Item 1. Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

		Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
		(Unaudited)
Oil, gas and NGL sales		$	2,635			$	678			$	6,546			$	1,909
Oil, gas and NGL derivatives			(335	)			(87	)			(1,566	)			272
Marketing and midstream revenues			1,166				476				2,953				1,367
Total revenues			3,466				1,067				7,933				3,548
Production expenses			555				271				1,526				852
Exploration expenses			3				39				9				163
Marketing and midstream expenses			1,165				478				2,972				1,395
Depreciation, depletion and amortization			578				299				1,581				999
Asset impairments			—				—				—				2,666
Asset dispositions			—				—				(119	)			—
General and administrative expenses			95				75				296				256
Financing costs, net			86				66				243				200
Restructuring and transaction costs			18				32				230				32
Other, net			2				—				(41	)			(35	)
Total expenses			2,502				1,260				6,697				6,528
Earnings (loss) from continuing operations before income taxes			964				(193	)			1,236				(2,980	)
Income tax expense (benefit)			120				(90	)			(85	)			(510	)
Net earnings (loss) from continuing operations			844				(103	)			1,321				(2,470	)
Net earnings (loss) from discontinued operations, net of income taxes			—				13				—				(103	)
Net earnings (loss)			844				(90	)			1,321				(2,573	)
Net earnings attributable to noncontrolling interests			6				2				14				5
Net earnings (loss) attributable to Devon		$	838			$	(92	)		$	1,307			$	(2,578	)
Basic net earnings (loss) per share:
Basic earnings (loss) from continuing operations per share		$	1.24			$	(0.29	)		$	1.95			$	(6.58	)
Basic earnings (loss) from discontinued operations per share			—				0.04				—				(0.27	)
Basic net earnings (loss) per share		$	1.24			$	(0.25	)		$	1.95			$	(6.85	)
Diluted net earnings (loss) per share:
Diluted earnings (loss) from continuing operations per share		$	1.24			$	(0.29	)		$	1.95			$	(6.58	)
Diluted earnings (loss) from discontinued operations per share			—				0.04				—				(0.27	)
Diluted net earnings (loss) per share		$	1.24			$	(0.25	)		$	1.95			$	(6.85	)
Comprehensive earnings (loss):
Net earnings (loss)		$	844			$	(90	)		$	1,321			$	(2,573	)
Other comprehensive earnings, net of tax:
Pension and postretirement plans			1				1				27				3
Other comprehensive earnings, net of tax			1				1				27				3
Comprehensive earnings (loss):			845				(89	)			1,348				(2,570	)
Comprehensive earnings attributable to noncontrolling interests			6				2				14				5
Comprehensive earnings (loss) attributable to Devon		$	839			$	(91	)		$	1,334			$	(2,575	)

See accompanying notes to consolidated financial statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
		(Unaudited)
Cash flows from operating activities:
Net earnings (loss)		$	844			$	(90	)		$	1,321			$	(2,573	)
Adjustments to reconcile net earnings (loss) to net cash from operating activities:
Net (earnings) loss from discontinued operations, net of income taxes			—				(13	)			—				103
Depreciation, depletion and amortization			578				299				1,581				999
Asset impairments			—				—				—				2,666
Leasehold impairments			1				36				3				149
(Amortization) accretion of liabilities			(7	)			8				(21	)			24
Total (gains) losses on commodity derivatives			335				87				1,566				(272	)
Cash settlements on commodity derivatives			(370	)			10				(969	)			343
Gains on asset dispositions			—				—				(119	)			—
Deferred income tax expense (benefit)			119				—				(100	)			(311	)
Share-based compensation			19				31				80				70
Early retirement of debt			—				—				(30	)			—
Other			11				1				13				5
Changes in assets and liabilities, net			68				58				(42	)			(97	)
Net cash from operating activities - continuing operations			1,598				427				3,283				1,106
Cash flows from investing activities:
Capital expenditures			(474	)			(204	)			(1,477	)			(936	)
Acquisitions of property and equipment			(10	)			—				(15	)			(5	)
Divestitures of property and equipment			1				1				65				29
WPX acquired cash			—				—				344				—
Distributions from equity method investments			9				—				27				—
Net cash from investing activities - continuing operations			(474	)			(203	)			(1,056	)			(912	)
Cash flows from financing activities:
Repayments of long-term debt			—				—				(1,243	)			—
Early retirement of debt			—				—				(59	)			—
Repurchases of common stock			—				—				—				(38	)
Dividends paid on common stock			(329	)			(43	)			(761	)			(119	)
Contributions from noncontrolling interests			1				1				4				12
Distributions to noncontrolling interests			(6	)			(4	)			(15	)			(10	)
Acquisition of noncontrolling interests			—				—				(24	)			—
Shares exchanged for tax withholdings and other			(3	)			—				(45	)			(17	)
Net cash from financing activities - continuing operations			(337	)			(46	)			(2,143	)			(172	)
Effect of exchange rate changes on cash - continuing operations			(5	)			—				—				—
Net change in cash, cash equivalents and restricted cash of continuing operations			782				178				84				22
Cash flows from discontinued operations:
Operating activities			—				45				—				(129	)
Investing activities			—				1				—				171
Financing activities			—				—				—				—
Effect of exchange rate changes on cash			—				4				—				(11	)
Net change in cash, cash equivalents and restricted cash of discontinued operations			—				50				—				31
Net change in cash, cash equivalents and restricted cash			782				228				84				53
Cash, cash equivalents and restricted cash at beginning of period			1,539				1,669				2,237				1,844
Cash, cash equivalents and restricted cash at end of period		$	2,321			$	1,897			$	2,321			$	1,897
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents		$	2,144			$	1,707			$	2,144			$	1,707
Restricted cash			177				190				177				190
Total cash, cash equivalents and restricted cash		$	2,321			$	1,897			$	2,321			$	1,897

