Item 1. Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
		(Unaudited)
Oil, gas and NGL sales		$	2,882			$	3,668			$	8,054			$	10,943
Oil, gas and NGL derivatives			(194	)			248				(206	)			(605	)
Marketing and midstream revenues			1,148				1,516				3,265				4,532
Total revenues			3,836				5,432				11,113				14,870
Production expenses			757				735				2,169				2,082
Exploration expenses			3				4				16				16
Marketing and midstream expenses			1,160				1,525				3,316				4,549
Depreciation, depletion and amortization			651				581				1,904				1,598
Asset dispositions			—				—				(41	)			(15	)
General and administrative expenses			99				95				297				273
Financing costs, net			81				67				231				236
Other, net			13				(40	)			28				(91	)
Total expenses			2,764				2,967				7,920				8,648
Earnings before income taxes			1,072				2,465				3,193				6,222
Income tax expense			152				565				572				1,389
Net earnings			920				1,900				2,621				4,833
Net earnings attributable to noncontrolling interests			10				7				26				19
Net earnings attributable to Devon		$	910			$	1,893			$	2,595			$	4,814
Net earnings per share:
Basic net earnings per share		$	1.43			$	2.89			$	4.05			$	7.30
Diluted net earnings per share		$	1.42			$	2.88			$	4.03			$	7.28
Comprehensive earnings:
Net earnings		$	920			$	1,900			$	2,621			$	4,833
Other comprehensive earnings, net of tax:
Pension and postretirement plans			1				1				3				3
Other comprehensive earnings, net of tax			1				1				3				3
Comprehensive earnings:			921				1,901				2,624				4,836
Comprehensive earnings attributable to noncontrolling interests			10				7				26				19
Comprehensive earnings attributable to Devon		$	911			$	1,894			$	2,598			$	4,817

See accompanying notes to consolidated financial statements.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET****S

		September 30, 2023				December 31, 2022
		(Unaudited)
ASSETS
Current assets:
Cash, cash equivalents and restricted cash		$	761			$	1,454
Accounts receivable			1,853				1,767
Inventory			233				201
Other current assets			365				469
Total current assets			3,212				3,891
Oil and gas property and equipment, based on successful efforts accounting, net			17,563				16,567
Other property and equipment, net ($124 million and $109 million related to CDM in 2023 and 2022, respectively)			1,468				1,539
Total property and equipment, net			19,031				18,106
Goodwill			753				753
Right-of-use assets			261				224
Investments			671				440
Other long-term assets			313				307
Total assets		$	24,241			$	23,721
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	812			$	859
Revenues and royalties payable			1,434				1,506
Short-term debt			487				251
Other current liabilities			597				489
Total current liabilities			3,330				3,105
Long-term debt			5,675				6,189
Lease liabilities			290				257
Asset retirement obligations			641				511
Other long-term liabilities			850				900
Deferred income taxes			1,676				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			6,153				6,921
Retained earnings			5,535				4,297
Accumulated other comprehensive loss			(113	)			(116	)
Total stockholders’ equity attributable to Devon			11,639				11,167
Noncontrolling interests			140				129
Total equity			11,779				11,296
Total liabilities and equity		$	24,241			$	23,721

