Derivative Financial Instruments

6 Months Ended

Jun. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 June 30, 2022, Devon did not have any open interest rate swap contracts.

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

Counterparty Credit Risk

By using derivative financial instruments, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon’s policy to enter into derivative contracts only with investment-grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon’s derivative contracts generally contain provisions that provide for collateral payments if Devon’s or its counterparty’s credit rating falls below certain credit rating levels. As of June 30, 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 June 30, 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)
Q3-Q4 2022		35,000	$	44.61		36,500	$	57.96	$	78.08
Q1-Q4 2023		—	$	—		6,193	$	61.32	$	97.65


	Oil Basis Swaps
Period	Index	Volume (Bbls/d)		Weighted Average Differential to WTI ($/Bbl)
Q3-Q4 2022	BRENT		1,000	$	(7.75	)
Q3-Q4 2022	NYMEX Roll		29,000	$	0.45
Q1-Q4 2023	Midland Sweet		12,296	$	0.52

As of June 30, 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)
Q3-Q4 2022		117,500	$	3.08		193,000	$	3.05	$	4.55
Q1-Q4 2023		8,658	$	5.24		96,436	$	3.55	$	7.63

(1)

Related to the 2022 open positions, 17,500 MMBtu/d settle against the Inside FERC first of month Henry Hub index at an average price of $5.25 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.


	Natural Gas Basis Swaps
Period	Index	Volume (MMBtu/d)		Weighted Average Differential to Henry Hub ($/MMBtu)
Q3-Q4 2022	El Paso Natural Gas		50,000	$	(0.85	)
Q3-Q4 2022	Houston Ship Channel		40,000	$	(0.15	)
Q3-Q4 2022	WAHA		70,000	$	(0.57	)
Q1-Q4 2023	El Paso Natural Gas		125,000	$	(1.59	)
Q1-Q4 2023	Houston Ship Channel		50,000	$	(0.13	)
Q1-Q4 2023	WAHA		70,000	$	(0.51	)
Q1-Q4 2024	WAHA		40,000	$	(0.51	)

As of June 30, 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 June 30, 2022 and December 31, 2021.


	June 30, 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	$	37		$	(26	)	$	11		$	6		$	(4	)	$	2		Other current assets
Long-term derivative asset		31			(1	)		30			6			—			6		Other long-term assets
Short-term derivative liability		(672	)		26			(646	)		(579	)		4			(575	)	Other current liabilities
Long-term derivative liability		(2	)		1			(1	)		(2	)		—			(2	)	Other long-term liabilities
Total derivative liability	$	(606	)	$	—		$	(606	)	$	(569	)	$	—		$	(569	)