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 March 31, 2022

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 April 20, 2022, 660.0 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 Statements of Cash Flows	7
	Consolidated Balance Sheets	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	11
	Note 4 – Share-Based Compensation	13
	Note 5 – Restructuring and Transaction Costs	14
	Note 6 – Other, Net	15
	Note 7 – Income Taxes	16
	Note 8 – Net Earnings Per Share	16
	Note 9 – Other Comprehensive Earnings (Loss)	17
	Note 10 – Supplemental Information to Statements of Cash Flows	17
	Note 11 – Accounts Receivable	17
	Note 12 – Property, Plant and Equipment	18
	Note 13 – Debt and Related Expenses	18
	Note 14 – Leases	19
	Note 15 – Asset Retirement Obligations	19
	Note 16 – Stockholders’ Equity	20
	Note 17 – Commitments and Contingencies	20
	Note 18 – Fair Value Measurements	22
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Executive Overview	23
	Results of Operations	25
	Capital Resources, Uses and Liquidity	33
	Critical Accounting Estimates	36
	Non-GAAP Measures	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39
Part II. Other Information
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	41
Signatures		42

2

DEFINITIONS

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:

“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.

“Canada” means the division of Devon encompassing oil and gas properties located in Canada. On June 27, 2019, all of Devon’s Canadian operating assets and operations were divested. All dollar amounts associated with Canada are in U.S. dollars, unless stated otherwise.

“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.

“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.

“MBbls” means thousand barrels.

“MBoe” means thousand Boe.

“Mcf” means thousand cubic feet.

“Merger” means the merger of Merger Sub with and into WPX, with WPX continuing as the surviving corporation and a wholly-owned subsidiary of the Company, pursuant to the terms of the Merger Agreement.

“Merger Agreement” means that certain Agreement and Plan of Merger, dated September 26, 2020, by and among the Company, Merger Sub and WPX.

“Merger Sub” means East Merger Sub, Inc., a wholly-owned subsidiary of the Company.

“MMBoe” means million Boe.

“MMBtu” means million Btu.

“MMcf” means million cubic feet.

“N/M” means not meaningful.

3

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

“NYMEX” means New York Mercantile Exchange.

“OPEC” means Organization of the Petroleum Exporting Countries.

“SEC” means United States Securities and Exchange Commission.

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

“TSR” means total shareholder return.

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

“VIE” means variable interest entity.

“WPX” means WPX Energy, Inc.

“WTI” means West Texas Intermediate.

“/Bbl” means per barrel.

“/d” means per day.

“/MMBtu” means per MMBtu.

4

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;

•risks relating to the COVID-19 pandemic or other future pandemics;

•uncertainties inherent in estimating oil, gas and NGL reserves;

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

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

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

•the uncertainties, costs and risks involved in our operations, including as a result of employee misconduct;

•risks related to our hedging activities;

•counterparty credit risks;

•risks relating to our indebtedness;

•cyberattack risks;

•our limited control over third parties who operate some of 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 assets, materials, people and capital;

•risks related to investors attempting to effect change;

•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 2021 Annual Report on Form 10-K and our other filings 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 assume no duty to update or revise our forward-looking statements based on new information, future events or otherwise.

5

Part I. Financial Information

Item 1. Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

	Three Months Ended March 31,
	2022			2021
	(Unaudited)
Oil, gas and NGL sales	$	3,175		$	1,757
Oil, gas and NGL derivatives		(683	)		(528	)
Marketing and midstream revenues		1,320			821
Total revenues		3,812			2,050
Production expenses		618			458
Exploration expenses		2			3
Marketing and midstream expenses		1,324			842
Depreciation, depletion and amortization		489			467
Asset dispositions		(1	)		(32	)
General and administrative expenses		94			107
Financing costs, net		85			77
Restructuring and transaction costs		—			189
Other, net		(61	)		(29	)
Total expenses		2,550			2,082
Earnings (loss) before income taxes		1,262			(32	)
Income tax expense (benefit)		267			(248	)
Net earnings		995			216
Net earnings attributable to noncontrolling interests		6			3
Net earnings attributable to Devon	$	989		$	213
Net earnings per share:
Basic net earnings per share:	$	1.48		$	0.33
Diluted net earnings per share:	$	1.48		$	0.32
Comprehensive earnings:
Net earnings	$	995		$	216
Other comprehensive earnings, net of tax:
Pension and postretirement plans		1			23
Other comprehensive earnings, net of tax		1			23
Comprehensive earnings:	$	996		$	239
Comprehensive earnings attributable to noncontrolling interests		6			3
Comprehensive earnings attributable to Devon	$	990		$	236

See accompanying notes to consolidated financial statements

6

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
	2022			2021
	(Unaudited)
Cash flows from operating activities:
Net earnings	$	995		$	216
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation, depletion and amortization		489			467
Leasehold impairments		1			1
Amortization of liabilities		(6	)		(7	)
Total losses on commodity derivatives		683			528
Cash settlements on commodity derivatives		(344	)		(232	)
Gains on asset dispositions		(1	)		(32	)
Deferred income tax expense (benefit)		164			(243	)
Share-based compensation		20			41
Early retirement of debt		—			(20	)
Other		(21	)		—
Changes in assets and liabilities, net		(143	)		(127	)
Net cash from operating activities		1,837			592
Cash flows from investing activities:
Capital expenditures		(537	)		(499	)
Acquisitions of property and equipment		(1	)		—
Divestitures of property and equipment		26			15
WPX acquired cash		—			344
Distributions from equity method investments		8			10
Contributions to equity method investments		(22	)		—
Net cash from investing activities		(526	)		(130	)
Cash flows from financing activities:
Repayments of long-term debt		—			(533	)
Early retirement of debt		—			(27	)
Repurchases of common stock		(211	)		—
Dividends paid on common stock		(667	)		(203	)
Distributions to noncontrolling interests		(8	)		(4	)
Acquisition of noncontrolling interests		—			(24	)
Shares exchanged for tax withholdings and other		(73	)		(33	)
Net cash from financing activities		(959	)		(824	)
Effect of exchange rate changes on cash		2			3
Net change in cash, cash equivalents and restricted cash		354			(359	)
Cash, cash equivalents and restricted cash at beginning of period		2,271			2,237
Cash, cash equivalents and restricted cash at end of period	$	2,625		$	1,878
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	2,459		$	1,683
Restricted cash		166			195
Total cash, cash equivalents and restricted cash	$	2,625		$	1,878

See accompanying notes to consolidated financial statements

7

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2022			December 31, 2021
ASSETS
Current assets:
Cash, cash equivalents and restricted cash	$	2,625		$	2,271
Accounts receivable		2,002			1,543
Other current assets		346			435
Total current assets		4,973			4,249
Oil and gas property and equipment, based on successful efforts    accounting, net		13,566			13,536
Other property and equipment, net ($119 million and $111 million related to CDM in 2022 and 2021, respectively)		1,508			1,472
Total property and equipment, net		15,074			15,008
Goodwill		753			753
Right-of-use assets		229			235
Investments		416			402
Other long-term assets		333			378
Total assets	$	21,778		$	21,025
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	576		$	500
Revenues and royalties payable		1,672			1,456
Other current liabilities		1,506			1,131
Total current liabilities		3,754			3,087
Long-term debt		6,471			6,482
Lease liabilities		251			252
Asset retirement obligations		443			468
Other long-term liabilities		974			1,050
Deferred income taxes		450			287
Stockholders' equity:
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued    661 million and 663 million shares in 2022 and 2021, respectively		66			66
Additional paid-in capital		7,371			7,636
Retained earnings		2,013			1,692
Accumulated other comprehensive loss		(131	)		(132	)
Treasury stock, at cost, 0.3 million shares in 2022		(19	)		—
Total stockholders’ equity attributable to Devon		9,300			9,262
Noncontrolling interests		135			137
Total equity		9,435			9,399
Total liabilities and equity	$	21,778		$	21,025

