Item 1. Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
		(Unaudited)
Oil, gas and NGL sales		$	2,493			$	4,100			$	5,172			$	7,275
Oil, gas and NGL derivatives			(76	)			(170	)			(12	)			(853	)
Marketing and midstream revenues			1,037				1,696				2,117				3,016
Total revenues			3,454				5,626				7,277				9,438
Production expenses			719				729				1,412				1,347
Exploration expenses			10				10				13				12
Marketing and midstream expenses			1,051				1,700				2,156				3,024
Depreciation, depletion and amortization			638				528				1,253				1,017
Asset dispositions			(41	)			(14	)			(41	)			(15	)
General and administrative expenses			92				84				198				178
Financing costs, net			78				84				150				169
Other, net			10				10				15				(51	)
Total expenses			2,557				3,131				5,156				5,681
Earnings before income taxes			897				2,495				2,121				3,757
Income tax expense			199				557				420				824
Net earnings			698				1,938				1,701				2,933
Net earnings attributable to noncontrolling interests			8				6				16				12
Net earnings attributable to Devon		$	690			$	1,932			$	1,685			$	2,921
Net earnings per share:
Basic net earnings per share		$	1.08			$	2.94			$	2.61			$	4.42
Diluted net earnings per share		$	1.07			$	2.93			$	2.60			$	4.40
Comprehensive earnings:
Net earnings		$	698			$	1,938			$	1,701			$	2,933
Other comprehensive earnings, net of tax:
Pension and postretirement plans			1				1				2				2
Other comprehensive earnings, net of tax			1				1				2				2
Comprehensive earnings:		$	699			$	1,939			$	1,703			$	2,935
Comprehensive earnings attributable to noncontrolling interests			8				6				16				12
Comprehensive earnings attributable to Devon		$	691			$	1,933			$	1,687			$	2,923

See accompanying notes to consolidated financial statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET****S

		June 30, 2023				December 31, 2022
		(Unaudited)
ASSETS
Current assets:
Cash, cash equivalents and restricted cash		$	488			$	1,454
Accounts receivable			1,519				1,767
Inventory			201				201
Other current assets			397				469
Total current assets			2,605				3,891
Oil and gas property and equipment, based on successful efforts accounting, net			17,317				16,567
Other property and equipment, net ($117 million and $109 million related to CDM in 2023 and 2022, respectively)			1,446				1,539
Total property and equipment, net			18,763				18,106
Goodwill			753				753
Right-of-use assets			266				224
Investments			675				440
Other long-term assets			293				307
Total assets		$	23,355			$	23,721
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	843			$	859
Revenues and royalties payable			1,199				1,506
Short-term debt			244				251
Other current liabilities			383				489
Total current liabilities			2,669				3,105
Long-term debt			6,169				6,189
Lease liabilities			299				257
Asset retirement obligations			548				511
Other long-term liabilities			858				900
Deferred income taxes			1,662				1,463
Stockholders' equity:
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued641 million and 653 million shares in 2023 and 2022, respectively			64				65
Additional paid-in capital			6,131				6,921
Retained earnings			4,940				4,297
Accumulated other comprehensive loss			(114	)			(116	)
Total stockholders’ equity attributable to Devon			11,021				11,167
Noncontrolling interests			129				129
Total equity			11,150				11,296
Total liabilities and equity		$	23,355			$	23,721

