filings.toolsItem 8. Financial Statements and Supplementary Data
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Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
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 Regist****ered 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, 2023 and 2022, the related consolidated statements of comprehensive earnings, equity, and cash flows for each of the years in the three-year period ended December 31, 2023, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, 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, 2023 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. 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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 a critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Estimate of proved oil and gas reserves used in the depletion of proved oil and gas properties
As discussed in Notes 1 and 12 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 $2.5 billion for the year ended December 31, 2023.
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 28, 2024
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHEN****SIVE EARNINGS
| Year Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| (Millions, except per share amounts) | ||||||||||||
| Oil, gas and NGL sales | $ | 10,791 | $ | 14,082 | $ | 9,531 | ||||||
| Oil, gas and NGL derivatives | 118 | (658 | ) | (1,544 | ) | |||||||
| Marketing and midstream revenues | 4,349 | 5,745 | 4,219 | |||||||||
| Total revenues | 15,258 | 19,169 | 12,206 | |||||||||
| Production expenses | 2,928 | 2,797 | 2,131 | |||||||||
| Exploration expenses | 20 | 29 | 14 | |||||||||
| Marketing and midstream expenses | 4,409 | 5,780 | 4,238 | |||||||||
| Depreciation, depletion and amortization | 2,554 | 2,223 | 2,158 | |||||||||
| Asset dispositions | (30 | ) | (44 | ) | (168 | ) | ||||||
| General and administrative expenses | 408 | 395 | 391 | |||||||||
| Financing costs, net | 308 | 309 | 329 | |||||||||
| Restructuring and transaction costs | — | — | 258 | |||||||||
| Other, net | 38 | (95 | ) | (43 | ) | |||||||
| Total expenses | 10,635 | 11,394 | 9,308 | |||||||||
| Earnings before income taxes | 4,623 | 7,775 | 2,898 | |||||||||
| Income tax expense | 841 | 1,738 | 65 | |||||||||
| Net earnings | 3,782 | 6,037 | 2,833 | |||||||||
| Net earnings attributable to noncontrolling interests | 35 | 22 | 20 | |||||||||
| Net earnings attributable to Devon | $ | 3,747 | $ | 6,015 | $ | 2,813 | ||||||
| Net earnings per share: | ||||||||||||
| Basic net earnings per share | $ | 5.86 | $ | 9.15 | $ | 4.20 | ||||||
| Diluted net earnings per share | $ | 5.84 | $ | 9.12 | $ | 4.19 | ||||||
| Comprehensive earnings (loss): | ||||||||||||
| Net earnings | $ | 3,782 | $ | 6,037 | $ | 2,833 | ||||||
| Other comprehensive earnings (loss), net of tax: | ||||||||||||
| Pension and postretirement plans | (8 | ) | 16 | (5 | ) | |||||||
| Other comprehensive earnings (loss), net of tax | (8 | ) | 16 | (5 | ) | |||||||
| Comprehensive earnings: | 3,774 | 6,053 | 2,828 | |||||||||
| Comprehensive earnings attributable to noncontrolling interests | 35 | 22 | 20 | |||||||||
| Comprehensive earnings attributable to Devon | $ | 3,739 | $ | 6,031 | $ | 2,808 |
See accompanying notes to consolidated financial statements.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash, cash equivalents and restricted cash | $ | 875 | $ | 1,454 | ||||
| Accounts receivable | 1,573 | 1,767 | ||||||
| Inventory | 249 | 201 | ||||||
| Other current assets | 460 | 469 | ||||||
| Total current assets | 3,157 | 3,891 | ||||||
| Oil and gas property and equipment, based on successful efforts accounting, net | 17,825 | 16,567 | ||||||
| Other property and equipment, net ($136 million and $109 million related to CDM in 2023 and 2022, respectively) | 1,503 | 1,539 | ||||||
| Total property and equipment, net | 19,328 | 18,106 | ||||||
| Goodwill | 753 | 753 | ||||||
| Right-of-use assets | 267 | 224 | ||||||
| Investments | 666 | 440 | ||||||
| Other long-term assets | 319 | 307 | ||||||
| Total assets | $ | 24,490 | $ | 23,721 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 760 | $ | 859 | ||||
| Revenues and royalties payable | 1,222 | 1,506 | ||||||
| Short-term debt | 483 | 251 | ||||||
| Other current liabilities | 484 | 489 | ||||||
| Total current liabilities | 2,949 | 3,105 | ||||||
| Long-term debt | 5,672 | 6,189 | ||||||
| Lease liabilities | 295 | 257 | ||||||
| Asset retirement obligations | 643 | 511 | ||||||
| Other long-term liabilities | 876 | 900 | ||||||
| Deferred income taxes | 1,838 | 1,463 | ||||||
| Stockholders' equity: | ||||||||
| Common stock, $0.10 par value. Authorized 1.0 billion shares; issued636 million and 653 million shares in 2023 and 2022, respectively | 64 | 65 | ||||||
| Additional paid-in capital | 5,939 | 6,921 | ||||||
| Retained earnings | 6,195 | 4,297 | ||||||
| Accumulated other comprehensive loss | (124 | ) | (116 | ) | ||||
| Treasury stock, at cost, 0.3 million shares in 2023 | (13 | ) | — | |||||
| Total stockholders’ equity attributable to Devon | 12,061 | 11,167 | ||||||
| Noncontrolling interests | 156 | 129 | ||||||
| Total equity | 12,217 | 11,296 | ||||||
| Total liabilities and equity | $ | 24,490 | $ | 23,721 |
See accompanying notes to consolidated financial statements.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CA****SH FLOWS
| Year Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net earnings | $ | 3,782 | $ | 6,037 | $ | 2,833 | ||||||
| Adjustments to reconcile net earnings to net cash from operating activities: | ||||||||||||
| Depreciation, depletion and amortization | 2,554 | 2,223 | 2,158 | |||||||||
| Leasehold impairments | 5 | 12 | 4 | |||||||||
| Amortization of liabilities | (16 | ) | (31 | ) | (27 | ) | ||||||
| Total (gains) losses on commodity derivatives | (118 | ) | 658 | 1,544 | ||||||||
| Cash settlements on commodity derivatives | 47 | (1,356 | ) | (1,462 | ) | |||||||
| Gains on asset dispositions | (30 | ) | (44 | ) | (168 | ) | ||||||
| Deferred income tax expense | 376 | 1,179 | 49 | |||||||||
| Share-based compensation | 93 | 88 | 99 | |||||||||
| Early retirement of debt | — | — | (30 | ) | ||||||||
| Other | (5 | ) | (10 | ) | 15 | |||||||
| Changes in assets and liabilities, net | (144 | ) | (226 | ) | (116 | ) | ||||||
| Net cash from operating activities | 6,544 | 8,530 | 4,899 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Capital expenditures | (3,883 | ) | (2,542 | ) | (1,989 | ) | ||||||
| Acquisitions of property and equipment | (64 | ) | (2,583 | ) | (18 | ) | ||||||
| Divestitures of property and equipment | 26 | 39 | 79 | |||||||||
| WPX acquired cash | — | — | 344 | |||||||||
| Distributions from investments | 32 | 39 | 35 | |||||||||
| Contributions to investments and other | (53 | ) | (76 | ) | (25 | ) | ||||||
| Net cash from investing activities | (3,942 | ) | (5,123 | ) | (1,574 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Repayments of long-term debt | (242 | ) | — | (1,243 | ) | |||||||
| Early retirement of debt | — | — | (59 | ) | ||||||||
| Repurchases of common stock | (979 | ) | (718 | ) | (589 | ) | ||||||
| Dividends paid on common stock | (1,858 | ) | (3,379 | ) | (1,315 | ) | ||||||
| Contributions from noncontrolling interests | 37 | — | 4 | |||||||||
| Distributions to noncontrolling interests | (45 | ) | (30 | ) | (21 | ) | ||||||
| Acquisition of noncontrolling interests | — | — | (24 | ) | ||||||||
| Shares exchanged for tax withholdings and other | (97 | ) | (86 | ) | (45 | ) | ||||||
| Net cash from financing activities | (3,184 | ) | (4,213 | ) | (3,292 | ) | ||||||
| Effect of exchange rate changes on cash | 3 | (11 | ) | 1 | ||||||||
| Net change in cash, cash equivalents and restricted cash | (579 | ) | (817 | ) | 34 | |||||||
| Cash, cash equivalents and restricted cash at beginning of period | 1,454 | 2,271 | 2,237 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 875 | $ | 1,454 | $ | 2,271 | ||||||
| Reconciliation of cash, cash equivalents and restricted cash: | ||||||||||||
| Cash and cash equivalents | $ | 853 | $ | 1,314 | $ | 2,099 | ||||||
| Restricted cash | 22 | 140 | 172 | |||||||||
| Total cash, cash equivalents and restricted cash | $ | 875 | $ | 1,454 | $ | 2,271 |
See accompanying notes to consolidated financial statements.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMEN****TS OF EQUITY
| Other | ||||||||||||||||||||||||||||||||
| Additional | Comprehensive | |||||||||||||||||||||||||||||||
| Common Stock | Paid-In | Retained | Earnings | Treasury | Noncontrolling | Total | ||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | (Loss) | Stock | Interests | Equity | |||||||||||||||||||||||||
| 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 | ||||||||||||||||
| Net earnings | — | — | — | 6,015 | — | — | 22 | 6,037 | ||||||||||||||||||||||||
| Other comprehensive earnings, net of tax | — | — | — | — | 16 | — | — | 16 | ||||||||||||||||||||||||
| Restricted stock grants, net of cancellations | 2 | 1 | 3 | — | — | — | — | 4 | ||||||||||||||||||||||||
| Common stock repurchased | — | — | — | — | — | (808 | ) | — | (808 | ) | ||||||||||||||||||||||
| Common stock retired | (13 | ) | (2 | ) | (806 | ) | — | — | 808 | — | — | |||||||||||||||||||||
| Common stock dividends | — | — | — | (3,410 | ) | — | — | — | (3,410 | ) | ||||||||||||||||||||||
| Share-based compensation | 1 | — | 88 | — | — | — | — | 88 | ||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | (30 | ) | (30 | ) | ||||||||||||||||||||||
| Balance as of December 31, 2022 | 653 | $ | 65 | $ | 6,921 | $ | 4,297 | $ | (116 | ) | $ | — | $ | 129 | $ | 11,296 | ||||||||||||||||
| Net earnings | — | — | — | 3,747 | — | — | 35 | 3,782 | ||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | (8 | ) | — | — | (8 | ) | ||||||||||||||||||||||
| Restricted stock grants, net of cancellations | 2 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Common stock repurchased | — | — | (8 | ) | — | — | (1,081 | ) | — | (1,089 | ) | |||||||||||||||||||||
| Common stock retired | (20 | ) | (1 | ) | (1,067 | ) | — | — | 1,068 | — | — | |||||||||||||||||||||
| Common stock dividends | — | — | — | (1,849 | ) | — | — | — | (1,849 | ) | ||||||||||||||||||||||
| Share-based compensation | 1 | — | 93 | — | — | — | — | 93 | ||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | — | 37 | 37 | ||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | (45 | ) | (45 | ) | ||||||||||||||||||||||
| Balance as of December 31, 2023 | 636 | $ | 64 | $ | 5,939 | $ | 6,195 | $ | (124 | ) | $ | (13 | ) | $ | 156 | $ | 12,217 |
See accompanying notes to consolidated financial statements.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CO****NSOLIDATED 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.