See accompanying notes to consolidated financial statements

8

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 March 31, 2022
Balance as of December 31, 2021		663		$	66	$	7,636		$	1,692		$	(132	)	$	—		$	137		$	9,399
Net earnings		—			—		—			989			—			—			6			995
Other comprehensive earnings, net of tax		—			—		—			—			1			—			—			1
Restricted stock grants, net of cancellations		2			—		1			—			—			—			—			1
Common stock repurchased		—			—		—			—			—			(305	)		—			(305	)
Common stock retired		(5	)		—		(286	)		—			—			286			—			—
Common stock dividends		—			—		—			(668	)		—			—			—			(668	)
Share-based compensation		1			—		20			—			—			—			—			20
Distributions to noncontrolling interests		—			—		—			—			—			—			(8	)		(8	)
Balance as of March 31, 2022		661		$	66	$	7,371		$	2,013		$	(131	)	$	(19	)	$	135		$	9,435
Three Months Ended March 31, 2021
Balance as of December 31, 2020		382		$	38	$	2,766		$	208		$	(127	)	$	—		$	134		$	3,019
Net earnings		—			—		—			213			—			—			3			216
Other comprehensive earnings, net of tax		—			—		—			—			23			—			—			23
Restricted stock grants, net of cancellations		4			—		—			—			—			—			—			—
Common stock repurchased		—			—		—			—			—			(38	)		—			(38	)
Common stock retired		(2	)		—		(38	)		—			—			38			—			—
Common stock dividends		—			—		—			(203	)		—			—			—			(203	)
Common stock issued		290			29		5,403			—			—			—			—			5,432
Share-based compensation		1			—		41			—			—			—			—			41
Distributions to noncontrolling interests		—			—		—			—			—			—			(4	)		(4	)
Balance as of March 31, 2021		675		$	67	$	8,172		$	218		$	(104	)	$	—		$	133		$	8,486

See accompanying notes to consolidated financial statements

9

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Summary 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 2021 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 periods ended March 31, 2022 and 2021 and Devon’s financial position as of March 31, 2022.

Devon and WPX completed an all-stock merger of equals on January 7, 2021. On the closing date of the Merger, each share of WPX common stock was automatically converted into the right to receive 0.5165 of a share of Devon common stock. The transaction has been accounted for using the acquisition method of accounting, with Devon being treated as the accounting acquirer. See Note 2 for further discussion.

Restricted Cash

As of March 31, 2022, Devon classified approximately $150 million of cash as restricted cash on the consolidated balance sheets for obligations retained related to the Barnett Shale assets and the Canadian business. Cash payments for these charges related to the Barnett assets and Canada business total approximately $10 million per quarter.

Variable Interest Entity

Cotton Draw Midstream, L.L.C. (“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

In conjunction with the Merger, Devon acquired an interest in Catalyst, which is a joint venture established among WPX, 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. The agreements do not include any minimum volume commitments. 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.

		Carrying Amount
Investments	% Interest	March 31, 2022		December 31, 2021
Catalyst	50%	$	361	$	368
Other	Various		55		34
Total		$	416	$	402

10

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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 March 31,
	2022		2021
Oil	$	2,406	$	1,331
Gas		307		202
NGL		462		224
Oil, gas and NGL sales		3,175		1,757
Oil		776		499
Gas		209		147
NGL		335		175
Marketing and midstream revenues		1,320		821
Total revenues from contracts with customers	$	4,495	$	2,578

2. Acquisitions and Divestitures

WPX Merger

On January 7, 2021, Devon and WPX completed an all-stock merger of equals. WPX was an oil and gas exploration and production company with assets in the Delaware Basin in Texas and New Mexico and the Williston Basin in North Dakota. On the closing date of the Merger, each share of WPX common stock was automatically converted into the right to receive 0.5165 of a share of Devon common stock. No fractional shares of Devon’s common stock were issued in the Merger, and holders of WPX common stock instead received cash in lieu of fractional shares of Devon common stock, if any. Based on the closing price of Devon’s common stock on January 7, 2021, the total value of Devon common stock issued to holders of WPX common stock as part of this transaction was approximately $5.4 billion. The Merger was structured as a tax-free reorganization for United States federal income tax purposes. The final allocation of the total purchase price of WPX to the identifiable assets acquired and the liabilities assumed was finalized at December 31, 2021.

Divestitures

In the first quarter of 2021, Devon completed the sale of non-core assets in the Rockies for proceeds of $9 million, net of purchase price adjustments, and recognized a $35 million gain related to the sale. Devon received $4 million in contingent earnout payments related to this transaction in the first quarter of 2022 with the potential for up to an additional $4 million in the future. The total estimated proved reserves associated with these divested assets was approximately 3 MMBoe.

Contingent Earnout Payments

Devon is entitled to contingent earnout payments associated with the sale of its Barnett Shale assets in 2020 with upside participation beginning at a $2.75 Henry Hub natural gas price or a $50 WTI oil price. The contingent payment period commenced on January 1, 2021 and has a term of four years. Devon received $65 million in contingent earnout payments related to this transaction in the first quarter of 2022 and could receive up to an additional $195 million in contingent earnout payments for the remaining performance periods depending on future commodity prices. The valuation of the future contingent earnout payments included within other current assets and other long-term assets in the March 31, 2022 consolidated balance sheet was approximately $51 million and $60 million, respectively. The value was derived utilizing a Monte Carlo valuation model and qualifies as a level 3 fair value measurement.

3.Derivative Financial 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, costless price collars and call options. Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. As of March 31, 2022, Devon did not have any open interest rate swap contracts.

11

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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 March 31, 2022, Devon neither held cash collateral of its counterparties nor posted cash collateral to its counterparties. Given Devon's current credit ratings and the terms of the underlying contracts, Devon is not currently required to post collateral to its counterparties with respect to its open derivative positions, and we would not be required to post any such collateral as a result of any change to the amount of Devon's net liability for such positions.

Commodity Derivatives

As of March 31, 2022, 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)
Q2-Q4 2022		35,258	$	44.50		37,658	$	55.56	$	74.84
Q1-Q4 2023		—	$	—		6,193	$	61.32	$	97.65

	Oil Basis Swaps
Period	Index	Volume (Bbls/d)		Weighted Average Differential to WTI ($/Bbl)
Q2-Q4 2022	BRENT		1,000	$	(7.75	)
Q2-Q4 2022	NYMEX Roll		29,000	$	0.45
Q1-Q4 2023	Midland Sweet		3,000	$	0.73

As of March 31, 2022, 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 and the end of month NYMEX index. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.

	Price Swaps (1)				Price Collars (2)
Period	Volume (MMBtu/d)		Weighted Average Price ($/MMBtu)		Volume (MMBtu/d)		Weighted Average Floor Price ($/MMBtu)		Weighted Average Ceiling Price ($/MMBtu)
Q2-Q4 2022		110,000	$	2.79		209,509	$	2.98	$	4.30
Q1-Q4 2023		4,959	$	3.65		58,901	$	3.38	$	5.64

(1)Related to the 2022 open positions, 10,000 MMBtu/d settle against the Inside FERC first of month Henry Hub index at an average price of $3.65 and 100,000 MMBtu/d settle against the end of month NYMEX index at an average price of $2.70. All 2023 open positions settle against the Inside FERC first of month Henry Hub index.

(2)Price collars settle against the Inside FERC first of month Henry Hub Index.

12

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

	Natural Gas Basis Swaps
Period	Index	Volume (MMBtu/d)		Weighted Average Differential to Henry Hub ($/MMBtu)
Q2-Q4 2022	El Paso Natural Gas		40,000	$	(0.82	)
Q2-Q4 2022	Houston Ship Channel		10,000	$	(0.17	)
Q2-Q4 2022	WAHA		70,000	$	(0.57	)
Q1-Q4 2023	El Paso Natural Gas		60,000	$	(1.50	)
Q1-Q4 2023	WAHA		70,000	$	(0.51	)
Q1-Q4 2024	WAHA		40,000	$	(0.51	)

As of March 31, 2022, Devon did not have any open NGL positions.

Financial Statement Presentation

All derivative financial instruments are recognized at their current fair value as either assets or liabilities in the consolidated balance sheets. Amounts related to contracts allowed to be netted upon payment subject to a master netting arrangement with the same counterparty are reported on a net basis in the consolidated balance sheets. The tables below present a summary of these positions as of March 31, 2022 and December 31, 2021.

