10-Q 1 dvn-20240331.htm 10-Q 10-Q
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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, 2024

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 001-32318

 

img131115314_0.jpg 

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 18, 2024, 632.0 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 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

12

 

 

Note 4 – Share-Based Compensation

14

 

 

Note 5 – Income Taxes

15

 

 

Note 6 – Net Earnings Per Share

15

 

 

Note 7 – Other Comprehensive Earnings (Loss)

15

 

 

Note 8 – Supplemental Information to Statements of Cash Flows

16

 

 

Note 9 – Accounts Receivable

16

 

 

Note 10 – Property, Plant and Equipment

16

 

 

Note 11 – Debt and Related Expenses

17

 

 

Note 12 – Leases

18

 

 

Note 13 – Asset Retirement Obligations

18

 

 

Note 14 – Stockholders’ Equity

19

 

 

Note 15 – Commitments and Contingencies

19

 

 

Note 16 – Fair Value Measurements

21

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

Executive Overview

22

 

 

Results of Operations

23

 

 

Capital Resources, Uses and Liquidity

30

 

 

Critical Accounting Estimates

33

 

 

Non-GAAP Measures

33

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

 

Controls and Procedures

34

 

 

 

 

Part II. Other Information

 

Item 1.

 

Legal Proceedings

35

Item 1A.

 

Risk Factors

35

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3.

 

Defaults Upon Senior Securities

35

Item 4.

 

Mine Safety Disclosures

35

Item 5.

 

Other Information

35

Item 6.

 

Exhibits

36

 

 

 

 

Signatures

 

 

37

 

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:

“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.

“ASU” means Accounting Standards Update.

“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.

“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.

"FASB" means Financial Accounting Standards Board.

“Fervo” means Fervo Energy Company.

“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.

“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.

"MMBoe" means million Boe.

“MMBtu” means million Btu.

“MMcf” means million cubic feet.

“N/M” means not meaningful.

3


“NCI” means noncontrolling interests.

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

“NYMEX” means New York Mercantile Exchange.

“SEC” means United States Securities and Exchange Commission.

“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.

“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;
climate change and risks related to regulatory, social and market efforts to address climate change;
governmental interventions in energy markets;
counterparty credit risks;
risks relating to our indebtedness;
cybersecurity risks;
risks relating to global pandemics;
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 2023 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 March 31,

 

 

 

 

2024

 

 

2023

 

 

 

 

(Unaudited)

 

 

Oil, gas and NGL sales

 

$

2,629

 

 

$

2,679

 

 

Oil, gas and NGL derivatives

 

 

(145

)

 

 

64

 

 

Marketing and midstream revenues

 

 

1,112

 

 

 

1,080

 

 

Total revenues

 

 

3,596

 

 

 

3,823

 

 

Production expenses

 

 

751

 

 

 

693

 

 

Exploration expenses

 

 

9

 

 

 

3

 

 

Marketing and midstream expenses

 

 

1,133

 

 

 

1,105

 

 

Depreciation, depletion and amortization

 

 

722

 

 

 

615

 

 

Asset dispositions

 

 

1

 

 

 

 

 

General and administrative expenses

 

 

114

 

 

 

106

 

 

Financing costs, net

 

 

76

 

 

 

72

 

 

Other, net

 

 

22

 

 

 

5

 

 

Total expenses

 

 

2,828

 

 

 

2,599

 

 

Earnings before income taxes

 

 

768

 

 

 

1,224

 

 

Income tax expense

 

 

159

 

 

 

221

 

 

Net earnings

 

 

609

 

 

 

1,003

 

 

Net earnings attributable to noncontrolling interests

 

 

13

 

 

 

8

 

 

Net earnings attributable to Devon

 

$

596

 

 

$

995

 

 

Net earnings per share:

 

 

 

 

 

 

 

Basic net earnings per share

 

$

0.95

 

 

$

1.53

 

 

Diluted net earnings per share

 

$

0.94

 