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. Investments in non-controlled entities over which Devon does not have the ability to exercise significant influence are initially recognized at cost and subsequently adjusted for contributions and distributions.
Variable Interest Entity
In 2019, Devon and an affiliate of QL Capital Partners, LP (“QLCP”) formed CDM, a joint venture in the Delaware Basin. 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 2023, 2022 and 2021, QLCP distributions from CDM were approximately $45 million, $30 million and $20 million, respectively. During 2023 and 2021 QLCP contributions to CDM were approximately $37 million and $3 million, respectively.
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.
Investments
Devon has 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. Devon accounts for the investment in Catalyst as an equity method investment. Devon's share of the
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
earnings are reflected as a component of other, net in the accompanying consolidated statements of comprehensive earnings.
In the second quarter of 2023, Devon made an investment in the Water JV, a joint venture entity formed with an affiliate of WaterBridge NDB LLC (“WaterBridge”), for the purpose of providing increased capacity and flexibility in disposing of produced water in the Delaware Basin and Eagle Ford. Under terms of the arrangement, Devon contributed water infrastructure assets and committed to a water gathering and disposal dedication to the Water JV through 2038, in exchange for a 30% voting interest in the joint venture legal entity. WaterBridge contributed water infrastructure assets to the Water JV, in exchange for a 70% voting interest in the joint venture legal entity and is serving as the operator. At closing of the Water JV, Devon recognized a $64 million gain in asset dispositions in the consolidated statements of comprehensive earnings, which represented the excess of the estimated fair value of Devon's interest in the Water JV over the carrying value of the water infrastructure assets Devon contributed to the Water JV. Devon accounts for the investment in the Water JV as an equity method investment. Devon's investment in the Water JV is shown within investments on the consolidated balance sheets and Devon's share of the Water JV earnings are reflected as a component of other, net in the accompanying consolidated statements of comprehensive earnings.
During 2023 and 2022, Devon made investments in Matterhorn. Matterhorn is a joint venture entity and was formed for the purpose of constructing a natural gas pipeline that will transport natural gas from the Permian Basin to the Katy, Texas area. Devon’s investment in Matterhorn does not give it the ability to exercise significant influence over Matterhorn.
Devon has other investments largely focused on midstream, new technologies and energy transition initiatives. Devon does not have the ability to exercise significant influence over these investments. The following table presents Devon's investments that are shown on the consolidated balance sheet.
| Carrying Amount | ||||||||||
| Investments | % Interest | December 31, 2023 | December 31, 2022 | |||||||
| Catalyst | 50% | $ | 311 | $ | 339 | |||||
| Water JV | 30% | 216 | — | |||||||
| Matterhorn | 12.5% | 90 | 54 | |||||||
| Other | Various | 49 | 47 | |||||||
| Total | $ | 666 | $ | 440 |
As of December 31, 2023, Devon’s $311 million investment in Catalyst exceeded the underlying equity in net assets by approximately $112 million. The basis difference results primarily from intangible assets associated with Devon’s acreage dedication and is amortized over the remaining 14-year term of the associated oil gathering and natural gas processing agreements. As of December 31, 2023, Devon's $216 million investment in the Water JV exceeded the underlying equity in net assets by approximately $27 million. The basis difference results primarily from acreage dedicated to the Water JV's water systems and services and is amortized over the remaining 14-year term of those water system services.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Devon's investments 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 years ended and as of December 31, 2023 and 2022, respectively, relate primarily to Catalyst and are summarized below.
| Year ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Oil, gas and NGL sales | $ | 213 | $ | 405 | $ | 264 | ||||||
| Production expenses | $ | 93 | $ | 55 | $ | 42 | ||||||
| Accounts receivable | $ | 11 | $ | 14 | $ | 22 |
In February 2024, Devon committed to invest approximately $90 million in a geothermal technology company and expects to fund the commitment throughout 2024.
Segment Information
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.
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;
legal and environmental risks and exposures;
the fair value of contingent earnout payments; and
general credit risk associated with receivables and other assets.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 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.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 revenue 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.
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, 2023. Devon’s product sales and marketing contracts do not give rise to contract assets.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Oil | $ | 8,879 | $ | 10,281 | $ | 6,996 | ||||||
| Gas | 703 | 1,948 | 1,104 | |||||||||
| NGL | 1,209 | 1,853 | 1,431 | |||||||||
| Oil, gas and NGL sales | 10,791 | 14,082 | 9,531 | |||||||||
| Oil | 3,018 | 3,305 | 2,451 | |||||||||
| Gas | 572 | 1,163 | 718 | |||||||||
| NGL | 759 | 1,277 | 1,050 | |||||||||
| Marketing and midstream revenues | 4,349 | 5,745 | 4,219 | |||||||||
| Total revenues from contracts with customers | $ | 15,140 | $ | 19,827 | $ | 13,750 |
Customers
For the year ended December 31, 2023, sales to two customers accounted for approximately 14% and 10% of Devon's sales revenue. For the year ended December 31, 2022, sales to one customer accounted for approximately 15% of Devon's sales revenue. For the year ended December 31, 2021 sales to two customers accounted for approximately 19% and 12% of Devon's sales 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 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 ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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, 2023, 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, 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, 2023, Devon held no cash collateral of its counterparties nor posted collateral to its counterparties. Given Devon's current credit ratings and the terms of the underlying contracts, Devon is not currently required to post collateral to its counterparties with respect to its open derivative positions, and would not be required to post any such collateral as a result of any change to the amount of Devon's net liability for such positions.
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.
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 5, 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.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Deferred tax assets are also recognized for the future tax benefits attributable to the expected utilization of existing tax net operating loss carryforwards and other types of carryforwards. If the future utilization of some portion of the deferred tax assets is determined to be unlikely, a valuation allowance is provided to reduce the recorded tax benefits from such assets. Devon periodically weighs the positive and negative evidence to determine if it is more likely than not that some or all of the deferred tax assets will be realized. Forming a conclusion that a valuation allowance is not required is difficult when there is significant negative evidence, such as cumulative losses in recent years. See Note 7 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 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. Devon applies the two-class method to stock awards deemed to be participating securities. The two-class method requires allocating net earnings to both common shares and participating securities based on their respective rights to receive dividends. Diluted earnings per share is calculated using the treasury stock method to reflect the assumed issuance of common shares for all potentially dilutive securities. Such securities primarily consist of unvested restricted stock awards and 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. Devon also considers cash balances subject to legal and contractual restrictions as restricted cash. As of December 31, 2022 and 2021, Devon's restricted cash also included $120 million and $160 million, respectively, associated with retained obligations related to previously disposed assets. As of December 31, 2023, the cash balances associated with these obligations are no longer considered restricted cash.
