OREANDA-NEWS. August 03, 2016.  Devon Energy Corp. (NYSE: DVN) today reported operational and financial results for the second quarter of 2016 and provided guidance for the third quarter and full-year 2016.

Highlights

  • Exceeded production expectations in U.S. resource plays
  • Raised 2016 production guidance for retained assets by 3 percent
  • Reduced lease operating expenses 26 percent year over year
  • Improved operating and G&A expense outlook
  • Completed asset divestiture program with proceeds totaling \\$3.2 billion
  • Increased E&P capital investment by \\$200 million in 2016

“Devon Energy’s strategy of operating in North America’s best resource plays, coupled with a focus on delivering best-in-class execution, led to another quarter of excellent operational results,” said

Dave Hager, president and CEO. “Production from our U.S. resource plays once again exceeded guidance expectations and we were able to deliver this outperformance with dramatically lower costs. With the cost savings achieved year to date, we are now on pace to reduce operating and G&A expenses by nearly \\$1 billion in 2016.

“In addition to our strong operating performance, we were able to significantly improve our financial strength over the past several months with the timely completion of our non-core asset divestiture program,” Hager said. “Total divestitures reached \\$3.2 billion and surpassed the top end of our \\$2 billion to \\$3 billion guidance range. The majority of the sales proceeds will be utilized to reduce debt and position us to further accelerate investment in our best-in-class U.S. resource plays, led by the STACK and Delaware Basin.”

Production Exceeds Expectations in U.S. Resource Plays

Devon’s reported net production averaged 644,000 oil-equivalent barrels (Boe) per day during the second quarter of 2016. Of this amount, 545,000 Boe per day was attributable to the Company’s core assets, where investment will be directed going forward. Production from core assets exceeded the mid-point of guidance by 6,000 Boe per day, driven entirely by Devon’s U.S. resource plays.

Within the Company’s U.S. resource plays, production averaged 419,000 Boe per day. This performance was highlighted by strong results from the STACK and Delaware Basin where aggregate production increased 27 percent year over year. Light-oil production from U.S. resource plays, which is Devon’s highest margin product, averaged 110,000 barrels per day. This result exceeded the top end of guidance by 2,000 barrels per day.

In Canada, net oil production from Devon’s heavy-oil projects averaged 121,000 barrels per day in the second quarter. Driven by the industry-leading performance of the Jackfish 3 facility, Canadian oil production increased 24 percent compared to the second quarter of 2015. Scheduled maintenance at the Company’s Jackfish 2 facility curtailed production by 11,000 barrels per day in the quarter.

Retained Midland Assets Enhance 2016 Production Outlook

With the earlier than expected completion of Devon’s asset divestiture program, the Company is updating its third quarter and full-year 2016 production expectations for its retained, go-forward asset base. The most significant change to previous guidance is Devon’s decision to retain select assets in the Midland Basin that were previously categorized as non-core. These legacy Midland Basin assets have extremely low declines and are expected to produce approximately 15,000 Boe per day in the second half of 2016.

Due to the retention of Midland assets and other minor operating interests, Devon is raising the mid-point of its 2016 production guidance from its retained, go-forward asset base by 18,000 Boe per day, or 3 percent. The largest portion of this production raise is attributable to oil, where 2016 mid-point guidance increased by 4 percent or 10,000 barrels per day.

Lease Operating Expenses Decline 26 Percent; Additional Savings Expected

The Company has several cost-reduction initiatives underway that positively impacted second-quarter results. The most significant operating cost savings came from lease operating expenses (LOE), which is Devon’s largest field-level cost. LOE declined 26 percent compared to the second quarter of 2015 to \\$416 million, and was 5 percent below the low end of guidance. The decrease in LOE was primarily driven by improved power and water-handling infrastructure, declining labor expense and lower supply chain costs.

Due to the operating cost performance achieved year to date and the impact of recently announced asset divestitures, the Company is lowering its full-year 2016 LOE outlook by \\$150 million to a range of \\$1.6 billion to \\$1.7 billion. With this improved outlook, Devon is now on track to reduce LOE and production taxes by nearly \\$600 million compared to 2015.

