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 ~~September~~June 30, ~~2020~~2021

☐	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 ~~October~~July 21, ~~2020, 382.5~~2021, 677.0 million shares of common stock were outstanding.

Table of Contents

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	1213
	Note 4 – Share-Based Compensation	1415
	Note 5 – Asset Impairments	1516
	Note 6 – Restructuring and Transaction Costs	1517
	Note 7 – Income Taxes	1617
	Note 8 – Net Earnings (Loss) Per Share From Continuing Operations	1718
	Note 9 – Other Comprehensive Earnings (Loss)	1718
	Note 10 – Supplemental Information to Statements of Cash Flows	1819
	Note 11 – Accounts Receivable	1819
	Note 12 – Property, Plant and Equipment	1920
	Note 13 – Debt and Related Expenses	1920
	Note 14 – Leases	2022
	Note 15 – Asset Retirement Obligations	2022
	Note 16 – ~~Stockholders’ Equity~~Other Long-Term Liabilities	2022
	Note 17 – ~~Discontinued Operations and Assets Held For Sale~~Stockholders’ Equity	2123
	Note 18 – Discontinued Operations	23
	Note 19 – Commitments and Contingencies	24
	Note 1920 – Fair Value Measurements	2526
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2627
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4643
Item 4.	Controls and Procedures	4643

Part II. Other Information
Item 1.	Legal Proceedings	4744
Item 1A.	Risk Factors	4744
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4844
Item 3.	Defaults Upon Senior Securities	4844
Item 4.	Mine Safety Disclosures	4844
Item 5.	Other Information	4844
Item 6.	Exhibits	4945

Signatures		5046

Table of Contents

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:

“ASU” means Accounting Standards Update.

“Bbl” or “Bbls” means barrel or barrels.

“BKV” means Banpu Kalnin Ventures.

“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.

“Devon Plan” means Devon Energy Corporation Incentive Savings Plan.

“~~FASB”~~EPA” means ~~Financial Accounting Standards Board.~~the United States Environmental Protection Agency.

“G&A” means general and administrative expenses.

“GAAP” means U.S. generally accepted accounting principles.

“HEP” means Howard Energy Partners.

“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.

Table of Contents

“MMBoe” means million Boe.

“MMBtu” means million Btu.

“MMcf” means million cubic feet.

~~Table of Contents~~

“N/M” means not meaningful.

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

“NYMEX” means New York Mercantile Exchange.

“OPEC” means Organization of the Petroleum Exporting Countries.

“~~OPIS”~~QLCP” means ~~Oil Price Information Service.~~QL Capital Partners, LP.

“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.

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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 those, identified below.~~to:

The COVID-19 pandemic and its related repercussions have created significant volatility, uncertainty and turmoil in the global economy and our industry. This turmoil has included an unprecedented supply-and-demand imbalance for oil and other commodities, resulting in a swift and material decline in commodity prices in early 2020. Our future actual results could differ materially from the forward-looking statements in this report due to the COVID-19 pandemic and related impacts, including, among other things: contributing to a sustained or further deterioration in commodity prices; causing takeaway capacity constraints for production, resulting in production shut-ins and additional downward pressure on impacted regional pricing differentials; limiting our ability to access sources of capital due to disruptions in financial markets; increasing the risk of a downgrade from credit rating agencies; exacerbating counterparty credit risks and the risk of supply chain interruptions; and increasing the risk of operational disruptions due to social distancing measures and other changes to business practices.

In addition to the risks associated with the COVID-19 pandemic and its related impacts, our actual future results could differ materially from our expectations due to other factors, including, among other things:

•

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;

•

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

•

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;

•

risks related to the Merger, including ~~restrictions on our operations during the pendency of the Merger, litigation risk, the risk that the Merger Agreement may be terminated and~~ the risk that we may not realize the anticipated benefits of the Merger or successfully integrate the two ~~companies;~~legacy businesses; and

•

any of the other risks and uncertainties discussed in this report, our ~~2019~~2020 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.

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

		Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
		2020			2019			2020			2019			2021			2020			2021			2020
	(Unaudited)													(Unaudited)
Oil, gas and NGL sales		$	678		$	919		$	1,909		$	2,774		$	2,154		$	424		$	3,911		$	1,231
Oil, gas and NGL derivatives			(87	)		127			272			(338	)		(703	)		(361	)		(1,231	)		359
Marketing and midstream revenues			476			700			1,367			2,195			966			331			1,787			891
Total revenues			1,067			1,746			3,548			4,631			2,417			394			4,467			2,481
Production expenses			271			294			852			873			513			263			971			581
Exploration expenses			39			18			163			29			3			12			6			124
Marketing and midstream expenses			478			684			1,395			2,147			965			339			1,807			917
Depreciation, depletion and amortization			299			381			999			1,115			536			299			1,003			700
Asset impairments			—			—			2,666			—			—			—			—			2,666
Asset dispositions			—			(1	)		—			(48	)		(87	)		—			(119	)		—
General and administrative expenses			75			107			256			356			94			79			201			181
Financing costs, net			66			60			200			186			80			69			157			134
Restructuring and transaction costs			32			10			32			73			23			—			212			—
Other expenses			—			3			(35	)		(12	)
Other, net															(14	)		13			(43	)		(35	)
Total expenses			1,260			1,556			6,528			4,719			2,113			1,074			4,195			5,268
Earnings (loss) from continuing operations before income taxes			(193	)		190			(2,980	)		(88	)		304			(680	)		272			(2,787	)
Income tax expense (benefit)			(90	)		54			(510	)		3			43			(3	)		(205	)		(420	)
Net earnings (loss) from continuing operations			(103	)		136			(2,470	)		(91	)		261			(677	)		477			(2,367	)
Net earnings (loss) from discontinued operations, net of income taxes			13			(27	)		(103	)		378			—			9			—			(116	)
Net earnings (loss)			(90	)		109			(2,573	)		287			261			(668	)		477			(2,483	)
Net earnings attributable to noncontrolling interests			2			—			5			—			5			2			8			3
Net earnings (loss) attributable to Devon		$	(92	)	$	109		$	(2,578	)	$	287		$	256		$	(670	)	$	469		$	(2,486	)
Basic net earnings (loss) per share:
Basic earnings (loss) from continuing operations per share		$	(0.29	)	$	0.34		$	(6.58	)	$	(0.22	)	$	0.38		$	(1.80	)	$	0.70		$	(6.29	)
Basic earnings (loss) from discontinued operations per share			0.04			(0.07	)		(0.27	)		0.91			—			0.02			—			(0.31	)
Basic net earnings (loss) per share		$	(0.25	)	$	0.27		$	(6.85	)	$	0.69		$	0.38		$	(1.78	)	$	0.70		$	(6.60	)
Diluted net earnings (loss) per share:
Diluted earnings (loss) from continuing operations per share		$	(0.29	)	$	0.34		$	(6.58	)	$	(0.22	)	$	0.38		$	(1.80	)	$	0.70		$	(6.29	)
Diluted earnings (loss) from discontinued operations per share			0.04			(0.07	)		(0.27	)		0.91			—			0.02			—			(0.31	)
Diluted net earnings (loss) per share		$	(0.25	)	$	0.27		$	(6.85	)	$	0.69		$	0.38		$	(1.78	)	$	0.70		$	(6.60	)
Comprehensive earnings (loss):
Net earnings (loss)		$	(90	)	$	109		$	(2,573	)	$	287		$	261		$	(668	)	$	477		$	(2,483	)
Other comprehensive earnings (loss), net of tax:
Foreign currency translation, discontinued operations			—			—			—			78
Release of Canadian cumulative translation adjustment, discontinued operations			—			—			—			(1,237	)
Pension and postretirement plans			1			1			3			16			3			1			26			2
Other comprehensive earnings (loss), net of tax			1			1			3			(1,143	)
Other comprehensive earnings, net of tax															3			1			26			2
Comprehensive earnings (loss):			(89	)		110			(2,570	)		(856	)	$	264		$	(667	)	$	503		$	(2,481	)
Comprehensive earnings attributable to noncontrolling interests			2			—			5			—			5			2			8			3
Comprehensive earnings (loss) attributable to Devon		$	(91	)	$	110		$	(2,575	)	$	(856	)	$	259		$	(669	)	$	495		$	(2,484	)

See accompanying notes to consolidated financial statements

Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
	(Unaudited)												(Unaudited)
Cash flows from operating activities:
Net earnings (loss)	$	(90	)	$	109		$	(2,573	)	$	287		$	261		$	(668	)	$	477		$	(2,483	)
Adjustments to reconcile net earnings (loss) to net cash from operating activities:
Net (earnings) loss from discontinued operations, net of income taxes		(13	)		27			103			(378	)		—			(9	)		—			116
Depreciation, depletion and amortization		299			381			999			1,115			536			299			1,003			700
Asset impairments		—			—			2,666			—			—			—			—			2,666
Leasehold impairments		36			13			149			15			1			3			2			113
Accretion on discounted liabilities		8			8			24			25
(Amortization) accretion of liabilities														(7	)		8			(14	)		16
Total (gains) losses on commodity derivatives		87			(127	)		(272	)		338			703			361			1,231			(359	)
Cash settlements on commodity derivatives		10			71			343			125			(367	)		232			(599	)		333
Gains on asset dispositions		—			(1	)		—			(48	)		(87	)		—			(119	)		—
Deferred income tax expense (benefit)		—			52			(311	)		2			24			—			(219	)		(311	)
Share-based compensation		31			23			70			92			20			19			61			39
Early retirement of debt														(10	)		—			(30	)		—
Other		1			3			5			(9	)		2			4			2			4
Changes in assets and liabilities, net		58			36			(97	)		(100	)		17			(99	)		(110	)		(155	)
Net cash from operating activities - continuing operations		427			595			1,106			1,464			1,093			150			1,685			679
Cash flows from investing activities:
Capital expenditures		(204	)		(526	)		(936	)		(1,502	)		(504	)		(307	)		(1,003	)		(732	)
Acquisitions of property and equipment		—			(5	)		(5	)		(28	)		(5	)		(1	)		(5	)		(5	)
Divestitures of property and equipment		1			9			29			347			49			3			64			28
WPX acquired cash														—			—			344			—
Distributions from equity method investments														8			—			18			—
Net cash from investing activities - continuing operations		(203	)		(522	)		(912	)		(1,183	)		(452	)		(305	)		(582	)		(709	)
Cash flows from financing activities:
Repayments of long-term debt		—			—			—			(162	)		(710	)		—			(1,243	)		—
Early retirement of debt														(32	)		—			(59	)		—
Repurchases of common stock		—			(561	)		(38	)		(1,746	)		—			—			—			(38	)
Dividends paid on common stock		(43	)		(35	)		(119	)		(106	)		(229	)		(42	)		(432	)		(76	)
Contributions from noncontrolling interests		1			—			12			—			3			6			3			11
Distributions to noncontrolling interests		(4	)		—			(10	)		—			(5	)		(3	)		(9	)		(6	)
Acquisition of noncontrolling interests														—			—			(24	)		—
Shares exchanged for tax withholdings and other		—			(1	)		(17	)		(23	)		(9	)		—			(42	)		(17	)
Net cash from financing activities - continuing operations		(46	)		(597	)		(172	)		(2,037	)		(982	)		(39	)		(1,806	)		(126	)
Effect of exchange rate changes on cash - continuing operations														2			—			5			—
Net change in cash, cash equivalents and restricted cash of continuing operations		178			(524	)		22			(1,756	)		(339	)		(194	)		(698	)		(156	)
Cash flows from discontinued operations:
Operating activities		45			(94	)		(129	)		37			0			(43	)		0			(174	)
Investing activities		1			(5	)		171			2,472			0			171			0			170
Financing activities		0			(1,571	)		0			(1,579	)		0			0			0			0
Effect of exchange rate changes on cash		4			(3	)		(11	)		36			0			8			0			(15	)
Net change in cash, cash equivalents and restricted cash of discontinued operations		50			(1,673	)		31			966			0			136			0			(19	)
Net change in cash, cash equivalents and restricted cash		228			(2,197	)		53			(790	)		(339	)		(58	)		(698	)		(175	)
Cash, cash equivalents and restricted cash at beginning of period		1,669			3,853			1,844			2,446			1,878			1,727			2,237			1,844
Cash, cash equivalents and restricted cash at end of period	$	1,897		$	1,656		$	1,897		$	1,656		$	1,539		$	1,669		$	1,539		$	1,669

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	1,707		$	1,375		$	1,707		$	1,375		$	1,348		$	1,474		$	1,348		$	1,474
Cash restricted for discontinued operations		190			280			190			280
Restricted cash included in other current assets		—			1			—			1
Restricted cash														191			195			191			195
Total cash, cash equivalents and restricted cash	$	1,897		$	1,656		$	1,897		$	1,656		$	1,539		$	1,669		$	1,539		$	1,669

See accompanying notes to consolidated financial statements

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30, 2020			December 31, 2019			June 30, 2021			December 31, 2020
	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,707		$	1,464
Cash restricted for discontinued operations		190			380
Cash, cash equivalents and restricted cash							$	1,539		$	2,237
Accounts receivable		493			832			1,185			601
Current assets associated with discontinued operations		728			896
Income taxes receivable								40			174
Other current assets		359			279			312			248
Total current assets		3,477			3,851			3,076			3,260
Oil and gas property and equipment, based on successful efforts accounting, net		4,553			7,558			13,727			4,436
Other property and equipment, net ($100 million and $80 million related to CDM in 2020 and 2019, respectively)		1,003			1,035
Other property and equipment, net ($106 million and $102 million related to CDM in 2021 and 2020, respectively)								1,462			957
Total property and equipment, net		5,556			8,593			15,189			5,393
Goodwill		753			753			753			753
Right-of-use assets		226			243			252			223
Investments								398			12
Other long-term assets		233			196			397			271
Long-term assets associated with discontinued operations		81			81
Total assets	$	10,326		$	13,717		$	20,065		$	9,912
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	415		$	428		$	487		$	242
Revenues and royalties payable		562			730			1,030			662
Current liabilities associated with discontinued operations		463			459
Other current liabilities		269			310			1,555			536
Total current liabilities		1,709			1,927			3,072			1,440
Long-term debt		4,297			4,294			6,502			4,298
Lease liabilities		245			244			258			246
Asset retirement obligations		398			380			450			358
Other long-term liabilities		372			426			1,248			551
Long-term liabilities associated with discontinued operations		157			185
Deferred income taxes		—			341
Stockholders' equity:
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 383 million and 382 million shares in 2020 and 2019, respectively		38			38
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 677 million and 382 million shares in 2021 and 2020, respectively								68			38
Additional paid-in capital		2,750			2,735			8,189			2,766
Retained earnings		351			3,148			243			208
Accumulated other comprehensive loss		(116	)		(119	)		(101	)		(127	)
Total stockholders’ equity attributable to Devon		3,023			5,802			8,399			2,885
Noncontrolling interests		125			118			136			134
Total equity		3,148			5,920			8,535			3,019
Total liabilities and equity	$	10,326		$	13,717		$	20,065		$	9,912

See accompanying notes to consolidated financial statements

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

													Other																							Other
							Additional						Comprehensive																	Additional						Comprehensive
	Common Stock						Paid-In			Retained			Earnings			Treasury			Noncontrolling			Total			Common Stock					Paid-In			Retained			Earnings			Treasury			Noncontrolling			Total
	Shares			Amount			Capital			Earnings			(Loss)			Stock			Interests			Equity			Shares			Amount		Capital			Earnings			(Loss)			Stock			Interests			Equity
	(Unaudited)																								(Unaudited)
Three Months Ended September 30, 2020
Balance as of June 30, 2020		383		$	38		$	2,720		$	586		$	(117	)	$	—		$	126		$	3,353
Net earnings (loss)		—			—			—			(92	)		—			—			2			(90	)
Three Months Ended June 30, 2021
Balance as of March 31, 2021																										675		$	67	$	8,172		$	218		$	(104	)	$	—		$	133		$	8,486
Net earnings																										—			—		—			256			—			—			5			261
Other comprehensive earnings, net of tax		—			—			—			—			1			—			—			1			—			—		—			—			3			—			—			3
Restricted stock grants, net of cancellations																										2			1		(1	)		—			—			—			—			—
Common stock repurchased		—			—			—			—			—			(1	)		—			(1	)		—			—		—			—			—			(2	)		—			(2	)
Common stock retired		—			—			(1	)		—			—			1			—			—			—			—		(2	)		—			—			2			—			—
Common stock dividends		—			—			—			(143	)		—			—			—			(143	)		—			—		—			(231	)		—			—			—			(231	)
Share-based compensation		—			—			31			—			—			—			—			31			—			—		20			—			—			—			—			20
Contributions from noncontrolling interests		—			—			—			—			—			—			1			1			—			—		—			—			—			—			2			2
Distributions to noncontrolling interests		—			—			—			—			—			—			(4	)		(4	)		—			—		—			—			—			—			(4	)		(4	)
Balance as of September 30, 2020		383		$	38		$	2,750		$	351		$	(116	)	$	—		$	125		$	3,148
Three Months Ended September 30, 2019
Balance as of June 30, 2019		410		$	41		$	3,352		$	3,738		$	(117	)	$	(20	)	$	—		$	6,994
Balance as of June 30, 2021																										677		$	68	$	8,189		$	243		$	(101	)	$	—		$	136		$	8,535
Three Months Ended June 30, 2020
Balance as of March 31, 2020																										383		$	38	$	2,701		$	1,298		$	(118	)	$	—		$	121		$	4,040
Net earnings (loss)																										—			—		—			(670	)		—			—			2			(668	)
Other comprehensive earnings, net of tax																										—			—		—			—			1			—			—			1
Common stock dividends																										—			—		—			(42	)		—			—			—			(42	)
Share-based compensation																										—			—		19			—			—			—			—			19
Contributions from noncontrolling interests																										—			—		—			—			—			—			6			6
Distributions to noncontrolling interests																										—			—		—			—			—			—			(3	)		(3	)
Balance as of June 30, 2020																										383		$	38	$	2,720		$	586		$	(117	)	$	—		$	126		$	3,353
Six Months Ended June 30, 2021
Balance as of December 31, 2020																										382		$	38	$	2,766		$	208		$	(127	)	$	—		$	134		$	3,019
Net earnings		—			—			—			109			—			—			—			109			—			—		—			469			—			—			8			477
Other comprehensive earnings, net of tax		—			—			—			—			1			—			—			1			—			—		—			—			26			—			—			26
Restricted stock grants, net of cancellations																										6			1		(1	)		—			—			—			—			—
Common stock repurchased		—			—			—			—			—			(549	)		—			(549	)		—			—		—			—			—			(40	)		—			(40	)
Common stock retired		(23	)		(2	)		(559	)		—			—			561			—			—			(2	)		—		(40	)		—			—			40			—			—
Common stock dividends		—			—			—			(35	)		—			—			—			(35	)		—			—		—			(434	)		—			—			—			(434	)
Common stock issued																										290			29		5,403			—			—			—			—			5,432
Share-based compensation		—			—			22			—			—			—			—			22			1			—		61			—			—			—			—			61
Balance as of September 30, 2019		387		$	39		$	2,815		$	3,812		$	(116	)	$	(8	)	$	—		$	6,542
Nine Months Ended September 30, 2020
Contributions from noncontrolling interests																										—			—		—			—			—			—			2			2
Distributions to noncontrolling interests																										—			—		—			—			—			—			(8	)		(8	)
Balance as of June 30, 2021																										677		$	68	$	8,189		$	243		$	(101	)	$	—		$	136		$	8,535
Six Months Ended June 30, 2020
Balance as of December 31, 2019		382		$	38		$	2,735		$	3,148		$	(119	)	$	—		$	118		$	5,920			382		$	38	$	2,735		$	3,148		$	(119	)	$	—		$	118		$	5,920
Net earnings (loss)		—			—			—			(2,578	)		—			—			5			(2,573	)		—			—		—			(2,486	)		—			—			3			(2,483	)
Other comprehensive earnings, net of tax		—			—			—			—			3			—			—			3			—			—		—			—			2			—			—			2
Restricted stock grants, net of cancellations		3			—			—			—			—			—			—			—			3			—		—			—			—			—			—			—
Common stock repurchased		—			—			—			—			—			(55	)		—			(55	)		—			—		—			—			—			(54	)		—			(54	)
Common stock retired		(3	)		—			(55	)		—			—			55			—			—			(3	)		—		(54	)		—			—			54			—			—
Common stock dividends		—			—			—			(219	)		—			—			—			(219	)		—			—		—			(76	)		—			—			—			(76	)
Share-based compensation		1			—			70			—			—			—			—			70			1			—		39			—			—			—			—			39
Contributions from noncontrolling interests		—			—			—			—			—			—			12			12			—			—		—			—			—			—			11			11
Distributions to noncontrolling interests		—			—			—			—			—			—			(10	)		(10	)		—			—		—			—			—			—			(6	)		(6	)
Balance as of September 30, 2020		383		$	38		$	2,750		$	351		$	(116	)	$	—		$	125		$	3,148
Nine Months Ended September 30, 2019
Balance as of December 31, 2018		450		$	45		$	4,486		$	3,650		$	1,027		$	(22	)	$	—		$	9,186
Effect of adoption of lease accounting		—			—			—			(19	)		—			—			—			(19	)
Net earnings		—			—			—			287			—			—			—			287
Other comprehensive loss, net of tax		—			—			—			—			(1,143	)		—			—			(1,143	)
Restricted stock grants, net of cancellations		3			—			—			—			—			—			—			—
Common stock repurchased		—			—			—			—			—			(1,755	)		—			(1,755	)
Common stock retired		(66	)		(6	)		(1,763	)		—			—			1,769			—			—
Common stock dividends		—			—			—			(106	)		—			—			—			(106	)
Share-based compensation		—			—			92			—			—			—			—			92
Balance as of September 30, 2019		387		$	39		$	2,815		$	3,812		$	(116	)	$	(8	)	$	—		$	6,542
Balance as of June 30, 2020																										383		$	38	$	2,720		$	586		$	(117	)	$	—		$	126		$	3,353

See accompanying notes to consolidated financial statements

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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 ~~2019~~2020 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 and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 and Devon’s financial position as of ~~September~~June 30, ~~2020.~~ 2021. Certain prior period amounts have been reclassified to conform to the current period’s presentation.