 

$

1.53

 

 

Comprehensive earnings:

 

 

 

 

 

 

 

Net earnings

 

$

609

 

 

$

1,003

 

 

Other comprehensive earnings, net of tax:

 

 

 

 

 

 

 

Pension and postretirement plans

 

 

1

 

 

 

1

 

 

Other comprehensive earnings, net of tax

 

 

1

 

 

 

1

 

 

Comprehensive earnings:

 

 

610

 

 

 

1,004

 

 

Comprehensive earnings attributable to noncontrolling interests

 

 

13

 

 

 

8

 

 

Comprehensive earnings attributable to Devon

 

$

597

 

 

$

996

 

 

 

See accompanying notes to consolidated financial statements.

6


DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash, cash equivalents and restricted cash

 

$

1,149

 

 

$

875

 

Accounts receivable

 

 

1,670

 

 

 

1,573

 

Inventory

 

 

234

 

 

 

249

 

Other current assets

 

 

345

 

 

 

460

 

Total current assets

 

 

3,398

 

 

 

3,157

 

Oil and gas property and equipment, based on successful efforts accounting, net

 

 

18,033

 

 

 

17,825

 

Other property and equipment, net ($154 million and $136 million related to CDM in
   2024 and 2023, respectively)

 

 

1,551

 

 

 

1,503

 

Total property and equipment, net

 

 

19,584

 

 

 

19,328

 

Goodwill

 

 

753

 

 

 

753

 

Right-of-use assets

 

 

276

 

 

 

267

 

Investments

 

 

713

 

 

 

666

 

Other long-term assets

 

 

254

 

 

 

319

 

Total assets

 

$

24,978

 

 

$

24,490

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

879

 

 

$

760

 

Revenues and royalties payable

 

 

1,268

 

 

 

1,222

 

Short-term debt

 

 

479

 

 

 

483

 

Income taxes payable

 

 

189

 

 

 

67

 

Other current liabilities

 

 

451

 

 

 

417

 

Total current liabilities

 

 

3,266

 

 

 

2,949

 

Long-term debt

 

 

5,668

 

 

 

5,672

 

Lease liabilities

 

 

301

 

 

 

295

 

Asset retirement obligations

 

 

683

 

 

 

643

 

Other long-term liabilities

 

 

841

 

 

 

876

 

Deferred income taxes

 

 

1,878

 

 

 

1,838

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.10 par value. Authorized 1.0 billion shares; issued
   
633 million and 636 million shares in 2024 and 2023, respectively

 

 

63

 

 

 

64

 

Additional paid-in capital

 

 

5,718

 

 

 

5,939

 

Retained earnings

 

 

6,509

 

 

 

6,195

 

Accumulated other comprehensive loss

 

 

(123

)

 

 

(124

)

Treasury stock, at cost, 0.3 million shares in 2023

 

 

 

 

 

(13

)

Total stockholders’ equity attributable to Devon

 

 

12,167

 

 

 

12,061

 

Noncontrolling interests

 

 

174

 

 

 

156

 

Total equity

 

 

12,341

 

 

 

12,217

 

Total liabilities and equity

 

$

24,978

 

 

$

24,490

 

 

See accompanying notes to consolidated financial statements.

7


DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

(Unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings

 

$

609

 

 

$

1,003

 

Adjustments to reconcile net earnings to net cash from operating activities:

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

722

 

 

 

615

 

Amortization of liabilities

 

 

 

 

 

(7

)

Total (gains) losses on commodity derivatives

 

 

145

 

 

 

(64

)

Cash settlements on commodity derivatives

 

 

24

 

 

 

13

 

Gains on asset dispositions

 

 

1

 

 

 

 

Deferred income tax expense

 

 

40

 

 

 

80

 

Share-based compensation

 

 

24

 

 

 

23

 

Other

 

 

3

 

 

 

2

 

Changes in assets and liabilities, net

 

 

170

 

 

 

12

 