	March 31, 2022									December 31, 2021
	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	$	15		$	(14	)	$	1		$	6		$	(4	)	$	2		Other current assets
Long-term derivative asset		31			—			31			6			—			6		Other long-term assets
Short-term derivative liability		(953	)		14			(939	)		(579	)		4			(575	)	Other current liabilities
Long-term derivative liability		(1	)		—			(1	)		(2	)		—			(2	)	Other long-term liabilities
Total derivative liability	$	(908	)	$	—		$	(908	)	$	(569	)	$	—		$	(569	)

4.Share-Based Compensation

The table below presents the share-based compensation expense included in Devon’s accompanying consolidated statements of comprehensive earnings. The vesting for certain share-based awards was accelerated in 2021 in conjunction with the reduction of workforce described in Note 5 and is included in restructuring and transaction costs in the accompanying consolidated statements of comprehensive earnings.

	Three Months Ended March 31,
	2022		2021
G&A	$	20	$	20
Restructuring and transaction costs		—		21
Total	$	20	$	41
Related income tax benefit	$	17	$	—

13

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Under its approved long-term incentive plan, Devon grants share-based awards to its employees. The following table presents a summary of Devon’s unvested restricted stock awards and units and performance share units granted under the plan.

	Restricted Stock Awards & Units					Performance Share Units
	Awards/Units			Weighted Average Grant-Date Fair Value		Units				Weighted Average Grant-Date Fair Value
	(Thousands, except fair value data)
Unvested at 12/31/21		7,656		$	22.15		2,076			$	24.12
Granted		1,249		$	52.23		964			$	44.05
Vested		(2,476	)	$	23.02		(1,194	)		$	28.91
Forfeited		(8	)	$	29.42		—			$	—
Unvested at 3/31/22		6,421		$	27.66		1,846		(1)	$	31.43

(1)A maximum of 3.7 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 2022, as indicated in the previous summary table.

	2022
Grant-date fair value	$	68.68
Risk-free interest rate		1.81	%
Volatility factor		70.1	%
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 March 31, 2022.

	Restricted Stock		Performance
	Awards/Units		Share Units
Unrecognized compensation cost	$	122	$	32
Weighted average period for recognition (years)		3.0		2.1

5. Restructuring and Transaction Costs

The following table summarizes Devon’s restructuring and transaction costs.

	Three Months Ended March 31,
	2022		2021
Restructuring costs	$	—	$	143
Transaction costs		—		46
Total costs	$	—	$	189

In conjunction with the Merger closing, Devon recognized $143 million of restructuring expenses during the first quarter of 2021 related to employee severance and termination benefits, settlements and curtailments from defined retirement benefits and contract terminations. Of these expenses, $37 million and $21 million resulted from settlements and curtailments of defined retirement benefits and accelerated vesting of share-based grants, respectively, which were non-cash charges. Additionally, in conjunction with the Merger closing, Devon recognized $46 million of transaction costs primarily comprised of bank, legal and accounting fees.

14

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The following table summarizes Devon’s restructuring liabilities.

	Other			Other
	Current			Long-term
	Liabilities			Liabilities			Total
Balance as of December 31, 2021	$	38		$	111		$	149
Changes related to prior years' restructurings		(4	)		(6	)		(10	)
Balance as of March 31, 2022	$	34		$	105		$	139
Balance as of December 31, 2020	$	35		$	137		$	172
Changes related to prior years' restructurings		59			(7	)		52
Balance as of March 31, 2021	$	94		$	130		$	224

6. Other, Net

The following table summarizes Devon's other expenses (income) presented in the accompanying consolidated comprehensive statement of earnings.

	Three Months Ended March 31,
	2022			2021
Estimated future obligation under a performance guarantee	$	(96	)	$	—
Ukraine charitable pledge		20			—
Asset retirement obligation accretion		7			7
Severance and other non-income tax refunds		(3	)		(36	)
Other		11			—
Total	$	(61	)	$	(29	)

The first quarter of 2022 includes a $96 million benefit related to the revision of a future obligation under a performance guarantee liability for previously divested assets. Due to improved commodity prices and market conditions, the purchaser of these assets was able to fully satisfy the $35 million obligation due in the first quarter of 2022. Further, as of March 31, 2022, Devon also reduced the estimated future exposure of the performance guarantee by $61 million based on probability-weighted cash flows for the remainder of the contract term of four years.

The first quarter of 2022 also includes a $20 million pledge for humanitarian relief for the Ukrainian people and surrounding countries supporting refugees.

The first quarter of 2021 includes a Texas severance tax refund of $36 million related to prior periods.

15

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

7. Income Taxes

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

	Three Months Ended March 31,
	2022		2021
Earnings (loss) before income taxes	$	1,262	$	(32	)
Current income tax expense (benefit)	$	103	$	(5	)
Deferred income tax expense (benefit)		164		(243	)
Total income tax expense (benefit)	$	267	$	(248	)

U.S. statutory income tax rate	21	%	21	%
State income taxes	1	%	(1	%)
Deferred tax asset valuation allowance	0	%	791	%
Other	(1	%)	(48	%)
Effective income tax rate	21	%	763	%

Prior to December 31, 2021, Devon maintained a valuation allowance against all U.S. federal deferred tax assets. Devon recognized approximately $250 million of deferred tax liabilities to account for the Merger. The recognition of these deferred tax liabilities caused a decrease to Devon’s net deferred tax assets and a corresponding decrease to the valuation allowance Devon had recognized on its U.S. federal deferred tax assets in the first quarter of 2021.

Due to significant increases in commodity pricing and projections of future income, in the fourth quarter of 2021, Devon reassessed its evaluation of the realizability of deferred tax assets in future years and determined that a U.S. federal valuation allowance was no longer necessary at December 31, 2021.

In the table above, the "other" effect for 2021 is composed primarily of permanent differences related to costs incurred in connection with the Merger. Such items represent $15 million of income tax expense in the first quarter of 2021.

8.Net Earnings Per Share

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

	Three Months Ended March 31,
	2022			2021
Net earnings:
Net earnings	$	989		$	213
Attributable to participating securities		(16	)		(2	)
Basic and diluted earnings	$	973		$	211
Common shares:
Common shares outstanding - total		663			654
Attributable to participating securities		(7	)		(5	)
Common shares outstanding - basic		656			649
Dilutive effect of potential common shares issuable		2			2
Common shares outstanding - diluted		658			651
Net earnings per share:
Basic	$	1.48		$	0.33
Diluted	$	1.48		$	0.32

16

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

9. Other Comprehensive Earnings (Loss)

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

	Three Months Ended March 31,
	2022			2021
Pension and postretirement benefit plans:
Beginning accumulated pension and postretirement benefits	$	(132	)	$	(127	)
Recognition of net actuarial loss and prior service cost in earnings (1)		1			1
Settlement of pension benefits (2)		—			15
Other (3)		—			7
Accumulated other comprehensive loss, net of tax	$	(131	)	$	(104	)

(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.

(2)The Merger triggered settlement payments to certain plan participants, and the expense associated with this settlement is recognized as a component of restructuring and transaction costs in the accompanying consolidated statements of comprehensive earnings.

(3)Other includes a remeasurement of the pension obligation due to the Merger, which was partially offset by a change in mortality assumption.

10.Supplemental Information to Statements of Cash Flows

	Three Months Ended March 31,
	2022			2021
Changes in assets and liabilities, net:
Accounts receivable	$	(457	)	$	(63	)
Other current assets		64			(10	)
Other long-term assets		66			(10	)
Accounts payable and revenues and royalties payable		247			16
Other current liabilities		8			(33	)
Other long-term liabilities		(71	)		(27	)
Total	$	(143	)	$	(127	)
Supplementary cash flow data:
Interest paid	$	100		$	114
Income taxes refunded	$	(23	)	$	(6	)

11.Accounts Receivable

Components of accounts receivable include the following:

	March 31, 2022			December 31, 2021
Oil, gas and NGL sales	$	1,296		$	984
Joint interest billings		161			158
Marketing and midstream revenues		496			370
Other		56			38
Gross accounts receivable		2,009			1,550
Allowance for doubtful accounts		(7	)		(7	)
Net accounts receivable	$	2,002		$	1,543

17

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

12. Property, Plant and Equipment

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

	March 31, 2022			December 31, 2021
Property and equipment:
Proved	$	38,524		$	38,051
Unproved and properties under development		1,101			1,081
Total oil and gas		39,625			39,132
Less accumulated DD&A		(26,059	)		(25,596	)
Oil and gas property and equipment, net		13,566			13,536
Other property and equipment		2,192			2,139
Less accumulated DD&A		(684	)		(667	)
Other property and equipment, net (1)		1,508			1,472
Property and equipment, net	$	15,074		$	15,008

(1)$119 million and $111 million related to CDM in 2022 and 2021, respectively.