Accounts Receivable
Devon’s accounts receivable balance primarily consists of oil and gas sales receivables, marketing and midstream revenue receivables and joint interest receivables. Devon does not require collateral security for joint interest receivables.
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.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Inventory
Devon’s inventories primarily consist of oil and NGL inventory and equipment inventory. Oil and NGL inventory are recorded at weighted average cost and carried at the lower of cost or net realizable value. Equipment inventory is valued at weighted average cost and reviewed periodically for obsolescence or impairment when market conditions indicate.
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. 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.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 unless the associated asset has already been disposed. 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.
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.
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 2023, 2022 and 2021. No impairment was required as a result of the annual tests in these time periods.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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.
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.
Noncontrolling Interests
Noncontrolling interests represent third-party ownership in the net assets of Devon’s consolidated subsidiaries and are presented as a component of equity. Changes in Devon’s ownership interests in subsidiaries that do not result in deconsolidation are recognized in equity.
Recently Issued Accounting Standards Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. ASU 2023-09 intends to provide investors with enhanced information about an entity’s income taxes by requiring disclosure of items such as disaggregation of the effective tax rate reconciliation as well as information regarding income taxes paid. This ASU is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued. Devon is evaluating the impact this ASU will have on the disclosures that accompany its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segments Disclosures. Under this ASU, the scope and frequency of segment disclosures is increased to provide investors with additional detail about information utilized by an entity’s “Chief Operating Decision Maker.” This ASU is effective for Devon beginning with our 2024 annual reporting and interim periods beginning in 2025. Devon is evaluating the impact this ASU will have on the disclosures that accompany its consolidated financial statements.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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.
Acquisitions
In the third quarter of 2022, Devon completed its acquisition of producing properties and leasehold interests located in the Eagle Ford and Williston Basin for cash consideration of approximately $1.7 billion and $830 million, respectively, net of purchase price adjustments. The total estimated proved reserves associated with these Eagle Ford and Williston Basin assets were approximately 87 MMBoe and 66 MMBoe, respectively. Each of these acquisitions were accounted for as asset acquisitions as substantially all of the fair value was concentrated in a group of similar assets. Each of the acquisitions resulted in the purchase of producing properties and leasehold interests in a defined geographical and geological area, and substantially all of the assets have similar risk characteristics.
Contingent Earnout Payments
Devon is entitled to contingent earnout payments associated with the sale of its Barnett Shale assets in 2020 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 $20 million in contingent earnout payments related to this transaction in the first quarter of 2024 and $65 million in the first quarter of 2023 and 2022. Devon could also receive up to an additional $65 million in contingent earnout payments for the remaining performance period depending on future commodity prices. The valuation of the future contingent earnout payment included within other current assets and other long-term assets in the December 31, 2023 consolidated balance sheet was approximately $20 million and $35 million, respectively. These values were derived utilizing a Monte Carlo valuation model and qualify as a level 3 fair value measurement.
Devon also received $4 million in contingent earnout payments in the first quarter of 2023 and 2022 related to the sale of non-core assets in the Rockies. Devon completed the sale of these non-core assets in 2021 for proceeds of $9 million, net of purchase price adjustments, and recognized a $35 million gain related to the sale.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
3.
Derivative Financial Instruments
Commodity Derivatives
As of December 31, 2023, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The second table presents Devon’s oil derivatives that settle against the respective indices noted within the table.
| Price Swaps | Price Collars | ||||||||||||||||||||
| Period | Volume (Bbls/d) | Weighted Average Price ($/Bbl) | Volume (Bbls/d) | Weighted Average Floor Price ($/Bbl) | Weighted Average Ceiling Price ($/Bbl) | ||||||||||||||||
| Q1-Q4 2024 | 27,486 | $ | 77.74 | 60,238 | $ | 65.71 | $ | 84.89 |
| Oil Basis Swaps | ||||||||||
| Period | Index | Volume (Bbls/d) | Weighted Average Differential to WTI ($/Bbl) | |||||||
| Q1-Q4 2024 | Midland Sweet | 62,500 | $ | 1.17 | ||||||
| Q1-Q4 2024 | NYMEX Roll | 26,000 | $ | 0.82 | ||||||
| Q1-Q4 2025 | Midland Sweet | 53,000 | $ | 0.97 |
As of December 31, 2023, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.
| Price Swaps | Price Collars | |||||||||||||||||||
| Period | Volume (MMBtu/d) | Weighted Average Price ($/MMBtu) | Volume (MMBtu/d) | Weighted Average Floor Price ($/MMBtu) | Weighted Average Ceiling Price ($/MMBtu) | |||||||||||||||
| Q1-Q4 2024 | 187,426 | $ | 3.30 | 40,527 | $ | 3.78 | $ | 7.05 | ||||||||||||
| Q1-Q4 2025 | 32,904 | $ | 3.22 | — | $ | — | $ | — |
| Natural Gas Basis Swaps | ||||||||||
| Period | Index | Volume (MMBtu/d) | Weighted Average Differential to Henry Hub ($/MMBtu) | |||||||
| Q1-Q4 2024 | El Paso Natural Gas | 34,863 | $ | (0.91 | ) | |||||
| Q1-Q4 2024 | Houston Ship Channel | 110,000 | $ | (0.24 | ) | |||||
| Q1-Q4 2024 | WAHA | 44,973 | $ | (0.58 | ) |
As of December 31, 2023, Devon had the following open NGL derivative positions. Devon's NGL positions settle against the average of the prompt month OPIS Mont Belvieu, Texas index.
| Price Swaps | ||||||||||
| Period | Product | Volume (Bbls/d) | Weighted Average Price ($/Bbl) | |||||||
| Q1-Q4 2024 | Natural Gasoline | 3,000 | $ | 69.11 | ||||||
| Q1-Q4 2024 | Normal Butane | 3,350 | $ | 37.58 | ||||||
| Q1-Q4 2024 | Propane | 3,000 | $ | 32.20 |
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, 2023 and 2022.
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||
| 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 | $ | 213 | $ | (5 | ) | $ | 208 | $ | 138 | $ | (19 | ) | $ | 119 | Other current assets | ||||
| Long-term derivative asset | — | — | — | 12 | — | 12 | Other long-term assets | ||||||||||||
| Short-term derivative liability | (7 | ) | 5 | (2 | ) | (22 | ) | 19 | (3 | ) | Other current liabilities | ||||||||
| Long-term derivative liability | (7 | ) | — | (7 | ) | — | — | — | Other long-term liabilities | ||||||||||
| Total derivative asset | $ | 199 | $ | — | $ | 199 | $ | 128 | $ | — | $ | 128 |
4.
Share-Based Compensation
In 2022, Devon's stockholders approved the 2022 Plan, which replaced the 2017 Plan. From the effective date of the 2022 Plan, no further awards may be made under the 2017 Plan; however, awards previously granted will continue to be governed by the terms of the respective award documents. The 2022 Plan authorizes the grant of nonqualified and incentive stock options, restricted stock awards or units and stock appreciation rights to eligible employees. Restricted stock awards or restricted stock units granted under the 2022 Plan may be subject to performance-based conditions. The 2022 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 2022 Plan, options and stock appreciation rights represent one share and other awards represent 1.74 shares.
The vesting for certain share-based awards was accelerated in 2021 in conjunction with the reduction of workforce activities described in Note 5 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, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| G&A | $ | 92 | $ | 87 | $ | 77 | ||||||
| Exploration expenses | 1 | 1 | 1 | |||||||||
| Restructuring and transaction costs | — | — | 21 | |||||||||
| Total | $ | 93 | $ | 88 | $ | 99 | ||||||
| Related income tax benefit | $ | 34 | $ | 34 | $ | 13 |
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 and performance share units granted under the plans.
| Restricted Stock Awards & Units | Performance Share Units | |||||||||||||||
| Awards/Units | Weighted Average Grant-Date Fair Value | Units | Weighted Average Grant-Date Fair Value | |||||||||||||
| (Thousands, except fair value data) | ||||||||||||||||
| Unvested at 12/31/22 | 5,788 | $ | 29.11 | 1,841 | $ | 31.33 | ||||||||||
| Granted | 1,298 | $ | 62.24 | 743 | (1) | $ | 51.38 | |||||||||
| Vested | (2,926 | ) | $ | 25.25 | (1,037 | ) | $ | 27.89 | ||||||||
| Forfeited | (127 | ) | $ | 43.89 | — | $ | — | |||||||||
| Unvested at 12/31/23 | 4,033 | $ | 42.10 | 1,547 | (2) | $ | 43.25 |
(1)
These grants also include the impact of performance share units granted in prior year that vested higher than 100% target due to Devon's TSR performance compared to applicable peers.
(2)
A maximum of 3.1 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.
| 2023 | 2022 | 2021 | ||||||||||
| Restricted Stock Awards and Units | $ | 172 | $ | 180 | $ | 115 | ||||||
| Performance-Based Restricted Stock Awards | $ | — | $ | — | $ | 1 | ||||||
| Performance Share Units | $ | 66 | $ | 62 | $ | 15 |
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, 2023.
| Restricted Stock | Performance | |||||||
| Awards/Units | Share Units | |||||||
| Unrecognized compensation cost | $ | 93 | $ | 18 | ||||
| Weighted average period for recognition (years) | 2.5 | 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.