Net cash from operating activities

 

 

1,738

 

 

 

1,677

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(894

)

 

 

(1,012

)

Acquisitions of property and equipment

 

 

(8

)

 

 

(13

)

Divestitures of property and equipment

 

 

17

 

 

 

21

 

Distributions from investments

 

 

11

 

 

 

8

 

Contributions to investments and other

 

 

(47

)

 

 

(37

)

Net cash from investing activities

 

 

(921

)

 

 

(1,033

)

Cash flows from financing activities:

 

 

 

 

 

 

Repurchases of common stock

 

 

(205

)

 

 

(517

)

Dividends paid on common stock

 

 

(299

)

 

 

(596

)

Contributions from noncontrolling interests

 

 

12

 

 

 

 

Distributions to noncontrolling interests

 

 

(7

)

 

 

(11

)

Shares exchanged for tax withholdings and other

 

 

(42

)

 

 

(87

)

Net cash from financing activities

 

 

(541

)

 

 

(1,211

)

Effect of exchange rate changes on cash

 

 

(2

)

 

 

 

Net change in cash, cash equivalents and restricted cash

 

 

274

 

 

 

(567

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

875

 

 

 

1,454

 

Cash, cash equivalents and restricted cash at end of period

 

$

1,149

 

 

$

887

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,126

 

 

$

761

 

Restricted cash

 

 

23

 

 

 

126

 

Total cash, cash equivalents and restricted cash

 

$

1,149

 

 

$

887

 

 

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, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2023

 

 

636

 

 

$

64

 

 

$

5,939

 

 

$

6,195

 

 

$

(124

)

 

$

(13

)

 

$

156

 

 

$

12,217

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

596

 

 

 

 

 

 

 

 

 

13

 

 

 

609

 

Other comprehensive earnings, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Restricted stock grants, net of cancellations

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock repurchased

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

(232

)

 

 

 

 

 

(233

)

Common stock retired

 

 

(6

)

 

 

(1

)

 

 

(244

)

 

 

 

 

 

 

 

 

245

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(282

)

 

 

 

 

 

 

 

 

 

 

 

(282

)

Share-based compensation

 

 

1

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

12

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

(7

)

Balance as of March 31, 2024

 

 

633

 

 

$

63

 

 

$

5,718

 

 

$

6,509

 

 

$

(123

)

 

$

 

 

$

174

 

 

$

12,341

 

Three Months Ended March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2022

 

 

653

 

 

$

65

 

 

$

6,921

 

 

$

4,297

 

 

$

(116

)

 

$

 

 

$

129

 

 

$

11,296

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

995

 

 

 

 

 

 

 

 

 

8

 

 

 

1,003

 

Other comprehensive earnings, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Restricted stock grants, net of cancellations

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock repurchased

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

(625

)

 

 

 

 

 

(629

)

Common stock retired

 

 

(11

)

 

 

(1

)

 

 

(596

)

 

 

 

 

 

 

 

 

597

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(580

)

 

 

 

 

 

 

 

 

 

 

 

(580

)

Share-based compensation

 

 

1

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11

)

 

 

(11

)

Balance as of March 31, 2023

 

 

645

 

 

$

64

 

 

$

6,344

 

 

$

4,712

 

 

$

(115

)

 

$

(28

)

 

$

126

 

 

$

11,103

 

 

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 2023 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, 2024 and 2023 and Devon’s financial position as of March 31, 2024.

 

Variable Interest Entity

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

The following table presents Devon's investments.

 

 

 

 

 

Carrying Amount

 

Investments

 

% Interest

 

March 31, 2024

 

 

December 31, 2023

 

Catalyst

 

50%

 

$

300

 

 

$

311

 

Water JV

 

30%

 

 

217

 

 

 

216

 

Matterhorn

 

12.5%

 

 

90

 

 

 

90

 

Fervo

 

12%

 

 

57

 

 

 

 

Other

 

Various

 

 

49

 

 

 

49

 

      Total

 

 

 

$

713

 

 

$

666

 

 

Devon has an interest in Catalyst, which is a joint venture with 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. 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.