See accompanying notes to consolidated financial statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		September 30, 2021				December 31, 2020
		(Unaudited)
ASSETS
Current assets:
Cash, cash equivalents and restricted cash		$	2,321			$	2,237
Accounts receivable			1,517				601
Income taxes receivable			80				174
Other current assets			309				248
Total current assets			4,227				3,260
Oil and gas property and equipment, based on successful efforts accounting, net			13,613				4,436
Other property and equipment, net ($106 million and $102 million related to CDM in 2021 and 2020, respectively)			1,465				957
Total property and equipment, net			15,078				5,393
Goodwill			753				753
Right-of-use assets			244				223
Investments			388				12
Other long-term assets			367				271
Total assets		$	21,057			$	9,912
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	537			$	242
Revenues and royalties payable			1,443				662
Other current liabilities			1,525				536
Total current liabilities			3,505				1,440
Long-term debt			6,492				4,298
Lease liabilities			256				246
Asset retirement obligations			462				358
Other long-term liabilities			1,281				551
Stockholders' equity:
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 677 million and 382 million shares in 2021 and 2020, respectively			68				38
Additional paid-in capital			8,206				2,766
Retained earnings			750				208
Accumulated other comprehensive loss			(100	)			(127	)
Total stockholders’ equity attributable to Devon			8,924				2,885
Noncontrolling interests			137				134
Total equity			9,061				3,019
Total liabilities and equity		$	21,057			$	9,912

See accompanying notes to consolidated financial statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

																		Other
										Additional								Comprehensive
		Common Stock								Paid-In				Retained				Earnings				Treasury				Noncontrolling				Total
		Shares				Amount				Capital				Earnings				(Loss)				Stock				Interests				Equity
		(Unaudited)
Three Months Ended September 30, 2021
Balance as of June 30, 2021			677			$	68			$	8,189			$	243			$	(101	)		$	—			$	136			$	8,535
Net earnings			—				—				—				838				—				—				6				844
Other comprehensive earnings, net of tax			—				—				—				—				1				—				—				1
Restricted stock grants, net of cancellations			—				—				(1	)			—				—				—				—				(1	)
Common stock repurchased			—				—				—				—				—				(1	)			—				(1	)
Common stock retired			—				—				(1	)			—				—				1				—				—
Common stock dividends			—				—				—				(331	)			—				—				—				(331	)
Share-based compensation			—				—				19				—				—				—				—				19
Contributions from noncontrolling interests			—				—				—				—				—				—				1				1
Distributions to noncontrolling interests			—				—				—				—				—				—				(6	)			(6	)
Balance as of September 30, 2021			677			$	68			$	8,206			$	750			$	(100	)		$	—			$	137			$	9,061
Three Months Ended September 30, 2020
Balance as of June 30, 2020			383			$	38			$	2,720			$	586			$	(117	)		$	—			$	126			$	3,353
Net earnings (loss)			—				—				—				(92	)			—				—				2				(90	)
Other comprehensive earnings, net of tax			—				—				—				—				1				—				—				1
Common stock repurchased			—				—				—				—				—				(1	)			—				(1	)
Common stock retired			—				—				(1	)			—				—				1				—				—
Common stock dividends			—				—				—				(143	)			—				—				—				(143	)
Share-based compensation			—				—				31				—				—				—				—				31
Contributions from noncontrolling interests			—				—				—				—				—				—				1				1
Distributions to noncontrolling interests			—				—				—				—				—				—				(4	)			(4	)
Balance as of September 30, 2020			383			$	38			$	2,750			$	351			$	(116	)		$	—			$	125			$	3,148
Nine Months Ended September 30, 2021
Balance as of December 31, 2020			382			$	38			$	2,766			$	208			$	(127	)		$	—			$	134			$	3,019
Net earnings			—				—				—				1,307				—				—				14				1,321
Other comprehensive earnings, net of tax			—				—				—				—				27				—				—				27
Restricted stock grants, net of cancellations			6				1				(2	)			—				—				—				—				(1	)
Common stock repurchased			—				—				—				—				—				(41	)			—				(41	)
Common stock retired			(2	)			—				(41	)			—				—				41				—				—
Common stock dividends			—				—				—				(765	)			—				—				—				(765	)
Common stock issued			290				29				5,403				—				—				—				—				5,432
Share-based compensation			1				—				80				—				—				—				—				80
Contributions from noncontrolling interests			—				—				—				—				—				—				3				3
Distributions to noncontrolling interests			—				—				—				—				—				—				(14	)			(14	)
Balance as of September 30, 2021			677			$	68			$	8,206			$	750			$	(100	)		$	—			$	137			$	9,061
Nine Months Ended September 30, 2020
Balance as of December 31, 2019			382			$	38			$	2,735			$	3,148			$	(119	)		$	—			$	118			$	5,920
Net earnings (loss)			—				—				—				(2,578	)			—				—				5				(2,573	)
Other comprehensive earnings, net of tax			—				—				—				—				3				—				—				3
Restricted stock grants, net of cancellations			3				—				—				—				—				—				—				—
Common stock repurchased			—				—				—				—				—				(55	)			—				(55	)
Common stock retired			(3	)			—				(55	)			—				—				55				—				—
Common stock dividends			—				—				—				(219	)			—				—				—				(219	)
Share-based compensation			1				—				70				—				—				—				—				70
Contributions from noncontrolling interests			—				—				—				—				—				—				12				12
Distributions to noncontrolling interests			—				—				—				—				—				—				(10	)			(10	)
Balance as of September 30, 2020			383			$	38			$	2,750			$	351			$	(116	)		$	—			$	125			$	3,148

