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

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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

Quarter Ended Year Ended
PRODUCTION NET OF ROYALTIES December 31, December 31,
2014 2013 2014 2013
Oil / Bitumen (MBbls/d)
United States 146 80 127 73
Canada 93 81 82 79
Retained assets 239 161 209 152
Divested assets 16 5 16
Total Oil / Bitumen 239 177 214 168
Natural Gas (MMcf/d)
United States 1,684 1,639 1,662 1,658
Canada 23 28 23 28
Retained assets 1,707 1,667 1,685 1,686
Divested assets 3 661 235 707
Total Natural Gas 1,710 2,328 1,920 2,393
Natural Gas Liquids (MBbls/d)
United States 141 114 132 107
Divested assets 18 7 19
Total Natural Gas Liquids 141 132 139 126
Oil Equivalent (Mboe/d)
United States 567 467 536 456
Canada 97 86 86 85
Retained assets 664 553 622 541
Divested assets 1 143 51 152
Total Oil Equivalent 665 696 673 693
KEY OPERATING STATISTICS BY REGION
Quarter Ended December 31, 2014
Avg. Production Gross Wells Operated Rigs at
(MBoe/d) Drilled December 31, 2014
Permian Basin 98 80 18
Eagle Ford 98 78 3
Canadian Heavy Oil 97 78 11
Barnett Shale 201 14
Anadarko Basin 100 30 5
Mississippian-Woodford Trend 20 53 2
Rockies 19 9 4
Other Assets 31 4
Retained Assets – Total 664 346 43
Divested assets 1
Devon – Total 665 346 43
Year Ended December 31, 2014
Avg. Production Gross Wells
(MBoe/d) Drilled
Permian Basin 96 324
Eagle Ford 65 242
Canadian Heavy Oil 86 205
Barnett Shale 208 84
Anadarko Basin 94 130
Mississippian-Woodford Trend 20 236
Rockies 20 40
Other Assets 33 5
Retained Assets – Total 622 1,266
Divested assets 51
Devon – Total 673 1,266
PRODUCTION TREND 2013 2014
Quarter 4 Quarter 1 Quarter 2 Quarter 3 Quarter 4
Oil (MBbls/d)
Permian Basin 50 55 55 56 55
Eagle Ford 11 40 46 60
Canadian Heavy Oil 81 78 77 80 93
Barnett Shale 2 2 2 2 2
Anadarko Basin 9 9 11 10 10
Mississippian-Woodford Trend 8 10 9 10 9
Rockies 8 8 8 10 9
Other assets 3 2 3 2 1
Retained assets 161 175 205 216 239
Divested assets 16 15 4 3
Total 177 190 209 219 239
Gas (MMcf/d)
Permian Basin 116 121 134 136 137
Eagle Ford 22 86 107 126
Canadian Heavy Oil 28 19 23 26 23
Barnett Shale 995 931 932 896 878
Anadarko Basin 294 281 309 323 329
Mississippian-Woodford Trend 19 28 28 32 31
Rockies 75 65 67 66 58
Other assets 140 140 135 130 125
Retained assets 1,667 1,607 1,714 1,716 1,707
Divested assets 661 585 217 138 3
Total 2,328 2,192 1,931 1,854 1,710
NGL (MBbls/d)
Permian Basin 16 16 18 19 20
Eagle Ford 3 10 14 18
Canadian Heavy Oil
Barnett Shale 56 55 55 54 53
Anadarko Basin 27 29 31 34 34
Mississippian-Woodford Trend 3 5 5 6 6
Rockies 1 1 1 1 1
Other assets 11 10 10 10 9
Retained assets 114 119 130 138 141
Divested assets 18 16 6 5
Total 132 135 136 143 141
Combined (MBoe/d)
Permian Basin 86 91 95 98 98
Eagle Ford 17 65 78 98
Canadian Heavy Oil 86 81 81 84 97
Barnett Shale 224 213 212 205 201
Anadarko Basin 85 85 93 98 100
Mississippian-Woodford Trend 14 19 18 21 20
Rockies 21 20 21 22 19
Other assets 37 37 35 34 31
Retained assets 553 563 620 640 664
Divested assets 143 128 47 31 1
Total 696 691 667 671 665
BENCHMARK PRICES
(average prices) Quarter 4 December YTD
FY2014 FY2013 FY2014 FY2013
Natural Gas ($/Mcf) – Henry Hub $ 4.04 $ 3.60 $ 4.43 $ 3.65
Oil ($/Bbl) – West Texas Intermediate (Cushing) $ 73.05 $ 97.53 $ 93.01 $ 98.02
REALIZED PRICES Quarter Ended December 31, 2014
Oil /Bitumen Gas NGL Total
(Per Bbl) (Per Mcf) (Per Bbl) (Per Boe)
United States $ 68.19 $ 3.53 $ 17.79 $ 32.45
Canada (1) $ 45.71 $ 0.87 $ 54.32 $ 44.01
Realized price without hedges $ 59.46 $ 3.49 $ 17.75 $ 34.14
Cash settlements $ 10.34 $ 0.20 $ 0.04 $ 4.23
Realized price, including cash settlements $ 69.80 $ 3.69 $ 17.79 $ 38.37
Quarter Ended December 31, 2013
Oil /Bitumen Gas NGL Total
(Per Bbl) (Per Mcf) (Per Bbl) (Per Boe)
United States $ 96.04 $ 3.01 $ 27.51 $ 32.96
Canada (1) $ 48.50 $ 3.07 $ 45.00 $ 35.74
Realized price without hedges $ 71.45 $ 3.02 $ 28.73 $ 33.65
Cash settlements $ 3.33 $ 0.23 $ (0.19 ) $ 1.59
Realized price, including cash settlements $ 74.78 $ 3.25 $ 28.54 $ 35.24
Year Ended December 31, 2014
Oil Gas NGL Total
(Per Bbl) (Per Mcf) (Per Bbl) (Per Boe)
United States $ 85.64 $ 3.92 $ 24.46 $ 37.96
Canada (1) $ 60.05 $ 3.64 $ 50.52 $ 53.11
Realized price without hedges $ 75.55 $ 3.90 $ 24.89 $ 40.33
Cash settlements $ 1.16 $ (0.05 ) $ 0.02 $ 0.22
Realized price, including cash settlements $ 76.71 $ 3.85 $ 24.91 $ 40.55
Year Ended December 31, 2013
Oil Gas NGL Total
(Per Bbl) (Per Mcf) (Per Bbl) (Per Boe)
United States $ 94.52 $ 3.10 $ 25.75 $ 31.59
Canada (1) $ 57.18 $ 3.05 $ 46.17 $ 39.91
Realized price without hedges $ 74.41 $ 3.09 $ 27.33 $ 33.70
Cash settlements $ 0.90 $ 0.16 $ 0.01 $ 0.77
Realized price, including cash settlements $ 75.31 $ 3.25 $ 27.34 $ 34.47