See accompanying notes to consolidated financial statements.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
		(Unaudited)
Cash flows from operating activities:
Net earnings		$	920			$	1,900			$	2,621			$	4,833
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation, depletion and amortization			651				581				1,904				1,598
Leasehold impairments			1				2				4				10
Amortization of liabilities			(2	)			(8	)			(17	)			(23	)
Total (gains) losses on commodity derivatives			194				(248	)			206				605
Cash settlements on commodity derivatives			(11	)			(363	)			39				(1,179	)
Gains on asset dispositions			—				—				(41	)			(15	)
Deferred income tax expense			13				445				212				914
Share-based compensation			22				22				70				65
Other			(2	)			8				(2	)			(9	)
Changes in assets and liabilities, net			(61	)			(235	)			(189	)			(180	)
Net cash from operating activities			1,725				2,104				4,807				6,619
Cash flows from investing activities:
Capital expenditures			(882	)			(628	)			(2,973	)			(1,738	)
Acquisitions of property and equipment			(23	)			(2,465	)			(54	)			(2,566	)
Divestitures of property and equipment			1				4				23				39
Distributions from investments			7				7				24				30
Contributions to investments and other			—				(16	)			(52	)			(59	)
Net cash from investing activities			(897	)			(3,098	)			(3,032	)			(4,294	)
Cash flows from financing activities:
Repayments of long-term debt			(242	)			—				(242	)			—
Repurchases of common stock			—				(126	)			(745	)			(661	)
Dividends paid on common stock			(312	)			(1,007	)			(1,370	)			(2,504	)
Contributions from noncontrolling interests			10				—				18				—
Distributions to noncontrolling interests			(9	)			(9	)			(33	)			(22	)
Shares exchanged for tax withholdings and other			—				(1	)			(96	)			(86	)
Net cash from financing activities			(553	)			(1,143	)			(2,468	)			(3,273	)
Effect of exchange rate changes on cash			(2	)			(10	)			—				(13	)
Net change in cash, cash equivalents and restricted cash			273				(2,147	)			(693	)			(961	)
Cash, cash equivalents and restricted cash at beginning of period			488				3,457				1,454				2,271
Cash, cash equivalents and restricted cash at end of period		$	761			$	1,310			$	761			$	1,310
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents		$	654			$	1,166			$	654			$	1,166
Restricted cash			107				144				107				144
Total cash, cash equivalents and restricted cash		$	761			$	1,310			$	761			$	1,310

See accompanying notes to consolidated financial statements.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

																		Other
										Additional								Comprehensive
		Common Stock								Paid-In				Retained				Earnings				Treasury				Noncontrolling				Total
		Shares				Amount				Capital				Earnings				(Loss)				Stock				Interests				Equity
		(Unaudited)
Three Months Ended September 30, 2023
Balance as of June 30, 2023			641			$	64			$	6,131			$	4,940			$	(114	)		$	—			$	129			$	11,150
Net earnings			—				—				—				910				—				—				10				920
Other comprehensive earnings, net of tax			—				—				—				—				1				—				—				1
Common stock dividends			—				—				—				(315	)			—				—				—				(315	)
Share-based compensation			—				—				22				—				—				—				—				22
Contributions from noncontrolling interests			—				—				—				—				—				—				10				10
Distributions to noncontrolling interests			—				—				—				—				—				—				(9	)			(9	)
Balance as of September 30, 2023			641			$	64			$	6,153			$	5,535			$	(113	)		$	—			$	140			$	11,779
Three Months Ended September 30, 2022
Balance as of June 30, 2022			656			$	66			$	7,060			$	3,107			$	(130	)		$	(13	)		$	136			$	10,226
Net earnings			—				—				—				1,893				—				—				7				1,900
Other comprehensive earnings, net of tax			—				—				—				—				1				—				—				1
Restricted stock grants, net of cancellations			—				—				1				—				—				—				—				1
Common stock repurchased			—				—				—				—				—				(115	)			—				(115	)
Common stock retired			(2	)			(1	)			(127	)			—				—				128				—				—
Common stock dividends			—				—				—				(1,019	)			—				—				—				(1,019	)
Share-based compensation			—				—				22				—				—				—				—				22
Distributions to noncontrolling interests			—				—				—				—				—				—				(9	)			(9	)
Balance as of September 30, 2022			654			$	65			$	6,956			$	3,981			$	(129	)		$	—			$	134			$	11,007
Nine Months Ended September 30, 2023
Balance as of December 31, 2022			653			$	65			$	6,921			$	4,297			$	(116	)		$	—			$	129			$	11,296
Net earnings			—				—				—				2,595				—				—				26				2,621
Other comprehensive earnings, net of tax			—				—				—				—				3				—				—				3
Restricted stock grants, net of cancellations			2				—				—				—				—				—				—				—
Common stock repurchased			—				—				(6	)			—				—				(833	)			—				(839	)
Common stock retired			(15	)			(1	)			(832	)			—				—				833				—				—
Common stock dividends			—				—				—				(1,357	)			—				—				—				(1,357	)
Share-based compensation			1				—				70				—				—				—				—				70
Contributions from noncontrolling interests			—				—				—				—				—				—				18				18
Distributions to noncontrolling interests			—				—				—				—				—				—				(33	)			(33	)
Balance as of September 30, 2023			641			$	64			$	6,153			$	5,535			$	(113	)		$	—			$	140			$	11,779
Nine Months Ended September 30, 2022
Balance as of December 31, 2021			663			$	66			$	7,636			$	1,692			$	(132	)		$	—			$	137			$	9,399
Net earnings			—				—				—				4,814				—				—				19				4,833
Other comprehensive earnings, net of tax			—				—				—				—				3				—				—				3
Restricted stock grants, net of cancellations			2				1				2				—				—				—				—				3
Common stock repurchased			—				—				—				—				—				(749	)			—				(749	)
Common stock retired			(12	)			(2	)			(747	)			—				—				749				—				—
Common stock dividends			—				—				—				(2,525	)			—				—				—				(2,525	)
Share-based compensation			1				—				65				—				—				—				—				65
Distributions to noncontrolling interests			—				—				—				—				—				—				(22	)			(22	)
Balance as of September 30, 2022			654			$	65			$	6,956			$	3,981			$	(129	)		$	—			$	134			$	11,007