G&A Cost Savings Initiatives Ahead of Schedule

Devon also realized substantial general and administrative (G&A) cost savings in the second quarter. G&A expenses totaled \\$147 million, a 30 percent improvement compared to the second quarter of 2015. The significantly lower overhead costs were driven by reduced personnel expenses.

The Company now anticipates G&A expenses to decline to a range of \\$600 million to \\$650 million for the full-year 2016. Combined with reductions in capitalized G&A, Devon projects its total overhead costs to decline by approximately \\$400 million compared to 2015.

Accelerating Upstream Investment Activity

Devon continued to effectively control capital costs during the second quarter. Devon’s accrued upstream capital spending, which accounts for activity that was incurred during the reporting period, amounted to \\$221 million in the quarter. This result was \\$29 million below the low end of the Company’s guidance range.

As previously announced in June, Devon expects its full-year 2016 upstream capital program to range between \\$1.1 billion and \\$1.3 billion, an increase of \\$200 million from previous guidance. The incremental capital will be deployed in the STACK and Delaware Basin, with the potential to add as many as 7 operated rigs between these prolific plays in the second half of 2016. The additional capital investment is expected to deliver incremental production in early 2017.

Second-Quarter 2016 Operations Report

For additional details on Devon’s E&P operations, please refer to the Company’s second-quarter 2016 operations report at www.devonenergy.com. Highlights from the report include:

  • Record-setting Meramec oil well brought online
  • Successful spacing tests in STACK
  • Bone Spring development wells outperform type curve
  • Another high-rate well in the Leonard Shale
  • Significant free cash flow generation in Eagle Ford
  • Jackfish complex production exceeds nameplate capacity by 9 percent

Divestiture Program Complete and Exceeds Expectations

In the second quarter of 2016, Devon announced multiple agreements to monetize \\$2 billion of non-core upstream assets in the U.S. Several of these transactions have closed and the Company expects the remaining transactions to close in the third quarter. The Company expects to incur minimal cash taxes associated with these divestitures.

Subsequent to quarter end, the Company announced an agreement to sell its 50 percent interest in the Access Pipeline for CAD \\$1.4 billion, or USD \\$1.1 billion. This transaction is expected to close in the third quarter of 2016. With the announced sale of Access Pipeline, Devon’s divestiture program is now complete reaching \\$3.2 billion, exceeding the top end of the Company’s \\$2 billion to \\$3 billion guidance range. At least two-thirds of the sales proceeds are expected to be utilized for debt reduction, while the remaining amount will be reinvested in the Company’s U.S. resource plays.

Significant Liquidity and Financial Strength

Devon exited the second quarter with \\$1.7 billion of cash on hand. Pro-forma for the recent asset sales, cash balances will increase to \\$4.6 billion and the Company had no borrowings on its \\$3 billion senior credit facility.

The Company’s consolidated debt was \\$12.7 billion at the end of the second quarter. Adjusted for asset sales, Devon’s net debt, which excludes non-recourse EnLink obligations, declines to \\$4.7 billion. The Company’s ownership in EnLink is valued at greater than \\$3 billion and is expected to generate cash distributions of \\$270 million in 2016.

Cash Inflow Exceeds \\$800 Million

In the second quarter of 2016 Devon had a reported net loss of \\$1.6 billion, or \\$3.04 per share. Adjusting for items that securities analysts typically exclude from their published estimates, Devon’s core earnings totaled \\$33 million, or \\$0.06 per share.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) reached \\$649 million in the second quarter of 2016. The closing of the Company’s non-core Mississippian assets added approximately \\$200 million of additional cash flow in the second quarter of 2016, bringing cash inflows to more than \\$800 million.

Non-GAAP Reconciliations

Pursuant to regulatory disclosure requirements, Devon is required to reconcile non-GAAP (generally accepted accounting principles) financial measures to the related GAAP information. Net debt, adjusted net debt, core earnings, core earnings per share and adjusted EBITDA referenced within the commentary of this release are non-GAAP financial measures. Reconciliations of these non-GAAP measures are provided within the tables of this release.

Conference Call Webcast and Supplemental Earnings Materials

Please note that as soon as practicable today, Devon will post an operations report to its website at www.devonenergy.com. The Company’s second-quarter conference call will be held at 10 a.m. Central (11 a.m. Eastern) on Wednesday, Aug. 3, 2016, and will serve primarily as a forum for analyst and investor questions and answers.

