Devon Energy Reports Fourth-Quarter and Full-Year 2014 Results; Provides 2015 Capital and Production Outlook

Devon Energy Corporation (NYSE:DVN) today reported net earnings for the full-year 2014 of $1.6 billion, or $3.93 per common share ($3.91 per diluted share). This compares to a net loss of $20 million in 2013, or $0.06 per common share ($0.06 per diluted share).

Devon generated cash flow from operations of $6.0 billion in 2014, a 10 percent increase compared to 2013. Including $5.1 billion of cash received from the sale of non-core assets, the company’s total cash inflows for the year exceeded $11 billion.

For the fourth quarter of 2014, Devon’s core earnings totaled $343 million, or $0.84 per common share ($0.83 per diluted share). The company reported a net loss of $408 million, or $1.01 per common share ($1.01 per diluted share) in the fourth quarter.

“Devon delivered another exceptional performance in the fourth quarter, rounding out an outstanding year for the company, including a significant repositioning of the portfolio,” said John Richels, president and CEO. “Production from our top-tier asset portfolio exceeded guidance for all products, proved oil reserves reached a record level and our midstream business increased profitability to an all-time high.

“We expect to sustain operational momentum in 2015 with the significant improvements we have seen in our completion designs and a capital program focused on development drilling,” said Richels. “With strong results from our enhanced completions and a focus on core development areas, we expect growth in oil production to be between 20 and 25 percent in 2015, even with a projected reduction of approximately 20 percent in E&P capital spending compared to 2014.”

Repositioned Portfolio Exceeds Production Expectations

Total production from Devon’s retained assets averaged 664,000 oil-equivalent barrels (Boe) per day during the fourth quarter of 2014. This result exceeded the company’s guidance range by 9,000 Boe per day and represents a 20 percent increase compared to the fourth quarter of 2013. This high-margin growth increased liquids production to 57 percent of the company’s retained asset mix in the fourth quarter.

Devon also delivered record oil production of 239,000 barrels per day in the fourth quarter. This result exceeded the top end of the company’s guidance range and represents a 48 percent increase compared to the fourth quarter of 2013. The most significant growth came from the company’s U.S. operations, where oil production increased a substantial 82 percent for the quarter year over year.

The strong growth in U.S. oil production during the quarter was largely attributable to prolific well results from the company’s world-class Eagle Ford assets. Net production in the Eagle Ford averaged 98,000 Boe per day in the fourth quarter, a 100 percent increase compared to Devon’s first month of ownership in March 2014. The company also achieved another quarter of strong production growth in the Permian Basin. Led by outstanding results from Devon’s Delaware Basin assets, total Permian Basin production increased to 98,000 Boe per day in the fourth quarter, a 14 percent increase compared to the year-ago period.

In Canada, net oil production from the company’s heavy-oil projects increased to a record high of 93,000 barrels per day in the fourth quarter. This strong result exceeded the top end of Devon’s guidance range by 5,000 barrels per day and represents a 15 percent increase in production compared to the fourth quarter of 2013. This growth was driven by the continued ramp-up of the company’s newest heavy-oil facility, Jackfish 3, which exited the year averaging 13,000 barrels per day.

Reserves from Retained Assets Grow; Oil Reserves Climb to Record Levels

Devon’s estimated proved reserves totaled 2.8 billion oil-equivalent barrels on Dec. 31, 2014, a 7 percent increase in reserves compared to the company’s retained asset portfolio in 2013. At year-end, proved oil reserves reached a record 895 million barrels.

The most significant reserve growth came from Devon’s U.S. operations, where oil reserves from retained properties increased 65 percent year over year to 351 million barrels. The substantial growth in U.S. oil reserves is largely attributable to the company’s Eagle Ford acquisition and its Delaware Basin operations. During the year, the company’s U.S. drilling programs added 94 million barrels of light-oil reserves through successful drilling (extensions and discoveries). This represents a replacement rate of approximately 200 percent of the light oil produced during 2014.

Overall, the company’s reserve life index (proved reserves divided by annual production from retained properties) remained at approximately 12 years, and its proved undeveloped reserves accounted for only 25 percent of proved reserves.

Operations Report

For additional details on Devon’s core and emerging assets, please refer to the company’s fourth-quarter 2014 Operations Report at www.devonenergy.com. Highlights from the operations report include:

• Prolific Q4 results, increasing type curve for Eagle Ford
• Improved completion design delivers excellent results in Delaware Basin
• Ramp-up exceeds expectations at Jackfish 3
• High-rate development wells from Cana-Woodford

Upstream Revenue Increases 16 Percent; Midstream Profit Rises

Revenue from oil, natural gas and natural gas liquids sales totaled $9.9 billion in 2014, a 16 percent increase compared to 2013. The growth in revenue was attributable to the company’s significant increase in U.S. light-oil production. This high-margin growth increased oil sales to 60 percent of Devon’s total upstream revenues during the year.