See accompanying notes to consolidated financial statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
		(Unaudited)
Cash flows from operating activities:
Net earnings		$	698			$	1,938			$	1,701			$	2,933
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation, depletion and amortization			638				528				1,253				1,017
Leasehold impairments			3				7				3				8
Amortization of liabilities			(8	)			(9	)			(15	)			(15	)
Total losses on commodity derivatives			76				170				12				853
Cash settlements on commodity derivatives			37				(472	)			50				(816	)
Gains on asset dispositions			(41	)			(14	)			(41	)			(15	)
Deferred income tax expense			119				305				199				469
Share-based compensation			25				23				48				43
Other			(2	)			4				—				(17	)
Changes in assets and liabilities, net			(140	)			198				(128	)			55
Net cash from operating activities			1,405				2,678				3,082				4,515
Cash flows from investing activities:
Capital expenditures			(1,079	)			(573	)			(2,091	)			(1,110	)
Acquisitions of property and equipment			(18	)			(100	)			(31	)			(101	)
Divestitures of property and equipment			1				9				22				35
Distributions from investments			9				15				17				23
Contributions to investments and other			(15	)			(21	)			(52	)			(43	)
Net cash from investing activities			(1,102	)			(670	)			(2,135	)			(1,196	)
Cash flows from financing activities:
Repurchases of common stock			(228	)			(324	)			(745	)			(535	)
Dividends paid on common stock			(462	)			(830	)			(1,058	)			(1,497	)
Contributions from noncontrolling interests			8				—				8				—
Distributions to noncontrolling interests			(13	)			(5	)			(24	)			(13	)
Shares exchanged for tax withholdings and other			(9	)			(12	)			(96	)			(85	)
Net cash from financing activities			(704	)			(1,171	)			(1,915	)			(2,130	)
Effect of exchange rate changes on cash			2				(5	)			2				(3	)
Net change in cash, cash equivalents and restricted cash			(399	)			832				(966	)			1,186
Cash, cash equivalents and restricted cash at beginning of period			887				2,625				1,454				2,271
Cash, cash equivalents and restricted cash at end of period		$	488			$	3,457			$	488			$	3,457
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents		$	372			$	3,300			$	372			$	3,300
Restricted cash			116				157				116				157
Total cash, cash equivalents and restricted cash		$	488			$	3,457			$	488			$	3,457

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 June 30, 2023
Balance as of March 31, 2023			645			$	64			$	6,344			$	4,712			$	(115	)		$	(28	)		$	126			$	11,103
Net earnings			—				—				—				690				—				—				8				698
Other comprehensive earnings, net of tax			—				—				—				—				1				—				—				1
Common stock repurchased			—				—				(2	)			—				—				(208	)			—				(210	)
Common stock retired			(4	)			—				(236	)			—				—				236				—				—
Common stock dividends			—				—				—				(462	)			—				—				—				(462	)
Share-based compensation			—				—				25				—				—				—				—				25
Contributions from noncontrolling interests			—				—				—				—				—				—				8				8
Distributions to noncontrolling interests			—				—				—				—				—				—				(13	)			(13	)
Balance as of June 30, 2023			641			$	64			$	6,131			$	4,940			$	(114	)		$	—			$	129			$	11,150
Three Months Ended June 30, 2022
Balance as of March 31, 2022			661			$	66			$	7,371			$	2,013			$	(131	)		$	(19	)		$	135			$	9,435
Net earnings			—				—				—				1,932				—				—				6				1,938
Other comprehensive earnings, net of tax			—				—				—				—				1				—				—				1
Restricted stock grants, net of cancellations			—				1				—				—				—				—				—				1
Common stock repurchased			—				—				—				—				—				(329	)			—				(329	)
Common stock retired			(5	)			(1	)			(334	)			—				—				335				—				—
Common stock dividends			—				—				—				(838	)			—				—				—				(838	)
Share-based compensation			—				—				23				—				—				—				—				23
Distributions to noncontrolling interests			—				—				—				—				—				—				(5	)			(5	)
Balance as of June 30, 2022			656			$	66			$	7,060			$	3,107			$	(130	)		$	(13	)		$	136			$	10,226
Six Months Ended June 30, 2023
Balance as of December 31, 2022			653			$	65			$	6,921			$	4,297			$	(116	)		$	—			$	129			$	11,296
Net earnings			—				—				—				1,685				—				—				16				1,701
Other comprehensive earnings, net of tax			—				—				—				—				2				—				—				2
Restricted stock grants, net of cancellations			2				—				—				—				—				—				—				—
Common stock repurchased			—				—				(6	)			—				—				(833	)			—				(839	)
Common stock retired			(15	)			(1	)			(832	)			—				—				833				—				—
Common stock dividends			—				—				—				(1,042	)			—				—				—				(1,042	)
Share-based compensation			1				—				48				—				—				—				—				48
Contributions from noncontrolling interests			—				—				—				—				—				—				8				8
Distributions to noncontrolling interests			—				—				—				—				—				—				(24	)			(24	)
Balance as of June 30, 2023			641			$	64			$	6,131			$	4,940			$	(114	)		$	—			$	129			$	11,150
Six Months Ended June 30, 2022
Balance as of December 31, 2021			663			$	66			$	7,636			$	1,692			$	(132	)		$	—			$	137			$	9,399
Net earnings			—				—				—				2,921				—				—				12				2,933
Other comprehensive earnings, net of tax			—				—				—				—				2				—				—				2
Restricted stock grants, net of cancellations			2				1				1				—				—				—				—				2
Common stock repurchased			—				—				—				—				—				(634	)			—				(634	)
Common stock retired			(10	)			(1	)			(620	)			—				—				621				—				—
Common stock dividends			—				—				—				(1,506	)			—				—				—				(1,506	)
Share-based compensation			1				—				43				—				—				—				—				43
Distributions to noncontrolling interests			—				—				—				—				—				—				(13	)			(13	)
Balance as of June 30, 2022			656			$	66			$	7,060			$	3,107			$	(130	)		$	(13	)		$	136			$	10,226