See accompanying notes to consolidated financial statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Summary of Significant Accounting Policies

The accompanying unaudited interim financial statements and notes of Devon have been prepared pursuant to the rules and regulations of the SEC. Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. The accompanying unaudited interim financial statements and notes should be read in conjunction with the financial statements and notes included in Devon’s 2020 Annual Report on Form 10-K. The accompanying unaudited interim financial statements in this report reflect all adjustments that are, in the opinion of management, necessary for a fair statement of Devon’s results of operations and cash flows for the three-month and nine-month periods ended September 30, 2021 and 2020 and Devon’s financial position as of September 30, 2021.

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

As further discussed in Note 17, Devon closed on the sale of its Barnett Shale assets in October 2020. Prior to December 31, 2020, activity relating to Devon’s Barnett Shale assets is classified as discontinued operations within Devon’s consolidated statements of comprehensive earnings and consolidated statements of cash flows.

As of September 30, 2021, Devon classified approximately $165 million of cash as restricted cash on the consolidated balance sheets for obligations retained related to the Barnett Shale assets and the Canadian business. Cash payments for these charges related to the Barnett assets and Canada business total approximately $10 million per quarter.

Variable Interest Entity

Cotton Draw Midstream, L.L.C. (“CDM”) is a joint venture entity formed by Devon and an affiliate of QL Capital Partners, LP. CDM provides gathering, compression and dehydration services for natural gas production in the Cotton Draw area of 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. 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

In conjunction with the Merger, Devon acquired an interest in Catalyst which is a joint venture established between WPX and Howard Energy Partners (“HEP”) 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 HEP each have a 50 percent voting interest in the joint venture legal entity, and HEP serves as the operator. Through 2038, Devon’s production from 50,000 net acres in the Stateline area of the Delaware Basin has been dedicated to Catalyst subject to fixed-fee oil gathering and natural gas processing agreements. The agreements do not include any minimum volume commitments. Devon accounts for the investment in Catalyst as an equity method investment. Devon’s investment in Catalyst is shown within investments on the consolidated balance sheet and Devon’s share of Catalyst earnings are reflected as a component of other, net in the accompanying consolidated statements of comprehensive earnings.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Disaggregation of Revenue

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
Oil		$	1,900			$	504			$	4,917			$	1,462
Gas			309				79				699				221
NGL			426				95				930				226
Oil, gas and NGL sales			2,635				678				6,546				1,909
Oil			649				233				1,758				702
Gas			196				100				477				275
NGL			321				143				718				390
Marketing and midstream revenues			1,166				476				2,953				1,367
Total revenues from contracts with customers		$	3,801			$	1,154			$	9,499			$	3,276

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 United States federal income tax purposes.

Purchase Price Allocation

The transaction has been accounted for using the acquisition method of accounting, with Devon being treated as the accounting acquirer. Under the acquisition method of accounting, the assets and liabilities of WPX and its subsidiaries have been recorded at their respective fair values as of the date of completion of the Merger and added to Devon’s. The preliminary purchase price assessment remains an ongoing process and is subject to change for up to one year subsequent to the closing date of the Merger. Determining the fair value of the assets and liabilities of WPX requires judgment and certain assumptions to be made, the most significant of these being related to the valuation of WPX’s oil and gas properties. The inputs and assumptions related to the oil and gas properties are categorized as level 3 in the fair value hierarchy.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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

		Preliminary Purchase
		Price Allocation
		as of September 30, 2021
Consideration:
WPX Common Stock outstanding			561.2
Exchange Ratio			0.5165
Devon common stock issued			289.9
Devon closing price on January 7, 2021		$	18.57
Total common equity consideration			5,383
Share-based replacement awards			49
Total consideration		$	5,432
Assets acquired:
Cash, cash equivalents and restricted cash		$	344
Accounts receivable			425
Other current assets			49
Right-of-use assets			38
Proved oil and gas property and equipment			7,017
Unproved and properties under development			2,362
Other property and equipment			485
Investments			400
Other long-term assets			43
Total assets acquired		$	11,163
Liabilities assumed:
Accounts payable		$	346
Revenue and royalties payable			223
Other current liabilities			454
Debt			3,562
Lease liabilities			38
Asset retirement obligations			94
Deferred income taxes			249
Other long-term liabilities			765
Total liabilities assumed			5,731
Net assets acquired		$	5,432

WPX Revenues and Earnings

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

		Three Months Ended September 30,				Nine Months Ended September 30,
		2021				2021
Total revenues		$	1,564			$	3,977
Net earnings		$	414			$	969

Pro Forma Financial Information

Due to the Merger closing on January 7, 2021, all activity in the first nine months of 2021 except for the first six days of January is included in Devon’s consolidated statements of comprehensive earnings for the nine months ended September 30, 2021. The following unaudited pro forma financial information for the three and nine months ended September 30, 2020 is based on our historical consolidated financial statements adjusted to reflect as if the Merger had occurred on January 1, 2020. The information below reflects pro forma adjustments to conform WPX’s historical financial information to Devon’s financial statement presentation.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The unaudited pro forma financial information is not necessarily indicative of what would have occurred if the Merger had been completed as of the beginning of the periods presented, nor is it indicative of future results.