Forward-Looking Statements

This press release includes "forward-looking statements" as defined by the Securities and Exchange Commission (SEC). Such statements include those concerning strategic plans, expectations and objectives for future operations, and are often identified by use of the words “expects,” “believes,” “will,” “would,” “could,” “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 press release that address activities, events or developments that the Company 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 the control of the Company. Statements regarding our business and operations are subject to all of the risks and uncertainties normally incident to the exploration for and development and production of oil and gas. These risks include, but are not limited to: the volatility of oil, gas and NGL prices, including the currently depressed commodity price environment; 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 exploration and development activities; risks related to our hedging activities; counterparty credit risks; regulatory restrictions, compliance costs and other risks relating to governmental regulation, including with respect to environmental matters; risks relating to our indebtedness; our ability to successfully complete mergers, acquisitions and divestitures; the extent to which insurance covers any losses we may experience; our limited control over third parties who operate our oil and gas properties; midstream capacity constraints and potential interruptions in production; competition for leases, materials, people and capital; cyberattacks targeting our systems and infrastructure; and any of the other risks and uncertainties identified in our Form 10-K and our other filings with the SEC. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. The forward-looking statements in this press release are made as of the date of this press release, even if subsequently made available by Devon on its website or otherwise. Devon does not undertake any obligation to update the forward-looking statements as a result of new information, future events or otherwise.

The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC's definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves. This release may contain certain terms, such as resource potential and exploration target size. These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized. The SEC guidelines strictly prohibit us from including these estimates in filings with the SEC. Investors are urged to consider closely the disclosure in our Form 10-K, available at www.devonenergy.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or from the SEC’s website at www.sec.gov.

About Devon Energy

Devon Energy is a leading independent energy company engaged in finding and producing oil and natural gas. Based in Oklahoma City and included in the S&P 500, Devon operates in several of the most prolific oil and natural gas plays in the U.S. and Canada with an emphasis on a balanced portfolio. The Company is the second-largest oil producer among North American onshore independents. For more information, please visit www.devonenergy.com.

