Item 1. Financial Statements

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Item 1. Financial Statements

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 activities:
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
Distributions from investments		11			9			22			17
Contributions to investments and other		(1	)		(15	)		(48	)		(52	)
Net cash from investing activities		(1,019	)		(1,102	)		(1,940	)		(2,135	)
Cash flows from financing activities:
Repurchases of common stock		(256	)		(228	)		(461	)		(745	)
Dividends paid on common stock		(223	)		(462	)		(522	)		(1,058	)
Contributions from noncontrolling interests		12			8			24			8
Distributions to noncontrolling interests		(19	)		(13	)		(26	)		(24	)
Shares exchanged for tax withholdings and other		(9	)		(9	)		(51	)		(96	)
Net cash from financing activities		(495	)		(704	)		(1,036	)		(1,915	)
Effect of exchange rate changes on cash		(1	)		2			(3	)		2
Net change in cash, cash equivalents and restricted cash		20			(399	)		294			(966	)
Cash, cash equivalents and restricted cash at beginning of period		1,149			887			875			1,454
Cash, cash equivalents and restricted cash at end of period	$	1,169		$	488		$	1,169		$	488

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	1,140		$	372		$	1,140		$	372
Restricted cash		29			116			29			116
Total cash, cash equivalents and restricted cash	$	1,169		$	488		$	1,169		$	488

See accompanying notes to consolidated financial statements.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY


													Other
							Additional						Comprehensive
	Common Stock						Paid-In			Retained			Earnings			Treasury			Noncontrolling			Total
	Shares			Amount			Capital			Earnings			(Loss)			Stock			Interests			Equity
	(Unaudited)
Three Months Ended June 30, 2024
Balance as of March 31, 2024		633		$	63		$	5,718		$	6,509		$	(123	)	$	—		$	174		$	12,341
Net earnings		—			—			—			844			—			—			11			855
Other comprehensive earnings, net of tax		—			—			—			—			1			—			—			1
Common stock repurchased		—			—			(3	)		—			—			(264	)		—			(267	)
Common stock retired		(5	)		—			(264	)		—			—			264			—			—
Common stock dividends		—			—			—			(221	)		—			—			—			(221	)
Share-based compensation		—			—			27			—			—			—			—			27
Contributions from noncontrolling interests		—			—			—			—			—			—			12			12
Distributions to noncontrolling interests		—			—			—			—			—			—			(19	)		(19	)
Balance as of June 30, 2024		628		$	63		$	5,478		$	7,132		$	(122	)	$	—		$	178		$	12,729
Three Months Ended June 30, 2023
Balance as of March 31, 2023		645		$	64		$	6,344		$	4,712		$	(115	)	$	(28	)	$	126		$	11,103
Net earnings		—			—			—			690			—			—			8			698
Other comprehensive earnings, net of tax		—			—			—			—			1			—			—			1
Common stock repurchased		—			—			(2	)		—			—			(208	)		—			(210	)
Common stock retired		(4	)		—			(236	)		—			—			236			—			—
Common stock dividends		—			—			—			(462	)		—			—			—			(462	)
Share-based compensation		—			—			25			—			—			—			—			25
Contributions from noncontrolling interests		—			—			—			—			—			—			8			8
Distributions to noncontrolling interests		—			—			—			—			—			—			(13	)		(13	)
Balance as of June 30, 2023		641		$	64		$	6,131		$	4,940		$	(114	)	$	—		$	129		$	11,150
Six Months Ended June 30, 2024
Balance as of December 31, 2023		636		$	64		$	5,939		$	6,195		$	(124	)	$	(13	)	$	156		$	12,217
Net earnings		—			—			—			1,440			—			—			24			1,464
Other comprehensive earnings, net of tax		—			—			—			—			2			—			—			2
Restricted stock grants, net of cancellations		2			—			—			—			—			—			—			—
Common stock repurchased		—			—			(4	)		—			—			(496	)		—			(500	)
Common stock retired		(11	)		(1	)		(508	)		—			—			509			—			—
Common stock dividends		—			—			—			(503	)		—			—			—			(503	)
Share-based compensation		1			—			51			—			—			—			—			51
Contributions from noncontrolling interests		—			—			—			—			—			—			24			24
Distributions to noncontrolling interests		—			—			—			—			—			—			(26	)		(26	)
Balance as of June 30, 2024		628		$	63		$	5,478		$	7,132		$	(122	)	$	—		$	178		$	12,729
Six Months Ended June 30, 2023
Balance as of December 31, 2022		653		$	65		$	6,921		$	4,297		$	(116	)	$	—		$	129		$	11,296
Net earnings		—			—			—			1,685			—			—			16			1,701
Other comprehensive earnings, net of tax		—			—			—			—			2			—			—			2
Restricted stock grants, net of cancellations		2			—			—			—			—			—			—			—
Common stock repurchased		—			—			(6	)		—			—			(833	)		—			(839	)
Common stock retired		(15	)		(1	)		(832	)		—			—			833			—			—
Common stock dividends		—			—			—			(1,042	)		—			—			—			(1,042	)
Share-based compensation		1			—			48			—			—			—			—			48
Contributions from noncontrolling interests		—			—			—			—			—			—			8			8
Distributions to noncontrolling interests		—			—			—			—			—			—			(24	)		(24	)
Balance as of June 30, 2023		641		$	64		$	6,131		$	4,940		$	(114	)	$	—		$	129		$	11,150