		Three Months Ended September 30,				Nine Months Ended September 30,
Continuing operations:		2020				2020
Total revenues		$	1,540			$	5,452
Net loss		$	(281	)		$	(3,247	)
Basic net loss per share		$	(0.42	)		$	(4.87	)

Divestitures

In the first quarter of 2021, Devon completed the sale of non-core assets in the Rockies for proceeds of $9 million, net of purchase price adjustments, and recognized a $35 million gain related to the sale. The transaction includes contingent earnout payments of up to $8 million. The total estimated proved reserves associated with these divested assets was approximately 3 MMBoe. As of December 31, 2020, the associated assets and liabilities were classified as assets held for sale and included in other current assets and other current liabilities, respectively.

In the fourth quarter of 2020, Devon completed the sale of its Barnett Shale assets to BKV for proceeds, net of purchase price adjustments, of $490 million. The agreement with BKV also provides for contingent earnout payments to Devon of up to $260 million based upon future commodity prices, with upside participation beginning at a $2.75 Henry Hub natural gas price or a $50 WTI oil price. The contingent payment period commenced on January 1, 2021 and has a term of four years. The valuation of the future contingent earnout payments included within other current assets and other long-term assets in the September 30, 2021 consolidated balance sheet was $46 million and $85 million, respectively. During the first nine months of 2021, Devon recorded a $65 million increase to the fair value within asset dispositions on the consolidated statements of comprehensive earnings. The value was derived utilizing a Monte Carlo valuation model and qualifies as a level 3 fair value measurement. Additional information can be found in Note 17.

3.Derivative Financial Instruments

Objectives and Strategies

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 commodity derivative financial instruments include financial price swaps, price swaptions, basis swaps, costless price collars and call options. Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. As of September 30, 2021, Devon did not have any open interest rate swap contracts.

Devon does not intend to hold or issue derivative financial instruments for speculative trading purposes and has elected not to designate any of its derivative instruments for hedge accounting treatment.

Counterparty Credit Risk

By using derivative financial instruments, 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 contain provisions that provide for collateral payments if Devon’s or its counterparty’s credit rating falls below certain credit rating levels. As of September 30, 2021, Devon neither held cash collateral of its counterparties nor posted cash collateral to its counterparties.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Commodity Derivatives

As of September 30, 2021, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The second table presents Devon’s oil derivatives that settle against the respective indices noted within the table.

		Price Swaps								Price Swaptions								Price Collars												Call Options Sold
Period		Volume (Bbls/d)				Weighted Average Price ($/Bbl)				Volume (Bbls/d)				Weighted Average Price ($/Bbl)				Volume (Bbls/d)				Weighted Average Floor Price ($/Bbl)				Weighted Average Ceiling Price ($/Bbl)				Volume (Bbls/d)				Weighted Average Price ($/Bbl)
Q4 2021			66,460			$	41.24				—			$	—				48,250			$	38.82			$	48.82				5,000			$	39.50
Q1-Q4 2022			26,112			$	43.75				10,000			$	46.67				20,233			$	46.41			$	56.41				—			$	—

		Oil Basis Swaps
Period		Index		Volume (Bbls/d)				Weighted Average Differential to WTI ($/Bbl)
Q4 2021		Midland Sweet			23,000			$	0.84
Q4 2021		Guernsey Light Sweet			4,000			$	(1.49	)
Q4 2021		BRENT			1,000			$	(8.00	)
Q4 2021		NYMEX Roll			13,000			$	0.39
Q1-Q4 2022		BRENT			1,000			$	(7.75	)
Q1-Q4 2022		NYMEX Roll			29,000			$	0.45

As of September 30, 2021, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index and the end of month NYMEX index. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.

		Price Swaps (1)								Price Swaptions (2)								Price Collars (2)												Call Options Sold (2)
Period		Volume (MMBtu/d)				Weighted Average Price ($/MMBtu)				Volume (MMBtu/d)				Weighted Average Price ($/MMBtu)				Volume (MMBtu/d)				Weighted Average Floor Price ($/MMBtu)				Weighted Average Ceiling Price ($/MMBtu)				Volume (MMBtu/d)				Weighted Average Price ($/MMBtu)
Q4 2021			254,000			$	2.63				—			$	—				133,000			$	2.55			$	3.05				50,000			$	2.68
Q1-Q4 2022			3,452			$	2.85				100,000			$	2.70				145,507			$	2.69			$	3.40				—			$	—
Q1-Q4 2023			—			$	—				—			$	—				10,603			$	3.11			$	4.56				—			$	—

	(1)	Related to the 2021 open positions, 14,000 MMBtu/d settle against the Inside FERC first of month Henry Hub index at an average price of $2.85 and 240,000 MMBtu/d settle against the end of month NYMEX index at an average price of $2.62. All 2022 open positions settle against the Inside FERC first of month Henry Hub index.

