Devon Energy 10-Q 2024-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-32318

DEVON ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		73-1567067
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer identification No.)
333 West Sheridan Avenue**,** Oklahoma City**,** Oklahoma		73102-5015
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (405) 235-3611

Former name, address and former fiscal year, if changed from last report: Not applicable

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.10 per share	DVN	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		☑	Accelerated filer		☐	Non-accelerated filer		☐
Smaller reporting company		☐	Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑

On July 24, 2024, 626.2 million shares of common stock were outstanding.

DEVON ENERGY CORPORATION

FORM 10-Q

TABLE OF CONTENTS

Part I. Financial Information
Item 1.		Financial Statements	6
		Consolidated Statements of Comprehensive Earnings	6
		Consolidated Balance Sheets	7
		Consolidated Statements of Cash Flows	8
		Consolidated Statements of Equity	9
		Notes to Consolidated Financial Statements	10
		Note 1 – Summary of Significant Accounting Policies	10
		Note 2 – Acquisitions and Divestitures	11
		Note 3 – Derivative Financial Instruments	12
		Note 4 – Share-Based Compensation	14
		Note 5 – Income Taxes	15
		Note 6 – Net Earnings Per Share	15
		Note 7 – Other Comprehensive Earnings (Loss)	16
		Note 8 – Supplemental Information to Statements of Cash Flows	16
		Note 9 – Accounts Receivable	16
		Note 10 – Property, Plant and Equipment	17
		Note 11 – Debt and Related Expenses	17
		Note 12 – Leases	18
		Note 13 – Asset Retirement Obligations	18
		Note 14 – Stockholders’ Equity	19
		Note 15 – Commitments and Contingencies	19
		Note 16 – Fair Value Measurements	21
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
		Executive Overview	22
		Results of Operations	23
		Capital Resources, Uses and Liquidity	31
		Critical Accounting Estimates	34
		Non-GAAP Measures	34
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.		Controls and Procedures	36
Part II. Other Information
Item 1.		Legal Proceedings	37
Item 1A.		Risk Factors	37
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.		Defaults Upon Senior Securities	37
Item 4.		Mine Safety Disclosures	37
Item 5.		Other Information	37
Item 6.		Exhibits	38
Signatures			39

DEFINI****TIONS

Unless the context otherwise indicates, references to “us,” “we,” “our,” “ours,” “Devon,” the “Company” and “Registrant” refer to Devon Energy Corporation and its consolidated subsidiaries. All monetary values, other than per unit and per share amounts, are stated in millions of U.S. dollars unless otherwise specified. In addition, the following are other abbreviations and definitions of certain terms used within this Quarterly Report on Form 10-Q:

“2018 Senior Credit Facility” means Devon’s syndicated unsecured revolving line of credit, effective as of October 5, 2018.

“2023 Senior Credit Facility” means Devon’s syndicated unsecured revolving line of credit, effective as of March 24, 2023.

“ASU” means Accounting Standards Update.

“Bbl” or “Bbls” means barrel or barrels.

“Boe” means barrel of oil equivalent. Gas proved reserves and production are converted to Boe, at the pressure and temperature base standard of each respective state in which the gas is produced, at the rate of six Mcf of gas per Bbl of oil, based upon the approximate relative energy content of gas and oil. NGL proved reserves and production are converted to Boe on a one-to-one basis with oil.

“Btu” means British thermal units, a measure of heating value.

“Catalyst” means Catalyst Midstream Partners, LLC.

“CDM” means Cotton Draw Midstream, L.L.C.

“DD&A” means depreciation, depletion and amortization expenses.

“ESG” means environmental, social and governance.

“FASB” means Financial Accounting Standards Board.

“Fervo” means Fervo Energy Company.

“G&A” means general and administrative expenses.

“GAAP” means U.S. generally accepted accounting principles.

“Inside FERC” refers to the publication Inside FERC’s Gas Market Report.

“LOE” means lease operating expenses.

“Matterhorn” refers to Matterhorn Express Pipeline, LLC and, as applicable, its direct parent, MXP Parent, LLC.

“MBbls” means thousand barrels.

“MBoe” means thousand Boe.

“Mcf” means thousand cubic feet.

“MMBoe” means million Boe.

“MMBtu” means million Btu.

“MMcf” means million cubic feet.

“N/M” means not meaningful.

“NCI” means noncontrolling interests.

“NGL” or “NGLs” means natural gas liquids.

“NYMEX” means New York Mercantile Exchange.

“SEC” means United States Securities and Exchange Commission.

“TSR” means total shareholder return.

“U.S.” means United States of America.

“VIE” means variable interest entity.

“Water JV” means NDB Midstream L.L.C.

“WTI” means West Texas Intermediate.

“/Bbl” means per barrel.

“/d” means per day.

“/MMBtu” means per MMBtu.

