qualifications of the Company’s internal reservoir engineers and the knowledge, skills, and ability of the Company’s internal reservoir engineers. We also tested the processes and methodologies used by internal reservoir engineers to estimate unproved future production quantities for consistency with industry and professional standards. We evaluated the forecasted operating and capital cost assumptions used by the internal reservoir engineers to estimate future cash flows by comparing them to WPX’s historical costs. We tested the relevant market differentials that were applied to the forecasted commodity price assumptions based on past results. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:

	•	Evaluating the discount rate by comparing it against a discount rate range that was independently developed using publicly available market data for comparable entities.

	•	Evaluating the forecasted commodity price assumptions by comparing to an independently developed range of forward price estimates from analysts and other industry sources.

	•	Evaluating the risk adjustment factors associated with the proved and unproved reserves selected by the Company, by comparing to the guideline factors ranges by reserve class in published industry surveys.

Estimate of proved oil and gas reserves used in the depletion of proved oil and gas properties

As discussed in Notes 1 and 13 to the consolidated financial statements, the Company calculates depletion for its proved oil and gas properties subject to amortization using a units-of-production method. The rates used to deplete the balance of oil and gas properties subject to amortization are set using the estimate of proved oil and gas reserves by common operating field. Under the units-of-production method, a rate is set annually using the beginning of year balance of oil and gas properties subject to amortization and estimated proved oil and gas reserves for each common operating field. That rate is then applied to production throughout the year to determine the amount of depletion expense to be recorded by common operating field. The Company also periodically evaluates whether changes in the estimated proved oil and gas reserves for each common operating field have occurred that would require a change in the rate of depletion to be applied to the production realized. The Company’s internal reservoir engineers estimate proved oil and gas reserves, and the Company engages external reservoir engineers to perform an independent evaluation of a portion of the estimates of proved oil and gas reserves. The company recorded depletion expense of $2.0 billion for the year ended December 31, 2021.

We identified the estimate of proved oil and gas reserves used in the depletion of proved oil and gas properties as a critical audit matter. There was a high degree of subjectivity in evaluating the Company’s estimate of the proved oil and gas reserves used as an input to determine depletion for each common operating field.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s depletion expense process, including controls related to the estimate of proved oil and gas reserves. We analyzed and assessed the determination of depletion expense for compliance with industry and regulatory standards. To assess the Company’s ability to accurately estimate proved oil and gas reserves, we compared the estimated future production quantities assumptions used by the Company in prior periods to the actual production amounts realized and the current year-end future production quantities forecasted. We compared the estimated future production quantities used by the Company in the current period to historical production trends and investigated differences We evaluated (1) the professional qualifications of the Company’s internal reservoir engineers as well as the external reservoir engineers and external engineering firm, (2) the knowledge, skills, and ability of the Company’s internal and external reservoir engineers, and (3) the relationship of the external reservoir engineers and external engineering firm to the Company. We read and considered the report of the Company’s external reservoir engineers in connection with our evaluation of the Company’s reserve estimates.

/s/ KPMG, LLP

We have served as the Company’s auditor since 1980.

Oklahoma City, Oklahoma February 16, 2022

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

		Year Ended December 31,
		2021				2020				2019
		(Millions, except per share amounts)
Oil, gas and NGL sales		$	9,531			$	2,695			$	3,809
Oil, gas and NGL derivatives			(1,544	)			155				(454	)
Marketing and midstream revenues			4,219				1,978				2,865
Total revenues			12,206				4,828				6,220
Production expenses			2,131				1,123				1,197
Exploration expenses			14				167				58
Marketing and midstream expenses			4,238				2,013				2,812
Depreciation, depletion and amortization			2,158				1,300				1,497
Asset impairments			—				2,693				—
Asset dispositions			(168	)			(1	)			(48	)
General and administrative expenses			391				338				475
Financing costs, net			329				270				250
Restructuring and transaction costs			258				49				84
Other, net			(43	)			(34	)			4
Total expenses			9,308				7,918				6,329
Earnings (loss) from continuing operations before income taxes			2,898				(3,090	)			(109	)
Income tax expense (benefit)			65				(547	)			(30	)
Net earnings (loss) from continuing operations			2,833				(2,543	)			(79	)
Net loss from discontinued operations, net of income taxes			—				(128	)			(274	)
Net earnings (loss)			2,833				(2,671	)			(353	)
Net earnings attributable to noncontrolling interests			20				9				2
Net earnings (loss) attributable to Devon		$	2,813			$	(2,680	)		$	(355	)
Basic net earnings (loss) per share:
Basic earnings (loss) from continuing operations per share		$	4.20			$	(6.78	)		$	(0.21	)
Basic loss from discontinued operations per share			—				(0.34	)			(0.68	)
Basic net earnings (loss) per share		$	4.20			$	(7.12	)		$	(0.89	)
Diluted net earnings (loss) per share:
Diluted earnings (loss) from continuing operations per share		$	4.19			$	(6.78	)		$	(0.21	)
Diluted loss from discontinued operations per share			—				(0.34	)			(0.68	)
Diluted net earnings (loss) per share		$	4.19			$	(7.12	)		$	(0.89	)
Comprehensive earnings (loss):
Net earnings (loss)		$	2,833			$	(2,671	)		$	(353	)
Other comprehensive earnings (loss), net of tax:
Foreign currency translation, discontinued operations			—				—				78
Release of Canadian cumulative translation adjustment, discontinued operations			—				—				(1,237	)
Pension and postretirement plans			(5	)			(8	)			13
Other comprehensive loss, net of tax			(5	)			(8	)			(1,146	)
Comprehensive earnings (loss):			2,828				(2,679	)			(1,499	)
Comprehensive earnings attributable to noncontrolling interests			20				9				2
Comprehensive earnings (loss) attributable to Devon		$	2,808			$	(2,688	)		$	(1,501	)

See accompanying notes to consolidated financial statements.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31,
		2021				2020				2019
Cash flows from operating activities:
Net earnings (loss)		$	2,833			$	(2,671	)		$	(353	)
Adjustments to reconcile net earnings (loss) to net cash from operating activities:
Net loss from discontinued operations, net of income taxes			—				128				274
Depreciation, depletion and amortization			2,158				1,300				1,497
Asset impairments			—				2,693				—
Leasehold impairments			4				152				18
(Amortization) accretion of liabilities			(27	)			32				33
Total (gains) losses on commodity derivatives			1,544				(155	)			454
Cash settlements on commodity derivatives			(1,462	)			316				166
Gains on asset dispositions			(168	)			(1	)			(48	)
Deferred income tax expense (benefit)			49				(328	)			(25	)
Share-based compensation			99				88				115
Early retirement of debt			(30	)			—				—
Other			15				5				(6	)
Changes in assets and liabilities, net			(116	)			(95	)			(82	)
Net cash from operating activities - continuing operations			4,899				1,464				2,043
Cash flows from investing activities:
Capital expenditures			(1,989	)			(1,153	)			(1,910	)
Acquisitions of property and equipment			(18	)			(8	)			(31	)
Divestitures of property and equipment			79				34				390
WPX acquired cash			344				—				—
Distributions from equity method investments			35				—				—
Contributions to equity method investments			(25	)			—				—
Net cash from investing activities - continuing operations			(1,574	)			(1,127	)			(1,551	)
Cash flows from financing activities:
Repayments of long-term debt			(1,243	)			—				(162	)
Early retirement of debt			(59	)			—				—
Repurchases of common stock			(589	)			(38	)			(1,849	)
Dividends paid on common stock			(1,315	)			(257	)			(140	)
Contributions from noncontrolling interests			4				21				116
Distributions to noncontrolling interests			(21	)			(14	)			—
Acquisition of noncontrolling interests			(24	)			—				—
Shares exchanged for tax withholdings and other			(45	)			(18	)			(26	)
Net cash from financing activities - continuing operations			(3,292	)			(306	)			(2,061	)
Effect of exchange rate changes on cash - continuing operations			1				—				—
Net change in cash, cash equivalents and restricted cash of continuing operations			34				31				(1,569	)
Cash flows from discontinued operations:
Operating activities			—				(110	)			28
Investing activities			—				481				2,472
Financing activities			—				—				(1,578	)
Effect of exchange rate changes on cash			—				(9	)			45
Net change in cash, cash equivalents and restricted cash of discontinued operations			—				362				967
Net change in cash, cash equivalents and restricted cash			34				393				(602	)
Cash, cash equivalents and restricted cash at beginning of period			2,237				1,844				2,446
Cash, cash equivalents and restricted cash at end of period		$	2,271			$	2,237			$	1,844
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents		$	2,099			$	2,047			$	1,464
Restricted cash			172				190				380
Total cash, cash equivalents and restricted cash		$	2,271			$	2,237			$	1,844

See accompanying notes to consolidated financial statements.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		December 31, 2021				December 31, 2020
ASSETS
Current assets:
Cash, cash equivalents and restricted cash		$	2,271			$	2,237
Accounts receivable			1,543				601
Income taxes receivable			83				174
Other current assets			352				248
Total current assets			4,249				3,260
Oil and gas property and equipment, based on successful efforts accounting, net			13,536				4,436
Other property and equipment, net ($111 million and $102 million related to CDM in 2021 and 2020, respectively)			1,472				957
Total property and equipment, net			15,008				5,393
Goodwill			753				753
Right-of-use assets			235				223
Investments			402				12
Other long-term assets			378				271
Total assets		$	21,025			$	9,912
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	500			$	242
Revenues and royalties payable			1,456				662
Other current liabilities			1,131				536
Total current liabilities			3,087				1,440
Long-term debt			6,482				4,298
Lease liabilities			252				246
Asset retirement obligations			468				358
Other long-term liabilities			1,050				551
Deferred income taxes			287				—
Stockholders' equity:
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 663 million and 382 million shares in 2021 and 2020, respectively			66				38
Additional paid-in capital			7,636				2,766
Retained earnings			1,692				208
Accumulated other comprehensive loss			(132	)			(127	)
Total stockholders’ equity attributable to Devon			9,262				2,885
Noncontrolling interests			137				134
Total equity			9,399				3,019
Total liabilities and equity		$	21,025			$	9,912

See accompanying notes to consolidated financial statements.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

																		Other
										Additional								Comprehensive
		Common Stock								Paid-In				Retained				Earnings				Treasury				Noncontrolling				Total
		Shares				Amount				Capital				Earnings				(Loss)				Stock				Interests				Equity
		(Unaudited)
Balance as of December 31, 2018			450			$	45			$	4,486			$	3,650			$	1,027			$	(22	)		$	—			$	9,186
Effect of adoption of lease accounting			—				—				—				(7	)			—				—				—				(7	)
Net earnings (loss)			—				—				—				(355	)			—				—				2				(353	)
Other comprehensive loss, net of tax			—				—				—				—				(1,146	)			—				—				(1,146	)
Restricted stock grants, net of cancellations			3				—				—				—				—				—				—				—
Common stock repurchased			—				—				—				—				—				(1,852	)			—				(1,852	)
Common stock retired			(71	)			(7	)			(1,867	)			—				—				1,874				—				—
Common stock dividends			—				—				—				(140	)			—				—				—				(140	)
Share-based compensation			—				—				116				—				—				—				—				116
Contributions from noncontrolling interests			—				—				—				—				—				—				116				116
Balance as of December 31, 2019			382			$	38			$	2,735			$	3,148			$	(119	)		$	—			$	118			$	5,920
Net earnings (loss)			—				—				—				(2,680	)			—				—				9				(2,671	)
Other comprehensive loss, net of tax			—				—				—				—				(8	)			—				—				(8	)
Restricted stock grants, net of cancellations			3				—				—				—				—				—				—				—
Common stock repurchased			—				—				—				—				—				(57	)			—				(57	)
Common stock retired			(3	)			—				(57	)			—				—				57				—				—
Common stock dividends			—				—				—				(260	)			—				—				—				(260	)
Share-based compensation			—				—				88				—				—				—				—				88
Contributions from noncontrolling interests			—				—				—				—				—				—				21				21
Distributions to noncontrolling interests			—				—				—				—				—				—				(14	)			(14	)
Balance as of December 31, 2020			382			$	38			$	2,766			$	208			$	(127	)		$	—			$	134			$	3,019
Net earnings			—				—				—				2,813				—				—				20				2,833
Other comprehensive loss, net of tax			—				—				—				—				(5	)			—				—				(5	)
Restricted stock grants, net of cancellations			6				—				—				—				—				—				—				—
Common stock repurchased			—				—				—				—				—				(633	)			—				(633	)
Common stock retired			(16	)			(1	)			(632	)			—				—				633				—				—
Common stock dividends			—				—				—				(1,329	)			—				—				—				(1,329	)
Common stock issued			290				29				5,403				—				—				—				—				5,432
Share-based compensation			1				—				99				—				—				—				—				99
Contributions from noncontrolling interests			—				—				—				—				—				—				3				3
Distributions to noncontrolling interests			—				—				—				—				—				—				(20	)			(20	)
Balance as of December 31, 2021			663			$	66			$	7,636			$	1,692			$	(132	)		$	—			$	137			$	9,399

See accompanying notes to consolidated 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 onshore areas in the U.S.