DEVON ENERGY CORPORATION

FINANCIAL AND OPERATIONAL INFORMATION
Quarter Ended Six Months Ended
PRODUCTION NET OF ROYALTIES June 30, June 30,
2016 2015 2016 2015
Oil and bitumen (MBbls/d)
U. S. - Core 110 131 119 129
Heavy Oil 121 98 124 101
Core assets 231 229 243 230
Other 28 41 29 41
Total 259 270 272 271
Natural gas liquids (MBbls/d)
U. S. - Core 103 100 105 102
Other 28 34 29 34
Total 131 134 134 136
Gas (MMcf/d)
U. S. - Core 1,239 1,288 1,267 1,296
Heavy Oil 28 20 22 24
Core assets 1,267 1,308 1,289 1,320
Other 260 319 265 316
Total 1,527 1,627 1,554 1,636
Oil equivalent (MBoe/d)
U. S. - Core 419 446 436 448
Heavy Oil 126 101 127 105
Core assets 545 547 563 553
Other 99 127 102 126
Total 644 674 665 679
KEY OPERATING STATISTICS BY REGION
Quarter Ended June 30, 2016
Avg. Production Gross Wells Operated Rigs at
(MBoe/d) Drilled June 30, 2016
STACK 91 24 2
Delaware Basin 65 14 —
Eagle Ford 75 6 —
Rockies Oil 21 — —
Heavy Oil 126 — —
Barnett Shale 167 — —
Core assets 545 44 2
PRODUCTION TREND 2015 2016
Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2
Oil and bitumen (MBbls/d)
STACK 6 6 7 14 17
Delaware Basin 41 41 42 38 36
Eagle Ford 67 62 60 59 41
Rockies Oil 16 16 16 17 15
Heavy Oil 98 121 121 126 121
Barnett Shale 1 1 1 1 1
Core assets 229 247 247 255 231
Other 41 35 31 30 28
Total 270 282 278 285 259
Natural gas liquids (MBbls/d)
STACK 16 22 23 29 29
Delaware Basin 10 8 11 12 13
Eagle Ford 24 26 27 24 17
Rockies Oil 1 2 1 1 1
Barnett Shale 49 44 46 42 43
Core assets 100 102 108 108 103
Other 34 32 31 29 28
Total 134 134 139 137 131
Gas (MMcf/d)
STACK 221 216 235 286 267
Delaware Basin 75 70 82 84 99
Eagle Ford 146 154 151 144 103
Rockies Oil 41 41 38 32 31
Heavy Oil 20 16 24 15 28
Barnett Shale 805 788 768 749 739
Core assets 1,308 1,285 1,298 1,310 1,267
Other 319 301 285 271 260
Total 1,627 1,586 1,583 1,581 1,527
Oil equivalent (MBoe/d)
STACK 59 64 70 91 91
Delaware Basin 64 61 66 63 65
Eagle Ford 114 113 111 107 75
Rockies Oil 24 25 23 23 21
Heavy Oil 101 124 126 129 126
Barnett Shale 185 176 175 168 167
Core assets 547 563 571 581 545
Other 127 117 110 104 99
Total 674 680 681 685 644
BENCHMARK PRICES
(average prices) Quarter 2 June YTD
2016 2015 2016 2015
Oil (\\$/Bbl) - West Texas Intermediate (Cushing) \\$ 45.54 \\$ 57.78 \\$ 39.60 \\$ 53.33
Natural Gas (\\$/Mcf) - Henry Hub \\$ 1.95 \\$ 2.65 \\$ 2.02 \\$ 2.82
REALIZED PRICES Quarter Ended June 30, 2016
Oil /Bitumen NGL Gas Total
(Per Bbl) (Per Bbl) (Per Mcf) (Per Boe)
United States \\$ 41.56 \\$ 10.14 \\$ 1.40 \\$ 17.68
Canada \\$ 22.53 N/M N/M \\$ 21.85
Realized price without hedges \\$ 32.64 \\$ 10.14 \\$ 1.40 \\$ 18.50
Cash settlements \\$ (2.57 ) \\$ (0.25 ) \\$ 0.24 \\$ (0.53 )
Realized price, including cash settlements \\$ 30.07 \\$ 9.89 \\$ 1.64 \\$ 17.97
Quarter Ended June 30, 2015
Oil /Bitumen NGL Gas Total
(Per Bbl) (Per Bbl) (Per Mcf) (Per Boe)
United States \\$ 52.52 \\$ 10.31 \\$ 2.13 \\$ 24.18
Canada \\$ 36.49 N/M N/M \\$ 35.33
Realized price without hedges \\$ 46.69 \\$ 10.31 \\$ 2.13 \\$ 25.86
Cash settlements \\$ 16.08 \\$ — \\$ 0.58 \\$ 7.83
Realized price, including cash settlements \\$ 62.77 \\$ 10.31 \\$ 2.71 \\$ 33.69
Six Months Ended June 30, 2016
Oil /Bitumen NGL Gas Total
(Per Bbl) (Per Bbl) (Per Mcf) (Per Boe)
United States \\$ 34.70 \\$ 8.46 \\$ 1.47 \\$ 15.89
Canada \\$ 15.71 N/M N/M \\$ 15.33
Realized price without hedges \\$ 26.05 \\$ 8.46 \\$ 1.47 \\$ 15.78
Cash settlements \\$ (1.23 ) \\$ (0.13 ) \\$ 0.18 \\$ (0.10 )
Realized price, including cash settlements \\$ 24.82 \\$ 8.33 \\$ 1.65 \\$ 15.68
Six Months Ended June 30, 2015
Oil /Bitumen NGL Gas Total
(Per Bbl) (Per Bbl) (Per Mcf) (Per Boe)
United States \\$ 47.74 \\$ 9.85 \\$ 2.29 \\$ 22.93
Canada \\$ 29.51 N/M N/M \\$ 28.56
Realized price without hedges \\$ 40.94 \\$ 9.85 \\$ 2.29 \\$ 23.80
Cash settlements \\$ 18.59 \\$ — \\$ 0.55 \\$ 8.72
Realized price, including cash settlements \\$ 59.53 \\$ 9.85 \\$ 2.84 \\$ 32.52
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share amounts) Quarter Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
Oil, gas and NGL sales \\$ 1,085 \\$ 1,587 \\$ 1,910 \\$ 2,926
Oil, gas and NGL derivatives (142 ) (282 ) (109 ) 12
Marketing and midstream revenues 1,545 2,088 2,813 3,720
Total operating revenues 2,488 3,393 4,614 6,658