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 as of the end of the performance period.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
At vesting, 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.
| 2023 | 2022 | 2021 | ||||||||||
| Grant-date fair value | $ | 81.70 | $ | 68.68 | $ | 18.08 | ||||||
| Risk-free interest rate | 4.15 | % | 1.81 | % | 0.18 | % | ||||||
| Volatility factor | 61.43 | % | 70.1 | % | 67.8 | % | ||||||
| Contractual term (years) | 2.89 | 2.89 | 2.89 |
5.
Restructuring and Transaction Costs
The following table summarizes Devon’s restructuring and transaction costs.
| Year Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Restructuring costs | $ | — | $ | — | $ | 210 | ||||||
| Transaction costs | — | — | 48 | |||||||||
| Total costs | $ | — | $ | — | $ | 258 |
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.
The following table summarizes Devon’s restructuring liabilities. The remaining restructuring liability as of December 31, 2023 primarily relates to obligations associated with an abandoned Canadian firm transportation agreement.
| Other | Other | |||||||||||
| Current | Long-term | |||||||||||
| Liabilities | Liabilities | Total | ||||||||||
| Balance as of December 31, 2021 | $ | 38 | $ | 111 | $ | 149 | ||||||
| Changes related to prior years' restructurings | (4 | ) | (30 | ) | (34 | ) | ||||||
| Balance as of December 31, 2022 | $ | 34 | $ | 81 | $ | 115 | ||||||
| Changes related to prior years' restructurings | (21 | ) | (9 | ) | (30 | ) | ||||||
| Balance as of December 31, 2023 | $ | 13 | $ | 72 | $ | 85 |
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
6.
Other, Net
The following table summarizes Devon’s other expenses (income) presented in the accompanying consolidated comprehensive statements of earnings.
| Year Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Estimated future obligation under a performance guarantee | $ | — | $ | (144 | ) | $ | (18 | ) | ||||
| Ukraine charitable pledge | — | 20 | — | |||||||||
| Asset retirement obligation accretion | 29 | 25 | 28 | |||||||||
| Severance and other non-income tax refunds | — | (5 | ) | (39 | ) | |||||||
| Other | 9 | 9 | (14 | ) | ||||||||
| Total | $ | 38 | $ | (95 | ) | $ | (43 | ) |
Devon has guaranteed performance through 2026 for a minimum volume commitment associated with assets divested in 2018. Due to improved commodity prices, market conditions, and performance by the purchaser of the assets, the purchaser was able to fully satisfy the performance obligation due in 2023 and 2022, as well as reimburse Devon for shortfall payments previously made on the purchasers’ behalf in 2021 and 2020. Additionally, at March 31, 2022, Devon reduced the estimated future exposure of the performance guarantee. The effect of these cash collections and liability revisions resulted in a $144 million benefit in 2022.
During 2022, Devon paid approximately $20 million for humanitarian relief for the Ukrainian people and surrounding countries supporting refugees.
During 2022 and 2021, Devon received severance and other non-income tax refunds of $5 million and $39 million, respectively, related to prior periods.
7.
Income Taxes
Income Tax Expense
The following table presents Devon’s income tax components.
| Year Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Current income tax expense (benefit): | ||||||||||||
| U.S. federal | $ | 441 | $ | 501 | $ | 10 | ||||||
| Various states | 27 | 65 | 9 | |||||||||
| Canada | (3 | ) | (7 | ) | (3 | ) | ||||||
| Total current income tax expense | 465 | 559 | 16 | |||||||||
| Deferred income tax expense: | ||||||||||||
| U.S. federal | 365 | 1,090 | 18 | |||||||||
| Various states | 11 | 82 | 22 | |||||||||
| Canada | — | 7 | 9 | |||||||||
| Total deferred income tax expense | 376 | 1,179 | 49 | |||||||||
| Total income tax expense | $ | 841 | $ | 1,738 | $ | 65 |
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 before income taxes as a result of the following:
| Year Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Earnings before income taxes | $ | 4,623 | $ | 7,775 | $ | 2,898 | ||||||
| U.S. statutory income tax rate | 21 | % | 21 | % | 21 | % | ||||||
| State income taxes | 1 | % | 1 | % | 1 | % | ||||||
| Income tax credits | (3 | %) | 0 | % | 0 | % | ||||||
| Other | (1 | %) | 0 | % | 2 | % | ||||||
| Deferred tax asset valuation allowance | 0 | % | 0 | % | (22 | %) | ||||||
| Effective income tax rate | 18 | % | 22 | % | 2 | % |
2023
In 2023, Devon recognized income tax credits associated with its qualified research activities. This includes actual credits generated in the 2018-2022 tax years as well as estimated credits for the 2023 tax year.
2021
Prior to 2021, Devon maintained a valuation allowance against all U.S. federal deferred tax assets. Devon recognized approximately $250 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.
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, | ||||||||
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Capital loss carryforwards | $ | 542 | $ | 523 | ||||
| Net operating loss carryforwards | 447 | 526 | ||||||
| Accrued liabilities | 194 | 209 | ||||||
| Asset retirement obligation | 148 | 119 | ||||||
| Other, including tax credits | 25 | 14 | ||||||
| Total deferred tax assets before valuation allowance | 1,356 | 1,391 | ||||||
| Less: valuation allowance | (826 | ) | (814 | ) | ||||
| Net deferred tax assets | 530 | 577 | ||||||
| Deferred tax liabilities: | ||||||||
| Property and equipment | (2,304 | ) | (1,969 | ) | ||||
| Fair value of derivative financial instruments | (50 | ) | (33 | ) | ||||
| Other | (14 | ) | (38 | ) | ||||
| Total deferred tax liabilities | (2,368 | ) | (2,040 | ) | ||||
| Net deferred tax liability | $ | (1,838 | ) | $ | (1,463 | ) |
At December 31, 2023, Devon has recognized $447 million of deferred tax assets related to various net operating loss carryforwards available to offset future taxable income. Devon has $139 million of U.S. federal net operating loss carryforwards, of which $117 million expires between 2030 and 2036, and $22 million does not expire. Devon has $5 million of Canadian net operating loss carryforwards, all of which are covered by a valuation allowance. Devon also has $303 million of state net operating loss carryforwards primarily expiring between 2024 and 2040, $264 million of which are covered by a valuation allowance.
Devon’s remaining $139 million U.S. federal net operating losses were acquired from WPX as a result of the Merger. These net operating losses 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.
Devon's remaining Canadian deferred tax assets of $557 million, primarily made up of $542 million of capital losses, are fully covered by a valuation allowance.
Unrecognized Tax Benefits
The following table presents changes in Devon’s unrecognized tax benefits.
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| (Millions) | ||||||||
| Balance at beginning of year | $ | 73 | $ | 36 | ||||
| Tax positions taken in prior periods | 10 | 51 | ||||||
| Settlements | — | (14 | ) | |||||
| Balance at end of year | $ | 83 | $ | 73 |
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Devon's 2023 unrecognized tax benefit balance includes $4 million of interest. At December 31, 2023 and December 31, 2022, there were $83 million and $73 million, respectively, of current unrecognized tax benefits that if recognized would affect the annual effective tax rate. Deferred unrecognized tax benefits of $42 million at December 31, 2021 are not included in the table above but are accounted for in Devon’s deferred tax disclosure above. Due to utilization of tax attributes in 2022, $42 million of Devon’s deferred unrecognized tax benefits were reclassified as current unrecognized tax benefits.
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 | 2015-2023 | |
| Various U.S. states | 2019-2023 | |
| Canada | 2006-2023 |
Certain statute of limitation expirations are scheduled to occur in the next twelve months. Devon is currently in various stages of the audit and administrative review process for certain open tax years.
8.
Net Earnings Per Share
The following table reconciles net earnings available to common shareholders and weighted-average common shares outstanding used in the calculations of basic and diluted net earnings per share.
| Year Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Net earnings available to common shareholders - basic and diluted | $ | 3,747 | $ | 5,958 | $ | 2,783 | ||||||
| Common shares: | ||||||||||||
| Average common shares outstanding - basic | 639 | 651 | 663 | |||||||||
| Dilutive effect of potential common shares issuable | 3 | 2 | 2 | |||||||||
| Average common shares outstanding - diluted | 642 | 653 | 665 | |||||||||
| Net earnings per share available to common shareholders: | ||||||||||||
| Basic | $ | 5.86 | $ | 9.15 | $ | 4.20 | ||||||
| Diluted | $ | 5.84 | $ | 9.12 | $ | 4.19 |
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
9.