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” as defined by the SEC. Such statements include those concerning strategic plans, our expectations and objectives for future operations, as well as other future events or conditions, and are often identified by use of the words and phrases “expects,” “believes,” “will,” “would,” “could,” “continue,” “may,” “aims,” “likely to be,” “intends,” “forecasts,” “projections,” “estimates,” “plans,” “expectations,” “targets,” “opportunities,” “potential,” “anticipates,” “outlook” and other similar terminology. All statements, other than statements of historical facts, included in this report that address activities, events or developments that Devon expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control. Consequently, actual future results could differ materially and adversely from our expectations due to a number of factors, including, but not limited to:

the volatility of oil, gas and NGL prices;

uncertainties inherent in estimating oil, gas and NGL reserves;

the extent to which we are successful in acquiring and discovering additional reserves;

the uncertainties, costs and risks involved in our operations;

risks related to our hedging activities;

our limited control over third parties who operate some of our oil and gas properties;

midstream capacity constraints and potential interruptions in production, including from limits to the build out of midstream infrastructure;

competition for assets, materials, people and capital;

regulatory restrictions, compliance costs and other risks relating to governmental regulation, including with respect to federal lands, environmental matters and seismicity;

climate change and risks related to regulatory, social and market efforts to address climate change;

governmental interventions in energy markets;

counterparty credit risks;

risks relating to our indebtedness;

cybersecurity risks;

risks relating to global pandemics;

the extent to which insurance covers any losses we may experience;

risks related to stockholder activism;

our ability to successfully complete mergers, acquisitions and divestitures;

our ability to pay dividends and make share repurchases; and

any of the other risks and uncertainties discussed in this report, our 2023 Annual Report on Form 10-K and our other filings with the SEC.

The forward-looking statements included in this filing speak only as of the date of this report, represent management’s current reasonable expectations as of the date of this filing and are subject to the risks and uncertainties identified above as well as those described elsewhere in this report and in other documents we file from time to time with the SEC. We cannot guarantee the accuracy of our forward-looking statements, and readers are urged to carefully review and consider the various disclosures made in this report and in other documents we file from time to time with the SEC. All subsequent written and oral forward-looking statements attributable to Devon, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements above. We do not undertake, and expressly disclaim, any duty to update or revise our forward-looking statements based on new information, future events or otherwise.

Part I. Financial Information

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
		(Unaudited)
Oil, gas and NGL sales		$	2,796			$	2,493			$	5,425			$	5,172
Oil, gas and NGL derivatives			23				(76	)			(122	)			(12	)
Marketing and midstream revenues			1,098				1,037				2,210				2,117
Total revenues			3,917				3,454				7,513				7,277
Production expenses			788				719				1,539				1,412
Exploration expenses			3				10				12				13
Marketing and midstream expenses			1,108				1,051				2,241				2,156
Depreciation, depletion and amortization			768				638				1,490				1,253
Asset dispositions			15				(41	)			16				(41	)
General and administrative expenses			114				92				228				198
Financing costs, net			76				78				152				150
Other, net			5				10				27				15
Total expenses			2,877				2,557				5,705				5,156
Earnings before income taxes			1,040				897				1,808				2,121
Income tax expense			185				199				344				420
Net earnings			855				698				1,464				1,701
Net earnings attributable to noncontrolling interests			11				8				24				16
Net earnings attributable to Devon		$	844			$	690			$	1,440			$	1,685
Net earnings per share:
Basic net earnings per share		$	1.35			$	1.08			$	2.29			$	2.61
Diluted net earnings per share		$	1.34			$	1.07			$	2.29			$	2.60
Comprehensive earnings:
Net earnings		$	855			$	698			$	1,464			$	1,701
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:		$	856			$	699			$	1,466			$	1,703
Comprehensive earnings attributable to noncontrolling interests			11				8				24				16
Comprehensive earnings attributable to Devon		$	845			$	691			$	1,442			$	1,687

See accompanying notes to consolidated financial statements.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET****S

		June 30, 2024				December 31, 2023
		(Unaudited)
ASSETS
Current assets:
Cash, cash equivalents and restricted cash		$	1,169			$	875
Accounts receivable			1,589				1,573
Inventory			258				249
Other current assets			343				460
Total current assets			3,359				3,157
Oil and gas property and equipment, based on successful efforts accounting, net			18,216				17,825
Other property and equipment, net ($159 million and $136 million related to CDM in 2024 and 2023, respectively)			1,569				1,503
Total property and equipment, net			19,785				19,328
Goodwill			753				753
Right-of-use assets			297				267
Investments			704				666
Other long-term assets			264				319
Total assets		$	25,162			$	24,490
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	754			$	760
Revenues and royalties payable			1,363				1,222
Short-term debt			475				483
Other current liabilities			424				484
Total current liabilities			3,016				2,949
Long-term debt			5,665				5,672
Lease liabilities			315				295
Asset retirement obligations			691				643
Other long-term liabilities			829				876
Deferred income taxes			1,917				1,838
Stockholders' equity:
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued628 million and 636 million shares in 2024 and 2023, respectively			63				64
Additional paid-in capital			5,478				5,939
Retained earnings			7,132				6,195
Accumulated other comprehensive loss			(122	)			(124	)
Treasury stock, at cost, 0.3 million shares in 2023			—				(13	)
Total stockholders’ equity attributable to Devon			12,551				12,061
Noncontrolling interests			178				156
Total equity			12,729				12,217
Total liabilities and equity		$	25,162			$	24,490