	(2)	Price swaptions and call options settle against end of month NYMEX index. Price collars settle against the Inside FERC first of month Henry Hub Index.

		Natural Gas Basis Swaps
Period		Index		Volume (MMBtu/d)				Weighted Average Differential to Henry Hub ($/MMBtu)
Q4 2021		El Paso Natural Gas			35,000			$	(0.92	)
Q4 2021		WAHA			80,000			$	(0.65	)
Q1-Q4 2022		WAHA			70,000			$	(0.57	)
Q1-Q4 2023		WAHA			70,000			$	(0.51	)
Q1-Q4 2024		WAHA			40,000			$	(0.51	)

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

As of September 30, 2021, 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)
Q4 2021		Natural Gasoline			1,000			$	47.57
Q4 2021		Normal Butane			1,000			$	31.40
Q4 2021		Propane			1,000			$	27.88

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 tables below present a summary of these positions as of September 30, 2021 and December 31, 2020.

	September 30, 2021												December 31, 2020
	Gross Fair Value				Amounts Netted				Net Fair Value				Gross Fair Value				Amounts Netted				Net Fair Value				Balance Sheet Classification
Commodity derivatives:
Short-term derivative asset	$	3			$	(1	)		$	2			$	23			$	(18	)		$	5			Other current assets
Long-term derivative asset		—				—				—				1				—				1			Other long-term assets
Short-term derivative liability		(984	)			1				(983	)			(161	)			18				(143	)		Other current liabilities
Long-term derivative liability		(103	)			—				(103	)			(5	)			—				(5	)		Other long-term liabilities
Total derivative liability	$	(1,084	)		$	—			$	(1,084	)		$	(142	)		$	—			$	(142	)

4.Share-Based Compensation

The table below presents the share-based compensation expense included in Devon’s accompanying consolidated statements of comprehensive earnings. The vesting for certain share-based awards was accelerated in conjunction with the reduction of workforce described in Note 6 and is included in restructuring and transaction costs in the accompanying consolidated statements of comprehensive earnings.

		Nine Months Ended September 30,
		2021				2020
G&A		$	58			$	58
Exploration expenses			1				1
Restructuring and transaction costs			21				11
Total		$	80			$	70
Related income tax benefit		$	8			$	—

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Under its approved long-term incentive plan, Devon grants share-based awards to certain employees. The following table presents a summary of Devon’s unvested restricted stock awards and units, performance-based restricted stock awards and performance share units granted under the plan.

												Performance-Based								Performance
		Restricted Stock Awards & Units										Restricted Stock Awards								Share Units
		Awards/Units						Weighted Average Grant-Date Fair Value				Awards				Weighted Average Grant-Date Fair Value				Units						Weighted Average Grant-Date Fair Value
		(Thousands, except fair value data)
Unvested at 12/31/20			5,316					$	25.82				44			$	44.70				1,994					$	31.89
Granted			7,711			(1	)	$	19.69				—			$	—				861					$	18.08
Vested			(5,006	)				$	22.35				(44	)		$	44.70				(754	)				$	37.40
Forfeited			(126	)				$	23.21				—			$	—				(25	)				$	36.04
Unvested at 9/30/21			7,895					$	22.08				—			$	—				2,076			(2	)	$	24.12

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

	(2)	A maximum of 4.2 million common shares could be awarded based upon Devon’s final TSR ranking.

The following table presents the assumptions related to the performance share units granted in 2021, as indicated in the previous summary table.

		2021
Grant-date fair value		$	18.08
Risk-free interest rate		0.18%
Volatility factor		67.8%
Contractual term (years)		2.89

The following table presents a summary of the unrecognized compensation cost and the related weighted average recognition period associated with unvested awards and units as of September 30, 2021.

		Restricted Stock				Performance
		Awards/Units				Share Units
Unrecognized compensation cost		$	97			$	15
Weighted average period for recognition (years)			2.5				1.9

5.Asset Impairments

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
Proved oil and gas assets		$	—			$	—			$	—			$	2,664
Other assets			—				—				—				2
Total asset impairments		$	—			$	—			$	—			$	2,666
Unproved impairments		$	1			$	36			$	3			$	149

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Proved Oil and Gas and Other Asset Impairments

Due to the reduced demand from the COVID-19 pandemic causing an unprecedented downturn in the price of oil and reductions in near-term capital investment, Devon recognized approximately $2.7 billion of proved asset impairments during the first quarter of 2020. These impairments related to the Anadarko Basin and Rockies fields in which the cost basis included acquisitions completed in 2016 and 2015, respectively, when commodity prices were much higher. During the first quarter of 2020, Devon also recognized $2 million of product line fill impairments.

Unproved Impairments

Due to the downturn in the commodity price environment and reduced near-term investment as discussed above, Devon also recognized $149 million of unproved impairments during the first nine months of 2020, primarily in the Rockies field.

6.Restructuring and Transaction Costs

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
Restructuring costs		$	16			$	32			$	182			$	32
Transaction costs			2				—				48				—
Total costs		$	18			$	32			$	230			$	32

In conjunction with the Merger closing, Devon recognized $182 million of restructuring expenses during the first nine months of 2021 related to employee severance and termination benefits, settlements and curtailments from defined retirement benefits and contract terminations. Of these expenses, $65 million related to non-cash charges which primarily consisted of settlements and curtailments of defined retirement benefits of $40 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.