See accompanying notes to consolidated financial statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

S****ummary 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 2022 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 six-month periods ended June 30, 2023 and 2022 and Devon’s financial position as of June 30, 2023.

Restricted Cash

As of June 30, 2023, approximately $116 million of cash on the consolidated balance sheets is presented as restricted cash for obligations primarily related to an abandoned Canadian firm transportation agreement.

Variable Interest Entity

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

The following table presents Devon's investments.

				Carrying Amount
Investments		% Interest		June 30, 2023				December 31, 2022
Catalyst		50%		$	324			$	339
Water JV		30%			212				—
Matterhorn		12.5%			90				54
Other		Various			49				47
Total				$	675			$	440

Devon has an interest in Catalyst, which is a joint venture with an affiliate of Howard Energy Partners, LLC (“HEP”) and certain other investors, to develop oil gathering and natural gas processing infrastructure in the Stateline area of the Delaware Basin. Under the terms of the arrangement, Devon and a holding company owned by the other joint venture investors each have a 50% voting interest in the joint venture legal entity, and HEP serves as the operator. Through 2038, Devon’s production from 50,000 net acres in the Stateline area of the Delaware Basin has been dedicated to Catalyst subject to fixed-fee oil gathering and natural gas processing agreements. Devon accounts for the investment in Catalyst as an equity method investment. Devon's investment in Catalyst is shown within investments on the consolidated balance sheets and Devon's share of Catalyst earnings are reflected as a component of other, net in the accompanying consolidated statements of comprehensive earnings.

In the second quarter of 2023, Devon made an investment in the Water JV, a joint venture entity formed with an affiliate of WaterBridge NDB LLC (“WaterBridge”), for the purpose of providing increased capacity and flexibility in disposing of produced water in the Delaware Basin and Eagle Ford. Under terms of the arrangement, Devon contributed water infrastructure assets and committed to a water gathering and disposal dedication to the Water JV through 2038, in exchange for a 30% voting interest in the joint venture legal entity. WaterBridge contributed water infrastructure assets to the Water JV, in exchange for a 70% voting interest in the joint venture legal entity and will serve as the operator. At closing of the Water JV, Devon recognized a $64 million gain in asset dispositions in the consolidated statements of comprehensive earnings, which represented the excess of the estimated fair value of Devon's interest in the Water JV over the carrying value of the water infrastructure assets Devon contributed to the Water JV. Devon accounts for the investment in the Water JV as an equity method investment. Devon's investment in the Water JV is shown

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

within investments on the consolidated balance sheets and Devon's share of the Water JV earnings are reflected as a component of other, net in the accompanying consolidated statements of comprehensive earnings.

During 2023 and 2022, Devon made investments in Matterhorn. Matterhorn is a joint venture entity and was formed for the purpose of constructing a natural gas pipeline that will transport natural gas from the Permian Basin to the Katy, Texas area. Devon's investment in Matterhorn does not give it the ability to exercise significant influence over Matterhorn.