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,
		2024				2023				2024				2023
		(Unaudited)
Cash flows from operating activities:
Net earnings		$	855			$	698			$	1,464			$	1,701
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation, depletion and amortization			768				638				1,490				1,253
Leasehold impairments			1				3				1				3
Amortization of liabilities			—				(8	)			—				(15	)
Total (gains) losses on commodity derivatives			(23	)			76				122				12
Cash settlements on commodity derivatives			54				37				78				50
(Gains) losses on asset dispositions			15				(41	)			16				(41	)
Deferred income tax expense			39				119				79				199
Share-based compensation			27				25				51				48
Other			—				(2	)			3				—
Changes in assets and liabilities, net			(201	)			(140	)			(31	)			(128	)
Net cash from operating activities			1,535				1,405				3,273				3,082
Cash flows from investing

Showing the first 8K of 67K characters. Open the full section

The following discussion and analysis addresses material changes in our results of operations for the three-month and six-month periods ended June 30, 2024 compared to previous periods, and in our financial condition and liquidity since December 31, 2023. For information regarding our critical accounting policies and estimates, see our 2023 Annual Report on Form 10-K under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Executive Over****view

We are a leading independent oil and natural gas exploration and production company whose operations are focused onshore in the United States. Our operations are currently focused in five core areas: the Delaware Basin, Eagle Ford, Anadarko Basin, Williston Basin and Powder River Basin. Our asset base is underpinned by premium acreage in the economic core of the Delaware Basin and our diverse, top-tier resource plays, providing a deep inventory of opportunities for years to come.

In July 2024, Devon announced it had entered into an agreement to acquire the Williston Basin business of Grayson Mill Energy. The purchase price for the transaction consists of $3.25 billion of cash and approximately 37 million shares of Devon common stock, in each case subject to various purchase price adjustments. The transaction is expected to close by the end of the third quarter of 2024 and increase our volumes in 2025 by approximately 100 MBoe/d, with approximately 55% being oil. The acquisition will allow us to efficiently expand our oil production and operating scale, creating immediate and long-term, sustainable value to shareholders over time. As evidenced by this recent acquisition, we remain focused on building economic value by executing on our strategic priorities of moderating production growth, emphasizing capital and operational efficiencies, optimizing reinvestment rates to maximize free cash flow, maintaining low leverage, delivering cash returns to our shareholders and pursuing ESG excellence. Our recent performance highlights for these priorities include the following items for the second quarter of 2024:

Oil production totaled 335 MBbls/d, exceeding our plan by 3%.

Expanded share repurchase program to $5.0 billion and have repurchased approximately 54.7 million of our common shares for approximately $2.7 billion, or $50.28 per share since inception of the plan.

Exited with $4.2 billion of liquidity, including $1.2 billion of cash.

Generated $1.5 billion of operating cash flow and $6.7 billion for the past twelve trailing months.

Including variable dividends, paid dividends of $223 million and have declared approximately $276 million of dividends to be paid in the third quarter of 2024.

Earnings attributable to Devon were $844 million, or $1.34 per diluted share.

Core earnings (Non-GAAP) were $885 million, or $1.41 per diluted share.

We remain committed to capital discipline and delivering the objectives that underpin our current plan. Those objectives prioritize value creation through moderated capital investment and production growth, particularly with a view of the volatility in commodity prices, supply chain constraints and the economic uncertainty arising from inflation and geopolitical events. Our cash-return objectives remain focused on opportunistic share repurchases, funding our fixed and variable dividends, repaying debt at upcoming maturities and building cash balances.

Res****ults of Operations

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

Q2 2024 vs. Q1 2024

Our second quarter 2024 and first quarter 2024 net earnings were $855 million and $609 million, respectively. The graph below shows the change in net earnings from the first quarter of 2024 to the second quarter of 2024. The material changes are further discussed by category on the following pages.