13.Debt and Related Expenses

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

	March 31, 2022			December 31, 2021
8.25% due August 1, 2023	$	242		$	242
5.25% due September 15, 2024		472			472
5.85% due December 15, 2025		485			485
7.50% due September 15, 2027		73			73
5.25% due October 15, 2027		390			390
5.875% due June 15, 2028		325			325
4.50% due January 15, 2030		585			585
7.875% due September 30, 2031		675			675
7.95% due April 15, 2032		366			366
5.60% due July 15, 2041		1,250			1,250
4.75% due May 15, 2042		750			750
5.00% due June 15, 2045		750			750
Net premium (discount) on debentures and notes		137			149
Debt issuance costs		(29	)		(30	)
Total long-term debt	$	6,471		$	6,482

Retirement of Senior Notes

In the first quarter of 2021, Devon redeemed $43 million of the 6.00% senior notes due 2022, $175 million of the 5.875% senior notes due 2028 and $315 million of the 4.50% senior notes due 2030. In the first quarter of 2021, Devon recognized $20 million of gains on early retirement of debt, consisting of $47 million of non-cash premium accelerations, partially offset by $27 million of cash retirement costs. The gain on early retirement is included in net financing costs in the consolidated comprehensive statements of earnings.

Credit Lines

Devon has a $3.0 billion Senior Credit Facility. As of March 31, 2022, Devon had no outstanding borrowings under the Senior Credit Facility and had issued $2 million in outstanding letters of credit under this facility. The 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

18

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

non-cash financial write-downs such as impairments. As of March 31, 2022, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 24.7%.

Net Financing Costs

The following schedule includes the components of net financing costs.

	Three Months Ended March 31,
	2022			2021
Interest based on debt outstanding	$	92		$	105
Gain on early retirement of debt		—			(20	)
Interest income		(1	)		(1	)
Other		(6	)		(7	)
Total net financing costs	$	85		$	77

14. Leases

The following table presents Devon’s right-of-use assets and lease liabilities as of March 31, 2022 and December 31, 2021.

	March 31, 2022						December 31, 2021
	Finance		Operating		Total		Finance		Operating		Total
Right-of-use assets	$	209	$	20	$	229	$	211	$	24	$	235
Lease liabilities:
Current lease liabilities (1)	$	8	$	15	$	23	$	8	$	18	$	26
Long-term lease liabilities		247		4		251		247		5		252
Total lease liabilities	$	255	$	19	$	274	$	255	$	23	$	278

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

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

15.Asset Retirement Obligations

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

	Three Months Ended March 31,
	2022			2021
Asset retirement obligations as of beginning of period	$	485		$	369
Assumed WPX obligations		—			98
Liabilities incurred		8			9
Liabilities settled and divested		(3	)		(17	)
Revision of estimated obligation		(35	)		11
Accretion expense on discounted obligation		7			7
Asset retirement obligations as of end of period		462			477
Less current portion		19			22
Asset retirement obligations, long-term	$	443		$	455

During the first quarter of 2022, Devon reduced its asset retirement obligations by $35 million primarily due to extended retirement dates for oil and gas assets, partially offset by inflation-driven increases to current settlement costs.

19

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

16.Stockholders’ Equity

Share Repurchases

In November 2021, Devon authorized a share repurchase program of $1.0 billion with a December 31, 2022 expiration date. In February 2022, the Board of Directors authorized an expansion of the share repurchase program to $1.6 billion, and in May 2022, authorized a further expansion to $2.0 billion and extended the expiration date to May 4, 2023. The table below provides information regarding purchases of Devon’s common stock under the $2.0 billion share repurchase program (shares in thousands).

	Total Number of Shares Purchased		Dollar Value of Shares Purchased		Average Price Paid per Share
2021:
Fourth quarter		13,983	$	589	$	42.15
2022:
First quarter		3,979	$	230	$	57.74
Total plan		17,962	$	819	$	45.61

Dividends

Upon completion of the Merger, Devon continued its commitment to pay a quarterly dividend at a fixed rate and instituted a variable quarterly dividend, which is dependent on quarterly cash flows, among other factors. Devon raised its fixed quarterly dividend by 45%, to $0.16 per share, beginning in the first quarter of 2022. The following table summarizes Devon’s fixed and variable dividends for the first quarter of 2022 and 2021, respectively.

	Fixed		Variable		Total		Rate Per Share
2022:
First quarter	$	109	$	558	$	667	$	1.00
2021:
First quarter	$	76	$	127	$	203	$	0.30

In May 2022, Devon announced a cash dividend in the amount of $1.27 per share payable in the second quarter of 2022. The dividend consists of a fixed quarterly dividend in the amount of approximately $106 million (or $0.16 per share) and a variable quarterly dividend in the amount of approximately $732 million (or $1.11 per share).

Noncontrolling Interests

The noncontrolling interests’ share of CDM’s net earnings and the contributions from and distributions to the noncontrolling interests are presented as components of equity.

17.Commitments and Contingencies

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

Royalty Matters

Numerous oil and natural gas producers and related parties, including Devon, have been named in various lawsuits alleging royalty underpayments. Devon is currently named as a defendant in a number of such lawsuits, including some lawsuits in which the plaintiffs seek to certify classes of similarly situated plaintiffs. Among the allegations typically asserted in these suits are claims that Devon used below-market prices, made improper deductions, paid royalty proceeds in an untimely manner without including required interest, used improper measurement techniques and entered into gas purchase and processing arrangements with affiliates that resulted in underpayment of royalties in connection with oil, natural gas and NGLs produced and sold. Devon is also involved in governmental agency proceedings and royalty audits and is subject to related contracts and regulatory controls in the ordinary course of business, some that may lead to additional royalty claims. As of March 31, 2022, Devon has accrued approximately $30 million in other current liabilities pertaining to such royalty matters.

20

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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 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 intends to vigorously defend against the proceedings.

Other Indemnifications and Legacy Matters

Pursuant to various sale agreements relating to divested businesses and assets, Devon has indemnified various purchasers against liabilities that they may incur with respect to the businesses and assets acquired from Devon. Additionally, federal, state and other laws in areas of former operations may require previous operators (including corporate successors of previous operators) to perform or make payments in certain circumstances where the current operator may no longer be able to satisfy the applicable obligation. Such obligations may include plugging and abandoning wells, removing production facilities or performing requirements under surface agreements in existence at the time of disposition.

In November 2020, the Department of the Interior, Bureau of Safety and Environmental Enforcement, ordered several oil and gas operators, including Devon, to perform decommissioning and reclamation activities related to two California offshore oil and gas production platforms and related facilities. The current operator and owner of the platforms contends that it does not have the financial ability to perform these obligations and relinquished the related federal lease in October 2020. In response to the apparent insolvency of the current operator, the government has ordered the former operators and alleged former lease record title owners to decommission the platforms and related facilities. The government contends that an alleged corporate predecessor of Devon owned a partial interest in the subject lease and platforms. Although Devon cannot predict the ultimate outcome of this matter, Devon denies any obligation to decommission the subject platforms, has appealed the order, and believes any decommissioning obligation related to the subject platforms should be assumed by others.