See accompanying notes to consolidated financial statements.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 2023 Annual Report on Form 10-K. The accompanying unaudited interim financial statements in this report reflect all adjustments that are, in the opinion of management, necessary for a fair statement of Devon’s results of operations and cash flows for the three-month and six-month periods ended June 30, 2024 and 2023 and Devon’s financial position as of June 30, 2024.

Variable Interest Entity

CDM is a joint venture entity formed by Devon and an affiliate of QL Capital Partners, LP. CDM provides gathering, compression and dehydration services for natural gas production in the Cotton Draw area of the Delaware Basin. Devon holds a controlling interest in CDM and the portions of CDM’s net earnings and equity not attributable to Devon’s controlling interest are shown separately as noncontrolling interests in the accompanying consolidated statements of comprehensive earnings and consolidated balance sheets. CDM is considered a VIE to Devon. The assets of CDM cannot be used by Devon for general corporate purposes and are included in, and disclosed parenthetically, on Devon's consolidated balance sheets. The carrying amount of liabilities related to CDM for which the creditors do not have recourse to Devon's assets are also included in, and disclosed parenthetically, if material, on Devon's consolidated balance sheets.

Investments

The following table presents Devon's investments.


		Carrying Amount
Investments	% Interest	June 30, 2024		December 31, 2023
Catalyst	50%	$	291	$	311
Water JV	30%		218		216
Matterhorn	12.5%		90		90
Fervo	12%		56		—
Other	Various		49		49
Total		$	704	$	666

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. In the second quarter of 2023, 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 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.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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.

In the first quarter of 2024, Devon committed to invest approximately $100 million in Fervo, a company that generates energy from geothermal wells. As of June 30, 2024, Devon has funded approximately $55 million of the commitment and expects to fund the remaining $45 million commitment throughout 2024. The investment in Fervo allows Devon to exercise significant influence over Fervo, and the investment is accounted for under the equity method of accounting. Devon's investment in Fervo is shown within investments on the consolidated balance sheets and Devon's share of Fervo earnings are reflected as a component of other, net in the accompanying consolidated statements of comprehensive earnings.

Disaggregation of Revenue

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Oil	$	2,413	$	2,106	$	4,602	$	4,249
Gas		57		122		185		335
NGL		326		265		638		588
Oil, gas and NGL sales		2,796		2,493		5,425		5,172

Oil		801		735		1,608		1,465
Gas		100		123		221		275
NGL		197		179		381		377
Marketing and midstream revenues		1,098		1,037		2,210		2,117
Total revenues from contracts with customers	$	3,894	$	3,530	$	7,635	$	7,289

Recently Issued Accounting Standards Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. ASU 2023-09 intends to provide investors with enhanced information about an entity’s income taxes by requiring disclosure of items such as disaggregation of the effective tax rate reconciliation as well as information regarding income taxes paid. This ASU is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued. Devon is evaluating the impact this ASU will have on the disclosures that accompany its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segments Disclosures. Under this ASU, the scope and frequency of segment disclosures is increased to provide investors with additional detail about information utilized by an entity’s “Chief Operating Decision Maker.” This ASU is effective for Devon beginning with our 2024 annual reporting and interim periods beginning in 2025. Devon is evaluating the impact this ASU will have on the disclosures that accompany its consolidated financial statements.

