Item 2. . Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis addresses material changes in our results of operations for the three-month and nine-month periods ended September 30, 2022 compared to previous periods, and in our financial condition and liquidity since December 31, 2021. For information regarding our critical accounting policies and estimates, see our 2021 Annual Report on Form 10-K under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Executive Over****view

Looking across our 2021 and 2022 performance, the Merger has helped us become a leading unconventional oil producer in the U.S., with an asset base underpinned by premium acreage in the economic core of the Delaware Basin. This strategic combination accelerated our transition to a cash-return business model, including the implementation of a fixed plus variable dividend strategy. In the third quarter of 2022, we acquired additional producing properties and leasehold interests in both the Williston Basin and Eagle Ford that are complementary to our existing acreage, offer operational synergies and add high-quality inventory. And, our diverse portfolio balances exposure to oil and natural gas prices with access to premium markets to improve realized pricing.

We remain focused on building economic value by executing on our strategic priorities of moderating production growth, emphasizing capital and operational efficiencies, optimizing reinvestment rates to maximize free cash flow, maintaining low leverage, delivering cash returns to our shareholders and pursuing ESG excellence. Our recent performance highlights for these priorities include the following items:

Third quarter oil production totaled 294 MBbls/d, exceeding our plan by 1%.

As of September 30, 2022, completed approximately 63% of our authorized $2.0 billion share repurchase program, with approximately 25 million of our common shares repurchased for approximately $1.3 billion, or $50.23 per share, since inception of the plan.

Exited the third quarter with $4.3 billion of liquidity, including $1.3 billion of cash, with no debt maturities until the third quarter of 2023.

Generated $2.1 billion of operating cash flow in the third quarter of 2022 and $6.6 billion in the first nine months of 2022.

Including variable dividends, paid dividends of approximately $2.5 billion in the first nine months of 2022 and have declared $880 million of dividends to be paid in the fourth quarter of 2022.

We remain committed to capital discipline and delivering the objectives that underpin our current plan. Those objectives prioritize value creation through moderated capital investment and production growth, particularly with a view of the backwardation in commodity prices, supply chain constraints and the economic uncertainty arising from recent geopolitical events.

Commodity prices strengthened throughout 2021 and oil prices have continued to remain high in the first nine months of 2022, which has significantly improved our earnings and cash flow generation. The increase in commodity prices during 2021 was primarily driven by increased demand resulting from the initial recovery from the COVID-19 pandemic. The military conflict between Russia and Ukraine and related economic sanctions imposed on Russia, as well as OPEC+ restraining production growth, have further exacerbated supply shortages, causing oil prices to increase even more during the first nine months of 2022.

Trends of our quarterly earnings, operating cash flow, EBITDAX and capital expenditures are shown below. “Core earnings” and “EBITDAX” are financial measures not prepared in accordance with GAAP. For a description of these measures, including reconciliations to the comparable GAAP measures, see “Non-GAAP Measures” in this Item 2.

Our earnings remained relatively flat from the second quarter of 2022 to the third quarter of 2022. Lower oil prices were offset by an increase in gas prices and improvements to the valuation of our commodity hedge positions.

Our net earnings in recent quarters have been significantly impacted by non-cash adjustments to the value of our commodity hedges. Net earnings in the fourth quarter of 2021, second quarter of 2022 and third quarter of 2022 each included a hedge valuation gain, net of tax of $0.4 billion, $0.2 billion and $0.5 billion, respectively. Net earnings in the first quarter of 2022 included a hedge valuation loss, net of tax of $0.3 billion. Excluding these amounts, our core earnings have consistently risen over recent quarters, but decreased in the third quarter of 2022 due to a drop in crude oil prices and continue to trend upward while remaining sensitive to volatile commodity prices.

Like earnings, our operating cash flow is sensitive to volatile commodity prices. We have continued to deliver strong cash flow and EBITDAX results primarily due to improved commodity prices and overall market conditions as well as strong operating performance.

We exited the third quarter of 2022 with $4.3 billion of liquidity, comprised of $1.3 billion of cash and $3.0 billion of available credit under our Senior Credit Facility. We currently have $6.5 billion of debt outstanding with no maturities until August 2023. We currently have approximately 30% of both our anticipated remaining 2022 oil and gas production hedged and approximately 25% and 15% of our anticipated 2023 oil and gas production hedged, respectively. These contracts consist of collars and swaps based off the WTI oil benchmark and the Henry Hub and NYMEX last day natural gas indices. Additionally, we have entered into regional basis swaps in an effort to protect price realizations across our portfolio.

As commodity prices and our operating performance strengthen and bolster our financial condition, we have authorized opportunistic repurchases of up to $2.0 billion of our common shares with an expiration date of May 4, 2023. We repurchased approximately 1.9 million shares in the third quarter of 2022 for approximately $113 million, or $59.99 per share. As of September 30, 2022, we have repurchased approximately 25 million shares for approximately $1.3 billion, or $50.23 per share, since the inception of the program. Additionally, we continue funding our fixed plus variable dividends, which totaled $2.5 billion in the first nine months of 2022. We recently declared a dividend payable in the fourth quarter of 2022 for $880 million and increased our fixed dividend by 13% beginning in the third quarter of 2022.