21

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

18.Fair Value Measurements

The following table provides carrying value and fair value measurement information for certain of Devon’s financial assets and liabilities. The carrying values of cash, accounts receivable, other current receivables, accounts payable, other current payables, accrued expenses and lease liabilities included in the accompanying consolidated balance sheets approximated fair value at March 31, 2022 and December 31, 2021, 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
March 31, 2022 assets (liabilities):
Cash equivalents	$	2,196		$	2,196		$	2,196	$	—		$	—
Commodity derivatives	$	32		$	32		$	—	$	32		$	—
Commodity derivatives	$	(940	)	$	(940	)	$	—	$	(940	)	$	—
Debt	$	(6,471	)	$	(7,126	)	$	—	$	(7,126	)	$	—
Contingent earnout payments	$	115		$	115		$	—	$	—		$	115
December 31, 2021 assets (liabilities):
Cash equivalents	$	1,421		$	1,421		$	1,421	$	—		$	—
Commodity derivatives	$	8		$	8		$	—	$	8		$	—
Commodity derivatives	$	(577	)	$	(577	)	$	—	$	(577	)	$	—
Debt	$	(6,482	)	$	(7,644	)	$	—	$	(7,644	)	$	—
Contingent earnout payments	$	184		$	184		$	—	$	—		$	184

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 and non-core Rockies asset divestitures 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.

22

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis addresses material changes in our results of operations for the three-month period ended March 31, 2022 compared to previous periods and in our financial condition and liquidity since December 31, 2021. For information regarding our critical accounting policies and estimates, see our 2021 Annual Report on Form 10-K under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Executive Overview

The Merger has helped us become a leading unconventional oil producer in the U.S., with an asset base underpinned by premium acreage in the economic core of the Delaware Basin. This strategic combination accelerated our transition to a cash-return business model, including the implementation of a fixed plus variable dividend strategy. We remain focused on building economic value by executing on our strategic priorities of moderating growth, emphasizing capital efficiencies, maintaining and improving operational and corporate synergies, reducing 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:

•First quarter oil production totaled 288 MBbls/d, exceeding our plan by 1%.

•As of March 31, 2022, have completed approximately 40% of our authorized $2.0 billion share repurchase program, with approximately 4.0 million of our common shares repurchased in the first quarter of 2022 for approximately $230 million, or $57.74 per share.

•Exited the first quarter with $5.6 billion of liquidity, including $2.6 billion of cash, with no debt maturities until the third quarter of 2023.

•Generated $1.8 billion of operating cash flow in the first quarter of 2022.

•Including variable dividends, paid dividends of approximately $667 million in the first quarter of 2022 and have declared $838 million of dividends to be paid in the second quarter of 2022.

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 steep backwardation in commodity prices, supply chain constraints and the economic uncertainty arising from recent geopolitical events.

Commodity prices strengthened throughout 2021 and oil prices continued to increase in the first quarter of 2022, which has significantly improved our earnings and cash flow generation. The increase in commodity prices during 2021 was primarily driven by increased demand resulting from the initial recovery from the COVID-19 pandemic, as well as OPEC+ and other oil and natural gas producers not rapidly increasing production levels. The military conflict between Russia and Ukraine and related economic sanctions imposed on Russia has further exacerbated supply shortages, causing oil prices to increase even more during the first quarter of 2022.

Trends of our quarterly earnings, operating cash flow, EBITDAX and capital expenditures are shown below. “Core earnings” and “EBITDAX” are financial measures not prepared in accordance with GAAP. For a description of these measures, including reconciliations to the comparable GAAP measures, see “Non-GAAP Measures” in this Item 2.

 

23

Our earnings decreased from the fourth quarter of 2021 to the first quarter of 2022 primarily due to non-cash adjustments related to the value of commodity hedges, lower sold volumes resulting from natural declines and winter weather downtime and lower gas prices. Henry Hub decreased 15% from the fourth quarter of 2021 to the first quarter of 2022. These decreases were partially offset by a 23% increase in WTI from the fourth quarter of 2021 to the first quarter of 2022 which contributed to a 16% increase in our unhedged combined realized prices.

Our net earnings in recent quarters have been significantly impacted by non-cash adjustments to the value of our commodity hedges. Net earnings in the first quarter of 2021, the second quarter of 2021 and the first quarter of 2022 each included a hedge valuation loss, net of tax of $0.2 billion, $0.3 billion and $0.3 billion, respectively. Net earnings in the fourth quarter of 2021 included a hedge valuation gain, net of tax of $0.4 billion. Excluding these amounts, our core earnings have been more stable over recent quarters and continue to trend upward while remaining sensitive to volatile commodity prices.

 

Like earnings, our operating cash flow is sensitive to volatile commodity prices. Our cash flow and EBITDAX have continued to trend upward primarily due to improved commodity prices and overall market conditions as well as strong operating performance. However, volumes were down slightly in the first quarter of 2022 primarily due to natural declines across the asset portfolio as well as downtime related to winter weather which negatively impacted earnings.

We exited the first quarter of 2022 with $5.6 billion of liquidity, comprised of $2.6 billion of cash and $3.0 billion of available credit under our Senior Credit Facility. We currently have $6.5 billion of debt outstanding with no maturities until August 2023. We currently have approximately 25% and 35% of our anticipated 2022 oil and gas production hedged, respectively. These contracts consist of collars and swaps based off the WTI oil benchmark and the Henry Hub and NYMEX last day natural gas indices. Additionally, we have entered into regional basis swaps in an effort to protect price realizations across our portfolio.

As commodity prices and our operating performance strengthen and bolster our financial condition, we have authorized opportunistic repurchases of up to $2.0 billion of our common shares with an expiration date of May 4, 2023. We repurchased approximately 4.0 million shares in the first quarter of 2022 for approximately $230 million, or $57.74 per share. As of March 31, 2022, we have repurchased approximately 18 million shares for approximately $819 million, or $45.61 per share, since the inception of the program. Additionally, we continue funding our fixed plus variable dividends, which totaled $667 million in the first quarter of 2022. We recently declared a dividend payable in the second quarter of 2022 for $838 million.

24

Results 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.

Q1 2022 vs. Q4 2021

Our first quarter 2022 net earnings were $995 million, compared to net earnings of $1.5 billion for the fourth quarter of 2021. The graph below shows the change in net earnings from the fourth quarter of 2021 to the first quarter of 2022. The material changes are further discussed by category on the following pages.

 

Production Volumes

	Q1 2022		% of Total			Q4 2021		Change
Oil (MBbls/d)
Delaware Basin		209		73	%		213		-2	%
Anadarko Basin		14		5	%		14		2	%
Williston Basin		32		11	%		36		-12	%
Eagle Ford		17		6	%		19		-11	%
Powder River Basin		12		4	%		14		-9	%
Other		4		1	%		4		-9	%
Total		288		100	%		300		-4	%

	Q1 2022		% of Total			Q4 2021		Change
Gas (MMcf/d)
Delaware Basin		561		62	%		577		-3	%
Anadarko Basin		210		23	%		222		-5	%
Williston Basin		54		6	%		64		-15	%
Eagle Ford		61		7	%		60		3	%
Powder River Basin		19		2	%		19		-3	%
Other		1		0	%		1		-4	%
Total		906		100	%		943		-4	%

	Q1 2022		% of Total			Q4 2021		Change
NGLs (MBbls/d)
Delaware Basin		92		67	%		107		-14	%
Anadarko Basin		25		19	%		27		-4	%
Williston Basin		8		6	%		9		-16	%
Eagle Ford		9		6	%		9		-1	%
Powder River Basin		2		2	%		2		-10	%
Other		—		0	%		—	N/M
Total		136		100	%		154		-12	%

25

	Q1 2022		% of Total			Q4 2021		Change
Combined (MBoe/d)
Delaware Basin		394		69	%		416		-5	%
Anadarko Basin		75		13	%		78		-4	%
Williston Basin		48		8	%		55		-13	%
Eagle Ford		36		6	%		38		-5	%
Powder River Basin		18		3	%		19		-7	%
Other		4		1	%		5		-11	%
Total		575		100	%		611		-6	%

From the fourth quarter of 2021 to the first quarter of 2022, the change in volumes contributed to a $220 million decrease in earnings. The decrease in volumes was primarily due to natural declines across the asset portfolio as well as downtime in the Delaware Basin and Williston Basin related to winter weather.