(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.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts) Quarter Ended Year Ended
December 31, December 31,
2014 2013 2014 2013
Oil, gas and NGL sales $ 2,086 $ 2,155 $ 9,910 $ 8,522
Oil, gas and NGL derivatives 1,960 (96 ) 1,989 (191 )
Marketing and midstream revenues 1,949 565 7,667 2,066
Total operating revenues 5,995 2,624 19,566 10,397
Lease operating expenses 568 584 2,332 2,268
Marketing and midstream operating expenses 1,723 425 6,815 1,553
General and administrative expenses 252 157 847 617
Production and property taxes 108 108 535 461
Depreciation, depletion and amortization 910 711 3,319 2,780
Asset impairments 1,953 16 1,953 1,976
Restructuring costs 2 4 46 54
Gains and losses on asset sales (2 ) (1,072 ) 9
Other operating items 19 30 93 112
Total operating expenses 5,535 2,033 14,868 9,830
Operating income 460 591 4,698 567
Net financing costs 167 111 526 417
Other nonoperating items 2 5 113 1
Earnings from continuing operations before income taxes 291 475 4,059 149
Income tax expense 670 268 2,368 169
Net earnings (loss) (379 ) 207 1,691 (20 )
Net earnings attributable to noncontrolling interests 29 84
Net earnings (loss) attributable to Devon $ (408 ) $ 207 $ 1,607 $ (20 )
Net earnings (loss) per share attributable to Devon:
Basic earnings (loss) from discontinued operations per share $ (1.01 ) $ 0.51 $ 3.93 $ (0.06 )
Diluted earnings (loss) from continuing operations per share $ (1.01 ) $ 0.51 $ 3.91 $ (0.06 )
Weighted average common shares outstanding:
Basic 409 406 409 406
Diluted 409 407 411 406
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions)