Other Compr****ehensive Earnings (Loss)
Components of other comprehensive earnings (loss) consist of the following:
| Year Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Pension and postretirement benefit plans: | ||||||||||||
| Beginning accumulated pension and postretirement benefits | $ | (116 | ) | $ | (132 | ) | $ | (127 | ) | |||
| Net actuarial gain (loss) and prior service cost arising in current year | (15 | ) | 15 | (35 | ) | |||||||
| Recognition of net actuarial loss and prior service cost in earnings (1) | 5 | 6 | 3 | |||||||||
| Settlement of pension benefits (2) | — | — | 19 | |||||||||
| Other (3) | — | — | 7 | |||||||||
| Income tax benefit (expense) | 2 | (5 | ) | 1 | ||||||||
| Accumulated other comprehensive loss, net of tax | $ | (124 | ) | $ | (116 | ) | $ | (132 | ) |
(1)
Recognition of net actuarial loss and prior service cost 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 16 for additional details.
(2)
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.
(3)
Other includes a remeasurement of the pension obligation due to the Merger, which was partially offset by a change in mortality assumption.
10.
Supplemental Information to Statements of Cash Flows
| Year Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Changes in assets and liabilities, net: | ||||||||||||
| Accounts receivable | $ | 191 | $ | (142 | ) | $ | (526 | ) | ||||
| Other current assets | 95 | (119 | ) | 30 | ||||||||
| Other long-term assets | (36 | ) | 90 | 12 | ||||||||
| Accounts payable and revenues and royalties payable | (335 | ) | 152 | 539 | ||||||||
| Other current liabilities | (50 | ) | (97 | ) | (18 | ) | ||||||
| Other long-term liabilities | (9 | ) | (110 | ) | (153 | ) | ||||||
| Total | $ | (144 | ) | $ | (226 | ) | $ | (116 | ) | |||
| Supplementary cash flow data: | ||||||||||||
| Interest paid | $ | 378 | $ | 370 | $ | 404 | ||||||
| Income taxes paid (refunded) | $ | 400 | $ | 438 | $ | (116 | ) |
Devon's non-cash investing activities for 2023 included approximately $150 million of contributions of other property and equipment for the formation of the Water JV.
As of December 31, 2023, 2022 and 2021, Devon had approximately $348 million, $413 million and $205 million, respectively, of accrued capital expenditures included in total property and equipment, net and accounts payable on the consolidated balance sheets.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
11.
Accounts Receivable
Components of accounts receivable include the following:
| December 31, 2023 | December 31, 2022 | |||||||
| Oil, gas and NGL sales | $ | 965 | $ | 1,153 | ||||
| Joint interest billings | 251 | 162 | ||||||
| Marketing and midstream revenues | 342 | 428 | ||||||
| Other | 22 | 33 | ||||||
| Gross accounts receivable | 1,580 | 1,776 | ||||||
| Allowance for doubtful accounts | (7 | ) | (9 | ) | ||||
| Net accounts receivable | $ | 1,573 | $ | 1,767 |
12.
Property, Plant and Equipment
Capitalized Costs
The following table presents the aggregate capitalized costs related to Devon’s oil and gas and non-oil and gas activities.
| December 31, 2023 | December 31, 2022 | |||||||
| Property and equipment: | ||||||||
| Proved | $ | 46,659 | $ | 42,734 | ||||
| Unproved and properties under development | 1,279 | 1,548 | ||||||
| Total oil and gas | 47,938 | 44,282 | ||||||
| Less accumulated DD&A | (30,113 | ) | (27,715 | ) | ||||
| Oil and gas property and equipment, net | 17,825 | 16,567 | ||||||
| Other property and equipment | 2,289 | 2,280 | ||||||
| Less accumulated DD&A | (786 | ) | (741 | ) | ||||
| Other property and equipment, net (1) | 1,503 | 1,539 | ||||||
| Property and equipment, net | $ | 19,328 | $ | 18,106 |
(1)
$136 million and $109 million related to CDM in 2023 and 2022, respectively.
Suspended Exploratory Well Costs
The following summarizes the changes in suspended exploratory well costs for the three years ended December 31, 2023.
| Year Ended December 31, | ||||||||||
| 2023 | 2022 | 2021 | ||||||||
| (Millions) | ||||||||||
| Beginning balance | $ | 126 | $ | 66 | $ | 18 | ||||
| Acquired WPX costs | — | — | 34 | |||||||
| Additions pending determination of proved reserves | 522 | 462 | 206 | |||||||
| Charges to exploration expense | (1 | ) | (1 | ) | (2 | ) | ||||
| Reclassifications to proved properties | (511 | ) | (401 | ) | (190 | ) | ||||
| Ending balance | $ | 136 | $ | 126 | $ | 66 |
Devon had no projects with material suspended exploratory well costs capitalized for a period greater than one year since the completion of drilling as of December 31, 2023, 2022 and 2021.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
13.
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, 2023 | December 31, 2022 | |||||||
| 8.25% due August 1, 2023 (1) | $ | — | $ | 242 | ||||
| 5.25% due September 15, 2024 (1) | 472 | 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 | 390 | ||||||
| 5.875% due June 15, 2028 (1) | 325 | 325 | ||||||
| 4.50% due January 15, 2030 (1) | 585 | 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 on debentures and notes | 64 | 103 | ||||||
| Debt issuance costs | (30 | ) | (26 | ) | ||||
| Total debt | $ | 6,155 | $ | 6,440 | ||||
| Less amount classified as short-term debt | 483 | 251 | ||||||
| Total long-term debt | $ | 5,672 | $ | 6,189 |
(1)
These instruments were assumed by Devon in January 2021 in conjunction with the Merger. Approximately $35 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, 2023, excluding debt issuance costs, premiums and discounts, are as follows:
| Total | ||||
| 2024 | $ | 472 | ||
| 2025 | 485 | |||
| 2026 | — | |||
| 2027 | 463 | |||
| 2028 | 325 | |||
| Thereafter | 4,376 | |||
| Total | $ | 6,121 |
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
On or after the dates in the following schedule, Devon has 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 the indenture documents governing the notes to be redeemed. At any time prior to the dates in the following schedule, Devon has the option to redeem some or all of the notes at a specified “make whole” premium as described in such documents. Other than with respect to the notes identified in the schedule below, Devon's senior notes generally include more limited redemption provisions, such as "par call" rights near the maturity date or “make whole” redemption rights.
| Optional Redemption | ||
| 5.25% due October 15, 2027 | October 15, 2022 | |
| 5.875% due June 15, 2028 | June 15, 2023 | |
| 4.50% due January 15, 2030 | January 15, 2025 |
Retirement of Senior Notes
On August 1, 2023, Devon repaid the $242 million of 8.25% senior notes at maturity.
During 2021, Devon redeemed approximately $1.2 billion of senior notes, resulting in $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
During 2023, Devon amended and restated its 2018 Senior Credit Facility to provide for a new $3.0 billion revolving 2023 Senior Credit Facility with a financial covenant and other terms similar to the 2018 Senior Credit Facility. As of December 31, 2023, Devon had $3 million in outstanding letters of credit under the 2023 Senior Credit Facility. There were no borrowings under the 2023 Senior Credit Facility as of December 31, 2023. The 2023 Senior Credit Facility matures on March 24, 2028, with the option to extend the maturity date by three additional one-year periods, subject to lender consent. Amounts borrowed under the 2023 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 2023 Senior Credit Facility currently provides for an annual facility fee of approximately $5 million.
The 2023 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 adjusted to add back certain noncash financial write-downs, such as asset impairments. As of December 31, 2023, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 22%.
Commercial Paper
Devon’s 2023 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, 2023, Devon had no outstanding commercial paper borrowings.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Net Financing Costs
The following schedule includes the components of net financing costs.
| Year Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Interest based on debt outstanding | $ | 369 | $ | 370 | $ | 388 | ||||||
| Gain on early retirement of debt | — | — | (30 | ) | ||||||||
| Interest income | (55 | ) | (38 | ) | (2 | ) | ||||||
| Other | (6 | ) | (23 | ) | (27 | ) | ||||||
| Total net financing costs | $ | 308 | $ | 309 | $ | 329 |
14.
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. During 2023, Devon's financing lease right-of-use assets and the associated liabilities increased primarily from an amendment of lease terms. Certain of Devon’s lease agreements include variable payments based on usage or rental payments adjusted periodically for inflation. Devon’s financing lease arrangement contains various covenants, including covenants similar to the 2023 Senior Credit Facility.
The following table presents Devon’s right-of-use assets and lease liabilities.
| December 31, 2023 | December 31, 2022 | |||||||||||||||||||||||
| Finance | Operating | Total | Finance | Operating | Total | |||||||||||||||||||
| Right-of-use assets | $ | 246 | $ | 21 | $ | 267 | $ | 203 | $ | 21 | $ | 224 | ||||||||||||
| Lease liabilities: | ||||||||||||||||||||||||
| Current lease liabilities (1) | $ | 21 | $ | 12 | $ | 33 | $ | 8 | $ | 13 | $ | 21 | ||||||||||||
| Long-term lease liabilities | 286 | 9 | 295 | 249 | 8 | 257 | ||||||||||||||||||
| Total lease liabilities (2) | $ | 307 | $ | 21 | $ | 328 | $ | 257 | $ | 21 | $ | 278 |
(1)
Current lease liabilities are included in other current liabilities on the consolidated balance sheets.
(2)
Devon has entered into certain leases of equipment related to the exploration, development and production of oil and gas that had terms not yet commenced as of December 31, 2023 and are therefore excluded from the amounts shown above.