Realized Prices

	Q1 2022			Realization	Q4 2021			Change
Oil (per Bbl)
WTI index	$	94.45			$	76.91			23	%
Realized price, unhedged	$	92.94		98%	$	75.36			23	%
Cash settlements	$	(11.32	)		$	(13.14	)
Realized price, with hedges	$	81.62		86%	$	62.22			31	%

	Q1 2022			Realization	Q4 2021			Change
Gas (per Mcf)
Henry Hub index	$	4.96			$	5.84			-15	%
Realized price, unhedged	$	3.77		76%	$	4.68			-19	%
Cash settlements	$	(0.62	)		$	(1.42	)
Realized price, with hedges	$	3.15		64%	$	3.26			-3	%

	Q1 2022		Realization	Q4 2021			Change
NGLs (per Bbl)
WTI index	$	94.45		$	76.91			23	%
Realized price, unhedged	$	37.76	40%	$	35.36			7	%
Cash settlements	$	—		$	(0.54	)
Realized price, with hedges	$	37.76	40%	$	34.82			8	%

	Q1 2022			Q4 2021			Change
Combined (per Boe)
Realized price, unhedged	$	61.40		$	53.12			16	%
Cash settlements	$	(6.65	)	$	(8.78	)
Realized price, with hedges	$	54.75		$	44.34			23	%

From the fourth quarter of 2021 to the first quarter of 2022, realized prices contributed to a $410 million increase in earnings. Unhedged realized oil and NGL prices increased primarily due to higher WTI and Mont Belvieu index prices while realized gas prices decreased slightly due to a lower Henry Hub index price. The increase in WTI and Mont Belvieu index prices was partially offset by hedge cash settlements related to oil and gas commodities.

We currently have approximately 25% and 35% of our anticipated 2022 oil and gas production hedged, respectively.

26

Hedge Settlements

	Q1 2022			Q4 2021			Change
	Q
Oil	$	(293	)	$	(362	)		19	%
Natural gas		(51	)		(123	)		59	%
NGL		—			(8	)	N/M
Total cash settlements (1)	$	(344	)	$	(493	)		30	%

(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

	Q1 2022			Q4 2021			Change
LOE	$	224		$	235			-5	%
Gathering, processing & transportation		161			173			-7	%
Production taxes		214			197			9	%
Property taxes		19			—		N/M
Total	$	618		$	605			2	%
Per Boe:
LOE	$	4.33		$	4.18			4	%
Gathering, processing & transportation	$	3.11		$	3.08			1	%
Percent of oil, gas and NGL sales:
Production taxes		6.7	%		6.6	%		2	%

Production expenses remained relatively flat from the fourth quarter of 2021 to the first quarter of 2022. LOE and gathering, processing and transportation expenses decreased primarily due to lower volumes which was offset by an increase in property taxes and production taxes which resulted from higher commodity 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.

	Q1 2022		$ per BOE		Q4 2021		$ per BOE
Field-level cash margin (Non-GAAP)
Delaware Basin	$	1,877	$	52.99	$	1,706	$	44.59
Anadarko Basin		204	$	30.31		212	$	29.65
Williston Basin		207	$	47.65		209	$	40.95
Eagle Ford		158	$	48.92		149	$	42.70
Powder River Basin		86	$	54.32		80	$	45.61
Other		25	$	61.96		24	$	55.14
Total	$	2,557	$	49.45	$	2,380	$	42.37

DD&A

	Q1 2022		Q4 2021		Change
Oil and gas per Boe	$	8.95	$	9.79		-9	%
Oil and gas	$	463	$	550		-16	%
Other property and equipment		26		27		-3	%
Total	$	489	$	577		-15	%

DD&A decreased in the first quarter of 2022 primarily due to lower DD&A rates compared to 2021. The decrease in DD&A rates was primarily due to increases to oil, gas and NGL reserve estimates at December 31, 2021, resulting from higher prices.

27

General and Administrative Expense

	Q1 2022		Q4 2021		Change
G&A per Boe	$	1.82	$	1.70		7	%
Labor and benefits	$	58	$	58		0	%
Non-labor		36		37		-3	%
Total	$	94	$	95		-1	%

The G&A per BOE rate increased in the first quarter of 2022 primarily due to lower volumes resulting from natural declines and winter weather downtime.

Other Items

	Q1 2022			Q4 2021			Change in earnings
Commodity hedge valuation changes (1)	$	(339	)	$	515		$	(854	)
Marketing and midstream operations		(4	)		—			(4	)
Exploration expenses		2			5			3
Asset dispositions		(1	)		(49	)		(48	)
Net financing costs		85			86			1
Restructuring and transaction costs		—			28			28
Other, net		(61	)		(2	)		59
							$	(815	)

(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.

Asset dispositions in the fourth quarter of 2021 includes $49 million related to the re-valuation of contingent earnout payments associated with prior divestitures. For additional information, see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

For discussion on other, net, see Note 6 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Income Taxes

	Q1 2022			Q4 2021
Current expense	$	103		$	1
Deferred expense		164			149
Total expense	$	267		$	150
Effective income tax rate		21	%		9	%

For discussion on income taxes, see Note 7 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

28

Q1 2022 vs. Q1 2021

Our first quarter 2022 net earnings were $995 million, compared to net earnings of $216 million for the first quarter of 2021. The graph below shows the change in net earnings from the first quarter of 2022 to the first quarter of 2021. The material changes are further discussed by category on the following pages.

 

Production Volumes

	Q1 2022		% of Total			Q1 2021		Change
Oil (MBbls/d)
Delaware Basin		209		73	%		172		22	%
Anadarko Basin		14		5	%		13		11	%
Williston Basin		32		11	%		44		-29	%
Eagle Ford		17		6	%		16		8	%
Powder River Basin		12		4	%		17		-27	%
Other		4		1	%		6		-38	%
Total		288		100	%		268		8	%

	Q1 2022		% of Total			Q1 2021		Change
Gas (MMcf/d)
Delaware Basin		561		62	%		471		19	%
Anadarko Basin		210		23	%		200		5	%
Williston Basin		54		6	%		49		10	%
Eagle Ford		61		7	%		47		31	%
Powder River Basin		19		2	%		21		-10	%
Other		1		0	%		3		-60	%
Total		906		100	%		791		15	%

	Q1 2022		% of Total			Q1 2021		Change
NGLs (MBbls/d)
Delaware Basin		92		67	%		60		52	%
Anadarko Basin		25		19	%		21		19	%
Williston Basin		8		6	%		8		0	%
Eagle Ford		9		6	%		6		35	%
Powder River Basin		2		2	%		3		-21	%
Other		—		0	%		1	N/M
Total		136		100	%		99		37	%

	Q1 2022		% of Total			Q1 2021		Change
Combined (MBoe/d)
Delaware Basin		394		69	%		310		27	%
Anadarko Basin		75		13	%		68		11	%
Williston Basin		48		8	%		61		-20	%
Eagle Ford		36		6	%		30		19	%
Powder River Basin		18		3	%		23		-23	%
Other		4		1	%		7		-38	%
Total		575		100	%		499		15	%

29

From the first quarter of 2021 to the first quarter of 2022, the change in volumes contributed to a $212 million increase in earnings. The increase in volumes was primarily due to continued development in the Delaware Basin as well as increased activity in the Anadarko Basin and Eagle Ford. These increases were partially offset by lower volumes in the Williston Basin and Powder River Basin primarily due to natural declines.

