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Devon Energy First Quarter 2022 Results

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Devon Energy Corp. reported financial and operational results for the first-quarter 2022.

Highlights:

• Delaware Basin production growth and margin expansion drove first-quarter financial performance

• Operating cash flow increased 14 percent to $1.8 billion and free cash flow reached record high of $1.3 billion

• First-quarter dividend payout increased by 27 percent to $1.27 per share

• Board expanded share-repurchase authorization by 25 percent to $2.0 billion

• Share-repurchase program to date has retired 19.1 million shares at a total cost of $891 million

• Balance sheet strengthened with cash balances increasing by $354 million to a total of $2.6 billion

Rick Muncrief, president and CEO, said: “Devon’s first-quarter performance once again demonstrated the power of our disciplined capital plan, our focus on growing cash margin and the benefits of our differentiated cash-return framework.

“The comprehensive execution we delivered across all phases of the operating plan allowed us to capture the full benefit of higher commodity prices and generate a record-setting amount of free cash flow in the quarter.

“This strong financial performance has enabled us to dramatically accelerate the return of capital to shareholders by declaring the highest dividend in Devon’s history and by expanding our share-repurchase program to further bolster per-share results.

“Looking ahead, we are unwavering in our commitment to capital discipline and remain focused on delivering the objectives that underpin our current year plan,” Muncrief commented. “Our pursuit of value over volume is further reinforced by the steep backwardation in commodity prices, supply chain constraints and the economic uncertainty arising from recent geopolitical events.”

Financials

Devon reported net earnings of $1.0 billion, or $1.48 per diluted share, in the first quarter of 2022. Adjusting for items analysts typically exclude from estimates, the company’s core earnings were $1.88 per diluted share.

Operating cash flow totaled $1.8 billion, a 14 percent increase from the prior quarter. This level of cash flow funded all capital requirements and resulted in record-setting free cash flow of $1.3 billion for the quarter.

Based on the first-quarter financial performance, Devon declared a fixed-plus-variable dividend payout of $1.27 per share payable on Jun. 30, 2022. This payout is a 27 percent increase from the previous quarter and includes a $0.11 per share benefit from divestiture contingency payments received in the quarter. The company also expanded its share-repurchase authorization by 25 percent to $2.0 billion. As of the end of April, Devon repurchased 19.1 million shares at a total cost of $891 million.

The company continued to strengthen its investment-grade financial position in the quarter, with cash balances increasing by $354 million to a total of $2.6 billion. Devon intends to further improve its financial strength by retiring low-premium debt of approximately $1.0 billion in 2022 and 2023.

Operating Results

Production averaged 575,000 oil-equivalent barrels (Boe) per day in the first quarter, with oil accounting for 50 percent of the volume.

This performance was driven by the company’s Delaware Basin asset which accounted for nearly 70 percent of total production.

Devon estimates that first-quarter production was reduced by 15,000 Boe per day, or 3 percent, due to winter weather curtailments.

The company’s capital activity consisted of 19 operated drilling rigs and 5 completion crews in the quarter. This level of investment resulted in an upstream capital spend of $501 million, which is equivalent to 24 percent of Devon’s full-year budget.

Devon’s largest field-level cost category, lease operating and transportation costs, totaled $7.44 per Boe in the quarter. Effective cost management efforts and efficient field-level operations drove per-unit rates 3 percent below guidance expectations for the quarter.

The benefits of an oil-weighted production mix, coupled with low operating costs, expanded field-level cash margins to $49.45 per Boe in the quarter. This represents a 17 percent improvement from the fourth quarter of 2021.

The capture of merger synergies improved Devon’s corporate cost structure by 13 percent year-over-year. This performance was driven by lower personnel expenses and reduced financing costs.

Asset Highlights

Delaware Basin

Production averaged 394,000 Boe per day, a 27 percent increase from the year ago period. During the quarter, the company brought online 52 development wells diversified across target intervals in the Avalon, Bone Spring and Wolfcamp formations. Initial 30-day production rates from these highly economic wells averaged 2,800 Boe per day (62 percent oil), with completed well costs remaining extremely low at an average of $7.5 million per well.

For the remainder of 2022, Devon plans to operate 14 rigs across its 400,000 net acres in the basin and the company remains on track to bring online approximately 220 new wells for the year. This level of activity represents approximately 70 percent of the company’s total operating plan for 2022.

Production averaged 75,000 Boe per day, with liquids-rich gas representing 81 percent of the product mix. During the quarter, Devon operated 3 drilling rigs supported by a $100 million drilling carry with Dow. With this carry-enhanced activity, the company spud 13 wells during the quarter, with initial production from this activity expected in the second half of the year. Overall, Devon plans to bring online approximately 40 new wells in the Anadarko Basin during 2022.

Production averaged 48,000 Boe per day. Due to timing of activity, no new wells were brought online during the first quarter. To manage base production, the company plans to bring online 15 to 20 new wells in 2022.

First-quarter production averaged 36,000 Boe per day. Capital activity was highlighted by the commencement of production on 8 wells in the volatile oil window of the play. This low-risk development activity resulted in average 30-day production rates of 3,300 Boe per day. Devon and its partner remain on track to bring online approximately 40 new wells in 2022 in an effort to maintain a consistent production profile throughout the year.

Production averaged 18,000 Boe per day (70 percent oil). Devon’s operational focus in 2022 is to optimize base production and advance its understanding of the emerging Niobrara oil resource opportunity across the company’s 300,000 net acre position in the oil fairway of the play.

2022 Outlook

Devon remains committed to a disciplined maintenance capital program and is on track to meet the strategic objectives that underpin its operating plan in 2022. The company has not made any modifications to its previously announced plan to sustain production in the range of 570,000 to 600,000 Boe per day, with an upstream capital investment of $1.9 billion to $2.2 billion.