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 June 30, 2023

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 July 19, 2023, 640.7 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 Balance Sheets	7
	Consolidated Statements of Cash Flows	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	14
	Note 6 – Other, Net	15
	Note 7 – Income Taxes	15
	Note 8 – Net Earnings Per Share	16
	Note 9 – Other Comprehensive Earnings (Loss)	16
	Note 10 – Supplemental Information to Statements of Cash Flows	17
	Note 11 – Accounts Receivable	17
	Note 12 – Property, Plant and Equipment	17
	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	24
	Capital Resources, Uses and Liquidity	32
	Critical Accounting Estimates	35
	Non-GAAP Measures	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37
Part II. Other Information
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
Signatures		40

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:

“2022 Plan” means the Devon Energy Corporation 2022 Long-Term Incentive Plan.

“AFSI” means adjusted financial statement income.

“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.

“CAMT” means corporate alternative minimum tax.

“Catalyst” means Catalyst Midstream Partners, LLC.

“CDM” means Cotton Draw Midstream, L.L.C.

“DD&A” means depreciation, depletion and amortization expenses.

“EPA” means the United States Environmental Protection Agency.

“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.

“IRA” refers to the Inflation Reduction Act of 2022.

“LOE” means lease operating expenses.

“Matterhorn” refers to Matterhorn Express Pipeline, LLC and, as applicable, its direct parent, MXP Parent, LLC.

“MBbls” means thousand barrels.

“MBoe” means thousand Boe.

“Mcf” means thousand cubic feet.

“Merger” means the merger of East Merger Sub, Inc., a wholly-owned subsidiary of the Company (“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 that certain Agreement and Plan of Merger, dated September 26, 2020, by and among the Company, Merger Sub and WPX.

“MMBoe” means million Boe.

“MMBtu” means million Btu.

3

“MMcf” means million cubic feet.

“N/M” means not meaningful.

“NCI” means noncontrolling interests.

“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.

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

“2023 Senior Credit Facility” means Devon’s syndicated unsecured revolving line of credit, effective as of March 24, 2023.

“TSR” means total shareholder return.

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

“VIE” means variable interest entity.

“Water JV” means NDB Midstream L.L.C.

“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;

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

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

•the uncertainties, costs and risks involved in our operations;

•risks related to our hedging activities;

•our limited control over third parties who operate some of our oil and gas properties;

•midstream capacity constraints and potential interruptions in production, including from limits to the build out of midstream infrastructure;

•competition for assets, materials, people and capital;

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

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

•governmental interventions in energy markets;

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

•counterparty credit risks;

•risks relating to our indebtedness;

•cyberattack risks;

•the extent to which insurance covers any losses we may experience;

•risks related to stockholder activism;

•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 2022 Annual Report on Form 10-K and our other filings with the SEC.

The forward-looking statements included in this filing speak only as of the date of this report, represent management’s current reasonable expectations as of the date of this filing and are subject to the risks and uncertainties identified above as well as those described elsewhere in this report and in other documents we file from time to time with the SEC. We cannot guarantee the accuracy of our forward-looking statements, and readers are urged to carefully review and consider the various disclosures made in this report and in other documents we file from time to time 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 do not undertake, and expressly disclaim, any 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 June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(Unaudited)
Oil, gas and NGL sales	$	2,493		$	4,100		$	5,172		$	7,275
Oil, gas and NGL derivatives		(76	)		(170	)		(12	)		(853	)
Marketing and midstream revenues		1,037			1,696			2,117			3,016
Total revenues		3,454			5,626			7,277			9,438
Production expenses		719			729			1,412			1,347
Exploration expenses		10			10			13			12
Marketing and midstream expenses		1,051			1,700			2,156			3,024
Depreciation, depletion and amortization		638			528			1,253			1,017
Asset dispositions		(41	)		(14	)		(41	)		(15	)
General and administrative expenses		92			84			198			178
Financing costs, net		78			84			150			169
Other, net		10			10			15			(51	)
Total expenses		2,557			3,131			5,156			5,681
Earnings before income taxes		897			2,495			2,121			3,757
Income tax expense		199			557			420			824
Net earnings		698			1,938			1,701			2,933
Net earnings attributable to noncontrolling interests		8			6			16			12
Net earnings attributable to Devon	$	690		$	1,932		$	1,685		$	2,921
Net earnings per share:
Basic net earnings per share	$	1.08		$	2.94		$	2.61		$	4.42
Diluted net earnings per share	$	1.07		$	2.93		$	2.60		$	4.40
Comprehensive earnings:
Net earnings	$	698		$	1,938		$	1,701		$	2,933
Other comprehensive earnings, net of tax:
Pension and postretirement plans		1			1			2			2
Other comprehensive earnings, net of tax		1			1			2			2
Comprehensive earnings:	$	699		$	1,939		$	1,703		$	2,935
Comprehensive earnings attributable to noncontrolling interests		8			6			16			12
Comprehensive earnings attributable to Devon	$	691		$	1,933		$	1,687		$	2,923