Res****ults of Operations

The following graphs, discussion and analysis are intended to provide an understanding of our results of operations and current financial condition. To facilitate the review, these numbers are being presented before consideration of noncontrolling interests.

Q3 2022 vs. Q2 2022

Our third quarter and second quarter net earnings were each $1.9 billion. The graph below shows the change in net earnings from the second quarter of 2022 to the third quarter of 2022. The material changes are further discussed by category on the following pages.

Production Volumes

		Q3 2022				% of Total				Q2 2022				Change
Oil (MBbls/d)
Delaware Basin			210				71	%			222				-6	%
Anadarko Basin			13				5	%			14				-3	%
Williston Basin			35				12	%			27				30	%
Eagle Ford			19				7	%			19				2	%
Powder River Basin			13				4	%			14				-7	%
Other			4				1	%			4				-5	%
Total			294				100	%			300				-2	%

		Q3 2022				% of Total				Q2 2022				Change
Gas (MMcf/d)
Delaware Basin			623				62	%			618				1	%
Anadarko Basin			224				23	%			212				5	%
Williston Basin			71				7	%			52				37	%
Eagle Ford			63				6	%			60				4	%
Powder River Basin			18				2	%			18				-1	%
Other			1				0	%			1				0	%
Total			1,000				100	%			961				4	%

		Q3 2022				% of Total				Q2 2022				Change
NGLs (MBbls/d)
Delaware Basin			108				70	%			111				-3	%
Anadarko Basin			27				17	%			25				7	%
Williston Basin			8				5	%			9				-17	%
Eagle Ford			9				6	%			9				-1	%
Powder River Basin			2				2	%			2				0	%
Other			—				0	%			—			N/M
Total			154				100	%			156				-1	%

		Q3 2022				% of Total				Q2 2022				Change
Combined (MBoe/d)
Delaware Basin			421				68	%			436				-3	%
Anadarko Basin			77				13	%			74				4	%
Williston Basin			55				9	%			45				22	%
Eagle Ford			39				6	%			38				2	%
Powder River Basin			18				3	%			19				-5	%
Other			4				1	%			4				3	%
Total			614				100	%			616				0	%

From the second quarter of 2022 to the third quarter of 2022, the change in volumes had a negligible impact to earnings. The slight decrease in volumes was primarily due to downtime in the Delaware Basin during the third quarter which was partially offset by increased volumes in the Williston Basin due to the acquisition that closed in July 2022. We expect Eagle Ford volumes to increase approximately 35 MBoe/d in the fourth quarter due to the acquisition which closed in September 2022.

Realized Prices

		Q3 2022				Realization		Q2 2022				Change
Oil (per Bbl)
WTI index		$	91.87					$	108.70				-15	%
Realized price, unhedged		$	92.98			101%		$	108.93				-15	%
Cash settlements		$	(8.60	)				$	(13.13	)
Realized price, with hedges		$	84.38			92%		$	95.80				-12	%

		Q3 2022				Realization		Q2 2022				Change
Gas (per Mcf)
Henry Hub index		$	8.20					$	7.17				14	%
Realized price, unhedged		$	7.25			88%		$	6.37				14	%
Cash settlements		$	(1.42	)				$	(1.31	)
Realized price, with hedges		$	5.83			71%		$	5.06				15	%

		Q3 2022				Realization		Q2 2022				Change
NGLs (per Bbl)
WTI index		$	91.87					$	108.70				-15	%
Realized price, unhedged		$	34.44			37%		$	40.28				-14	%
Cash settlements		$	—					$	—
Realized price, with hedges		$	34.44			37%		$	40.28				-14	%

		Q3 2022				Q2 2022				Change
Combined (per Boe)
Realized price, unhedged		$	64.89			$	73.13				-11	%
Cash settlements		$	(6.41	)		$	(8.43	)
Realized price, with hedges		$	58.48			$	64.70				-10	%

From the second quarter of 2022 to the third quarter of 2022, realized prices contributed to a $435 million decrease in earnings. Unhedged realized oil and NGL prices decreased primarily due to lower WTI and Mont Belvieu index prices. These decreases were partially offset by an increase in unhedged realized gas prices which was primarily due to a higher Henry Hub index price. Combined realized prices were also negatively impacted by hedge cash settlements related to oil and gas commodities.

We currently have approximately 30% of both our anticipated remaining 2022 oil and gas production hedged and approximately 25% and 15% of our anticipated 2023 oil and gas production hedged, respectively.

Hedge Settlements

		Q3 2022				Q2 2022				Change
		Q
Oil		$	(233	)		$	(358	)			35	%
Natural gas			(130	)			(114	)			-14	%
Total cash settlements (1)		$	(363	)		$	(472	)			23	%

(1)

Included as a component of oil, gas and NGL derivatives on the consolidated statements of comprehensive earnings.