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.

As further discussed in Note 1718, Devon closed on the sale of its Barnett Shale assets onin October 1,2020. Prior to December 31, 2020, ~~and sold its Canadian operations in the second quarter of 2019~~. ~~Activity~~activity relating to Devon’s Barnett Shale assets inclusive of properties divested as partial sales of the Barnett Shale common operating field in previous reporting periods located primarily in Johnson and Wise counties, Texas, and its Canadian operations areis classified as discontinued operations within Devon’s consolidated statements of comprehensive earnings and consolidated statements of cash flows. ~~The associated assets and liabilities~~

As of ~~Devon’s Barnett Shale assets and Canadian operations are presented~~June 30, 2021, Devon classified approximately $180 million of cash as ~~assets and liabilities associated with discontinued operations~~restricted cash on the consolidated balance sheets for obligations associated with the abandonment of certain gas processing contracts related to divestitures of our Barnett Shale assets that occurred in 2018 and obligations retained related to the Canadian business. Cash payments for these charges related to the Barnett assets and Canada business total approximately $10. million per quarter.

~~During the fourth quarter of 2019, Devon entered into an agreement to form~~

Variable Interest Entity

Cotton Draw Midstream, L.L.C. (“CDM”), is a ~~joint-venture~~joint venture entity ~~in the Delaware Basin with~~formed by Devon and an affiliate of QL Capital Partners, LP (“QLCP”). 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, on Devon's consolidated balance sheets if material.

Investments

In conjunction with the Merger, Devon acquired an interest in Catalyst which is a joint venture established between WPX and Howard Energy Partners (“HEP”) to develop oil gathering and natural gas processing infrastructure in the Stateline area of the Delaware Basin. Under the terms of the agreement, Devon and HEP each have a 50 percent 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 sheet and Devon’s share of Catalyst earnings are reflected as a component of other, net in the accompanying consolidated statements of comprehensive earnings.

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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 September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Oil	$	504	$	751	$	1,462	$	2,160	$	1,686	$	296	$	3,017	$	958
Gas		79		80		221		291		188		72		390		142
NGL		95		88		226		323		280		56		504		131
Oil, gas and NGL sales		678		919		1,909		2,774		2,154		424		3,911		1,231

Oil		233		407		702		1,157		610		140		1,109		469
Gas		97		140		268		530		134		81		281		175
NGL		143		151		390		506		222		110		397		247
Total marketing revenues		473		698		1,360		2,193
Midstream revenues		3		2		7		2
Marketing and midstream revenues		476		700		1,367		2,195		966		331		1,787		891
Total revenues from contracts with customers	$	1,154	$	1,619	$	3,276	$	4,969	$	3,120	$	755	$	5,698	$	2,122

2.Acquisitions and Divestitures

10WPX 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.

Purchase Price Allocation

The transaction has been accounted for using the acquisition method of accounting, with Devon being treated as the accounting acquirer. Under the acquisition method of accounting, the assets and liabilities of WPX and its subsidiaries have been recorded at their respective fair values as of the date of completion of the Merger and added to Devon’s. The preliminary purchase price assessment remains an ongoing process and is subject to change for up to one year subsequent to the closing date of the Merger. Determining the fair value of the assets and liabilities of WPX requires judgment and certain assumptions to be made, the most significant of these being related to the valuation of WPX’s oil and gas properties. The inputs and assumptions related to the oil and gas properties are categorized as level 3 in the fair value hierarchy.

Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The following table represents the preliminary allocation of the total purchase price of WPX to the identifiable assets acquired and the liabilities assumed based on the fair values as of the acquisition date.

	Preliminary Purchase
	Price Allocation
	as of June 30, 2021
Consideration:
WPX Common Stock outstanding		561.2
Exchange Ratio		0.5165
Devon common stock issued		289.9
Devon closing price on January 7, 2021	$	18.57
Total common equity consideration		5,383
Share-based replacement awards		49
Total consideration	$	5,432
Assets acquired:
Cash, cash equivalents and restricted cash	$	344
Accounts receivable		425
Other current assets		49
Right-of-use assets		38
Proved oil and gas property and equipment		7,017
Unproved and properties under development		2,367
Other property and equipment		485
Investments		400
Other long-term assets		43
Total assets acquired	$	11,168
Liabilities assumed:
Accounts payable	$	346
Revenue and royalties payable		223
Other current liabilities		454
Debt		3,562
Lease liabilities		38
Asset retirement obligations		94
Deferred income taxes		254
Other long-term liabilities		765
Total liabilities assumed		5,736
Net assets acquired	$	5,432

~~Recently Adopted Accounting Standards~~WPX Revenues and Earnings

~~In 2016,~~The following table represents WPX’s revenues and earnings included in Devon’s consolidated statements of comprehensive earnings subsequent to the ~~FASB issued ASU 2016-13,~~ closing date of the Merger.

	Three Months Ended June 30,		Six Months Ended June 30,
	2021		2021
Total revenues	$	1,353	$	2,413
Net earnings	$	389	$	555

Pro Forma Financial ~~Instruments-Credit Losses.~~Information ~~This ASU changes~~

Due to the impairment model for trade receivables, held-to-maturity debt securities, net investments in leases, loans and other financial assets measured at amortized cost from the current “incurred loss” model to a new forward-looking “expected loss” model. Devon adopted this ASUMerger closing on January 7, 2021, all activity in the first ~~quarter~~and second quarters of 2021 except for the first six days of January is included in Devon’s consolidated statements of comprehensive earnings for the six months ended June 30, 2021. The following unaudited pro forma financial information for the three and six months ended June 30, 2020 using the modified retrospective approach. Devon assesses credit risk by class of account type which includes cash equivalents and oil and gas, marketing and midstream, joint interest and other accounts receivable. These classes are then further evaluated using a probability weighted scenario assessmentis based on our historical ~~losses and a probability~~consolidated financial statements adjusted to reflect as if the Merger had occurred on January 1, 2020. The information below reflects pro forma adjustments to conform WPX’s historical financial information to Devon’s financial statement presentation. The unaudited pro forma financial information is not necessarily indicative of what would have occurred if the Merger had been completed as of the beginning of the periods presented, nor is it indicative of future ~~default. This evaluation is supported by an assessment~~results.

Table of risk factors such as the age of receivable, current macro-economic conditions, credit rating of the counterparty and our historical loss rate. This adoption did not have a material impact on Devon’s consolidated financial statements.Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

2.~~Acquisitions and Divestitures~~

	Three Months Ended June 30,			Six Months Ended June 30,
Continuing operations:	2020			2020
Total revenues	$	427		$	3,912
Net loss	$	(1,102	)	$	(2,966	)
Basic net loss per share	$	(1.65	)	$	(4.45	)

Divestitures

In the first quarter of 2021, Devon completed the sale of non-core assets in the Rockies for proceeds of $~~Discontinued Operations – Upstream Assets~~9 million, net of purchase price adjustments, and recognized a $35 million gain related to the sale. The transaction includes contingent earnout payments of up to $8 million. The total estimated proved reserves associated with these divested assets was approximately 3 MMBoe. As of December 31, 2020, the associated assets and liabilities were classified as assets held for sale and included in other current assets and other current liabilities, respectively.

~~On October 1,~~In the fourth quarter of 2020, Devon completed the sale of its Barnett Shale assets to BKV for proceeds, net of purchase price adjustments, of $490 ~~million, including a $170 million deposit previously received in April 2020.~~million. The agreement with BKV also provides for contingent earnout payments to Devon of up to $260 million based upon future commodity prices, with upside participation beginning at a $2.75 Henry Hub natural gas price or a $50 WTI oil price. The contingent payment period ~~commences~~commenced on January 1, 2021 and has a term of four years. ~~Devon recognized a $748 million asset impairment related to these~~The valuation of the future contingent earnout payments included within other current assets and other long-term assets in the ~~fourth~~June 30, 2021 consolidated balance sheet was $46 million and $85 million, respectively. During the second quarter of ~~2019~~2021, Devon recorded a $65 million increase to the fair value within asset dispositions on the consolidated statements of comprehensive earnings. The value was derived utilizing a Monte Carlo valuation model and ~~incremental asset impairments of $179 million and $3 million during the first quarter and third quarter of 2020, respectively.~~qualifies as a level 3 fair value measurement. Additional information can be found inNote 17.

In June 2019, Devon completed the sale of substantially all of its oil and gas assets and operations in Canada to Canadian Natural Resources Limited for proceeds, net of purchase price adjustments, of $2.6 billion ($3.4 billion Canadian dollars), and recognized a pre-tax gain of $223 million ($425 million, net of tax, primarily due to a significant deferred tax benefit) in 2019. Additional information can be found in ~~Note 17~~18.

~~Continuing Operations – Upstream Assets~~

During the first quarter of 2020, Devon entered into a farmout agreement in which the third party to the agreement can participate in the development of certain Devon-owned non-operated interests in the Delaware Basin. Under the agreement, Devon will periodically transfer working interests to the third party, who will then fund its share of operating and development costs. Once certain investment hurdles are met, a portion of the working interest held by the third party will revert back to Devon. No material activity occurred during the first nine months of 2020.

In the first quarter of 2019, Devon received proceeds of approximately $300 million and recognized a $45 million net gain on asset dispositions, primarily from sales of non-core assets in the Permian Basin. In aggregate, the total estimated proved reserves associated with these divested assets were approximately 25 MMBoe.

~~Pending Merger~~

~~On September 26, 2020, Devon and WPX entered into the Merger Agreement, providing for an~~ all-stock merger of equals. WPX is 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 will be automatically converted into the right to receive 0.5165 of a share of Devon common stock. No fractional shares of Devon’s common stock will be issued in the Merger, and holders of shares of WPX common stock will, instead, receive cash in lieu of fractional shares of Devon common stock, if any. The Merger has been unanimously approved by Devon and WPX Boards of Directors and is still subject to the approval of both Devon and WPX shareholders. The Merger is expected to close in the first quarter of 2021 subject to shareholder and regulatory approvals and other customary closing conditions.

~~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, price swaptions, basis swaps, ~~and~~ costless price ~~collars.~~collars and call options. Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. As of ~~September~~June 30, ~~2020,~~2021, 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 ~~September~~June 30, ~~2020,~~2021, Devon neither held cash collateral of its counterparties 0r posted cash collateral to its counterparties.

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Commodity Derivatives

As of ~~September~~June 30, ~~2020,~~2021, 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)

Q4 2020

88,000

$
36.28

39,500

$
50.93

$
60.93

Q1-Q4 2021

23,810

$
35.79

19,367

$
40.66

$
50.66

Q1 2022

500

$
45.00

6,750

$
37.93

$
47.93

	Price Swaps				Price Swaptions				Price Collars						Call Options Sold
Period	Volume (Bbls/d)		Weighted Average Price ($/Bbl)		Volume (Bbls/d)		Weighted Average Price ($/Bbl)		Volume (Bbls/d)		Weighted Average Floor Price ($/Bbl)		Weighted Average Ceiling Price ($/Bbl)		Volume (Bbls/d)		Weighted Average Price ($/Bbl)
Q3-Q4 2021		56,960	$	41.56		10,000	$	40.12		50,750	$	39.30	$	49.30		5,000	$	39.50
Q1-Q4 2022		25,619	$	43.82		10,323	$	46.46		20,233	$	46.41	$	56.41		—	$	—

Oil Basis Swaps

Period

Index

Volume
(Bbls/d)

Weighted Average
Differential to WTI
($/Bbl)

Q4 2020

Argus MEH

50,000

$
0.47

Q4 2020

Midland Sweet

32,000

$
(1.23
)
Q4 2020

NYMEX Roll

54,000

$
0.38

Q1-Q4 2021

Midland Sweet

7,000

$
1.27

	Oil Basis Swaps
Period	Index	Volume (Bbls/d)		Weighted Average Differential to WTI ($/Bbl)
Q3-Q4 2021	Midland Sweet		23,000	$	0.84
Q3-Q4 2021	Guernsey Light Sweet		4,000	$	(1.49	)
Q3-Q4 2021	BRENT		1,000	$	(8.00	)
Q3-Q4 2021	NYMEX Roll		13,000	$	0.39
Q1-Q4 2022	BRENT		1,000	$	(7.75	)
Q1-Q4 2022	NYMEX Roll		29,000	$	0.45

~~Table of Contents~~

~~DEVON ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~(Unaudited)~~

As of ~~September~~June 30, ~~2020,~~2021, 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

Price Collars

Period

Volume (MMBtu/d)

Weighted Average Price ($/MMBtu)

Volume (MMBtu/d)

Weighted Average Floor Price ($/MMBtu)

Weighted Average
Ceiling Price ($/MMBtu)

Q4 2020

69,000

$
2.69

141,000

$
2.35

$
2.85

Q1-Q4 2021

32,699

$
2.76

142,055

$
2.38

$
2.88

Q1 2022

14,000

$
2.85

36,000

$
2.60

$
3.10

	Price Swaps ⁽¹⁾				Price Swaptions ⁽²⁾				Price Collars ⁽²⁾						Call Options Sold ⁽²⁾
Period	Volume (MMBtu/d)		Weighted Average Price ($/MMBtu)		Volume (MMBtu/d)		Weighted Average Price ($/MMBtu)		Volume (MMBtu/d)		Weighted Average Floor Price ($/MMBtu)		Weighted Average Ceiling Price ($/MMBtu)		Volume (MMBtu/d)		Weighted Average Price ($/MMBtu)
Q3-Q4 2021		266,500	$	2.63		—	$	—		180,500	$	2.48	$	2.98		50,000	$	2.68
Q1-Q4 2022		3,452	$	2.85		100,000	$	2.70		113,110	$	2.57	$	3.07		—	$	—

Natural Gas Basis Swaps

Period

Index

Volume
(MMBtu/d)

Weighted Average
Differential to
Henry Hub
($/MMBtu)

Q4 2020

Panhandle Eastern Pipe Line

30,000

$
(0.47
)
Q4 2020

El Paso Natural Gas

65,000

$
(0.78
)
Q4 2020

Houston Ship Channel

30,000

$
(0.02
)
Q1-Q4 2021

El Paso Natural Gas

35,000

$
(0.92
)

(1)

Related to the 2021 open positions, 26,500 MMBtu/d settle against the Inside FERC first of month Henry Hub index at an average price of $2.77 and 240,000 MMBtu/d settle against the end of month NYMEX index at an average price of $2.62. All 2022 open positions settle against the Inside FERC first of month Henry Hub index.

(2)

Price swaptions and call options settle against end of month NYMEX index. 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 2021	El Paso Natural Gas		35,000	$	(0.92	)
Q3-Q4 2021	WAHA		80,000	$	(0.65	)
Q1-Q4 2022	WAHA		70,000	$	(0.57	)
Q1-Q4 2023	WAHA		70,000	$	(0.51	)
Q1-Q4 2024	WAHA		40,000	$	(0.51	)

Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

As of ~~September~~June 30, ~~2020,~~2021, 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)

Q4 2020

Natural Gasoline

1,000

$
44.84

Q4 2020

Normal Butane

1,500

$
23.56

Q4 2020

Propane

4,500

$
25.18

		Price Swaps
Period	Product	Volume (Bbls/d)		Weighted Average Price ($/Bbl)
Q3-Q4 2021	Natural Gasoline		1,000	$	47.57
Q3-Q4 2021	Normal Butane		1,000	$	31.40
Q3-Q4 2021	Propane		1,000	$	27.88

Financial Statement Presentation

The following table presents the derivative fair values by derivative financial instrument type followed by the corresponding individual consolidated balance sheets ~~caption.~~captions.

	September 30, 2020		December 31, 2019		June 30, 2021		December 31, 2020
Commodity derivative assets:
Other current assets	$	27	$	49	$	5	$	5
Other long-term assets		1		1		1		1
Total derivative assets	$	28	$	50	$	6	$	6
Commodity derivative liabilities:
Other current liabilities	$	70	$	30	$	968	$	143
Other long-term liabilities		10		1		157		5
Total derivative liabilities	$	80	$	31	$	1,125	$	148

~~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. The vesting for certain share-based awards was accelerated in conjunction with the reduction of workforce described in Note 6 and is included in restructuring and transaction costs in the accompanying consolidated statements of comprehensive earnings.

	Nine Months Ended September 30,				Six Months Ended June 30,
	2020		2019		2021		2020
G&A	$	58	$	64	$	40	$	39
Exploration expenses		1		1
Restructuring and transaction costs		11		27		21		—
Total	$	70	$	92	$	61	$	39
Related income tax benefit	$	—	$	13

Under its approved long-term incentive plan, Devon ~~granted~~grants share-based awards to certain ~~employees in the first nine months of 2020.~~employees. The following table presents a summary of Devon’s unvested restricted stock awards and units, performance-based restricted stock awards and performance share units granted under the plan.

						Performance-Based					Performance												Performance-Based					Performance
	Restricted Stock Awards					Restricted Stock Awards					Share Units							Restricted Stock Awards & Units					Restricted Stock Awards					Share Units
	Awards			Weighted Average Grant-Date Fair Value		Awards			Weighted Average Grant-Date Fair Value		Units					Weighted Average Grant-Date Fair Value		Awards/Units			Weighted Average Grant-Date Fair Value		Awards			Weighted Average Grant-Date Fair Value		Units					Weighted Average Grant-Date Fair Value
	(Thousands, except fair value data)																	(Thousands, except fair value data)
Unvested at 12/31/19		4,984		$	29.65		153		$	33.88		2,155				$	40.35
Unvested at 12/31/20																			5,316		$	25.82		44		$	44.70		1,994				$	31.89
Granted(1)		3,056		$	21.90		—		$	—		688				$	27.89		7,691		$	19.67		—		$	—		861				$	18.08
Vested		(2,093	)	$	29.11		(109	)	$	29.51		(455	)			$	52.56		(4,777	)	$	22.23		(44	)	$	44.70		(754	)			$	37.40
Forfeited		(294	)	$	24.44		—		$	—		(385	)			$	47.68		(69	)	$	23.45		—		$	—		(25	)			$	36.04
Unvested at 9/30/20		5,653		$	25.93		44		$	44.70		2,003		⁽¹	⁾	$	31.89
Unvested at 6/30/21																			8,161		$	22.15		—		$	—		2,076		⁽²	⁾	$	24.12

Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(1)

Due to the closing 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. As a result, approximately 4.9 million awards relate to the conversion of WPX equity awards to Devon equity awards.

(2)

A maximum of ~~4.0~~4.2 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 ~~2020,~~2021, as indicated in the previous summary table.

	2020		2021
Grant-date fair value	$	27.89	$	18.08
Risk-free interest rate	1.36%		0.18%
Volatility factor	38.4%		67.8%
Contractual term (years)	2.89		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 ~~September~~June 30, ~~2020.~~2021.

			Performance-Based
	Restricted Stock		Restricted Stock		Performance		Restricted Stock		Performance
	Awards		Awards		Share Units		Awards/Units		Share Units
Unrecognized compensation cost	$	81	$	—	$	15	$	111	$	18
Weighted average period for recognition (years)		2.6		0.7		1.7		2.6		2.1

~~Table of Contents~~

~~DEVON ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~(Unaudited)~~

5.Asset Impairments

The following table presents a summary of Devon’s asset impairments. Unproved impairments shown below are included in exploration expenses in the consolidated statements of comprehensive earnings.

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Proved oil and gas assets	$	—	$	—	$	2,664	$	—	$	—	$	—	$	—	$	2,664
Other assets		—		—		2		—		—		—		—		2
Total asset impairments	$	—	$	—	$	2,666	$	—	$	—	$	—	$	—	$	2,666

Unproved impairments	$	36	$	13	$	149	$	15	$	1	$	3	$	2	$	113

Proved Oil and Gas and Other Asset Impairments

~~Reduced~~Due to the reduced demand from the COVID-19 pandemic ~~caused~~causing an unprecedented downturn in the price of ~~oil. As a result, Devon reduced planned 2020~~oil and reductions in near-term capital investment, ~~by 45%. With materially lower commodity prices and reduced near-term investment, Devon assessed all of its oil and gas fields for impairment as of March 31, 2020.~~ For impairment determinations, Devon historically utilized NYMEX forward strip prices for the first five years and applied internally generated price forecasts for subsequent years. In response to the COVID-19 pandemic, the NYMEX forward market became highly illiquid as evidenced by materially reduced trading volumes for periods beyond 2021. Therefore, Devon supplemented the NYMEX forward strip prices with price forecasts published by reputable investment banks and reservoir engineering firms to estimate future revenues as of March 31, 2020. To measure indicated impairments, Devon used a market-based weighted-average cost of capital to discount the future net cash flows. These inputs are categorized as level 3 in the fair value hierarchy.

Devon recognized approximately $2.7 billion of proved asset impairments during the first quarter of 2020. These impairments related to the Anadarko Basin and Rockies fields in which the cost basis included acquisitions completed in 2016 and 2015, respectively, when commodity prices were much ~~higher than they are today.~~higher. During the first quarter of 2020, Devon also recognized $2 million of product line fill impairments.

Unproved Impairments

Due to the downturn in the commodity price environment and reduced near-term investment as discussed above, Devon also recognized $~~149~~113 million of unproved impairments during the first ~~nine~~six months of ~~2020. Of these unproved impairments, $113 million related~~2020, primarily toin the Rockies field and $36 million related to certain non-core acreage Devon no longer intends to pursue for exploration opportunities. During the first nine months of 2019, Devon recognized $15 million of unproved impairments related to certain non-core acreage it no longer intended to pursue for exploration opportunities.field.

6.~~Restructuring and~~ ~~Transaction Costs~~

In August 2020, Devon announced a cost reduction plan designed to deliver sustainable cost savings by year-end 2020. As a result, Devon recognized $32 million of restructuring expenses during the third quarter of 2020. Of these expenses, $11 million resulted from accelerated vesting of share-based grants, which are noncash charges.

