Q1 2017 OPERATIONS REPORT May 2, 2017 NYSE: DVN devonenergy.com IR Contacts Table of Contents Email: Results Overview & Outlook ...............……………………….....…….. 2 investor.relations@dvn.com Operating Areas: Scott Coody STACK .................….………….………………………………………….…… 6 Vice President, Investor Relations 405-552-4735 Delaware Basin ...............…………………………….…………………… 10 Chris Carr Eagle Ford ……....….…………………………………………………………… 14 Supervisor, Investor Relations Heavy Oil …..……….………………………….……………………………….. 16 405-228-2496 Barnett Shale ………...………………………………………………………… 18 Rockies Oil ………….…...…………………….……………………………….. 20
RESULTS OVERVIEW & OUTLOOK RETAINED ASSETS Q1 STATS U.S. Resource Plays Drive Oil and Top-Line Production Beat Q1 2017 Q1 2016 Net oil production averaged 261,000 barrels per day in Q1, exceeding the top Production: end of Devon’s guidance by 5,000 barrels per day. Oil & Bitumen (MBOD) 261 268 Q1 U.S. Oil Production Q1 Total Oil Production NGL (MBLD) 98 115 (MBOD) (261 MBOD) Gas (MMCFD) 1,228 1,366 123 5,000 Retained Assets (MBOED) 563 611 105 E&P Capital (in millions) : $443 BOD 17% Operated Rigs (at 3/31/17) : 15 (including Eagle Ford partner activity) ABOVE TOP-END GUIDANCE INCREASE Oil Production (Percent of Total Product Mix) Q4 2016 Q1 2017 46% 43% 41% 32% The outperformance was driven by the company’s U.S. operations , where oil 24% production increased 17% from the fourth quarter of 2016 (chart above). This growth was driven by higher completion activity from the Eagle Ford and STACK operations. 2013 2014 2015 2016 Q1 2017 Devon also achieved excellent results from its Jackfish complex in Canada, which increased heavy-oil volumes by 9% year over year to 138,000 barrels per day. Operational Momentum Builds with Q1 Results Devon tied-in >70 wells across its portfolio in Q1 that achieved average Overall, with the company’s strong growth in oil, top-line production 30-day rates of 1,800 Boe per day. Activity in Q1 was highlighted by: advanced 5% compared to Q4 2016 to average 563,000 BOE per day for the quarter ( 8,000 Boe per day above top-end of guidance ). 1. Wolfcamp program achieves record well result (pg. 10) 2. Woodford Hobson Row delivers strong well productivity (pg. 8) Shifting to Higher-Margin Production 3. STACK appraisal activity confirms fourth landing zone (pg. 7) With the company’s shift to higher-margin production, oil is the largest 4. Eagle Ford “diamond stack” pilot successful (pg. 15) component of Devon’s product mix at 46% of total production (chart right). 5. Jackfish 3 exceeds nameplate capacity by >30% (pg. 17) With a higher-value production mix, the company’s operating cash flow reached $834 million in Q1, a 54% increase from the previous quarter. 6. Powder River Basin produces prolific well results (pg. 20) Q1 2017 OPERATIONS REPORT 2
RESULTS OVERVIEW & OUTLOOK Accelerating Investment in U.S. Resource Plays Looking ahead, the operational momentum created by accelerated drilling activity in the STACK and Delaware Basin is expected to advance light-oil Devon exited Q1 with 14 rigs in the U.S. and plans to increase drilling activity production in the U.S. by ≈20 % in 2018 compared to 2017. throughout the year to as many as 20 rigs by the end of 2017. With this activity, Devon expects to invest $2.0 to $2.3 billion of E&P capital in 2017. In Q2, Devon expects oil volumes to range between 230,000 and 240,000 barrels per day. This forecast is driven by a planned turnaround at the Providing stability to Devon’s capital program is a strong hedge position . The company’s Jackfish 3 facility as well as timing of completions in the U.S. company has >50% of its oil and gas production protected for the remainder of 2017 and is beginning to accumulate a larger hedge position for 2018. The completion timing in Q2 is driven by the Eagle Ford. Due to efficiency gains, Devon tied in more wells than planned in Q1. Overall, capital and This disciplined, risk-management program consists of systematic hedges production plans are on track for both 