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 June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Oil		$	2,106			$	2,970			$	4,249			$	5,376
Gas			122				557				335				864
NGL			265				573				588				1,035
Oil, gas and NGL sales			2,493				4,100				5,172				7,275
Oil			735				952				1,465				1,728
Gas			123				322				275				531
NGL			179				422				377				757
Marketing and midstream revenues			1,037				1,696				2,117				3,016
Total revenues from contracts with customers		$	3,530			$	5,796			$	7,289			$	10,291

2. Acquisitions and Dive****stitures

Acquisitions

In September 2022, Devon completed its acquisition of producing properties and leasehold interests located in the Eagle Ford for cash consideration of approximately $1.7 billion, net of purchase price adjustments. Additionally, in July 2022, Devon completed its acquisition of producing properties and leasehold interests located in the Williston Basin for cash consideration of approximately $830 million, net of purchase price adjustments. The total estimated proved reserves associated with these Eagle Ford and Williston Basin assets were approximately 87 MMBoe and 66 MMBoe, respectively. Each of these acquisitions were accounted for as asset acquisitions as substantially all of the fair value was concentrated in a group of similar assets. Each of the acquisitions resulted in the purchase of producing properties and leasehold interests in a defined geographical and geological area, and substantially all of the assets have similar risk characteristics.

Contingent Earnout Payments

Devon is entitled to contingent earnout payments associated with the sale of its Barnett Shale assets in 2020 with upside participation beginning at a $2.75 Henry Hub natural gas price or a $50 WTI oil price. The contingent payment period commenced on January 1, 2021 and has a term of four years. Devon received $65 million in contingent earnout payments related to this transaction in the first quarter of 2023 and 2022 and could receive up to an additional $130 million in contingent earnout payments for the remaining performance periods depending on future commodity prices. The valuation of the future contingent earnout payments included within other current assets and other long-term assets in the June 30, 2023 consolidated balance sheet was approximately $30 million and $35 million, respectively. These values were derived utilizing a Monte Carlo valuation model and qualify as a level 3 fair value measurement.

Devon also received $4 million in contingent earnout payments related to the sale of non-core assets in the Rockies in the first quarter of 2023 and 2022.

3.

Derivative Fin****ancial 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

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

and NGL marketing activities. These commodity derivative financial instruments include financial price swaps, basis swaps and costless price collars.

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 June 30, 2023, Devon neither held cash collateral of its counterparties nor posted cash collateral to its counterparties. Given Devon's current credit ratings and the terms of the underlying contracts, Devon is not currently required to post collateral to its counterparties with respect to its open derivative positions, and we would not be required to post any such collateral as a result of any change to the amount of Devon's net liability for such positions.

Commodity Derivatives

As of June 30, 2023, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The second table presents Devon’s oil derivatives that settle against the respective indices noted within the table.

		Price Swaps								Price Collars
Period		Volume (Bbls/d)				Weighted Average Price ($/Bbl)				Volume (Bbls/d)				Weighted Average Floor Price ($/Bbl)				Weighted Average Ceiling Price ($/Bbl)
Q3-Q4 2023			6,000			$	68.42				82,750			$	69.52			$	94.57
Q1-Q4 2024			1,492			$	68.42				21,486			$	60.00			$	85.66

		Oil Basis Swaps
Period		Index		Volume (Bbls/d)				Weighted Average Differential to WTI ($/Bbl)
Q3-Q4 2023		Midland Sweet			66,500			$	1.11
Q1-Q4 2024		Midland Sweet			61,500			$	1.17
Q1-Q4 2025		Midland Sweet			49,000			$	0.96

As of June 30, 2023, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.

		Price Swaps								Price Collars
Period		Volume (MMBtu/d)				Weighted Average Price ($/MMBtu)				Volume (MMBtu/d)				Weighted Average Floor Price ($/MMBtu)				Weighted Average Ceiling Price ($/MMBtu)
Q3-Q4 2023			108,000			$	3.30				171,000			$	3.64			$	7.44
Q1-Q4 2024			94,426			$	3.30				40,527			$	3.78			$	7.05

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

		Natural Gas Basis Swaps
Period		Index		Volume (MMBtu/d)				Weighted Average Differential to Henry Hub ($/MMBtu)
Q3-Q4 2023		El Paso Natural Gas			145,000			$	(1.58	)
Q3-Q4 2023		Houston Ship Channel			140,000			$	(0.19	)
Q3-Q4 2023		WAHA			70,000			$	(0.51	)
Q1-Q4 2024		El Paso Natural Gas			34,863			$	(0.91	)
Q1-Q4 2024		Houston Ship Channel			90,000			$	(0.25	)
Q1-Q4 2024		WAHA			44,973			$	(0.58	)

As of June 30, 2023, Devon did not have any open NGL positions.