Quarter Ended December 31, 2014

Devon U.S. &
Canada EnLink Eliminations Total
Oil, gas and NGL sales $ 2,086 $ $ $ 2,086
Oil, gas and NGL derivatives 1,960 1,960
Marketing and midstream revenues 1,141 995 (187 ) 1,949
Total operating revenues 5,187 995 (187 ) 5,995
Lease operating expenses 568 568
Marketing and midstream expenses 1,139 771 (187 ) 1,723
General and administrative expenses 222 30 252
Production and property taxes 100 8 108
Depreciation, depletion and amortization 826 84 910
Asset impairments 1,953 1,953
Restructuring costs 2 2
Other operating items 19 19
Total operating expenses 4,829 893 (187 ) 5,535
Operating income 358 102 460
Net financing costs 147 20 167
Other nonoperating items 9 (7 ) 2
Earnings before income taxes 202 89 291
Income tax expense 654 16 670
Net earnings (loss) (452 ) 73 (379 )
Net earnings attributable to noncontrolling interests 29 29
Net earnings (loss) attributable to Devon $ (452 ) $ 44 $ $ (408 )
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions) Quarter Ended Year Ended
December 31, December 31,
2014 2013 2014 2013
Cash flows from operating activities:
Net earnings (loss) $ (379 ) $ 207 $ 1,691 $ (20 )
Adjustments to reconcile earnings (loss) from continuing operations
to net cash from operating activities:
Depreciation, depletion and amortization 910 711 3,319 2,780
Asset impairments 1,953 16 1,953 1,976
Gains and losses on asset sales (2 ) (1,072 ) 9
Deferred income tax expense

1,091

278 1,891 97
Derivatives and other financial instruments (2,027 ) 70 (2,070 ) 135
Cash settlements on derivatives and financial instruments 305 130 104 277
Other noncash charges 100 114 457 309
Net change in working capital (716 ) (194 ) 50 (298 )
Change in long-term other assets (306 ) 38 (421 ) 10
Change in long-term other liabilities 32 69 79 161
Net cash from operating activities

963

1,437 5,981 5,436
Cash flows from investing activities:
Capital expenditures (1,975 ) (1,539 ) (6,988 ) (6,758 )
Acquisitions of property, equipment and businesses (207 ) (6,462 )
Proceeds from property and equipment divestitures (82 ) 103 5,120 419
Purchases of short-term investments (1,076 )
Redemptions of short-term investments 3,419
Redemptions of long-term investments 57
Other 2 (86 ) 89 (3 )
Net cash from investing activities (2,262 ) (1,522 ) (8,184 ) (3,999 )
Cash flows from financing activities:
Proceeds from borrowings of long-term debt, net of issuance costs 1,182 2,233 5,340 2,233

Net short-term debt borrowings (repayments)

933 (295 ) (385 ) (1,872 )
Long-term debt repayments (2,924 ) (7,189 )
Proceeds from stock option exercises 1 2 93 3
Proceeds from issuance of subsidiary units 338 410
Dividends paid on common stock (99 ) (89 ) (386 ) (348 )
Distributions to noncontrolling interests (48 ) (235 )
Other

