Q3 2018 Management Commentary November 7, 2018 NYSE: DVN devonenergy.com
Disciplined Growth Strategy KEY STRATEGIC OBJECTIVES KEY ACCOMPLISHMENTS IN 2018 U.S. oil growth ahead of plan (+200 basis point vs. budget) Fund high-return projects 1 No change to capital spending outlook Generate free cash flow 2 Corporate cost savings: ~$475 million/year Maintain financial strength 3 Operating cash flow accelerates in Q3 (+61% YoY) Reduced consolidated debt by >40% Return cash to shareholders 4 Repurchasing ~20% of outstanding stock Raised quarterly dividend 33% 2 | Q3 2018 Management Commentary
2019 Preview: Keeping Our Discipline $ OPTIMIZED OIL SHARE FOR RETURNS GROWTH REDUCTION E & P C A P I TA L P R O G R A M U . S . R E TA I N E D A S S E T S O U T S TA N D I N G S H A R E S $2.4-$2.7 Billion 15%-19% Growth ~20% Reduction P O S I T I O N E D F O R DRIVEN BY LOW-RISK ENHANCING PER-SHARE F R E E C A S H F LO W DEVELOPMENT PROGRAM CASH FLOW GROW TH KEY MESSA SAGES GES U.S. resource plays account for ~90% of capital Delaware Basin top-funded asset in portfolio STACK & Rockies key contributors to oil growth 3 | Q3 2018 Management Commentary
Executing the Multi-Year Business Plan Multi-Year Targets 2018e (2017-2020) U.S. oil production +15% – 17% CAGR 17% YoY growth (retained assets) Total BOE production +5% – 7% CAGR 9% YoY growth in U.S. (retained assets) Per-unit cost savings >20% by 2020 G&A/interest: ↓$475 MM (G&A, interest & LOE) >20% CAGR Cash flow growth (on a per-share basis) Trending above 3-year plan Net debt to EBITDA ratio ~1.0x – 1.5x >40% decrease in debt Excess cash inflow $6 – $8 billion (Free cash flow + divestiture proceeds) ~$5 billion by year end Exceeding 2018 plan Note: Assumes $65 WTI, $3 Henry Hub and current WCS strip pricing On track with 2018 plan 4 | Q3 2018 Management Commentary
Delaware Basin – Raising Growth Outlook High-return oil growth positioned to accelerate Raising 2018 production growth estimates Retained production (MBOED) ~40% oil growth — Increasing 2018 exit rate growth: ~90 MBOED (1) (vs. 2018) RAISING GUIDANCE — Non-core divestitures: 3 MBOED impact to Q4 > 5 MBOED vs. plan (1) ~90 (1) — Activity to reach 10 operated rigs by year end 72 (1) Ramping-up capital investment in 2019 — Delaware is top-funded asset by a wide margin 2018 YTD 2018e Exit 2019e — Capital investment: up to $1.0 billion (1) Production and guidance range adjusted for “ Mi Vida” and other non -core asset divestitures (~3 MBOED impact). Delaware Well Productivity Reaching Record Highs — Oil production growth: ~40% vs. 2018 Average Cumulative Oil Production Per Well (MBOD) — Per-unit LOE to decline 10% to 15% 150 2018 Accelerating Todd 2 nd Bone Spring program 2015-2017 avg. 100 — Two Boundary Raider wells delivered highest rates in Delaware history (IP24: 24 MBOED) >70% IMPROVEMENT 50 2018 VERSUS 3-YEAR AVERAGE — Drill >20 wells in focus area over next year 0 1 2 3 4 5 6 7 8 9 10 11 12 Months Online 5 | Q3 2018 Management Commentary
STACK – Next Steps to Optimize Development Returns Learnings from high-density infill tests UPCOMING STACK DEVELOPMENT ACTIVITY — Initial results indicate spacing was too tight Kingfisher Developments Online Showboat — Flowback approach key for oil recoveries Upcoming Developments 12 wells per unit — Upper Meramec delivered best well results 7 Coyote 6 5 7-well project 9 — Vertical communication observed 8 1 2 12 — Substantial D&C savings achieved 11 3 4 Bernhardt Horsefly 8 wells per unit 10 Reverting to “base case” spacing to optimize returns 10 wells per unit UPCOMING ACTIVITY — Upcoming activity targeting 4-8 wells per unit Custer 4-8 wells PER — Well placement focused in Upper Meramec Canadian UNIT Blaine — Flowback adjusted to improve