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 June 30, 2023 and December 31, 2022.

	June 30, 2023												December 31, 2022
	Gross Fair Value				Amounts Netted				Net Fair Value				Gross Fair Value				Amounts Netted				Net Fair Value				Balance Sheet Classification
Commodity derivatives:
Short-term derivative asset	$	111			$	(20	)		$	91			$	138			$	(19	)		$	119			Other current assets
Long-term derivative asset		11				(1	)			10				12				—				12			Other long-term assets
Short-term derivative liability		(43	)			20				(23	)			(22	)			19				(3	)		Other current liabilities
Long-term derivative liability		(13	)			1				(12	)			—				—				—			Other long-term liabilities
Total derivative asset	$	66			$	—			$	66			$	128			$	—			$	128

4.

Share-Base****d Compensation

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

		Six Months Ended June 30,
		2023				2022
G&A		$	48			$	42
Exploration expenses			—				1
Total		$	48			$	43
Related income tax benefit		$	27			$	26

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 its employees. The following table presents a summary of Devon’s unvested restricted stock awards and units and performance share units granted under the plan.

		Restricted Stock Awards & Units								Performance Share Units
		Awards/Units				Weighted Average Grant-Date Fair Value				Units				Weighted Average Grant-Date Fair Value
		(Thousands, except fair value data)
Unvested at 12/31/22			5,788			$	29.11				1,841			$	31.33
Granted			1,224			$	62.95				743			$	51.38
Vested			(2,905	)		$	25.18				(1,037	)		$	27.89
Forfeited			(79	)		$	43.82				—			$	—
Unvested at 6/30/23			4,028			$	41.94				1,547		(1)	$	43.25

(1)

A maximum of 3.1 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 2023, as indicated in the previous summary table. The grants in the previous summary table also include the impacts of performance share units granted in a prior year that vested higher than 100% of target due to Devon's TSR performance compared to our peers.

		2023
Grant-date fair value		$	81.70
Risk-free interest rate			4.15	%
Volatility factor			61.43	%
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 June 30, 2023.

		Restricted Stock				Performance
		Awards/Units				Share Units
Unrecognized compensation cost		$	118			$	30
Weighted average period for recognition (years)			2.8				1.9

5. Restructuring

The following table summarizes Devon’s restructuring liabilities. The remaining liabilities primarily relate to an abandoned Canadian firm transportation agreement.

		Other				Other
		Current				Long-term
		Liabilities				Liabilities				Total
Balance as of December 31, 2022		$	34			$	81			$	115
Changes related to prior years' restructurings			(19	)			(4	)			(23	)
Balance as of June 30, 2023		$	15			$	77			$	92
Balance as of December 31, 2021		$	38			$	111			$	149
Changes related to prior years' restructurings			(10	)			(12	)			(22	)
Balance as of June 30, 2022		$	28			$	99			$	127

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

6. Ot****her, Net

The following table summarizes Devon's other expenses (income) presented in the accompanying consolidated comprehensive statements of earnings.

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Estimated future obligation under a performance guarantee		$	—			$	—			$	—			$	(96	)
Ukraine charitable pledge			—				—				—				20
Asset retirement obligation accretion			7				6				14				13
Other			3				4				1				12
Total		$	10			$	10			$	15			$	(51	)

Devon has guaranteed performance through 2026 for a minimum volume commitment associated with assets divested in 2018. Due to improved commodity prices, market conditions, and performance by the purchaser of the assets, the purchaser was able to fully satisfy the performance obligation due in the first quarter of 2023 and 2022. Additionally, at March 31, 2022, Devon reduced the estimated future exposure of the performance guarantee. The effect of these cash collections and liability revisions resulted in a $96 million benefit in the first six months of 2022.

The first six months of 2022 includes a $20 million pledge for humanitarian relief for the Ukrainian people and surrounding countries supporting refugees.