In the fourth quarter, upstream revenue was $2.1 billion, a 3 percent decrease compared to the fourth quarter of 2013. Cash settlements related to the company’s oil and natural gas hedges increased revenue by $4.23 per Boe in the fourth quarter of 2014, partially offsetting lower realized oil and natural gas liquids prices. At Dec. 31, 2014, Devon’s attractive commodity hedges had a fair market value of nearly $2.0 billion.

The company’s marketing and midstream business also delivered excellent results in 2014, with operating profits reaching an all-time high of $852 million, a 66 percent increase compared to 2013. The year-over-year increase in operating profit was largely driven by growth from EnLink Midstream.

Cash Operating Costs Decline

The company’s successful cost containment efforts resulted in lease operating expenses (LOE), the largest cash cost, of $9.29 per Boe in the fourth quarter. LOE was 5 percent below the low end of Devon’s guidance range and 2 percent lower than the third quarter of 2014. The company’s significant scale in core plays coupled with a consistent focus on efficient operations continues to position Devon as a low-cost producer.

Production and property taxes were $108 million in the quarter, essentially flat compared to the fourth quarter of 2013. Compared to the previous quarter, lower commodity prices drove a decline in production and property taxes of 23 percent.

Net financing costs totaled $167 million in the fourth quarter of 2014, an increase of 50 percent compared to the year-ago quarter. The higher financing costs were due to a $48 million charge attributable to the early redemption of $1.9 billion in senior notes.

General and administrative expenses totaled $252 million in the fourth quarter of 2014. This compares with $157 million in the fourth quarter of 2013. The year-over-year increase resulted from the consolidation of EnLink Midstream and higher employee-related costs.

Depreciation, depletion and amortization expense (DD&A) amounted to $14.89 per Boe in the fourth quarter. For the full-year, DD&A was $13.51 per Boe and compares to a rate of $10.99 in 2013. The increase in DD&A rate was primarily attributable to the company’s Eagle Ford acquisition and EnLink Midstream transaction.

Devon incurred a $1.9 billion non-cash impairment of goodwill in the fourth quarter of 2014. The goodwill was recorded more than a decade ago and was related to an acquisition comprised almost entirely of conventional gas assets in Canada that Devon no longer owns. This non-cash impairment was related to the recent drop in oil prices.

Full-year 2014 income tax expense was $2.4 billion, or 58 percent of pre-tax earnings. This unusually high tax rate resulted principally from the goodwill impairment charge that lowered pre-tax earnings but did not impact the company’s full-year tax obligations. Excluding this impairment charge and other non-recurring items, Devon’s income tax rate was 35 percent of adjusted pre-tax earnings for the full year.

Balance Sheet and Liquidity Remain Strong

Devon’s financial position remains exceptionally strong with investment-grade credit ratings and cash balances of $1.5 billion at the end of the fourth quarter. During the quarter, the company redeemed $1.9 billion in senior notes, completing the debt repayment plan associated with its portfolio transformation. At Dec. 31, the company’s net debt, excluding non-recourse EnLink obligations, totaled $7.8 billion.

2015 Outlook: Production Guidance Unchanged; E&P Capital Reduced 20 Percent

Detailed forward-looking guidance for the first quarter and full year of 2015 is provided later in the release. A notable component of this outlook is Devon’s 2015 E&P capital budget of $4.1 to $4.4 billion. This level of investment implies around a 20 percent decline in E&P spending compared to 2014 and is designed to better balance capital expenditures with expected cash inflows.

Even with reduced E&P capital investment in 2015, the company’s production growth outlook remains unchanged. With significant improvements in completion design and a capital program focused on development drilling, Devon expects to deliver oil production growth of 20 to 25 percent year over year on a retained property basis. This production outlook is driven by balanced oil growth in both the U.S. and Canada.

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 general 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 additional information, consisting of an operations report and management commentary with associated slides, to its website at www.devonenergy.com. The company’s fourth-quarter 2014 conference call will be held at 10 a.m. Central (11 a.m. Eastern) on Wednesday, Feb. 18, 2015, 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 are those concerning strategic plans, expectations and objectives for future operations. 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 future drilling and production 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, natural gas and NGL prices; uncertainties inherent in estimating oil, natural gas and NGL reserves; the extent to which we are successful in acquiring and discovering additional reserves; unforeseen changes in the rate of production from our oil and gas properties; uncertainties in future exploration and drilling results; uncertainties inherent in estimating the cost of drilling and completing wells; drilling risks; competition for leases, materials, people and capital; midstream capacity constraints and potential interruptions in production; risk related to our hedging activities; environmental risks; political changes; changes in laws or regulations;our limited control over third parties who operate our oil and gas properties; our ability to successfully complete mergers, acquisitions and divestitures; and other risks 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. U.S. 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 Corp. (NYSE: DVN) 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

(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.