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 nine-month periods ended September 30, 2023 and 2022 and Devon’s financial position as of September 30, 2023.

Restricted Cash

As of September 30, 2023, approximately $107 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		September 30, 2023				December 31, 2022
Catalyst		50%		$	317			$	339
Water JV		30%			214				—
Matterhorn		12.5%			90				54
Other		Various			50				47
Total				$	671			$	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 September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Oil		$	2,377			$	2,515			$	6,626			$	7,891
Gas			189				666				524				1,530
NGL			316				487				904				1,522
Oil, gas and NGL sales			2,882				3,668				8,054				10,943
Oil			795				787				2,260				2,515
Gas			153				387				428				918
NGL			200				342				577				1,099
Marketing and midstream revenues			1,148				1,516				3,265				4,532
Total revenues from contracts with customers		$	4,030			$	5,184			$	11,319			$	15,475

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 September 30, 2023 consolidated balance sheet was approximately $20 million and $45 million, respectively. These values were derived utilizing a Monte Carlo valuation model and qualify as a level 3 fair value measurement.

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

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 September 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 September 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)
Q4 2023			23,000			$	73.38				81,000			$	69.63			$	94.29
Q1-Q4 2024			27,486			$	77.74				59,486			$	65.61			$	84.85

		Oil Basis Swaps
Period		Index		Volume (Bbls/d)				Weighted Average Differential to WTI ($/Bbl)
Q4 2023		Midland Sweet			66,500			$	1.11
Q1-Q4 2024		Midland Sweet			62,500			$	1.17
Q1-Q4 2024		NYMEX Roll			24,000			$	0.81
Q1-Q4 2025		Midland Sweet			53,000			$	0.97

As of September 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)
Q4 2023			161,000			$	3.36				147,000			$	3.67			$	7.62
Q1-Q4 2024			147,426			$	3.37				40,527			$	3.78			$	7.05
Q1-Q4 2025			13,068			$	3.49				—			$	—			$	—

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)
Q4 2023		El Paso Natural Gas			145,000			$	(1.58	)
Q4 2023		Houston Ship Channel			140,000			$	(0.19	)
Q4 2023		WAHA			70,000			$	(0.51	)
Q1-Q4 2024		El Paso Natural Gas			34,863			$	(0.91	)
Q1-Q4 2024		Houston Ship Channel			110,000			$	(0.24	)
Q1-Q4 2024		WAHA			44,973			$	(0.58	)

As of September 30, 2023, Devon had the following open NGL derivative positions. Devon's NGL positions settle against the average of the prompt month OPIS Mont Belvieu, Texas index.