During the first quarter of 2019, Devon announced workforce reductions and other initiatives designed to enhance its operational focus and cost structure in conjunction with the portfolio transformation discussed in ~~Note 2~~. As a result, Devon recognized $73 million of restructuring expenses during the first nine months of 2019. Of these expenses, $27 million resulted from accelerated vesting of share-based grants, which are noncash charges. Additionally, $5 million resulted from settlements of defined retirement benefits.

1516

Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

6.Restructuring and Transaction Costs

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Restructuring	$	23	$	—	$	166	$	—
Transaction costs		—		—		46		—
Total	$	23	$	—	$	212	$	—

In conjunction with the Merger closing, Devon recognized $166 million of restructuring expenses during the first six months of 2021 related to employee severance and termination benefits, settlements and curtailments from defined retirement benefits and contract terminations. Of these expenses, $40 million and $21 million resulted from settlements and curtailments of defined retirement benefits and accelerated vesting of share-based grants, respectively, which are 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.

The following table summarizes Devon’s restructuring liabilities.

Other

Other

Current

Long-term

Liabilities

Liabilities

Total

(Millions)

Balance as of December 31, 2019

$
20

$
1

$
21

Changes related to 2020 workforce reductions

11

—

11

Changes related to prior years' restructurings

(14
)

—

(14
)
Balance as of September 30, 2020

$
17

$
1

$
18

Balance as of December 31, 2018

$
39

$
3

$
42

Changes related to prior years' restructurings

(9
)

(2
)

(11
)
Balance as of September 30, 2019

$
30

$
1

$
31

	Other			Other
	Current			Long-term
	Liabilities			Liabilities			Total
Balance as of December 31, 2020	$	35		$	137		$	172
Changes related to 2021 workforce reductions		51			—			51
Changes related to prior years' restructurings		(3	)		(15	)		(18	)
Balance as of June 30, 2021	$	83		$	122		$	205

Balance as of December 31, 2019	$	20		$	1		$	21
Changes related to prior years' restructurings		(13	)		—			(13	)
Balance as of June 30, 2020	$	7		$	1		$	8

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 September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Earnings (loss) from continuing operations before income taxes	$	(193	)	$	190		$	(2,980	)	$	(88	)	$	304		$	(680	)	$	272		$	(2,787	)

Current income tax expense (benefit)	$	(90	)	$	2		$	(199	)	$	1		$	19		$	(3	)	$	14		$	(109	)
Deferred income tax expense (benefit)		—			52			(311	)		2			24			—			(219	)		(311	)
Total income tax expense (benefit)	$	(90	)	$	54		$	(510	)	$	3		$	43		$	(3	)	$	(205	)	$	(420	)

U.S. statutory income tax rate		21	%		21	%		21	%		21	%		21	%		21	%		21	%		21	%
State income taxes		0	%		6	%		1	%		(2	%)		0	%		0	%		1	%		1	%
Change in tax legislation		4	%		0	%		3	%		0	%
Unrecognized tax benefits		18	%		0	%		0	%		(2	%)
Subsidiary reorganization														6	%		0	%		7	%		0	%
Deferred tax asset valuation allowance														(19	%)		(20	%)		(116	%)		(8	%)
Other		0	%		1	%		(1	%)		(20	%)		6	%		(1	%)		12	%		1	%
Deferred tax asset valuation allowance		4	%		0	%		(7	%)		0	%
Effective income tax rate		47	%		28	%		17	%		(3	%)		14	%		0	%		(75	%)		15	%

Devon estimates its annual effective income tax rate to record its quarterly provision for income taxes in the various jurisdictions in which it operates. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) became law on March 27, 2020. The CARES Act allows net operating losses generated in taxable years beginning after December 31, 2017 and before January 1, 2021 to be carried back five years to offset taxable income and recoup previously paid taxes. As a result, Devon intends to carry back net operating losses generated in 2019 and 2020 to 2014 and 2015, respectively, and recorded a $105 milliondeferred income tax benefit ~~through~~recognized in the first ~~nine~~six months of ~~2020.~~

~~On July 28, 2020, the Department of Treasury issued final regulations regarding the provision of the Tax Cuts and Jobs Act that limits the deduction for business interest expense. Prior~~2021 primarily relates to the ~~issuance~~Merger. As shown in Note 2, Devon recognized $254 million of deferred tax liabilities to account for the Merger. The recognition of these final regulations, Devon had reduced its CARES Act income tax benefit by $34 million due to the business interest expense limitation. With the regulatory update, Devon was able to reverse the $34 million in the third quarter of 2020 and recognize the full $105 million of benefit under the CARES Act.

~~Throughout 2019, Devon maintained a valuation allowance~~ ~~against certain~~ deferred tax assets, including certain tax credits and state net operating losses. Since then, reduced demand from the COVID-19 pandemic has caused an unprecedented downturn in the commodity price environment. As a result, Devon recorded significant impairments during the first quarter of 2020 and is now in a netliabilities

1617

Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

~~deferred tax asset position. Consequently,~~ ~~Devon reassessed its position and recorded~~caused a ~~100% valuation allowance against all~~decrease to Devon’s net deferred tax assets and a corresponding decrease to the valuation allowance Devon has ~~maintained~~recognized on its U.S. Federal deferred tax assets.

As of June 30, 2021, Devon continued to maintain a ~~full~~valuation allowance against materially all U.S. deferred tax assets. Devon continues to assess its valuation allowance position ~~throughout 2020.~~

every quarter. Absent any additional objective negative evidence, and with the addition of subjective evidence such as forecasted taxable income, Devon may adjust the valuation allowance on its deferred tax assets in future periods.

In the table above, the “other” effect is composed primarily of permanent differences ~~primarily~~ related to ~~stock compensation for which dollar amounts do not increase or decrease~~costs incurred in ~~relation to~~connection with the ~~change in pre-tax earnings.~~Merger. Such items ~~have an insignificant impact on Devon’s effective income tax rate unless pre-tax earnings or losses are relatively small in amount. In total, “other” represents~~represent $18 million of income tax expense in the first ~~nine~~six months of ~~2019.~~2021.

In the fourth quarter of 2020, Devon recorded a deferred tax asset representing the deductible outside basis difference in its investment in a consolidated subsidiary. In the second quarter of 2021, Devon realized this deferred tax asset, increasing its U.S. federal net operating loss carryforwards by $1.8 billion.

8.	Net Earnings (Loss) Per Share from Continuing Operations

The following table reconciles net earnings (loss) from continuing operations and weighted-average common shares outstanding used in the calculations of basic and diluted net earnings (loss) per share from continuing operations.

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Net earnings (loss) from continuing operations:
Net earnings (loss) from continuing operations	$	(105	)	$	136		$	(2,475	)	$	(91	)	$	256		$	(679	)	$	469		$	(2,370	)
Attributable to participating securities		(2	)		(1	)		(3	)		(1	)		(3	)		—			(5	)		(1	)
Basic and diluted earnings (loss) from continuing operations	$	(107	)	$	135		$	(2,478	)	$	(92	)	$	253		$	(679	)	$	464		$	(2,371	)
Common shares:
Common shares outstanding - total		383			397			383			415			677			383			666			383
Attributable to participating securities		(6	)		(5	)		(6	)		(6	)		(6	)		(6	)		(6	)		(6	)
Common shares outstanding - basic		377			392			377			409			671			377			660			377
Dilutive effect of potential common shares issuable		—			2			—			—			2			—			2			—
Common shares outstanding - diluted		377			394			377			409			673			377			662			377
Net earnings (loss) per share from continuing operations:
Basic	$	(0.29	)	$	0.34		$	(6.58	)	$	(0.22	)	$	0.38		$	(1.80	)	$	0.70		$	(6.29	)
Diluted	$	(0.29	)	$	0.34		$	(6.58	)	$	(0.22	)	$	0.38		$	(1.80	)	$	0.70		$	(6.29	)
Antidilutive options ⁽¹⁾		—			1			—			1

9.~~(1)~~

~~Amounts represent options to purchase shares of Devon’s common stock that are excluded from the diluted net earnings per share calculations because the options are antidilutive.~~

9.	Other Comprehensive Earnings (Loss)

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

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Foreign currency translation:

Beginning accumulated foreign currency translation and other

$
—

$
—

$
—

$
1,159

Change in cumulative translation adjustment

—

—

—

78

Release of Canadian cumulative translation adjustment ⁽¹⁾

—

—

—

(1,237
)
Ending accumulated foreign currency translation and other

—

—

—

—

Pension and postretirement benefit plans:

Beginning accumulated pension and postretirement benefits

(117
)

(117
)

(119
)

(132
)
Recognition of net actuarial loss and prior service cost in earnings ⁽²⁾

1

1

4

5

Curtailment and settlement of pension benefits⁽³⁾

—

—

—

15

Income tax expense

—

—

(1
)

(4
)
Ending accumulated pension and postretirement benefits

(116
)

(116
)

(116
)

(116
)
Accumulated other comprehensive loss, net of tax

$
(116
)

$
(116
)

$
(116
)

$
(116
)

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Pension and postretirement benefit plans:
Beginning accumulated pension and postretirement benefits	$	(104	)	$	(118	)	$	(127	)	$	(119	)
Recognition of net actuarial loss and prior service cost in earnings ⁽¹⁾		—			1			1			3
Settlement of pension benefits ⁽²⁾		3			—			18			—
Income tax expense		—			—			—			(1	)
Other ⁽³⁾		—			—			7			—
Accumulated other comprehensive loss, net of tax	$	(101	)	$	(117	)	$	(101	)	$	(117	)

(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.

Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(3)

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 June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Changes in assets and liabilities, net:
Accounts receivable	$	(100	)	$	80		$	(163	)	$	318
Income tax receivable		121			1			136			(112	)
Other current assets		(33	)		30			(58	)		(8	)
Other long-term assets		(14	)		—			(24	)		(24	)
Accounts payable and revenues and royalties payable		72			(189	)		88			(260	)
Other current liabilities		52			(16	)		19			(97	)
Other long-term liabilities		(81	)		(5	)		(108	)		28
Total	$	17		$	(99	)	$	(110	)	$	(155	)
Supplementary cash flow data - total operations:
Interest paid	$	105		$	66		$	219		$	130
Income taxes paid (refunded)	$	(106	)	$	21		$	(112	)	$	172

As of June 30, 2021, Devon had approximately $200 million of accrued capital expenditures included in total property and equipment, net and accounts payable on the consolidated balance sheets. As of December 31, 2020 (pre-merger), Devon had approximately $100 million of accrued capital expenditures in total property and equipment, net and accounts payable on the consolidated balance sheets. As of January 7, 2021 (date of Merger closing), Devon assumed approximately $150 million of accrued capital expenditures included in accounts payable.

11.	Accounts Receivable

Components of accounts receivable include the following:

	June 30, 2021			December 31, 2020
Oil, gas and NGL sales	$	858		$	335
Joint interest billings		128			57
Marketing and midstream revenues		181			195
Other		30			25
Gross accounts receivable		1,197			612
Allowance for doubtful accounts		(12	)		(11	)
Net accounts receivable	$	1,185		$	601

Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

~~(1)~~

In conjunction with the sale of substantially all of its oil and gas assets and operations in Canada, Devon released the cumulative translation adjustment as part of its gain on the disposition of its Canadian business. See ~~Note 17~~ ~~for additional details.~~

~~(2)~~

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 expenses in the accompanying consolidated statements of comprehensive earnings.

~~(3)~~

These accumulated other comprehensive earnings are included within components of other expenses and restructuring and transaction costs in the accompanying consolidated comprehensive statements of earnings.

~~10.~~

~~Supplemental Information to Statements of Cash Flows~~

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Changes in assets and liabilities, net:

Accounts receivable

$
21

$
55

$
339

$
65

Income tax receivable

—

(12
)

(112
)

(13
)
Other current assets

18

15

10

18

Other long-term assets

(9
)

14

(33
)

(1
)
Accounts payable

11

23

9

(14
)
Revenues and royalties payable

89

(72
)

(169
)

(88
)
Other current liabilities

15

12

(82
)

(77
)
Other long-term liabilities

(87
)

1

(59
)

10

Total

$
58

$
36

$
(97
)

$
(100
)
Supplementary cash flow data - total operations:

Interest paid

$
64

$
81

$
194

$
242

Income taxes paid (received)

$
(2
)

$
—

$
170

$
16

As of September 30, 2020 and December 31, 2019, Devon had approximately $130 million and $250 million, respectively, of accrued capital expenditures included in “Total property and equipment, net” and “Accounts payable” on the consolidated balance sheets.

~~11.~~

~~Accounts Receivable~~

~~Components of accounts receivable include the following:~~

September 30, 2020

December 31, 2019

Oil, gas and NGL sales

$
276

$
452

Joint interest billings

58

168

Marketing and midstream revenues

147

207

Other

23

13

Gross accounts receivable

504

840

Allowance for doubtful accounts

(11
)

(8
)
Net accounts receivable

$
493

$
832

~~Table of Contents~~

~~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.

	September 30, 2020			December 31, 2019			June 30, 2021			December 31, 2020
Property and equipment:
Proved	$	28,407		$	27,668		$	35,761		$	27,589
Unproved and properties under development		432			583			2,458			392
Total oil and gas		28,839			28,251			38,219			27,981
Less accumulated DD&A		(24,286	)		(20,693	)		(24,492	)		(23,545	)
Oil and gas property and equipment, net		4,553			7,558			13,727			4,436
Other property and equipment		1,746			1,725			2,095			1,737
Less accumulated DD&A		(743	)		(690	)		(633	)		(780	)
Other property and equipment, net ⁽¹⁾		1,003			1,035			1,462			957
Property and equipment, net	$	5,556		$	8,593		$	15,189		$	5,393

(1)

$~~100~~106 million and ~~$80~~$102 million related to CDM in 2021 and 2020, ~~and 2019,~~ respectively.

During the first nine months of 2020, Devon recognized asset impairments of $2.7 billion primarily related to proved oil and gas assets and $149 million of unproved impairments, which significantly reduced the carrying value of its property and equipment, net. See ~~Note 5~~ ~~for additional details.~~

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.

	September 30, 2020			December 31, 2019			June 30, 2021			December 31, 2020
8.25% due August 1, 2023 ⁽¹⁾							$	242		$	—
5.25% due September 15, 2024 ⁽¹⁾								472			—
5.85% due December 15, 2025	$	485		$	485			485			485
7.50% due September 15, 2027		73			73			73			73
5.25% due October 15, 2027 ⁽¹⁾								390			—
5.875% due June 15, 2028 ⁽¹⁾								325			—
4.50% due January 15, 2030 ⁽¹⁾								585			—
7.875% due September 30, 2031		675			675			675			675
7.95% due April 15, 2032		366			366			366			366
5.60% due July 15, 2041		1,250			1,250			1,250			1,250
4.75% due May 15, 2042		750			750			750			750
5.00% due June 15, 2045		750			750			750			750
Net discount on debentures and notes		(20	)		(20	)
Net premium (discount) on debentures and notes								171			(20	)
Debt issuance costs		(32	)		(35	)		(32	)		(31	)
Total long-term debt	$	4,297		$	4,294		$	6,502		$	4,298

(1)

These instruments were assumed by Devon in January 2021 in conjunction with the Merger. Subsequent to debt retirements and the obligor exchange transaction completed during the first six months of 2021, approximately $51 million of these instruments remain the unsecured and unsubordinated obligation of WPX, a wholly-owned subsidiary of Devon.

Debt maturities as of June 30, 2021, excluding debt issuance costs, premiums and discounts, are as follows:

	Total
2022	$	—
2023		242
2024		472
2025		485
2026		—
Thereafter		5,164
Total	$	6,363

Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The following schedule includes the summary of the WPX debt Devon assumed upon closing of the Merger on January 7, 2021.

	Face Value		Fair Value		Optional Redemption⁽¹⁾
6.00% due January 15, 2022	$	43	$	44
8.25% due August 1, 2023		242		281	June 1, 2023
5.25% due September 15, 2024		472		530	June 15, 2024
5.75% due June 1, 2026		500		529	June 1, 2021
5.25% due October 15, 2027		600		646	October 15, 2022
5.875% due June 15, 2028		500		554	June 15, 2023
4.50% due January 15, 2030		900		978	January 15, 2025
	$	3,257	$	3,562

(1)

At any time prior to these dates, Devon has or had the option to redeem (i) some or all of the notes at a specified "make whole" premium and (ii) a portion of certain of the notes at applicable redemption prices, in each case as described in the indenture documents governing the notes to be redeemed. On or after these dates, Devon has or had the option to redeem the notes, in whole or in part, at the applicable redemption prices set forth in the indenture documents, plus accrued and unpaid interest thereon to the redemption date as more fully described in such documents.

Credit Lines

Devon has a $3.0 billion Senior Credit Facility. As of ~~September~~June 30, ~~2020,~~2021, Devon had 0 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 ~~noncash~~non-cash financial write-downs such as impairments. As of ~~September~~June 30, ~~2020,~~2021, Devon was in compliance with this covenant with a debt-to-capitalization ratio of ~~19.5%~~25.6%.

Retirement of Senior Notes

In ~~January 2019,~~the first six months of 2021, Devon ~~repaid $162~~redeemed $43 million of ~~6.30%~~the 6.00% senior notes ~~at maturity.~~due 2022, $175 million of the 5.875% senior notes due 2028, $315 million of the 4.50% senior notes due 2030, $210 million of the 5.25% senior notes due 2027 and $500 of the 5.75% senior notes due 2026. In the first six months of 2021, Devon recognized $30 million of gains on early retirement of debt, consisting of $89 million of non-cash premium accelerations, partially offset by $59 million of cash retirement costs. The gain on early retirement is included in financing costs, net in the consolidated statements of comprehensive earnings.

19Net Financing Costs

The following schedule includes the components of net financing costs.

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Interest based on debt outstanding	$	98		$	65		$	203		$	130
Gain on early retirement of debt		(10	)		—			(30	)		—
Interest income		—			(2	)		(1	)		(7	)
Other		(8	)		6			(15	)		11
Total net financing costs	$	80		$	69		$	157		$	134

Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

~~Net Financing Costs~~

~~The following schedule includes the components of net financing costs.~~

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Interest based on debt outstanding

$
65

$
65

$
195

$
195

Interest income

(5
)

(10
)

(12
)

(28
)
Other

6

5

17

19

Total net financing costs

$
66

$
60

$
200

$
186

14.Leases

The following table presents Devon’s right-of-use assets and lease liabilities as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

	September 30, 2020						December 31, 2019						June 30, 2021						December 31, 2020
	Finance		Operating		Total		Finance		Operating		Total		Finance		Operating		Total		Finance		Operating		Total
Right-of-use assets	$	222	$	4	$	226	$	229	$	14	$	243	$	216	$	36	$	252	$	220	$	3	$	223
Lease liabilities:
Current lease liabilities ⁽¹⁾	$	7	$	1	$	8	$	7	$	10	$	17	$	8	$	23	$	31	$	8	$	1	$	9
Long-term lease liabilities		243		2		245		240		4		244		245		13		258		244		2		246
Total lease liabilities	$	250	$	3	$	253	$	247	$	14	$	261	$	253	$	36	$	289	$	252	$	3	$	255

(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.

	Nine Months Ended September 30,						Six Months Ended June 30,
	2020			2019			2021			2020
Asset retirement obligations as of beginning of period	$	398		$	484		$	369		$	398
Assumed WPX obligations								98			—
Liabilities incurred		15			14			20			11
Liabilities settled and divested		(24	)		(50	)		(47	)		(21	)
Revision of estimated obligation		4			(62	)		11			4
Accretion expense on discounted obligation		15			16			14			10
Asset retirement obligations as of end of period		408			402			465			402
Less current portion		10			17			15			11
Asset retirement obligations, long-term	$	398		$	385		$	450		$	391

~~During the first nine months of 2019, Devon reduced its asset retirement obligations by $62 million,~~ primarily due to changes in the future cost estimates and retirement dates for its oil and gas assets. Additionally, during the first nine months of 2019, Devon reduced its asset retirement obligations by $34 million as a result of the non-core asset divestitures. For additional information, see ~~Note 2~~.

16.	~~Stockholders’ Equity~~

~~Share Repurchase Programs~~

In March 2018, Devon announced a $1.0 billion share repurchase program. In June 2018, Devon announced the expansion of this program to $4.0 billion. In February 2019, Devon announced a further expansion to $5.0 billion with a December 31, 2019 expiration date. In December 2019, Devon announced a new $1.0 billion share repurchase program with a December 31, 2020 expiration date.

~~Table of Contents~~

~~DEVON ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~(Unaudited)~~

Under the new program, $800 million of the $1.0 billion authorization was conditioned upon the closing of the Barnett Shale divestiture for cash proceeds of at least $725 million. Since the Company received proceeds less than that amount in connection with the Barnett divestiture, we do not expect to complete repurchases in excess of $200 million in the aggregate under the existing repurchase program. Moreover, Devon has temporarily suspended its share repurchase program.

~~The table below provides information regarding purchases of Devon’s common stock that were made under the respective share repurchase programs (shares in thousands).~~

Total Number of
Shares Purchased

Dollar Value of
Shares Purchased

Average Price Paid
per Share

$5.0 Billion Plan

Full year 2018

78,149

$
2,978

$
38.11

First quarter 2019

36,141

1,024

28.33

Second quarter 2019

5,911

159

27.01

Third quarter 2019

22,137

550

24.80

Fourth quarter 2019

4,436

94

21.32

Total inception-to-date

146,774

$
4,805

$
32.74

$1.0 Billion Plan

First quarter 2020

2,243

$
38

$
16.85

Total inception-to-date

2,243

$
38

$
16.85

~~Dividends~~

~~The table below summarizes the dividends Devon paid on its common stock.~~

Amounts

Rate Per Share

Quarter Ended 2020:

First quarter
$
34

$
0.09

Second quarter

42

$
0.11

Third quarter

43

$
0.11

Total year-to-date
$
119

Quarter Ended 2019:

First quarter
$
34

$
0.08

Second quarter

37

$
0.09

Third quarter

35

$
0.09

Total year-to-date
$
106

Devon raised its quarterly dividend by 22%, to $0.11 per share, beginning in the second quarter of 2020. In the second quarter of 2019, Devon increased the quarterly dividend rate from $0.08 to $0.09 per share.