2. Acquisitions and Dive****stitures

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. The transaction is expected to close by the end of the third quarter of 2024, subject to regulatory approvals and other customary closing conditions.

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

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

January 1, 2021 and has a term of four years. Devon received $20 million in contingent earnout payments related to this transaction in the first quarter of 2024 and $65 million in the first quarter of 2023. Devon could also receive up to an additional $65 million in contingent earnout payments for the remaining performance period depending on future commodity prices. The valuation of the future contingent earnout payment included within other current assets in the June 30, 2024 consolidated balance sheet was approximately $20 million. This value was derived utilizing a Monte Carlo valuation model and qualifies as a level 3 fair value measurement.

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

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 and NGL marketing activities. These commodity derivative financial instruments include financial price swaps, basis swaps and costless price collars. Devon also periodically enters into interest rate swaps to manage its exposure to interest rate volatility. As of June 30, 2024, Devon did not have any open interest rate contracts.

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

Counterparty Credit Risk

By using derivative financial instruments, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon’s policy to enter into derivative contracts only with investment-grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon’s derivative contracts generally contain provisions that provide for collateral payments if Devon’s or its counterparty’s credit rating falls below certain credit rating levels. As of June 30, 2024, Devon neither held cash collateral of its counterparties nor posted cash collateral to its counterparties.

Commodity Derivatives

As of June 30, 2024, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The second table presents Devon’s oil derivatives that settle against the respective indices noted within the table.


	Price Swaps				Price Collars
Period	Volume (Bbls/d)		Weighted Average Price ($/Bbl)		Volume (Bbls/d)		Weighted Average Floor Price ($/Bbl)		Weighted Average Ceiling Price ($/Bbl)
Q3-Q4 2024		28,000	$	78.97		83,000	$	67.80	$	85.04
Q1-Q4 2025		4,468	$	72.83		5,992	$	70.00	$	77.97


	Oil Basis Swaps
Period	Index	Volume (Bbls/d)		Weighted Average Differential to WTI ($/Bbl)
Q3-Q4 2024	Midland Sweet		69,500	$	1.17
Q3-Q4 2024	NYMEX Roll		26,000	$	0.82
Q1-Q4 2025	Midland Sweet		63,000	$	1.00
Q1-Q4 2026	Midland Sweet		18,000	$	1.21

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

As of June 30, 2024, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.


	Price Swaps				Price Collars
Period	Volume (MMBtu/d)		Weighted Average Price ($/MMBtu)		Volume (MMBtu/d)		Weighted Average Floor Price ($/MMBtu)		Weighted Average Ceiling Price ($/MMBtu)
Q3-Q4 2024		279,000	$	3.18		15,000	$	3.00	$	3.65
Q1-Q4 2025		200,537	$	3.34		15,000	$	3.00	$	3.65
Q1-Q4 2026		80,000	$	3.90		—		—		—


	Natural Gas Basis Swaps
Period	Index	Volume (MMBtu/d)		Weighted Average Differential to Henry Hub ($/MMBtu)
Q3-Q4 2024	El Paso Natural Gas		10,000	$	(1.00	)
Q3-Q4 2024	Houston Ship Channel		160,000	$	(0.28	)
Q3-Q4 2024	WAHA		80,000	$	(0.74	)
Q1-Q4 2025	Houston Ship Channel		40,000	$	(0.35	)
Q1-Q4 2025	WAHA		10,000	$	(0.63	)
Q1-Q4 2026	Houston Ship Channel		25,000	$	(0.25	)

As of June 30, 2024, 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)
Q3-Q4 2024	Natural Gasoline		3,000	$	69.11
Q3-Q4 2024	Normal Butane		3,350	$	37.58
Q3-Q4 2024	Propane		5,250	$	33.01

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 table below presents a summary of these positions as of June 30, 2024 and December 31, 2023.