				Price Swaps
Period		Product		Volume (Bbls/d)				Weighted Average Price ($/Bbl)
Q1-Q4 2024		Natural Gasoline			3,000			$	69.11
Q1-Q4 2024		Normal Butane			3,350			$	37.58
Q1-Q4 2024		Propane			3,000			$	32.20

Financial Statement Presentation

All derivative financial instruments are recognized at their current fair value as either assets or liabilities in the consolidated balance sheets. Amounts related to contracts allowed to be netted upon payment subject to a master netting arrangement with the same counterparty are reported on a net basis in the consolidated balance sheets. The tables below present a summary of these positions as of September 30, 2023 and December 31, 2022.

	September 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	$	47			$	(13	)		$	34			$	138			$	(19	)		$	119			Other current assets
Long-term derivative asset		10				(6	)			4				12				—				12			Other long-term assets
Short-term derivative liability		(152	)			13				(139	)			(22	)			19				(3	)		Other current liabilities
Long-term derivative liability		(22	)			6				(16	)			—				—				—			Other long-term liabilities
Total derivative asset (liability)	$	(117	)		$	—			$	(117	)		$	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.

		Nine Months Ended September 30,
		2023				2022
G&A		$	70			$	64
Exploration expenses			—				1
Total		$	70			$	65
Related income tax benefit		$	31			$	31

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			1,295			$	62.27				743			$	51.38
Vested			(2,914	)		$	25.19				(1,037	)		$	27.89
Forfeited			(117	)		$	43.55				—			$	—
Unvested at 9/30/23			4,052			$	42.10				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 September 30, 2023.

		Restricted Stock				Performance
		Awards/Units				Share Units
Unrecognized compensation cost		$	107			$	24
Weighted average period for recognition (years)			2.6				1.8

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			(20	)			(7	)			(27	)
Balance as of September 30, 2023		$	14			$	74			$	88
Balance as of December 31, 2021		$	38			$	111			$	149
Changes related to prior years' restructurings			(11	)			(18	)			(29	)
Balance as of September 30, 2022		$	27			$	93			$	120

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 September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Estimated future obligation under a performance guarantee		$	—			$	(44	)		$	—			$	(140	)
Ukraine charitable pledge			—				—				—				20
Asset retirement obligation accretion			7				5				21				18
Other			6				(1	)			7				11
Total		$	13			$	(40	)		$	28			$	(91	)

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, as well as reimburse Devon for shortfall payments previously made on the purchasers’ behalf in 2021 and 2020. Additionally, at March 31, 2022, Devon reduced the estimated future exposure of the performance guarantee. The effect of these cash collections and liability revisions resulted in a $140 million benefit in the first nine months of 2022.

The first nine 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 September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Earnings before income taxes		$	1,072			$	2,465			$	3,193			$	6,222
Current income tax expense		$	139			$	120			$	360			$	475
Deferred income tax expense			13				445				212				914
Total income tax expense		$	152			$	565			$	572			$	1,389
U.S. statutory income tax rate			21	%			21	%			21	%			21	%
State income taxes			1	%			2	%			1	%			1	%
Income tax credits			(8	%)			0	%			(4	%)			0	%
Effective income tax rate			14	%			23	%			18	%			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. 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 continues to assess the potential incremental cash tax that could be incurred, depending on actual operating results, as well as ongoing U.S. Treasury guidance.

In the third quarter and the nine months ended 2023, Devon recognized income tax credits associated with its qualified research activities. This includes actual credits generated in the 2018-2022 tax years as well as estimated credits for the 2023 tax year.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

8.