Realized Prices

	Q1 2022			Realization	Q1 2021			Change
Oil (per Bbl)
WTI index	$	94.45			$	57.87			63	%
Realized price, unhedged	$	92.94		98%	$	55.28			68	%
Cash settlements	$	(11.32	)		$	(9.13	)
Realized price, with hedges	$	81.62		86%	$	46.15			77	%

	Q1 2022			Realization	Q1 2021			Change
Gas (per Mcf)
Henry Hub index	$	4.96			$	2.71			83	%
Realized price, unhedged	$	3.77		76%	$	2.84			33	%
Cash settlements	$	(0.62	)		$	(0.15	)
Realized price, with hedges	$	3.15		64%	$	2.69			17	%

	Q1 2022		Realization	Q1 2021			Change
NGLs (per Bbl)
WTI index	$	94.45		$	57.87			63	%
Realized price, unhedged	$	37.76	40%	$	25.01			51	%
Cash settlements	$	—		$	(0.20	)
Realized price, with hedges	$	37.76	40%	$	24.81			52	%

	Q1 2022			Q1 2021			Change
Combined (per Boe)
Realized price, unhedged	$	61.40		$	39.14			57	%
Cash settlements	$	(6.65	)	$	(5.17	)
Realized price, with hedges	$	54.75		$	33.97			61	%

From the first quarter of 2021 to the first quarter of 2022, realized prices contributed to a $1.2 billion increase in earnings. Unhedged realized oil, gas and NGL prices increased primarily due to higher WTI, Henry Hub and Mont Belvieu index prices. The increase in index prices was partially offset by hedge cash settlements related to oil and gas commodities.

Hedge Settlements

	Q1 2022			Q1 2021			Change
Oil	$	(293	)	$	(220	)		-33	%
Natural gas		(51	)		(10	)		-410	%
NGL		—			(2	)	N/M
Total cash settlements (1)	$	(344	)	$	(232	)		-48	%

(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.

30

Production Expenses

	Q1 2022			Q1 2021			Change
LOE	$	224		$	199			13	%
Gathering, processing & transportation		161			129			25	%
Production taxes		214			117			83	%
Property taxes		19			13			46	%
Total	$	618		$	458			35	%
Per Boe:
LOE	$	4.33		$	4.44			-3	%
Gathering, processing & transportation	$	3.11		$	2.87			8	%
Percent of oil, gas and NGL sales:
Production taxes		6.7	%		6.6	%		2	%

Production expenses increased primarily due to higher volumes as well as an increase in production taxes resulting from higher commodity 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.

	Q1 2022		$ per BOE		Q1 2021		$ per BOE
Field-level cash margin (Non-GAAP)
Delaware Basin	$	1,877	$	52.99	$	895	$	32.07
Anadarko Basin		204	$	30.31		85	$	14.01
Williston Basin		207	$	47.65		161	$	29.70
Eagle Ford		158	$	48.92		72	$	26.57
Powder River Basin		86	$	54.32		67	$	31.99
Other		25	$	61.96		19	$	28.21
Total	$	2,557	$	49.45	$	1,299	$	28.95

DD&A and Asset Impairments

	Q1 2022		Q1 2021		Change
Oil and gas per Boe	$	8.95	$	9.78		-8	%
Oil and gas	$	463	$	439		5	%
Other property and equipment		26		28		-6	%
Total	$	489	$	467		5	%

DD&A increased primarily due to higher volumes which was partially offset by lower DD&A rates. The decrease in DD&A rates was primarily due to increases to oil, gas and NGL reserve estimates at December 31, 2021, resulting from higher prices.

General and Administrative Expense

	Q1 2022		Q1 2021		Change
G&A per Boe	$	1.82	$	2.40		-24	%
Labor and benefits	$	58	$	72		-19	%
Non-labor		36		35		3	%
Total	$	94	$	107		-12	%

General and administrative expenses decreased primarily due to synergies resulting from the Merger.

31

Other Items

	Q1 2022			Q1 2021			Change in earnings
Commodity hedge valuation changes (1)	$	(339	)	$	(296	)	$	(43	)
Marketing and midstream operations		(4	)		(21	)		17
Exploration expenses		2			3			1
Asset dispositions		(1	)		(32	)		(31	)
Net financing costs		85			77			(8	)
Restructuring and transaction costs		—			189			189
Other, net		(61	)		(29	)		32
							$	157

(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.

Asset dispositions include $35 million in the first quarter of 2021 related to the sale of non-core assets in the Rockies. For additional information, see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Net financing costs include a $20 million gain in the first quarter of 2021 related to debt retirements. For additional information, see Note 13 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Restructuring and transaction costs in the first quarter of 2021 reflect workforce reductions in conjunction with the Merger, as well as various transaction costs related to the Merger. For additional information, see Note 5 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

For discussion on other, net, see Note 6 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Income Taxes

	Q1 2022			Q1 2021
Current expense (benefit)	$	103		$	(5	)
Deferred expense (benefit)		164			(243	)
Total expense (benefit)	$	267		$	(248	)
Effective income tax rate		21	%		763	%

For discussion on income taxes, see Note 7 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

32

Capital Resources, Uses and Liquidity

Sources and Uses of Cash

The following table presents the major changes in cash and cash equivalents for the three months ended March 31, 2022 and 2021.

	Three Months Ended March 31,
	2022			2021
Operating cash flow	$	1,837		$	592
WPX acquired cash		—			344
Divestitures of property and equipment		26			15
Capital expenditures		(537	)		(499	)
Equity method investment activity, net		(14	)		10
Debt activity, net		—			(560	)
Repurchases of common stock		(211	)		—
Common stock dividends		(667	)		(203	)
Noncontrolling interest activity, net		(8	)		(28	)
Other		(72	)		(30	)
Net change in cash, cash equivalents and restricted cash	$	354		$	(359	)
Cash, cash equivalents and restricted cash at end of period	$	2,625		$	1,878

Operating Cash Flow and WPX Acquired Cash

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 more than tripled during the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was primarily due to significantly increased commodity prices as well as higher volumes for the first three months of 2022 compared to 2021.

Divestitures of Property and Equipment

During the first three months of 2022 and 2021, we received contingent consideration related to asset divestitures and sold non-core assets, respectfully. For additional information, please see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

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 March 31,
	2022		2021
Delaware Basin	$	395	$	397
Anadarko Basin		10		9
Williston Basin		23		28
Eagle Ford		26		14
Powder River Basin		33		33
Other		3		—
Total oil and gas		490		481
Midstream		29		5
Other		18		13
Total capital expenditures	$	537	$	499

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 2022 capital expenditures represent approximately 30% of our operating cash flow.

33

Equity Method Investments

During the first three months of 2022 and 2021, Devon received distributions from our equity method investments of $8 million and $10 million, respectively. Devon contributed $22 million to our equity method investments during the first three months of 2022.

Debt Activity

Subsequent to the Merger closing, we redeemed $533 million of senior notes in the first quarter of 2021. We also paid $27 million of cash retirement costs related to these redemptions.

Shareholder Distributions and Stock Activity

We repurchased approximately 4.0 million shares of common stock for $230 million in the first quarter of 2022 under the share repurchase program authorized by our Board of Directors. For additional information, see Note 16 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

The following table summarizes our common stock dividends during the first quarter 2022 and 2021. In February 2022, our Board of Directors increased our fixed dividend rate by 45% to $0.16 per share. In addition to the fixed quarterly dividend, we paid a variable dividend of $0.84 per share in the first quarter of 2022 and $0.19 per share in the first quarter of 2021.

	Fixed		Variable		Total		Rate Per Share
2022:
First quarter	$	109	$	558	$	667	$	1.00
2021:
First quarter	$	76	$	127	$	203	$	0.30

Noncontrolling Interest Activity, net

During the first three months of 2022 and 2021, we distributed $8 million and $4 million, respectively, to our noncontrolling interests in CDM. In the first quarter of 2021, we paid $24 million to purchase the noncontrolling interest portion of a partnership that WPX had formed to acquire minerals in the Delaware Basin.

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 land owners 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 first quarter of 2022, we held approximately $2.6 billion of cash, inclusive of approximately $150 million of cash restricted primarily for retained obligations related to divested assets. 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.

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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 March 31, 2022 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 2022. We will continue to prioritize economic value over growing volumes, which is driven partially by current commodity price backwardation, supply chain constraints and economic uncertainty arising from recent geopolitical events.

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. Furthermore, the COVID-19 pandemic has contributed to disruption and volatility in our supply chain, which has resulted, and may continue to result in labor shortages, increased costs and delays for pipe and other materials needed for our operations.

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, partners and counterparties. Such mechanisms include, under certain conditions, requiring letters of credit, prepayments or cash collateral postings.

Credit Availability

As of March 31, 2022, we had approximately $3.0 billion of available borrowing capacity under our Senior Credit Facility. This credit facility supports our $3.0 billion of short-term credit under our commercial paper program. At March 31, 2022, 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 production growth opportunities. 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 Baa3 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.