	June 30, 2024									December 31, 2023
	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	$	44		$	(15	)	$	29		$	213		$	(5	)	$	208		Other current assets
Long-term derivative asset		5			(3	)		2			—			—			—		Other long-term assets
Short-term derivative liability		(39	)		15			(24	)		(7	)		5			(2	)	Other current liabilities
Long-term derivative liability		(10	)		3			(7	)		(7	)		—			(7	)	Other long-term liabilities
Total derivative asset	$	—		$	—		$	—		$	199		$	—		$	199

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Share-Base****d Compensation

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


	Six Months Ended June 30,
	2024		2023
G&A	$	50	$	48
Exploration expenses		1		—
Total	$	51	$	48

Related income tax benefit	$	18	$	27

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 12/31/23		4,033		$	42.10		1,547			$	43.25
Granted		1,883		$	42.46		858			$	40.41
Vested		(1,789	)	$	34.84		(1,226	)		$	18.08
Forfeited		(58	)	$	45.04		—			$	—
Unvested at 6/30/24		4,069		$	45.42		1,179		(1)	$	67.38

(1)

A maximum of 2.4 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 2024, 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.


	2024
Grant-date fair value	$	56.99
Risk-free interest rate		4.28	%
Volatility factor		46.03	%
Contractual term (years)		2.89

The following table presents a summary of the unrecognized compensation cost and the related weighted average recognition period associated with unvested awards and units as of June 30, 2024.


	Restricted Stock		Performance
	Awards/Units		Share Units
Unrecognized compensation cost	$	128	$	33
Weighted average period for recognition (years)		2.8		1.8

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

5. Inco****me Taxes

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Earnings before income taxes	$	1,040		$	897		$	1,808		$	2,121

Current income tax expense	$	146		$	80		$	265		$	221
Deferred income tax expense		39			119			79			199
Total income tax expense	$	185		$	199		$	344		$	420

U.S. statutory income tax rate		21	%		21	%		21	%		21	%
State income taxes		1	%		1	%		1	%		1	%
Income tax credits		(4	%)		—			(3	%)		(2	%)
Effective income tax rate		18	%		22	%		19	%		20	%

In the first six months of 2024 and 2023, Devon recognized income tax credits associated with its qualified research activities.

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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net earnings available to common shareholders - basic and diluted	$	844	$	687	$	1,440	$	1,674
Common shares:
Average common shares outstanding - basic		626		638		628		641
Dilutive effect of potential common shares issuable		2		1		2		2
Average common shares outstanding - diluted		628		639		630		643
Net earnings per share available to common shareholders:
Basic	$	1.35	$	1.08	$	2.29	$	2.61
Diluted	$	1.34	$	1.07	$	2.29	$	2.60

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

7. Other Comprehensive Earnings (Loss)

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Pension and postretirement benefit plans:
Beginning accumulated pension and postretirement benefits	$	(123	)	$	(115	)	$	(124	)	$	(116	)
Recognition of net actuarial loss and prior service cost in earnings (1)		2			2			3			3
Income tax expense		(1	)		(1	)		(1	)		(1	)
Accumulated other comprehensive loss, net of tax	$	(122	)	$	(114	)	$	(122	)	$	(114	)

(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.