Production Volumes

		Q2 2024				% of Total				Q1 2024				Change
Oil (MBbls/d)
Delaware Basin			221				66	%			208				6	%
Eagle Ford			46				14	%			43				8	%
Anadarko Basin			14				4	%			11				27	%
Williston Basin			37				11	%			40				-6	%
Powder River Basin			13				4	%			13				-1	%
Other			4				1	%			4				-3	%
Total			335				100	%			319				5	%

		Q2 2024				% of Total				Q1 2024				Change
Gas (MMcf/d)
Delaware Basin			712				63	%			695				2	%
Eagle Ford			92				8	%			79				16	%
Anadarko Basin			244				21	%			223				9	%
Williston Basin			71				6	%			63				13	%
Powder River Basin			18				2	%			18				0	%
Other			—				0	%			1			N/M
Total			1,137				100	%			1,079				5	%

		Q2 2024				% of Total				Q1 2024				Change
NGLs (MBbls/d)
Delaware Basin			121				66	%			113				7	%
Eagle Ford			17				10	%			14				26	%
Anadarko Basin			30				16	%			26				15	%
Williston Basin			12				7	%			10				19	%
Powder River Basin			2				1	%			2				3	%
Other			—				0	%			—			N/M
Total			182				100	%			165				11	%

		Q2 2024				% of Total				Q1 2024				Change
Combined (MBoe/d)
Delaware Basin			461				65	%			437				5	%
Eagle Ford			79				11	%			70				13	%
Anadarko Basin			84				12	%			74				14	%
Williston Basin			61				9	%			61				1	%
Powder River Basin			18				2	%			18				0	%
Other			4				1	%			4				0	%
Total			707				100	%			664				7	%

From the first quarter of 2024 to the second quarter of 2024, the change in volumes contributed to a $151 million increase in earnings. The increase in volumes was primarily due to new well activity in the Delaware Basin, Anadarko Basin and Eagle Ford.

Realized Prices

		Q2 2024				Realization		Q1 2024				Change
Oil (per Bbl)
WTI index		$	80.62					$	77.01				5	%
Realized price, unhedged		$	79.10			98%		$	75.40				5	%
Cash settlements		$	(0.15	)				$	(0.25	)
Realized price, with hedges		$	78.95			98%		$	75.15				5	%

		Q2 2024				Realization		Q1 2024				Change
Gas (per Mcf)
Henry Hub index		$	1.89					$	2.25				-16	%
Realized price, unhedged		$	0.55			29%		$	1.30				-58	%
Cash settlements		$	0.55					$	0.32
Realized price, with hedges		$	1.10			58%		$	1.62				-32	%

		Q2 2024				Realization		Q1 2024				Change
NGLs (per Bbl)
WTI index		$	80.62					$	77.01				5	%
Realized price, unhedged		$	19.60			24%		$	20.81				-6	%
Cash settlements		$	0.11					$	(0.08	)
Realized price, with hedges		$	19.71			24%		$	20.73				-5	%

		Q2 2024				Q1 2024				Change
Combined (per Boe)
Realized price, unhedged		$	43.44			$	43.52				0	%
Cash settlements		$	0.85			$	0.39
Realized price, with hedges		$	44.29			$	43.91				1	%

From the first quarter of 2024 to the second quarter of 2024, realized prices contributed to a $16 million increase in earnings. Unhedged oil prices increased primarily due to higher WTI index prices, while unhedged gas and NGL prices decreased primarily due to lower Henry Hub and Mont Belvieu index prices. The decrease in the Henry Hub index price was partially offset by hedge cash settlements primarily related to gas commodities.

We currently have approximately 30% and 25% of our remaining anticipated 2024 oil and gas production hedged, respectively.

Hedge Settlements

		Q2 2024				Q1 2024				Change
		Q
Oil		$	(5	)		$	(7	)			29	%
Natural gas			57				32				78	%
NGL			2				(1	)		N/M
Total cash settlements (1)		$	54			$	24				125	%

(1)

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

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

Production Expenses

		Q2 2024				Q1 2024				Change
LOE		$	383			$	380				1	%
Gathering, processing & transportation			197				180				9	%
Production taxes			188				175				7	%
Property taxes			20				16				25	%
Total		$	788			$	751				5	%
Per Boe:
LOE		$	5.95			$	6.29				-5	%
Gathering, processing & transportation		$	3.07			$	2.98				3	%
Percent of oil, gas and NGL sales:
Production taxes			6.7	%			6.7	%			1	%

Production expenses increased during the second quarter of 2024 primarily due to increased activity as well as higher production taxes resulting from an increase in oil prices.

Field-Level Cash Margin

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

		Q2 2024				$ per BOE				Q1 2024				$ per BOE
Field-level cash margin (Non-GAAP)
Delaware Basin		$	1,346			$	32.12			$	1,275			$	32.06
Eagle Ford			303			$	42.15				266			$	41.82
Anadarko Basin			119			$	15.48				98			$	14.64
Williston Basin			160			$	28.62				164			$	29.74
Powder River Basin			65			$	39.44				60			$	36.00
Other			15			N/M					15			N/M
Total		$	2,008			$	31.19			$	1,878			$	31.09

DD&A

		Q2 2024				Q1 2024				Change
Oil and gas per Boe		$	11.56			$	11.57				0	%
Oil and gas		$	744			$	699				6	%
Other property and equipment			24				23				2	%
Total		$	768			$	722				6	%

DD&A increased in the second quarter of 2024 primarily due to higher volumes.