The following table presents Devon’s total lease cost.
| Year Ended December 31, | |||||||||||||
| 2023 | 2022 | 2021 | |||||||||||
| Operating lease cost | Property and equipment; LOE; G&A | $ | 13 | $ | 22 | $ | 25 | ||||||
| Short-term lease cost (1) | Property and equipment; LOE; G&A | 193 | 140 | 89 | |||||||||
| Financing lease cost: | |||||||||||||
| Amortization of right-of-use assets | DD&A | 9 | 8 | 8 | |||||||||
| Interest on lease liabilities | Net financing costs | 15 | 11 | 11 | |||||||||
| Variable lease cost | G&A | 5 | — | (4 | ) | ||||||||
| Lease income | G&A | (10 | ) | (8 | ) | (8 | ) | ||||||
| Net lease cost | $ | 225 | $ | 173 | $ | 121 |
(1)
Short-term lease cost excludes leases with terms of one month or less.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents Devon’s additional lease information.
| Year Ended December 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Finance | Operating | Finance | Operating | |||||||||||||
| Cash outflows for lease liabilities: | ||||||||||||||||
| Operating cash flows | $ | 15 | $ | 13 | $ | 8 | $ | 14 | ||||||||
| Investing cash flows | $ | — | $ | 1 | $ | — | $ | 9 | ||||||||
| Right-of-use assets obtained in exchange for new lease liabilities | $ | — | $ | 13 | $ | — | $ | 20 | ||||||||
| Weighted average remaining lease term (years) | 9.4 | 2.2 | 5.0 | 1.7 | ||||||||||||
| Weighted average discount rate | 6.1 | % | 4.9 | % | 4.2 | % | 2.8 | % |
The following table presents Devon’s maturity analysis as of December 31, 2023 for leases expiring in each of the next 5 years and thereafter.
| Finance | Operating | Total | ||||||||||
| 2024 | $ | 21 | $ | 12 | $ | 33 | ||||||
| 2025 | 21 | 6 | 27 | |||||||||
| 2026 | 21 | 4 | 25 | |||||||||
| 2027 | 21 | — | 21 | |||||||||
| 2028 | 21 | — | 21 | |||||||||
| Thereafter(1) | 372 | — | 372 | |||||||||
| Total lease payments | 477 | 22 | 499 | |||||||||
| Less: interest | (170 | ) | (1 | ) | (171 | ) | ||||||
| Present value of lease liabilities | $ | 307 | $ | 21 | $ | 328 |
(1)
Devon has one real estate lease that contains a residual value guarantee. Under the lease terms, the residual value guarantee stipulates that if the lessor were to sell the leased property and receive sale proceeds less than 90% of the lease liability at the time of sale, Devon would be required to make a shortfall payment to the lessor for the difference.
Devon rents or subleases certain real estate to third parties. The following table presents Devon’s expected lease income as of December 31, 2023 for each of the next 5 years and thereafter.
| Operating | ||||
| Lease Income | ||||
| 2024 | $ | 11 | ||
| 2025 | 13 | |||
| 2026 | 13 | |||
| 2027 | 13 | |||
| 2028 | 14 | |||
| Thereafter | 61 | |||
| Total | $ | 125 |
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
15.
Asset Retirement Obligations
The following table presents the changes in asset retirement obligations.
| Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Asset retirement obligations as of beginning of period | $ | 529 | $ | 485 | ||||
| Liabilities incurred and assumed through acquisitions | 110 | 73 | ||||||
| Liabilities settled and divested | (30 | ) | (19 | ) | ||||
| Revision of estimated obligation | 27 | (35 | ) | |||||
| Accretion expense on discounted obligation | 29 | 25 | ||||||
| Asset retirement obligations as of end of period | 665 | 529 | ||||||
| Less current portion | 22 | 18 | ||||||
| Asset retirement obligations, long-term | $ | 643 | $ | 511 |
Devon's asset retirement obligations recorded during 2023 include a potential obligation to decommission two California offshore oil and gas production platforms and related facilities pursuant to an order of the Department of the Interior, Bureau of Safety and Environmental Enforcement. For additional information, see Note 18.
Devon also increased its asset retirement obligations during 2023 by approximately $27 million primarily due to inflation-driven increases in current cost estimates.
During 2022, Devon increased its asset retirement obligations by approximately $38 million due to asset acquisitions in the Eagle Ford and Williston Basin. During this same time period, Devon reduced its asset retirement obligations by $35 million primarily due to extended retirement dates for oil and gas assets, partially offset by inflation-driven increases to current settlement costs.
16.
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 $38 million, $37 million and $33 million to these plans in 2023, 2022 and 2021, 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.
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.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 do not consistently trade actively in an established market. The fair values of these Level 2 securities are estimated based upon rates available for securities with similar terms and maturity when active trading is not available and were $418 million and $384 million at December 31, 2023 and 2022, 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 $44 million and $49 million at December 31, 2023 and 2022, 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 $25 million at December 31, 2023 and 2022, 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.
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, 2023 and 2022.
| Pension Benefits | Postretirement Benefits | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Change in benefit obligation: | ||||||||||||||||
| Benefit obligation at beginning of year | $ | 629 | $ | 880 | $ | 7 | $ | 12 | ||||||||
| Interest cost | 34 | 19 | — | — | ||||||||||||
| Actuarial loss (gain) | 46 | (215 | ) | 1 | (4 | ) | ||||||||||
| Participant contributions | — | — | 1 | 1 | ||||||||||||
| Benefits paid | (54 | ) | (55 | ) | (2 | ) | (2 | ) | ||||||||
| Benefit obligation at end of year | 655 | 629 | 7 | 7 | ||||||||||||
| Change in plan assets: | ||||||||||||||||
| Fair value of plan assets at beginning of year | 458 | 671 | — | — | ||||||||||||
| Actual return on plan assets | 58 | (172 | ) | — | — | |||||||||||
| Employer contributions | 14 | 14 | 1 | 1 | ||||||||||||
| Participant contributions | — | — | 1 | 1 | ||||||||||||
| Benefits paid | (54 | ) | (55 | ) | (2 | ) | (2 | ) | ||||||||
| Fair value of plan assets at end of year | 476 | 458 | — | — | ||||||||||||
| Funded status at end of year | $ | (179 | ) | $ | (171 | ) | $ | (7 | ) | $ | (7 | ) | ||||
| Amounts recognized in balance sheet: | ||||||||||||||||
| Other current liabilities | $ | (13 | ) | $ | (14 | ) | $ | (1 | ) | $ | (1 | ) | ||||
| Other long-term liabilities | (166 | ) | (157 | ) | (6 | ) | (6 | ) | ||||||||
| Net amount | $ | (179 | ) | $ | (171 | ) | $ | (7 | ) | $ | (7 | ) | ||||
| Amounts recognized in accumulated other comprehensive earnings: | ||||||||||||||||
| Net actuarial loss (gain) | $ | 198 | $ | 189 | $ | (14 | ) | $ | (15 | ) | ||||||
| Prior service cost | — | — | 1 | 1 | ||||||||||||
| Total | $ | 198 | $ | 189 | $ | (13 | ) | $ | (14 | ) |
Certain of Devon’s pension plans have a combined projected benefit obligation or accumulated benefit obligation in excess of plan assets at December 31, 2023, and December 31, 2022, as presented in the table below.
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Projected and accumulated benefit obligation | $ | 655 | $ | 629 | ||||
| Fair value of plan assets | $ | 476 | $ | 458 |
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents the components of net periodic benefit cost and other comprehensive earnings.
| Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | |||||||||||||||||||
| Net periodic benefit cost: | ||||||||||||||||||||||||
| Interest cost | $ | 34 | $ | 19 | $ | 18 | $ | — | $ | — | $ | — | ||||||||||||
| Expected return on plan assets | (27 | ) | (31 | ) | (34 | ) | — | — | — | |||||||||||||||
| Recognition of net actuarial loss (gain) (1) | 6 | 6 | 4 | (1 | ) | (1 | ) | (1 | ) | |||||||||||||||
| Total net periodic benefit cost (2) | 13 | (6 | ) | (12 | ) | (1 | ) | (1 | ) | (1 | ) | |||||||||||||
| Other comprehensive loss (earnings): | ||||||||||||||||||||||||
| Actuarial loss (gain) arising in current year | 16 | (11 | ) | 28 | — | (4 | ) | (1 | ) | |||||||||||||||
| Prior service cost arising in current year | — | — | — | — | — | 1 | ||||||||||||||||||
| Recognition of net actuarial (loss) gain, including settlement expense, in net periodic benefit cost | (6 | ) | (6 | ) | (23 | ) | 1 | 1 | 1 | |||||||||||||||
| Total other comprehensive loss (earnings) | 10 | (17 | ) | 5 | 1 | (3 | ) | 1 | ||||||||||||||||
| Total | $ | 23 | $ | (23 | ) | $ | (7 | ) | $ | — | $ | (4 | ) | $ | — |
(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.
