DVN Devon Energy Corp

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

AfterNoncontrollingInterests

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)

WeightedAveragePrice($/Bbl)

Volume(Bbls/d)

WeightedAverageFloor Price($/Bbl)

WeightedAverageCeiling Price($/Bbl)

Volume(Bbls/d)

WeightedAverage 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 toWTI ($/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)

     

WeightedAverage Price($/MMBtu)

Volume(MMBtu/d)

     

WeightedAverage FloorPrice($/MMBtu)

     

WeightedAverageCeiling Price($/MMBtu)

Volume(MMBtu/d)

     

WeightedAverage 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.

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Devon Energy CorporationInvestor ContactsHoward Thill, 405-552-3693Scott Coody, 405-552-4735Chris Carr, 405-228-2496Media ContactJohn Porretto, 405-228-7506