performance Safari Whiskey Jack Shangri-La Geis 1 2 3 4 5 wells per unit 7 wells per unit 4 wells per unit 5 wells per unit Flowing Back Online Q4 2018 Online Q4 2018 Online Q4 2018 Project IRRs to benefit from less capital intensity Pony Express Northwoods Scott Doppelganger/Kraken 6 8 5 7 4 wells per unit 4 wells per unit 6 wells per unit 8 & 7 wells per unit — Utilizing tailored, more capital efficient completions Online Q4 2018 2019 project 2019 project 2019 project Morning Thunder ML Block Brachiosaurus Minnie Ha Ha — Projects to benefit from less infrastructure capital 9 11 10 12 4 wells per unit 8 wells per unit 4 wells per unit 6 wells per unit 2019 project 2019 project 2019 project 2019 project on centralized facilities 6 | Q3 2018 Management Commentary
Heavy Oil – Mitigating Pricing Pressures in 2019 Canadian Heavy Oil Marketing Opportunities Actively adding WCS financial swaps in 2019 (21 MBOD at ~$23 off WTI in 1H 2019) Jackfish Secured firm transport to Gulf Coast Edmonton WCS Pricing (Agreements cover ~10% of production) ~$30 off WTI in 2019 Enbridge Seeking accretive rail contracts Mainline (Targeting up to 20% of production) Directly connected to Northwest upgrader (Limits impact of future apportionments) PADD 2 Line 3 expansion in Q4 2019 (+370 MBOD capacity) Rail Opportunities All in cost: ~$20/BBL Flanagan South Differentials Narrowing into 2019 Cushing $/Barrel Differential (WCS vs. WTI) Pipelines Seaway $(50) WCS differential to WTI Rail $(40) Gulf Coast WCS Pricing Houston $(30) ~$2 off WTI in 2019 Further improvements $(20) expected as industry adds incremental rail activity $(10) Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 7 | Q3 2018 Management Commentary
Capturing the Benefit of Higher NGLs Pricing Flow Assurance to Premium NGLs Markets One of the largest NGLs producers in the U.S. STACK — Q3 retained NGLs production: 107 MBbls per day — Represents ~20% of production mix Delaware North 98% of NGLs have access to Mont Belvieu markets (1) Basin Texas 98% of Devon’s volumes — >30% premium to Conway pricing (see chart) access Mont Belvieu (1) — Margins to benefit from contractual rights to recover operated ethane production Mont Belvieu Legacy contracts lock in below-market fees with no Advantaged Pricing at Mont Belvieu exposure to rising spot rates $/Barrel (Mont Belvieu vs. Conway Pricing) — Firm sales contractually guarantee flow assurance $40 Mont Belvieu >30% premium to Conway markets $35 Devon possesses excess capacity at Mont Belvieu $30 — ~10 MBbls/day of excess fractionating capacity $25 $20 — Supports NGL growth plans through end of decade $15 Mont Belvieu Conway $10 Jul-2017 Oct-2017 Jan-2018 Apr-2018 Jul-2018 Oct-2018 (1) Represents percentage of operated production 8 | Q3 2018 Management Commentary
Strategic Deployment of Excess Cash Industry leading share-repurchase program $4 billion share-repurchase program underway Average outstanding shares (MM) — Represents ~20% of outstanding shares 527 — $2.7 billion repurchased to date ~20% Expect program to be completed by Q1 2019 ~420 Raised quarterly dividend by 33% in 2018 REDUCTION — Target cash flow payout ratio: 5% - 10% Q1 2018 Q2 2018 Q3 2018 Q4 2018e March 2019e — Expect to deliver sustainable dividend growth Aggressively deleveraging the balance sheet Retired $828 million of upstream debt year to date Consolidated debt ($B) — Reduces interest expense by $66 million annually $13.0 $11.7 — EnLink sale further deleverages balance sheet $10.4 $10.1 — Plan to retire maturing debt of $257 million by >40% $6.0 early 2019 (net debt: $2.9) REDUCTION YEAR TO DATE Peak 2015 2016 2017 1H 2018 Avg. Current 9 | Q3 2018 Management Commentary
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