G&A

		Q2 2024				Q1 2024				Change
G&A per Boe		$	1.77			$	1.89				-7	%
Labor and benefits		$	62			$	63				-2	%
Non-labor			52				51				2	%
Total		$	114			$	114				0	%

Other Items

		Q2 2024				Q1 2024				Change in earnings
Commodity hedge valuation changes (1)		$	(31	)		$	(169	)		$	138
Marketing and midstream operations			(10	)			(21	)			11
Exploration expenses			3				9				6
Asset dispositions			15				1				(14	)
Net financing costs			76				76				—
Other, net			5				22				17
										$	158

(1)

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

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

Income Taxes

		Q2 2024				Q1 2024
Current expense		$	146			$	119
Deferred expense			39				40
Total expense		$	185			$	159
Current tax rate			14	%			16	%
Deferred tax rate			4	%			5	%
Effective income tax rate			18	%			21	%

For discussion on income taxes, see Note 5 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

June 30, 2024 YTD vs. June 30, 2023 YTD

Our six months ended June 30, 2024 net earnings were $1.5 billion, compared to net earnings of $1.7 billion for the first six months ended June 30, 2023. The graph below shows the change in net earnings from the six months ended June 30, 2023 to the six months ended June 30, 2024. The material changes are further discussed by category on the following pages.

Production Volumes

		Six Months Ended June 30,
		2024				% of Total				2023				Change
Oil (MBbls/d)
Delaware Basin			215				66	%			210				2	%
Eagle Ford			45				13	%			43				5	%
Anadarko Basin			12				4	%			15				-19	%
Williston Basin			39				12	%			36				8	%
Powder River Basin			13				4	%			14				-7	%
Other			3				1	%			4			N/M
Total			327				100	%			322				2	%

		Six Months Ended June 30,
		2024				% of Total				2023				Change
Gas (MMcf/d)
Delaware Basin			703				63	%			638				10	%
Eagle Ford			86				8	%			84				2	%
Anadarko Basin			233				21	%			245				-5	%
Williston Basin			67				6	%			57				18	%
Powder River Basin			18				2	%			17				6	%
Other			1				0	%			1			N/M
Total			1,108				100	%			1,042				6	%

		Six Months Ended June 30,
		2024				% of Total				2023				Change
NGLs (MBbls/d)
Delaware Basin			117				67	%			101				15	%
Eagle Ford			16				9	%			15				4	%
Anadarko Basin			28				16	%			29				-3	%
Williston Basin			11				7	%			9				26	%
Powder River Basin			2				1	%			2				1	%
Other			—				0	%			—			N/M
Total			174				100	%			156				11	%

		Six Months Ended June 30,
		2024				% of Total				2023				Change
Combined (MBoe/d)
Delaware Basin			449				65	%			418				7	%
Eagle Ford			75				10	%			71				4	%
Anadarko Basin			79				12	%			85				-7	%
Williston Basin			61				9	%			54				12	%
Powder River Basin			18				3	%			19				-4	%
Other			4				1	%			5				-8	%
Total			686				100	%			652				5	%

From the six months ended June 30, 2023 to the six months ended June 30, 2024, the change in volumes contributed to a $190 million increase in earnings. Volumes increased primarily due to new well activity in the Delaware Basin, Williston Basin and Eagle Ford, which was partially offset by natural well declines in the Anadarko Basin.

Realized Prices

		Six Months Ended June 30,
		2024				Realization		2023				Change
Oil (per Bbl)
WTI index		$	78.82					$	74.96				5	%
Realized price, unhedged		$	77.30			98%		$	73.02				6	%
Cash settlements		$	(0.20	)				$	(0.06	)
Realized price, with hedges		$	77.10			98%		$	72.96				6	%

		Six Months Ended June 30,
		2024				Realization		2023				Change
Gas (per Mcf)
Henry Hub index		$	2.07					$	2.77				-25	%
Realized price, unhedged		$	0.92			44%		$	1.77				-48	%
Cash settlements		$	0.44					$	0.29
Realized price, with hedges		$	1.36			66%		$	2.06				-34	%

		Six Months Ended June 30,
		2024				Realization		2023				Change
NGLs (per Bbl)
WTI index		$	78.82					$	74.96				5	%
Realized price, unhedged		$	20.17			26%		$	20.79				-3	%
Cash settlements		$	0.02					$	—
Realized price, with hedges		$	20.19			26%		$	20.79				-3	%

		Six Months Ended June 30,
		2024				2023				Change
Combined (per Boe)
Realized price, unhedged		$	43.48			$	43.86				-1	%
Cash settlements		$	0.62			$	0.42
Realized price, with hedges		$	44.10			$	44.28				0	%

From the six months ended June 30, 2023 to the six months ended June 30, 2024, realized prices contributed to a $63 million increase in earnings. This increase was due to higher unhedged realized oil prices which increased primarily due to higher WTI index prices. This increase was partially offset by a decrease in unhedged realized gas prices which was primarily due to lower Henry Hub index prices. Realized prices were strengthened by hedge cash settlements related primarily to gas commodities in the first six months of 2024.