Fixed Plus Variable Dividend

We are committed to a “fixed plus variable” dividend strategy. 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 February 2022, our Board of Directors increased our quarterly fixed dividend rate by 45% to $0.16 per share. In addition to the fixed quarterly dividend, we may pay a variable dividend up to 50% of our excess free cash flow, which is a non-GAAP measure. Each quarter’s excess free cash flow is computed as operating cash flow (a GAAP measure) before balance sheet changes, less capital expenditures and the fixed dividend. 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 May 2022, Devon announced a cash dividend in the amount of $1.27 per share payable in the second quarter of 2022. The dividend consists of a fixed quarterly dividend in the amount of approximately $106 million (or $0.16 per share) and a variable quarterly dividend in the amount of approximately $732 million (or $1.11 per share).

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Share Repurchases

In May 2022, our Board of Directors increased our share repurchase program by $0.4 billion to a total authorized amount of $2.0 billion, and extended the expiration date to May 4, 2023. Through April 29, 2022, we had executed $891 million of the authorized program.

Capital Expenditures

Our 2022 exploration and development budget for the remainder of 2022 is expected to range from approximately $1.4 billion to $1.7 billion.

Critical Accounting Estimates

Income Taxes

The amount of income taxes recorded requires interpretations of complex rules and regulations of federal, state, provincial and foreign tax jurisdictions. We recognize current tax expense based on estimated taxable income for the current period and the applicable statutory tax rates. We routinely assess potential uncertain tax positions and, if required, estimate and establish accruals for such amounts. We have recognized deferred tax assets and liabilities for temporary differences, operating losses and other tax carryforwards. We routinely assess our deferred tax assets and reduce such assets by a valuation allowance if we deem it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Further, in the event we were to undergo an “ownership change” (as defined in Section 382 of the Internal Revenue Code of 1986, as amended), our ability to use net operating losses and tax credits generated prior to the ownership change may be limited. Generally, an “ownership change” occurs if one or more shareholders, each of whom owns five percent or more in value of a corporation’s stock, increase their aggregate percentage ownership by more than 50 percent over the lowest percentage of stock owned by those shareholders at any time during the preceding three-year period. Based on currently available information, we do not believe an ownership change has occurred during 2022 for Devon, but the Merger did cause an ownership change for WPX and increased the likelihood Devon could experience an ownership change over the next two years.

For additional information regarding our critical accounting policies and estimates, see our 2021 Annual Report on Form 10-K.

Non-GAAP Measures

We make reference to “core earnings attributable to Devon” and “core earnings per share attributable to Devon” in “Executive Overview” in this Item 2 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, non-cash asset impairments (including non-cash unproved asset impairments), deferred tax asset valuation allowance, fair value changes in derivative financial instruments and foreign currency, costs associated with early retirement of debt and restructuring and transaction costs associated with the workforce reductions described further in Note 5.

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.

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

	Three Months Ended March 31,
	Before Tax			After Tax			After Noncontrolling Interests			Per Diluted Share
2022
Earnings attributable to Devon (GAAP)	$	1,262		$	995		$	989		$	1.48
Adjustments:
Asset dispositions		(1	)		—			—			—
Deferred tax asset valuation allowance		—			6			6			0.01
Fair value changes in financial instruments		338			260			260			0.39
Core earnings attributable to Devon (Non-GAAP)	$	1,599		$	1,261		$	1,255		$	1.88
2021
Earnings (loss) attributable to Devon (GAAP)	$	(32	)	$	216		$	213		$	0.32
Adjustments:
Asset dispositions		(32	)		(24	)		(24	)		(0.04	)
Asset and exploration impairments		1			—			—			—
Deferred tax asset valuation allowance		—			(263	)		(263	)		(0.40	)
Fair value changes in financial instruments and foreign currency		294			225			225			0.34
Restructuring and transaction costs		189			162			162			0.25
Early retirement of debt		(20	)		(15	)		(15	)		(0.02	)
Core earnings attributable to Devon (Non-GAAP)	$	400		$	301		$	298		$	0.45

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.

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

	Three Months Ended March 31,
	2022			2021
Net earnings (GAAP)	$	995		$	216
Financing costs, net		85			77
Income tax expense (benefit)		267			(248	)
Exploration expenses		2			3
Depreciation, depletion and amortization		489			467
Asset dispositions		(1	)		(32	)
Share-based compensation		20			20
Derivative and financial instrument non-cash valuation changes		339			296
Restructuring and transaction costs		—			189
Accretion on discounted liabilities and other		(61	)		(29	)
EBITDAX (Non-GAAP)		2,135			959
Marketing and midstream revenues and expenses, net		4			21
Commodity derivative cash settlements		344			232
General and administrative expenses, cash-based		74			87
Field-level cash margin (Non-GAAP)	$	2,557		$	1,299

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Commodity Price Risk

As of March 31, 2022, we have commodity derivatives that pertain to a portion of our estimated production for the last nine months of 2022, as well as for 2023 and 2024. The key terms to our open oil, gas and NGL derivative financial instruments are presented in Note 3 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

The fair values of our commodity derivatives are largely determined by the forward curves of the relevant price indices. At March 31, 2022, a 10% change in the forward curves associated with our commodity derivative instruments would have changed our net positions by approximately $225 million.

Interest Rate Risk

As of March 31, 2022, we had total debt of $6.5 billion. All of our debt is based on fixed interest rates averaging 5.8%.

Foreign Currency Risk

We had no material foreign currency risk at March 31, 2022.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to Devon, including its consolidated subsidiaries, is made known to the officers who certify Devon’s financial reports and to other members of senior management and the Board of Directors.

Based on their evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of March 31, 2022 to ensure that the information required to be disclosed by Devon in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. Other Information

Item 1. Legal Proceedings

We are involved in various legal proceedings incidental to our business. However, to our knowledge as of the date of this report and subject to the environmental matters noted in Part I, Item 3. Legal Proceedings of our 2021 Annual Report on Form 10-K, there were no material pending legal proceedings to which we are a party or to which any of our property is subject.

Please see our 2021 Annual Report on Form 10-K and other SEC filings for additional information.

Item 1A. Risk Factors

There have been no material changes to the information included in Item 1A. “Risk Factors” in our 2021 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information regarding purchases of our common stock that were made by us during the first quarter of 2022 (shares in thousands).

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs (2)		Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
January 1 - January 31		10	$	48.58		—	$	411
February 1 - February 28		1,872	$	52.34		888	$	964
March 1 - March 31		3,494	$	59.25		3,091	$	781
Total		5,376	$	56.82		3,979

(1)In addition to shares purchased under the share repurchase program described below, these amounts also include approximately 1.4 million shares received by us from employees for the payment of personal income tax withholdings on vesting transactions.

(2)On November 2, 2021, we announced a $1.0 billion share repurchase program with an expiration date of December 31, 2022. In February 2022, we announced the expansion of this program to $1.6 billion, and in May 2022, we announced a further expansion to $2.0 billion and extended the expiration date to May 4, 2023. In the first quarter of 2022, we repurchased 4.0 million common shares for $230 million, or $57.74 per share, under this share repurchase program. For additional information, see Note 16 in “Part I. Financial Information – Item 1. Financial Statements” in this report

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

Exhibit Number		Description
10.1*	2022 Form of Notice of Grant of Restricted Stock Award and Award Agreement under the 2017 Long-Term Incentive Plan between Devon Energy Corporation and certain officers for restricted stock awarded.
10.2*	2022 Form of Notice of Grant of Performance Share Unit Award and Award Agreement under the 2017 Long-Term Incentive Plan between Devon Energy Corporation and certain officers for performance based restricted share units awarded.
10.3*	Employment Agreement, dated March 2, 2022, by and between Devon Energy Corporation and Ms. Tana K. Cashion (incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed March 7, 2022; File No. 001-32318).
31.1	Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document – the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document.
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*	Indicates management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DEVON ENERGY CORPORATION
Date: May 3, 2022	/s/ Jeremy D. Humphers
	Jeremy D. Humphers
	Senior Vice President and Chief Accounting Officer

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