In the third quarter of 2020, Devon recognized $32 million of restructuring expenses. Of these expenses, $11 million resulted from the accelerated vesting of share-based grants, which are non-cash charges.

The following table summarizes Devon’s restructuring liabilities.

		Other				Other
		Current				Long-term
		Liabilities				Liabilities				Total
Balance as of December 31, 2020		$	35			$	137			$	172
Changes related to 2021 merger integration			27				—				27
Changes related to prior years' restructurings			(8	)			(18	)			(26	)
Balance as of September 30, 2021		$	54			$	119			$	173
Balance as of December 31, 2019		$	20			$	1			$	21
Changes related to prior years' restructurings			(3	)			—				(3	)
Balance as of September 30, 2020		$	17			$	1			$	18

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

7.Income Taxes

The following table presents Devon’s total income tax expense (benefit) and a reconciliation of its effective income tax rate to the U.S. statutory income tax rate.

		Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
Earnings (loss) from continuing operations before income taxes		$	964			$	(193	)		$	1,236			$	(2,980	)
Current income tax expense (benefit)		$	1			$	(90	)		$	15			$	(199	)
Deferred income tax expense (benefit)			119				—				(100	)			(311	)
Total income tax expense (benefit)		$	120			$	(90	)		$	(85	)		$	(510	)

U.S. statutory income tax rate			21	%			21	%			21	%			21	%
State income taxes			0	%			0	%			0	%			1	%
Unrecognized tax benefits			0	%			18	%			0	%			0	%
Deferred tax asset valuation allowance			(9	%)			4	%			(33	%)			(7	%)
Other			0	%			4	%			5	%			2	%
Effective income tax rate			12	%			47	%			(7	%)			17	%

The deferred income tax benefit recognized in the first nine months of 2021 primarily relates to the Merger and a reduced valuation allowance due to increased earnings. As shown in Note 2, Devon recognized $249 million of deferred tax liabilities to account for the Merger. The recognition of these deferred tax liabilities caused a decrease to Devon’s net deferred tax assets and a corresponding decrease to the valuation allowance Devon has recognized on its U.S. Federal deferred tax assets. Additionally, improved commodity prices and post-merger operating performance are causing reductions to Devon’s net operating losses, which also cause corresponding decreases to the associated deferred tax assets and valuation allowance.

As of September 30, 2021, Devon continued to maintain a valuation allowance against certain U.S. deferred tax assets. Devon continues to assess its valuation allowance position every quarter. Subject to any additional objective negative evidence or the addition of subjective evidence such as forecasted income, Devon may continue to adjust the valuation allowance on its deferred tax assets in future periods.

In the fourth quarter of 2020, Devon recorded a deferred tax asset representing the deductible outside basis difference in its investment in a consolidated subsidiary. In the second quarter of 2021, Devon realized this deferred tax asset, increasing its U.S. federal net operating loss carryforwards by $1.8 billion.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

8.	Net Earnings (Loss) Per Share from Continuing Operations

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
Net earnings (loss) from continuing operations:
Net earnings (loss) from continuing operations		$	838			$	(105	)		$	1,307			$	(2,475	)
Attributable to participating securities			(6	)			(2	)			(11	)			(3	)
Basic and diluted earnings (loss) from continuing operations		$	832			$	(107	)		$	1,296			$	(2,478	)
Common shares:
Common shares outstanding - total			677				383				670				383
Attributable to participating securities			(6	)			(6	)			(6	)			(6	)
Common shares outstanding - basic			671				377				664				377
Dilutive effect of potential common shares issuable			2				—				2				—
Common shares outstanding - diluted			673				377				666				377
Net earnings (loss) per share from continuing operations:
Basic		$	1.24			$	(0.29	)		$	1.95			$	(6.58	)
Diluted		$	1.24			$	(0.29	)		$	1.95			$	(6.58	)

9.Other Comprehensive Earnings (Loss)

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
Pension and postretirement benefit plans:
Beginning accumulated pension and postretirement benefits		$	(101	)		$	(117	)		$	(127	)		$	(119	)
Recognition of net actuarial loss and prior service cost in earnings (1)			1				1				2				4
Settlement of pension benefits (2)			—				—				18				—
Income tax expense			—				—				—				(1	)
Other (3)			—				—				7				—
Accumulated other comprehensive loss, net of tax		$	(100	)		$	(116	)		$	(100	)		$	(116	)

	(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.

	(2)	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.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

10.	Supplemental Information to Statements of Cash Flows

		Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
Changes in assets and liabilities, net:
Accounts receivable		$	(332	)		$	21			$	(495	)		$	339
Income tax receivable			(40	)			—				94				(112	)
Other current assets			21				18				(36	)			10
Other long-term assets			14				(9	)			(9	)			(33	)
Accounts payable and revenues and royalties payable			469				100				557				(160	)
Other current liabilities			(49	)			15				(30	)			(82	)
Other long-term liabilities			(15	)			(87	)			(123	)			(59	)
Total		$	68			$	58			$	(42	)		$	(97	)
Supplementary cash flow data - total operations:
Interest paid		$	100			$	64			$	319			$	194
Income taxes paid (refunded)		$	(4	)		$	(2	)		$	(116	)		$	170

As of September 30, 2021, Devon had approximately $200 million of accrued capital expenditures included in total property and equipment, net and accounts payable on the consolidated balance sheets. As of December 31, 2020 (pre-merger), Devon had approximately $100 million of accrued capital expenditures in total property and equipment, net and accounts payable on the consolidated balance sheets. As of January 7, 2021 (date of Merger closing), Devon assumed approximately $150 million of accrued capital expenditures included in accounts payable.