Devon and WPX completed an all-stock merger of equals on January 7, 2021. On the closing date of the Merger, each share of WPX common stock was automatically converted into the right to receive 0.5165 of a share of Devon common stock. The transaction has been accounted for using the acquisition method of accounting, with Devon being treated as the accounting acquirer. See Note 2 for further discussion.

As further discussed in Note 19, Devon sold its Barnett Shale assets on October 1, 2020 and sold its Canadian operations on June 27, 2019. Prior to December 31, 2020, activity relating to Devon’s Barnett Shale assets and Canadian operations are classified as discontinued operations within Devon’s consolidated statements of comprehensive earnings and consolidated statements of cash flows.

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, entities in which it holds a controlling interest and VIEs for which Devon is the primary beneficiary. 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, contributions and distributions.

Variable Interest Entity

Devon entered into an agreement in 2019 to form CDM, a partnership in the Delaware Basin, with an affiliate of QL Capital Partners, LP (“QLCP”). Devon holds a controlling interest in CDM and the portions of CDM’s net earnings and equity not attributable to Devon’s controlling interest are shown separately as noncontrolling interests in the accompanying consolidated statements of comprehensive earnings and consolidated balance sheets. CDM is considered a VIE to Devon.

Devon, through its controlling interest in CDM, has the power to direct the activities that significantly affect the economic performance of CDM and the obligation to absorb losses or the right to receive benefits that could be significant to CDM; therefore, Devon is considered the primary beneficiary and consolidates CDM. CDM maintains its own capital structure that is separate from Devon. During 2021, QLCP contributions to and distributions from CDM were approximately $3 million and $20 million, respectively. During 2020, QLCP contributions to and distributions from CDM were approximately $21 million and $14 million, respectively. During 2019, QLCP contributions to CDM were approximately $116 million, primarily associated with the CDM formation.

The assets of CDM cannot be used by Devon for general corporate purposes and are included in and disclosed parenthetically on Devon's consolidated balance sheets. The carrying amount of liabilities related to CDM for which the creditors do not have recourse to Devon's assets are also included in and disclosed parenthetically, if material, on Devon's consolidated balance sheets.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Investments

In conjunction with the Merger, Devon acquired an interest in Catalyst, which is a joint venture established among WPX, an affiliate of Howard Energy Partners, LLC (“HEP”) and certain other investors, to develop oil gathering and natural gas processing infrastructure in the Stateline area of the Delaware Basin. Under the terms of the arrangement, Devon and a holding company owned by the other joint venture investors each have a 50% voting interest in the joint venture legal entity, and HEP serves as the operator. Through 2038, Devon’s production from 50,000 net acres in the Stateline area of the Delaware Basin has been dedicated to Catalyst subject to fixed-fee oil gathering and natural gas processing agreements. The agreements do not include any minimum volume commitments. Devon accounts for the investment in Catalyst as an equity method investment.

Devon’s investment in Catalyst is shown within investments on the consolidated balance sheet and Devon’s share of Catalyst earnings are reflected as a component of other, net in the accompanying consolidated statements of comprehensive earnings.

Investments		% Interest				Carrying Amount
Catalyst		50%				$	368
Other		Various					34
Total						$	402

As of December 31, 2021, Devon’s $368 million investment in Catalyst exceeded the underlying equity in net assets by approximately $125 million. The basis difference results primarily from intangible assets associated with Devon’s acreage dedication and is amortized over the remaining 17-year term of the associated oil gathering and natural gas processing agreements.

After the closing of the Merger, Catalyst has provided certain gathering, processing and marketing services to Devon in the ordinary course of business. The impact from these services on Devon’s consolidated statement of comprehensive earnings and consolidated balance sheet for the year ended and as of December 31, 2021, respectively, are summarized below.

	2021
Oil, gas and NGL sales	$	264
Production expenses	$	42
Accounts receivable	$	22

Segment Information

Subsequent to the sale of Devon’s Canadian business in 2019 discussed in Note 19, Devon’s oil and gas exploration and production activities are solely focused in the U.S. For financial reporting purposes, Devon aggregates its U.S. operating segments into one reporting segment due to the similar nature of these operations.

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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;

	•	evaluation of suspended well costs;

	•	the carrying and fair values of oil and gas properties, other property and equipment and product and equipment inventories;

	•	derivative financial instruments;

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

	•	income taxes;

	•	asset retirement obligations;

	•	obligations related to employee pension and postretirement benefits;

	•	purchase accounting estimates used for assets acquired and liabilities assumed;

	•	legal and environmental risks and exposures; and

	•	general credit risk associated with receivables and other assets.

Revenue Recognition

Upstream Revenues

Upstream revenues include the sale of oil, gas and NGL production. Oil, gas and NGL sales are recognized when production is sold to a purchaser at a fixed or determinable price, delivery has occurred, control has transferred and collectability of the revenue is probable. Devon’s performance obligations are satisfied at a point in time. This occurs when control is transferred to the purchaser upon delivery of contract specified production volumes at a specified point. The transaction price used to recognize revenue is a function of the contract billing terms. Revenue is invoiced, if required, by calendar month based on volumes at contractually based rates with payment typically received within 30 days of the end of the production month. Taxes assessed by governmental authorities on oil, gas and NGL sales are presented separately from such revenues in the accompanying consolidated statements of comprehensive earnings.

Devon acts as a principal in sales transactions when control of the product is retained prior to delivery to the ultimate third-party customer or acts as an agent when services are rendered on behalf of the principal in the transactions. A control-based assessment is performed to identify whether Devon is a principal or an agent in the transaction, which determines whether revenue and the related expenses are presented on a gross or net basis, respectively.

Oil sales

Devon’s oil sales contracts are generally structured in one of two ways. First, production is sold at the wellhead at an agreed-upon index price, net of pricing differentials. In this scenario, revenue is recognized when control transfers to the purchaser at the wellhead at the net price received. Alternatively, production is delivered to

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

the purchaser at a contractually agreed-upon delivery point where the purchaser takes custody, title and risk of loss of the product. Under this arrangement, a third party is paid to transport the product and Devon receives a specified index price from the purchaser with no transportation deduction. In this scenario, revenue is recognized when control transfers to the purchaser at the delivery point based on the price received from the purchaser. The third-party costs are recorded as gathering, processing and transportation expense as a component of production expenses in the consolidated statements of comprehensive earnings.

Natural gas and NGL sales

Under Devon’s natural gas processing contracts, natural gas is delivered to a midstream processing entity at the wellhead or the inlet of the midstream processing entity’s system. The midstream processing entity gathers and processes the natural gas and remits proceeds for the resulting sales of NGLs and residue gas. In these scenarios, Devon evaluates whether it is the principal or the agent in the transaction. Devon has concluded it is the principal under these contracts and the ultimate third-party is the customer. Revenue is recognized on a gross basis, with gathering, processing and transportation fees presented as a component of production expenses in the consolidated statements of comprehensive earnings.

In certain natural gas processing agreements, Devon may elect to take residue gas and/or NGLs in-kind at the tailgate of the midstream entity’s processing plant and subsequently market the product. Through the marketing process, the product is delivered to the ultimate third-party purchaser at a contractually agreed-upon delivery point, and Devon receives a specified index price from the purchaser. In this scenario, revenue is recognized when control transfers to the purchaser at the delivery point based on the index price received from the purchaser. The gathering, processing and compression fees attributable to the gas processing contract, as well as any transportation fees incurred to deliver the product to the purchaser, are presented as gathering, processing and transportation expense as a component of production expenses in the consolidated statements of comprehensive earnings.

Marketing Revenues

Marketing revenues are generated primarily as a result of Devon selling commodities purchased from third parties. Marketing revenues are recognized when performance obligations are satisfied. This occurs at the time contract-specified products are sold to third parties at a contractually fixed or determinable price, delivery occurs at a specified point or performance has occurred, control has transferred and collectability of the revenue is probable. The transaction price used to recognize revenue and invoice customers is based on a contractually stated fee or on a third party published index price plus or minus a known differential. Devon typically receives payment for invoiced amounts within 30 days. Marketing revenues and expenses attributable to oil, gas and NGL purchases are reported on a gross basis when Devon takes control of the products and has risks and rewards of ownership.

Midstream Revenues

Devon’s reported midstream activity primarily relates to its interest in CDM. CDM provides gathering, compression and dehydration services to Devon and other producers’ natural gas production. An evaluation is performed to determine whether CDM is a principal or agent in these transactions. Under the terms of these gathering, compression and dehydration contracts, CDM has concluded it is the agent as title to the gas production remains with the CDM affiliate producer or a third-party producer. Revenue is recognized on a net basis since CDM is strictly providing a service. Costs to maintain CDM’s assets are presented as marketing and midstream expenses in the consolidated statements of comprehensive earnings. Revenue is recognized for sales at the time the gathering, compression and dehydration service has been rendered or performed.

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Satisfaction of Performance Obligations and Revenue Recognition

Because Devon has a right to consideration from its customers in amounts that correspond directly to the value that the customer receives from the performance completed on each contract, Devon recognizes revenue for sales at the time the crude oil, natural gas or NGLs are delivered at a fixed or determinable price.

Transaction Price Allocated to Remaining Performance Obligations

Most of Devon’s contracts are short-term in nature with a contract term of one year or less. Devon applies the practical expedient exempting the disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less. For contracts with terms greater than one year, Devon applies the practical expedient exempting the disclosure of the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under Devon’s contracts, each unit of product typically represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

Contract Balances

Cash received relating to future performance obligations is deferred and recognized when all revenue recognition criteria are met. Contract liabilities generated from such deferred revenue are not considered material as of December 31, 2021. Devon’s product sales and marketing contracts do not give rise to contract assets.

Disaggregation of Revenue

The following table presents revenue from contracts with customers that are disaggregated based on the type of good.

		Year Ended December 31,
		2021				2020				2019
Oil		$	6,996			$	2,034			$	2,988
Gas			1,104				326				391
NGL			1,431				335				430
Oil, gas and NGL sales			9,531				2,695				3,809
Oil			2,451				936				1,534
Gas			718				488				645
NGL			1,050				554				686
Marketing and midstream revenues			4,219				1,978				2,865
Total revenues from contracts with customers		$	13,750			$	4,673			$	6,674

Customers

In both years ended December 31, 2021 and 2020, Devon had two customers that each amounted to 10% or more of our revenues for the respective year. Sales to those two customers accounted for approximately 19% and 12%, respectively, of Devon’s sales revenue in 2021, and approximately 13% and 10%, respectively of Devon’s sales revenue in 2020. During 2019, no purchaser accounted for more than 10% of Devon’s revenue.

If any one of Devon’s major customers were to stop purchasing our production, the Company believes there are a number of other purchasers to whom the company could sell Devon’s production. If multiple significant customers were to discontinue purchasing Devon’s production abruptly, the Company believes it would have the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

resources needed to access alternative customers or markets and avoid or materially mitigate associated sales disruptions.

Derivative Financial Instruments

Devon is exposed to certain risks relating to its ongoing business operations, including risks related to commodity prices and interest rates. As discussed more fully below, Devon uses derivative instruments primarily to manage commodity price 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 periodically enters into derivative financial instruments with respect to a portion of its 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 and costless price collars. 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. For price collars, Devon utilizes two-way price collars. The two-way 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.

Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. As of December 31, 2021, Devon did not have any open interest rate swap contracts.

All derivative financial instruments are recognized at their current fair value as either assets or liabilities in the balance sheet. Amounts related to contracts allowed to be netted upon payment subject to a master netting arrangement with the same counterparty are reported on a net basis 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, 2021, 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 instruments are also recorded in earnings.

By using derivative financial instruments to hedge exposures to changes in commodity prices and interest 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, 2021, Devon held no cash collateral of its counterparties nor posted collateral to 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.

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Share-Based Compensation

Devon grants share-based awards to members of its Board of Directors, management and 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 statements of comprehensive 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 and transaction costs in the accompanying consolidated statements of comprehensive 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 generally 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.

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 significant negative evidence, such as cumulative losses in recent years. See Note 8 for further discussion.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

treasury stock method to reflect the assumed issuance of common shares for all potentially dilutive securities. Such securities primarily consist of unvested performance share units.