Hedge Settlements

		Six Months Ended June 30,
		2024				2023				Change
Oil		$	(12	)		$	(3	)			-300	%
Natural gas			89				53				68	%
NGL			1				—			N/M
Total cash settlements (1)		$	78			$	50				56	%

(1)

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

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

Production Expenses

		Six Months Ended June 30,
		2024				2023				Change
LOE		$	763			$	680				12	%
Gathering, processing & transportation			377				343				10	%
Production taxes			363				340				7	%
Property taxes			36				49				-28	%
Total		$	1,539			$	1,412				9	%
Per Boe:
LOE		$	6.12			$	5.77				6	%
Gathering, processing & transportation		$	3.02			$	2.91				4	%
Percent of oil, gas and NGL sales:
Production taxes			6.7	%			6.6	%			2	%

LOE and gathering, processing and transportation expenses increased for the first six months of 2024 primarily due to increased activity.

Field-Level Cash Margin

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

		Six Months Ended June 30,
		2024				$ per BOE				2023				$ per BOE
Field-level cash margin (Non-GAAP)
Delaware Basin		$	2,621			$	32.09			$	2,530			$	33.47
Eagle Ford			570			$	41.99				520			$	40.24
Anadarko Basin			217			$	15.09				265			$	17.22
Williston Basin			323			$	29.18				284			$	29.00
Powder River Basin			125			$	37.72				133			$	38.97
Other			30			N/M					28			N/M
Total		$	3,886			$	31.14			$	3,760			$	31.88

DD&A

		Six Months Ended June 30,
		2024				2023				Change
Oil and gas per Boe		$	11.56			$	10.24				13	%
Oil and gas		$	1,443			$	1,207				20	%
Other property and equipment			47				46				2	%
Total		$	1,490			$	1,253				19	%

DD&A increased in the first six months of 2024 primarily due to an increase in the oil and gas DD&A rate. The largest contributor to the higher rate was our 2023 drilling and development activity. DD&A also increased in the first six months of 2024 due to higher volumes.

G&A

		Six Months Ended June 30,
		2024				2023				Change
G&A per Boe		$	1.83			$	1.68				9	%
Labor and benefits		$	125			$	106				18	%
Non-labor			103				92				12	%
Total		$	228			$	198				15	%

G&A increased for the six months ended 2024 due to higher labor and non-labor costs.

Other Items

		Six Months Ended June 30,
		2024				2023				Change in earnings
Commodity hedge valuation changes (1)		$	(200	)		$	(62	)		$	(138	)
Marketing and midstream operations			(31	)			(39	)			8
Exploration expenses			12				13				1
Asset dispositions			16				(41	)			(57	)
Net financing costs			152				150				(2	)
Other, net			27				15				(12	)
										$	(200	)

(1)

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

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

In the second quarter of 2023, we recorded a $64 million gain within asset dispositions related to the difference between the fair market value and book value of assets contributed to the Water JV. For additional information, see Note 1 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

Income Taxes

		Six Months Ended June 30,
		2024				2023
Current expense		$	265			$	221
Deferred expense			79				199
Total expense		$	344			$	420
Current tax rate			15	%			11	%
Deferred tax rate			4	%			9	%
Effective income tax rate			19	%			20	%

For discussion on income taxes, see Note 5 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Cap****ital Resources, Uses and Liquidity

Sources and Uses of Cash

The following table presents the major changes in cash and cash equivalents for the three and six months ended June 30, 2024 and 2023.

		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Operating cash flow		$	1,535			$	1,405			$	3,273			$	3,082
Capital expenditures			(948	)			(1,079	)			(1,842	)			(2,091	)
Acquisitions of property and equipment			(82	)			(18	)			(90	)			(31	)
Divestitures of property and equipment			1				1				18				22
Investment activity, net			10				(6	)			(26	)			(35	)
Repurchases of common stock			(256	)			(228	)			(461	)			(745	)
Common stock dividends			(223	)			(462	)			(522	)			(1,058	)
Noncontrolling interest activity, net			(7	)			(5	)			(2	)			(16	)
Other			(10	)			(7	)			(54	)			(94	)
Net change in cash, cash equivalents and restricted cash		$	20			$	(399	)		$	294			$	(966	)
Cash, cash equivalents and restricted cash at end of period		$	1,169			$	488			$	1,169			$	488

Operating Cash Flow

As presented in the table above, net cash provided by operating activities continued to be a significant source of capital and liquidity. Operating cash flow funded all of our capital expenditures, and we continued to return value to our shareholders by utilizing cash flow and cash balances for dividends and share repurchases.

