Market Overview

Devon Energy Reports Second-Quarter 2018 Results



  • Delaware Basin and STACK drive U.S. oil production beat
  • Light-oil production growth on track to expand 16 percent in 2018
  • EnLink ownership interests monetized at 12 times cash flow
  • Industry-leading share-repurchase program increased to $4 billion
  • Field-level cash margins expand by 31 percent year over year
  • Corporate cost structure to improve by $475 million annually

Devon Energy Corp. (NYSE:DVN) today reported operational and financial
results for the second quarter of 2018. Also included within the release
is the company's guidance outlook for the third quarter and full-year

"Devon is executing at a very high level on our 2020 Vision," said Dave
Hager, president and CEO. "Operationally, our second-quarter performance
was headlined by strong well productivity in the Delaware Basin and
STACK, which drove light-oil production above the high end of our
guidance expectations. Importantly, we converted this volume growth into
higher profits with our access to premium pricing in advantaged markets
and through our success in driving both field-level and corporate costs

"With the strong well productivity we've achieved year to date in the
U.S., light-oil production growth is on track to advance 16 percent in
2018, which is 200 basis points above our original budget expectations,"
said Hager. "We expect to deliver this improved outlook without any
increase to our planned activity, and this disciplined investment
program positions us to generate substantial amounts of free cash flow
at today's market prices.

"In addition to our strong operating results, we took a significant step
forward in achieving our 2020 Vision by further simplifying our asset
portfolio through our monetization of EnLink," said Hager. "This highly
accretive transaction provides a strategic exit from EnLink at a value
of 12 times cash flow, and we're returning the sales proceeds to our
shareholders through our industry-leading $4 billion share-repurchase

Delaware Basin and STACK Drive U.S. Oil Production Beat

Production results in the quarter were highlighted by oil growth from
Devon's U.S. resource plays, which are attaining the highest margins and
returns in Devon's portfolio. In the quarter, light-oil production in
the U.S. averaged 136,000 barrels per day, a 12 percent increase
compared to the first quarter of 2018. This result exceeded the top end
of guidance by 2,000 barrels per day.

The strongest asset-level performance during the second quarter was from
the company's Delaware Basin assets. Light-oil production increased 54
percent year over year in the quarter, driving total volumes in the
Delaware to 79,000 oil-equivalent barrels (Boe) per day. Growth in the
Delaware was driven by prolific well productivity, where the top 10
wells in the quarter averaged initial 30-day rates of approximately
3,000 Boe per day.

Devon's STACK assets also delivered strong results during the quarter.
Total production in the STACK advanced 26 percent compared to the second
quarter of 2017. Driven by several strong wells across the play, oil
production delivered the highest growth rate, increasing 41 percent year
over year.

In Canada, net oil production averaged 109,000 barrels per day in the
second quarter. Scheduled maintenance at the company's Jackfish facility
curtailed production by approximately 15,000 barrels per day. Also
contributing to lower production was a 2 percentage point increase in
royalty rates because of higher commodity prices and improved

Overall, total companywide production averaged 541,000 Boe per day in
the second quarter. Oil accounted for the largest component of the
product mix at 45 percent of total volumes. For additional details on
Devon's E&P operations in the quarter, please refer to the company's
second-quarter 2018 operations report at

Light-Oil Production Growth on Track to Increase 16 Percent in 2018

With the strong well productivity Devon has achieved year to date in the
U.S., light-oil production growth is on track to advance 16 percent in
2018. This growth rate is trending at approximately 200 basis points
above the company's original budget expectations.

The incremental oil growth in the U.S. is expected to be delivered
without an increase to Devon's capital activity. This disciplined
investment program positions the company to generate free cash flow in
the second half of 2018 at today's market prices.

EnLink Ownership Interests Monetized at 12 Times Cash Flow

In mid-July, Devon completed the sale of its ownership interests in
EnLink Midstream Partners, LP (NYSE:ENLK) and EnLink Midstream, LLC
(NYSE:ENLC) for $3.125 billion. The company's interests in EnLink
generated $265 million of cash distributions over the past year, valuing
the investment at approximately 12 times cash flow. Devon expects no
incremental corporate cash taxes resulting from this sale.