Cash, Cash Equivalents and Restricted Cash

Devon considers all highly liquid investments with original contractual maturities of three months or less to be cash equivalents. Subsequent to the sale of its Canadian operations in 2019 and the sale of its Barnett Shale assets in 2020, management presented approximately $160 million and $190 million of Devon’s cash balance as of December 31, 2021 and 2020, respectively, as restricted to fund retained long-term obligations related to the disposed assets. These obligations primarily relate to abandoned Canadian firm transportation and office lease agreements. This cash is not legally restricted and can be used by Devon for other general corporate purposes.

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 records an allowance for credit losses based on a forward-looking “expected loss” model. Credit risk is assessed by class of account type, which includes cash equivalents and oil and gas, marketing and midstream, joint interest and other accounts receivable. These classes are further evaluated using a probability-weighted scenario assessment based on historical losses and a probability of future default. This evaluation is supported by an assessment of risk factors such as the age of the receivable, current macro-economic conditions, credit rating of the counterparty and our historical loss rate.

Property and Equipment

Oil and Gas Property and Equipment

Devon follows the successful efforts method of accounting for its oil and gas properties. Exploration costs, such as exploratory geological and geophysical costs, and costs associated with nonproductive exploratory wells, delay rentals and exploration overhead are charged against earnings as incurred. Costs of drilling successful exploratory wells along with acquisition costs and the costs of drilling development wells, including those that are unsuccessful, are capitalized. Devon groups its oil and gas properties with a common geological structure or stratigraphic condition (“common operating field”) for purposes of computing DD&A, assessing proved property impairments and accounting for asset dispositions.

Exploratory drilling costs and exploratory-type stratigraphic test wells are initially capitalized, or suspended, pending the determination of proved reserves. If proved reserves are found, drilling costs remain capitalized as proved properties. Costs of unsuccessful wells are charged to exploration expense. For exploratory wells that find reserves that cannot be classified as proved when drilling is completed, costs continue to be capitalized as suspended exploratory well costs if there have been sufficient reserves found to justify completion as a producing well and sufficient progress is being made in assessing the reserves and the economic and operating viability of the project. If management determines that future appraisal drilling or development activities are unlikely to occur, associated suspended exploratory well costs are expensed. In some instances, this determination may take longer than one year. Devon reviews the status of all suspended exploratory drilling costs quarterly.

Capitalized costs of proved oil and gas properties 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. Proved leasehold acquisition costs, less accumulated amortization, are depleted over total proved reserves, which includes proved undeveloped reserves.

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Capitalized costs of wells and related equipment and facilities, including estimated asset retirement costs, net of estimated salvage values and less accumulated amortization are depreciated over proved developed reserves associated with those capitalized costs. Depletion is calculated by applying the DD&A rate (amortizable base divided by beginning of period proved reserves) to current period production.

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 annually, or more frequently if events or changes in circumstances dictate that the carrying value of those assets may not be recoverable. Significant unproved properties are assessed individually.

Proved properties are assessed for impairment when events or changes in circumstances dictate that the carrying value of those assets may not be recoverable. Individual assets are grouped for impairment purposes based on a common operating field. If there is an indication the carrying amount of an asset may not be recovered, the asset is assessed for potential impairment by management through an established process. If, upon review, the sum of the undiscounted pre-tax reserve cash flows is less than the carrying value of the asset, the carrying value is written down to estimated fair value. Because there is usually a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined based on the present values of expected future cash flows using discount rates believed to be consistent with those used by principal market participants or by comparable transactions. The expected future cash flows used for impairment reviews and related fair value calculations are typically based on judgmental assessments of future production volumes, commodity prices, operating costs, and capital investment plans, considering all available information at the date of review.

Gains or losses are recorded for sales or dispositions of oil and gas properties which constitute an entire common operating field or which result in a significant alteration of the common operating field’s DD&A rate. These gains and losses are classified as asset dispositions in the accompanying statements of comprehensive earnings. Partial common operating field sales or dispositions deemed not to significantly alter the DD&A rates are generally accounted for as adjustments to capitalized costs with no gain or loss recognized.

Devon capitalizes interest costs incurred that are attributable to material unproved oil and gas properties and major development projects of oil and gas properties.

Other Property and Equipment

Costs for midstream assets that are in use are depreciated over the assets’ estimated useful lives, using the 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 corporate construction projects are also capitalized.

Asset Retirement Obligations

Devon recognizes liabilities for retirement obligations associated with tangible long-lived assets, such as producing well sites 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 also 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.

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Leases

Devon establishes right-of-use assets and lease liabilities on the balance sheet for all leases with a term longer than 12 months. Devon’s right-of-use operating lease assets are for certain leases related to real estate, drilling rigs and other equipment related to the exploration, development and production of oil and gas. Devon’s right-of-use financing lease assets are related to real estate. Certain of Devon’s lease agreements include variable payments based on usage or rental payments adjusted periodically for inflation. Devon’s lease agreements do not contain any material residual value guarantees or restrictive covenants.

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 a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, then a quantitative goodwill impairment test is performed. The quantitative goodwill impairment test requires the fair value of the reporting unit be compared to the carrying value of the reporting unit. If the fair value of the reporting unit is less than the carrying value, an impairment charge will be recognized for the amount by which the carrying amount exceeds the fair value. The fair value of the reporting unit is estimated based upon market capitalization, comparable transactions of similar companies and premiums paid.

Devon performed impairment tests of goodwill in the fourth quarters of 2021, 2020 and 2019. No impairment was required as a result of the annual tests in these time periods. Additionally, because the trading price of Devon’s common stock decreased 73% during the first quarter of 2020 in response to the COVID-19 pandemic, Devon performed a goodwill impairment test as of March 31, 2020. Devon concluded an impairment was not required as of March 31, 2020.

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 environmental remediation or restoration claims resulting from allegations of 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	•	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. Devon’s divested Canadian operations used the Canadian dollar as the functional currency. Prior to completing the divestiture in 2019, assets and liabilities of the Canadian operations were translated to U.S. dollars using the applicable exchange rate as of the end of a reporting period. Revenues, expenses and cash flow were translated using an average exchange rate during the reporting period.

The disposition of substantially all of Devon’s Canadian oil and gas assets and operations in 2019 resulted in Devon releasing its historical cumulative foreign currency translation adjustment of $1.2 billion from accumulated other comprehensive earnings to be included within the gain computation.

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.

2.	Acquisitions and Divestitures

WPX Merger

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. On the closing date of the Merger, each share of WPX common stock was automatically converted into the right to receive 0.5165 of a share of Devon common stock. No fractional shares of Devon’s common stock were issued in the Merger, and holders of WPX common stock instead received cash in lieu of fractional shares of Devon common stock, if any. Based on the closing price of Devon’s common stock on January 7, 2021, the total value of Devon common stock issued to holders of WPX common stock as part of this transaction was approximately $5.4 billion. The Merger was structured as a tax-free reorganization for U.S. federal income tax purposes.

Purchase Price Allocation

The transaction was accounted for using the acquisition method of accounting, with Devon being treated as the accounting acquirer. Under the acquisition method of accounting, the assets and liabilities of WPX and its subsidiaries were recorded at their respective fair values as of the date of completion of the Merger and added to Devon’s. Determining the fair value of the assets and liabilities of WPX requires judgment and certain assumptions to be made, the most significant of these being related to the valuation of WPX’s oil and gas properties. Significant judgments and assumptions include, among other things, estimates of reserve quantities, estimates of future commodity prices, expected development costs, lease operating costs, reserve risk adjustment factors and an estimate of an applicable market participant discount rate that reflects the risk of the underlying cash flow estimates. The inputs and assumptions related to the oil and gas properties were categorized as level 3 in the fair value hierarchy.

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table represents the final allocation of the total purchase price of WPX to the identifiable assets acquired and the liabilities assumed based on the fair values as of the acquisition date.

		Final Purchase
		Price Allocation
Consideration:
WPX Common Stock outstanding			561.2
Exchange Ratio			0.5165
Devon common stock issued			289.9
Devon closing price on January 7, 2021		$	18.57
Total common equity consideration			5,383
Share-based replacement awards			49
Total consideration		$	5,432
Assets acquired:
Cash, cash equivalents and restricted cash		$	344
Accounts receivable			425
Other current assets			49
Right-of-use assets			38
Proved oil and gas property and equipment			7,017
Unproved and properties under development			2,362
Other property and equipment			485
Investments			400
Other long-term assets			43
Total assets acquired		$	11,163
Liabilities assumed:
Accounts payable		$	346
Revenue and royalties payable			223
Other current liabilities			454
Debt			3,562
Lease liabilities			38
Asset retirement obligations			94
Deferred income taxes			249
Other long-term liabilities			765
Total liabilities assumed			5,731
Net assets acquired		$	5,432

WPX Revenues and Earnings

The following table represents WPX’s revenues and earnings included in Devon’s consolidated statements of comprehensive earnings subsequent to the closing date of the Merger.

		Year Ended December 31,
		2021
Total revenues		$	5,734
Net earnings		$	1,382

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Pro Forma Financial Information

Due to the Merger closing on January 7, 2021, all activity in 2021 except for the first six days of January is included in Devon’s consolidated statements of comprehensive earnings for the year ended December 31, 2021. The following unaudited pro forma financial information for the year ended December 31, 2020 is based on our historical consolidated financial statements adjusted to reflect as if the Merger had occurred on January 1, 2020. The information below reflects pro forma adjustments to conform WPX’s historical financial information to Devon’s financial statement presentation. The unaudited pro forma financial information is not necessarily indicative of what would have occurred if the Merger had been completed as of the beginning of the periods presented, nor is it indicative of future results.

		Year Ended December 31,
Continuing operations:		2020
Total revenues		$	7,261
Net loss		$	(3,438	)
Basic net loss per share		$	(5.16	)

Divestitures – Continuing Operations

In the first quarter of 2021, Devon completed the sale of non-core assets in the Rockies for proceeds of $9 million, net of purchase price adjustments, and recognized a $35 million gain related to the sale. Devon received $4 million in contingent earnout payments related to this transaction in the first quarter of 2022 with the potential for up to an additional $4 million in the future. The total estimated proved reserves associated with these divested assets was approximately 3 MMBoe. As of December 31, 2020, the associated assets and liabilities were classified as assets held for sale and included in other current assets and other current liabilities, respectively.

In 2019, Devon received proceeds of approximately $390 million and recognized a $48 million net gain on asset dispositions, primarily from sales of non-core assets in the Permian Basin. In aggregate, the total estimated proved reserves associated with these divested assets were approximately 54 MMBoe.

Divestitures – Discontinued Operations

In the fourth quarter of 2020, Devon completed the sale of its Barnett Shale assets to BKV for proceeds, net of purchase price adjustments, of $490 million. The agreement with BKV provides for contingent earnout payments to Devon with upside participation beginning at a $2.75 Henry Hub natural gas price or a $50 WTI oil price. The contingent payment period commenced on January 1, 2021 and has a term of four years. Devon received $65 million in contingent earnout payments related to this transaction in the first quarter of 2022 and could receive up to an additional $195 million in contingent earnout payments for the remaining performance periods depending on future commodity prices. The valuation of the future contingent earnout payments included within other current assets and other long-term assets in the December 31, 2021 consolidated balance sheet was $65 million and $111 million, respectively. During 2021, Devon recorded a $110 million increase to the fair value within asset dispositions on the consolidated statements of comprehensive earnings related to these payments. These values were derived utilizing a Monte Carlo valuation model and qualify as a level 3 fair value measurement. Additional information can be found in Note 19.

In the second quarter of 2019, Devon completed the sale of substantially all of its oil and gas assets and operations in Canada to Canadian Natural Resources Limited for proceeds, net of purchase price adjustments, of $2.6 billion ($3.4 billion Canadian dollars), and recognized a pre-tax gain of $223 million ($425 million, net of tax, primarily due to a significant deferred tax benefit) in 2019. Additional information can be found in Note 19.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

3.	Derivative Financial Instruments

Commodity Derivatives

As of December 31, 2021, 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 Swaptions								Price Collars
Period		Volume (Bbls/d)				Weighted Average Price ($/Bbl)				Volume (Bbls/d)				Weighted Average Price ($/Bbl)				Volume (Bbls/d)				Weighted Average Floor Price ($/Bbl)				Weighted Average Ceiling Price ($/Bbl)
Q1-Q4 2022			26,112			$	43.75				10,000			$	46.67				28,160			$	51.44			$	61.78
Q1-Q4 2023			—			$	—				—			$	—				1,110			$	60.58			$	70.58

		Oil Basis Swaps
Period		Index		Volume (Bbls/d)				Weighted Average Differential to WTI ($/Bbl)
Q1-Q4 2022		BRENT			1,000			$	(7.75	)
Q1-Q4 2022		NYMEX Roll			29,000			$	0.45

As of December 31, 2021, 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 and the end of month NYMEX index. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.