7. Inco****me Taxes

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

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Earnings before income taxes		$	897			$	2,495			$	2,121			$	3,757
Current income tax expense		$	80			$	252			$	221			$	355
Deferred income tax expense			119				305				199				469
Total income tax expense		$	199			$	557			$	420			$	824
U.S. statutory income tax rate			21	%			21	%			21	%			21	%
State income taxes			1	%			1	%			1	%			1	%
Other			0	%			0	%			(2	%)			0	%
Effective income tax rate			22	%			22	%			20	%			22	%

On August 16, 2022, the IRA was signed into law and included various income tax related provisions with effective dates generally beginning in 2023. Among the enacted provisions are a 15% CAMT on AFSI and several new and expanded clean energy credits and incentives. Dependent upon future regulations, Devon believes it is subject to the CAMT as Devon has an average annual AFSI that exceeds $1 billion for the three-year period ended December 31, 2022.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

8.

Net Earnings Per Share

The following table reconciles net earnings and weighted-average common shares outstanding used in the calculations of basic and diluted net earnings per share.

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Net earnings:
Net earnings		$	690			$	1,932			$	1,685			$	2,921
Attributable to participating securities			(3	)			(17	)			(11	)			(33	)
Basic and diluted earnings		$	687			$	1,915			$	1,674			$	2,888
Common shares:
Common shares outstanding - total			642				658				646				661
Attributable to participating securities			(4	)			(6	)			(5	)			(7	)
Common shares outstanding - basic			638				652				641				654
Dilutive effect of potential common shares issuable			1				2				2				2
Common shares outstanding - diluted			639				654				643				656
Net earnings per share:
Basic		$	1.08			$	2.94			$	2.61			$	4.42
Diluted		$	1.07			$	2.93			$	2.60			$	4.40

9. Other Comprehensive Earnings (Loss)

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

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Pension and postretirement benefit plans:
Beginning accumulated pension and postretirement benefits		$	(115	)		$	(131	)		$	(116	)		$	(132	)
Recognition of net actuarial loss and prior service cost in earnings (1)			2				2				3				3
Income tax expense			(1	)			(1	)			(1	)			(1	)
Accumulated other comprehensive loss, net of tax		$	(114	)		$	(130	)		$	(114	)		$	(130	)

(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.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

10.

Supplemental Information to Statements of Cash Flows

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Changes in assets and liabilities, net:
Accounts receivable		$	98			$	(346	)		$	248			$	(803	)
Other current assets			(12	)			(85	)			4				(21	)
Other long-term assets			(13	)			9				18				75
Accounts payable and revenues and royalties payable			(65	)			540				(230	)			787
Other current liabilities			(138	)			93				(141	)			101
Other long-term liabilities			(10	)			(13	)			(27	)			(84	)
Total		$	(140	)		$	198			$	(128	)		$	55
Supplementary cash flow data:
Interest paid		$	88			$	85			$	189			$	185
Income taxes paid		$	259			$	133			$	259			$	110

Devon's non-cash investing activities for the three and six months ended June 30, 2023, included approximately $150 million of contributions of other property and equipment for the formation of the Water JV.

11.

Accounts Receivable

Components of accounts receivable include the following:

		June 30, 2023				December 31, 2022
Oil, gas and NGL sales		$	913			$	1,153
Joint interest billings			217				162
Marketing and midstream revenues			364				428
Other			32				33
Gross accounts receivable			1,526				1,776
Allowance for doubtful accounts			(7	)			(9	)
Net accounts receivable		$	1,519			$	1,767

12. Property, Plan****t and Equipment

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

		June 30, 2023				December 31, 2022
Property and equipment:
Proved		$	44,711			$	42,734
Unproved and properties under development			1,528				1,548
Total oil and gas			46,239				44,282
Less accumulated DD&A			(28,922	)			(27,715	)
Oil and gas property and equipment, net			17,317				16,567
Other property and equipment			2,204				2,280
Less accumulated DD&A			(758	)			(741	)
Other property and equipment, net (1)			1,446				1,539
Property and equipment, net		$	18,763			$	18,106

(1)

$117 million and $109 million related to CDM in 2023 and 2022, respectively.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

13.

Debt and Re****lated Expenses

See below for a summary of debt instruments and balances. The notes and debentures are senior, unsecured obligations of Devon.