11.	Accounts Receivable

Components of accounts receivable include the following:

		September 30, 2021				December 31, 2020
Oil, gas and NGL sales		$	986			$	335
Joint interest billings			150				57
Marketing and midstream revenues			371				195
Other			22				25
Gross accounts receivable			1,529				612
Allowance for doubtful accounts			(12	)			(11	)
Net accounts receivable		$	1,517			$	601

12.Property, Plant and Equipment

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

		September 30, 2021				December 31, 2020
Property and equipment:
Proved		$	36,489			$	27,589
Unproved and properties under development			2,169				392
Total oil and gas			38,658				27,981
Less accumulated DD&A			(25,045	)			(23,545	)
Oil and gas property and equipment, net			13,613				4,436
Other property and equipment			2,113				1,737
Less accumulated DD&A			(648	)			(780	)
Other property and equipment, net (1)			1,465				957
Property and equipment, net		$	15,078			$	5,393

	(1)	$106 million and $102 million related to CDM in 2021 and 2020, respectively.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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.

		September 30, 2021				December 31, 2020
8.25% due August 1, 2023 (1)		$	242			$	—
5.25% due September 15, 2024 (1)			472				—
5.85% due December 15, 2025			485				485
7.50% due September 15, 2027			73				73
5.25% due October 15, 2027 (1)			390				—
5.875% due June 15, 2028 (1)			325				—
4.50% due January 15, 2030 (1)			585				—
7.875% due September 30, 2031			675				675
7.95% due April 15, 2032			366				366
5.60% due July 15, 2041			1,250				1,250
4.75% due May 15, 2042			750				750
5.00% due June 15, 2045			750				750
Net premium (discount) on debentures and notes			160				(20	)
Debt issuance costs			(31	)			(31	)
Total long-term debt		$	6,492			$	4,298

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

Debt maturities as of September 30, 2021, excluding debt issuance costs, premiums and discounts, are as follows:

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

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

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

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

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Retirement of Senior Notes

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

Credit Lines

Devon has a $3.0 billion Senior Credit Facility. As of September 30, 2021, Devon had no outstanding borrowings under the Senior Credit Facility and had issued $2 million in outstanding letters of credit under this facility. The Senior Credit Facility contains only one material financial covenant. This covenant requires Devon’s ratio of total funded debt to total capitalization, as defined in the credit agreement, to be no greater than 65%. Under the terms of the credit agreement, total capitalization is adjusted to add back non-cash financial write-downs such as impairments. As of September 30, 2021, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 25.1%.

Net Financing Costs

The following schedule includes the components of net financing costs.

		Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
Interest based on debt outstanding		$	93			$	65			$	296			$	195
Gain on early retirement of debt			—				—				(30	)			—
Interest income			(1	)			(5	)			(2	)			(12	)
Other			(6	)			6				(21	)			17
Total net financing costs		$	86			$	66			$	243			$	200

14.Leases

The following table presents Devon’s right-of-use assets and lease liabilities as of September 30, 2021 and December 31, 2020.

		September 30, 2021												December 31, 2020
		Finance				Operating				Total				Finance				Operating				Total
Right-of-use assets		$	214			$	30			$	244			$	220			$	3			$	223
Lease liabilities:
Current lease liabilities (1)		$	8			$	20			$	28			$	8			$	1			$	9
Long-term lease liabilities			246				10				256				244				2				246
Total lease liabilities		$	254			$	30			$	284			$	252			$	3			$	255

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

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.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

15.	Asset Retirement Obligations

The following table presents the changes in Devon’s asset retirement obligations.

		Nine Months Ended September 30,
		2021				2020
Asset retirement obligations as of beginning of period		$	369			$	398
Assumed WPX obligations			98				—
Liabilities incurred			28				15
Liabilities settled and divested			(52	)			(24	)
Revision of estimated obligation			11				4
Accretion expense on discounted obligation			21				15
Asset retirement obligations as of end of period			475				408
Less current portion			13				10
Asset retirement obligations, long-term		$	462			$	398

16.	Stockholders’ Equity

WPX Merger

On January 7, 2021, Devon and WPX completed an all-stock merger of equals. 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. Consequently, Devon issued approximately 290 million shares of Devon common stock to holders of WPX common stock to effect the Merger on January 7, 2021.

Share Repurchases

The table below provides information regarding purchases of Devon’s common stock that were made in 2020 under a share repurchase program that expired at the end of 2020 (shares in thousands).

		Total Number of Shares Purchased				Dollar Value of Shares Purchased				Average Price Paid per Share
First quarter 2020			2,243			$	38			$	16.85
Total			2,243			$	38			$	16.85

In November 2021, Devon authorized a share repurchase program to buy up to $1.0 billion of common stock. This program expires December 31, 2022.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Dividends

Upon completion of the Merger, Devon continued its commitment to pay a quarterly dividend at a fixed rate and instituted a variable quarterly dividend, which is dependent on quarterly cash flows, among other factors. The following table summarizes Devon’s fixed and variable dividends for the first nine months of 2021 and 2020, respectively.

