Devon Energy Corp (DVN)

• Devon Energy expects record oil volumes in 2025, averaging around 380,000 barrels per day, reflecting nearly 5% higher production than previously communicated due to the Grayson Mill acquisition and operational momentum. -
• The company generated $786 million in free cash flow in Q3 and plans to allocate up to 70% of free cash flow to shareholder payouts, focusing on share repurchases and growing the fixed dividend. - -
• Operational efficiencies and breakthroughs in well productivity, especially in the Delaware Basin, are leading to enhanced production and capital efficiency, with potential for more upside beyond the current guidance. - -

• High debt levels: Devon Energy has a significant debt of $8 billion in a backward-dated oil curve, raising concerns about the company's focus on debt reduction versus returning cash to shareholders amid oil price uncertainty. -
• Limited cost reduction opportunities: The company anticipates that operating expenses, specifically LOE and GPT costs, will remain consistent with the fourth quarter guide, indicating limited potential for cost savings going forward. -
• Uncertainties in operational efficiencies: Devon acknowledges that future productivity gains are not fully incorporated into forecasts due to challenges such as limited opportunities for larger-scale projects and a lack of undeveloped areas to drive efficiency gains. - -

1. Return of Capital Strategy
   Q: What's your approach to dividends and buybacks?
   A: Our first priority is the fixed dividend, which we expect to grow next year. We're leaning into share repurchases, believing there's great value in our equity today. With the pullback in commodity prices, we're eliminating the variable dividend for the near term and focusing on share buybacks and increasing the fixed dividend. We plan to return 70% of free cash flow to shareholders, with $200–$300 million of buybacks each quarter. - - -

2. M&A Strategy
   Q: Will you pursue transformational deals or bolt-ons?
   A: We'll continue to evaluate opportunities that could make us a stronger company. While we often pass on deals, we remain open to bolt-on acquisitions like Grayson Mill, which worked well for us. We'll pursue a combination of organic growth and strategic acquisitions, whether small tuck-ins or assets like Grayson Mill. - -

3. Grayson Mill Acquisition
   Q: How is Grayson Mill impacting your operations?
   A: We've identified synergies that we're confident will exceed our initial expectations. Instant wins include infrastructure improvements, capital program efficiencies, and inventory optimization. The integration with Grayson Mill enhances our ability to extend inventory life and improve capital efficiency, particularly in the Bakken. - - - -

4. 2025 Guidance
   Q: What's the outlook for production in 2025?
   A: We're maintaining a soft guide for 2025 and will provide more detail in February. We have many options across our deep portfolio, and our multi-basin strategy gives us flexibility. With the larger Williston footprint from Grayson Mill, the Delaware Basin's share will shift from 60% to 50% of our production. - - -

5. Well Productivity Improvements
   Q: What's driving the uptick in well productivity?
   A: Breakthroughs in well placement, completion design, and sequencing have led to significant outperformance. We're seeing phenomenal results from deeper and shallower benches, and there's more upside ahead. Our focus on multi-zone developments and innovations is enhancing productivity and capital efficiency. - -

6. Balance Sheet Management
   Q: How are you addressing debt reduction?
   A: We plan to reduce debt by $2.5 billion over the next 2 to 3 years. We'll take out maturities as they come due, including $485 million next fall and our term loan in 2026. We feel good about our financial flexibility to achieve this while delivering competitive cash returns to shareholders. - -

7. Permian Gas Realizations
   Q: What's the impact of Matterhorn on gas pricing?
   A: With Matterhorn online and flowing 2 Bcf/day, we expect pricing to improve once maintenance on other pipelines clears up. About 90% of our molecules now flow away from Waha to the Gulf Coast. We've taken steps to protect against potential backups at Katy by moving capacity to the Louisiana LNG hub. - -

8. Cost Efficiencies
   Q: Can you reduce operating costs further?
   A: Our fourth-quarter guidance is a good starting point, and we'll continue to refine and look for efficiencies. Completion efficiencies and drilling improvements have reduced costs per well. We're always open to innovative technologies like e-frac but remain objective about their economic benefits. - - -

9. Inventory Life
   Q: How long is your inventory runway?
   A: We feel confident in a 10-year runway in all five of our basins. The front five years are derisked with strong continuity, and we continue to innovate to extend the back five years. We're exploring deeper and shallower benches, as well as adjacencies, to expand our inventory. -

10. Potential JV Plans
    Q: Are you considering power or nuclear JVs?
    A: Yes, we've been engaged in discussions with utilities and power entities. We're exploring creative ways to connect our resources, like natural gas, with the demand for electricity in areas like the Delaware Basin. This could help address electricity costs and scarcity while improving gas realizations. -

11. Grayson Mill Midstream Assets
    Q: Will you divest Grayson's midstream assets?
    A: We're more likely to keep these assets, as they've contributed to higher margins and lower operating costs. They are critical in maximizing value from mature assets and extending inventory in the Williston Basin. However, we're objective about all assets and will consider divestitures when appropriate. -

12. Project Size and Efficiency
    Q: Will you pursue more large-scale projects?
    A: Where applicable, we'll tend toward larger pad developments, as they provide efficiencies and enhance productivity. The CBR project is an example of how larger projects can exceed expectations. However, opportunities for such large-scale projects are limited due to existing developments. - -

13. Capital Allocation to Other Assets
    Q: What's the plan for Eagle Ford, Anadarko, PRB?
    A: Directionally, our capital allocation will remain similar, with adjustments for the increased Williston footprint. The Delaware Basin's share will decrease from about 60% to 50%. Otherwise, we plan to maintain our focus across our diverse portfolio. -

Annual guidance for FY 2025:

• Total Production: 800,000 BOE per day - (raised from 680,000 BOE per day - - )
• Oil Production: 380,000 barrels per day - (no prior guidance)
• Capital Expenditure: $4 billion to $4.2 billion - (no prior guidance)
• Free Cash Flow: Aiming for robust free cash flow with a yield exceeding the broader market - (no prior guidance)
• Debt Reduction: $2.5 billion - (no change from $2.5 billion - )
• Share Repurchases: $200 million to $300 million each quarter - (no prior guidance)
• Cash Returns to Shareholders: Up to 70% of free cash flow - (no prior guidance)