Assumptions
| Pension Benefits | Postretirement Benefits | |||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | |||||||
| Assumptions to determine benefit obligations: | ||||||||||||
| Discount rate | 5.01% | 5.78% | 2.71% | 4.96% | 5.71% | 2.34% | ||||||
| Assumptions to determine net periodic benefit cost: | ||||||||||||
| Discount rate - service cost | N/A | N/A | N/A | 5.81% | 2.83% | 2.51% | ||||||
| Discount rate - interest cost | 5.61% | 2.18% | 2.11% | 5.49% | 1.57% | 1.01% | ||||||
| Expected return on plan assets | 6.21% | 4.80% | 5.00% | 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 2023 benefit obligation for the other postretirement medical plans, a 6.6% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2024. The rate was assumed to decrease annually to an ultimate rate of 5% in the year 2031 and remain at that level thereafter.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Expected Cash Flows
Devon expects benefit plan payments to average approximately $52 million a year for the next five years and $244 million total for the five years thereafter. Of these payments to be paid in 2024, $15 million is expected to be funded from Devon’s available cash, cash equivalents and other assets.
17.
Stockholders’ Equity
The authorized capital stock of Devon consists of 1.0 billion shares of common stock, par value $0.10 per share, and 4.5 million shares of preferred stock, par value $1.00 per share. The preferred stock may be issued in one or more series, and the terms and rights of such stock will be determined by the Board of Directors.
Share Repurchase Program
In November 2021, Devon announced a new share repurchase program of $1.0 billion with a December 31, 2022 expiration date. In 2022, the Board of Directors authorized expansions of the share repurchase program to $2.0 billion and extended the expiration date to May 4, 2023. In May 2023, the Board of Directors authorized a further expansion to $3.0 billion and extended the expiration date to December 31, 2024. The table below provides information regarding purchases of Devon’s common stock that were made under the share repurchase program (shares in thousands).
| Total Number of Shares Purchased | Dollar Value of Shares Purchased | Average Price Paid per Share | ||||||||||
| $3.0 Billion Plan | ||||||||||||
| 2021 | 13,983 | $ | 589 | $ | 42.15 | |||||||
| 2022 | 11,708 | 718 | 61.36 | |||||||||
| 2023 | 19,350 | 992 | 51.23 | |||||||||
| Total plan | 45,041 | $ | 2,299 | $ | 51.05 |
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Dividends
Devon pays a quarterly dividend which is comprised of a fixed dividend and a variable dividend. The variable dividend is dependent on quarterly cash flows, among other factors. Devon has raised its fixed quarterly dividend multiple times over the past four calendar years from $0.11 per share in 2021 to $0.22 per share beginning in the first quarter of 2024. The following table summarizes the dividends Devon has paid on its common stock in 2023, 2022 and 2021, respectively.
| Fixed | Variable | Total | Rate Per Share | ||||||||||||
| 2023: | |||||||||||||||
| First quarter | $ | 133 | $ | 463 | $ | 596 | $ | 0.89 | |||||||
| Second quarter | 128 | 334 | 462 | $ | 0.72 | ||||||||||
| Third quarter | 127 | 185 | 312 | $ | 0.49 | ||||||||||
| Fourth quarter | 127 | 361 | 488 | $ | 0.77 | ||||||||||
| Total year-to-date | $ | 515 | $ | 1,343 | $ | 1,858 | |||||||||
| 2022: | |||||||||||||||
| First quarter | $ | 109 | $ | 558 | $ | 667 | $ | 1.00 | |||||||
| Second quarter | 105 | 725 | 830 | $ | 1.27 | ||||||||||
| Third quarter | 117 | 890 | 1,007 | $ | 1.55 | ||||||||||
| Fourth quarter | 117 | 758 | 875 | $ | 1.35 | ||||||||||
| Total year-to-date | $ | 448 | $ | 2,931 | $ | 3,379 | |||||||||
| 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 |
In February 2024, Devon raised its fixed quarterly dividend by 10%, to $0.22 per share, and announced a cash dividend in the amount of $0.44 per share payable in the first quarter of 2024. The dividend consists of a $0.22 per share fixed quarterly dividend and a $0.22 per share variable quarterly dividend and will total approximately $280 million.
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.
18.
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,
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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, paid royalty proceeds in an untimely manner without including required interest, 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.
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 denies the allegations in these lawsuits and 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 denies the allegations asserted in these lawsuits and intends to vigorously defend against these claims.
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 (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, undertaking other restorative actions 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 on 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. Devon denies any obligation to decommission the subject platforms and has appealed the order. In the third quarter of 2023, Devon settled certain defense and indemnity claims against a third party
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
related to these potential decommissioning obligations. Pursuant to that settlement agreement, Devon received a settlement payment in the fourth quarter of 2023 which Devon believes will offset any potential decommissioning liability it may incur related to the subject platforms. Although Devon continues to pursue its appeal of the government's order and deny any obligation to decommission the subject platforms, in conjunction with the third-party settlement, Devon recorded an increase to its asset retirement obligations in 2023.
Commitments
The following table presents Devon’s commitments that have initial or remaining noncancelable terms in excess of one year as of December 31, 2023.
| Year Ending December 31, | Drilling and Facility Obligations**(1)** | Operational Agreements**(1)** | Office and Equipment Leases and Other | |||||||||
| 2024 | $ | 190 | $ | 523 | $ | 103 | ||||||
| 2025 | 25 | 550 | 83 | |||||||||
| 2026 | 19 | 514 | 58 | |||||||||
| 2027 | 23 | 384 | 42 | |||||||||
| 2028 | 35 | 362 | 37 | |||||||||
| Thereafter | 4 | 1,132 | 432 | |||||||||
| Total | $ | 296 | $ | 3,465 | $ | 755 |
(1)
Total costs incurred under take-or-pay and throughput obligations were approximately $750 million, $650 million and $500 million in 2023, 2022 and 2021, respectively.
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.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
19.
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, 2023 and December 31, 2022, 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, 2023 assets (liabilities): | ||||||||||||||||||||
| Cash equivalents | $ | 306 | $ | 306 | $ | 306 | $ | — | $ | — | ||||||||||
| Commodity derivatives | $ | 208 | $ | 208 | $ | — | $ | 208 | $ | — | ||||||||||
| Commodity derivatives | $ | (9 | ) | $ | (9 | ) | $ | — | $ | (9 | ) | $ | — | |||||||
| Debt | $ | (6,155 | ) | $ | (6,090 | ) | $ | — | $ | (6,090 | ) | $ | — | |||||||
| Contingent earnout payments | $ | 55 | $ | 55 | $ | — | $ | — | $ | 55 | ||||||||||
| December 31, 2022 assets (liabilities): | ||||||||||||||||||||
| Cash equivalents | $ | 708 | $ | 708 | $ | 708 | $ | — | $ | — | ||||||||||
| Commodity derivatives | $ | 131 | $ | 131 | $ | — | $ | 131 | $ | — | ||||||||||
| Commodity derivatives | $ | (3 | ) | $ | (3 | ) | $ | — | $ | (3 | ) | $ | — | |||||||
| Debt | $ | (6,440 | ) | $ | (6,231 | ) | $ | — | $ | (6,231 | ) | $ | — | |||||||
| Contingent earnout payments | $ | 157 | $ | 157 | $ | — | $ | — | $ | 157 |
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 asset divestiture 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.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
20.
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.
Costs Incurred
The following tables reflect the costs incurred in oil and gas property acquisition, exploration and development activities.
| Year Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Property acquisition costs: | ||||||||||||
| Proved properties | $ | 2 | $ | 1,760 | $ | 7,017 | ||||||
| Unproved properties | 63 | 803 | 2,381 | |||||||||
| Exploration costs | 534 | 472 | 212 | |||||||||
| Development costs | 3,160 | 2,132 | 1,643 | |||||||||
| Costs incurred | $ | 3,759 | $ | 5,167 | $ | 11,253 |
Acquisition costs for 2022 in the table above pertain primarily to the Eagle Ford and Williston Basin acquisitions which closed in the third quarter of 2022. Acquisition costs for 2021 primarily relate to the Merger. Development costs in the tables above include additions and revisions to Devon’s asset retirement obligations.