Cash settlements as presented in the tables above represent realized gains or losses related to the instruments described in Note 3 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Production Expenses

		Q3 2022				Q2 2022				Change
LOE		$	284			$	255				11	%
Gathering, processing & transportation			177				177				0	%
Production taxes			252				278				-9	%
Property taxes			22				19				16	%
Total		$	735			$	729				1	%
Per Boe:
LOE		$	5.02			$	4.56				10	%
Gathering, processing & transportation		$	3.13			$	3.15				-1	%
Percent of oil, gas and NGL sales:
Production taxes			6.9	%			6.8	%			1	%

LOE increased from the second quarter to the third quarter of 2022 primarily due to rising costs resulting from inflation. This increase was partially offset by a decrease in production taxes resulting from lower commodity prices.

Field-Level Cash Margin

The table below presents the field-level cash margin for each of our operating areas. Field-level cash margin is computed as oil, gas and NGL sales less production expenses and is not a measure defined by GAAP. A reconciliation to the comparable GAAP measures is found in “Non-GAAP Measures” in this Item 2. The changes in production volumes, realized prices and production expenses, shown above, had the following impact on our field-level cash margins by asset.

		Q3 2022				$ per BOE				Q2 2022				$ per BOE
Field-level cash margin (Non-GAAP)
Delaware Basin		$	2,100			$	54.20			$	2,511			$	63.32
Anadarko Basin			284			$	40.09				277			$	41.15
Williston Basin			242			$	47.95				224			$	54.56
Eagle Ford			185			$	51.82				206			$	59.71
Powder River Basin			97			$	58.81				119			$	68.41
Other			25			N/M					34			N/M
Total		$	2,933			$	51.90			$	3,371			$	60.12

DD&A

		Q3 2022				Q2 2022				Change
Oil and gas per Boe		$	9.89			$	9.02				10	%
Oil and gas		$	559			$	506				10	%
Other property and equipment			22				22				3	%
Total		$	581			$	528				10	%

General and Administrative Expense

		Q3 2022				Q2 2022				Change
G&A per Boe		$	1.69			$	1.51				12	%
Labor and benefits		$	54			$	44				23	%
Non-labor			41				40				3	%
Total		$	95			$	84				13	%

G&A increased in the third quarter due to an increase in labor and benefit costs.

Other Items

		Q3 2022				Q2 2022				Change in earnings
Commodity hedge valuation changes (1)		$	611			$	302			$	309
Marketing and midstream operations			(9	)			(4	)			(5	)
Exploration expenses			4				10				6
Asset dispositions			—				(14	)			(14	)
Net financing costs			67				84				17
Other, net			(40	)			10				50
										$	363

(1)

Included as a component of oil, gas and NGL derivatives on the consolidated statements of comprehensive earnings.

We recognize fair value changes on our oil, gas and NGL derivative instruments in each reporting period. The changes in fair value resulted from new positions and settlements that occurred during each period, as well as the relationship between contract prices and the associated forward curves. For additional information, see Note 3 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Net financing costs decreased primarily due to an increase in interest income resulting from an increase in interest rates. Additionally, in the third quarter of 2022, Devon received approximately $7 million of interest income associated with reimbursements of performance guarantee obligations Devon and WPX paid in 2020 and 2021 on behalf of the purchaser of previously divested assets. See Note 6 in “Part I. Financial Information – Item 1. Financial Statements” in this report for additional information regarding this item.

For discussion on other, net, see Note 6 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Income Taxes

		Q3 2022				Q2 2022
Current expense		$	120			$	252
Deferred expense			445				305
Total expense		$	565			$	557
Effective income tax rate			23	%			22	%

For discussion on income taxes, see Note 7 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

September 30, YTD 2022 vs. September 30, YTD 2021

Our nine months ended September 30, 2022 net earnings were $4.8 billion, compared to net earnings of $1.3 billion for the first nine months ended September 30, 2021. The graph below shows the change in net earnings from the nine months ended September 30, 2021 to the nine months ended September 30, 2022. The material changes are further discussed by category on the following pages.

Production Volumes

		Nine Months Ended September 30,
		2022				% of Total				2021				Change
Oil (MBbls/d)
Delaware Basin			214				73	%			192				11	%
Anadarko Basin			14				5	%			14				-5	%
Williston Basin			31				11	%			43				-27	%
Eagle Ford			18				6	%			18				1	%
Powder River Basin			13				4	%			16				-17	%
Other			4				1	%			4				-8	%
Total			294				100	%			287				2	%

		Nine Months Ended September 30,
		2022				% of Total				2021				Change
Gas (MMcf/d)
Delaware Basin			601				63	%			521				15	%
Anadarko Basin			215				23	%			215				0	%
Williston Basin			59				6	%			56				5	%
Eagle Ford			62				6	%			57				7	%
Powder River Basin			18				2	%			21				-11	%
Other			1				0	%			2				-51	%
Total			956				100	%			872				10	%