		June 30, 2023				December 31, 2022
8.25% due August 1, 2023		$	242			$	242
5.25% due September 15, 2024			472				472
5.85% due December 15, 2025			485				485
7.50% due September 15, 2027			73				73
5.25% due October 15, 2027			390				390
5.875% due June 15, 2028			325				325
4.50% due January 15, 2030			585				585
7.875% due September 30, 2031			675				675
7.95% due April 15, 2032			366				366
5.60% due July 15, 2041			1,250				1,250
4.75% due May 15, 2042			750				750
5.00% due June 15, 2045			750				750
Net premium on debentures and notes			82				103
Debt issuance costs			(32	)			(26	)
Total debt		$	6,413			$	6,440
Less amount classified as short-term debt			244				251
Total long-term debt		$	6,169			$	6,189

Retirement of Senior Notes

On August 1, 2023, Devon repaid the $242 million of 8.25% senior notes at maturity.

Credit Lines

On March 24, 2023, Devon amended and restated its 2018 Senior Credit Facility to provide for a new $3.0 billion revolving 2023 Senior Credit Facility with a financial covenant and other terms similar to the 2018 Senior Credit Facility. The 2023 Senior Credit Facility matures on March 24, 2028, with the option to extend the maturity date by three additional one-year periods, subject to lender consent. As of June 30, 2023, Devon had no outstanding borrowings under the 2023 Senior Credit Facility and had issued $2 million in outstanding letters of credit under this facility. The 2023 Senior Credit Facility contains only one material financial covenant. This covenant requires Devon’s ratio of total funded debt to total capitalization, as defined in the credit agreement, to be no greater than 65%. Under the terms of the credit agreement, total capitalization is adjusted to add back non-cash financial write-downs such as impairments. As of June 30, 2023, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 23.1%.

Net Financing Costs

The following schedule includes the components of net financing costs.

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Interest based on debt outstanding		$	96			$	93			$	189			$	185
Interest income			(15	)			(2	)			(32	)			(3	)
Other			(3	)			(7	)			(7	)			(13	)
Total net financing costs		$	78			$	84			$	150			$	169

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

14. Le****ases

The following table presents Devon’s right-of-use assets and lease liabilities as of June 30, 2023 and December 31, 2022.

		June 30, 2023												December 31, 2022
		Finance				Operating				Total				Finance				Operating				Total
Right-of-use assets		$	251			$	15			$	266			$	203			$	21			$	224
Lease liabilities:
Current lease liabilities (1)		$	14			$	10			$	24			$	8			$	13			$	21
Long-term lease liabilities			295				4				299				249				8				257
Total lease liabilities		$	309			$	14			$	323			$	257			$	21			$	278

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

Devon’s operating lease right-of-use assets relate to real estate, drilling rigs and other equipment for the exploration, development and production of oil and gas. Devon’s financing lease right-of-use assets relate to real estate. In the second quarter of 2023, Devon's financing lease right-of-use assets and the associated liabilities increased primarily from an amendment of lease terms.

15.

Asset Retir****ement Obligations

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

		Six Months Ended June 30,
		2023				2022
Asset retirement obligations as of beginning of period		$	529			$	485
Liabilities incurred			14				15
Liabilities settled and divested			(18	)			(9	)
Revision of estimated obligation			27				(35	)
Accretion expense on discounted obligation			14				13
Asset retirement obligations as of end of period			566				469
Less current portion			18				17
Asset retirement obligations, long-term		$	548			$	452

During the first six months of 2023, Devon increased its asset retirement obligations by approximately $27 million primarily due to inflation-driven increases in current cost estimates. During the first six months of 2022, Devon reduced its asset retirement obligations by $35 million primarily due to extended retirement dates for oil and gas assets, partially offset by inflation-driven increases to current settlement costs.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

16.

Stockhol****ders’ Equity

Share Repurchases

In November 2021, Devon authorized a share repurchase program of $1.0 billion with a December 31, 2022 expiration date. In 2022, the Board of Directors authorized expansions of the share repurchase program ultimately to $2.0 billion and extended the expiration date to May 4, 2023. In May 2023, the Board of Directors authorized a further expansion to $3.0 billion and extended the expiration date to December 31, 2024. The table below provides information regarding purchases of Devon’s common stock under the $3.0 billion share repurchase program (shares in thousands).