2

(1 ) (2 ) 4
Net cash from financing activities

(615

) 1,850 (2,354 ) 20
Effect of exchange rate changes on cash (14 ) (19 ) (29 ) (28 )
Net change in cash and cash equivalents (1,928 ) 1,746 (4,586 ) 1,429
Cash and cash equivalents at beginning of period 3,408 4,320 6,066 4,637
Cash and cash equivalents at end of period $ 1,480 $ 6,066 $ 1,480 $ 6,066
CONSOLIDATED BALANCE SHEETS
(in millions)
December 31, December 31,
Current assets: 2014 2013
Cash and cash equivalents $ 1,480 $ 6,066
Accounts receivable 1,959 1,520
Derivatives, at fair value 1,993 75
Income taxes receivable 522 89
Other current assets 544 255
Total current assets 6,498 8,005
Property and equipment, at cost:
Oil and gas, based on full cost accounting:
Subject to amortization 75,738 73,995
Not subject to amortization 2,752 2,791
Total oil and gas 78,490 76,786
Midstream and other 9,695 6,195
Total property and equipment, at cost 88,185 82,981
Less accumulated depreciation, depletion and amortization (51,889 ) (54,534 )
Property and equipment, net 36,296 28,447
Goodwill 6,303 5,858
Other long-term assets 1,540 567
Total assets $ 50,637 $ 42,877
Current liabilities:
Accounts payable 1,400 1,229
Revenues and royalties payable 1,193 786
Short-term debt 1,432 4,066
Deferred income taxes 730 19
Other current liabilities 1,180 555
Total current liabilities 5,935 6,655
Long-term debt 9,830 7,956
Asset retirement obligations 1,339 2,140
Other long-term liabilities 948 834
Deferred income taxes 6,244 4,793
Stockholders’ equity:
Common Stock 41 41
Additional paid-in capital 4,088 3,780
Retained earnings 16,631 15,410
Accumulated other comprehensive earnings 779 1,268
Total stockholders’ equity attributable to Devon 21,539 20,499
Noncontrolling interests 4,802
Total stockholders’ equity 26,341 20,499
Total liabilities and stockholders’ equity $ 50,637 $ 42,877
Common shares outstanding 409 406
CAPITAL EXPENDITURES
(in millions) Quarter Ended December 31, 2014
U.S. Canada Total
Exploration $ 105 $ 6 $ 111
Development 1,243 224 1,467
Exploration and development capital $ 1,348 $ 230 $ 1,578
Capitalized G&A 108
Capitalized interest 13
Acquisitions 10
Devon midstream capital 37
Other capital 40
Total (1) $ 1,786
(1) Excludes $479 million attributable to EnLink.
Year Ended December 31, 2014
U.S. Canada Total
Exploration $ 292 $ 40 $ 332
Development 4,115 908 5,023
Exploration and development capital $ 4,407 $ 948 $ 5,355
Capitalized G&A 376
Capitalized interest 45
Eagle Ford, Cana and other acquisitions 6,376
Devon midstream capital 312
Other capital 125
Total (1) $ 12,589
(1) Excludes $970 million attributable to EnLink.
COSTS INCURRED Total
(in millions) Year Ended December 31,
2014 2013
Property acquisition costs:
Proved properties $ 5,210 $ 22
Unproved properties 1,177 216
Exploration costs 322 595
Development costs 5,463 5,089
Costs Incurred $ 12,172 $ 5,922
United States
Year Ended December 31,
2014 2013
Property acquisition costs:
Proved properties $ 5,210 $ 19
Unproved properties 1,176 213
Exploration costs 270 443
Development costs 4,400 3,838
Costs Incurred $ 11,056 $ 4,513
Canada
Year Ended December 31,
2014 2013
Property acquisition costs:
Proved properties $ $ 3
Unproved properties 1 3
Exploration costs 52 152
Development costs 1,063 1,251
Costs Incurred $ 1,116 $ 1,409
RESERVES RECONCILIATION
Total
Oil / Bitumen Gas NGL Total
(MMBbls) (Bcf) (MMBbls) (MMBoe)
As of December 31, 2013:
Proved developed 361 8,459 491 2,262
Proved undeveloped 476 849 84 701
Total Proved 837 9,308 575 2,963
Revisions due to prices (38) 236 8 9
Revisions other than price (19) (295) 2 (65)
Extensions and discoveries 107 343 47 211
Purchase of reserves 132 457 57 265
Production (78) (701) (51) (246)
Sale of reserves (46) (1,661) (60) (383)
As of December 31, 2014:
Proved developed 415 6,984 486 2,065
Proved undeveloped 480 703 92 689
Total Proved 895 7,687 578 2,754
United States
Oil / Bitumen Gas NGL Total
(MMBbls) (Bcf) (MMBbls) (MMBoe)
As of December 31, 2013:
Proved developed 194 7,707 468 1,947
Proved undeveloped 35 843 84 258
Total Proved 229 8,550 552 2,205
Revisions due to prices (1) 191 7 38
Revisions other than price (38) (299) 2 (86)
Extensions and discoveries 94 335 47 197
Purchase of reserves 132 457 57 265
Production (48) (660) (50) (207)
Sale of reserves (17) (923) (37) (207)
As of December 31, 2014:
Proved developed 255 6,948 486 1,900
Proved undeveloped 96 703 92 305
Total Proved 351 7,651 578 2,205
Canada
Oil / Bitumen Gas NGL Total
(MMBbls) (Bcf) (MMBbls) (MMBoe)
As of December 31, 2013:
Proved developed 167 752 23 315
Proved undeveloped 441 6 443
Total Proved 608 758 23 758
Revisions due to prices (37) 45 1 (29)
Revisions other than price 19 4 21
Extensions and discoveries 13 8 14
Purchase of reserves
Production (30) (41) (1) (39)
Sale of reserves (29) (738) (23) (176)
As of December 31, 2014:
Proved developed 160 36 165
Proved undeveloped 384 384
Total Proved 544 36 - 549

NON-GAAP FINANCIAL MEASURES

The United States Securities and Exchange Commission has adopted disclosure requirements for public companies such as Devon concerning Non-GAAP financial measures. (GAAP refers to generally accepted accounting principles). The Company must reconcile the Non-GAAP financial measure to related GAAP information.

CORE EARNINGS
(in millions)

Devon’s reported net earnings include items of income and expense that are typically excluded by securities analyst in their published estimates of the company’s financial results. 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 tables summarize the effects of these items on fourth-quarter and total-year 2014 earnings.