		Nine Months Ended September 30,
		2022				% of Total				2021				Change
NGLs (MBbls/d)
Delaware Basin			104				70	%			81				28	%
Anadarko Basin			26				17	%			24				7	%
Williston Basin			8				6	%			9				-8	%
Eagle Ford			9				6	%			9				3	%
Powder River Basin			2				1	%			3				-16	%
Other			—				0	%			—			N/M
Total			149				100	%			126				18	%

		Nine Months Ended September 30,
		2022				% of Total				2021				Change
Combined (MBoe/d)
Delaware Basin			417				69	%			360				16	%
Anadarko Basin			75				13	%			74				1	%
Williston Basin			50				8	%			61				-19	%
Eagle Ford			38				6	%			36				3	%
Powder River Basin			18				3	%			22				-16	%
Other			4				1	%			5				-16	%
Total			602				100	%			558				8	%

From the nine months ended 2021 to the nine months ended 2022, the change in volumes contributed to a $348 million increase in earnings. The increase in volumes was primarily due to continued development in the Delaware Basin which was partially offset by natural declines in the Williston Basin and Powder River Basin. Due to the acquisition of additional assets that closed in July 2022, Williston Basin volumes did increase to 55 MBoe/d in the third quarter of 2022 and are expected to continue to increase. Additionally, we expect Eagle Ford volumes to increase approximately 35 MBoe/d in the fourth quarter due to the acquisition which closed in September 2022.

Realized Prices

		Nine Months Ended September 30,
		2022				Realization		2021				Change
Oil (per Bbl)
WTI index		$	98.34					$	64.85				52	%
Realized price, unhedged		$	98.39			100%		$	62.69				57	%
Cash settlements		$	(11.02	)				$	(11.06	)
Realized price, with hedges		$	87.37			89%		$	51.63				69	%

		Nine Months Ended September 30,
		2022				Realization		2021				Change
Gas (per Mcf)
Henry Hub index		$	6.78					$	3.19				113	%
Realized price, unhedged		$	5.86			86%		$	2.93				100	%
Cash settlements		$	(1.12	)				$	(0.38	)
Realized price, with hedges		$	4.74			70%		$	2.55				86	%

		Nine Months Ended September 30,
		2022				Realization		2021				Change
NGLs (per Bbl)
WTI index		$	98.34					$	64.85				52	%
Realized price, unhedged		$	37.48			38%		$	27.11				38	%
Cash settlements		$	—					$	(0.32	)
Realized price, with hedges		$	37.48			38%		$	26.79				40	%

		Nine Months Ended September 30,
		2022				2021				Change
Combined (per Boe)
Realized price, unhedged		$	66.60			$	42.94				55	%
Cash settlements		$	(7.17	)		$	(6.35	)
Realized price, with hedges		$	59.43			$	36.59				62	%

From the nine months ended 2021 to the nine months ended 2022, realized prices contributed to a $4.0 billion increase in earnings. Unhedged realized oil, gas and NGL prices increased primarily due to higher WTI, Henry Hub and Mont Belvieu index prices. The increase in index prices was partially offset by hedge cash settlements related to oil and gas commodities.

Hedge Settlements

		Nine Months Ended September 30,
		2022				2021				Change
Oil		$	(884	)		$	(868	)			-2	%
Natural gas			(295	)			(90	)			-228	%
NGL			—				(11	)		N/M
Total cash settlements (1)		$	(1,179	)		$	(969	)			-22	%

(1)

Included as a component of oil, gas and NGL derivatives on the consolidated statements of comprehensive earnings.

Cash settlements as presented in the tables above represent realized gains or losses related to the instruments described in Note 3 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Production Expenses

		Nine Months Ended September 30,
		2022				2021				Change
LOE		$	763			$	624				22	%
Gathering, processing & transportation			515				433				19	%
Production taxes			744				436				71	%
Property taxes			60				33				82	%
Total		$	2,082			$	1,526				36	%
Per Boe:
LOE		$	4.65			$	4.09				13	%
Gathering, processing & transportation		$	3.13			$	2.84				10	%
Percent of oil, gas and NGL sales:
Production taxes			6.8	%			6.7	%			2	%

Production expenses increased primarily due to higher volumes and inflation, as well as an increase in production and property taxes resulting from higher commodity prices.

Field-Level Cash Margin

The table below presents the field-level cash margin for each of our operating areas. Field-level cash margin is computed as oil, gas and NGL sales less production expenses and is not a measure defined by GAAP. A reconciliation to the comparable GAAP measures is found in “Non-GAAP Measures” in this Item 2. The changes in production volumes, realized prices and production expenses, shown above, had the following impact on our field-level cash margins by asset.