On August 4, 2020, Devon’s Board of Directors approved a $0.26 per share (approximately $100 million total) special dividend which was paid on October 1, 2020 to holders of record as of August 14, 2020. As of September 30, 2020, the accrued dividends payable is included as a component of accounts payable within the accompanying consolidated balance sheets.

~~17.~~

~~Discontinued Operations and Assets Held For Sale~~Other Long-Term Liabilities

~~Barnett Shale~~Components of other long-term liabilities include the following:

	June 30, 2021		December 31, 2020
Assumed gathering, processing and transportation contracts	$	474	$	—
Pension and postretirement benefit obligations		227		243
Commodity derivatives		157		5
Restructuring and transaction costs		122		137
Estimated future obligation under a performance guarantee		95		—
Other		173		166
Total other long-term liabilities	$	1,248	$	551

~~On October 1, 2020,~~ Devon ~~completed~~assumed fixed gathering, processing and transportation contracts in the sale of its Barnett Shale assets to BKV for proceeds, net of purchase price adjustments, of $490 million, including a $170 million deposit previously received in April 2020. Additionally, the agreement provides for contingent earnout payments to Devon of up to $260 million based upon future commodity prices, with upside participation beginning at a $2.75 Henry Hub natural gas price or a $50 WTI oil price. The contingent payment period commences on January 1, 2021Merger and ~~has a term of four years.~~

~~Table of Contents~~

~~DEVON ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~(Unaudited)~~

In connection with the sale of its Barnett Shale assets, approximately $88 million of the U.S. reporting unit goodwill was allocated to the Barnett Shale assets. Additionally, Devon ceased depreciation for all property, plant and equipment classified as assets held for sale on the date the sales agreement was approved by the Board of Directors. Devon also recognized a ~~$748 million asset impairment in the fourth quarter of 2019~~liability related ~~to these assets, primarily due~~ to the difference ~~between~~in the ~~net carrying value~~contractual and market rates of these contracts as of the ~~purchase price, net~~date of ~~estimated customary purchase price adjustments. Additionally,~~the Merger. The terms of the contracts extendthrough 2038and all relate to the Delaware Basin. This difference will be recognized as a reduction to production expenses as the associated reserves are produced over the life of the respective contracts. For the six months ended June 30, 2021, Devon recognized ~~incremental asset impairments~~$16 million of ~~$179 million and $3 million during the first quarter and third quarter~~ non-cash amortization of 2020, respectively. The valuation of the future contingent earnout payments included in the September 30, 2020 Barnett Shale impairment computation was $60 million. The value was derived utilizing a Monte Carlo valuation model and qualifiesthese liabilities as a ~~level 3 fair value measurement.~~

Asreduction of ~~September 30, 2020,~~ ~~Devon has~~ ~~classified as cash restricted for discontinued operations on the consolidated balance sheets~~ approximately $20 million of cash for obligations associated with the abandonment of certain gas processing contracts related to divestitures of other Barnett Shale assets that occurred in 2018. Cash payments for these charges total approximately $2 ~~million per quarter.~~

~~Royalty Matter~~

~~Devon is a party to a class action pending in the United States District Court for the Northern District of Texas styled~~ ~~Henry Seeligson et al. v. Devon Energy Production Company, L.P., Case No. 3:16-cv-00082-K. The~~ ~~Seeligson~~ ~~class has been certified and Devon’s request to appeal the class certification was recently denied. The~~ ~~Seeligson~~ ~~class is composed of royalty interest owners under approximately 4,500 oil and gas leases covering properties in the Barnett Shale field in northern Texas. The~~ ~~Seeligson~~ class alleges that Devon breached an implied duty to market by selling natural gas produced from the subject oil and gas leases to a Devon affiliate and failing to obtain the best price reasonably available for the gas. The ~~Seeligson~~ ~~class alleges that this breach resulted in Devon underpaying royalties to the class during the period from January 1, 2008 through March 1, 2014. Although Devon denies the allegations asserted in the~~ ~~Seeligson~~ case, in order to avoid the uncertainty of litigation, Devon recently reached an agreement in principle to settle the class claims. Although this settlement is contingent upon the negotiation and execution of a final definitive settlement agreement and subject to approval by the District Court, Devon recorded a $28 million expense for this matter in its third quarter 2020 discontinued operations. The amount is included within discontinued operationsproduction expenses in the consolidated statements of comprehensive ~~earnings and consolidated balance sheets.~~

~~Canada~~

In the second quarter of 2019, Devon completed the sale of its Canadian business for $2.6 billion ($3.4 billion Canadian dollars), net of purchase price adjustments, and recognized a pre-tax gain of $223 million ($425 million net of tax, primarily due to a significant deferred tax benefit) in 2019. Current (cash) income and withholding taxes associated with the Canadian business were approximately $175 million and were paid in the first half of 2020.The disposition of substantially all of Devon’s Canadian oil and gas assets resulted in Devon releasing its historical cumulative foreign currency translation adjustment of $1.2 billion from accumulated other comprehensive earnings to be included within the gain computation. The historical cumulative foreign currency translation portion of the gain is not taxable.

~~During the third quarter of 2019, Devon utilized a portion of the sales proceeds to~~ early retire $500 million of the 4.00% senior notes due July 15, 2021 and $1.0 billion of the 3.25% senior notes due May 15, 2022. Devon recognized a charge on the early retirement of these notes consisting of $52 million in cash retirement costs and $6 million of noncash charges.earnings.

~~As of September 30, 2020,~~Additionally, in the Merger, Devon ~~has classified as cash restricted for discontinued operations on the consolidated balance sheets approximately $170 million of cash for obligations retained~~assumed a future obligation under a performance guarantee related to gathering and processing commitments for assets WPX sold in 2018 in which the ~~Canadian business. The remaining obligations consist~~purchaser of ~~a firm transportation agreement and office leases. Cash payments for these charges total approximately $8 million per quarter.~~those assets is now not expected to have the financial

Table of Contents

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

ability to satisfy the obligations. As of June 30, 2021, Devon recorded a $129 million liability for the estimated potential exposure based on probability-weighted cash flows for the remainder of the contract term of five years. Of the $129 million, $95 million is included in other long-term liabilities and $34 million is included in other current liabilities on the consolidated balance sheets as of June 30, 2021.

17.	Stockholders’ Equity

WPX Merger

On January 7, 2021, Devon and WPX completed an all-stock merger of equals. On the closing date of the Merger, each share of WPX common stock was automatically converted into the right to receive0.5165 of a share of Devon common stock. Consequently, Devon issued approximately 290 million shares of Devon common stock to holders of WPX common stock to effect the Merger on January 7, 2021.

Share Repurchases

The table below provides information regarding purchases of Devon’s common stock that were made in 2020 under a share repurchase program that expired at the end of 2020 (shares in thousands).

	Total Number of Shares Purchased		Dollar Value of Shares Purchased		Average Price Paid per Share

First quarter 2020		2,243	$	38	$	16.85
Total		2,243	$	38	$	16.85

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. The following table ~~presents~~summarizes Devon’s fixed and variable dividends for the ~~amounts reported~~first six months of 2021 and 2020, respectively.

	Fixed		Variable		Total		Rate Per Share
2021:
First quarter	$	76	$	127	$	203	$	0.30
Second quarter		75		154		229	$	0.34
Total year-to-date	$	151	$	281	$	432
2020:
First quarter	$	34	$	—	$	34	$	0.09
Second quarter		42		—		42	$	0.11
Total year-to-date	$	76	$	—	$	76

In August 2021, Devon announced a cash dividend in the ~~consolidated statements~~amount of ~~comprehensive~~$0.49 per share payable in the third quarter of 2021. The dividend consists of a fixed quarterly dividend in the amount of approximately $74 million (or $0.11 per share) and a variable quarterly dividend in the amount of approximately $257 million (or $0.38 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 ~~discontinued operations.~~components of equity.

Three Months Ended September 30,

Nine Months Ended September 30,

Barnett Shale

Canada

Total

Barnett Shale

Canada

Total

2020

Oil, gas and NGL sales

$
94

$
—

$
94

$
263

$
—

$
263

Total revenues

94

—

94

263

—

263

Production expenses

66

—

66

214

—

214

Asset impairments

3

—

3

182

—

182

Asset dispositions

—

—

—

—

(2
)

(2
)
General and administrative expenses

—

2

2

—

3

3

Financing costs, net

—

(1
)

(1
)

—

(3
)

(3
)
Other expenses

27

(1
)

26

16

3

19

Total expenses

96

—

96

412

1

413

Earnings (loss) from discontinued operations before income taxes

(2
)

—

(2
)

(149
)

(1
)

(150
)
Income tax benefit

—

(15
)

(15
)

(32
)

(15
)

(47
)
Net earnings (loss) from discontinued operations, net of tax

$
(2
)

$
15

$
13

$
(117
)

$
14

$
(103
)
2019

Oil, gas and NGL sales

$
101

$
11

$
112

$
365

$
741

$
1,106

Oil, gas and NGL derivatives

—

(18
)

(18
)

—

(113
)

(113
)
Marketing and midstream revenues

—

—

—

—

38

38

Total revenues

101

(7
)

94

365

666

1,031

Production expenses

75

(1
)

74

232

293

525

Exploration expenses

—

—

—

—

13

13

Marketing and midstream expenses

—

—

—

—

18

18

Depreciation, depletion and amortization

20

—

20

60

128

188

Asset impairments

—

—

—

—

37

37

Asset dispositions

(1
)

(34
)

(35
)

1

(223
)

(222
)
General and administrative expenses

—

2

2

—

33

33

Financing costs, net

—

59

59

—

85

85

Restructuring and transaction costs

—

5

5

—

244

244

Other expenses

3

5

8

9

8

17

Total expenses

97

36

133

302

636

938

Earnings from discontinued operations before income taxes

4

(43
)

(39
)

63

30

93

Income tax expense (benefit)

1

(13
)

(12
)

13

(298
)

(285
)
Net earnings from discontinued operations, net of tax

$
3

$
(30
)

$
(27
)

$
50

$
328

$
378

18.	Discontinued Operations

On October 1, 2020, Devon completed the sale of its Barnett Shale assets to BKV for proceeds, net of purchase price adjustments, of $490 million. Additionally, the agreement provides for contingent earnout payments to Devon of up to $260 million

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

based upon future commodity prices, 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.

The following table presents the ~~carrying~~ amounts ~~of the assets and liabilities associated with discontinued operations on~~reported in the consolidated ~~balance sheets.~~statements of comprehensive earnings as discontinued operations.

As of September 30, 2020

As of December 31, 2019

Barnett Shale

Canada

Total

Barnett Shale

Canada

Total

Cash restricted for discontinued operations

$
20

$
170

$
190

$
25

$
355

$
380

Accounts receivable

$
33

$
—

$
33

$
38

$
1

$
39

Other current assets

6

—

6

5

2

7

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

590

—

590

751

—

751

Other property and equipment, net

11

—

11

11

—

11

Goodwill

88

—

88

88

—

88

Other long-term assets

—

81

81

—

81

81

Total assets associated with discontinued operations

$
728

$
81

$
809

$
893

$
84

$
977

Accounts payable

$
17

$
3

$
20

$
15

$
4

$
19

Revenues and royalties payable

42

3

45

44

3

47

Other current liabilities

215

38

253

19

233

252

Asset retirement obligations

145

—

145

141

—

141

Other long-term liabilities

14

143

157

16

169

185

Total liabilities associated with discontinued operations

$
433

$
187

$
620

$
235

$
409

$
644

	Three Months Ended June 30, 2020			Six Months Ended June 30, 2020
Oil, gas and NGL sales	$	77		$	169
Total revenues		77			169
Production expenses		74			148
Asset impairments ⁽¹⁾		—			179
Asset dispositions		(2	)		(2	)
General and administrative expenses		—			1
Financing costs, net		—			(2	)
Other, net		(4	)		(7	)
Total expenses		68			317
Earnings (loss) from discontinued operations before income taxes		9			(148	)
Income tax benefit		—			(32	)
Net earnings (loss) from discontinued operations, net of tax	$	9		$	(116	)

(1)

Devon recognized an $179 million asset impairment in the first quarter of 2020 related to the Barnett Shale assets primarily due to the difference between the net carrying value and the purchase price, net of estimated customary purchase price adjustments, which qualified as a level 2 fair value measurement.

~~18.~~19.

Commitments and Contingencies

Devon is party to various legal ~~actions arising~~proceedings and other matters that may result in ~~the normal course of~~future payment obligations or other adverse consequences to its business. Matters that are probable of an unfavorable outcome to Devon and which any related potential payment obligation or other liability 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~~While management does not believe any current matter is likely to ~~likely~~ involve future amounts that would be material to Devon’s financial position or results of operations after consideration of recorded ~~accruals. Actual~~accruals, the ultimate outcome of such matters and the amounts involved 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~~defending against a number of such lawsuits, ~~including~~either as a named defendant in the action or pursuant to indemnity obligations for the benefit of a third party. Plaintiffs in some of these lawsuits ~~in which the plaintiffs seek to certify classes of similarly situated plaintiffs.~~are seeking class certification. Among the allegations typically asserted in these suits are claims that Devon used below-market prices, made improper deductions, failed to “enhance” the value of gas through processing, used improper measurement techniques, ~~and~~ entered into ~~gas~~ purchase and ~~processing~~midstream arrangements with affiliates that resulted in underpayment of royalties ~~in connection with~~or otherwise failed to prudently market oil, natural gas and NGLs produced and ~~sold.~~sold and pay royalties on the highest obtainable price. 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. Devon does not currently believe that it is subject to material exposure with respect to such royalty ~~matters except those detailed within~~ ~~Note 17~~.matters.

Environmental and ~~Other~~Climate Change Matters

~~Devon~~Devon’s business is subject to ~~certain~~numerous federal, state, local and Native American tribal laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental ~~remediation activities associated with past operations, such as the Comprehensive Environmental Response, Compensation, and Liability Act and similar state statutes. In response~~protection. Failure to ~~liabilities associated~~comply with these ~~activities, loss accruals primarily consist~~laws and regulations may result in the assessment of ~~estimated uninsured~~administrative, civil and criminal fines and penalties, as well as remediation costs. ~~Devon’s monetary exposure for~~Although Devon believes that it is in substantial compliance with applicable environmental ~~matters is~~laws and regulations and that continued compliance with existing requirements will not ~~expected to~~have a material adverse impact on its business, there can be ~~material.~~no assurance that this will continue in the future.

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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, the payment of the costs necessary to clear, re-vegetate and

~~Table of Contents~~

~~DEVON ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~(Unaudited)~~

otherwise restore the allegedly impacted areas. Although Devon cannot predict the ultimate outcome of these matters, Devon believes these claims to be baseless and is vigorously defending against these claims.

~~Various~~

The State of Delaware and various municipalities and other governmental and private parties in California ~~and the State of Delaware~~ have filed legal proceedings against ~~certain~~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 believes these claims to be baseless and intends to vigorously defend against the proceedings.

Williams’ Former Power Business Matter

Direct and indirect purchasers of natural gas in various states filed individual and class action lawsuits against The Williams Companies, Inc. (“Williams”) and other parties alleging the manipulation of published gas price indices and seeking unspecified amounts of damages. WPX and certain of its subsidiaries, which were then affiliates of Williams, were also named as defendants in these actions.

Devon cannot reasonably estimate a range of potential exposure at this time for these matters. In connection with its spin-off from Williams in 2011, WPX entered into a separation and distribution agreement with Williams, pursuant to which Williams agreed to indemnify and hold WPX and its subsidiaries harmless from any losses arising out of these matters.

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. 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.

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DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

~~19.~~20.

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, ~~cash restricted for discontinued operations,~~ 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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, as applicable. Therefore, such financial assets and liabilities are not presented in the following table. Additionally, information regarding the fair values of oil and gas assets is provided in Note 5.

							Fair Value Measurements Using:											Fair Value Measurements Using:
	Carrying			Total Fair			Level 1		Level 2			Carrying			Total Fair			Level 1		Level 2			Level 3
	Amount			Value			Inputs		Inputs			Amount			Value			Inputs		Inputs			Inputs
September 30, 2020 assets (liabilities):
June 30, 2021 assets (liabilities):
Cash equivalents	$	1,171		$	1,171		$	1,171	$	—		$	696		$	696		$	696	$	—		$	—
Commodity derivatives	$	28		$	28		$	—	$	28		$	6		$	6		$	—	$	6		$	—
Commodity derivatives	$	(80	)	$	(80	)	$	—	$	(80	)	$	(1,125	)	$	(1,125	)	$	—	$	(1,125	)	$	—
Debt	$	(4,297	)	$	(4,635	)	$	—	$	(4,635	)	$	(6,502	)	$	(7,630	)	$	—	$	(7,630	)	$	—
December 31, 2019 assets (liabilities):
Contingent earnout payments												$	135		$	135		$	—	$	—		$	135
December 31, 2020 assets (liabilities):
Cash equivalents	$	702		$	702		$	702	$	—		$	1,436		$	1,436		$	1,436	$	—		$	—
Commodity derivatives	$	50		$	50		$	—	$	50		$	6		$	6		$	—	$	6		$	—
Commodity derivatives	$	(31	)	$	(31	)	$	—	$	(31	)	$	(148	)	$	(148	)	$	—	$	(148	)	$	—
Debt	$	(4,294	)	$	(5,376	)	$	—	$	(5,376	)	$	(4,298	)	$	(5,365	)	$	—	$	(5,365	)	$	—
Contingent earnout payments												$	66		$	66		$	—	$	—		$	66

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

25Contingent 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.

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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 and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 compared to previous periods and in our financial condition and liquidity since December 31, ~~2019. For~~2020. To help facilitate comparisons to the three-month period ended March 31, 2021, information regarding our first quarter 2021 financial results can be found in our First Quarter 2021 Quarterly Report on Form 10-Q . Additionally, for information regarding our critical accounting policies and estimates, see our ~~2019~~2020 Annual Report on Form 10-K under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

~~COVID – 19~~

~~A novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was reported to have surfaced in China in late 2019~~WPX Merger and has subsequently spread to multiple countries worldwide, resulting in a global pandemic and health crisis. Devon began actively monitoring COVID-19 in January 2020 and formally established a COVID-19 cross-functional planning team at the beginning of March. The COVID-19 team is focused on two key priorities: the health and safety of our employees and contractors and the uninterrupted operation of our business.

•

~~Health and safety~~ – The COVID-19 team has developed and implemented a number of safety measures, which have successfully kept our workforce healthy and safe. The COVID-19 team has established an informational campaign to provide employees an understanding of the virus risk factors and safety measures, as well as timely updates from governmental stay-at-home regulations. Expectations have also been set for employees to communicate immediately if they, or someone they have been in contact with, has experienced symptoms or tested positive for COVID-19. Other measures have included closing all of Devon’s office buildings and locations to the public, implementing social distancing and encouraging employees to work from home. Beginning in late March, more than 90% of the workforce assigned to Devon’s Oklahoma City Headquarters office were primarily working from home until the vast majority returned to the office late in the second quarter. The COVID-19 team also strongly encourages employees to wear masks, reinforces social distancing measures and continues to perform targeted and routine intensive and deep cleaning of all Devon office locations.

•

~~Uninterrupted operation of our business~~ – Beyond workforce safety measures, the COVID-19 team has worked with government officials to ensure our business continues to be deemed an essential business or infrastructure. The COVID-19 team has ensured technology and resources are available for employees to execute their job duties while working from home and implemented further social distancing and contactless initiatives in our oil and gas field operations. The collective efforts of our COVID-19 team and our entire workforce have enabled us to avoid the need to implement COVID-19 containment or mitigation measures, which would require closure or suspension of any of our operations.

This outbreak and the related responses of governmental authorities and others to limit the spread of the virus have significantly reduced global economic activity, resulting in an unprecedented decline in the demand for oil and other commodities. This supply-and-demand imbalance was exacerbated by uncertainty regarding the future global supply of oil due to disputes between Russia and the members of OPEC in March 2020. These factors caused a swift and material deterioration in commodity prices in early 2020, with NYMEX WTI oil prices falling from a high of over $60/Bbl at the beginning of the year to below $20/Bbl in April 2020. By the end of the second quarter of 2020, NYMEX WTI oil prices recovered to approximately $40/Bbl and may remain volatile around this level for the foreseeable future.Operating Results

On September 26, 2020, we entered into the Merger Agreement, providing for an all-stock merger of equals with ~~WPX.~~WPX which successfully closed on January 7, 2021. The Merger ~~will create~~has created 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 accelerates 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 disciplined oil volume growth while ~~cutting~~capturing operational and corporate ~~costs,~~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:

•

Efficiency gains drove ~~third~~second quarter capital expenditures 3%9% below our ~~plan~~plan.

•

~~Third-quarter oil~~Second quarter Boe production totaled ~~146 MBbls/~~567 MBoe/d, exceeding our plan by 4% 3%.

•

~~Operating costs continued~~On pace to ~~decline~~achieve approximately $600 million in annual cost savings by the ~~third quarter~~end of ~~2020, led by a 30% and 8% decrease from the year ago quarter for G&A and production expenses, respectively~~ 2021.

•

~~Reduced workforce to reflect lower and sustainable capital investment program~~Redeemed approximately $1.2 billion of senior notes in 2021.

•

Exited the ~~third~~second quarter with ~~$4.9~~$4.5 billion of liquidity, including ~~$1.9~~$1.5 billion of cash, with no ~~near-term~~ debt maturities until 2023.

•

~~Closed on the Barnett Shale transaction on October 1, 2020, receiving net proceeds of $490 million~~

•

~~Paid a special dividend~~Including variable dividends, paid dividends of ~~$0.26 per share for~~ approximately ~~$100~~$432 million ~~on October 1, 2020~~in the first six months of 2021 and have declared $331 million of dividends to be paid in the third quarter of 2021.