Capital Expenditures

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

		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Delaware Basin		$	539			$	644			$	1,073			$	1,228
Eagle Ford			202				198				359				390
Anadarko Basin			59				79				119				141
Williston Basin			42				83				84				182
Powder River Basin			53				41				86				79
Other			1				1				3				2
Total oil and gas			896				1,046				1,724				2,022
Midstream			30				18				67				34
Other			22				15				51				35
Total capital expenditures		$	948			$	1,079			$	1,842			$	2,091

Capital expenditures consist primarily of amounts related to our oil and gas exploration and development operations, midstream operations and other corporate activities. Our capital investment program is driven by a disciplined allocation process focused on moderating our production growth and maximizing our returns. As such, our capital expenditures for the first six months of 2024 represented approximately 56% of our operating cash flow.

Acquisitions of Property and Equipment

During the first six months of 2024, we acquired leasehold interests across our portfolio, including in the Delaware Basin.

Divestitures of Property and Equipment

During the first six months of 2024 and 2023, we received contingent earnout payments related to assets previously sold. For additional information, please see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Investment Activity

During the first six months of 2024 and 2023, Devon received distributions from our investments of $22 million and $17 million, respectively. Devon contributed $48 million and $52 million to our investments during the first six months of 2024 and 2023, respectively.

Shareholder Distributions and Stock Activity

We repurchased approximately 9.6 million shares of common stock for $449 million and approximately 13.9 million shares of common stock for $745 million under the share repurchase program authorized by our Board of Directors in the first six months of 2024 and 2023, respectively. For additional information, see Note 14 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

The following table summarizes our common stock dividends during the second quarter and total for the first six months of 2024 and 2023. Devon has raised its fixed dividend multiple times over the past two calendar years and most recently raised it by 10% from $0.20 to $0.22 per share in the first quarter of 2024. In addition to the fixed quarterly dividend, we paid a variable dividend in the first and second quarters of 2024 and 2023.

	Fixed				Variable				Total				Rate Per Share
2024:
First quarter	$	143			$	156			$	299			$	0.44
Second quarter		138				85				223			$	0.35
Total year-to-date	$	281			$	241			$	522
2023:
First quarter	$	133			$	463			$	596			$	0.89
Second quarter		128				334				462			$	0.72
Total year-to-date	$	261			$	797			$	1,058

Noncontrolling Interest Activity, net

During the first six months of 2024 and 2023, we distributed $26 million and $24 million, respectively, to our noncontrolling interests in CDM. During the first six months of 2024 and 2023, we received $24 million and $8 million, respectively, in contributions from our noncontrolling interests.

Liquidity

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

Historically, our primary sources of capital funding and liquidity have been our operating cash flow, cash on hand and asset divestiture proceeds. Additionally, we maintain a commercial paper program, supported by our revolving line of credit, which can be accessed as needed to supplement operating cash flow and cash balances. If needed, we can also issue debt and equity securities, including through transactions under our shelf registration statement filed with the SEC. We estimate the combination of our sources of capital will continue to be adequate to fund our planned capital requirements as discussed in this section as well as accelerate our cash-return business model.

Operating Cash Flow

Key inputs into determining our planned capital investment are the amount of cash we hold and operating cash flow we expect to generate over the next one to three or more years. At the end of the second quarter of 2024, we held approximately $1.2 billion of cash. Our operating cash flow forecasts are sensitive to many variables and include a measure of uncertainty as actual results may differ from our expectations.

Commodity Prices – The most uncertain and volatile variables for our operating cash flow are the prices of the oil, gas and NGLs we produce and sell. Prices are determined primarily by prevailing market conditions. Regional and worldwide economic

activity, weather and other highly variable factors influence market conditions for these products. These factors, which are difficult to predict, create volatility in prices and are beyond our control.

To mitigate some of the risk inherent in prices, we utilize various derivative financial instruments to protect a portion of our production against downside price risk. The key terms to our oil, gas and NGL derivative financial instruments as of June 30, 2024 are presented in Note 3 in “Part I. Financial Information – Item 1. Financial Statements” of this report.

Further, when considering the current commodity price environment and our current hedge position, we expect to achieve our capital investment priorities. Additionally, we remain committed to capital discipline and focused on delivering the objectives that underpin our capital plan for 2024. The currently elevated level of cost inflation has eroded, and could continue to erode, our cost efficiencies gained over previous years and pressure our margins for the remainder of 2024. Despite this, we expect to continue generating material amounts of free cash flow at current commodity price levels due to our strategy of spending within cash flow.

Operating Expenses – Commodity prices can also affect our operating cash flow through an indirect effect on operating expenses. Significant commodity price decreases can lead to a decrease in drilling and development activities. As a result, the demand and cost for people, services, equipment and materials may also decrease, causing a positive impact on our cash flow as the prices paid for services and equipment decline. However, the inverse is also generally true during periods of rising commodity prices. We expect to mitigate the impact of cost inflation through efficiencies gained from the scale of our operations as well as by leveraging our long-standing relationships with our suppliers.