		Nine Months Ended September 30,
		2022				$ per BOE				2021				$ per BOE
Field-level cash margin (Non-GAAP)
Delaware Basin		$	6,488			$	57.01			$	3,477			$	35.41
Anadarko Basin			765			$	37.24				404			$	19.93
Williston Basin			673			$	49.87				550			$	32.91
Eagle Ford			549			$	53.56				325			$	32.74
Powder River Basin			302			$	60.65				210			$	35.53
Other			84			N/M					54			N/M
Total		$	8,861			$	53.93			$	5,020			$	32.93

DD&A

		Nine Months Ended September 30,
		2022				2021				Change
Oil and gas per Boe		$	9.30			$	9.84				-6	%
Oil and gas		$	1,528			$	1,500				2	%
Other property and equipment			70				81				-14	%
Total		$	1,598			$	1,581				1	%

DD&A increased primarily due to higher volumes which was partially offset by lower DD&A rates. The decrease in DD&A

rates was primarily due to increases to oil, gas and NGL reserve estimates at December 31, 2021, resulting from higher prices.

General and Administrative Expense

		Nine Months Ended September 30,
		2022				2021				Change
G&A per Boe		$	1.67			$	1.94				-14	%
Labor and benefits		$	156			$	197				-21	%
Non-labor			117				99				18	%
Total		$	273			$	296				-8	%

General and administrative expenses have decreased primarily due to synergies resulting from the Merger.

Other Items

		Nine Months Ended September 30,
		2022				2021				Change in earnings
Commodity hedge valuation changes (1)		$	574			$	(597	)		$	1,171
Marketing and midstream operations			(17	)			(19	)			2
Exploration expenses			16				9				(7	)
Asset dispositions			(15	)			(119	)			(104	)
Net financing costs			236				243				7
Restructuring and transaction costs			—				230				230
Other, net			(91	)			(41	)			50
										$	1,349

(1)

Included as a component of oil, gas and NGL derivatives on the consolidated statements of comprehensive earnings.

We recognize fair value changes on our oil, gas and NGL derivative instruments in each reporting period. The changes in fair value resulted from new positions and settlements that occurred during each period, as well as the relationship between contract prices and the associated forward curves. For additional information, see Note 3 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Asset dispositions include $65 million and $35 million in the first nine months of 2021 related to the re-valuation of contingent earnout payments associated with our divested Barnett Shale assets and the sale of non-core assets in the Rockies, respectively. For additional information, see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Restructuring and transaction costs in the first nine months of 2021 reflect workforce reductions in conjunction with the Merger, as well as various transaction costs related to the Merger. For additional information, see Note 5 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

For discussion on other, net, see Note 6 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Income Taxes

		Nine Months Ended September 30,
		2022				2021
Current expense		$	475			$	15
Deferred expense (benefit)			914				(100	)
Total expense (benefit)		$	1,389			$	(85	)
Effective income tax rate			22	%			(7	%)

For discussion on income taxes, see Note 7 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Cap****ital Resources, Uses and Liquidity

Sources and Uses of Cash

The following table presents the major changes in cash and cash equivalents for the three and nine months ended September 30, 2022 and 2021.

		Three Months Ended September 30,								Nine Months Ended September 30,
		2022				2021				2022				2021
Operating cash flow		$	2,104			$	1,598			$	6,619			$	3,283
WPX acquired cash			—				—				—				344
Acquisitions of property and equipment			(2,465	)			(10	)			(2,566	)			(15	)
Divestitures of property and equipment			4				1				39				65
Capital expenditures			(628	)			(474	)			(1,738	)			(1,477	)
Investment activity, net			(9	)			9				(29	)			27
Debt activity, net			—				—				—				(1,302	)
Repurchases of common stock			(126	)			—				(661	)			—
Common stock dividends			(1,007	)			(329	)			(2,504	)			(761	)
Noncontrolling interest activity, net			(9	)			(5	)			(22	)			(35	)
Other			(11	)			(8	)			(99	)			(45	)
Net change in cash, cash equivalents and restricted cash		$	(2,147	)		$	782			$	(961	)		$	84
Cash, cash equivalents and restricted cash at end of period		$	1,310			$	2,321			$	1,310			$	2,321

Operating Cash Flow

As presented in the table above, net cash provided by operating activities continued to be a significant source of capital and liquidity. Operating cash flow more than doubled during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The increase was primarily due to significantly increased commodity prices as well as higher volumes for the first nine months of 2022 compared to 2021.

Acquisitions of Property and Equipment

During the first nine months of 2022, we paid $2.6 billion toward acquisitions of producing properties and leasehold interests located in the Eagle Ford and Williston Basin, which were completed in the third quarter of 2022. For additional information, please see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Divestitures of Property and Equipment

During the first nine months of 2022 and 2021, we received contingent earnout payments related to assets previously sold. For additional information, please see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Capital Expenditures

The amounts in the table below reflect cash payments for capital expenditures, including cash paid for capital expenditures incurred in prior periods.