~~Table of Contents~~

Overview of ~~2020~~2021 Results

We operate under a disciplined returns-driven strategy focused on delivering strong operational results, financial strength and value to our shareholders and continuing our commitment to environmental, social and governance excellence, which provides us with a strong foundation to grow returns, margin and profitability. We continue to execute on our strategy and navigate through ~~the challenged~~various economic ~~environment~~environments by protecting our financial strength, tailoring our capital investment to market conditions, improving our cash cost structure and preserving operational continuity.

After a significant downturn in economic activity in 2020 resulting from the unprecedented COVID-19 pandemic, economic activity has begun to recover, and commodity prices have continued to increase in 2021. However, we expect commodity prices to remain volatile with the emergence of COVID-19 variants and pending OPEC+ curtailment decisions. We will continue to evaluate the global impacts of COVID-19 as they evolve and will adapt accordingly as a company.

Trends of our quarterly earnings, operating cash flow, EBITDAX and capital expenditures are shown below. The quarterly earnings chart presents amounts pertaining to both Devon’s continuing and ~~discontinuing~~discontinued operations. The quarterly cash flow chart presents amounts pertaining to Devon’s continuing operations. Activity related to discontinued operations is only applicable for 2020 periods. “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.

Table of Contents

Our net earnings in recent quarters have been significantly impacted by divestiture transactions, asset impairments and temporary, ~~noncash~~non-cash adjustments to the value of our commodity hedges. Net earnings in the second quarter of 2021, the first quarter of 2021, the fourth quarter of 2020 and the third quarter of 2020 each included a ~~$0.1 billion~~ hedge valuation loss, net of ~~tax. Net earnings in the second quarter~~tax of ~~2020 included a $0.5~~$0.3 billion, ~~hedge valuation loss, net of tax. Net earnings in the first quarter of 2020 included $2.3~~$0.2 billion, of asset impairments on our proved and unproved properties and a $0.5 billion hedge valuation gain, both net of taxes. Net earnings in the fourth quarter of 2019 included $0.6 billion of asset impairments and a $0.1 billion ~~hedge valuation loss, both net of taxes.~~and $0.1 billion, respectively. Excluding these amounts, our core earnings have been more stable over recent quarters but continue to be heavily influenced by commodity prices.

Despite our portfolio enhancements, aggressive cost reductions and operational advancements, our financial results ~~were~~have been challenged by commodity prices and deterioration of the macro-economic environment resulting from the ~~unprecedented~~aforementioned COVID-19 ~~pandemic.~~pandemic; however, prices have begun to recover and increase significantly in 2021. Our earnings increased from the first quarter of 2021 to the second quarter of ~~2020 to the third quarter of 2020~~2021 primarily due to an increase in overall commodity ~~prices.~~prices as well as higher sold volumes. Led by a ~~44%~~14% increase in WTI from the first quarter of 2021 to the second quarter of ~~2020 to the third quarter of 2020,~~2021, our unhedged combined realized price rose ~~57%, while our hedged price~~7%. Volumes increased ~~3%. In response~~due to ~~this commodity price environment, we were able to reduce our aggregate~~new well activity and restored production ~~and G&A expenses 14% compared to~~operations following winter storms in the ~~year ago~~first quarter.

~~Table of Contents~~

Like earnings, our operating cash flow is sensitive to volatile commodity prices. EBITDAX, which excludes financial amounts related to discontinued operations, and operating cash flows ~~continue to be~~have been impacted ~~from~~by the COVID-19 pandemic and ~~declines in~~its impact on commodity prices. ~~As operating~~Our cash flow ~~has declined, we have reduced our 2020 capital development plans approximately $800 million, or 45% compared~~increased during the first and second quarters of 2021 primarily due to ~~the original capital budget.~~higher commodity prices and an increase in sold volumes.

We exited the ~~third~~second quarter of ~~2020~~2021 with ~~$4.9~~$4.5 billion of liquidity, comprised of ~~$1.9~~$1.5 billion of cash ~~inclusive of $190 million of cash restricted for discontinued operations,~~ and $3.0 billion of available credit under our Senior Credit Facility. We currently have ~~$4.3~~$6.5 billion of debt outstanding with no maturities until ~~the end of 2025.~~August 2023. We currently have approximately ~~50%~~45% and ~~40% of the first half~~60% of our remaining 2021 oil and gas production hedged, respectively, and 20% and 25% of our 2022 oil and gas production hedged, respectively. These contracts consist of collars and swaps based off the WTI oil

Table of Contents

benchmark and the Henry Hub and NYMEX last day natural gas ~~index.~~indices. Additionally, we have entered into regional basis swaps in an effort to protect price realizations across our portfolio.

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 earnings attributable to discontinued operations or noncontrolling interests. ~~Analysis of the change in~~

Q2 2021 vs. Q1 2021

Our second quarter 2021 net earnings ~~from continuing operations is shown below and analysis of the change in net earnings from discontinued operations is shown on page 36.~~

~~Continuing Operations~~

~~Q3 2020 vs. Q2 2020~~

~~Our third quarter 2020 net loss from continuing operations was $103~~were $261 million, compared to a net ~~loss~~earnings of ~~$677~~$216 million for the ~~second~~first quarter of ~~2020.~~2021. The graph below shows the change in net earnings from the ~~net loss from~~first quarter of 2021 to the second quarter of ~~2020 to the third quarter of 2020.~~2021. The material changes are further discussed by category on the following pages.

2829

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Production Volumes

	Q3 2020		% of Total			Q2 2020		Change			Q2 2021		% of Total			Q1 2021		Change
Oil (MBbls/d)
Delaware Basin		77		53	%		79		- 3	%		191		66	%		172		+11	%
Anadarko Basin												17		6	%		13		+29	%
Williston Basin												46		16	%		44		+3	%
Eagle Ford												18		6	%		16		+14	%
Powder River Basin		21		14	%		18		+14	%		16		5	%		17		- 4	%
Eagle Ford		22		15	%		27		- 19	%
Anadarko Basin		19		13	%		21		- 9	%
Other		7		5	%		8		- 9	%		3		1	%		6		- 45	%
Total		146		100	%		153		- 5	%		291		100	%		268		+9	%

	Q3 2020		% of Total			Q2 2020		Change			Q2 2021		% of Total			Q1 2021		Change
Gas (MMcf/d)
Delaware Basin		239		41	%		241		- 1	%		513		58	%		471		+9	%
Anadarko Basin												225		26	%		200		+13	%
Williston Basin												61		7	%		49		+24	%
Eagle Ford												59		7	%		47		+25	%
Powder River Basin		23		4	%		20		+12	%		21		2	%		21		+3	%
Eagle Ford		73		12	%		87		- 16	%
Anadarko Basin		242		42	%		262		- 8	%
Other		3		1	%		4		- 13	%		2		0	%		3		- 25	%
Total		580		100	%		614		- 6	%		881		100	%		791		+11	%

	Q3 2020		% of Total			Q2 2020		Change			Q2 2021		% of Total			Q1 2021		Change
NGLs (MBbls/d)
Delaware Basin		38		46	%		29		+32	%		82		64	%		60		+36	%
Anadarko Basin												26		20	%		21		+21	%
Williston Basin												9		7	%		8		+21	%
Eagle Ford												9		7	%		6		+39	%
Powder River Basin		3		3	%		2		+19	%		3		2	%		3		- 4	%
Eagle Ford		11		14	%		12		- 1	%
Anadarko Basin		30		36	%		25		+18	%
Other		1		1	%		1		- 2	%		—		0	%		1		- 100	%
Total		83		100	%		69		+20	%		129		100	%		99		+30	%

	Q3 2020		% of Total			Q2 2020		Change			Q2 2021		% of Total			Q1 2021		Change
Combined (MBoe/d)
Delaware Basin		155		48	%		149		+4	%		358		63	%		310		+16	%
Anadarko Basin												80		14	%		68		+18	%
Williston Basin												66		12	%		61		+8	%
Eagle Ford												37		6	%		30		+21	%
Powder River Basin		28		9	%		24		+14	%		22		4	%		23		- 3	%
Eagle Ford		46		14	%		53		- 14	%
Anadarko Basin		89		27	%		90		- 1	%
Other		8		2	%		9		- 8	%		4		1	%		7		- 43	%
Total		326		100	%		325		+0	%		567		100	%		499		+14	%

From the first quarter of 2021 to the second quarter of ~~2020 to the third quarter of 2020,~~2021, the change in volumes contributed to a $3$229 million ~~decrease~~increase in earnings. ~~Due~~The increase in volumes was primarily due to ~~2020 capital expenditures being reduced by 45%~~downtime in ~~response~~the first quarter related to the ~~challenged current macro-economic environment~~February winter storm and ~~the timing of completions, volumes continued to remain lower~~new well activity in the ~~third quarter.~~second quarter in the Delaware Basin. Volumes ~~for~~in the ~~fourth~~third quarter are expected to range from approximately ~~318~~566 to ~~334~~594 MBoe/d.

~~Field~~

Realized Prices

	Q3 2020		Realization	Q2 2020		Change			Q2 2021			Realization	Q1 2021			Change
Oil (per Bbl)
WTI index	$	40.86		$	28.42		+44	%	$	66.04			$	57.87			+14	%
Realized price, unhedged	$	37.56	92%	$	21.25		+77	%	$	63.63		96%	$	55.28			+15	%
Cash settlements	$	0.65		$	15.25				$	(13.29	)		$	(9.13	)
Realized price, with hedges	$	38.21	94%	$	36.50		+5	%	$	50.34		76%	$	46.15			+9	%

	Q3 2020		Realization	Q2 2020		Change			Q2 2021			Realization	Q1 2021			Change
Gas (per Mcf)
Henry Hub index	$	1.98		$	1.71		+16	%	$	2.83			$	2.71			+4	%
Realized price, unhedged	$	1.48	75%	$	1.29		+14	%	$	2.35		83%	$	2.84			- 17	%
Cash settlements	$	0.06		$	0.28				$	(0.15	)		$	(0.15	)
Realized price, with hedges	$	1.54	78%	$	1.57		- 2	%	$	2.20		78%	$	2.69			- 18	%

	Q3 2020			Realization	Q2 2020		Change			Q2 2021			Realization	Q1 2021			Change
NGLs (per Bbl)
Mont Belvieu blended index ⁽¹⁾	$	16.69			$	12.57		+33	%
WTI index										$	66.04			$	57.87			+14	%
Realized price, unhedged	$	12.36		74%	$	8.89		+39	%	$	23.89		36%	$	25.01			- 4	%
Cash settlements	$	(0.30	)		$	0.51				$	(0.25	)		$	(0.20	)
Realized price, with hedges	$	12.06		72%	$	9.40		+28	%	$	23.64		36%	$	24.81			- 5	%

~~(1)Based upon composition of our NGL barrel.~~

	Q3 2020		Q2 2020		Change			Q2 2021			Q1 2021			Change
Combined (per Boe)
Realized price, unhedged	$	22.60	$	14.37		+57	%	$	41.75		$	39.14			+7	%
Cash settlements	$	0.33	$	7.83				$	(7.11	)	$	(5.17	)
Realized price, with hedges	$	22.93	$	22.20		+3	%	$	34.64		$	33.97			+2	%

From the first quarter of 2021 to the second quarter of ~~2020 to the third quarter of 2020,~~2021, field prices contributed to a ~~$257~~$168 million 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~~This was partially offset by ~~a decrease~~lower unhedged realized gas and NGL prices which was primarily due to higher first quarter pricing contracts resulting from the winter storm and increased ethane rejection, respectively. The increase in WTI was also partially offset by an increase in hedge cash ~~settlements related to all products from the second quarter to the third quarter of 2020.~~settlement payments.

We currently have approximately ~~50%~~45% of ~~the first half of~~ our remaining 2021 oil production hedged with an average floor price of ~~$39/~~$40/Bbl and approximately ~~40%~~60% of ~~the first half of~~ our remaining 2021 gas production hedged with an average floor price of ~~$2.45/~~$2.57/Mcf. We ~~are continuing to build~~currently have approximately 20% of our ~~2021~~2022 oil production hedged with an average floor price of $45/Bbl and approximately 25% of our 2022 ~~hedge positions at market prices.~~gas production hedged with an average floor price of $2.64/Mcf.

Hedge Settlements

	Q3 2020			Q2 2020		Change			Q2 2021			Q1 2021			Change
	Q								Q
Oil	$	9		$	213		- 96	%	$	(352	)	$	(220	)		- 60	%
Natural gas		4			15		- 73	%		(12	)		(10	)		- 20	%
NGL		(3	)		4		- 175	%		(3	)		(2	)		- 50	%
Total cash settlements ⁽¹⁾	$	10		$	232		- 96	%	$	(367	)	$	(232	)		- 58	%

(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.

2930

Table of Contents

Production Expenses

	Q3 2020			Q2 2020			Change			Q2 2021			Q1 2021			Change
LOE	$	100		$	108			- 7	%	$	210		$	199			+6	%
Gathering, processing & transportation		125			123			+2	%		147			129			+14	%
Production taxes		42			25			+68	%		143			117			+22	%
Property taxes		4			7			- 38	%		13			13			+0	%
Total	$	271		$	263			+3	%	$	513		$	458			+12	%
Per Boe:
LOE	$	3.32		$	3.69			- 10	%	$	4.06		$	4.44			- 9	%
Gathering, processing & transportation	$	4.17		$	4.16			+0	%	$	2.85		$	2.87			- 1	%
Percent of oil, gas and NGL sales:
Production taxes		6.2	%		5.9	%		+4	%		6.7	%		6.6	%		+1	%

Production expenses increased from the first quarter of 2021 to the second quarter ~~to the third quarter~~of 2021 primarily due to the activity impacts from the February 2021 winter storm and new well activity in the second quarter. Production taxes also increased ~~production taxes resulting from higher oil, gas and NGL sales.~~due to the rise in 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 ~~prepared in accordance with~~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, ~~field~~realized prices and production expenses, shown above, had the following impact on our field-level cash margins by asset.

	Q3 2020		$ per BOE		Q2 2020		$ per BOE		Q2 2021		$ per BOE		Q1 2021		$ per BOE
Field-level cash margin (non-GAAP)
Field-level cash margin (Non-GAAP)
Delaware Basin	$	236	$	16.52	$	106	$	7.81	$	1,102	$	33.79	$	895	$	32.07
Anadarko Basin										145	$	19.86		85	$	14.01
Williston Basin										197	$	32.98		161	$	29.70
Eagle Ford										106	$	31.88		72	$	26.57
Powder River Basin		47	$	18.63		20	$	9.09		74	$	36.78		67	$	31.99
Eagle Ford		61	$	14.66		22	$	4.50
Anadarko Basin		56	$	6.72		13	$	1.67
Other		7	$	10.10		—	$	0.10		17	$	42.85		19	$	28.21
Total	$	407	$	13.59	$	161	$	5.45	$	1,641	$	31.79	$	1,299	$	28.95

~~Due to higher commodity benchmark prices, our unhedged realized price per Boe~~DD&A and Asset Impairments

	Q2 2021		Q1 2021		Change
Oil and gas per Boe	$	9.88	$	9.78		+1	%

Oil and gas	$	510	$	439		+16	%
Other property and equipment	$	26		28		- 7	%
Total	$	536	$	467		+15	%

DD&A increased ~~57% from~~in the second quarter of 2021 primarily due to ~~the third quarter of 2020. These~~ higher ~~realizations improved our field-level cash margin and other performance measures.~~

volumes.

General and Administrative Expense

	Q2 2021		Q1 2021		Change
G&A per Boe	$	1.81	$	2.40		- 25	%

Labor and benefits	$	60	$	72		- 17	%
Non-labor		34		35		- 3	%
Total	$	94	$	107		- 12	%

G&A decreased primarily as a result of lower employee costs and benefits.

Other Items

	Q3 2020			Q2 2020			Change in earnings			Q2 2021			Q1 2021			Change in earnings
Commodity hedge valuation changes ⁽¹⁾	$	(97	)	$	(593	)	$	496		$	(336	)	$	(296	)	$	(40	)
Marketing and midstream operations		(2	)		(8	)		6			1			(21	)		22
Exploration expenses		39			12			(27	)		3			3			—
Asset dispositions											(87	)		(32	)		55
Net financing costs		66			69			3			80			77			(3	)
Restructuring and transaction costs		32			—			(32	)		23			189			166
Other expenses		—			13			13
Other, net											(14	)		(29	)		(15	)
							$	459								$	185

(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.

~~Exploration expenses increased from~~Asset dispositions in the second quarter of 2021 includes $65 million related to the ~~third quarter primarily due to unproved impairments~~re-valuation of ~~$36 million in the third quarter related to certain non-core acreage we no longer intend to pursue for exploration opportunities.~~contingent earnout payments associated with our divested Barnett Shale assets. For additional information, see Note 52 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Restructuring and transaction costs reflect workforce reductions ~~that occurred~~in conjunction with the Merger, as well as various transaction costs related to the Merger. The majority of these costs were recorded in the ~~third~~first quarter ~~to improve the company’s cost structure and enhance its operational focus.~~of 2021. For additional information, see Note 6 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Income Taxes

Q3 2020

Q2 2020

Current benefit

$
(90
)

$
(3
)
Deferred benefit

—

—

Total benefit

$
(90
)

$
(3
)
Effective income tax rate

47
%

0
%

	Q2 2021			Q1 2021
Current expense (benefit)	$	19		$	(5	)
Deferred expense (benefit)		24			(243	)
Total expense (benefit)	$	43		$	(248	)
Effective income tax rate		14	%		763	%

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

3031

Table of Contents

~~2020~~

June 30, YTD 2021 vs. ~~2019~~

~~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 earnings attributable to noncontrolling interests.

Q3June 30, YTD 2020 ~~vs. Q3 2019~~

Our ~~third quarter 2020~~six months ended June 30, 2021 net ~~loss from continuing operations was $103~~earnings were $477 million, compared to a net ~~earnings~~loss of ~~$136 million in~~$2.4 billion (excludes discontinued operations) for the ~~third quarter of 2019.~~six months ended June 30, 2020. The graph below shows the change in the net earnings (loss) from the ~~third quarter of 2019~~six months ended June 30, 2020 to the ~~net loss in the third quarter of 2020.~~six months ended June 30, 2021. The material changes are further discussed by category on the following pages.

~~September 30, YTD 2020 vs. September 30, YTD 2019~~

Our nine months ended September 30, 2020 net loss from continuing operations was $2.5 billion, compared to a net loss of $91 million for the nine months ended September 30, 2019. The graph below shows the change in the net loss from the nine months ended September 30, 2019 to the nine months ended September 30, 2020. The material changes are further discussed on the following pages.

~~Table of Contents~~

~~Production Volumes~~

Three Months Ended September 30,

Nine Months Ended September 30,

2020

% of Total

2019

Change

2020

% of Total

2019

Change

Oil (MBbls/d)

Delaware Basin

77

53
%

70

+9
%

80

52
%

66

+22
%
Powder River Basin

21

14
%

18

+16
%

20

13
%

16

+24
%
Eagle Ford

22

15
%

22

- 0
%

25

16
%

23

+7
%
Anadarko Basin

19

13
%

32

- 40
%

21

14
%

32

- 33
%
Other

7

5
%

9

- 25
%

8

5
%

8

- 9
%
Total

146

100
%

151

- 4
%

154

100
%

145

+6
%
Gas (MMcf/d)

Delaware Basin

239

41
%

167

+43
%

241

40
%

157

+53
%
Powder River Basin

23

4
%

28

- 18
%

24

4
%

23

+5
%
Eagle Ford

73

12
%

75

- 2
%

82

13
%

80

+3
%
Anadarko Basin

242

42
%

317

- 24
%

258

42
%

321

- 19
%
Other

3

1
%

4

- 14
%

4

1
%

5

- 33
%
Total

580

100
%

591

- 2
%

609

100
%

586

+4
%
NGLs (MBbls/d)

Delaware Basin

38

46
%

28

+37
%

35

45
%

26

+35
%
Powder River Basin

3

3
%

2

+10
%

3

3
%

2

+23
%
Eagle Ford

11

14
%

11

+6
%

11

14
%

12

- 7
%
Anadarko Basin

30

36
%

37

- 18
%

28

37
%

37

- 22
%
Other

1

1
%

1

- 46
%

1

1
%

2

- 41
%
Total

83

100
%

79

+5
%

78

100
%

79

- 1
%
Combined (MBoe/d)

Delaware Basin

155

48
%

127

+22
%

155

46
%

118

+32
%
Powder River Basin

28

9
%

25

+9
%

27

8
%

22

+21
%
Eagle Ford

46

14
%

45

+1
%

50

15
%

48

+3
%
Anadarko Basin

89

27
%

121

- 26
%

92

28
%

123

- 25
%
Other

8

2
%

10

- 21
%

9

3
%

10

- 5
%
Total

326

100
%

328

- 1
%

333

100
%

321

+4
%

From the third quarter of 2019 to the third quarter of 2020, a decrease in volumes contributed to a $19 million decrease in earnings. From the nine months ended 2019 to the nine months ended 2020, an increase in volumes contributed to a $148 million increase in earnings. Continued development in the Delaware Basin and Powder River Basin has resulted in higher production volumes during 2020 compared to 2019. These increases were partially offset by significantly lower activity in the Anadarko Basin.