With the closing of the EnLink transaction, combined with other minor
asset sales achieved to date, total proceeds from Devon's divestiture
program have now reached $4.2 billion. The company expects to monetize
an additional $1 billion of minor, non-core assets across the United
States by year-end. These divestiture packages include undeveloped
leasehold in the southern Delaware Basin, enhanced oil recovery projects
in the Rockies and Midland Basin along with Wise County acreage in the
Barnett Shale. Data rooms are open for the majority of these packages
and bids are expected throughout the second half of 2018.

Industry-Leading Share-Repurchase Program Increased to $4 Billion

In conjunction with closing the EnLink transaction, Devon's board of
directors authorized an increase in the company's share-repurchase
program to $4 billion. This authorization represents the largest
share-repurchase program in the upstream industry when measured as a
percentage of market capitalization. At the end of July, Devon had
repurchased 24 million shares, or nearly 5 percent of outstanding
shares, at a total cost of approximately $1 billion.

For the remaining share-repurchase authorization, the company plans to
utilize a series of accelerated stock repurchase programs (ASR) that are
expected to commence in early August. With these ASR programs, Devon
expects to complete its $4 billion share-repurchase program during the
first half of 2019. Detailed forward-looking guidance on share count is
provided later in this release.

Financial Reporting Impact of EnLink Monetization

With the closing of the EnLink transaction, the financial results of
EnLink Midstream will no longer be consolidated with Devon's upstream
business, and historical results related to EnLink will be presented as
discontinued operations in the company's consolidated financial

To assist with this financial reporting transition, Devon has provided
pro forma financial statements for its upstream business in a Form 8-K
filing in July. Additionally, updated detailed forward-looking guidance
for financial statement line items impacted by this transaction in 2018
is provided later in this release.

Upstream Revenue Benefits from Premium Gulf Coast Pricing

Devon's upstream revenue, excluding commodity derivatives, totaled $1.6
billion in the second quarter, a 15 percent improvement compared to the
previous quarter. The strong growth in revenue was driven by growth in
higher-margin, light-oil production coupled with improved price
realizations across the company's asset portfolio.

Also contributing to the improving price realizations in the quarter
were Devon's firm transport and marketing agreements that provide the
majority of U.S. oil production direct access to premium Gulf Coast
markets. Combined with the price protection provided by regional basis
swaps, second-quarter oil realizations in the U.S. averaged
approximately 98 percent of the West Texas Intermediate benchmark.
Importantly, the company is positioned to maintain these strong U.S. oil
price realizations through the end of the decade.

In Canada, Devon continues to benefit from Western Canadian Select (WCS)
basis swaps on approximately 50 percent of its estimated oil production
in 2018. These attractive WCS basis swaps are locked in at $15 off the
WTI benchmark price and have generated cash settlements of $109 million
year to date.

U.S. Operating Costs Improve and Field-Level Margins Expand

Devon continued to effectively manage operating costs during the second
quarter. Production expense, which represents field-level operating
costs, totaled $572 million in the second quarter. The largest
components of production expense are lease operating expense and
transportation, which totaled $493 million in the quarter. Taxes also
contributed $79 million to production expense during the second quarter.

The company's U.S. resource plays delivered the strongest cost
performance, where lease operating expense and transportation costs
declined 3 percent on a per-unit basis compared to the first quarter. In
Canada, production expense in the quarter was impacted by $21 million of
non-recurring costs associated with maintenance work at the Jackfish

Overall, the benefits of higher-margin oil production, improved price
realizations and a lower cost structure resulted in expanded margins for
Devon. Field-level cash margin reached $20.19 per Boe in the second
quarter, a 31 percent increase compared to the year-ago period.
Field-level cash margin is computed as upstream revenues, excluding
commodity derivatives, less production expenses with the result divided
by oil equivalent production volumes.

Corporate Cost Structure to Improve by $475 Million Annually

Further expanding Devon's profitability is its improving general and
administrative (G&A) cost structure. Upstream-related G&A expenses
totaled $153 million, a 22 percent improvement compared to the first
quarter. The significantly lower overhead costs were driven by reduced
personnel expenses.

The company has also reduced financing costs. With the early retirement
of $807 million of debt early in the year, the company expects to reduce
net financing costs by approximately $64 million on an annual basis.

The aforementioned cost savings, combined with the financial benefits
related to the sale of EnLink Midstream, position Devon's go-forward G&A
and interest expense to improve by approximately $475 million annually.

Investment-Grade Financial Position Continues to Strengthen

Devon's financial position remains exceptionally strong, with
investment-grade credit ratings and excellent liquidity. The company
exited the second quarter with $1.5 billion of cash on hand. Adjusted
for the sale of EnLink Midstream in July, pro forma cash balances
reached $4.6 billion and the company's consolidated debt declined by 40
percent to $6.1 billion.