		Three Months Ended September 30,								Nine months Ended September 30,
		2022				2021				2022				2021
Delaware Basin		$	409			$	375			$	1,216			$	1,150
Anadarko Basin			50				11				92				29
Williston Basin			48				13				87				59
Eagle Ford			36				45				95				88
Powder River Basin			52				13				113				53
Other			2				1				8				1
Total oil and gas			597				458				1,611				1,380
Midstream			17				5				74				53
Other			14				11				53				44
Total capital expenditures		$	628			$	474			$	1,738			$	1,477

Capital expenditures consist primarily of amounts related to our oil and gas exploration and development operations, midstream operations and other corporate activities. Our capital investment program is driven by a disciplined allocation process focused on moderating our production growth and maximizing our returns. As such, our capital expenditures for the first nine months of 2022 represent approximately 25% of our operating cash flow.

Investment Activity

During the first nine months of 2022 and 2021, Devon received distributions from our investments of $30 million and $27 million, respectively. Devon contributed $59 million to our investments during the first nine months of 2022.

Debt Activity

Subsequent to the Merger closing, we redeemed $1.2 billion of senior notes in the first nine months of 2021. We also paid $59 million of cash retirement costs related to these redemptions.

Shareholder Distributions and Stock Activity

We repurchased approximately 11 million shares of common stock for $661 million in the first nine months of 2022 under the share repurchase program authorized by our Board of Directors. For additional information, see Note 16 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

The following table summarizes our common stock dividends during the third quarter and first nine months of 2022 and 2021. In February 2022, our Board of Directors increased our fixed dividend rate by 45% to $0.16 per share and again by 13% to $0.18 per share beginning in the third quarter of 2022. In addition to the fixed quarterly dividend, we paid a variable dividend in the first, second and third quarters of 2022 and 2021.

	Fixed				Variable				Total				Rate Per Share
2022:
First quarter	$	109			$	558			$	667			$	1.00
Second quarter		105				725				830			$	1.27
Third quarter		117				890				1,007			$	1.55
Total year-to-date	$	331			$	2,173			$	2,504
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

Noncontrolling Interest Activity, net

During the first nine months of 2022 and 2021, we distributed $22 million and $15 million, respectively, to our noncontrolling interests in CDM. During the first nine months of 2021, we received contributions of $4 million related to our noncontrolling interests in CDM.

In the first quarter of 2021, we paid $24 million to purchase the noncontrolling interest portion of a partnership that WPX had formed to acquire minerals in the Delaware Basin.

Liquidity

The business of exploring for, developing and producing oil and natural gas is capital intensive. Because oil, natural gas and NGL reserves are a depleting resource, we, like all upstream operators, must continually make capital investments to grow and even sustain production. Generally, our capital investments are focused on drilling and completing new wells and maintaining production from existing wells. At opportunistic times, we also acquire operations and properties from other operators or landowners to enhance our existing portfolio of assets.

Historically, our primary sources of capital funding and liquidity have been our operating cash flow, cash on hand and asset divestiture proceeds. Additionally, we maintain a commercial paper program, supported by our revolving line of credit, which can be accessed as needed to supplement operating cash flow and cash balances. If needed, we can also issue debt and equity securities, including through transactions under our shelf registration statement filed with the SEC. We estimate the combination of our sources

of capital will continue to be adequate to fund our planned capital requirements as discussed in this section as well as accelerate our cash-return business model.

Operating Cash Flow

Key inputs into determining our planned capital investment are the amount of cash we hold and operating cash flow we expect to generate over the next one to three or more years. At the end of the third quarter of 2022, we held approximately $1.3 billion of cash. Our operating cash flow forecasts are sensitive to many variables and include a measure of uncertainty as actual results may differ from our expectations.

Commodity Prices – The most uncertain and volatile variables for our operating cash flow are the prices of the oil, gas and NGLs we produce and sell. Prices are determined primarily by prevailing market conditions. Regional and worldwide economic activity, weather and other highly variable factors influence market conditions for these products. These factors, which are difficult to predict, create volatility in prices and are beyond our control.

To mitigate some of the risk inherent in prices, we utilize various derivative financial instruments to protect a portion of our production against downside price risk. The key terms to our oil, gas and NGL derivative financial instruments as of September 30, 2022 are presented in Note 3 in “Part I. Financial Information – Item 1. Financial Statements” of this report.

Further, when considering the current commodity price environment and our current hedge position, we expect to achieve our capital investment priorities. Additionally, we remain committed to capital discipline and focused on delivering the objectives that underpin our capital plan for 2022. We will continue to prioritize economic value over growing volumes, which is driven partially by current commodity price backwardation, supply chain constraints and economic uncertainty arising from recent geopolitical events.

Operating Expenses – Commodity prices can also affect our operating cash flow through an indirect effect on operating expenses. Significant commodity price decreases can lead to a decrease in drilling and development activities. As a result, the demand and cost for people, services, equipment and materials may also decrease, causing a positive impact on our cash flow as the prices paid for services and equipment decline. However, the inverse is also generally true during periods of rising commodity prices, which is what we are currently experiencing in 2022. Furthermore, the COVID-19 pandemic has contributed to disruption and volatility in our supply chain, which has resulted, and may continue to result in labor shortages, increased costs and delays for pipe and other materials needed for our operations.