		Price Swaps (1)								Price Collars (2)
Period		Volume (MMBtu/d)				Weighted Average Price ($/MMBtu)				Volume (MMBtu/d)				Weighted Average Floor Price ($/MMBtu)				Weighted Average Ceiling Price ($/MMBtu)
Q1-Q4 2022			110,986			$	2.77				164,342			$	2.78			$	3.55
Q1-Q4 2023			4,959			$	3.65				23,000			$	3.32			$	4.63

	(1)	Related to the 2022 open positions, 10,986 MMBtu/d settle against the Inside FERC first of month Henry Hub index at an average price of $3.40 and 100,000 MMBtu/d settle against the end of month NYMEX index at an average price of $2.70. All 2023 open positions settle against the Inside FERC first of month Henry Hub index.

	(2)	Price Collars settle against the Inside FERC first of month Henry Hub.

		Natural Gas Basis Swaps
Period		Index		Volume (MMBtu/d)				Weighted Average Differential to Henry Hub ($/MMBtu)
Q1-Q4 2022		WAHA			70,000			$	(0.57	)
Q1-Q4 2023		WAHA			70,000			$	(0.51	)
Q1-Q4 2024		WAHA			40,000			$	(0.51	)

As of December 31, 2021, Devon did not have any open NGL derivative positions.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Financial Statement Presentation

All derivative financial instruments are recognized at their current fair value as either assets or liabilities in the consolidated balance sheets. Amounts related to contracts allowed to be netted upon payment subject to a master netting arrangement with the same counterparty are reported on a net basis in the consolidated balance sheets. The table below presents a summary of these positions as of December 31, 2021 and 2020.

	December 31, 2021												December 31, 2020
	Gross Fair Value				Amounts Netted				Net Fair Value				Gross Fair Value				Amounts Netted				Net Fair Value				Balance Sheet Classification
Commodity derivatives:
Short-term derivative asset	$	6			$	(4	)		$	2			$	23			$	(18	)		$	5			Other current assets
Long-term derivative asset		6				—				6				1				—				1			Other long-term assets
Short-term derivative liability		(579	)			4				(575	)			(161	)			18				(143	)		Other current liabilities
Long-term derivative liability		(2	)			—				(2	)			(5	)			—				(5	)		Other long-term liabilities
Total derivative liability	$	(569	)		$	—			$	(569	)		$	(142	)		$	—			$	(142	)

4.	Share-Based Compensation

In 2017, Devon’s stockholders approved the 2017 Plan. Subject to the terms of the 2017 Plan, awards may be made for a total of 33.5 million shares of Devon common stock, plus the number of shares available for issuance under the 2015 Plan (including shares subject to outstanding awards that were transferred to the 2017 Plan in accordance with its terms). The 2017 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, performance units and stock appreciation rights to eligible employees. The 2017 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 2017 Plan, options and stock appreciation rights represent one share and other awards represent 2.3 shares.

The vesting for certain share-based awards was accelerated in 2021, 2020 and 2019 in conjunction with the reduction of workforce activities described in Note 6 and is included in restructuring and transaction costs in the accompanying consolidated statements of comprehensive earnings.

The table below presents the share-based compensation expense included in Devon’s accompanying consolidated statements of comprehensive earnings.

		Year Ended December 31,
		2021				2020				2019
G&A		$	77			$	76			$	83
Exploration expenses			1				1				1
Restructuring and transaction costs			21				11				31
Total		$	99			$	88			$	115
Related income tax benefit		$	13			$	—			$	13

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.

												Performance-Based								Performance
		Restricted Stock Awards & Units										Restricted Stock Awards								Share Units
		Awards/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 12/31/20			5,316					$	25.82				44			$	44.70				1,994					$	31.89
Granted			7,727			(1	)	$	19.74				—			$	—				861					$	18.08
Vested			(5,188	)				$	22.29				(44	)		$	44.70				(754	)				$	37.40
Forfeited			(199	)				$	22.70				—			$	—				(25	)				$	36.04
Unvested at 12/31/21			7,656					$	22.15				—			$	—				2,076			(2	)	$	24.12

(1)	Due to the closing of the Merger, each share of WPX common stock was automatically converted into the right to receive 0.5165 of a share of Devon common stock. As a result, approximately 4.9 million awards related to the conversion of WPX equity awards to Devon equity awards.

(2)	A maximum of 4.2 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.

		2021				2020				2019
Restricted Stock Awards and Units		$	115			$	44			$	127
Performance-Based Restricted Stock Awards		$	1			$	2			$	4
Performance Share Units		$	15			$	10			$	4

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, 2021.

		Restricted Stock				Performance
		Awards/Units				Share Units
Unrecognized compensation cost		$	82			$	13
Weighted average period for recognition (years)			2.4				1.7

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. Dividends declared during the vesting period with respect to restricted stock awards and units will not be paid until the underlying award vests. 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, which is expensed over the applicable vesting period.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Performance Share Units

Performance share units are granted to certain members of Devon’s management and 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 peer companies over the specified three-year performance period. Subject to certain limits, 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.

		2021				2020				2019
Grant-date fair value		$	18.08			$	27.89			$28.43 - $29.53
Risk-free interest rate		0.18%				1.36%				2.48%
Volatility factor		67.8%				38.4%				39.1%
Contractual term (years)		2.89				2.89				2.89

5.	Asset Impairments

The following table presents a summary of Devon’s asset impairments. Unproved impairments shown below are included in exploration expenses in the consolidated statements of comprehensive earnings.

		Year Ended December 31,
		2021				2020				2019
Proved oil and gas assets		$	—			$	2,664			$	—
Other assets			—				29				—
Total asset impairments		$	—			$	2,693			$	—
Unproved impairments		$	4			$	152			$	18

Proved Oil and Gas and Other Asset Impairments

Reduced demand from the COVID-19 pandemic caused an unprecedented downturn in the price of oil. As a result, Devon reduced 2020 planned capital spend by 45% in March 2020. With materially lower commodity prices and reduced near-term investment, Devon assessed all of its oil and gas common operating fields for impairment as of March 31, 2020. For impairment determination, Devon historically utilized NYMEX forward strip prices for the first five years and applied internally generated price forecasts for subsequent years. In response to the COVID-19 pandemic, the NYMEX forward market became highly illiquid as evidenced by materially reduced trading volumes for periods beyond 2021. Therefore, Devon supplemented the NYMEX forward strip prices with price forecasts published by reputable investment banks and reservoir engineering firms to estimate future revenues as of March 31, 2020. For WTI, the range of pricing utilized in the first ten years of impairment reserve cash flows was approximately $23 to $50, and the weighted average of WTI pricing was approximately $39. For Henry Hub pricing utilized in the first ten years of impairment reserve cash flows, the range was approximately $1.29 - $2.63, with a weighted average Henry Hub price of approximately $1.85. To measure the indicated impairment in the first quarter of 2020, Devon used a market-based weighted-average cost of capital of 9% to discount the future net cash flows. These inputs are categorized as level 3 in the fair value hierarchy.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Devon recognized approximately $2.7 billion of proved asset impairments during the first quarter of 2020. These impairments related to the Anadarko Basin and Rockies fields in which the cost basis included acquisitions completed in 2016 and 2015, respectively, when commodity prices were much higher. During 2020, Devon recognized approximately $29 million of non-oil and gas asset impairments.

Unproved Impairments

Due to the downturn in the commodity price environment and reduced near-term investment as discussed above, Devon recognized $152 million of unproved impairments in 2020, primarily in the Rockies field. In 2021 and 2019, Devon allowed certain non-core acreage to expire without plans for development resulting in unproved impairments.

6.	Restructuring and Transaction Costs

The following table summarizes Devon’s restructuring and transaction costs.

		Year Ended December 31,
		2021				2020				2019
Restructuring costs		$	210			$	41			$	84
Transaction costs			48				8				—
Total costs		$	258			$	49			$	84

2021 Merger Integration

In conjunction with the Merger closing, Devon recognized $210 million of restructuring expense in 2021 related to employee severance and termination benefits, settlements and curtailments from defined retirement benefits and contract terminations. Of these expenses, $66 million related to non-cash charges which primarily consisted of settlements and curtailments of defined retirement benefits of $41 million and the accelerated vesting of share-based grants of $21 million. Additionally, in conjunction primarily with the Merger closing, Devon recognized $48 million of transaction costs primarily comprised of bank, legal and accounting fees.

Prior Years’ Restructurings

During 2020 and 2019, Devon sold assets, reduced its workforce and recognized restructuring expenses of $41 million and $84 million, respectively. Of these expenses recognized in 2020, $11 million and $9 million resulted from accelerated vesting of share-based grants and settlements and curtailments of defined retirement benefits, respectively. Of these expenses recognized in 2019, $31 million and $7 million resulted from accelerated vesting of share-based grants and settlements of defined retirement benefits, respectively.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes Devon’s restructuring liabilities.

		Other				Other
		Current				Long-term
		Liabilities				Liabilities				Total
Balance as of December 31, 2019		$	20			$	1			$	21
Changes related to prior years' restructurings			15				136				151
Balance as of December 31, 2020		$	35			$	137			$	172
Changes related to 2021 merger integration			11				—				11
Changes related to prior years' restructurings			(8	)			(26	)			(34	)
Balance as of December 31, 2021		$	38			$	111			$	149

7. Other, Net

The following table summarizes Devon’s other expenses presented in the accompanying consolidated comprehensive statement of earnings.

		Year Ended December 31,
		2021				2020				2019
Asset retirement obligation accretion		$	28			$	20			$	21
Severance and other non-income tax refunds			(39	)			(40	)			—
Other			(32	)			(14	)			(17	)
Total		$	(43	)		$	(34	)		$	4

During 2021 and 2020, Devon received severance and other non-income tax refunds of $39 million and $40 million, respectively, both of which related to prior periods.

8**.**	Income Taxes

Income Tax Expense (Benefit)

The following table presents Devon’s income tax components.

		Year Ended December 31,
		2021				2020				2019
Current income tax expense (benefit):
U.S. federal		$	10			$	(219	)		$	(3	)
Various states			9				—				(2	)
Canada			(3	)			—				—
Total current income tax expense (benefit)			16				(219	)			(5	)
Deferred income tax expense (benefit):
U.S. federal			18				(304	)			8
Various states			22				(24	)			(33	)
Canada			9				—				—
Total deferred income tax expense (benefit)			49				(328	)			(25	)
Total income tax expense (benefit)		$	65			$	(547	)		$	(30	)

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

		Year Ended December 31,
		2021				2020				2019
Earnings (loss) from continuing operations before income taxes		$	2,898			$	(3,090	)		$	(109	)
U.S. statutory income tax rate			21	%			21	%			21	%
Change in tax legislation			0	%			4	%			0	%
State income taxes			1	%			1	%			24	%
Change in unrecognized tax benefits			0	%			0	%			(13	%)
Audit settlements			0	%			0	%			15	%
Other			2	%			(1	%)			(19	%)
Deferred tax asset valuation allowance			(22	%)			(7	%)			0	%
Effective income tax rate			2	%			18	%			28	%

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 judgments 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.

2021

Prior to 2021, Devon maintained a valuation allowance against all U.S. federal deferred tax assets. Devon recognized $249 million of deferred tax liabilities to account for the Merger. The recognition of these deferred tax liabilities caused a decrease to Devon’s net deferred tax assets and a corresponding decrease to the valuation allowance Devon had recognized on its U.S. federal deferred tax assets.

Due to significant increases in commodity pricing and projections of future income, in the fourth quarter of 2021, Devon reassessed its evaluation of the realizability of deferred tax assets in future years and determined that a U.S. federal valuation allowance was no longer necessary. As such, Devon removed its remaining $84 million U.S. federal valuation allowance.

2020

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) became law on March 27, 2020. The CARES Act allows net operating losses generated in taxable years beginning after December 31, 2017 and before January 1, 2021 to be carried back five years to offset taxable income and recoup previously paid taxes. As a result, Devon carried net operating losses generated in 2019 and 2020 back to 2014 and 2015, respectively, and recorded a $220 million current income tax benefit, partially offset by a $107 million deferred income tax expense. The net $113 million income tax benefit recorded in 2020 is the result of the higher U.S. federal income tax rate in the carry back periods.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Throughout 2019, Devon maintained a valuation allowance against certain deferred tax assets, including certain tax credits and state net operating losses. Reduced demand from the COVID-19 pandemic caused an unprecedented downturn in the commodity price environment in 2020. As a result, Devon recorded significant impairments during the first quarter of 2020. Devon reassessed its position and recorded a 100% valuation allowance against all U.S. federal and state net deferred tax assets and maintained a full valuation allowance position throughout 2020.

2019

On June 27, 2019, Devon completed the sale of substantially all of its oil and gas assets and operations in Canada. Devon’s foreign earnings have not been considered indefinitely reinvested since the announcement of the plan to separate the assets in the first quarter of 2019. As the separation took the form of an asset sale and Devon retained certain non-operating obligations to be settled over time, Devon did not record a deferred tax asset or corresponding valuation allowance related to its Canadian investment in 2019.

Devon recorded tax impacts related to the Barnett Shale and Canadian assets in discontinued operations.

During 2019, Devon recorded a tax expense of $14 million related to unrecognized tax benefits, due to a change in tax positions taken in prior periods.

In the fourth quarter of 2019, Devon entered into an audit agreement with the Canada Revenue Agency. The Canadian income tax expense resulting from this agreement is reflected in discontinued operations. However, the agreement also resulted in a $16 million tax benefit to Devon’s U.S. continuing operations.

The “other” effect is composed of permanent differences, including stock compensation, for which the dollar amounts do not increase or decrease in relation to the change in pre-tax earnings. Generally, permanent adjustments, as well as the state income tax, have an insignificant impact on Devon’s effective income tax rate. However, these items had a more noticeable impact to the rate in 2019 due to the low relative net loss in the period.

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,
		2021				2020
Deferred tax assets:
Net operating loss carryforwards		$	1,075			$	238
Capital loss carryforwards			559				547
Accrued liabilities			262				125
Fair value of derivative financial instruments			129				33
Asset retirement obligation			109				94
Investment in subsidiary			—				441
Other, including tax credits			138				106
Total deferred tax assets before valuation allowance			2,272				1,584
Less: valuation allowance			(893	)			(1,355	)
Net deferred tax assets			1,379				229
Deferred tax liabilities:
Property and equipment			(1,630	)			(213	)
Other			(29	)			-
Total deferred tax liabilities			(1,659	)			(213	)
Net deferred tax asset (liability)		$	(280	)		$	16

At December 31, 2021, Devon has recognized $1.1 billion of deferred tax assets related to various net operating loss carryforwards available to offset future taxable income. Devon has $711 million of U.S. federal net operating loss carryforwards, of which $654 million expires between 2030 and 2037, and $57 million does not expire. Devon also has $364 million of state net operating loss carryforwards primarily expiring between 2022 and 2040, $303 million of which are covered by a valuation allowance.

Devon’s net operating losses acquired from WPX as a result of the Merger are subject to limitation pursuant to Section 382 of the Internal Revenue Code of 1986, which relates to limitations upon the 50% or greater change of ownership of an entity during any three-year period. The Company anticipates utilizing these net operating losses prior to their expiration.

Included in Devon’s capital loss carryforwards of $559 million are $552 million of Canadian capital losses fully covered by a valuation allowance. The remaining $7 million of Canadian deferred tax assets are included within other long-term assets in the December 31, 2021 consolidated balance sheet.

In the fourth quarter of 2020, Devon recorded a deferred tax asset representing the deductible outside basis difference in its investment in a consolidated subsidiary. In the second quarter of 2021, Devon realized this benefit, increasing its U.S. federal and state net operating loss deferred tax assets.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Unrecognized Tax Benefits

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

		December 31,
		2021				2020
		(Millions)
Balance at beginning of year		$	23			$	65
Tax positions taken in prior periods			5				(42	)
Assumed WPX tax positions taken in prior periods			8				—
Balance at end of year		$	36			$	23

Devon recognized $1 million of net interest and no penalties in 2021 and its unrecognized tax benefit balance included $1 million interest. At December 31, 2021 and December 31, 2020, there were $36 million and $23 million, respectively, of unrecognized tax benefits that if recognized would affect the annual effective tax rate. Due to regulatory changes during 2020, $42 million of Devon’s current unrecognized tax benefits were reclassified as deferred unrecognized tax benefits. Deferred unrecognized tax benefits of $42 million and $50 million, at December 31, 2021 and December 31, 2020, respectively, are not included in the table above but are accounted for in Devon’s deferred tax disclosure above.

Pursuant to the tax sharing agreement with The Williams Companies ("Williams") assumed in the Merger, Devon remains responsible for the tax from audit adjustments related to the WPX business for periods prior to WPX’s spin-off from Williams on December 31, 2011. The 2011 consolidated tax filing by Williams is currently being audited by the Internal Revenue Service (“IRS”) and is the only pre spin-off period for which the Company continues to have exposure to audit adjustments as part of Williams. The IRS has proposed an adjustment related to the WPX business for which a payment to Williams could be required. Devon has evaluated the issue and is in the process of protesting the adjustment within the normal appeals process of the IRS. In addition, the alternative minimum tax (“AMT”) credit carryforward that was allocated to WPX by Williams at the time of the spin-off could change due to audit adjustments unrelated to company business. Any such adjustments to this allocated AMT credit carryforward will not be known until the IRS examination is completed but is not expected to result in a cash settlement with Williams. However, if the Company has to amend filed returns whereby refunds of AMT credit carryforwards have been received, the Company may have to remit cash to the IRS. Through December 31, 2021, the Company has received approximately $83 million related to these AMT credit carryforwards.

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		2015-2021
Various U.S. states		2014-2021
Canada		2006-2021

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)

9**.**	Net Earnings (Loss) Per Share from Continuing Operations

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

		Year Ended December 31,
		2021				2020				2019
Net earnings (loss) from continuing operations:
Net earnings (loss) from continuing operations		$	2,813			$	(2,552	)		$	(81	)
Attributable to participating securities			(30	)			(4	)			(2	)
Basic and diluted earnings (loss) from continuing operations		$	2,783			$	(2,556	)		$	(83	)
Common shares:
Common shares outstanding - total			670				383				407
Attributable to participating securities			(7	)			(6	)			(6	)
Common shares outstanding - basic			663				377				401
Dilutive effect of potential common shares issuable			2				—				—
Common shares outstanding - diluted			665				377				401
Net earnings (loss) per share from continuing operations:
Basic		$	4.20			$	(6.78	)		$	(0.21	)
Diluted		$	4.19			$	(6.78	)		$	(0.21	)

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

10**.**	Other Comprehensive Earnings (Loss)

Components of other comprehensive earnings (loss) consist of the following:

		Year Ended December 31,
		2021				2020				2019
Foreign currency translation:
Beginning accumulated foreign currency translation and other		$	—			$	—			$	1,159
Change in cumulative translation adjustment			—				—				78
Release of Canadian cumulative translation adjustment (1)			—				—				(1,237	)
Ending accumulated foreign currency translation and other			—				—				—
Pension and postretirement benefit plans:
Beginning accumulated pension and postretirement benefits			(127	)			(119	)			(132	)
Net actuarial loss and prior service cost arising in current year			(35	)			(34	)			(10	)
Recognition of net actuarial loss and prior service cost in earnings (2)			3				7				6
Curtailment and settlement of pension benefits (3)			19				16				21
Other (4)			7				—				—
Income tax benefit (expense)			1				3				(4	)
Accumulated other comprehensive loss, net of tax		$	(132	)		$	(127	)		$	(119	)

(1)	In conjunction with the sale of substantially all of its oil and gas assets and operations in Canada, Devon released the cumulative translation adjustment as part of its gain on the disposition of its Canadian business. See Note 19 for additional details.

(2)	These accumulated other comprehensive earnings components are included in the computation of net periodic benefit cost, which is a component of other, net in the accompanying consolidated statements of comprehensive earnings. See Note 17 for additional details.

(3)	In 2021, the Merger triggered settlement payments to certain plan participants, and the expense associated with this settlement is recognized as a component of restructuring and transaction costs in the accompanying consolidated statements of comprehensive earnings.

(4)	Other includes a remeasurement of the pension obligation due to the Merger, which was partially offset by a change in mortality assumption.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

11.	Supplemental Information to Statements of Cash Flows

		Year Ended December 31,
		2021				2020				2019
Changes in assets and liabilities, net:
Accounts receivable		$	(526	)		$	231			$	(3	)
Income tax receivable			91				(127	)			(22	)
Other current assets			(61	)			30				15
Other long-term assets			12				(9	)			17
Accounts payable and revenues and royalties payable			539				(109	)			(46	)
Other current liabilities			(18	)			(68	)			(66	)
Other long-term liabilities			(153	)			(43	)			23
Total		$	(116	)		$	(95	)		$	(82	)
Supplementary cash flow data - total operations:
Interest paid		$	404			$	259			$	308
Income taxes paid (refunded)		$	(116	)		$	171			$	6

As of December 31, 2021, Devon had approximately $205 million of accrued capital expenditures included in total property and equipment, net and accounts payable on the consolidated balance sheets. As of December 31, 2020 (pre-merger), Devon had approximately $100 million of accrued capital expenditures in total property and equipment, net and accounts payable on the consolidated balance sheets. As of January 7, 2021 (date of Merger closing), Devon assumed approximately $150 million of accrued capital expenditures included in accounts payable.

Income taxes received during 2021 is primarily comprised of refunds related to the CARES Act. Devon’s remaining income taxes receivable as of December 31, 2021 includes an additional $59 million related to the CARES Act which will be applied to reduce future income taxes, and $24 million unrelated to the CARES Act which was received in the first quarter of 2022*.*

12.	Accounts Receivable

Components of accounts receivable include the following:

		December 31, 2021				December 31, 2020
Oil, gas and NGL sales		$	984			$	335
Joint interest billings			158				57
Marketing and midstream revenues			370				195
Other			38				25
Gross accounts receivable			1,550				612
Allowance for doubtful accounts			(7	)			(11	)
Net accounts receivable		$	1,543			$	601

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

13.Property, Plant and Equipment

Capitalized Costs

The following table reflects the aggregate capitalized costs related to Devon’s oil and gas and non-oil and gas activities.

		December 31, 2021				December 31, 2020
Property and equipment:
Proved		$	38,051			$	27,589
Unproved and properties under development			1,081				392
Total oil and gas			39,132				27,981
Less accumulated DD&A			(25,596	)			(23,545	)
Oil and gas property and equipment, net			13,536				4,436
Other property and equipment			2,139				1,737
Less accumulated DD&A			(667	)			(780	)
Other property and equipment, net (1)			1,472				957
Property and equipment, net		$	15,008			$	5,393

(1)	$111 million and $102 million related to CDM in 2021 and 2020, respectively.

Suspended Exploratory Well Costs

The following summarizes the changes in suspended exploratory well costs for the three years ended December 31, 2021.

		Year Ended December 31,
		2021			2020				2019
Beginning balance		$	18		$	82			$	98
Acquired WPX costs			34			—				—
Additions pending determination of proved reserves			206			148				278
Charges to exploration expense			(2	)		(3	)			—
Reclassifications to proved properties			(190	)		(209	)			(294	)
Ending balance		$	66		$	18			$	82

Devon had no projects with suspended exploratory well costs capitalized for a period greater than one year since the completion of drilling as of December 31, 2021, 2020 and 2019.

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 unless otherwise noted in the table below.

		December 31, 2021				December 31, 2020
8.25% due August 1, 2023 (1)		$	242			$	—
5.25% due September 15, 2024 (1)			472				—
5.85% due December 15, 2025			485				485
7.50% due September 15, 2027 (2)			73				73
5.25% due October 15, 2027 (1)			390				—
5.875% due June 15, 2028 (1)			325				—
4.50% due January 15, 2030 (1)			585				—
7.875% due September 30, 2031			675				675
7.95% due April 15, 2032			366				366
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 premium (discount) on debentures and notes			149				(20	)
Debt issuance costs			(30	)			(31	)
Total long-term debt		$	6,482			$	4,298

	(1)	These instruments were assumed by Devon in January 2021 in conjunction with the Merger. Subsequent to debt retirements and the obligor exchange transaction completed during 2021, approximately $51 million of these instruments remain the unsecured and unsubordinated obligation of WPX, a wholly-owned subsidiary of Devon.

	(2)	This instrument was assumed by Devon in April 2003 in conjunction with the merger with Ocean Energy. The fair value and effective rate of this note at the time assumed was $169 million and 6.5%, respectively. This instrument is the unsecured and unsubordinated obligation of Devon OEI Operating, L.L.C. and is guaranteed by Devon Energy Production Company, L.P. Each of these entities is a wholly-owned subsidiary of Devon.

Debt maturities as of December 31, 2021, excluding debt issuance costs, premiums and discounts, are as follows:

		Total
2022		$	—
2023			242
2024			472
2025			485
2026			—
Thereafter			5,164
Total		$	6,363

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following schedule includes the summary of the WPX debt Devon assumed upon closing of the Merger on January 7, 2021.

		Face Value				Fair Value				Optional Redemption(1)
6.00% due January 15, 2022		$	43			$	44
8.25% due August 1, 2023			242				281			June 1, 2023
5.25% due September 15, 2024			472				530			June 15, 2024
5.75% due June 1, 2026			500				529			June 1, 2021
5.25% due October 15, 2027			600				646			October 15, 2022
5.875% due June 15, 2028			500				554			June 15, 2023
4.50% due January 15, 2030			900				978			January 15, 2025
		$	3,257			$	3,562

	(1)	At any time prior to these dates, Devon has or had the option to redeem (i) some or all of the notes at a specified "make whole" premium and (ii) a portion of certain of the notes at applicable redemption prices, in each case as described in the indenture documents governing the notes to be redeemed. On or after these dates, Devon has or had the option to redeem the notes, in whole or in part, at the applicable redemption prices set forth in the indenture documents, plus accrued and unpaid interest thereon to the redemption date as more fully described in such documents.

Retirement of Senior Notes

During 2021, Devon redeemed $43 million of the 6.00% senior notes due 2022, $175 million of the 5.875% senior notes due 2028, $315 million of the 4.50% senior notes due 2030, $210 million of the 5.25% senior notes due 2027 and $500 million of the 5.75% senior notes due 2026. In 2021, Devon recognized $30 million of gains on early retirement of debt, consisting of $89 million of non-cash premium accelerations, partially offset by $59 million of cash retirement costs. The gain on early retirement is included in financing costs, net in the consolidated statements of comprehensive earnings.

Credit Lines

Devon has a $3.0 billion Senior Credit Facility. As of December 31, 2021, Devon had $2 million in outstanding letters of credit under the Senior Credit Facility. There were no borrowings under the Senior Credit Facility as of December 31, 2021.

Devon entered into an amendment and extension agreement on December 13, 2019 to, among other things, (i) effect the extension of the maturity date of the Senior Credit Facility from October 5, 2023 to October 5, 2024 with respect to the consenting lenders and (ii) modify the maximum number of maturity extension requests during the term of the Senior Credit Facility from two to three. As a result of this amendment, Devon has the option to extend the October 5, 2024 maturity date by two additional one-year periods subject to lender consent, and the maximum borrowing capacity of the Senior Credit Facility becomes $2.8 billion after October 5, 2023. 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 $6 million.

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. For example, total capitalization is

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

adjusted to add back certain noncash financial write-downs, such as asset impairments. As of December 31, 2021, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 25%.

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. As of December 31, 2021, Devon had no outstanding commercial paper borrowings.

Net Financing Costs

The following schedule includes the components of net financing costs.

		Year Ended December 31,
		2021				2020				2019
Interest based on debt outstanding		$	388			$	259			$	260
Gain on early retirement of debt			(30	)			—				—
Interest income			(2	)			(12	)			(33	)
Other			(27	)			23				23
Total net financing costs		$	329			$	270			$	250

15.	Leases

Devon’s right-of-use operating lease assets are for certain leases related to real estate, drilling rigs and other equipment related to the exploration, development and production of oil and gas. Devon’s right-of-use financing lease assets are related to real estate. Certain of Devon’s lease agreements include variable payments based on usage or rental payments adjusted periodically for inflation. Devon’s lease agreements do not contain any material residual value guarantees or restrictive covenants.

The following table presents Devon’s right-of-use assets and lease liabilities.

		December 31, 2021												December 31, 2020
		Finance				Operating				Total				Finance				Operating				Total
Right-of-use assets		$	211			$	24			$	235			$	220			$	3			$	223
Lease liabilities:
Current lease liabilities (1)		$	8			$	18			$	26			$	8			$	1			$	9
Long-term lease liabilities			247				5				252				244				2				246
Total lease liabilities		$	255			$	23			$	278			$	252			$	3			$	255

(1)	Current lease liabilities are included in other current liabilities on the consolidated balance sheets.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents Devon’s total lease cost.

			Year Ended December 31,
			2021				2020				2019
Operating lease cost	Property and equipment; LOE; G&A		$	25			$	10			$	40
Short-term lease cost (1)	Property and equipment; LOE; G&A			89				45				84
Financing lease cost:
Amortization of right-of-use assets	DD&A			8				8				8
Interest on lease liabilities	Net financing costs			11				11				10
Variable lease cost	G&A			(4	)			—				2
Lease income	G&A			(8	)			(8	)			(5	)
Net lease cost			$	121			$	66			$	139

(1)	Short-term lease cost excludes leases with terms of one month or less.

The following table presents Devon’s additional lease information.

		Year Ended December 31,
		2021								2020
		Finance				Operating				Finance				Operating
Cash outflows for lease liabilities:
Operating cash flows		$	7			$	15			$	7			$	2
Investing cash flows		$	—			$	9			$	—			$	8
Right-of-use assets obtained in exchange for new lease liabilities		$	—			$	7			$	—			$	—
Weighted average remaining lease term (years)			6.0				1.5				7.0				4.1
Weighted average discount rate			4.2	%			1.3	%			4.2	%			2.9	%

The following table presents Devon’s maturity analysis as of December 31, 2021 for leases expiring in each of the next 5 years and thereafter.

		Finance				Operating				Total
2022		$	8			$	17			$	25
2023			8				4				12
2024			8				1				9
2025			8				1				9
2026			8				—				8
Thereafter			281				—				281
Total lease payments			321				23				344
Less: interest			(66	)			—				(66	)
Present value of lease liabilities		$	255			$	23			$	278

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Devon rents or subleases certain real estate to third parties. The following table presents Devon’s expected lease income as of December 31, 2021 for each of the next 5 years and thereafter.

		Operating
		Lease Income
2022		$	8
2023			9
2024			10
2025			10
2026			10
Thereafter			58
Total		$	105

16.	Asset Retirement Obligations

The following table presents the changes in asset retirement obligations.

		Year Ended December 31,
		2021				2020
Asset retirement obligations as of beginning of period		$	369			$	398
Assumed WPX obligations			98				—
Liabilities incurred			36				18
Liabilities settled and divested			(57	)			(29	)
Liabilities reclassified as held for sale			—				(42	)
Revision of estimated obligation			11				4
Accretion expense on discounted obligation			28				20
Asset retirement obligations as of end of period			485				369
Less current portion			17				11
Asset retirement obligations, long-term		$	468			$	358

17.	Retirement Plans

Defined Contribution Plans

Devon sponsors defined contribution plans covering its employees. Such plans include its 401(k) plan and enhanced contribution plan. Devon makes matching contributions and additional retirement contributions, with the matching contributions being primarily based upon percentages of annual compensation and years of service. In addition, each plan is subject to regulatory limitations by the U.S. government. Devon contributed $33 million, $33 million and $34 million to these plans in 2021, 2020 and 2019, respectively.

Defined Benefit Plans

Devon has various non-contributory defined benefit pension plans, including qualified plans and nonqualified plans covering eligible employees and former employees meeting certain age and service requirements. Benefits under the defined benefit plans have been closed to new employees and effective, as of December 31, 2020, Devon’s benefits committee approved a freeze of all future benefit accruals under the Plans.

Benefits are primarily funded from assets held in the plans’ trusts.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Devon’s investment objective for its plans’ assets is to achieve stability of the funded status while providing long-term growth of invested capital and income to ensure benefit payments can be funded when required. Devon has established certain investment strategies, including target allocation percentages and permitted and prohibited investments, designed to mitigate risks inherent with investing. Devon’s target allocations for its plan assets are 90% fixed income and 10% equity. See the following discussion for Devon’s pension assets by asset class.

Fixed-income – 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 and were $590 million and $617 million at December 31, 2021 and 2020, respectively.

Equity – Devon’s equity securities include commingled global equity funds that invest in large, mid and small capitalization stocks across the world’s developed and emerging markets and international large cap equity securities. These equity securities can be sold on demand but are not actively traded. The fair values of these securities are based upon the net asset values provided by the investment managers and were $67 million and $110 million at December 31, 2021 and 2020, respectively.

Other – Devon’s other securities include short-term investment funds that invest both long and short term using a variety of investment strategies. The fair value of these securities is based upon the net asset values provided by investment managers and were $14 million and $18 million at December 31, 2021 and 2020, respectively.

Defined Postretirement Plans

Devon also has defined benefit postretirement plans that provide benefits for substantially all qualifying retirees. 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 summarizes the benefit obligations, assets, funded status and balance sheet impacts associated with Devon’s defined pension and postretirement plans. Devon’s benefit obligations and plan assets are measured each year as of December 31. The accumulated benefit obligation for pension plans approximated the projected benefit obligation at December 31, 2021 and 2020.

		Pension Benefits								Postretirement Benefits
		2021				2020				2021				2020
Change in benefit obligation:
Benefit obligation at beginning of year		$	981			$	924			$	13			$	14
Service cost			—				5				—				—
Interest cost			18				25				—				—
Actuarial loss (gain)			(18	)			116				(1	)			(1	)
Plan amendments			—				2				1				—
Plan curtailments			22				(14	)			—				1
Plan settlements			(73	)			(28	)			—				—
Participant contributions			—				—				2				2
Benefits paid			(50	)			(49	)			(3	)			(3	)
Benefit obligation at end of year			880				981				12				13
Change in plan assets:
Fair value of plan assets at beginning of year			745				694				—				—
Actual return on plan assets			(11	)			114				—				—
Employer contributions			60				14				1				1
Participant contributions			—				—				2				2
Plan settlements			(73	)			(28	)			—				—
Benefits paid			(50	)			(49	)			(3	)			(3	)
Fair value of plan assets at end of year			671				745				—				—
Funded status at end of year		$	(209	)		$	(236	)		$	(12	)		$	(13	)
Amounts recognized in balance sheet:
Other long-term assets		$	6			$	10			$	—			$	—
Other current liabilities			(14	)			(14	)			(2	)			(2	)
Other long-term liabilities			(201	)			(232	)			(9	)			(11	)
Net amount		$	(209	)		$	(236	)		$	(11	)		$	(13	)
Amounts recognized in accumulated other comprehensive earnings:
Net actuarial loss (gain)		$	206			$	201			$	(12	)		$	(12	)
Prior service cost			—				—				1				—
Total		$	206			$	201			$	(11	)		$	(12	)

During 2021, non-qualified plans experienced curtailments due to the Merger and both qualified and non-qualified plans experienced a partial plan settlement due to continued lump sum payments. During 2020, Devon’s qualified plan experienced a partial plan settlement due to ongoing lump sum payments. Devon’s qualified and non-qualified plans experienced curtailments due to plan freezes and reductions in force in 2020.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Certain of Devon’s pension plans have a combined projected benefit obligation or accumulated benefit obligation in excess of plan assets at December 31, 2021 and December 31, 2020, as presented in the table below.

		December 31,
		2021				2020
Projected benefit obligation		$	215			$	246
Accumulated benefit obligation		$	215			$	246
Fair value of plan assets		$	—			$	—

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

		Pension Benefits												Postretirement Benefits
		2021				2020				2019				2021				2020				2019
Net periodic benefit cost:
Service cost		$	—			$	5			$	7			$	—			$	—			$	—
Interest cost			18				25				32				—				—				—
Expected return on plan assets			(34	)			(41	)			(38	)			—				—				—
Recognition of net actuarial loss (gain) (1)			4				5				7				(1	)			—				(1	)
Recognition of prior service cost (1)			—				3				1				—				(1	)			(1	)
Total net periodic benefit cost (2)			(12	)			(3	)			9				(1	)			(1	)			(2	)
Other comprehensive loss (earnings):
Actuarial loss (gain) arising in current year			28				27				7				(1	)			(1	)			(2	)
Prior service cost arising in current year			—				2				3				1				—				—
Recognition of net actuarial gain (loss), including settlement expense, in net periodic benefit cost (3)			(23	)			(9	)			(22	)			1				1				1
Recognition of prior service cost, including curtailment, in net periodic benefit cost (3)			—				(7	)			(2	)			—				1				1
Total other comprehensive loss (earnings)			5				13				(14	)			1				1				—
Total		$	(7	)		$	10			$	(5	)		$	—			$	—			$	(2	)

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

(2)	The service cost component of net periodic benefit cost is included in G&A expense and the remaining components of net periodic benefit costs are included in other, net in the accompanying consolidated statements of comprehensive earnings.