Lease operating expenses 416 562 860 1,115
Marketing and midstream operating expenses 1,338 1,863 2,404 3,302
General and administrative expenses 147 212 341 463
Production and property taxes 75 116 153 224
Depreciation, depletion and amortization 484 814 1,026 1,744
Asset impairments 1,497 4,168 4,532 9,628
Restructuring and transaction costs 24 — 271 —
Other operating items 4 21 24 40
Total operating expenses 3,985 7,756 9,611 16,516
Operating loss (1,497 ) (4,363 ) (4,997 ) (9,858 )
Net financing costs 163 125 327 242
Other nonoperating items 85 (9 ) 106 3
Loss before income taxes (1,745 ) (4,479 ) (5,430 ) (10,103 )
Income tax benefit (182 ) (1,686 ) (399 ) (3,721 )
Net loss (1,563 ) (2,793 ) (5,031 ) (6,382 )
Net earnings (loss) attributable to noncontrolling interests 7 23 (405 ) 33
Net loss attributable to Devon \\$ (1,570 ) \\$ (2,816 ) \\$ (4,626 ) \\$ (6,415 )
Net loss per share attributable to Devon:
Basic \\$ (3.04 ) \\$ (6.94 ) \\$ (9.33 ) \\$ (15.81 )
Diluted \\$ (3.04 ) \\$ (6.94 ) \\$ (9.33 ) \\$ (15.81 )
Weighted average common shares outstanding:
Basic 524 411 502 411
Diluted 524 411 502 411
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Quarter Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
Cash flows from operating activities:
Net loss \\$ (1,563 ) \\$ (2,793 ) \\$ (5,031 ) \\$ (6,382 )
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation, depletion and amortization 484 814 1,026 1,744
Asset impairments 1,497 4,168 4,532 9,628
Deferred income tax benefit (179 ) (1,593 ) (386 ) (3,640 )
Derivatives and other financial instruments 223 305 417 (125 )
Cash settlements on derivatives and financial instruments (44 ) 464 (148 ) 1,183
Other noncash charges 88 41 21 266
Net change in working capital (153 ) (189 ) 45 26
Change in long-term other assets (40 ) 18 13 159
Change in long-term other liabilities 22 (134 ) (5 ) (110 )
Net cash from operating activities 335 1,101 484 2,749
Cash flows from investing activities:
Capital expenditures (489 ) (1,432 ) (1,238 ) (3,149 )
Acquisitions of property, equipment and businesses (11 ) (13 ) (1,638 ) (417 )
Divestitures of property and equipment 191 6 209 8
Other (26 ) (8 ) (27 ) (5 )
Net cash from investing activities (335 ) (1,447 ) (2,694 ) (3,563 )
Cash flows from financing activities:
Borrowings of long-term debt, net of issuance costs 450 2,094 846 3,051
Repayments of long-term debt (290 ) (1,034 ) (549 ) (1,521 )
Net short-term repayments — (778 ) (626 ) (763 )
Issuance of common stock — — 1,469 —
Sale of subsidiary units — 85 — 654
Issuance of subsidiary units 49 2 776 4
Dividends paid on common stock (33 ) (98 ) (158 ) (197 )
Distributions to noncontrolling interests (74 ) (65 ) (147 ) (118 )
Other (2 ) 4 (2 ) (8 )
Net cash from financing activities 100 210 1,609 1,102
Effect of exchange rate changes on cash (12 ) 3 14 (43 )
Net change in cash and cash equivalents 88 (133 ) (587 ) 245
Cash and cash equivalents at beginning of period 1,635 1,858 2,310 1,480
Cash and cash equivalents at end of period \\$ 1,723 \\$ 1,725 \\$ 1,723 \\$ 1,725
CONSOLIDATED BALANCE SHEETS
(in millions) June 30, December 31,
2016 2015
Current assets:
Cash and cash equivalents \\$ 1,723 \\$ 2,310
Accounts receivable 1,167 1,105
Assets held for sale 728 —
Other current assets 364 606
Total current assets 3,982 4,021
Property and equipment, at cost:
Oil and gas, based on full cost accounting:
Subject to amortization 80,066 78,190
Not subject to amortization 3,798 2,584
Total oil and gas 83,864 80,774
Midstream and other 10,243 10,380
Total property and equipment, at cost 94,107 91,154
Less accumulated depreciation, depletion and amortization (77,292 ) (72,086 )
Property and equipment, net 16,815 19,068
Goodwill 4,159 5,032
Other long-term assets 2,288 1,330
Total assets \\$ 27,244 \\$ 29,451
Current liabilities:
Accounts payable \\$ 545 \\$ 906
Revenues and royalties payable 819 763
Short-term debt 350 976
Liabilities held for sale 205 —
Other current liabilities 1,010 650
Total current liabilities 2,929 3,295
Long-term debt 12,357 12,056
Asset retirement obligations 1,473 1,370
Other long-term liabilities 1,011 853
Deferred income taxes 555 888
Stockholders’ equity:
Common stock 52 42
Additional paid-in capital 7,500 4,996
Retained earnings (accumulated deficit)

(2,970

)

1,781
Accumulated other comprehensive earnings 265 230
Total stockholders’ equity attributable to Devon 4,847 7,049
Noncontrolling interests 4,072 3,940
Total stockholders’ equity 8,919 10,989
Total liabilities and stockholders’ equity \\$ 27,244 \\$ 29,451
Common shares outstanding 524 418
CONSOLIDATING STATEMENTS OF OPERATIONS
(in millions)
Quarter Ended June 30, 2016

Devon U.S.
& Canada

EnLink Eliminations Total
Oil, gas and NGL sales \\$ 1,085 \\$ — \\$ — \\$ 1,085
Oil, gas and NGL derivatives (142 ) — — (142 )
Marketing and midstream revenues 688 1,033 (176 ) 1,545
Total operating revenues 1,631 1,033 (176 ) 2,488
Lease operating expenses 416 — — 416
Marketing and midstream operating expenses 692 822 (176 ) 1,338
General and administrative expenses 118 29 — 147
Production and property taxes 64 11 — 75
Depreciation, depletion and amortization 359 125 — 484
Asset impairments 1,497 — — 1,497
Restructuring and transaction costs 23 1 — 24
Other operating items 4 — — 4
Total operating expenses 3,173 988 (176 ) 3,985
Operating earnings (loss) (1,542 ) 45 — (1,497 )
Net financing costs 117 46 — 163
Other nonoperating items 85 — — 85
Loss before income taxes (1,744 ) (1 ) — (1,745 )
Income tax benefit (180 ) (2 ) — (182 )
Net earnings (loss) (1,564 ) 1 — (1,563 )
Net earnings attributable to noncontrolling interests 1 6 — 7
Net loss attributable to Devon \\$ (1,565 ) \\$ (5 ) \\$ — \\$ (1,570 )
OTHER KEY STATISTICS
(in millions) Quarter Ended June 30, 2016

Devon U.S.
& Canada

EnLink Eliminations Total
Cash flow statement related items:
Operating cash flow \\$ 225 \\$ 110 \\$ — \\$ 335
Capital expenditures \\$ (336 ) \\$ (153 ) \\$ —

\\$

(489

)

Acquisitions of property, equipment and businesses \\$ (17 ) \\$ 6 \\$ —

\\$

(11

)

EnLink distributions received (paid) \\$ 66 \\$ (140 ) \\$ —

\\$

(74

)

Issuance of subsidiary units \\$ — \\$ 49 \\$ — \\$ 49
Balance sheet statement items:

Net debt (1)

 \\$ 7,630 \\$ 3,354 \\$ — \\$ 10,984

(1) Net debt is a non-GAAP measure. For a reconciliation of the comparable GAAP measure, see "Non-GAAP Financial Measures" later in this release.

CAPITAL EXPENDITURES
(in millions)
Quarter Ended June 30, 2016 Six Months Ended June 30, 2016
Exploration and development capital \\$ 221 \\$ 584
Capitalized G&A and interest 73 160
Acquisitions 12 1,530
Other 7 13
Devon capital expenditures (1) \\$ 313 \\$ 2,287

(1) Excludes \\$139 million and \\$684 million attributable to EnLink for the second quarter and first six months of 2016, respectively.

NON-GAAP FINANCIAL MEASURES

This press release includes non-GAAP financial measures. These non-GAAP measures are not alternatives to GAAP measures, and you should not consider these non-GAAP measures in isolation or as a substitute for analysis of our results as reported under GAAP. Below is additional disclosure regarding each of the non-GAAP measures used in this press release, including reconciliations to their most directly comparable GAAP measure.

CORE EARNINGS

Devon’s reported net earnings include items of income and expense that are typically excluded by securities analysts in their published estimates of the Company’s financial results. Accordingly, the Company also uses the measures of core earnings and core earnings per share attributable to Devon. Devon believes these non-GAAP measures facilitate comparisons of its performance to earnings estimates published by securities analysts. Devon also believes these non-GAAP measures can facilitate comparisons of its performance between periods and to the performance of its peers. The following table summarizes the effects of these items on second-quarter 2016 earnings.

(in millions, except per share amounts) Quarter Ended June 30, 2016
Before-tax After-tax

After
Noncontrolling
Interests

Per Share
Loss attributable to Devon (GAAP) \\$ (1,745 ) \\$ (1,563 ) \\$ (1,570 ) \\$ (3.04 )
Adjustments:
Fair value changes in financial instruments and foreign currency 205 134 130 0.25
Restructuring and transaction costs 24 16 16 0.03
Deferred tax asset valuation allowance — 467 467 0.91
Asset impairments 1,497 990 990 1.91
Core earnings (loss) attributable to Devon (Non-GAAP) \\$ (19 ) \\$ 44 \\$ 33 \\$ 0.06

ADJUSTED EBITDA

We define Adjusted EBITDA, a non-GAAP financial measure, as EBITDA adjusted for certain items presented in the accompanying reconciliation. We believe that EBITDA is widely used by investors to measure a company’s performance without regard to items such as interest expense, taxes, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired. In addition, Adjusted EBITDA generally excludes certain other items that management believes affect the comparability of operating results or are not related to Devon’s ongoing operations. Management uses Adjusted EBITDA to evaluate the company’s operational trends and performance relative to other oil and gas companies.

(in millions) Quarter Ended June 30, 2016
Net loss (GAAP) \\$ (1,563 )
Net financing costs 163
Income taxes (182 )
Depreciation, depletion and amortization and impairments 1,981
Asset retirement obligation accretion 21
EBITDA 420
Restructuring and transaction costs 24
Fair value changes in financial instruments and foreign currency 205
Adjusted EBITDA (Non-GAAP) \\$ 649

NET DEBT AND ADJUSTED NET DEBT

Devon defines net debt as debt less cash and cash equivalents and net debt attributable to the consolidation of EnLink Midstream as presented in the following table. Adjusted net debt is net debt further adjusted for the estimated proceeds Devon expects to receive from the asset divestitures that have closed or will close in the third quarter of 2016. Devon believes that netting these sources of cash, including the estimated asset sale proceeds, against debt and adjusting for EnLink net debt provides a clearer picture of the future demands on cash from Devon to repay debt.

(in millions) June 30, 2016
Devon U.S. & Canada EnLink Devon Consolidated
Total debt (GAAP) \\$ 9,343 \\$ 3,364 \\$ 12,707
Less cash and cash equivalents (1,713 ) (10 ) (1,723 )
Net debt (non-GAAP) 7,630 3,354 10,984
Proceeds from assets sales (2,932 ) — (2,932 )
Adjusted net debt (Non-GAAP) \\$ 4,698 \\$ 3,354 \\$ 8,052
DEVON ENERGY CORPORATION
FORWARD LOOKING GUIDANCE
PRODUCTION GUIDANCE Quarter 3 Full Year
Low High Low High
Oil and bitumen (MBbls/d)
U. S. 106 111 117 122
Heavy Oil 131 136 126 131
Retained assets 237 247 243 253
Divested assets 3 7 8 10
Total 240 254 251 263
Natural gas liquids (MBbls/d)
U. S. 101 105 105 109
Divested assets 5 10 12 14
Total 106 115 117 123
Gas (MMcf/d)
U. S. 1,200 1,230 1,245 1,275
Heavy Oil 14 18 15 20
Retained assets 1,214 1,248 1,260 1,295
Divested assets 70 80 120 125
Total 1,284 1,328 1,380 1,420
Oil equivalent (MBoe/d)
U. S. 407 421 430 444
Heavy Oil 133 139 128 134
Retained assets 540 560 558 578
Divested assets 20 30 40 45
Total 560 590 598 623
PRICE REALIZATIONS GUIDANCE Quarter 3 Full Year
Low High Low High
Oil and bitumen - % of WTI
U. S. 86 % 96 % 83 % 93 %
Canada 47 % 57 % 38 % 48 %
NGL - realized price \\$ 8 \\$ 12 \\$ 8 \\$ 12
Natural gas - % of Henry Hub 78 % 88 % 73 % 83 %
OTHER GUIDANCE ITEMS Quarter 3 Full Year
(\\$ millions, except %) Low High Low High
Marketing & midstream operating profit \\$ 200 \\$ 220 \\$ 825 \\$ 875
Lease operating expenses \\$ 380 \\$ 420 \\$ 1,600 \\$ 1,700
General & administrative expenses \\$ 135 \\$ 155 \\$ 600 \\$ 650
Production and property taxes \\$ 70 \\$ 80 \\$ 285 \\$ 315
Depreciation, depletion and amortization \\$ 425 \\$ 475 \\$ 1,900 \\$ 2,100
Other operating items \\$ 15 \\$ 20 \\$ 50 \\$ 75
Net financing costs (1) \\$ 160 \\$ 170 \\$ 650 \\$ 700
Current income tax rate 0.0 % 0.0 % 0.0 % 0.0 %
Deferred income tax rate 35.0 % 45.0 % 35.0 % 45.0 %
Total income tax rate 35.0 % 45.0 % 35.0 % 45.0 %
Net earnings attributable to noncontrolling interests \\$ — \\$ — \\$ — \\$ —
(1) Full year 2016 includes \\$50 million of non-cash accretion on EnLink’s installment purchase obligations.
CAPITAL EXPENDITURES GUIDANCE Quarter 3 Full Year
(in millions) Low High Low High
Exploration and development \\$ 275 \\$ 325 \\$ 1,100 \\$ 1,300
Capitalized G&A 50 60 200 250
Capitalized interest 10 20 40 50
Other 5 15 30 45
Devon capital expenditures (2) \\$ 340 \\$ 420 \\$ 1,370 \\$ 1,645
(2) Excludes capital expenditures related to EnLink.
COMMODITY HEDGES
Oil Commodity Hedges
Price Swaps Price Collars Call Options Sold
Period

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)

Q3-2016 33,000 \\$ 48.37 65,000 \\$ 40.37 \\$ 46.91 18,500 \\$ 55.00
Q4-2016 30,000 \\$ 48.58 20,000 \\$ 40.85 \\$ 50.85 18,500 \\$ 55.00
Q1-Q4 2017 6,470 \\$ 51.24 10,115 \\$ 46.44 \\$ 56.44 - -
Oil Basis Swaps
Period Index Volume (Bbls/d)

Weighted Average Differential to
WTI (\\$/Bbl)

Q3-2016 Western Canadian Select 50,000 (13.45 )
Q4-2016 Western Canadian Select 33,000 (13.40 )
Natural Gas Commodity Hedges
Price Swaps Price Collars Call Options Sold
Period

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)

Q3-2016 140,000 \\$ 2.78 105,000 \\$ 2.57 \\$ 2.85 400,000 \\$ 2.80
Q4-2016 155,000 \\$ 2.83 305,000 \\$ 2.71 \\$ 2.92 400,000 \\$ 2.80
Q1-Q4 2017 99,329 \\$ 3.03 62,315 \\$ 3.01 \\$ 3.31 - -

Devon’s oil derivatives settle against the average of the prompt month NYMEX West Texas Intermediate futures price. Devon’s natural gas derivatives settle against the Inside FERC first of the month Henry Hub index. Commodity hedge positions are shown as of July 27, 2016.