	Fixed				Variable				Total				Rate Per Share
2021:
First quarter	$	76			$	127			$	203			$	0.30
Second quarter		75				154				229			$	0.34
Third quarter		74				255				329			$	0.49
Total year-to-date	$	225			$	536			$	761
2020:
First quarter	$	34			$	—			$	34			$	0.09
Second quarter		42				—				42			$	0.11
Third quarter		43				—				43			$	0.11
Total year-to-date	$	119			$	—			$	119

In November 2021, Devon announced a cash dividend in the amount of $0.84 per share payable in the fourth quarter of 2021. The dividend consists of a fixed quarterly dividend in the amount of approximately $74 million (or $0.11 per share) and a variable quarterly dividend in the amount of approximately $494 million (or $0.73 per share).

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.

17.	Discontinued Operations

On October 1, 2020, Devon completed the sale of its Barnett Shale assets to BKV for proceeds, net of purchase price adjustments, of $490 million. Additionally, the agreement provides for contingent earnout payments to Devon of up to $260 million based upon future commodity prices, with upside participation beginning at a $2.75 Henry Hub natural gas price or a $50 WTI oil price. The contingent payment period commenced on January 1, 2021 and has a term of four years.

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

	Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
Oil, gas and NGL sales	$	94			$	263
Total revenues		94				263
Production expenses		66				214
Asset impairments (1)		3				182
Asset dispositions		—				(2	)
General and administrative expenses		2				3
Financing costs, net		(1	)			(3	)
Other, net		26				19
Total expenses		96				413
Loss from discontinued operations before income taxes		(2	)			(150	)
Income tax benefit		(15	)			(47	)
Net earnings (loss) from discontinued operations, net of tax	$	13			$	(103	)

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

	(1)	Devon recognized $182 million of asset impairments in the first nine months of 2020 related to the Barnett Shale assets primarily due to the difference between the net carrying value and the purchase price, net of estimated customary purchase price adjustments, which qualified as a level 2 fair value measurement.

18.	Commitments and Contingencies

Devon is party to various legal proceedings and other matters that may result in future payment obligations or other adverse consequences to its business. Matters that are probable of an unfavorable outcome to Devon and which any related potential payment obligation or other liability 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. While management does not believe any current matter is likely to involve future amounts that would be material to Devon’s financial position or results of operations after consideration of recorded accruals, the ultimate outcome of such matters and the amounts involved 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 defending against a number of such lawsuits, either as a named defendant in the action or pursuant to indemnity obligations for the benefit of a third party. Plaintiffs in some of these lawsuits are seeking class certification. Among the allegations typically asserted in these suits are claims that Devon used below-market prices, made improper deductions, failed to “enhance” the value of gas through processing, used improper measurement techniques, entered into purchase and midstream arrangements with affiliates that resulted in underpayment of royalties or otherwise failed to prudently market oil, natural gas and NGLs produced and sold and pay royalties on the highest obtainable price. 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. Devon does not currently believe that it is subject to material exposure with respect to such royalty matters.

Environmental and Climate Change Matters

Devon’s business is subject to numerous federal, state, local and Native American tribal 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, the 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 believes these claims to be baseless and is vigorously defending 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 believes these claims to be baseless and intends to vigorously defend against the proceedings.

Williams’ Former Power Business Matter

Direct and indirect purchasers of natural gas in various states filed individual and class action lawsuits against The Williams Companies, Inc. (“Williams”) and other parties alleging the manipulation of published gas price indices and seeking unspecified amounts of damages. WPX and certain of its subsidiaries, which were then affiliates of Williams, were also named as defendants in these actions.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Devon cannot reasonably estimate a range of potential exposure at this time for these matters. In connection with its spin-off from Williams in 2011, WPX entered into a separation and distribution agreement with Williams, pursuant to which Williams agreed to indemnify and hold WPX and its subsidiaries harmless from any losses arising out of these matters.

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 or performing requirements under surface agreements in existence at the time of disposition.

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

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, 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 September 30, 2021 and December 31, 2020, as applicable. Therefore, such financial assets and liabilities are not presented in the following table. Additionally, information regarding the fair values of oil and gas assets is provided in Note 5.

										Fair Value Measurements Using:
		Carrying				Total Fair				Level 1				Level 2				Level 3
		Amount				Value				Inputs				Inputs				Inputs
September 30, 2021 assets (liabilities):
Cash equivalents		$	1,321			$	1,321			$	1,321			$	—			$	—
Commodity derivatives		$	2			$	2			$	—			$	2			$	—
Commodity derivatives		$	(1,086	)		$	(1,086	)		$	—			$	(1,086	)		$	—
Debt		$	(6,492	)		$	(7,629	)		$	—			$	(7,629	)		$	—
Contingent earnout payments		$	135			$	135			$	—			$	—			$	135
December 31, 2020 assets (liabilities):
Cash equivalents		$	1,436			$	1,436			$	1,436			$	—			$	—
Commodity derivatives		$	6			$	6			$	—			$	6			$	—
Commodity derivatives		$	(148	)		$	(148	)		$	—			$	(148	)		$	—
Debt		$	(4,298	)		$	(5,365	)		$	—			$	(5,365	)		$	—
Contingent earnout payments		$	66			$	66			$	—			$	—			$	66

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

Level 1 Fair Value Measurements

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

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Level 2 Fair Value Measurements

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

Debt – Devon’s debt instruments do not consistently trade actively in an established market. The fair values of its debt are estimated based on rates available for debt with similar terms and maturity when active trading is not available.

Level 3 Fair Value Measurements

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