(3)	These amounts include restructuring costs that were reclassified out of other comprehensive earnings in 2021, 2020 and 2019. See Note 6 for further discussion.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Assumptions

		Pension Benefits												Postretirement Benefits
		2021				2020				2019				2021				2020				2019
Assumptions to determine benefit obligations:
Discount rate		2.71%				2.38%				3.14%				2.34%				1.82%				2.81%
Rate of compensation increase		N/A				2.50%				2.50%				N/A				N/A				N/A
Assumptions to determine net periodic benefit cost:
Discount rate - service cost		N/A				3.47%				3.74%				2.51%				3.25%				3.99%
Discount rate - interest cost		2.11%				2.75%				3.36%				1.01%				2.31%				3.21%
Rate of compensation increase		N/A				2.50%				2.50%				N/A				N/A				N/A
Expected return on plan assets		5.00%				6.00%				5.75%				N/A				N/A				N/A

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

Expected return on plan assets – This was determined by evaluating input from external consultants and economists, as well as long-term inflation assumptions and consideration of target allocation of investment types.

Mortality rate – Devon utilized the Society of Actuaries produced mortality tables.

Other assumptions – For measurement of the 2021 benefit obligation for the other postretirement medical plans, a 6.8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2022. The rate was assumed to decrease annually to an ultimate rate of 5% in the year 2029 and remain at that level thereafter.

Expected Cash Flows

Devon expects benefit plan payments to average approximately $54 million a year for the next five years and $254 million total for the five years thereafter. Of these payments to be paid in 2022, $16 million is expected to be funded from Devon’s available cash, cash equivalents and other assets.

18.	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.

Share Repurchase Program

Devon announced a share repurchase program initially in 2018 that was later expanded to $5.0 billion with a December 31, 2019 expiration date. In December 2019, Devon announced a share repurchase program of $1.0 billion with a December 31, 2020 expiration date. In November 2021, Devon announced a new share repurchase program of $1.0 billion with a December 31, 2022 expiration date. In February 2022, the Board of Directors authorized an expansion of the share repurchase program to $1.6 billion.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The table below provides information regarding purchases of Devon’s common stock that were made under the respective share repurchase programs (shares in thousands).

$5.0 Billion Plan (Closed)		Total Number of Shares Purchased				Dollar Value of Shares Purchased				Average Price Paid per Share
2018			78,149			$	2,978			$	38.11
2019			68,625				1,827				26.62
Total			146,774			$	4,805			$	32.74
$1.0 Billion Plan (Closed)
2020			2,243			$	38			$	16.85
Total			2,243			$	38			$	16.85
$1.6 Billion Plan (Open)
2021			13,983			$	589			$	42.15
Total			13,983			$	589			$	42.15

Dividends

Upon completion of the Merger, Devon continued its commitment to pay a quarterly dividend at a fixed rate and instituted a variable quarterly dividend, which is dependent on quarterly cash flows, among other factors. The following table summarizes the dividends Devon has paid on its common stock in 2021, 2020 and 2019, respectively.

	Fixed				Variable/Special				Total				Rate Per Share
2021:
First quarter	$	76			$	127			$	203			$	0.30
Second quarter		75				154				229			$	0.34
Third quarter		74				255				329			$	0.49
Fourth quarter		73				481				554			$	0.84
Total year-to-date	$	298			$	1,017			$	1,315
2020:
First quarter	$	34			$	—			$	34			$	0.09
Second quarter		42				—				42			$	0.11
Third quarter		43				—				43			$	0.11
Fourth quarter		41				97				138			$	0.37
Total year-to-date	$	160			$	97			$	257
2019:
First quarter	$	34			$	—			$	34			$	0.08
Second quarter		37				—				37			$	0.09
Third quarter		35				—				35			$	0.09
Fourth quarter		34				—				34			$	0.09
Total year-to-date	$	140			$	—			$	140

In February 2022, Devon announced a cash dividend in the amount of $1.00 per share payable in the first quarter of 2022. The dividend consists of a fixed quarterly dividend in the amount of approximately $106 million (or $0.16 per share) and a variable quarterly dividend in the amount of approximately $557 million (or $0.84 per share).

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Devon raised its fixed quarterly dividend by 45%, to $0.16 per share, beginning in the first quarter of 2022. Devon also increased its fixed quarterly dividend rate in the second quarter of 2020 and 2019 from $0.09 to $0.11 and from $0.08 to $0.09, respectively.

In the fourth quarter of 2020, Devon paid a $97 million (or $0.26 per share) special dividend.

Noncontrolling Interests

The noncontrolling interests’ share of CDM’s net earnings and the contributions from and distributions to the noncontrolling interests are presented as components of equity.

19.	Discontinued Operations

Barnett Shale

On December 17, 2019, Devon announced that it had entered into an agreement to sell its Barnett Shale assets to BKV. Devon concluded that the transaction was a strategic shift and met the requirements of assets held for sale and discontinued operations upon the authorization to enter the agreement by Devon’s Board of Directors. As part of its assessment, Devon effectively exited its last natural gas focused asset and the transaction resulted in a material reduction to total assets, revenues, net earnings and total proved reserves. Estimated proved reserves associated with Devon’s Barnett Shale assets were approximately 45% of the total proved reserves. As a result, Devon classified the results of operations and cash flows related to its Barnett Shale assets as discontinued operations on its consolidated financial statements.

In conjunction with the divestiture agreement, which was amended in April 2020, Devon recognized a $182 million and $748 million asset impairment related to the Barnett Shale assets in 2020 and 2019, respectively, primarily due to the difference between the net carrying value and the purchase price, net of estimated customary purchase price adjustments, which qualifies as a level 2 fair value measurement. Approximately $88 million of the U.S. reporting unit goodwill was allocated to the Barnett Shale assets. Additionally, Devon ceased depreciation for all plant, property and equipment classified as assets held for sale on the date the sales agreement was approved by the Board of Directors.

On October 1, 2020, Devon completed the sale of its Barnett Shale assets to BKV for proceeds, net of purchase price adjustments, of $490 million. Additionally, the agreement provides for contingent earnout payments to Devon of up to $260 million based upon future commodity prices, with upside participation beginning at a $2.75 Henry Hub natural gas price or a $50 WTI oil price. The contingent payment period commenced on January 1, 2021 and has a term of four years. Devon received $65 million in contingent earnout payments related to this transaction in the first quarter of 2022 and could receive up to an additional $195 million in contingent earnout payments for the remaining performance periods depending on future commodity prices. The valuation of the future contingent earnout payments included within other current assets and other long-term assets in the December 31, 2021 balance sheet was $65 million and $111 million, respectively. During 2021, Devon recorded a $110 million increase to the fair value within asset dispositions on the consolidated statements of comprehensive earnings related to these payments. These values were derived utilizing a Monte Carlo valuation model and qualifies as a level 3 fair value measurement.

Canada

In the second quarter of 2019, Devon completed the sale of its Canadian business for $2.6 billion ($3.4 billion Canadian dollars), net of purchase price adjustments, and recognized a pre-tax gain of $223 million ($425 million net of tax, primarily due to a significant deferred tax benefit) in 2019. Current (cash) income and withholding taxes

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

associated with the Canadian business were approximately $175 million and were paid in the first half of 2020. Devon concluded that the transaction was a strategic shift and met the requirements of assets held for sale and discontinued operations based upon the following: 1) Devon was exiting its entire heavy oil and Canadian operations; 2) Devon’s Canadian operations were a separate reportable segment and a component of Devon’s business; and 3) the transaction resulted in a material reduction in total assets, revenues, net earnings and total proved reserves. The disposition of substantially all of Devon’s Canadian oil and gas assets resulted in Devon releasing its historical cumulative foreign currency translation adjustment of $1.2 billion from accumulated other comprehensive earnings to be included within the gain computation. The historical cumulative foreign currency translation portion of the gain is not taxable.

During the third quarter of 2019, Devon utilized a portion of the sales proceeds to early retire $500 million of the 4.00% senior notes due July 15, 2021 and $1.0 billion of the 3.25% senior notes due May 15, 2022. Devon recognized a charge on the early retirement of these notes consisting of $52 million in cash retirement costs and $6 million of noncash charges.

The following table presents the amounts reported in the consolidated statements of comprehensive earnings as discontinued operations.

Year ended December 31,		Barnett Shale				Canada				Total
2020
Oil, gas and NGL sales		$	263			$	—			$	263
Total revenues			263				—				263
Production expenses			214				—				214
Asset impairments			182				—				182
Asset dispositions			(4	)			5				1
General and administrative expenses			—				3				3
Financing costs, net			—				(3	)			(3	)
Restructuring and transaction costs			—				9				9
Other expenses			10				(1	)			9
Total expenses			402				13				415
Loss from discontinued operations before income taxes			(139	)			(13	)			(152	)
Income tax benefit			(11	)			(13	)			(24	)
Loss from discontinued operations, net of tax		$	(128	)		$	—			$	(128	)
2019
Oil, gas and NGL sales		$	486			$	741			$	1,227
Oil, gas and NGL derivatives			—				(113	)			(113	)
Marketing and midstream revenues			—				38				38
Total revenues			486				666				1,152
Production expenses			306				293				599
Exploration expenses			—				13				13
Marketing and midstream expenses			—				18				18
Depreciation, depletion and amortization			77				128				205
Asset impairments			748				37				785
Asset dispositions			1				(223	)			(222	)
General and administrative expenses			—				34				34
Financing costs, net			—				87				87
Restructuring and transaction costs			—				248				248
Other expenses			11				6				17
Total expenses			1,143				641				1,784
Earnings (loss) from discontinued operations before income taxes			(657	)			25				(632	)
Income tax benefit			(142	)			(216	)			(358	)
Net earnings (loss) from discontinued operations, net of tax		$	(515	)		$	241			$	(274	)

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

20**.**	Commitments and Contingencies

Devon is party to various legal actions arising in connection with its 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 likely 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 oil and natural gas producers and related parties, including Devon, have been named in various lawsuits alleging royalty underpayments. Devon is currently named as a defendant in a number of such lawsuits, including some lawsuits in which the plaintiffs seek to certify classes of similarly situated plaintiffs. Among the allegations typically asserted in these suits are claims that Devon 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 royalty audits and is subject to related contracts and regulatory controls in the ordinary course of business, some that may lead to additional royalty claims. As of December 31, 2021, Devon does not currently believe that it is subject to material exposure with respect to such royalty matters.

Environmental and Climate Change Matters

Devon’s business is subject to numerous federal, state, tribal and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal fines and penalties, as well as remediation costs. Although Devon believes that it is in substantial compliance with applicable environmental laws and regulations and that continued compliance with existing requirements will not have a material adverse impact on its business, there can be no assurance that this will continue in the future.

Beginning in 2013, various parishes in Louisiana filed suit against numerous oil and gas companies, including Devon, alleging that the companies’ operations and activities in certain fields violated the State and Local Coastal Resource Management Act of 1978, as amended, and caused substantial environmental contamination, subsidence and other environmental damages to land and water bodies located in the coastal zone of Louisiana. The plaintiffs’ claims against Devon relate primarily to the operations of several of Devon’s corporate predecessors. The plaintiffs seek, among other things, payment of the costs necessary to clear, re-vegetate and otherwise restore the allegedly impacted areas. Although Devon cannot predict the ultimate outcome of these matters, Devon intends to vigorously defend against these claims.

The State of Delaware and various municipalities and other governmental and private parties in California have filed legal proceedings against numerous oil and gas companies, including Devon, seeking relief to abate alleged impacts of climate change. These proceedings include far-reaching claims for monetary damages and injunctive relief. Although Devon cannot predict the ultimate outcome of these matters, Devon intends to vigorously defend against the proceedings.

Other Indemnifications and Legacy Matters

Pursuant to various sale agreements relating to divested businesses and assets, Devon has indemnified various purchasers against liabilities that they may incur with respect to the businesses and assets acquired from Devon. Additionally, federal, state and other laws in areas of former operations may require previous operators

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(including corporate successors of previous operators) to perform or make payments in certain circumstances where the current operator may no longer be able to satisfy the applicable obligation. Such obligations may include plugging and abandoning wells, removing production facilities or performing requirements under surface agreements in existence at the time of disposition.

In November 2020, the Department of the Interior, Bureau of Safety and Environmental Enforcement, ordered several oil and gas operators, including Devon, to perform decommissioning and reclamation activities related to two California offshore oil and gas production platforms and related facilities. The current operator and owner of the platforms contends that it does not have the financial ability to perform these obligations and relinquished the related federal lease in October 2020. In response to the apparent insolvency of the current operator, the government has ordered the former operators and alleged former lease record title owners to decommission the platforms and related facilities. The government contends that an alleged corporate predecessor of Devon owned a partial interest in the subject lease and platforms. Although Devon cannot predict the ultimate outcome of this matter, Devon denies any obligation to decommission the subject platforms, has appealed the order, and believes any decommissioning obligation related to the subject platforms should be assumed by others.

Commitments

The following table presents Devon’s commitments that have initial or remaining noncancelable terms in excess of one year as of December 31, 2021.