Table of Contents

~~Field Prices~~

Production Volumes

Three Months Ended September 30,

Nine Months Ended September 30,

2020

Realization

2019

Change

2020

Realization

2019

Change

Oil (per Bbl)

WTI index

$
40.86

$
56.34

- 27
%

$
38.57

$
57.02

- 32
%
Realized price, unhedged

$
37.56

92%

$
54.40

- 31
%

$
34.63

90%

$
54.47

- 36
%
Cash settlements

$
0.65

$
2.18

$
7.06

$
1.80

Realized price, with hedges

$
38.21

94%

$
56.58

- 32
%

$
41.69

108%

$
56.27

- 26
%
Gas (per Mcf)

Henry Hub index

$
1.98

$
2.23

- 11
%

$
1.88

$
2.67

- 30
%
Realized price, unhedged

$
1.48

75%

$
1.47

+0
%

$
1.32

70%

$
1.82

- 27
%
Cash settlements

$
0.06

$
0.41

$
0.24

$
0.15

Realized price, with hedges

$
1.54

78%

$
1.88

- 18
%

$
1.56

83%

$
1.97

- 21
%
NGLs (per Bbl)

Mont Belvieu blended index ⁽¹⁾

$
16.69

$
16.18

+3
%

$
14.55

$
19.39

- 25
%
Realized price, unhedged

$
12.36

74%

$
12.02

+3
%

$
10.66

73%

$
15.02

- 29
%
Cash settlements

$
(0.30
)

$
2.55

$
0.25

$
1.57

Realized price, with hedges

$
12.06

72%

$
14.57

- 17
%

$
10.91

75%

$
16.59

- 34
%
Combined (per Boe)

Realized price, unhedged

$
22.60

$
30.47

- 26
%

$
20.91

$
31.61

- 34
%
Cash settlements

$
0.33

$
2.34

$
3.76

$
1.46

Total

$
22.93

$
32.81

- 30
%

$
24.67

$
33.07

- 25
%

	Six Months Ended June 30,
	2021		% of Total			2020		Change
Oil (MBbls/d)
Delaware Basin		181		65	%		81		+123	%
Anadarko Basin		15		5	%		22		- 34	%
Williston Basin		45		16	%		—	N/M
Eagle Ford		17		6	%		27		- 37	%
Powder River Basin		16		6	%		20		- 17	%
Other		5		2	%		8		- 40	%
Total		279		100	%		158		+77	%

	Six Months Ended June 30,
	2021		% of Total			2020		Change
Gas (MMcf/d)
Delaware Basin		492		59	%		242		+103	%
Anadarko Basin		213		25	%		267		- 20	%
Williston Basin		55		7	%		—	N/M
Eagle Ford		53		6	%		87		- 39	%
Powder River Basin		21		3	%		24		- 13	%
Other		2		0	%		4		- 39	%
Total		836		100	%		624		+34	%

	Six Months Ended June 30,
	2021		% of Total			2020		Change
NGLs (MBbls/d)
Delaware Basin		71		62	%		33		+114	%
Anadarko Basin		23		21	%		28		- 15	%
Williston Basin		9		8	%		—	N/M
Eagle Ford		8		7	%		10		- 26	%
Powder River Basin		3		2	%		3		+7	%
Other		—		0	%		1		- 100	%
Total		114		100	%		75		+53	%

	Six Months Ended June 30,
	2021		% of Total			2020		Change
Combined (MBoe/d)
Delaware Basin		334		63	%		155		+116	%
Anadarko Basin		74		14	%		94		- 22	%
Williston Basin		63		12	%		—	N/M
Eagle Ford		33		6	%		52		- 35	%
Powder River Basin		23		4	%		27		- 14	%
Other		6		1	%		9		- 38	%
Total		533		100	%		337		+58	%

From the six months ended 2020 to the six months ended 2021, the change in volumes contributed to an $841 million increase in earnings. Due to the Merger closing on January 7, 2021, volumes now include WPX legacy assets in the Delaware Basin in Texas and New Mexico and the Williston Basin in North Dakota. Volumes associated with these WPX legacy assets were approximately 219 MBoe/d for the six months ended 2021. Continued development of Devon legacy assets in the Delaware Basin also increased volumes. These increases were partially offset by impacts of the February 2021 winter storm and reduced activity across Devon’s remaining assets.

~~(1)~~

~~Based upon composition of our NGL barrel.~~

Realized Prices

	Six Months Ended June 30,
	2021			Realization	2020		Change
Oil (per Bbl)
WTI index	$	61.95			$	37.43		+66	%
Realized price, unhedged	$	59.65		96%	$	33.27		+79	%
Cash settlements	$	(11.30	)		$	10.04
Realized price, with hedges	$	48.35		78%	$	43.31		+12	%

	Six Months Ended June 30,
	2021			Realization	2020		Change
Gas (per Mcf)
Henry Hub index	$	2.77			$	1.83		+51	%
Realized price, unhedged	$	2.58		93%	$	1.25		+106	%
Cash settlements	$	(0.15	)		$	0.32
Realized price, with hedges	$	2.43		88%	$	1.57		+55	%

	Six Months Ended June 30,
	2021			Realization	2020		Change
NGLs (per Bbl)
WTI index	$	61.95			$	37.43		+66	%
Realized price, unhedged	$	24.37		39%	$	9.70		+151	%
Cash settlements	$	(0.23	)		$	0.56
Realized price, with hedges	$	24.14		39%	$	10.26		+135	%

	Six Months Ended June 30,
	2021			2020		Change
Combined (per Boe)
Realized price, unhedged	$	40.54		$	20.09		+102	%
Cash settlements	$	(6.21	)	$	5.43
Realized price, with hedges	$	34.33		$	25.52		+35	%

From the ~~third quarter of 2019~~six months ended 2020 to the ~~third quarter of 2020,~~six months ended 2021, field prices contributed to a $222 million decrease in earnings. Unhedged realized oil prices decreased primarily due to lower WTI index prices. Additionally, hedge cash settlements decreased for each product. From the nine months ended 2019 to the nine months ended 2020, field prices contributed to a $1.0$1.8 billion ~~decrease~~increase in earnings. Unhedged realized oil, gas and NGL prices ~~decreased~~increased primarily due to ~~lower~~higher WTI, Henry Hub and Mont Belvieu index prices. ~~These decreases were~~The increase in index prices was partially offset by ~~favorable~~a decrease in hedge cash settlements ~~across each of our~~related to all products.

Hedge Settlements

	Three Months Ended September 30,								Nine Months Ended September 30,							Six Months Ended June 30,
	2020			2019		Change			2020		2019		Change			2021			2020		Change
Oil	$	9		$	31		-71	%	$	298	$	71		320	%	$	(572	)	$	289		- 298	%
Natural gas		4			22		-82	%		40		24		67	%		(22	)		36		- 161	%
NGL		(3	)		18		-117	%		5		33		-85	%		(5	)		8		- 163	%
Total cash settlements ⁽¹⁾	$	10		$	71		-86	%	$	343	$	128		168	%	$	(599	)	$	333		- 280	%

(1)

Included as a component of oil, gas and NGL derivatives on the consolidated statements of comprehensive earnings.

~~Production Expenses~~

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

Change

2020

2019

Change

LOE

$
100

$
118

- 15
%

$
334

$
342

- 2
%
Gathering, processing & transportation

125

112

+12
%

378

332

+14
%
Production taxes

42

58

- 28
%

123

182

- 33
%
Property taxes

4

6

- 35
%

17

17

+3
%
Total

$
271

$
294

- 8
%

$
852

$
873

- 2
%
Per Boe:

LOE

$
3.32

$
3.90

- 15
%

$
3.66

$
3.90

- 6
%
Gathering, processing & transportation

$
4.17

$
3.71

+13
%

$
4.15

$
3.78

+10
%
Percent of oil, gas and NGL sales:

Production taxes

6.2
%

6.3
%

- 2
%

6.4
%

6.5
%

- 2
%

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~~An increase~~Production Expenses

	Six Months Ended June 30,
	2021			2020			Change
LOE	$	409		$	234			+75	%
Gathering, processing & transportation		276			253			+9	%
Production taxes		260			81			+221	%
Property taxes		26			13			+100	%
Total	$	971		$	581			+67	%
Per Boe:
LOE	$	4.24		$	3.83			+11	%
Gathering, processing & transportation	$	2.86		$	4.13			- 31	%
Percent of oil, gas and NGL sales:
Production taxes		6.7	%		6.6	%		+2	%

Production expenses increased primarily due to the Merger closing on January 7, 2021. For additional information, see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report. Partially offsetting increases to gathering, processing and transportation costs ~~from the nine months ended 2019 to the nine months ended 2020 was due to higher volumes and~~were approximately $23 million of Anadarko ~~minimum~~ volume commitments which ~~are set to expire~~expired at the end of 2020. ~~These increases were offset by lower production~~Production taxes ~~resulting from lower~~also increased due to the rise in 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.~~

~~Field-Level Cash Margin~~

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, ~~field~~realized prices and production expenses, shown above, had the following impact on our field-level cash margins by asset.

	Three Months Ended September 30,								Nine Months Ended September 30,								Six Months Ended June 30,
	2020		$ per BOE		2019		$ per BOE		2020		$ per BOE		2019		$ per BOE		2021		$ per BOE		2020		$ per BOE
Field-Level Cash Margin (non-GAAP)
Field-level cash margin (Non-GAAP)
Delaware Basin	$	236	$	16.52	$	284	$	24.42	$	602	$	14.16	$	785	$	24.42	$	1,997	$	33.00	$	366	$	12.97
Anadarko Basin																		230	$	17.20		87	$	5.09
Williston Basin																		358	$	31.42		—	N/M
Eagle Ford																		178	$	29.50		109	$	11.58
Powder River Basin		47	$	18.63		63	$	27.12		121	$	16.45		173	$	28.55		141	$	34.36		74	$	15.31
Eagle Ford		61	$	14.66		100	$	24.02		170	$	12.54		349	$	26.44
Anadarko Basin		56	$	6.72		157	$	14.08		143	$	5.62		537	$	16.03
Other		7	$	10.10		22	$	23.91		21	$	8.77		57	$	20.05		36	$	33.43		14	$	8.16
Total	$	407	$	13.59	$	626	$	20.73	$	1,057	$	11.58	$	1,901	$	21.66	$	2,940	$	30.48	$	650	$	10.60

Due to lower commodity benchmark prices, our unhedged realized price per Boe decreased 34% from the nine months ended 2019 to the nine months ended 2020. These lower realizations have negatively impacted our field-level cash margin and other performance measures.

DD&A and Asset Impairments

	Three Months Ended September 30,							Nine Months Ended September 30,							Six Months Ended June 30,
	2020		2019		Change			2020		2019		Change			2021		2020		Change
Oil and gas per Boe	$	9.22	$	11.70		- 21	%	$	10.19	$	11.72		- 13	%	$	9.83	$	10.66		- 8	%

Oil and gas	$	276	$	352		- 22	%	$	929	$	1,028		- 10	%	$	949	$	653		+45	%
Other property and equipment		23		29		- 19	%		70		87		- 19	%		54		47		+17	%
Total	$	299	$	381		- 22	%	$	999	$	1,115		- 10	%	$	1,003	$	700		+43	%

Asset impairments	$	—	$	—	N/M			$	2,666	$	—	N/M			$	—	$	2,666	N/M

DD&A increased in 2021 primarily due to the Merger closing on January 7, 2021. For additional information, see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Asset impairments were $2.7 billion infor the ~~first nine~~six months ofended 2020 due to significant decreases in commodity prices ~~since the end of 2019~~ resulting primarily from the COVID-19 pandemic. These impairments resulted in lower DD&A rates in 2021 compared to 2020. For additional information, see Note 5 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

DD&A decreased in the first nine months of 2020 compared to the first nine months of 2019 primarily due to lower rates resulting from impairments recorded in the first quarter of 2020. This was partially offset by higher volumes in 2020.

General and Administrative ~~Expenses~~Expense

	Three Months Ended September 30,							Nine Months Ended September 30,							Six Months Ended June 30,
	2020		2019		Change			2020		2019		Change			2021		2020		Change
Labor and benefits (net of reimbursements)	$	46	$	67		- 32	%	$	157	$	227		- 31	%
G&A per Boe															$	2.08	$	2.96		- 30	%

Labor and benefits															$	132	$	111		+19	%
Non-labor		29		40		- 29	%		99		129		- 23	%		69		70		- 1	%
Total	$	75	$	107		- 30	%	$	256	$	356		- 28	%	$	201	$	181		+11	%

Labor and benefits ~~and non-labor expenses~~increased primarily due to the Merger closing on January 7, 2021. However, Devon’s G&A per Boe rate decreased 30% primarily ~~as a result of continued workforce reduction and cost savings initiatives. Additional initiatives are underway~~due to ~~decrease annualized G&A expenses by approximately $100 million~~synergies created by the ~~end of 2020.~~

~~Table of Contents~~

~~Other Items~~Merger.

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

Change in earnings

2020

2019

Change in earnings

Commodity hedge valuation changes ⁽¹⁾

$
(97
)

$
56

$
(153
)

$
(71
)

$
(466
)

$
395

Marketing and midstream operations

(2
)

16

(18
)

(28
)

48

(76
)
Exploration expenses

39

18

(21
)

163

29

(134
)
Asset dispositions

—

(1
)

(1
)

—

(48
)

(48
)
Net financing costs

66

60

(6
)

200

186

(14
)
Restructuring and transaction costs

32

10

(22
)

32

73

41

Other expenses

—

3

3

(35
)

(12
)

23

$
(218
)

$
187

Other Items

	Six Months Ended June 30,
	2021			2020			Change in earnings
Commodity hedge valuation changes ⁽¹⁾	$	(632	)	$	26		$	(658	)
Marketing and midstream operations		(20	)		(26	)		6
Exploration expenses		6			124			118
Asset dispositions		(119	)		—			119
Net financing costs		157			134			(23	)
Restructuring and transaction costs		212			—			(212	)
Other, net		(43	)		(35	)		8
							$	(642	)

(1)

Included as a component of oil, gas and NGL derivatives on the consolidated statements of comprehensive earnings.

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information, see Note 3 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

~~Marketing and midstream operations~~Exploration expenses decreased ~~approximately $76 million for the first nine months ended 2020 compared to the first nine months ended 2019~~ primarily due to ~~lower commodity prices resulting from the~~ ~~challenged macro-economic environment in 2020, as well as~~ ~~downstream product inventory~~unproved asset impairments of ~~$17~~$113 million ~~recognized~~ in the first ~~quarter of 2020.~~

Exploration expenses increased approximately $134 million for the first nine months ended 2020 compared to the first nine months ended 2019 primarily due to $149 million in unproved asset impairments in the first ninesix months of 2020. For additional information, see Note 5 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

~~Devon recognized $32~~Asset dispositions includes $65 million related to the re-valuation of contingent earnout payments associated with our divested Barnett Shale assets. For additional information, see Note 2in ~~restructuring~~“Part I. Financial Information – Item 1. Financial Statements” in this report.

Net financing costs increased as a result of WPX debt assumed in the Merger, partially offset by a $30 million gain associated with our debt retirements in the first six months of 2021. For additional information, see Note 13 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Restructuring and transaction costs reflect workforce reductions in conjunction with the ~~third quarter of 2020~~Merger, as well as various transaction costs related to ~~workforce reductions to improve~~ the ~~company’s cost structure and enhance its operational focus. Devon recognized $73 million in restructuring expenses during the first nine months of 2019.~~Merger. For additional information, see Note 6 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Income Taxes

~~Table of Contents~~

~~Discontinued Operations~~

	Six Months Ended June 30,
	2021			2020
Current expense (benefit)	$	14		$	(109	)
Deferred benefit		(219	)		(311	)
Total benefit	$	(205	)	$	(420	)
Effective income tax rate		(75	%)		15	%

~~Results of Operations – Discontinued Operations~~

~~The table~~ below presents key components from discontinued operations for the time periods presented. Discontinued operations include the Canadian business that Devon sold in June 2019 and the Barnett Shale assets that Devon soldFor discussion on ~~October 1, 2020. For additional information on discontinued operations,~~income taxes, see Note 177 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2020

2020

2019

2020

2019

Oil, gas and NGL sales

$
94

$
77

$
112

$
263

$
1,106

Oil, gas and NGL derivatives

$
—

$
—

$
(18
)

$
—

$
(113
)
Production expenses

$
66

$
74

$
74

$
214

$
525

Asset impairments

$
3

$
—

$
—

$
182

$
37

Asset dispositions

$
—

$
(2
)

$
(35
)

$
(2
)

$
(222
)
Financing costs, net

$
(1
)

$
(1
)

$
59

$
(3
)

$
85

Restructuring and transaction costs

$
—

$
—

$
5

$
—

$
244

Other expenses

$
26

$
(3
)

$
8

$
19

$
17

Earnings (loss) from discontinued operations before income taxes

$
(2
)

$
9

$
(39
)

$
(150
)

$
93

Income tax benefit

$
(15
)

$
—

$
(12
)

$
(47
)

$
(285
)
Net earnings (loss) from discontinued operations, net of tax

$
13

$
9

$
(27
)

$
(103
)

$
378

Production (MMBoe):

Barnett Shale

9

9

9

27

27

Canada

—

—

—

—

19

Total production

9

9

9

27

46

Realized price, unhedged (per Boe) - Barnett Shale

$
10.94

$
8.89

$
12.27

$
9.89

$
13.25

Realized price, unhedged (per Boe) - Canada

N/A

N/A

N/A

N/A

$
38.98

~~Q3 2020 vs. Q2 2020~~

~~Net earnings from discontinued operations, net of tax increased $4 million from the second quarter of 2020 to the third quarter of 2020~~. This was primarily due to higher gas and NGL sales in the third quarter resulting from higher commodity prices, as well as a decrease to Canadian tax liabilities in the third quarter of 2020. These increases in net earnings were partially offset by a $28 million expense recognized in the third quarter of 2020 related to a Barnett Shale royalty matter.

~~Q3 2020 vs. Q3 2019~~

Net earnings (loss) from discontinued operations, net of tax increased $40 million from the third quarter of 2019 to the third quarter of 2020. Net earnings increased primarily due to a charge on the early retirement of debt in the third quarter of 2019 as Devon utilized a portion of the sale proceeds from the Canada divestiture to early retire $1.5 billion of senior notes, with no comparable charges in the third quarter of 2020.

~~September 30, 2020 YTD vs. September 30, 2019 YTD~~

~~Net earnings (loss) from discontinued operations, net of tax decreased $481 million for the first nine months ended September 30, 2020 compared to~~ the first nine months ended September 30, 2019. Net earnings decreased primarily due to the divestment of Devon’s Canadian operations during the second quarter of 2019, as well as lower revenues resulting from the challenged macro-economic environment in 2020. Additionally, 2020 includes $182 million in incremental asset impairments to our Barnett Shale assets primarily related to the amended terms of the Barnett Shale sales agreement.

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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 and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Operating cash flow from continuing operations	$	427		$	595		$	1,106		$	1,464		$	1,093		$	150		$	1,685		$	679
WPX acquired cash														—			—			344			—
Divestitures of property and equipment		1			9			29			347			49			3			64			28
Capital expenditures		(204	)		(526	)		(936	)		(1,502	)		(504	)		(307	)		(1,003	)		(732	)
Acquisitions of property and equipment		—			(5	)		(5	)		(28	)
Debt activity, net		—			—			—			(162	)		(742	)		—			(1,302	)		—
Repurchases of common stock		—			(561	)		(38	)		(1,746	)		—			—			—			(38	)
Common stock dividends		(43	)		(35	)		(119	)		(106	)		(229	)		(42	)		(432	)		(76	)
Contributions from noncontrolling interests		1			—			12			—
Distributions to noncontrolling interests		(4	)		—			(10	)		—
Noncontrolling interest activity, net														(2	)		3			(30	)		5
Other		—			(1	)		(17	)		(23	)		(4	)		(1	)		(24	)		(22	)
Net change in cash, cash equivalents and restricted cash from discontinued operations		50			(1,673	)		31			966			—			136			—			(19	)
Net change in cash, cash equivalents and restricted cash	$	228		$	(2,197	)	$	53		$	(790	)	$	(339	)	$	(58	)	$	(698	)	$	(175	)
Cash, cash equivalents and restricted cash at end of period	$	1,897		$	1,656		$	1,897		$	1,656		$	1,539		$	1,669		$	1,539		$	1,669

Operating Cash Flow and WPX Acquired Cash

Despite our portfolio enhancements, aggressive cost reductions and operational advancements, our financial results continue to be challenged by commodity prices and deterioration of the macro-economic environment resulting from the unprecedented COVID-19 pandemic. 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 ~~funded all our capital expenditures and dividends~~grew approximately 150% during the ~~three months and nine~~six months ended ~~September~~June 30, 2021 compared to the six months ended June 30, 2020. The increase was due to the Merger and prices significantly increasing in the first half of 2021. Despite our portfolio enhancements, aggressive cost reductions and operational advancements, our 2020 financial results were challenged by commodity prices and deterioration of the macro-economic environment resulting from the unprecedented COVID-19 pandemic.

Divestitures of Property and Equipment

During the first ~~nine~~six months of ~~2019,~~2021, we sold non-core ~~U.S.~~ assets for approximately ~~$347~~$64 million, net of customary purchase price adjustments. For additional information, please see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Capital Expenditures ~~and Acquisitions of Property and Equipment~~

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 September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Delaware Basin	$	147	$	263	$	560	$	733	$	378	$	192	$	775	$	413
Anadarko Basin										9		10		18		18
Williston Basin										18		—		46		—
Eagle Ford										29		42		43		136
Powder River Basin		24		98		155		214		7		46		40		131
Eagle Ford		17		39		153		147
Anadarko Basin		2		88		20		325
Other		3		7		9		26		—		3		—		6
Total oil and gas		193		495		897		1,445		441		293		922		704
Midstream		7		27		26		38		43		11		48		19
Other		4		4		13		19		20		3		33		9
Total capital expenditures	$	204	$	526	$	936	$	1,502	$	504	$	307	$	1,003	$	732
Acquisitions	$	—	$	5	$	5	$	28

Capital expenditures consist primarily of amounts related to our oil and gas exploration and development operations, midstream operations and other corporate activities. Capital expenditures increased in 2021 primarily due to the Merger closing on January 7, 2021 and results now include activity related to WPX legacy assets in the Delaware Basin in Texas and New Mexico and the Williston

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Basin in North Dakota. Our capital program is designed to operate within or near operating cash flow. This is

~~Table of Contents~~

evidenced by our operating cash flow funding all of our capital expenditures for the ~~three months and nine~~six months ended ~~September~~June 30, ~~2020.~~2021. Our capital investment program is driven by a disciplined allocation process focused on returns. Our capital expenditures are ~~lower in 2020 primarily due~~expected to ~~decreased spending across~~range between $1.7 billion to $2.0 billion for the majority of our assets. In response to the current macro-economic environment, we reduced our 2020 capital expenditures outlook by approximately $800 million, or 45% compared to the original capital budget.full year 2021.