In the second quarter of 2023, Devon made an investment in the Water JV, a joint venture entity formed with an affiliate of WaterBridge NDB LLC (“WaterBridge”), for the purpose of providing increased capacity and flexibility in disposing of produced water in the Delaware Basin and Eagle Ford. Under terms of the arrangement, Devon contributed water infrastructure assets and committed to a water gathering and disposal dedication to the Water JV through 2038, in exchange for a 30% voting interest in the joint venture legal entity. WaterBridge contributed water infrastructure assets to the Water JV, in exchange for a 70% voting interest in the joint venture legal entity and will serve as the operator. In the second quarter of 2023, Devon recognized a $64 million gain in asset dispositions in the consolidated statements of comprehensive earnings, which represented the excess of the estimated fair value of Devon's interest in the Water JV over the carrying value of the water infrastructure assets Devon contributed to the Water JV. Devon accounts for the investment in the Water JV as an equity method investment. Devon's investment in the Water JV is shown within investments on the consolidated balance sheets and Devon's share of the Water JV earnings are reflected as a component of other, net in the accompanying consolidated statements of comprehensive earnings.

10


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

Matterhorn is a joint venture entity and was formed for the purpose of constructing a natural gas pipeline that will transport natural gas from the Permian Basin to the Katy, Texas area. Devon's investment in Matterhorn does not give it the ability to exercise significant influence over Matterhorn.

 

In the first quarter of 2024, Devon committed to invest approximately $100 million in Fervo, a company that generates energy from geothermal wells. As of March 31, 2024, Devon has funded approximately $55 million of the commitment and expects to fund the remaining $45 million commitment throughout 2024. The investment in Fervo allows Devon to exercise significant influence over Fervo, and the investment is accounted for under the equity method of accounting. Devon's investment in Fervo is shown within investments on the consolidated balance sheets and Devon's share of Fervo earnings are reflected as a component of other, net in the accompanying consolidated statements of comprehensive earnings.

 

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,

 

 

 

2024

 

 

2023

 

Oil

 

$

2,189

 

 

$

2,143

 

Gas

 

 

128

 

 

 

213

 

NGL

 

 

312

 

 

 

323

 

Oil, gas and NGL sales

 

 

2,629

 

 

 

2,679

 

 

 

 

 

 

 

 

Oil

 

 

807

 

 

 

730

 

Gas

 

 

121

 

 

 

152

 

NGL

 

 

184

 

 

 

198

 

Marketing and midstream revenues

 

 

1,112

 

 

 

1,080

 

Total revenues from contracts with customers

 

$

3,741

 

 

$

3,759

 

 

Recently Issued Accounting Standards Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. ASU 2023-09 intends to provide investors with enhanced information about an entity’s income taxes by requiring disclosure of items such as disaggregation of the effective tax rate reconciliation as well as information regarding income taxes paid. This ASU is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued. Devon is evaluating the impact this ASU will have on the disclosures that accompany its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segments Disclosures. Under this ASU, the scope and frequency of segment disclosures is increased to provide investors with additional detail about information utilized by an entity’s “Chief Operating Decision Maker.” This ASU is effective for Devon beginning with our 2024 annual reporting and interim periods beginning in 2025. Devon is evaluating the impact this ASU will have on the disclosures that accompany its consolidated financial statements.

2. Acquisitions and Divestitures

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 $20 million in contingent earnout payments related to this transaction in the first quarter of 2024 and $65 million in the first quarter of 2023. Devon could also receive up to an additional $65 million in contingent earnout payments for the remaining performance period depending on future commodity prices. The valuation of the future contingent earnout payment included within other current assets in the March 31, 2024 consolidated balance sheet was approximately $35 million. This value was derived utilizing a Monte Carlo valuation model and qualifies as a level 3 fair value measurement.