Credit Losses – Our operating cash flow is also exposed to credit risk in a variety of ways. This includes the credit risk related to customers who purchase our oil, gas and NGL production, the collection of receivables from our joint interest owners for their proportionate share of expenditures made on projects we operate and counterparties to our derivative financial contracts. We utilize a variety of mechanisms to limit our exposure to the credit risks of our customers, partners and counterparties. Such mechanisms include, under certain conditions, requiring letters of credit, prepayments or cash collateral postings.

Credit Availability

As of September 30, 2022, we had approximately $3.0 billion of available borrowing capacity under our Senior Credit Facility. This credit facility supports our $3.0 billion of short-term credit under our commercial paper program. At September 30, 2022, there were no borrowings under our commercial paper program, and we were in compliance with the Senior Credit Facility’s financial covenant.

Debt Ratings

We receive debt ratings from the major ratings agencies in the U.S. In determining our debt ratings, the agencies consider a number of qualitative and quantitative items including, but not limited to, commodity pricing levels, our liquidity, asset quality, reserve mix, debt levels, cost structure, planned asset sales and size and scale of our production. Our credit rating from Standard and Poor’s Financial Services is BBB with a stable outlook. Our credit rating from Fitch is BBB+ with a stable outlook. Our credit rating from Moody’s Investor Service is Baa2 with a stable outlook. Any rating downgrades may result in additional letters of credit or cash collateral being posted under certain contractual arrangements.

There are no “rating triggers” in any of our contractual debt obligations that would accelerate scheduled maturities should our debt rating fall below a specified level. However, a downgrade could adversely impact our interest rate on any credit facility borrowings and the ability to economically access debt markets in the future.

Fixed Plus Variable Dividend

We are committed to a “fixed plus variable” dividend strategy. Our Board of Directors will consider a number of factors when setting the quarterly dividend, if any, including a general target of paying out approximately 10% of operating cash flow through the fixed dividend. Our Board of Directors increased our quarterly fixed dividend rate by 45% to $0.16 per share in February 2022 and again by 13% to $0.18 per share beginning in August 2022. In addition to the fixed quarterly dividend, we may pay a variable dividend of up to 50% of our excess free cash flow, which is a non-GAAP measure. Each quarter’s excess free cash flow is computed as operating cash flow (a GAAP measure) before balance sheet changes, less capital expenditures and the fixed dividend. The declaration and payment of any future dividend, whether fixed or variable, will remain at the full discretion of our Board of Directors and will depend on our financial results, cash requirements, future prospects and other factors deemed relevant by the Board.

In November 2022, Devon announced a cash dividend in the amount of $1.35 per share payable in the fourth quarter of 2022. The dividend consists of an $0.18 per share fixed quarterly dividend and a $1.17 per share variable quarterly dividend and will total approximately $880 million.

Share Repurchases

In May 2022, our Board of Directors increased our share repurchase program by $0.4 billion to a total authorized amount of $2.0 billion, and extended the expiration date to May 4, 2023. Through October 2022, we had executed $1.3 billion of the authorized program.

Capital Expenditures

Our exploration and development budget for the fourth quarter of 2022 is expected to range from approximately $800 million to $900 million.

Critical Accounting Est****imates

Income Taxes

The amount of income taxes recorded requires interpretations of complex rules and regulations of federal, state, provincial and foreign tax jurisdictions. We recognize current tax expense based on estimated taxable income for the current period and the applicable statutory tax rates. We routinely assess potential uncertain tax positions and, if required, estimate and establish accruals for such amounts. We have recognized deferred tax assets and liabilities for temporary differences, operating losses and other tax carryforwards. We routinely assess our deferred tax assets and reduce such assets by a valuation allowance if we deem it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Further, in the event we were to undergo an “ownership change” (as defined in Section 382 of the Internal Revenue Code of 1986, as amended), our ability to use net operating losses and tax credits generated prior to the ownership change may be limited. Generally, an “ownership change” occurs if one or more shareholders, each of whom owns five percent or more in value of a corporation’s stock, increase their aggregate percentage ownership by more than 50 percent over the lowest percentage of stock owned by those shareholders at any time during the preceding three-year period. Based on currently available information, we do not believe an ownership change has occurred during 2022 for Devon, but the Merger did cause an ownership change for WPX and increased the likelihood Devon could experience an ownership change over the next two years.

For additional information regarding our critical accounting policies and estimates, see our 2021 Annual Report on Form 10-K.

Non-GA****AP Measures

We make reference to “core earnings attributable to Devon” and “core earnings per share attributable to Devon” in “Executive Overview” in this Item 2 that are not required by or presented in accordance with GAAP. These non-GAAP measures are not alternatives to GAAP measures and should not be considered in isolation or as a substitute for analysis of our results reported under GAAP. Core earnings attributable to Devon, as well as the per share amount, represent net earnings excluding certain non-cash and other items that are typically excluded by securities analysts in their published estimates of our financial results. Our non-GAAP measures are typically used as a quarterly performance measure. Amounts excluded relate to asset dispositions, non-cash asset impairments (including non-cash unproved asset impairments), deferred tax asset valuation allowance, changes in tax legislation, fair

value changes in derivative financial instruments, costs associated with early retirement of debt and restructuring and transaction costs associated with the workforce reductions described further in Note 5.