Debt Activity

~~During~~Subsequent to the Merger closing, we redeemed $1.2 billion of senior notes in the first ~~nine months~~half of ~~2019, our debt decreased $162~~2021. We also paid $59 million ~~due~~of cash retirement costs related to ~~the repayment of our 6.30% senior notes at maturity.~~these redemptions.

Shareholder Distributions and Stock Activity

The following table summarizes our common stock dividends during the second quarter and total for the first ~~nine~~six months of ~~2020~~2021 and ~~2019. Beginning with~~2020. We raised our quarterly dividend by 22% to $0.11 per share in the second quarter of ~~2020, we increased our~~2020. In addition to the fixed quarterly dividend, ~~22%, to $0.11 per share. We previously increased our quarterly~~we paid a variable dividend ~~to $0.09 per share commencing with~~in the first and second ~~quarter~~quarters of ~~2019.~~2021.

	Amounts		Rate Per Share		Fixed		Variable		Total		Rate Per Share
Quarter Ended 2020:
2021:
First quarter	$	34	$	0.09	$	76	$	127	$	203	$	0.30
Second quarter		42	$	0.11		75		154		229	$	0.34
Third quarter		43	$	0.11
Total year-to-date	$	119			$	151	$	281	$	432
Quarter Ended 2019:
2020:
First quarter	$	34	$	0.08	$	34	$	—	$	34	$	0.09
Second quarter		37	$	0.09		42		—		42	$	0.11
Third quarter		35	$	0.09
Total year-to-date	$	106			$	76	$	—	$	76

We repurchased 2.2 million shares of common stock for $38 million in the first ~~nine~~six months of ~~2020 and 64.2 million shares of common stock for $1.7 billion in the first nine months of 2019 under share repurchase programs authorized by our Board of Directors.~~2020. For additional information, see Note 1617 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

Noncontrolling Interest ~~Contributions and Distributions~~Activity, net

During the first ~~nine~~six months of 2021, we received $3 million of contributions from our noncontrolling interests in CDM and distributed $9 million 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.

During the first six months of 2020, we received ~~$12~~$11 million in contributions from our noncontrolling interests in CDM and distributed ~~$10~~$6 million to our noncontrolling interests in CDM.

~~Table of Contents~~

~~Cash Flows from Discontinued Operations~~

~~All cash flows in the following table relate to activities of our Canadian business that Devon sold in June 2019 and the Barnett Shale assets that Devon sold on October 1, 2020.~~

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Canadian tax payments

$
—

$
—

$
(173
)

$
—

Settlements of intercompany foreign denominated assets/liabilities

—

(1
)

—

(32
)
Other

45

(93
)

44

69

Operating activities

45

(94
)

(129
)

37

Divestitures of property and equipment - Canadian operations

2

7

2

2,608

Divestitures of property and equipment - Barnett Shale assets

—

(1
)

170

—

Capital expenditures and other

(1
)

(11
)

(1
)

(136
)
Investing activities

1

(5
)

171

2,472

Debt activity, net

—

(1,552
)

—

(1,552
)
Other

—

(19
)

—

(27
)
Financing activities

—

(1,571
)

—

(1,579
)
Settlements of intercompany foreign denominated assets/liabilities

—

1

—

32

Other

4

(4
)

(11
)

4

Effect of exchange rate changes on cash

4

(3
)

(11
)

36

Net change in cash, cash equivalents and restricted cash of
discontinued operations

$
50

$
(1,673
)

$
31

$
966

Operating cash flows during the first nine months of 2020 include $173 million of cash income and withholding tax payments in Canada related to divestitures and was also negatively impacted by lower commodity prices. Foreign currency denominated intercompany loan activity resulted in a realized loss of $32 million during the first nine months of 2019 as a result of the strengthening of the U.S. dollar in relation to the Canadian dollar. There was an offset in the effect of exchange rate changes on cash line in the table above, resulting in no impact to the net change in cash, cash equivalents and restricted cash. Investing cash flows during the first nine months of 2020 include $170 million in deposit funds from BKV due to the amended terms on the sale of our Barnett Shale assets. On June 27, 2019, we completed the sale of our Canadian business for proceeds of $2.6 billion. See ~~Note 2and~~ ~~Note 17~~ ~~in “Part I. Financial Information – Item 1. Financial Statements” in this report for additional details on these divestitures.~~

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.

On January 7, 2021, Devon and WPX completed an all-stock merger of equals. With the Merger, we are accelerating our transition to a cash-return business model, which moderates growth, emphasizes capital efficiencies and prioritizes cash returns to shareholders. These principles will position Devon to be a consistent builder of economic value through the cycle. The post-merger scalability is expected to enhance Devon’s free cash flow, credit profile and decrease the overall cost of capital.

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 post-merger capital requirements as discussed in this ~~section.~~section as well as accelerate our cash-return business model.

Beginning in the first quarter of 2020, the macro-economic environment deteriorated significantly and has created extreme volatility primarily due to concerns arising from the COVID-19 pandemic. In response to this environment, we will continue to maintain flexibility within our capital program as we continue to focus on protecting our financial strength and maintaining operational continuity. Additionally, we have initiatives underway to reduce annualized production, administrative and financing expenses by a total of $300 million.

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Operating Cash Flow

Key inputs into determining our planned capital investment are the ~~amounts~~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 ~~third~~second quarter of ~~2020,~~2021, we held approximately ~~$1.9~~$1.5 billion of cash, inclusive of ~~$190~~$191 million of cash restricted primarily for ~~discontinued operations.~~retained obligations related to divested assets. Our operating cash flow forecasts are sensitive to many variables and include a measure of uncertainty as ~~the actual results of~~ these variables 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 ~~substantially~~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.

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. We hedge our production in a manner that systematically places hedges for several quarters in advance, allowing us to maintain a disciplined risk management program as it relates to commodity price volatility. We supplement the systematic hedging program with discretionary hedges that take advantage of favorable market conditions. We currently have approximately 30% of our 2021 oil production hedged with an average floor price of $38/Bbl and approximately 33% of our 2021 gas production hedged with an average floor price of $2.45/Mcf. We are continuing to build our 2021 and 2022 hedge positions at market prices. The key terms to our oil, gas and NGL derivative financial instruments as of ~~September~~June 30, ~~2020~~2021 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, as commodity prices have increased, we remain committed to a maintenance capital program for the foreseeable future. We do not intend to add any growth projects until market fundamentals recover, excess inventory clears up and OPEC+ curtailed volumes are effectively absorbed by the world markets.

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.

Driven by lower realized prices, margins and capital investment, we have begun initiatives to reduce our annualized production and administrative expenses a total of $225 million. We expect these annualizedCost savings from synergies resulting from the Merger are expected to be ~~sustainable as we tailor~~attained through cost reductions and efficiencies related to our capital programs, G&A, financing costs and production expenses. We anticipate the planned $600 million reduction of annualized costs will occur by year-end 2021. Approximately 35% of the reduced costs are related to our capital programs and the remainder relate to our operating expenses, including G&A, interest expense and production expenses.

Restructuring and Transaction Related Costs – The majority of the Merger-related restructuring and transaction cost cash outflows were paid in the first six months of 2021 and the remaining costs will be paid mostly over the remaining six months of 2021. These payments relate to workforce reductions and ~~operations for current activity levels.~~the associated employee severance benefits, costs to modify or abandon vendor contracts and the acceleration of certain employee benefits triggered by the Merger.

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~~joint interest partners 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 collateral ~~postings~~postings.

Assumption and ~~other protections allowed per~~Repayment of WPX Debt

In conjunction with the Merger closing on January 7, 2021, we assumed a principal value of $3.3 billion of WPX debt. Subsequent to the Merger closing, we have reduced our ~~agreements.~~

~~Divestitures of Property and Equipment and Special Dividend~~

~~We closed on our Barnett Shale divestiture on October 1, 2020, receiving proceeds of~~debt by approximately ~~$490 million, net of purchase price adjustments, including a $170 million deposit received~~$1.2 billion in the ~~second quarter~~first half of ~~2020.~~

~~Our Board of Directors approved a $0.26 per share special dividend for approximately $100 million in the aggregate that was paid on October 1, 2020.~~

~~Capital Expenditures~~

~~In response~~2021. We expect these redemptions to ~~the current macro-economic environment, we reduced~~lower our ~~2020 capital expenditures outlook~~annual cash net financing costs by approximately ~~$800 million, or 45% compared to the original capital budget.~~ ~~Our exploration and development budget for the fourth quarter of 2020 is expected to range from $160 million to $200~~$70 million. ~~As economic factors change, we will continue to be flexible with our capital program.~~

~~Debt Repurchases~~

Our Board of Directors has authorized a $1.5 billion debt repurchase program. Repurchases will be dependent on market conditions and may be made through open market purchases, tender offers or other transaction structures. The repurchases are expected to generate $75 million of annualized financing cost savings.

~~Table of Contents~~

Credit Availability

As of ~~September~~June 30, ~~2020,~~2021, 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 ~~September~~June 30, ~~2020,~~2021, there were no borrowings under our commercial paper program, and we were in compliance with the Senior Credit Facility’s financial covenant.

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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 positive outlook. Our credit rating from Moody’s Investor Service is Ba1 with a ~~stable~~positive outlook. Any rating downgrades may result in additional letters of credit or cash collateral being posted under certain contractual arrangements.

~~Strategic Merger~~There are no “rating triggers” in any of ~~Equals~~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

On September 26, 2020, Devon and WPX entered into the Merger Agreement to combine in an all-stock merger of equals transaction expected to close in the first quarter of 2021. The strategic combination accelerates our transition to a cash-return business model, which moderates growth, emphasizes capital efficiencies and prioritizes cash to shareholders. Effective uponFollowing the closing of the Merger, ~~Devon intends to implement~~we initiated a ~~fixed~~new “fixed plus ~~variable~~variable” dividend strategy. The fixed dividend is currently paid quarterly at a rate of $0.11 per share, and 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 addition to ~~maintaining its~~the fixed quarterly dividend, ~~the future~~we may pay a variable ~~dividends could be~~dividend up to ~~50%~~50 percent of our excess ~~quarterly~~ free cash flow, ~~subject to certain criteria being met. Excess~~which is a non-GAAP measure. Each quarter’s excess free cash flow ~~for purposes of computing the variable dividend~~ is ~~based on the net~~computed as operating cash ~~from operating activities~~flow (a GAAP measure) before balance sheet changes, less capital expenditures and the fixed ~~quarterly cash~~ dividend. The ~~Merger~~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, COVID-19 impacts and other factors deemed relevant by the Board.

In August 2021, Devon announced a cash dividend in the amount of $0.49 per share payable in the third quarter of 2021. The dividend consists of a fixed quarterly dividend in the amount of approximately $74 million (or $0.11 per share) and a variable quarterly dividend in the amount of approximately $257 million (or $0.38 per share).

Capital Expenditures

Our 2021 exploration and development budget for the remainder of 2021 is ~~also~~ expected to ~~create value~~range from ~~operational and corporate synergies and reduced financing costs.~~ approximately $700 million to $900 million.

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. Due primarily to ~~an unprecedented downturn in the commodity price environment and the resulting asset impairments, Devon had~~ significant ~~deferred tax assets at March 31, 2020. Accordingly,~~cumulative losses, we ~~reassessed the realizability of our~~recorded a full valuation allowance against U.S. deferred tax assets in ~~future periods~~2020 and ~~recorded a 100% valuation allowance against our net deferred tax assets during the first quarter of 2020.As of September 30, 2020, we~~ remain in a full valuation allowance ~~position.~~position at June 30, 2021.However, absent any additional objective negative evidence, and with the addition of subjective evidence such as forecasted taxable income, we may adjust the valuation allowance in future periods.

~~Valuation~~Further, in the event we were to undergo an “ownership change” (as defined in Section 382 of ~~Long-Lived Assets~~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. No ownership change has occurred during 2021 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 three years.

~~Long-lived~~39

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Purchase Accounting

Periodically we acquire assets ~~used~~and assume liabilities in ~~operations, including~~transactions accounted for as business combinations, such as the Merger with WPX. In connection with the Merger, as the accounting acquirer, we allocated the $5.4 billion of purchase price consideration to the assets acquired and liabilities assumed based on estimated fair values as of the date of the Merger. The preliminary purchase price assessment remains an ongoing process and is subject to change for up to one year subsequent to the closing date of the Merger.

We made a number of assumptions in estimating the fair value of assets acquired and liabilities assumed in the Merger. The most significant assumptions relate to the estimated fair values of proved and unproved oil and gas properties. Since sufficient market data was not available regarding the fair values of proved and unproved oil and gas properties, we prepared estimates and engaged third party valuation experts. Significant judgments and assumptions are ~~depreciated~~inherent in these estimates and ~~assessed for impairment annually or whenever changes~~include, among other things, estimates of reserve quantities, estimates of future commodity prices, drilling plans, expected development costs, lease operating costs, reserve risk adjustment factors and an estimate of an applicable market participant discount rate that reflects the risk of the underlying cash flow estimates.

Estimated fair values ascribed to assets acquired can have a significant impact on future results of operations presented in ~~facts and circumstances indicate~~Devon’s financial statements. A higher fair value ascribed to a ~~possible significant deterioration~~property results in ~~future cash flows is expected to be generated by an asset group. For~~higher DD&A ~~calculations and impairment assessments, management groups individual assets~~expense, which results in lower net earnings. Fair values are based on ~~a judgmental assessment~~estimates of future commodity prices, reserve quantities, development costs and operating costs. In the ~~lowest level (“common operating field”) for which there~~event that future commodity prices or reserve quantities are ~~identifiable cash flows~~lower than those used as inputs to determine estimates of acquisition date fair values, the likelihood increases that ~~are largely independent of the cash flows of other groups of assets.~~certain costs may be determined to not be recoverable.

~~Management evaluates assets for impairment through an established process in which changes~~In addition to significant assumptions such as prices, volumes and future development plans are reviewed. If, upon review, the sum of the undiscounted pre-tax cash flows is less than the carrying value of the asset group, the carrying value is written down to estimated fair value. Because there usually is a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined based on the present values of expected future cash flows using discount rates believed to be consistent with those used by principal market participants. The expected future cash flows used for impairment reviewsproved and related fair value calculations are typically based on judgmental assessments of future production volumes, commodity prices, operating costs and capital investment plans, considering all available information at the date of review. The expected future cash flows used for impairment reviews include future production volumes associated with proved producing and risk-adjusted proved undeveloped, probable and possible reserves.

~~Table of Contents~~

Besides the risk-adjusted estimates of reserves and future production volumes, future commodity prices are the largest driver in the variability of undiscounted pre-tax cash flows. For our impairment determinations, we historically have utilized NYMEX forward strip prices for the first five years and applied internally generated price forecasts for subsequent years. In response to the COVID-19 pandemic, the NYMEX forward market became highly illiquid as evidenced by materially reduced trading volumes for periods beyond 2021. Therefore, we altered our price forecast assumptions to perform our March 31, 2020 impairment computations. Specifically, we supplemented the NYMEX forward strip prices with price forecasts published by reputable investment banks and reservoir engineering firms to estimate our future revenues as of March 31, 2020.

We also estimate and escalate or de-escalate future capital and operating costs by using a method that correlates cost movements to price movements similar to recent history. To measure indicated impairments, we use a market-based weighted-average cost of capital to discount the future net cash flows. Changes to any of the reserves or market-based assumptions can significantly affect estimates of undiscounted and discounted pre-tax cash flows and impact the recognition and amount of impairments.

Reduced demand from the COVID-19 pandemic and management of production levels from OPEC caused WTI pricing to decrease more than 60% during the first quarter of 2020. As a result, we reduced our planned 2020 capital investment 45%. With materially lower commodity prices and reduced near-term investment, we assessed all ourunproved oil and gas ~~fields~~properties, other significant fair value assessments for ~~impairment as of March 31, 2020~~the assets acquired and ~~recognized proved and unproved impairments totaling $2.8 billion. The impairments~~liabilities assumed in the Merger relate to ~~our Anadarko Basin and Rockies fields in which our basis included acquisitions completed in 2016 and 2015, respectively, when commodity prices were much higher than they are today.~~

~~We assessed our Eagle Ford asset for impairment as of June 30, 2020 and September 30, 2020 utilizing~~debt, the same methodology we applied for the impairment assessments for all of our and oil and gas fields in the first quarter of 2020. Our Eagle Ford asset’s sum of undiscounted cash flows exceeded the carrying value indicating no impairment as of September 30, 2020. Further, as a result of improved oil pricing, the cushion increased significantly from March 31, 2020 to September 30, 2020. If prices significantly deteriorate and/or management lowers the planned capitalequity method investment in ~~the Eagle Ford field, our Eagle Ford asset could be subject to a material impairment of capitalized costs.~~

~~Goodwill~~

We test goodwill for impairment annually at October 31, or more frequently if events or changes in circumstances dictate that the carrying value of goodwill may not be recoverable. We perform a qualitative assessment to determine whether it is more likely than not that theCatalyst and out-of-market contract assets and liabilities. The fair value of ~~goodwill is less than its carrying amount. As part~~the assumed WPX publicly traded debt was based on available third party quoted prices. We prepared estimates and engaged third party valuation experts to assist in the valuation of ~~our qualitative assessment, we considered~~ the ~~general macro-economic, industry~~equity method investment in Catalyst. Significant judgments and assumptions inherent in this estimate included projected Catalyst cash flows, comparable companies cash flow multiples and an estimate of an applicable market conditions, changes in cost factors, actual and expected financial performance, significant changes in management, strategy or customers and stock performance. If the qualitative assessment determines that a quantitative goodwill impairment test is required, then theparticipant discount rate. The fair value ~~is compared~~of assumed out-of-market contract assets and liabilities associated with longer-term marketing, gathering, processing and transportation contracts included significant judgments and assumptions related to determining the ~~carrying value. If the fair value is less than the carrying value, an impairment charge will be recognized for the amount by which the carrying amount exceeds the fair value. Because quoted~~ market ~~prices are not available, the fair value is estimated based upon a valuation analyses including comparable companies and transactions and premiums paid.~~

Because the trading price of our common stock decreased 73% during the first quarter of 2020 in response to the COVID-19 pandemic, we performed a goodwill impairment test as of March 31, 2020. While the cushion narrowed significantly since our last impairment evaluation, we concluded an impairment was not required as of March 31, 2020. The two most critical judgements included in the March 31, 2020, test were the period utilized to determine Devon’s market capitalization and the control premium. For the test performed as of March 31, 2020 we derived our market capitalization by using our average common stock price from the latter two thirds of March 2020, to align with the time in the quarter subsequent to a key OPEC+ meeting and the date COVID-19 was officially classified as a pandemic. We applied a control premium based on recent comparable market transactions.

Subsequent to the end of the first quarter of 2020, Devon’s common stock price increased approximately 37% during the second and third quarter but remains significantly less than our average trading price before the events experienced in the first quarter of 2020. Although our common stock price and commodity prices are in a period of high volatility, a sustained period of depressed commodity prices would adversely affect ourrates, estimates of future ~~operating results, which could result in future goodwill impairments due to~~reserves and production associated with the potential impact on the cash flows of our operations. The impairment of goodwill has no effect on liquidity or capital resources. However, it would adversely affect our results of operations in the period recognized.respective contracts and applying an applicable market participant discount rate.

For additional information regarding our critical accounting policies and estimates, see our ~~2019~~2020 Annual Report on Form 10-K.

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Non-GAAP Measures

We make reference to “core earnings (loss) attributable to Devon” and “core earnings (loss) per share attributable to Devon” in “Overview of ~~2020~~2021 Results” 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 (loss) attributable to Devon, as well as the per share amount, represent net earnings excluding certain ~~noncash~~non-cash and other items that are typically excluded by securities analysts in their published estimates of our financial results. ~~For more information on the results of discontinued operations for our Barnett Shale asset and Canadian operations, see~~ ~~Note 17~~ ~~in “Part I. Financial Information – Item 1. Financial Statements” in this report.~~ Our non-GAAP measures are typically used as a quarterly performance measure. Amounts excluded relate to asset dispositions, ~~noncash~~non-cash asset impairments (including ~~noncash~~non-cash unproved asset impairments), deferred tax asset valuation allowance, ~~costs associated with early retirement of debt,~~changes in tax legislation, fair value changes in derivative financial instruments and foreign currency, ~~changes in tax legislation~~ costs associated with early retirement of debt, and restructuring and transaction costs associated with the workforce reductions described further in Note 6.