Devon also received $4 million in contingent earnout payments in the first quarter of 2023 related to the sale of non-core assets in the Rockies.

11


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

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 and costless price collars.

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, 2024, Devon neither held cash collateral of its counterparties nor posted cash collateral to its counterparties.

Commodity Derivatives

As of March 31, 2024, 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 2024

 

 

27,451

 

 

$

78.98

 

 

 

71,691

 

 

$

66.95

 

 

$

84.59

 

 

Q1-Q4 2025

 

 

3,468

 

 

$

72.75

 

 

 

992

 

 

$

70.00

 

 

$

77.40

 

 

 

 

 

Oil Basis Swaps

 

Period

 

Index

 

Volume
(Bbls/d)

 

 

Weighted Average
Differential to WTI
($/Bbl)

 

Q2-Q4 2024

 

Midland Sweet

 

 

67,184

 

 

$

1.17

 

Q2-Q4 2024

 

NYMEX Roll

 

 

26,000

 

 

$

0.82

 

Q1-Q4 2025

 

Midland Sweet

 

 

63,000

 

 

$

1.00

 

Q1-Q4 2026

 

Midland Sweet

 

 

7,000

 

 

$

1.14

 

As of March 31, 2024, 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. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.

 

 

 

Price Swaps

 

 

Price Collars

 

Period

 

Volume (MMBtu/d)

 

 

Weighted Average Price ($/MMBtu)

 

 

Volume (MMBtu/d)

 

 

Weighted Average Floor Price ($/MMBtu)

 

 

Weighted Average
Ceiling Price ($/MMBtu)

 

Q2-Q4 2024

 

 

244,935

 

 

$

3.20

 

 

 

18,531

 

 

$

3.91

 

 

$

6.19

 

Q1-Q4 2025

 

 

75,537

 

 

$

3.04

 

 

 

 

 

 

 

 

 

 

 

12


Table of Contents

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 2024

 

El Paso Natural Gas

 

 

26,545

 

 

$

(0.92

)

Q2-Q4 2024

 

Houston Ship Channel

 

 

110,000

 

 

$

(0.24

)

Q2-Q4 2024

 

WAHA

 

 

63,309

 

 

$

(0.61

)

Q1-Q4 2025

 

WAHA

 

 

10,000

 

 

$

(0.63

)

 

As of March 31, 2024, Devon had the following open NGL derivative positions. Devon's NGL positions settle against the average of the prompt month OPIS Mont Belvieu, Texas index.

 

 

 

 

 

Price Swaps

 

Period

 

Product

 

Volume (Bbls/d)

 

 

Weighted Average Price ($/Bbl)

 

Q2-Q4 2024

 

Natural Gasoline

 

 

3,000

 

 

$

69.11

 

Q2-Q4 2024

 

Normal Butane

 

 

3,350

 

 

$

37.58

 

Q2-Q4 2024

 

Propane

 

 

5,032

 

 

$

32.97

 

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, 2024 and December 31, 2023.

 

March 31, 2024

 

December 31, 2023

 

 

 

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

$

82

 

$

(8

)

$

74

 

$

213

 

$

(5

)

$

208

 

Other current assets

Long-term derivative asset

 

1

 

 

(1

)

 

 

 

 

 

 

 

 

Other long-term assets

Short-term derivative liability

 

(46

)

 

8

 

 

(38

)

 

(7

)

 

5

 

 

(2

)

Other current liabilities

Long-term derivative liability

 

(7

)

 

1

 

 

(6

)

 

(7

)

 

 

 

(7

)

Other long-term liabilities

  Total derivative asset

$

30

 

$

 

$

30

 

$

199

 

$

 

$

199

 

 

 

13


Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

 

4.
Share-Based Compensation

The table below presents the share-based compensation expense included in Devon’s accompanying consolidated statements of comprehensive earnings.

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

G&A

 

$

24

 

 

$

23

 

Related income tax benefit

 

$