Results of Operations
The following table includes revenues and expenses associated with Devon’s oil and gas producing activities. It does not include any allocation of Devon’s interest costs or general corporate overhead and, therefore, is not necessarily indicative of the contribution to net earnings of Devon’s oil and gas operations. Income tax expense has been calculated using statutory income tax rates, and then giving effect to permanent differences associated with oil and gas producing activities.
| Year Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Oil, gas and NGL sales | $ | 10,791 | $ | 14,082 | $ | 9,531 | ||||||
| Production expenses | (2,928 | ) | (2,797 | ) | (2,131 | ) | ||||||
| Exploration expenses | (20 | ) | (29 | ) | (14 | ) | ||||||
| Depreciation, depletion and amortization | (2,464 | ) | (2,119 | ) | (2,050 | ) | ||||||
| Asset dispositions | (33 | ) | 43 | 170 | ||||||||
| Accretion of asset retirement obligations | (29 | ) | (25 | ) | (28 | ) | ||||||
| Income tax expense | (1,044 | ) | (2,041 | ) | (1,238 | ) | ||||||
| Results of operations | $ | 4,273 | $ | 7,114 | $ | 4,240 | ||||||
| Depreciation, depletion and amortization per Boe | $ | 10.27 | $ | 9.52 | $ | 9.83 |
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, 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 | ||||||||||||
| Revisions due to prices | 15 | 61 | 8 | 34 | ||||||||||||
| Revisions other than price | (55 | ) | 13 | 3 | (49 | ) | ||||||||||
| Extensions and discoveries | 127 | 449 | 76 | 278 | ||||||||||||
| Purchase of reserves | 106 | 137 | 24 | 153 | ||||||||||||
| Production | (109 | ) | (356 | ) | (54 | ) | (223 | ) | ||||||||
| Sale of reserves | — | (7 | ) | (1 | ) | (3 | ) | |||||||||
| December 31, 2022 | 793 | 3,175 | 493 | 1,815 | ||||||||||||
| Revisions due to prices | (25 | ) | (189 | ) | (22 | ) | (78 | ) | ||||||||
| Revisions other than price | (12 | ) | 58 | 1 | (1 | ) | ||||||||||
| Extensions and discoveries | 147 | 525 | 87 | 322 | ||||||||||||
| Production | (117 | ) | (385 | ) | (59 | ) | (240 | ) | ||||||||
| Sale of reserves | — | (2 | ) | — | (1 | ) | ||||||||||
| December 31, 2023 | 786 | 3,182 | 500 | 1,817 | ||||||||||||
| Proved developed reserves: | ||||||||||||||||
| December 31, 2020 | 194 | 1,244 | 173 | 574 | ||||||||||||
| December 31, 2021 | 544 | 2,361 | 348 | 1,285 | ||||||||||||
| December 31, 2022 | 596 | 2,595 | 391 | 1,419 | ||||||||||||
| December 31, 2023 | 603 | 2,560 | 395 | 1,425 | ||||||||||||
| Proved developed-producing reserves: | ||||||||||||||||
| December 31, 2020 | 190 | 1,223 | 171 | 564 | ||||||||||||
| December 31, 2021 | 533 | 2,316 | 341 | 1,260 | ||||||||||||
| December 31, 2022 | 585 | 2,553 | 387 | 1,397 | ||||||||||||
| December 31, 2023 | 586 | 2,505 | 386 | 1,390 | ||||||||||||
| Proved undeveloped reserves: | ||||||||||||||||
| December 31, 2020 | 88 | 268 | 45 | 178 | ||||||||||||
| December 31, 2021 | 165 | 517 | 89 | 340 | ||||||||||||
| December 31, 2022 | 197 | 580 | 102 | 396 | ||||||||||||
| December 31, 2023 | 183 | 622 | 105 | 392 |
(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 decreased 78 MMBoe in 2023 primarily due to price decreases in the trailing 12 month averages for oil, gas and NGLs.
Reserves increased 34 MMBoe in 2022 primarily due to price increases in the trailing 12 month averages for oil, gas and NGLs.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Reserves increased 155 MMBoe in 2021 primarily due to price increases in the trailing 12 month averages for oil, gas and NGLs.
Revisions Other Than Price
2023 – Total revisions other than price (-1 MMBoe) are the result of upward revisions due to well performance exceeding previous estimates on developed properties (11 MMBoe), which were offset by downward revisions to proved undeveloped reserves (-12 MMBoe) as noted below. In total, we recorded modest upward revisions in the Delaware Basin (7 MMboe), Eagle Ford (5 MMBoe), Anadarko Basin (4 MMBoe) and Powder River Basin (2 MMBoe) which were offset by downward revisions in the Williston Basin (-19 MMboe) due to reduced well performance compared to previous estimates.
2022 – Total revisions other than price (-49 MMBoe) were driven by higher operating costs across all areas of operation and revisions to proved undeveloped reserves. These downward revisions were partially offset by upward revisions due to well performance exceeding previous estimates primarily in the Delaware Basin. In total, after accounting for these compensating factors, we recorded negative revisions across each of our operating areas with the most significant changes being located in the Delaware Basin (-33 MMBoe), followed by the Powder River Basin (-5 MMBoe) and the Anadarko Basin (-4 MMBoe).
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 (-10 MMBoe). The upward revisions were driven by the Delaware Basin (23 MMBoe), Williston Basin (12 MMBoe) and Anadarko Basin (12 MMBoe).
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.
2023 – Of the 322 MMBoe of additions from extensions and discoveries, 212 MMBoe were in the Delaware Basin, 33 MMBoe were in the Anadarko Basin, 32 MMBoe were in Eagle Ford, 26 MMBoe were in the Powder River Basin and 19 MMBoe were in the Williston Basin.
2022 – Of the 278 MMBoe of additions from extensions and discoveries, 255 MMBoe were in the Delaware Basin, 7 MMBoe were in the Powder River Basin, 6 MMBoe were in Eagle Ford, 5 MMBoe were in the Anadarko Basin and 5 MMBoe were in the Williston Basin.
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.
Purchase of Reserves
During 2022, Devon had reserve additions due to the acquisitions of 66 MMBoe in the Williston Basin and 87 MMBoe in the Eagle Ford. For additional information on these asset additions, see Note 2.
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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.
Sale of Reserves
During 2021, 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 2023 (MMBoe).
| Total | ||||
| Proved undeveloped reserves as of December 31, 2022 | 396 | |||
| Extensions and discoveries | 177 | |||
| Revisions due to prices | (4 | ) | ||
| Revisions other than price | (12 | ) | ||
| Conversion to proved developed reserves | (165 | ) | ||
| Proved undeveloped reserves as of December 31, 2023 | 392 |
Total proved undeveloped reserves decreased 1% from 2022 to 2023 with the year-end 2023 balance representing 22% of total proved reserves. Approximately 59% of the 177 MMBoe in extensions and discoveries were the result of Devon’s drilling and development activities in the Delaware Basin, followed by the Anadarko Basin (14%), Eagle Ford (12%), Powder River Basin (11%) and Williston Basin (4%). Development in the Delaware Basin accounted for approximately 78% of the 165 MMBoe of proved undeveloped reserves being converted to proved developed reserves in 2023. Costs incurred in 2023 to develop and convert Devon’s proved undeveloped reserves were approximately $1.5 billion. Proved undeveloped reserves revisions other than price (-12 MMBoe) were due to changes in previously adopted development plans (-8 MMBoe) in the Williston Basin (-5 MMBoe), Delaware Basin (-2 MMBoe) and Powder River Basin (-1 MMBoe), combined with modest downward revisions (-4 MMBoe) caused by continued evaluation of well performance in the Delaware Basin (-2 MMBoe), Williston Basin (-1 MMBoe) and Eagle Ford (-1 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, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Future cash inflows | $ | 75,734 | $ | 108,361 | $ | 66,321 | ||||||
| Future costs: | ||||||||||||
| Development | (5,241 | ) | (5,176 | ) | (3,689 | ) | ||||||
| Production | (31,648 | ) | (35,264 | ) | (22,975 | ) | ||||||
| Future income tax expense | (6,644 | ) | (13,216 | ) | (6,423 | ) | ||||||
| Future net cash flow | 32,201 | 54,705 | 33,234 | |||||||||
| 10% discount to reflect timing of cash flows | (12,888 | ) | (23,391 | ) | (13,933 | ) | ||||||
| Standardized measure of discounted future net cash flows | $ | 19,313 | $ | 31,314 | $ | 19,301 |
DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 2023 estimates, Devon’s future realized prices were assumed to be $76.29 per Bbl of oil, $1.74 per Mcf of gas and $20.43 per Bbl of NGLs. Of the $5.2 billion of future development costs as of the end of 2023, $1.8 billion, $1.0 billion and $0.8 billion are estimated to be spent in 2024, 2025 and 2026, respectively.
Future development costs include not only development costs but also future asset retirement costs. Included as part of the $5.2 billion of future development costs are $0.9 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, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Beginning balance | $ | 31,314 | $ | 19,301 | $ | 3,472 | ||||||
| Net changes in prices and production costs | (16,797 | ) | 14,081 | 8,274 | ||||||||
| Oil, gas and NGL sales, net of production costs | (7,863 | ) | (11,285 | ) | (7,400 | ) | ||||||
| Changes in estimated future development costs | 218 | (216 | ) | (414 | ) | |||||||
| Extensions and discoveries, net of future development costs | 5,222 | 7,279 | 3,877 | |||||||||
| Purchase of reserves | — | 4,185 | 12,460 | |||||||||
| Sales of reserves in place | (9 | ) | (20 | ) | (12 | ) | ||||||
| Revisions of quantity estimates | (747 | ) | (874 | ) | 838 | |||||||
| Previously estimated development costs incurred during the period | 1,567 | 956 | 663 | |||||||||
| Accretion of discount | 2,972 | 2,059 | 1,218 | |||||||||
| Net change in income taxes and other | 3,436 | (4,152 | ) | (3,675 | ) | |||||||
| Ending balance | $ | 19,313 | $ | 31,314 | $ | 19,301 |
Previous: Item 7A. Quantitative and Qualitative Disclosures about Market Risk · Next: Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure