Devon Energy Reports Fourth-Quarter and Full-Year 2015 Results; Provides 2016 Capital and Production Outlook

• Delivered oil production growth of 26 percent from year-ago quarter
• Reduced field-level costs by nearly $400 million in 2015
• Maintained significant financial flexibility with nearly $4 billion of liquidity
• Decreased 2016 E&P capital spending outlook by 75 percent
• Reduced operating and G&A expense outlook by $800 million annually
• Adjusted quarterly dividend to improve cash flow by $320 million annually

OKLAHOMA CITY--(BUSINESS WIRE)-- Devon Energy Corp. (NYSE: DVN) today announced core earnings of $319 million, or $0.77 per diluted share, for the fourth quarter of 2015. On a reported basis, due to non-cash, asset-impairment charges, the Company had a net loss of $4.5 billion, or $11.12 per diluted share, for the fourth quarter of 2015.

Devon’s operating cash flow totaled $1.1 billion in the quarter, a 12 percent increase compared to the fourth quarter of 2014. For the full-year 2015, operating cash flows reached $5.4 billion. Combined with the $761 million of cash received from the sale of EnLink units and asset divestitures, Devon’s total cash inflows reached $6.1 billion for 2015.

“With the challenging industry conditions, Devon continues to be highly focused on delivering meaningful cost reductions and efficiency gains across our asset portfolio,” said Dave Hager, president and CEO. “These efforts drove down field-level operating costs nearly $400 million in 2015. Additionally, our drilling programs consistently generated top-tier industry results that exceeded type-curve expectations through higher production rates and rapidly declining capital costs.”

“Last year was also pivotal for Devon’s portfolio as we continued to sharpen our focus on the very best resource plays in North America,” said Hager. “In December, we announced material additions to our STACK and Powder River Basin positions, two of the best emerging plays in the U.S., and we announced our intent to divest of $2 billion to $3 billion of non-core E&P properties, as well as our 50 percent interest in the Access pipeline. These strategic actions will further strengthen our financial position and provide Devon with a resource-rich asset base able to generate differentiating value for many years.”

“Devon’s top priority in 2016 is to protect the balance sheet,” said Hager. “We are tailoring activity to current market conditions and are prepared to adjust capital plans throughout the year to ensure we balance capital investment with cash inflows. Additionally, we anticipate further enhancing our financial strength by utilizing upstream asset divestiture proceeds to reduce debt, have plans in place to reduce our operating and G&A costs by around $800 million annually, have significant flexibility around our capital program, and we are reducing our dividend by 75 percent. All these efforts are targeted at strengthening Devon’s financial position to take advantage of our top-tier assets when prices recover.”

Quarterly Dividend Adjusted

Devon today announced that its board of directors declared a quarterly cash dividend of $0.06 per share on the Company’s common stock for the second quarter of 2016. This compares to the previous quarterly dividend of $0.24 per share. The adjusted dividend is payable on June 30, 2016, to stockholders of record at the close of business on June 15, 2016.

“We believe the decision to adjust the quarterly dividend is prudent given the current commodity price environment and the uncertain duration of this downturn,” commented Hager. “This action provides us additional flexibility to balance spending with cash flow, aligns with our priority of maintaining a strong balance sheet, and moves the dividend yield and payout ratios in line with historic norms. The adjusted dividend will improve Devon’s cash flow by approximately $320 million annually.”

Significant Financial Flexibility

Devon maintained its strong balance sheet and liquidity position during the fourth quarter. Pro forma for the closing of the Felix acquisition, which closed in early January, the Company had $3.9 billion of liquidity at year end, consisting of $1.5 billion of cash and $2.4 billion of capacity on its senior credit facility.

Devon exited 2015 with net debt, excluding non-recourse EnLink obligations, totaling $7.7 billion. The Company has managed its debt-maturity schedule to provide maximum flexibility with near-term liquidity and has no significant debt maturities until December 2018. The weighted-average cost of Devon’s outstanding debt is only 5 percent.

Core Assets Deliver Strong Production Results

Devon’s reported oil production averaged 278,000 barrels per day in the fourth quarter, a 16 percent increase compared to the fourth quarter of 2014. Of this amount, 247,000 barrels per day were from the Company’s core asset portfolio where investment will be focused going forward. Oil production from these core assets increased 26 percent year over year, driven by Delaware Basin and Rockies growth in the U.S. and the Jackfish 3 project in Canada.

Overall, net production from Devon’s core assets averaged 571,000 oil-equivalent barrels (Boe) per day during the fourth quarter, representing a 7 percent increase compared to the fourth quarter of 2014. With the strong growth in higher-margin production, oil is now the largest component of Devon’s product mix at 43 percent of total production.

Operations Report Highlights

For additional details on Devon’s E&P operations, please refer to the Company’s fourth-quarter 2015 operations report at www.devonenergy.com. Highlights from the report include:

• Delaware Basin delivered strong production growth
• Bone Spring drilling efficiencies drove lower well costs
• STACK play generated record-setting well results
• Meramec type curves continued to improve
• Eagle Ford cost savings enhanced returns
• Jackfish LOE declined nearly 60 percent from peak rates

Revenues Enhanced by Hedges and EnLink Profits

Revenue from oil, natural gas and natural gas liquids sales totaled $1.1 billion in the fourth quarter of 2015, with oil revenue accounting for nearly 70 percent of the total. Cash settlements related to oil and natural gas hedges increased revenue by more than $700 million, or approximately $12 per Boe, in the fourth quarter.

Devon’s midstream business generated operating profits of $210 million in the fourth quarter, bringing the full-year 2015 total to $840 million. The majority of this profitability was attributable to the Company’s investment in EnLink Midstream. For the full-year 2015, EnLink-related operating profits expanded by 8 percent compared to 2014.

Field-Level Costs Decline Nearly $400 Million; Further Savings Expected in 2016

Field-level operating costs, which include both lease operating expenses (LOE) and production taxes, declined 20 percent compared to the fourth quarter of 2014 to $8.82 per Boe. For the full-year 2015, field-level operating costs were nearly $400 million lower compared to 2014.

The most significant operating cost savings came from LOE, which is Devon’s largest field-level cost. LOE declined to $479 million, or $7.66 per Boe in the fourth quarter. This represents a per-unit decrease of 18 percent compared to the fourth quarter of 2014.

Devon will continue to drive field-level operating costs lower across all regions of its portfolio in 2016. Led by additional LOE savings, the Company expects field-level costs to decline an incremental $300 million to $400 million for the full-year 2016.

Additional G&A Cost Reduction Initiatives Underway

Devon also realized significant general and administrative (G&A) cost savings in the fourth quarter. G&A expenses totaled $194 million, or $3.10 per Boe. This result represents a 25 percent decline in G&A year over year, saving nearly $60 million during the fourth quarter. This decrease was driven by lower employee-related costs.

The Company will continue to deliver meaningful G&A reductions in 2016 by reducing its cost structure to meet the needs of the business in the current commodity price environment.

Devon’s workforce reduction program, which includes G&A as well as operating personnel, will decrease Devon’s employee count by approximately 20 percent in the first quarter of 2016, bringing the total workforce reduction to more than 25 percent over the past 12 months. These workforce and non-personnel related cost reductions are expected to decrease G&A costs by approximately $400 million to $500 million on an annual basis, exclusive of reorganization charges, and are designed to maintain capacity to respond appropriately to increased activity levels when the commodity price environment improves.

Reorganization charges are expected to approximate $225 million to $275 million, with the majority projected to be incurred in the first quarter of 2016. Roughly one-quarter of the estimated restructuring charges are non-cash.

Reserve Base Shifting Toward Higher-Margin Liquids

Devon’s estimated proved reserves of oil, natural gas, and natural gas liquids were 2.2 billion Boe at Dec. 31, 2015, with proved developed reserves accounting for 83 percent of the total. Of this total, 1.9 billion Boe was attributable to Devon’s core asset portfolio, with oil and liquids increasing to 55 percent of the total.

During the year, the Company’s drilling programs added 118 million Boe of reserves through drilling (extensions and discoveries). About 90 percent of these additions resulted from oil-focused drilling in the U.S., led by successful drilling in the Delaware Basin and STACK.

Revisions reduced reserves by 444 million Boe. These adjustments were primarily driven by price revisions due to the lower commodity price environment. The Company’s risked recoverable resource was unaffected by these adjustments.

Acquisitions Closed and Divestiture Programs Advance

In December, Devon announced the acquisition of 80,000 net acres in the Anadarko Basin STACK play through its purchase of privately held Felix Energy. The Company also agreed to acquire 253,000 net acres in the Powder River Basin. Both acquisitions are now complete, with the Powder River transaction closing on Dec. 17, 2015, and the STACK transaction closing on Jan. 7, 2016.

To further enhance the Company’s financial strength, Devon is monetizing midstream and select upstream assets with a target of $2 billion to $3 billion in divestiture proceeds in 2016.

The Company is negotiating a sale for its 50 percent interest in the Access Pipeline which services Devon’s thermal heavy oil operations in Canada. The Company expects to announce a sale of the pipeline in the first half of 2016.

Devon’s upstream divestitures will include up to 80,000 Boe per day of production from properties in the Midland Basin, East Texas and Mid-Continent region. Key assets within these regions include: 15,000 net undeveloped acres in Martin County, Texas, the southern Midland Wolfcamp, Carthage, Granite Wash and the Mississippi-Lime.

2016 Capital and Production Outlook

Detailed forward-looking guidance for the first quarter and full-year of 2016 is provided later in this release. With current industry conditions, Devon’s top priority is to protect its balance sheet and manage its capital program to be within cash flows.

In 2016, Devon’s E&P capital investment is estimated to range from $900 million to $1.1 billion, a decrease of 75 percent from 2015. Capitalized G&A and other non-E&P capital requirements are projected at approximately $300 million. Importantly, should commodity price volatility continue, the Company’s capital programs have significant flexibility because of minimal exposure to long-term service contracts, no long-cycle project commitments and negligible leasehold expiration issues.

Devon’s E&P investment in 2016 will be focused entirely on its core asset portfolio. This level of investment is expected to maintain relatively flat oil production from the Company’s core assets compared to the full-year 2015. Top-line production from core assets is expected to decline by 6 percent driven by lower gas volumes.

Non-GAAP Reconciliations

Pursuant to regulatory disclosure requirements, Devon is required to reconcile non-GAAP financial measures to the related GAAP information (GAAP refers to generally accepted accounting principles). Core earnings and net debt are non-GAAP financial measures referenced within this release. Reconciliations of these non-GAAP measures are provided later in 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 fourth-quarter conference call will be held at 10 a.m. Central (11 a.m. Eastern) on Wednesday, Feb. 17, 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.

(1) The reported Canadian gas volumes include volumes that are produced from certain of our leases and then transported to our Jackfish operations where the gas is used as fuel. However, the revenues and expenses related to this consumed gas are eliminated in our consolidated financials.

(1) Includes $(4) million adjustment for the sale of the Victoria Express Pipeline.
(2) Net debt is a non-GAAP measure. For a reconciliation of the comparable GAAP measure, see "Non-GAAP Financial Measures" later in this release.

(1) Excludes $201 million and $978 million attributable to EnLink for the fourth quarter and year end of 2015, respectively.