Net Earnings Per Share

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Net earnings available to common shareholders - basic and diluted		$	910			$	1,876			$	2,595			$	4,764
Common shares:
Average common shares outstanding - basic			637				649				640				652
Dilutive effect of potential common shares issuable			2				2				3				2
Average common shares outstanding - diluted			639				651				643				654
Net earnings per share available to common shareholders:
Basic		$	1.43			$	2.89			$	4.05			$	7.30
Diluted		$	1.42			$	2.88			$	4.03			$	7.28

9. Other Comprehensive Earnings (Loss)

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Pension and postretirement benefit plans:
Beginning accumulated pension and postretirement benefits		$	(114	)		$	(130	)		$	(116	)		$	(132	)
Recognition of net actuarial loss and prior service cost in earnings (1)			1				1				4				4
Income tax expense			—				—				(1	)			(1	)
Accumulated other comprehensive loss, net of tax		$	(113	)		$	(129	)		$	(113	)		$	(129	)

(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.

10.

Supplemental Information to Statements of Cash Flows

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Changes in assets and liabilities, net:
Accounts receivable		$	(334	)		$	364			$	(86	)		$	(439	)
Other current assets			27				(84	)			31				(105	)
Other long-term assets			(31	)			9				(13	)			84
Accounts payable and revenues and royalties payable			194				(313	)			(36	)			474
Other current liabilities			88				(208	)			(53	)			(107	)
Other long-term liabilities			(5	)			(3	)			(32	)			(87	)
Total		$	(61	)		$	(235	)		$	(189	)		$	(180	)
Supplementary cash flow data:
Interest paid		$	77			$	100			$	266			$	285
Income taxes paid		$	50			$	253			$	309			$	363

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

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

11.

Accounts Receivable

Components of accounts receivable include the following:

		September 30, 2023				December 31, 2022
Oil, gas and NGL sales		$	1,151			$	1,153
Joint interest billings			234				162
Marketing and midstream revenues			447				428
Other			28				33
Gross accounts receivable			1,860				1,776
Allowance for doubtful accounts			(7	)			(9	)
Net accounts receivable		$	1,853			$	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.

		September 30, 2023				December 31, 2022
Property and equipment:
Proved		$	45,518			$	42,734
Unproved and properties under development			1,594				1,548
Total oil and gas			47,112				44,282
Less accumulated DD&A			(29,549	)			(27,715	)
Oil and gas property and equipment, net			17,563				16,567
Other property and equipment			2,244				2,280
Less accumulated DD&A			(776	)			(741	)
Other property and equipment, net (1)			1,468				1,539
Property and equipment, net		$	19,031			$	18,106

(1)

$124 million and $109 million related to CDM in 2023 and 2022, respectively.

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.

		September 30, 2023				December 31, 2022
8.25% due August 1, 2023		$	—			$	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			72				103
Debt issuance costs			(31	)			(26	)
Total debt		$	6,162			$	6,440
Less amount classified as short-term debt			487				251
Total long-term debt		$	5,675			$	6,189

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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 September 30, 2023, Devon had no outstanding borrowings under the 2023 Senior Credit Facility and had issued $3 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 September 30, 2023, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 21.9%.

Net Financing Costs

The following schedule includes the components of net financing costs.

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Interest based on debt outstanding		$	93			$	92			$	282			$	277
Interest income			(11	)			(19	)			(43	)			(22	)
Other			(1	)			(6	)			(8	)			(19	)
Total net financing costs		$	81			$	67			$	231			$	236

14. Le****ases

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

		September 30, 2023												December 31, 2022
		Finance				Operating				Total				Finance				Operating				Total
Right-of-use assets		$	249			$	12			$	261			$	203			$	21			$	224
Lease liabilities:
Current lease liabilities (1)		$	21			$	9			$	30			$	8			$	13			$	21
Long-term lease liabilities			287				3				290				249				8				257
Total lease liabilities		$	308			$	12			$	320			$	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. During 2023, Devon's financing lease right-of-use assets and the associated liabilities increased primarily from an amendment of lease terms.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

15.