We believe these non-GAAP measures facilitate comparisons of our performance to earnings estimates published by securities analysts. We also believe these non-GAAP measures can facilitate comparisons of our performance between periods and to the performance of our peers.

Below are reconciliations of core earnings and core earnings per share attributable to Devon to comparable GAAP measures.

	Three Months Ended September 30,																Nine Months Ended September 30,
	Before Tax				After Tax				After NCI				Per Diluted Share				Before Tax				After Tax				After NCI				Per Diluted Share
2022
Earnings attributable to Devon (GAAP)	$	2,465			$	1,900			$	1,893			$	2.88			$	6,222			$	4,833			$	4,814			$	7.28
Adjustments:
Asset dispositions		—				—				—				—				(15	)			(12	)			(12	)			(0.02	)
Asset and exploration impairments		1				1				1				—				9				7				7				0.01
Deferred tax asset valuation allowance		—				(1	)			(1	)			—				—				15				15				0.02
Fair value changes in financial instruments		(604	)			(464	)			(464	)			(0.70	)			(565	)			(433	)			(433	)			(0.65	)
Core earnings attributable to Devon (Non-GAAP)	$	1,862			$	1,436			$	1,429			$	2.18			$	5,651			$	4,410			$	4,391			$	6.64
2021
Earnings attributable to Devon (GAAP)	$	964			$	844			$	838			$	1.24			$	1,236			$	1,321			$	1,307			$	1.95
Adjustments:
Asset dispositions		—				—				—				—				(119	)			(91	)			(91	)			(0.13	)
Asset and exploration impairments		1				1				1				—				3				2				2				—
Deferred tax asset valuation allowance		—				(101	)			(101	)			(0.15	)			—				(479	)			(479	)			(0.71	)
Change in tax legislation		—				—				—				—				—				62				62				0.09
Fair value changes in financial instruments		(31	)			(23	)			(23	)			(0.04	)			597				460				460				0.68
Restructuring and transaction costs		18				18				18				0.03				230				201				201				0.29
Early retirement of debt		—				—				—				—				(30	)			(23	)			(23	)			(0.03	)
Core earnings attributable to Devon (Non-GAAP)	$	952			$	739			$	733			$	1.08			$	1,917			$	1,453			$	1,439			$	2.14

EBITDAX and Field-Level Cash Margin

To assess the performance of our assets, we use EBITDAX and Field-Level Cash Margin. We compute EBITDAX as net earnings before income tax expense; financing costs, net; exploration expenses; DD&A; asset impairments; asset disposition gains and losses; non-cash share-based compensation; non-cash valuation changes for derivatives and financial instruments; restructuring and transaction costs; accretion on discounted liabilities; and other items not related to our normal operations. Field-Level Cash Margin is computed as oil, gas and NGL sales less production expenses. Production expenses consist of lease operating, gathering, processing and transportation expenses, as well as production and property taxes.

We exclude financing costs from EBITDAX to assess our operating results without regard to our financing methods or capital structure. Exploration expenses and asset disposition gains and losses are excluded from EBITDAX because they generally are not indicators of operating efficiency for a given reporting period. DD&A and impairments are excluded from EBITDAX because capital expenditures are evaluated at the time capital costs are incurred. We exclude share-based compensation, valuation changes, restructuring and transaction costs, accretion on discounted liabilities and other items from EBITDAX because they are not considered a measure of asset operating performance.

We believe EBITDAX and Field-Level Cash Margin provide information useful in assessing our operating and financial performance across periods. EBITDAX and Field-Level Cash Margin as defined by Devon may not be comparable to similarly titled measures used by other companies and should be considered in conjunction with net earnings from operations.

Below are reconciliations of net earnings to EBITDAX and a further reconciliation to Field-Level Cash Margin.

		Three Months Ended September 30,								Nine Months Ended September 30,
		2022				2021				2022				2021
Net earnings (GAAP)		$	1,900			$	844			$	4,833			$	1,321
Financing costs, net			67				86				236				243
Income tax expense (benefit)			565				120				1,389				(85	)
Exploration expenses			4				3				16				9
Depreciation, depletion and amortization			581				578				1,598				1,581
Asset dispositions			—				—				(15	)			(119	)
Share-based compensation			22				18				64				58
Derivative and financial instrument non-cash valuation changes			(613	)			(35	)			(576	)			597
Restructuring and transaction costs			—				18				—				230
Accretion on discounted liabilities and other			(38	)			2				(89	)			(41	)
EBITDAX (Non-GAAP)			2,488				1,634				7,456				3,794
Marketing and midstream revenues and expenses, net			9				(1	)			17				19
Commodity derivative cash settlements			363				370				1,179				969
General and administrative expenses, cash-based			73				77				209				238
Field-level cash margin (Non-GAAP)		$	2,933			$	2,080			$	8,861			$	5,020