Supplemental Information to Statements of Cash Flows


	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Changes in assets and liabilities, net:
Accounts receivable	$	81		$	98		$	(15	)	$	248
Other current assets		(84	)		(12	)		(107	)		4
Other long-term assets		(16	)		(13	)		33			18
Accounts payable and revenues and royalties payable		42			(65	)		185			(230	)
Other current liabilities		(224	)		(138	)		(108	)		(141	)
Other long-term liabilities		—			(10	)		(19	)		(27	)
Total	$	(201	)	$	(140	)	$	(31	)	$	(128	)
Supplementary cash flow data:
Interest paid	$	112		$	88		$	175		$	189
Income taxes paid	$	388		$	259		$	384		$	259

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

Accounts Receivable

Components of accounts receivable include the following:


	June 30, 2024			December 31, 2023
Oil, gas and NGL sales	$	941		$	965
Joint interest billings		253			251
Marketing and midstream revenues		370			342
Other		32			22
Gross accounts receivable		1,596			1,580
Allowance for doubtful accounts		(7	)		(7	)
Net accounts receivable	$	1,589		$	1,573

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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

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


	June 30, 2024			December 31, 2023
Property and equipment:
Proved	$	48,402		$	46,659
Unproved and properties under development		1,370			1,279
Total oil and gas		49,772			47,938
Less accumulated DD&A		(31,556	)		(30,113	)
Oil and gas property and equipment, net		18,216			17,825
Other property and equipment		2,386			2,289
Less accumulated DD&A		(817	)		(786	)
Other property and equipment, net (1)		1,569			1,503
Property and equipment, net	$	19,785		$	19,328

(1)

$159 million and $136 million related to CDM in 2024 and 2023, respectively.

11.

Debt and Re****lated Expenses

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


	June 30, 2024			December 31, 2023
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		49			64
Debt issuance costs		(30	)		(30	)
Total debt	$	6,140		$	6,155
Less amount classified as short-term debt		475			483
Total long-term debt	$	5,665		$	5,672

Retirement of Senior Notes

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

Credit Lines

In 2023, Devon amended and restated its 2018 Senior Credit Facility to provide for a new $3.0 billion revolving 2023 Senior Credit Facility. In the first quarter of 2024, Devon exercised its option to extend the 2023 Senior Credit Facility maturity date from March 24, 2028 to March 24, 2029. Devon has the option to extend the March 24, 2029 maturity date by two additional one-year periods subject to lender consent. As of June 30, 2024, 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

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

write-downs such as impairments. As of June 30, 2024, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 21.2%.

Net Financing Costs

The following schedule includes the components of net financing costs.


	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Interest based on debt outstanding	$	88		$	96		$	175		$	189
Interest income		(14	)		(15	)		(27	)		(32	)
Other		2			(3	)		4			(7	)
Total net financing costs	$	76		$	78		$	152		$	150

12. Le****ases

The following table presents Devon’s right-of-use assets and lease liabilities as of June 30, 2024 and December 31, 2023.


	June 30, 2024						December 31, 2023
	Finance		Operating		Total		Finance		Operating		Total
Right-of-use assets	$	241	$	56	$	297	$	246	$	21	$	267
Lease liabilities:
Current lease liabilities (1)	$	21	$	26	$	47	$	21	$	12	$	33
Long-term lease liabilities		285		30		315		286		9		295
Total lease liabilities (2)	$	306	$	56	$	362	$	307	$	21	$	328

(1)

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

(2)

Devon has entered into certain leases of equipment related to the exploration, development and production of oil and gas that had terms not yet commenced as of June 30, 2024 and are therefore excluded from the amounts shown above.

Devon’s operating lease right-of-use assets relate to real estate, drilling rigs and other equipment related to the exploration, development and production of oil and gas. Devon’s financing lease right-of-use assets relate to real estate.

13.

Asset Retir****ement Obligations

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


	Six Months Ended June 30,
	2024			2023
Asset retirement obligations as of beginning of period	$	665		$	529
Liabilities incurred		15			14
Liabilities settled and divested		(16	)		(18	)
Revision of estimated obligation		35			27
Accretion expense on discounted obligation		18			14
Asset retirement obligations as of end of period		717			566
Less current portion		26			18
Asset retirement obligations, long-term	$	691		$	548

During the first six months of 2024, Devon increased its asset retirement obligations by approximately $35 million primarily due to changes in current cost estimates and future retirement dates for its oil and gas assets. During the first six months of 2023, Devon increased its asset retirement obligations by approximately $27 million primarily due to inflation-driven increases in cost estimates.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

14.

