DEVON ENERGY CORPDE

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.

Q3 2024 vs. Q2 2024

Our third quarter 2024 and second quarter 2024 net earnings were $825 million and $855 million, respectively. The graph below shows the change in net earnings from the second quarter of 2024 to the third quarter of 2024. The material changes are further discussed by category on the following pages.

Production Volumes

From the second quarter of 2024 to the third quarter of 2024, the change in volumes contributed to a $51 million increase in earnings. The increase in volumes was primarily due to new well activity in the Delaware Basin, which was partially offset by natural well declines in the Eagle Ford and Anadarko Basin. We expect volumes to increase approximately 110 MBoe/d in the fourth quarter of 2024 due to the Grayson Mill acquisition.

Realized Prices

From the second quarter of 2024 to the third quarter of 2024, realized prices contributed to a $182 million decrease in earnings. Unhedged oil and NGL prices decreased primarily due to lower WTI and Mont Belvieu index prices, respectively. Unhedged gas prices decreased primarily due to the expanded regional gas price differential in the Delaware Basin driven by infrastructure constraints. The decrease in unhedged prices was partially offset by hedge cash settlements across all commodities.

We currently have approximately 35% and 20% of our remaining anticipated 2024 oil and gas production hedged, respectively. For 2025, we currently have hedged approximately 10% and 20% of our anticipated oil and gas production, respectively.

Hedge Settlements

(1)

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

Production expenses decreased during the third quarter of 2024 primarily due to cost efficiencies, lower workover activity and lower production taxes resulting from decreased oil 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.

DD&A

DD&A increased in the third quarter of 2024 primarily due to higher volumes.

G&A

Other Items

(1)

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.

During the third quarter of 2024, we issued $3.25 billion of debt to partially fund the Grayson Mill acquisition. Additionally, we retired $472 million of debt in the third quarter of 2024. The net impact of this debt activity is expected to increase our annual net financing costs by approximately $180 million. For additional information, see Note 11 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

Income Taxes

The current income tax rate decreased in the third quarter of 2024 primarily due to the impacts of the Grayson Mill acquisition. For additional discussion on income taxes, see Note 5 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

September 30, 2024 YTD vs. September 30, 2023 YTD

Our nine months ended September 30, 2024 net earnings were $2.3 billion, compared to net earnings of $2.6 billion for the first nine months ended September 30, 2023. The graph below shows the change in net earnings from the nine months ended September 30, 2023 to the nine months ended September 30, 2024. The material changes are further discussed by category on the following pages.

Production Volumes

From the nine months ended September 30, 2023 to the nine months ended September 30, 2024, the change in volumes contributed to a $367 million increase in earnings. Volumes increased primarily due to new well activity in the Delaware Basin, Williston Basin and Eagle Ford, which was partially offset by natural well declines in the Anadarko Basin. We expect volumes to increase approximately 110 MBoe/d in the fourth quarter of 2024 due to the Grayson Mill acquisition.

Realized Prices

From the nine months ended September 30, 2023 to the nine months ended September 30, 2024, realized prices contributed to a $331 million decrease in earnings. This decrease was due to lower unhedged realized gas and NGL prices which decreased primarily due to lower Henry Hub and Mont Belvieu index prices. Additionally, gas prices were impacted by expanded regional gas price differentials in the Delaware Basin driven by infrastructure constraints. These decreases were partially offset by an increase in unhedged realized oil prices which was primarily due to slightly higher WTI index prices. Realized prices were strengthened by hedge cash settlements across all commodities.

Hedge Settlements

(1)

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

LOE and gathering, processing and transportation expenses increased for the first nine months of 2024 primarily due to increased activity.

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.

DD&A

DD&A increased in the first nine months of 2024 primarily due to an increase in the oil and gas DD&A rate. The largest contributor to the higher rate was our 2023 drilling and development activity. DD&A also increased in the first nine months of 2024 due to higher volumes.

G&A

G&A increased for the nine months ended 2024 primarily due to inflationary adjustments to our labor and benefits.

Other Items

(1)

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.

In the second quarter of 2023, we recorded a $64 million gain within asset dispositions related to the difference between the fair market value and book value of assets contributed to the Water JV. For additional information, see Note 1 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

During the third quarter of 2024, we issued $3.25 billion of debt to partially fund the Grayson Mill acquisition. Additionally, we retired $472 million of debt in the third quarter of 2024. The net impact of this debt activity is expected to increase our annual net financing costs by approximately $180 million. For additional information, see Note 11 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

Income Taxes

For discussion on income taxes, see Note 5 in “Part I. Financial Information – Item 1. Financial Statements” in this report.