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 September 30,												Nine Months Ended September 30,												Three Months Ended June 30,												Six Months Ended June 30,
	Before tax			After tax			After Noncontrolling Interests			Per Diluted Share			Before tax			After tax			After Noncontrolling Interests			Per Diluted Share			Before Tax			After Tax			After Noncontrolling Interests			Per Diluted Share			Before Tax			After Tax			After Noncontrolling Interests			Per Diluted Share
2021
Total
Earnings attributable to Devon (GAAP)																									$	304		$	261		$	256		$	0.38		$	272		$	477		$	469		$	0.70
Adjustments:
Asset dispositions																										(87	)		(67	)		(67	)		(0.10	)		(119	)		(91	)		(91	)		(0.13	)
Asset and exploration impairments																										1			1			1			0.00			2			1			1			0.00
Deferred tax asset valuation allowance																										—			(115	)		(115	)		(0.17	)		—			(378	)		(378	)		(0.57	)
Change in tax legislation																										—			62			62			0.09			—			62			62			0.09
Fair value changes in financial instruments and foreign currency																										334			258			258			0.38			628			483			483			0.72
Restructuring and transaction costs																										23			21			21			0.03			212			183			183			0.28
Early retirement of debt																										(10	)		(8	)		(8	)		(0.01	)		(30	)		(23	)		(23	)		(0.03	)
Core earnings attributable to Devon (Non-GAAP)																									$	565		$	413		$	408		$	0.60		$	965		$	714		$	706		$	1.06
2020
Continuing Operations
Loss attributable to Devon (GAAP)	$	(193	)	$	(103	)	$	(105	)	$	(0.29	)	$	(2,980	)	$	(2,470	)	$	(2,475	)	$	(6.58	)	$	(680	)	$	(677	)	$	(679	)	$	(1.80	)	$	(2,787	)	$	(2,367	)	$	(2,370	)	$	(6.29	)
Adjustments:
Asset and exploration impairments		36			29			29			0.08			2,816			2,178			2,178			5.80			4			3			3			0.01			2,780			2,149			2,149			5.71
Deferred tax asset valuation allowance		—			(5	)		(5	)		(0.01	)		—			252			252			0.65			—			149			149			0.39			—			257			257			0.67
Fair value changes in financial instruments		97			74			74			0.19			71			55			55			0.14			593			459			459			1.22			(26	)		(20	)		(20	)		(0.05	)
Change in tax legislation		—			(43	)		(43	)		(0.11	)		—			(105	)		(105	)		(0.27	)		—			—			—			—			—			(62	)		(62	)		(0.16	)
Restructuring and transaction costs		32			25			25			0.07			32			25			25			0.06
Core loss attributable to Devon (Non-GAAP)	$	(28	)	$	(23	)	$	(25	)	$	(0.07	)	$	(61	)	$	(65	)	$	(70	)	$	(0.20	)	$	(83	)	$	(66	)	$	(68	)	$	(0.18	)	$	(33	)	$	(43	)	$	(46	)	$	(0.12	)
Discontinued Operations
Earnings (loss) attributable to Devon (GAAP)	$	(2	)	$	13		$	13		$	0.04		$	(150	)	$	(103	)	$	(103	)	$	(0.27	)	$	9		$	9		$	9		$	0.02		$	(148	)	$	(116	)	$	(116	)	$	(0.31	)
Adjustments:
Asset dispositions		—			—			—			—			(2	)		(1	)		(1	)		(0.00	)		(2	)		(1	)		(1	)		(0.00	)		(2	)		(1	)		(1	)		(0.00	)
Asset impairments		3			3			3			0.00			182			143			143			0.37			—			—			—			—			179			141			141			0.37
Fair value changes in foreign currency and other		(2	)		(3	)		(3	)		(0.01	)		4			2			2			0.01			(5	)		(6	)		(6	)		(0.02	)		5			4			4			0.01
Core earnings (loss) attributable to Devon (Non-GAAP)	$	(1	)	$	13		$	13		$	0.03		$	34		$	41		$	41		$	0.11
Core earnings attributable to Devon (Non-GAAP)																									$	2		$	2		$	2		$	0.00		$	34		$	28		$	28		$	0.07
Total
Loss attributable to Devon (GAAP)	$	(195	)	$	(90	)	$	(92	)	$	(0.25	)	$	(3,130	)	$	(2,573	)	$	(2,578	)	$	(6.85	)	$	(671	)	$	(668	)	$	(670	)	$	(1.78	)	$	(2,935	)	$	(2,483	)	$	(2,486	)	$	(6.60	)
Adjustments:
Continuing Operations		165			80			80			0.22			2,919			2,405			2,405			6.38			597			611			611			1.62			2,754			2,324			2,324			6.17
Discontinued Operations		1			—			—			(0.01	)		184			144			144			0.38			(7	)		(7	)		(7	)		(0.02	)		182			144			144			0.38
Core loss attributable to Devon (Non-GAAP)	$	(29	)	$	(10	)	$	(12	)	$	(0.04	)	$	(27	)	$	(24	)	$	(29	)	$	(0.09	)
2019
Continuing Operations
Earnings (loss) attributable to Devon (GAAP)	$	190		$	136		$	136		$	0.34		$	(88	)	$	(91	)	$	(91	)	$	(0.22	)
Adjustments:
Asset dispositions		(1	)		(1	)		(1	)		(0.00	)		(48	)		(37	)		(37	)		(0.09	)
Asset and exploration impairments		14			11			11			0.03			16			13			13			0.03
Deferred tax asset valuation allowance		—			4			4			0.01			—			2			2			0.00
Fair value changes in financial instruments		(57	)		(44	)		(44	)		(0.11	)		465			358			358			0.86
Restructuring and transaction costs		10			8			8			0.02			73			57			57			0.14
Core earnings attributable to Devon (Non-GAAP)	$	156		$	114		$	114		$	0.29		$	418		$	302		$	302		$	0.72
Discontinued Operations
Earnings (loss) attributable to Devon (GAAP)	$	(39	)	$	(27	)	$	(27	)	$	(0.07	)	$	93		$	378		$	378		$	0.91
Adjustments:
Asset dispositions		(35	)		(20	)		(20	)		(0.05	)		(222	)		(479	)		(479	)		(1.16	)
Asset and exploration impairments		—			—			—			0.00			37			27			27			0.07
Deferred tax asset valuation allowance		—			(4	)		(4	)		(0.01	)		—			23			23			0.05
Early retirement of debt		58			45			45			0.11			58			45			45			0.11
Fair value changes in financial instruments and foreign currency and other		(6	)		(9	)		(9	)		(0.02	)		(29	)		(32	)		(32	)		(0.08	)
Restructuring and transaction costs		5			4			4			0.01			244			178			178			0.44
Core earnings (loss) attributable to Devon (Non-GAAP)	$	(17	)	$	(11	)	$	(11	)	$	(0.03	)	$	181		$	140		$	140		$	0.34		$	(81	)	$	(64	)	$	(66	)	$	(0.18	)	$	1		$	(15	)	$	(18	)	$	(0.05	)
Total
Earnings attributable to Devon (GAAP)	$	151		$	109		$	109		$	0.27		$	5		$	287		$	287		$	0.69
Adjustments:
Continuing Operations		(34	)		(22	)		(22	)		(0.05	)		506			393			393			0.94
Discontinued Operations		22			16			16			0.04			88			(238	)		(238	)		(0.57	)
Core earnings attributable to Devon (Non-GAAP)	$	139		$	103		$	103		$	0.26		$	599		$	442		$	442		$	1.06

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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 from continuing operations 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.

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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 continuing operations.

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

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Net earnings (loss) (GAAP)	$	(90	)	$	109		$	(2,573	)	$	287		$	261		$	(668	)	$	477		$	(2,483	)
Net (earnings) loss from discontinued operations, net of tax		(13	)		27			103			(378	)		—			(9	)		—			116
Financing costs, net		66			60			200			186			80			69			157			134
Income tax expense (benefit)		(90	)		54			(510	)		3			43			(3	)		(205	)		(420	)
Exploration expenses		39			18			163			29			3			12			6			124
Depreciation, depletion and amortization		299			381			999			1,115			536			299			1,003			700
Asset impairments		—			—			2,666			—			—			—			—			2,666
Asset dispositions		—			(1	)		—			(48	)		(87	)		—			(119	)		—
Share-based compensation		19			20			58			64			20			19			40			39
Derivative and financial instrument non-cash valuation changes		97			(57	)		71			464			336			593			632			(26	)
Restructuring and transaction costs		32			10			32			73			23			—			212			—
Accretion on discounted liabilities and other		—			5			(35	)		(10	)		(14	)		13			(43	)		(35	)
EBITDAX (non-GAAP)		359			626			1,174			1,785
EBITDAX (Non-GAAP)														1,201			325			2,160			815
Marketing and midstream revenues and expenses, net		2			(16	)		28			(48	)		(1	)		8			20			26
Commodity derivative cash settlements		(10	)		(71	)		(343	)		(128	)		367			(232	)		599			(333	)
General and administrative expenses, cash-based		56			87			198			292			74			60			161			142
Field-level cash margin (non-GAAP)	$	407		$	626		$	1,057		$	1,901
Field-level cash margin (Non-GAAP)													$	1,641		$	161		$	2,940		$	650

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Commodity Price Risk

As of ~~September~~June 30, ~~2020,~~2021, we have commodity derivatives that pertain to a portion of our estimated production for the last ~~three~~six months of ~~2020,~~2021, as well as for ~~2021~~2022, 2023 and ~~2022.~~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 ~~September~~June 30, ~~2020,~~2021, a 10% change in the forward curves associated with our commodity derivative instruments would have changed our net positions by approximately ~~$131~~$335 million.

Interest Rate Risk

As of ~~September~~June 30, ~~2020,~~2021, we had total debt of ~~$4.3~~$6.5 billion. All of our debt is based on fixed interest rates averaging ~~6.0%~~5.7%.

Foreign Currency Risk

We had no material foreign currency risk at ~~September~~June 30, ~~2020.~~2021.

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 ~~September~~June 30, ~~2020~~2021 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

In conjunction with the Merger closing, we have integrated WPX’s operations into our overall system of internal controls over financial reporting and they are now included in our assessment of the effectiveness of our internal controls over financial reporting. For additional information regarding the Merger, see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report.

There were no other 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 matters noted below, there were no material pending legal proceedings to which we are a party or to which any of our property is subject.

On April 7, 2020, WPX Energy, Inc., a wholly-owned subsidiary of the Company, received a notice of violation from the EPA relating to specific historical air emission events occurring on the Fort Berthold Indian Reservation in North Dakota. On June 4, 2021, we received a notice of violation from the EPA relating to alleged air permit violations by WPX Energy Permian, LLC, a wholly-owned subsidiary of the Company, during 2020 in western Texas. The Company has engaged in ongoing communications with the EPA, including through the exchange of information, to resolve these matters. Although these matters are ongoing and management cannot predict their ultimate outcome, the resolution of each of these matters may result in a fine or penalty in excess of $300,000.

Please see our ~~2019~~2020 Annual Report on Form 10-K and other SEC filings for additional information.

Item 1A. Risk Factors

~~Except for the addition of the risks related to the Merger discussed below and the pandemic risk factor discussed in our~~ ~~Quarterly Report on Form 10-Q~~ ~~for the quarterly period ended March 31, 2020, there~~There have been no material changes to the information included in Item 1A. “Risk Factors” in our ~~2019~~2020 Annual Report on Form 10-K.

~~Risks Relating to the Merger~~

~~We may fail to realize the anticipated benefits of the Merger, and any failure to successfully integrate the businesses and operations of Devon and WPX may adversely affect our future results.~~

The success of the Merger will depend on, among other things, the combined company’s ability to combine the Devon and WPX businesses in a manner that realizes anticipated synergies and benefits. If the combined company is not able to successfully achieve these synergies, or the cost to achieve these synergies is greater than expected, then the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected.

We and WPX have operated and, until the completion of the Merger, will continue to operate independently. There can be no assurances that our businesses can be integrated successfully. It is possible that the integration process could result in the loss of key Devon employees or key WPX employees, the loss of customers, the disruption of our or WPX’s ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issues, higher than expected integration costs and an overall post‑completion integration process that takes longer than originally anticipated. Furthermore, the combined company’s board of directors and management team will consist of directors and employees from each of Devon and WPX, as applicable. Combining the boards of directors and management teams of each company into a single board and a single management team could require the reconciliation of differing priorities and strategic philosophies, which may not be successful or take longer than anticipated.

We are subject to certain restrictions in the Merger Agreement that may hinder operations pending the consummation of the Merger, and we may be the target of securities class action and derivative lawsuits as a result of the Merger.

Whether or not the Merger is completed, the pending Merger may disrupt our current plans and operations, which could have an adverse effect on our business operations and financial results. During the pendency of the Merger, the Merger Agreement generally requires us to operate our business in all material respects in the ordinary course and ~~not to engage in specified types of actions during this period, in each case subject to certain exceptions~~. These restrictions could be in place for an extended period of time if the consummation of the Merger is delayed, which may delay or prevent us from undertaking business opportunities that, absent the Merger Agreement, we might have pursued, or effectively respond to competitive pressures or industry developments.

In addition, litigation is common in connection with mergers and acquisitions of public companies, regardless of any merits related to the claims. Defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages. Moreover, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, the injunction may delay or prevent the Merger from being completed, which may adversely affect our business, results of operations and financial condition.

~~The Merger Agreement could be terminated, which could negatively impact us.~~

The Merger is subject to a number of conditions that must be satisfied or waived (to the extent permissible) prior to the completion of the Merger. These conditions to the completion of the Merger, some of which are beyond our control, may not be satisfied or waived in a timely manner or at all, and, accordingly, the Merger may be delayed or not completed. The Merger Agreement also contains certain termination rights for both Devon and WPX, including if the Merger is not consummated by March 26, 2021, and further provides that, upon termination of the Merger Agreement under certain circumstances, we may be required to pay WPX a termination fee equal to $75 million.

If the Merger is not completed, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Merger, we may experience certain negative effects, including the following: (i) may experience negative

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reactions from the financial markets and business partners; (ii) we will still be required to pay certain significant costs relating to the Merger, such as legal, accounting and other advisory fees and printing costs; and (iii) matters relating to the Merger (including integration planning) require substantial commitments of time and resources by our management, which may result in the distraction of our management from ongoing business operations and pursuing other opportunities that could have been beneficial to us.

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 ~~third~~second quarter of ~~2020~~2021 (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⁾

July 1 - July 31

5

$
10.80

—

$
962

August 1 - August 31

1

$
12.64

—

$
962

September 1 - September 30

66

$
9.43

—

$
962

Total

72

$
9.58

—

Period	Total Number of Shares Purchased ⁽¹⁾		Average Price Paid per Share
April 1 - April 30		56	$	22.82
May 1 - May 31		36	$	25.48
June 1 - June 30		13	$	27.57
Total		105	$	24.32

(1)

These amounts reflect the shares received by us from employees for the payment of personal income tax withholding on vesting transactions.

~~(2)~~

On December 17, 2019, we announced a $1.0 billion share repurchase program that has a December 31, 2020 expiration date. As of September 30, 2020, we had repurchased 2.2 million common shares for $38 million, or $16.85 per share, ~~under our share repurchase~~ program. Devon has temporarily suspended its share repurchase program. If Devon were to resume share repurchases under the program, such repurchases may be made in open-market or private transactions. For additional information, see ~~Note 16~~ ~~in “Part I. Financial Information – Item 1. Financial Statements” of this report.~~

Under the Devon Plan, eligible employees made purchases of shares of our common stock through an investment in the Devon Stock Fund, which is administered by an independent trustee. Eligible employees purchased approximately 4,500 shares of our common stock in the third quarter of 2020, at then-prevailing stock prices, that they held through their ownership in the Stock Fund. We acquired the shares of our common stock sold under the Devon Plan through open-market purchases.

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

~~2.1~~4.1	~~Agreement and Plan of Merger,~~Supplemental Indenture No. 6, dated as of ~~September 26, 2020, by~~June 9, 2021, between the Company and ~~among Devon Energy Corporation, East Merger Sub, Inc. and WPX Energy, Inc.~~UMB Bank, National Association, as trustee (incorporated by reference to Exhibit ~~2.1~~4.2 to ~~Registrant’s~~the Company’s Form 8-K filed ~~September 28, 2020;~~June 9, 2021; File No. 001-32318).

~~10.1~~4.2	~~Support Agreement,~~Supplemental Indenture No. 7, dated as of ~~September 26, 2020, by~~June 9, 2021, between the Company and ~~among Devon Energy Corporation and certain affiliates of EnCap Investments L.P.~~UMB Bank, National Association, as trustee (incorporated by reference to Exhibit ~~10.1~~4.3 to ~~Registrant’s~~the Company’s Form 8-K filed ~~September 28, 2020;~~June 9, 2021; File No. 001-32318).

10.2*4.3	~~Employment Letter Agreement,~~Supplemental Indenture No. 7, dated as of ~~September 26, 2020, by~~June 9, 2021, between WPX Energy, Inc. and ~~between Devon Energy Corporation and David A. Hager~~The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit ~~10.2~~4.5 to ~~Registrant’s~~the Company’s Form 8-K filed ~~September 28, 2020;~~June 9, 2021; File No. 001-32318).

10.3*4.4	~~Employment Letter~~Registration Rights Agreement, dated ~~as of September 26, 2020,~~June 9, 2021, by and ~~between Devon Energy Corporation~~among the Company, BofA Securities, Inc., Citigroup Global Markets Inc. and ~~Richard E. Muncrief~~Morgan Stanley & Co. LLC (incorporated by reference to Exhibit ~~10.3~~10.1 to ~~Registrant’s~~the Company’s Form 8-K filed ~~September 28, 2020;~~June 9, 2021; File No. 001-32318).

10.410.1	~~Employment Letter~~2021 Form of Notice of Grant of Restricted Stock Award and Award Agreement ~~dated as of September 26, 2020, by~~under the 2017 Long-Term Incentive Plan between the Company and ~~between Devon Energy Corporation and Clay M. Gaspar (incorporated by reference to Exhibit 10.4 to Registrant’s Form 8-K filed September 28, 2020; File No. 001-32318~~all non-management directors for restricted stock awarded).

10.5*	~~Employment Letter Agreement, dated as of September 26, 2020, by and between Devon Energy Corporation and Dennis C. Cameron (incorporated by reference to Exhibit 10.5 to Registrant’s Form 8-K filed September 28, 2020; 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: ~~October 30, 2020~~August 4, 2021				/s/ Jeremy D. Humphers
				Jeremy D. Humphers
				Senior Vice President and Chief Accounting Officer

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	Three Months Ended September 30,									Nine Months Ended September 30,
	Barnett Shale			Canada			Total			Barnett Shale			Canada			Total
2020
Oil, gas and NGL sales	$	94		$	—		$	94		$	263		$	—		$	263
Total revenues		94			—			94			263			—			263
Production expenses		66			—			66			214			—			214
Asset impairments		3			—			3			182			—			182
Asset dispositions		—			—			—			—			(2	)		(2	)
General and administrative expenses		—			2			2			—			3			3
Financing costs, net		—			(1	)		(1	)		—			(3	)		(3	)
Other expenses		27			(1	)		26			16			3			19
Total expenses		96			—			96			412			1			413
Earnings (loss) from discontinued operations before income taxes		(2	)		—			(2	)		(149	)		(1	)		(150	)
Income tax benefit		—			(15	)		(15	)		(32	)		(15	)		(47	)
Net earnings (loss) from discontinued operations, net of tax	$	(2	)	$	15		$	13		$	(117	)	$	14		$	(103	)
2019
Oil, gas and NGL sales	$	101		$	11		$	112		$	365		$	741		$	1,106
Oil, gas and NGL derivatives		—			(18	)		(18	)		—			(113	)		(113	)
Marketing and midstream revenues		—			—			—			—			38			38
Total revenues		101			(7	)		94			365			666			1,031
Production expenses		75			(1	)		74			232			293			525
Exploration expenses		—			—			—			—			13			13
Marketing and midstream expenses		—			—			—			—			18			18
Depreciation, depletion and amortization		20			—			20			60			128			188
Asset impairments		—			—			—			—			37			37
Asset dispositions		(1	)		(34	)		(35	)		1			(223	)		(222	)
General and administrative expenses		—			2			2			—			33			33
Financing costs, net		—			59			59			—			85			85
Restructuring and transaction costs		—			5			5			—			244			244
Other expenses		3			5			8			9			8			17
Total expenses		97			36			133			302			636			938
Earnings from discontinued operations before income taxes		4			(43	)		(39	)		63			30			93
Income tax expense (benefit)		1			(13	)		(12	)		13			(298	)		(285	)
Net earnings from discontinued operations, net of tax	$	3		$	(30	)	$	(27	)	$	50		$	328		$	378

	As of September 30, 2020						As of December 31, 2019
	Barnett Shale		Canada		Total		Barnett Shale		Canada		Total
Cash restricted for discontinued operations	$	20	$	170	$	190	$	25	$	355	$	380

Accounts receivable	$	33	$	—	$	33	$	38	$	1	$	39
Other current assets		6		—		6		5		2		7
Oil and gas property and equipment, based on successful efforts accounting, net		590		—		590		751		—		751
Other property and equipment, net		11		—		11		11		—		11
Goodwill		88		—		88		88		—		88
Other long-term assets		—		81		81		—		81		81
Total assets associated with discontinued operations	$	728	$	81	$	809	$	893	$	84	$	977

Accounts payable	$	17	$	3	$	20	$	15	$	4	$	19
Revenues and royalties payable		42		3		45		44		3		47
Other current liabilities		215		38		253		19		233		252
Asset retirement obligations		145		—		145		141		—		141
Other long-term liabilities		14		143		157		16		169		185
Total liabilities associated with discontinued operations	$	433	$	187	$	620	$	235	$	409	$	644

	Q3 2020			Q2 2020
Current benefit	$	(90	)	$	(3	)
Deferred benefit		—			—
Total benefit	$	(90	)	$	(3	)
Effective income tax rate		47	%		0	%

	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2020			2020			2019			2020			2019
Oil, gas and NGL sales	$	94		$	77		$	112		$	263		$	1,106
Oil, gas and NGL derivatives	$	—		$	—		$	(18	)	$	—		$	(113	)
Production expenses	$	66		$	74		$	74		$	214		$	525
Asset impairments	$	3		$	—		$	—		$	182		$	37
Asset dispositions	$	—		$	(2	)	$	(35	)	$	(2	)	$	(222	)
Financing costs, net	$	(1	)	$	(1	)	$	59		$	(3	)	$	85
Restructuring and transaction costs	$	—		$	—		$	5		$	—		$	244
Other expenses	$	26		$	(3	)	$	8		$	19		$	17
Earnings (loss) from discontinued operations before income taxes	$	(2	)	$	9		$	(39	)	$	(150	)	$	93
Income tax benefit	$	(15	)	$	—		$	(12	)	$	(47	)	$	(285	)
Net earnings (loss) from discontinued operations, net of tax	$	13		$	9		$	(27	)	$	(103	)	$	378

Production (MMBoe):
Barnett Shale		9			9			9			27			27
Canada		—			—			—			—			19
Total production		9			9			9			27			46
Realized price, unhedged (per Boe) - Barnett Shale	$	10.94		$	8.89		$	12.27		$	9.89		$	13.25
Realized price, unhedged (per Boe) - Canada	N/A			N/A			N/A			N/A			$	38.98