See accompanying notes to consolidated financial statements

6

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30, 2023			December 31, 2022
	(Unaudited)
ASSETS
Current assets:
Cash, cash equivalents and restricted cash	$	488		$	1,454
Accounts receivable		1,519			1,767
Inventory		201			201
Other current assets		397			469
Total current assets		2,605			3,891
Oil and gas property and equipment, based on successful efforts accounting, net		17,317			16,567
Other property and equipment, net ($117 million and $109 million related to CDM in    2023 and 2022, respectively)		1,446			1,539
Total property and equipment, net		18,763			18,106
Goodwill		753			753
Right-of-use assets		266			224
Investments		675			440
Other long-term assets		293			307
Total assets	$	23,355		$	23,721
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	843		$	859
Revenues and royalties payable		1,199			1,506
Short-term debt		244			251
Other current liabilities		383			489
Total current liabilities		2,669			3,105
Long-term debt		6,169			6,189
Lease liabilities		299			257
Asset retirement obligations		548			511
Other long-term liabilities		858			900
Deferred income taxes		1,662			1,463
Stockholders' equity:
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued    641 million and 653 million shares in 2023 and 2022, respectively		64			65
Additional paid-in capital		6,131			6,921
Retained earnings		4,940			4,297
Accumulated other comprehensive loss		(114	)		(116	)
Total stockholders’ equity attributable to Devon		11,021			11,167
Noncontrolling interests		129			129
Total equity		11,150			11,296
Total liabilities and equity	$	23,355		$	23,721

See accompanying notes to consolidated financial statements

7

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(Unaudited)
Cash flows from operating activities:
Net earnings	$	698		$	1,938		$	1,701		$	2,933
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation, depletion and amortization		638			528			1,253			1,017
Leasehold impairments		3			7			3			8
Amortization of liabilities		(8	)		(9	)		(15	)		(15	)
Total losses on commodity derivatives		76			170			12			853
Cash settlements on commodity derivatives		37			(472	)		50			(816	)
Gains on asset dispositions		(41	)		(14	)		(41	)		(15	)
Deferred income tax expense		119			305			199			469
Share-based compensation		25			23			48			43
Other		(2	)		4			—			(17	)
Changes in assets and liabilities, net		(140	)		198			(128	)		55
Net cash from operating activities		1,405			2,678			3,082			4,515
Cash flows from investing activities:
Capital expenditures		(1,079	)		(573	)		(2,091	)		(1,110	)
Acquisitions of property and equipment		(18	)		(100	)		(31	)		(101	)
Divestitures of property and equipment		1			9			22			35
Distributions from investments		9			15			17			23
Contributions to investments and other		(15	)		(21	)		(52	)		(43	)
Net cash from investing activities		(1,102	)		(670	)		(2,135	)		(1,196	)
Cash flows from financing activities:
Repurchases of common stock		(228	)		(324	)		(745	)		(535	)
Dividends paid on common stock		(462	)		(830	)		(1,058	)		(1,497	)
Contributions from noncontrolling interests		8			—			8			—
Distributions to noncontrolling interests		(13	)		(5	)		(24	)		(13	)
Shares exchanged for tax withholdings and other		(9	)		(12	)		(96	)		(85	)
Net cash from financing activities		(704	)		(1,171	)		(1,915	)		(2,130	)
Effect of exchange rate changes on cash		2			(5	)		2			(3	)
Net change in cash, cash equivalents and restricted cash		(399	)		832			(966	)		1,186
Cash, cash equivalents and restricted cash at beginning of period		887			2,625			1,454			2,271
Cash, cash equivalents and restricted cash at end of period	$	488		$	3,457		$	488		$	3,457
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	372		$	3,300		$	372		$	3,300
Restricted cash		116			157			116			157
Total cash, cash equivalents and restricted cash	$	488		$	3,457