Stockhol****ders’ Equity

Share Repurchases

In July 2024, Devon's Board of Directors authorized an expansion to the company's share repurchase program from $3.0 billion to $5.0 billion and extended the expiration date from December 31, 2024 to June 30, 2026. The table below provides information regarding purchases of Devon’s common stock under the $5.0 billion share repurchase program (shares in thousands).


	Total Number of Shares Purchased		Dollar Value of Shares Purchased		Average Price Paid per Share
$5.0 Billion Plan
2021		13,983	$	589	$	42.15
2022		11,708		718	$	61.36
2023:
First quarter		10,090		545	$	53.96
Second quarter		3,795		200	$	52.70
Fourth quarter		5,465		247	$	45.17
2023 Total		19,350		992	$	51.23
2024:
First quarter		4,428		193	$	43.47
Second quarter		5,188		256	$	49.40
2024 Total		9,616		449	$	46.67
Total plan		54,657	$	2,748	$	50.28

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 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. The following table summarizes Devon’s fixed and variable dividends for the first six months of 2024 and 2023, respectively.


	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

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.

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.

15.

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.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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. As of June 30, 2024, Devon has accrued approximately $35 million in other current liabilities pertaining to such royalty matters.

Environmental and Climate Change Matters

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

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

The State of Delaware and various municipalities and other governmental and private parties in California have filed legal proceedings against numerous oil and gas companies, including Devon, seeking relief to abate alleged impacts of climate change. These proceedings include far-reaching claims for monetary damages and injunctive relief. Although Devon cannot predict the ultimate outcome of these matters, Devon denies the 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, undertaking other restorative actions or performing requirements under surface agreements in existence at the time of disposition. For example, a predecessor entity of a Devon subsidiary previously sold certain private, state and federal oil and gas leases covering properties in shallow waters off the coast of Louisiana in the Gulf of Mexico. These assets are generally referred to as the East Bay Field. The current operator of the East Bay Field has filed for protection under Chapter 11 of the U.S. Bankruptcy Code and may be unable to satisfy the eventual decommissioning obligations associated with the East Bay Field. Other companies in the chain of title of the East Bay Field have also sought bankruptcy protection and may be similarly unable to satisfy the eventual decommissioning obligations associated with the East Bay Field. Depending upon the outcome of these bankruptcy proceedings, amounts available under decommissioning bonds and a cash security account and other factors, Devon may be required to perform or fund certain decommissioning obligations associated with the East Bay Field under state and federal regulations applicable to predecessor operators. As a result of these factors and uncertainties, we are currently unable to provide an estimate of potential loss.

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

16.

Fair Value Measurements

The following table provides carrying value and fair value measurement information for certain of Devon’s financial assets and liabilities. The carrying values of cash, accounts receivable, other current receivables, accounts payable, other current payables, accrued expenses and lease liabilities included in the accompanying consolidated balance sheets approximated fair value at June 30, 2024 and December 31, 2023, as applicable. Therefore, such financial assets and liabilities are not presented in the following table.


							Fair Value Measurements Using:
	Carrying			Total Fair			Level 1		Level 2			Level 3
	Amount			Value			Inputs		Inputs			Inputs
June 30, 2024 assets (liabilities):
Cash equivalents	$	487		$	487		$	487	$	—		$	—
Commodity derivatives	$	31		$	31		$	—	$	31		$	—
Commodity derivatives	$	(31	)	$	(31	)	$	—	$	(31	)	$	—
Debt	$	(6,140	)	$	(5,932	)	$	—	$	(5,932	)	$	—
Contingent earnout payments	$	20		$	20		$	—	$	—		$	20
December 31, 2023 assets (liabilities):
Cash equivalents	$	306		$	306		$	306	$	—		$	—
Commodity derivatives	$	208		$	208		$	—	$	208		$	—
Commodity derivatives	$	(9	)	$	(9	)	$	—	$	(9	)	$	—
Debt	$	(6,155	)	$	(6,090	)	$	—	$	(6,090	)	$	—
Contingent earnout payments	$	55		$	55		$	—	$	—		$	55

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.

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