1H 2017 and the full year. added on a quarterly basis at market prices and discretionary hedges that take advantage of favorable market conditions. Low Cost Structure to Further Improve in 2H 2017 Multi-Year Production Growth Targets Firmly On Track Devon maintained its low cost structure in Q1 with LOE totaling $386 million or $7.62 per Boe. Importantly, per-unit LOE is expected to further Based on the strong production performance in Q1, Devon is firmly on track improve by 2H 2017 due to higher production and relatively flat costs. to achieve U.S. oil growth of 13% to 17% in 2017 compared to Q4 2016. LOE This growth will be driven by Devon’s STACK and Delaware Basin assets. ($/BOE) Combined, these two franchise assets are expected to increase production by ≈$8.20 >30% by the end of 2017 compared to Q4 2016 (chart below). STACK & Delaware Basin Production Forecast $7.62 Jackfish 3 ≈ $7.50 (MBOED) Turnaround ≈ $7.40 >30% > 185 GROWTH Q1 2017 Q2 2017e Q3 2017e Q4 2017e 149 G&A costs were $181 million in Q1. Excluding EnLink, Devon’s overhead 142 expense for the quarter was $145 million. G&A included non-cash employee stock compensation of $27 million in Q1. Additionally, due to $2.5 billion of debt repayments over the past year, interest declined by 22% year over year and Devon expects its recurring, Q4 2016 Q1 2017 Q2 2017e Q3 2017e Q4 2017e go-forward financing costs to decline by roughly $120 million annually. Q1 2017 OPERATIONS REPORT 3
RESULTS OVERVIEW & OUTLOOK Innovative Development Plan to Deliver Differentiated Results Supply Chain Optimization and Efficiency Gains Offsetting Industry Inflation As the company’s STACK and Delaware Basin assets advance towards full-field Another key objective for Devon in 2017 is to proactively secure development, an increasing amount of go-forward capital activity in the U.S. equipment, crews, materials and takeaway capacity at competitive prices will be deployed toward larger, multi-zone developments. to ensure the resources and capabilities to execute on growth plans. The majority of Devon’s initial multi-zone development work will have 10-15 Furthermore, the company expects to obtain cost savings by decoupling wells per drilling unit compared to traditional pad drilling of 2-4 wells per pad. historically bundled services and is utilizing a more diversified vendor universe to achieve the best value for LOE and capital dollars. Multi-Zone Development – Full Section These decoupling efforts resulted in 10% completion savings at the Woodford Hobson Row in Q1. Additionally, Devon has locked in below market rates for rigs and sand across its U.S. resource plays in 2017 . Devon also achieved efficiency gains across its U.S. development plays. A key example was in the Delaware Basin, where rig productivity reached nearly 1,200 feet drilled per day in Q1 (chart below). Delaware Basin Drilling Efficiency (Feet Per Day) 1,156 1,095 This innovative development plan is expected to have advantages that will 95% drive higher returns compared to traditional pad development work, including: 753 1. Improving rig and frac crew mobilization times. 592 INCREASE 2. Leveraging surface facilities across multiple drilling units. 3. Reducing LOE (improved power and water infrastructure). 4. Increasing per-section recovery potential with improved planning. 2014 2015 2016 Q1 2017 5. Maximizing NPV with flexibility to add or defer development zones. As a result of these supply chain initiatives and operational efficiencies, 6. More efficient permitting and less surface disturbance. Devon has completely offset inflationary pressures in Q1. Additionally, Devon is planning concentrated D&C activity across larger multi- Additionally, the company’s upstream capital expenditures were $443 zone projects to maintain similar cycle times to traditional pad drilling. million in the quarter, 7% below the midpoint of guidance. Note: no drilling activity occurred in Q2 2016. Q1 2017 OPERATIONS REPORT 4
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