		Total Number of Shares Purchased				Dollar Value of Shares Purchased				Average Price Paid per Share
$3.0 Billion Plan
2021:
Fourth quarter			13,983			$	589			$	42.15
2022:
First quarter			3,979				230			$	57.74
Second quarter			5,052				318			$	63.07
Third quarter			1,875				113			$	59.99
Fourth quarter			802				57			$	71.69
2023:
First quarter			10,090				545			$	53.96
Second quarter			3,795				200			$	52.70
Total plan			39,576			$	2,052			$	51.86

Dividends

Devon pays a quarterly dividend which is comprised of a fixed dividend and a variable dividend. The variable dividend is dependent on quarterly cash flows, among other factors. Devon raised its fixed dividend multiple times over the past two calendar years from $0.16 per share in the first quarter of 2022 to $0.20 per share beginning in the first quarter of 2023. The following table summarizes Devon’s fixed and variable dividends for the first six months of 2023 and 2022, respectively.

	Fixed				Variable				Total				Rate Per Share
2023:
First quarter	$	133			$	463			$	596			$	0.89
Second quarter		128				334				462			$	0.72
Total year-to-date	$	261			$	797			$	1,058
2022:
First quarter	$	109			$	558			$	667			$	1.00
Second quarter		105				725				830			$	1.27
Total year-to-date	$	214			$	1,283			$	1,497

In August 2023, Devon announced a cash dividend in the amount of $0.49 per share payable in the third quarter of 2023. The dividend consists of a $0.20 per share fixed quarterly dividend and a $0.29 per share variable quarterly dividend and will total approximately $314 million.

Noncontrolling Interests

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

17.

Commitments and Contingencies

Devon is party to various legal actions arising in connection with its business. Matters that are probable of unfavorable outcome to Devon and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, Devon’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. None of the

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

actions are believed by management to likely involve future amounts that would be material to Devon’s financial position or results of operations after consideration of recorded accruals. Actual amounts could differ materially from management’s estimates.

Royalty Matters

Numerous oil and natural gas producers and related parties, including Devon, have been named in various lawsuits alleging royalty underpayments. Devon is currently named as a defendant in a number of such lawsuits, including some lawsuits in which the plaintiffs seek to certify classes of similarly situated plaintiffs. Among the allegations typically asserted in these suits are claims that Devon used below-market prices, made improper deductions, paid royalty proceeds in an untimely manner without including required interest, used improper measurement techniques and entered into gas purchase and processing arrangements with affiliates that resulted in underpayment of royalties in connection with oil, natural gas and NGLs produced and sold. Devon is also involved in governmental agency proceedings and royalty audits and is subject to related contracts and regulatory controls in the ordinary course of business, some that may lead to additional royalty claims.

Environmental and Climate Change Matters

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

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

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

Other Indemnifications and Legacy Matters

Pursuant to various sale agreements relating to divested businesses and assets, Devon has indemnified various purchasers against liabilities that they may incur with respect to the businesses and assets acquired from Devon. Additionally, federal, state and other laws in areas of former operations may require previous operators (including corporate successors of previous operators) to perform or make payments in certain circumstances where the current operator may no longer be able to satisfy the applicable obligation. Such obligations may include plugging and abandoning wells, removing production facilities or performing requirements under surface agreements in existence at the time of disposition.

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

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

18.

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 June 30, 2023 and December 31, 2022, as applicable. Therefore, such financial assets and liabilities are not presented in the following table.

										Fair Value Measurements Using:
		Carrying				Total Fair				Level 1				Level 2				Level 3
		Amount				Value				Inputs				Inputs				Inputs
June 30, 2023 assets (liabilities):
Cash equivalents		$	2			$	2			$	2			$	—			$	—
Commodity derivatives		$	101			$	101			$	—			$	101			$	—
Commodity derivatives		$	(35	)		$	(35	)		$	—			$	(35	)		$	—
Debt		$	(6,413	)		$	(6,187	)		$	—			$	(6,187	)		$	—
Contingent earnout payments		$	65			$	65			$	—			$	—			$	65
December 31, 2022 assets (liabilities):
Cash equivalents		$	708			$	708			$	708			$	—			$	—
Commodity derivatives		$	131			$	131			$	—			$	131			$	—
Commodity derivatives		$	(3	)		$	(3	)		$	—			$	(3	)		$	—
Debt		$	(6,440	)		$	(6,231	)		$	—			$	(6,231	)		$	—
Contingent earnout payments		$	157			$	157			$	—			$	—			$	157

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

Level 1 Fair Value Measurements

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

Level 2 Fair Value Measurements

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

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

Level 3 Fair Value Measurements

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