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

Credit Availability

As of June 30, 2024, we had approximately $3.0 billion of available borrowing capacity under our 2023 Senior Credit Facility. This credit facility supports our $3.0 billion of short-term credit under our commercial paper program. At June 30, 2024, there were no borrowings under our commercial paper program, and we were in compliance with the Senior Credit Facility’s financial covenant.

Debt Ratings

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

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

Cash Returns to Shareholders

We are committed to returning approximately 70% of our free cash flow to shareholders through a fixed dividend, variable dividend and share repurchases. Our Board of Directors will consider a number of factors when setting the quarterly dividend, if any, including a general target of paying out approximately 10% of operating cash flow through the fixed dividend. In addition to the fixed quarterly dividend, we may pay a variable dividend or complete share repurchases. Each quarter’s free cash flow, which is a non-GAAP measure, is computed as operating cash flow (a GAAP measure) before balance sheet changes less capital expenditures. The declaration and payment of any future dividend, whether fixed or variable, will remain at the full discretion of our Board of Directors and will depend on our financial results, cash requirements, future prospects and other factors deemed relevant by the Board.

In August 2024, Devon announced a cash dividend in the amount of $0.44 per share payable in the third quarter of 2024. The dividend consists of a $0.22 per share fixed quarterly dividend and a $0.22 per share variable quarterly dividend and will total approximately $276 million.

Our Board of Directors has authorized a $5.0 billion share repurchase program that expires June 30, 2026. Through July 2024, we had executed $2.8 billion of the authorized program.

Capital Expenditures

Our capital expenditures budget for the remainder of 2024 is expected to range from approximately $1.4 billion to $1.7 billion. These ranges do not include the potential impact of the Grayson Mill Energy acquisition that is expected to close by the end of the third quarter of 2024.

Acquisition

In July 2024, Devon announced it had entered into an agreement to acquire the Williston Basin business of Grayson Mill Energy. The purchase price for the transaction consists of $3.25 billion of cash and approximately 37 million shares of Devon common stock, in each case subject to various purchase price adjustments. Devon plans to fund the cash portion of the purchase price through cash on hand and debt, which we expect to include a combination of term loans and bond issuances. Pursuant to the agreement, Devon made a $250 million deposit in July into an escrow account. The transaction is expected to close by the end of the third quarter of 2024, subject to regulatory approvals and other customary closing conditions.

Critical Accounting Est****imates

For information regarding our critical accounting policies and estimates, see our 2023 Annual Report on Form 10-K.

Non-GA****AP Measures

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

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

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

	Three Months Ended June 30,																Six Months Ended June 30,
	Before Tax				After Tax				After NCI				Per Diluted Share				Before Tax				After Tax				After NCI				Per Diluted Share
2024:
Earnings attributable to Devon (GAAP)	$	1,040			$	855			$	844			$	1.34			$	1,808			$	1,464			$	1,440			$	2.29
Adjustments:
Asset dispositions		15				11				11				0.02				16				12				12				0.02
Asset and exploration impairments		1				1				1				—				1				1				1				—
Deferred tax asset valuation allowance		—				4				4				0.01				—				3				3				—
Fair value changes in financial instruments		32				25				25				0.04				204				159				159				0.25
Core earnings attributable to Devon (Non-GAAP)	$	1,088			$	896			$	885			$	1.41			$	2,029			$	1,639			$	1,615			$	2.56
2023:
Earnings attributable to Devon (GAAP)	$	897			$	698			$	690			$	1.07			$	2,121			$	1,701			$	1,685			$	2.60
Adjustments:
Asset dispositions		(41	)			(31	)			(31	)			(0.05	)			(41	)			(31	)			(31	)			(0.05	)
Asset and exploration impairments		3				2				2				0.01				3				2				2				0.01
Deferred tax asset valuation allowance		—				10				10				0.02				—				7				7				0.01
Fair value changes in financial instruments		112				84				84				0.13				59				44				44				0.07
Core earnings attributable to Devon (Non-GAAP)	$	971			$	763			$	755			$	1.18			$	2,142			$	1,723			$	1,707			$	2.64

EBITDAX and Field-Level Cash Margin

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

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

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

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

		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Net earnings (GAAP)		$	855			$	698			$	1,464			$	1,701
Financing costs, net			76				78				152				150
Income tax expense			185				199				344				420
Exploration expenses			3				10				12				13
Depreciation, depletion and amortization			768				638				1,490				1,253
Asset dispositions			15				(41	)			16				(41	)
Share-based compensation			26				25				50				48
Derivative and financial instrument non-cash valuation changes			31				113				200				62
Accretion on discounted liabilities and other			5				10				27				15
EBITDAX (Non-GAAP)			1,964				1,730				3,755				3,621
Marketing and midstream revenues and expenses, net			10				14				31				39
Commodity derivative cash settlements			(54	)			(37	)			(78	)			(50	)
General and administrative expenses, cash-based			88				67				178				150
Field-level cash margin (Non-GAAP)		$	2,008			$	1,774			$	3,886			$	3,760