Quarter Ended December 31, 2014
Before-Tax After-Tax
Net loss attributable to Devon (GAAP) $ (408 )
Asset impairments 1,953 1,948
Fair value changes in financial instruments and foreign currency (1,721 ) (1,086 )
Gain on asset sales and related repatriation (143 )
Early retirement of debt 48 31
Restructuring costs 2 1
Core earnings attributable to Devon (Non-GAAP) $ 343
Diluted share count 411
Core diluted earnings per share attributable to Devon (Non-GAAP) $ 0.83
Year Ended December 31, 2014
Before-Tax After-Tax
Net earnings attributable to Devon (GAAP) $ 1,607
Asset impairments 1,953 1,948
Fair value changes in financial instruments and foreign currency (1,945 ) (1,231 )
Gain on asset sales and related repatriation (955 ) (421 )
Investment in EnLink deferred income tax 48
Restructuring costs 46 35
Early retirement of debt 48 31
Core earnings attributable to Devon (Non-GAAP) $ 2,017
Diluted share count 411
Core diluted earnings per share attributable to Devon (Non-GAAP) $ 4.91

NET DEBT
(in millions)

Devon defines net debt as debt less cash and cash equivalents as presented in the following table. Devon believes that netting these sources of cash against debt provides a clearer picture of the future demands on cash to repay debt.

December 31,
2014 2013
Total debt (GAAP) $ 11,262 $ 12,022
Adjustments:
Cash and cash equivalents 1,480 6,066
Net debt (Non-GAAP) $ 9,782 $ 5,956
PRODUCTION GUIDANCE Quarter 1 Full Year
Low High Low High
Oil and bitumen (MBbls/d)
United States 150 155 150 155
Canada 100 105 100 105
Total 250 260 250 260
Natural gas (MMcf/d)
United States 1,600 1,650 1,550 1,600
Canada 20 20 20 20
Total 1,620 1,670 1,570 1,620
Natural gas liquids (MBbls/d)
United States 130 135 126 132
Total Boe (MBoe/d)
United States 547 565 534 554
Canada 103 108 103 108
Total 650 673 637 662
PRICE REALIZATIONS GUIDANCE Quarter 1 Full Year
Low High Low High
Oil and bitumen – % of WTI
United States 83 % 93 % 85 % 95 %
Canada 46 % 56 % 55 % 65 %
Natural gas – % of Henry Hub 83 % 93 % 83 % 93 %
NGL – realized price $ 9 $ 14 $ 8 $ 18
OTHER GUIDANCE ITEMS Quarter 1 Full Year
($ millions, except Boe) Low High Low High
Marketing & midstream operating profit $ 180 $ 210 $ 860 $ 920
Lease operating expenses per Boe $ 9.60 $ 10.20 $ 9.70 $ 10.30
General & administrative expenses per Boe $ 4.00 $ 4.30 $ 3.75 $ 4.25
Production and property taxes as % of upstream sales 7.1 % 8.1 % 6.7 % 7.7 %
Depreciation, depletion and amortization per Boe $ 14.75 $ 15.75 $ 15.25 $ 16.25

Other operating items

$

20

$

25

$

80

$

100

Net financing costs $ 110 $ 130 $ 440 $ 500
Current income tax rate

5.0

% 10.0 %

5.0

% 10.0 %
Deferred income tax rate

25.0

%

30.0

%

25.0

%

30.0

%
Total income tax rate

30.0

%

40.0

%

30.0

%

40.0

%
Net earnings attributable to noncontrolling interests $ $ 20 $ 50 $ 100
CAPITAL EXPENDITURES GUIDANCE Quarter 1 Full Year
(in millions) Low High Low High
Exploration and development $

1,300

$

1,400

$ 4,100 $ 4,400
Capitalized G&A and interest 100 120 400 500
Total oil and gas

1,400

1,520

4,500 4,900
Midstream (1) 50 70 110 160
Corporate and other 30 40 100 150
Devon capital expenditures $

1,480

$

1,630

$ 4,710 $ 5,210
(1) 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)

Q1-Q4 2015 107,203 $ 91.07 31,500 $ 89.67 $ 97.84 28,000 $ 116.43
Q1-Q4 2016 $ $ $ 18,500

$

103.11
Oil Basis Swaps
Period Index Volume (Bbls/d)

Weighted Average Differential to
WTI ($/Bbl)

Q1-Q4 2015 Western Canadian Select 31,682 $(17.42)
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)

Q1-Q4 2015 250,000 $ 4.32 328,452 $ 4.05 $ 4.36 550,000 $ 5.09
Q1-Q4 2016 $ $ $ 400,000 $ 5.00

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.

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