Second-Quarter Earnings and Cash-Flow Results

The company reported a net loss attributable to Devon of $425 million or
$0.83 per diluted share in the second quarter. Excluding the impact of
noncontrolling interests, the company reported a net loss of $335
million. Devon's results were impacted by certain items securities
analysts typically exclude from their published estimates. After
excluding adjusting items, the company's core earnings totaled $177
million or $0.34 per diluted share. Adjusted earnings before interest,
taxes, depreciation and amortization (EBITDA) reached $1.0 billion in
the quarter.

Devon's operating cash flow from continuing operations totaled $269
million in the second quarter. Operating cash flow in the quarter was
impacted by several non-recurring or unusual items, including a non-cash
foreign exchange loss, restructuring charges, EnLink's reclassification
to discontinued operations and working capital changes. The most
significant item was related to a non-cash, foreign exchange loss. This
impact was driven by foreign currency denominated intercompany loan
activity resulting in a realized loss of $244 million as a result of the
strengthening of the U.S. dollar in relation to the Canadian dollar. For
more understanding of the company's cash flow performance during the
quarter please refer to the explanations and reconciliations provided
later in this release.

Pursuant to regulatory disclosure requirements, Devon is required to
reconcile non-GAAP (generally accepted accounting principles) financial
measures to the related GAAP information. Reconciliations of these
non-GAAP measures are provided within the tables of this release.

Conference Call Webcast and Supplemental Earnings Materials

Also provided with today's release is the company's detailed operations
report that is available on the company's website at
The company's second-quarter conference call will be held at 10 a.m.
Central (11 a.m. Eastern) on Wednesday, Aug. 1, 2018, and will serve
primarily as a forum for analyst and investor questions and answers.

Forward-Looking Statements

This release includes "forward-looking statements" as defined by the
Securities and Exchange Commission (SEC). Such statements include those
concerning strategic plans, expectations and objectives for future
operations, and are often identified by use of the words "expects,"
"believes," "will," "would," "could," "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
press release that address activities, events or developments that the
company 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 the
control of the company. Statements regarding our business and operations
are subject to all of the risks and uncertainties normally incident to
the exploration for and development and production of oil and gas. These
risks include, but are 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 oil and gas operations; regulatory restrictions, compliance
costs and other risks relating to governmental regulation, including
with respect to environmental matters; risks related to our hedging
activities; counterparty credit risks; risks relating to our
indebtedness; cyberattack risks; our limited control over third parties
who operate our oil and gas properties; midstream capacity constraints
and potential interruptions in production; the extent to which insurance
covers any losses we may experience; competition for leases, materials,
people and capital; our ability to successfully complete mergers,
acquisitions and divestitures; and any of the other risks and
uncertainties identified in our Form 10-K and our other filings with the
SEC. Investors are cautioned that any such statements are not guarantees
of future performance and that actual results or developments may differ
materially from those projected in the forward-looking statements. The
forward-looking statements in this release are made as of the date of
this release, even if subsequently made available by Devon on its
website or otherwise. Devon does not undertake any obligation to update
the forward-looking statements as a result of new information, future
events or otherwise. The SEC permits oil and gas companies, in their
filings with the SEC, to disclose only proved, probable and possible
reserves that meet the SEC's definitions for such terms, and price and
cost sensitivities for such reserves, and prohibits disclosure of
resources that do not constitute such reserves. This release may contain
certain terms, such as resource potential, potential locations, risked
and unrisked locations, estimated ultimate recovery (or EUR),
exploration target size and other similar terms. These estimates are by
their nature more speculative than estimates of proved, probable and
possible reserves and accordingly are subject to substantially greater
risk of being actually realized.
The SEC guidelines strictly
prohibit us from including these estimates in filings with the SEC.
Investors are urged to consider closely the disclosure in our Form 10-K,
available at
You can also obtain this form from the SEC by calling 1-800-SEC-0330 or
from the SEC's website at

About Devon Energy

Devon Energy is a leading independent energy company engaged in finding
and producing oil and natural gas. Based in Oklahoma City and included
in the S&P 500, Devon operates in several of the most prolific oil and
natural gas plays in the U.S. and Canada with an emphasis on achieving
strong returns and capital-efficient cash flow growth. For more
information, please visit




Quarter Ended Six Months Ended
June 30,
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