Year Ending December 31,		Drilling and Facility Obligations				Operational Agreements				Office and Equipment Leases and Other
2022		$	182			$	474			$	51
2023			27				418				46
2024			19				395				28
2025			12				327				25
2026			12				279				22
Thereafter			27				678				363
Total		$	279			$	2,571			$	535

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 financing and operating lease arrangements.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

21.	Fair Value Measurements

The following table provides carrying value and fair value measurement information for certain of Devon’s financial assets and liabilities. The carrying values of cash, restricted cash, accounts receivable, other current receivables, accounts payable, other current payables, accrued expenses and lease liabilities included in the accompanying consolidated balance sheets approximated fair value at December 31, 2021 and December 31, 2020, as applicable. Therefore, such financial assets and liabilities are not presented in the following table.

										Fair Value Measurements Using:
		Carrying				Total Fair				Level 1				Level 2				Level 3
		Amount				Value				Inputs				Inputs				Inputs
December 31, 2021 assets (liabilities):
Cash equivalents		$	1,421			$	1,421			$	1,421			$	—			$	—
Commodity derivatives		$	8			$	8			$	—			$	8			$	—
Commodity derivatives		$	(577	)		$	(577	)		$	—			$	(577	)		$	—
Debt		$	(6,482	)		$	(7,644	)		$	—			$	(7,644	)		$	—
Contingent earnout payments		$	184			$	184			$	—			$	—			$	184
December 31, 2020 assets (liabilities):
Cash equivalents		$	1,436			$	1,436			$	1,436			$	—			$	—
Commodity derivatives		$	6			$	6			$	—			$	6			$	—
Commodity derivatives		$	(148	)		$	(148	)		$	—			$	(148	)		$	—
Debt		$	(4,298	)		$	(5,365	)		$	—			$	(5,365	)		$	—
Contingent earnout payments		$	66			$	66			$	—			$	—			$	66

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

Level 1 Fair Value Measurements

Cash equivalents – Amounts consist primarily of money market investments and the fair value approximates the carrying value.

Level 2 Fair Value Measurements

Commodity derivatives – The fair value of commodity derivatives is 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 consistently trade actively in an established market. The fair values of its debt are estimated based on rates available for debt with similar terms and maturity when active trading is not available.

Level 3 Fair Value Measurements

Contingent Earnout Payments – Devon has the right to receive contingent consideration related to the Barnett and non-core Rockies asset divestitures based on future oil and gas prices. These values were derived using a Monte Carlo valuation model and qualify as a level 3 fair value measurement. For additional information see Note 2.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Supplemental unaudited information regarding Devon’s oil and gas activities is presented in this note. All of Devon’s reserves are located within the U.S.

The supplemental information in the tables below excludes amounts for 2020 and 2019 related to Devon’s discontinued operations. For additional information on these discontinued operations, see Note 19.

Costs Incurred

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

		Year Ended December 31,
		2021				2020				2019
Property acquisition costs:
Proved properties		$	7,017			$	—			$	—
Unproved properties			2,381				8				35
Exploration costs			212				159				312
Development costs			1,643				820				1,499
Costs incurred		$	11,253			$	987			$	1,846

Acquisition costs for 2021 in the table above largely pertain to the Merger. Development costs in the tables above include additions and revisions to Devon’s asset retirement obligations.

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.

		Year Ended December 31,
		2021				2020				2019
Oil, gas and NGL sales		$	9,531			$	2,695			$	3,809
Production expenses			(2,131	)			(1,123	)			(1,197	)
Exploration expenses			(14	)			(167	)			(58	)
Depreciation, depletion and amortization			(2,050	)			(1,207	)			(1,398	)
Asset dispositions			170				—				37
Asset impairments			—				(2,664	)			—
Accretion of asset retirement obligations			(28	)			(20	)			(21	)
Income tax expense			(1,238	)			—				(270	)
Results of operations		$	4,240			$	(2,486	)		$	902
Depreciation, depletion and amortization per Boe		$	9.83			$	9.90			$	11.72

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Proved Reserves

The following table presents Devon’s estimated proved reserves by product.

		Oil (MMBbls)				Gas (Bcf) (1)				NGL (MMBbls)				Combined (MMBoe)
Proved developed and undeveloped reserves:
December 31, 2018			296				1,802				227				823
Revisions due to prices			(7	)			(86	)			(6	)			(28	)
Revisions other than price			(13	)			(50	)			(9	)			(31	)
Extensions and discoveries			76				269				39				160
Purchase of reserves			3				7				1				6
Production			(55	)			(219	)			(28	)			(119	)
Sale of reserves			(24	)			(102	)			(13	)			(54	)
December 31, 2019			276				1,621				211				757
Revisions due to prices			(26	)			(209	)			(17	)			(78	)
Revisions other than price			18				119				17				55
Extensions and discoveries			71				188				33				135
Purchase of reserves			1				19				3				7
Production			(57	)			(221	)			(28	)			(122	)
Sale of reserves			(1	)			(5	)			(1	)			(2	)
December 31, 2020			282				1,512				218				752
Revisions due to prices			55				382				36				155
Revisions other than price			(23	)			11				64				43
Extensions and discoveries			112				348				58				228
Purchase of reserves			393				961				110				663
Production			(106	)			(325	)			(48	)			(209	)
Sale of reserves			(4	)			(11	)			(1	)			(7	)
December 31, 2021			709				2,878				437				1,625
Proved developed reserves:
December 31, 2018			196				1,427				166				600
December 31, 2019			198				1,344				167				589
December 31, 2020			194				1,244				173				574
December 31, 2021			544				2,361				348				1,285
Proved developed-producing reserves:
December 31, 2018			188				1,394				162				582
December 31, 2019			191				1,327				165				578
December 31, 2020			190				1,223				171				564
December 31, 2021			533				2,316				341				1,260
Proved undeveloped reserves:
December 31, 2018			100				375				61				223
December 31, 2019			78				277				44				168
December 31, 2020			88				268				45				178
December 31, 2021			165				517				89				340

(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. NGL reserves are converted to Boe on a one-to-one basis with oil. The conversion rates are not necessarily indicative of the relationship of oil, natural gas and NGL prices.

Price Revisions

Reserves increased 155 MMBoe in 2021 primarily due to price increases in the trailing 12 month averages for oil, gas and NGLs.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Reserves decreased 78 MMBoe in 2020 primarily due to price decreases in the trailing 12 month averages for oil, gas and NGLs.

Reserves decreased 28 MMBoe in 2019 primarily due to price decreases in the trailing 12 month averages for oil, gas and NGLs.

Revisions Other Than Price

2021 – Total revisions other than price (43 MMBoe) were primarily due to well performance exceeding previous estimates modestly across all areas of operation (53 MMBoe) and the removal of proved undeveloped locations as noted below (-10 MMBoe). The upward revisions were driven by the Delaware Basin (23 MMBoe), Williston Basin (12 MMBoe) and Anadarko Basin (12 MMBoe).

2020 – Total revisions other than price (55 MMBoe) were primarily due to well performance exceeding previous estimates (75 MMBoe) and the removal of proved undeveloped locations as noted below (-20 MMBoe). The most significant well performance revisions were attributable to the Delaware Basin (40 MMBoe) and the Anadarko Basin (22 MMBoe).

2019 – Total revisions other than price in 2019 were primarily due to changes in previously adopted development plans in the Anadarko Basin (-9 MMBoe) and in the Delaware Basin (-6 MMBoe). An additional downward revision of 5 MMBoe was the result of reduced recovery estimates attributable to continued evaluation of analogous offset well performance primarily in the Anadarko Basin.

Extensions and Discoveries

Each year, Devon’s proved reserves extensions and discoveries consist of adding proved undeveloped reserves to locations classified as undeveloped at year-end and adding proved developed reserves from successful development wells drilled on locations outside the areas classified as proved at the previous year-end. Therefore, it is not uncommon for Devon’s total proved extensions and discoveries to differ from the extensions and discoveries for Devon’s proved undeveloped reserves. Furthermore, because annual additions are classified according to reserve determinations made at the previous year-end and because Devon operates a multi-basin portfolio with assets at varying stages of maturity, extensions and discoveries for proved developed and proved undeveloped reserves can differ significantly in any particular year.

2021 – Of the 228 MMBoe of additions from extensions and discoveries, 209 MMBoe were in the Delaware Basin, 8 MMBoe were in the Anadarko Basin, 6 MMBoe were in the Williston Basin, 3 MMBoe were in Eagle Ford and 2 MMBoe were in the Powder River Basin.

2020 – Of the 135 MMBoe of additions from extensions and discoveries, 117 MMBoe were in the Delaware Basin, 8 MMBoe were in the Anadarko Basin, 5 MMBoe were in the Powder River Basin and 5 MMBoe were in Eagle Ford.

2019 – Of the 160 MMBoe of additions from extensions and discoveries, 77 MMBoe were in the Delaware Basin, 37 MMBoe were in the Anadarko Basin, 28 MMBoe were in the Powder River Basin and 18 MMBoe were in Eagle Ford. In 2019, there were no additions related to infill drilling activities.

Purchase of Reserves

During 2021, Devon had reserve additions due to the Merger of 538 MMBoe in the Delaware Basin and 125 MMBoe in the Williston Basin. For additional information on these asset additions, see Note 2.

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Sale of Reserves

During 2021, 2020 and 2019, Devon had U.S. non-core asset divestitures. For additional information on these divestitures, see Note 2.

Proved Undeveloped Reserves

The following table presents the changes in Devon’s total proved undeveloped reserves during 2021 (MMBoe).

		Total
Proved undeveloped reserves as of December 31, 2020			178
Extensions and discoveries			160
Revisions due to prices			8
Revisions other than price			11
Purchase of reserves			90
Sale of reserves			—
Conversion to proved developed reserves			(107	)
Proved undeveloped reserves as of December 31, 2021			340

Total proved undeveloped reserves increased 91% from 2020 to 2021 with the year-end 2021 balance representing 21% of total proved reserves. Approximately 92% of the 160 MMBoe in extensions and discoveries were the result of Devon’s focus on drilling and development activities in the Delaware Basin. This continued development in the Delaware Basin also accounted for 85% of the 107 MMBoe of proved undeveloped reserves being converted to proved developed reserves in 2021. Costs incurred to develop and convert Devon’s proved undeveloped reserves were approximately $612 million for 2021. Additionally, 98% of the 90 MMBoe of purchased reserves relate to the complementary Delaware Basin assets acquired through the Merger. Purchase of reserves included in the table above reflect proved undeveloped reserves acquired in the Merger that remain undeveloped as of December 31, 2021. Proved undeveloped reserves revisions other than price were primarily due to well performance in the Delaware Basin (14 MMBoe) and Anadarko Basin (6 MMBoe) which was partially offset by changes in previously adopted development plans in the Anadarko Basin (-6 MMBoe) and Delaware Basin (-3 MMBoe).

Standardized Measure

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

		Year Ended December 31,
		2021			2020				2019
Future cash inflows		$	66,321		$	14,957			$	20,750
Future costs:
Development			(3,689	)		(1,747	)			(2,093	)
Production			(22,975	)		(7,964	)			(9,174	)
Future income tax expense			(6,423	)		—				(1,037	)
Future net cash flow			33,234			5,246				8,446
10% discount to reflect timing of cash flows			(13,933	)		(1,774	)			(3,048	)
Standardized measure of discounted future net cash flows		$	19,301		$	3,472			$	5,398

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 2021

Index to Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

estimates, Devon’s future realized prices were assumed to be $64.17 per Bbl of oil, $3.05 per Mcf of gas and $27.60 per Bbl of NGLs. Of the $3.7 billion of future development costs as of the end of 2021, $1.1 billion, $0.7 billion and $0.6 billion are estimated to be spent in 2022, 2023 and 2024, respectively.

Future development costs include not only development costs but also future asset retirement costs. Included as part of the $3.7 billion of future development costs are $0.5 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,
		2021				2020				2019
Beginning balance		$	3,472			$	5,398			$	7,150
Net changes in prices and production costs			8,274				(3,277	)			(2,323	)
Oil, gas and NGL sales, net of production costs			(7,400	)			(1,572	)			(2,612	)
Changes in estimated future development costs			(414	)			402				303
Extensions and discoveries, net of future development costs			3,877				988				1,690
Purchase of reserves			12,460				23				43
Sales of reserves in place			(12	)			(7	)			(481	)
Revisions of quantity estimates			838				147				(359	)
Previously estimated development costs incurred during the period			663				537				857
Accretion of discount			1,218				285				506
Net change in income taxes and other			(3,675	)			548				624
Ending balance		$	19,301			$	3,472			$	5,398