Asset Retir****ement Obligations

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

		Nine Months Ended September 30,
		2023				2022
Asset retirement obligations as of beginning of period		$	529			$	485
Liabilities incurred			104				62
Liabilities settled and divested			(24	)			(13	)
Revision of estimated obligation			27				(35	)
Accretion expense on discounted obligation			21				18
Asset retirement obligations as of end of period			657				517
Less current portion			16				19
Asset retirement obligations, long-term		$	641			$	498

Devon's asset retirement obligations recorded during the first nine months of 2023 include a potential obligation to decommission two California offshore oil and gas production platforms and related facilities pursuant to an order of the Department of the Interior, Bureau of Safety and Environmental Enforcement. For additional information, see Note 17.

Devon also increased its asset retirement obligations during the first nine months of 2023 by approximately $27 million primarily due to inflation-driven increases in current cost estimates. During the first nine months of 2022, Devon increased its asset retirement obligations by approximately $38 million due to asset acquisitions in the Eagle Ford and Williston Basin. During this same time period Devon reduced its asset retirement obligations by $35 million primarily due to extended retirement dates for oil and gas assets, partially offset by inflation-driven increases to current settlement costs.

16.

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

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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 nine 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
Third quarter		127				185				312			$	0.49
Total year-to-date	$	388			$	982			$	1,370
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

In November 2023, Devon announced a cash dividend in the amount of $0.77 per share payable in the fourth quarter of 2023. The dividend consists of a $0.20 per share fixed quarterly dividend and a $0.57 per share variable quarterly dividend and will total approximately $492 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.

Com****mitments and Contingencies

Devon is party to various legal actions arising in connection with its business. Matters that are probable of unfavorable outcome to Devon and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, Devon’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. None of the actions are believed by management to likely involve future amounts that would be material to Devon’s financial position or results of operations after consideration of recorded accruals. Actual amounts could differ materially from management’s estimates.

Royalty Matters

Numerous oil and natural gas producers and related parties, including Devon, have been named in various lawsuits alleging royalty underpayments. Devon is currently named as a defendant in a number of such lawsuits, including some lawsuits in which the plaintiffs seek to certify classes of similarly situated plaintiffs. Among the allegations typically asserted in these suits are claims that Devon used below-market prices, made improper deductions, 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

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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 on two California offshore oil and gas production platforms and related facilities. The current operator and owner of the platforms contends that it does not have the financial ability to perform these obligations and relinquished the related federal lease in October 2020. In response to the apparent insolvency of the current operator, the government has ordered the former operators and alleged former lease record title owners to decommission the platforms and related facilities. The government contends that an alleged corporate predecessor of Devon owned a partial interest in the subject lease and platforms. Devon denies any obligation to decommission the subject platforms and has appealed the order. In the third quarter of 2023, Devon settled certain defense and indemnity claims against a third party related to these potential decommissioning obligations. Pursuant to that settlement agreement, Devon is entitled to receive a settlement payment in the fourth quarter of 2023 that Devon believes will offset any potential decommissioning liability it may incur related to the subject platforms. Although Devon continues to pursue its appeal of the government's order and deny any obligation to decommission the subject platforms, in conjunction with the third-party settlement, Devon recorded an increase to its asset retirement obligations and a corresponding increase to accounts receivable in other current assets as of September 30, 2023.

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 September 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
September 30, 2023 assets (liabilities):
Cash equivalents		$	101			$	101			$	101			$	—			$	—
Commodity derivatives		$	38			$	38			$	—			$	38			$	—
Commodity derivatives		$	(155	)		$	(155	)		$	—			$	(155	)		$	—
Debt		$	(6,162	)		$	(5,706	)		$	—			$	(5,706	)		$	—
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

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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.