Q4 2018 Management Commentary February 19, 2019 NYSE: DVN devonenergy.com
Completing Transformation to a U.S. Oil Growth Company Sharpens focus on world-class U.S. oil assets New Devon Overview — Delaware, STACK, Eagle Ford and Powder River Production: 296 MBOED (Q4 2018) — High-margins and low cost of supply Revenue: 84% oil & liquids — Multi-decade growth platform Oil growth rate: 17% in 2018 Multi-decade growth platform Pursuing strategic alternatives for Barnett Shale and Canadian assets POWDER RIVER — Outright sale or spin-off 18 MBOED (71% OIL) — Expect to complete by year end STACK Targeting at least $780 million of cost savings with 126 MBOED (55% LIQUIDS) DELAWARE retained U.S. oil business (details on pg. 5) 84 MBOED (54% OIL) EAGLE FORD Board increases share-buyback program to $5 billion 61 MBOED (50% OIL) — $3.4 billion repurchased to date (~90 million shares) — Potential to reduce share count by nearly 30% Increased quarterly dividend 13% to $0.09 per share 2 Q4 2018 Management Commentary
A Track Record of Execution Conventional DIVESTITURE PROCEEDS Heavy Oil (1) Canadian $30 Billion Assets > Russia POWDER RIVER Rockies CO 2 (marketing) Washakie Uinta Azerbaijan San Juan Mississippian China Granite Wash STACK DELAWARE West Africa Barnett Shale (1) EnLink Midland Assets East Texas STRATEGIC RATIONALE FOR TODAY’S ANNOUNCEMENT EAGLE FORD GoM Shelf U.S. oil business has achieved operating scale GoM Deepwater Positioned for mid-teens oil growth and FCF above $46 WTI Brazil High-quality, multi-decade drilling inventory Dramatically improves cost structure and margins New Devon Divestiture Assets (over last decade) Accelerates value realization for Canada & Barnett (1) Pursuing strategic alternatives and expect to exit assets by YE 2019 3 Q4 2018 Management Commentary
Unleashing Potential of World-Class Oil Assets U.S. well productivity showcases asset quality RESULTS +40% Source: IHS/Devon. All wells drilled since 2015 and includes operators with more than 100 wells. SUPERIOR WELL Avg. 90-Day IPs BOED, 20:1 900 VS. PEER AVG. 750 600 PEER AVG. 450 300 150 Top 40 U.S. Producers Superior oil growth and pricing Improved per-unit costs Higher field-level margins 2018 LOE & transportation expense ($/BOE) 2018 field-level cash margins ($/BOE) +17% 96% Reported $27.67 $9.66 (vs. 2017) New Devon (of WTI) 65% $17.68 $7.76 20% 56% (of WTI) INCREASE DECLINE +1% (vs. 2017) (FY 2018) (FY 2018) 2018 Oil Growth 2018 Oil Realizations Reported New Devon Reported New Devon 4 Q4 2018 Management Commentary
Next Steps to Optimize New Devon Cost Structure Aggressively pursuing improved cost structure Timing of annual cost savings New Devon expected cost savings by area vs. 2018 results ($MM) Cumulative estimated annual cost savings ($MM) $800 G&A $300 MM $600 $780 Interest LOE Interest $130 MM G&A $400 MILLION D&C (1) ANNUAL COST $200 Per-Unit (1) SAVINGS BY 2021 D&C Recurring LOE Efficiencies $50 MM $- $300 MM YE 2019 YE 2020 YE 2021 (1) D&C costs assume flat service cost environment versus 2018 COMMITTED TO OPTIMIZING CAPITAL EFFICIENCY AND OPERATIONAL EXCELLENCE Restructuring to unlock potential of New Devon Cost savings designed to be front-end weighted — One functional focus across entire organization — ~70% of targeted savings achieved by year-end 2019 — Reduced complexity provides for further focus on — Targeted G&A level: ~$2.50 per Boe competitive advantages in U.S. — Structural D&C efficiencies reflected in 2019 outlook — Refocused and streamlined leadership structure — PV10 of cost savings plan: ~$4.5 billion (over next 10 years) — Realigning personnel with go-forward business 5 Q4 2018 Management Commentary
Disciplined Returns-Focused Strategy KEY STRATEGIC OBJECTIVES APPROACH TO THE CURRENT ENVIRONMENT WTI PRICE (1) Fund high-return projects 1 Maintain financial strength and $40 operational continuity (New Devon FCF breakeven below $40 in 2019 with hedging gains) 2 Generate free cash flow Key strategic objectives achieved $46 (3-year plan delivers mid-teens oil growth within cash flow) Maintain financial strength 3 GREATER ER Free cash flow accelerates THAN AN $46 (no change to activity levels over 3-year plan) Return cash to shareholders 4 (1) Price sensitivity also assumes $3 Henry Hub and current hedge position. 6 Q4 2018 Management Commentary
Capital Efficiencies Accelerate in 2019 Focused on top-tier oil development opportunities 2019 CAPITAL ACTIVITY 2019e E&P capital (New Devon) E&P CAPITAL NEW WELLS ONLINE ($MM) (Operated) Delaware Basin $900 100-110 DELAWARE STACK STACK $400 85-95 47% 21% Powder River $300 35-40 Eagle Ford $300 40-50 $1.8-$2.0 New Devon Total $1,800 - $2,000 BILLION Structural improvements drive capital efficiency: E&P CAPITAL — Outlook assumes flat service & supply costs vs. 2018 — Facility cost savings up to 40% across U.S. by year end POWDER — Wolfcamp costs and cycle times improving (20% vs 2018) EAGLE FORD RIVER — STACK infill spacing design optimized (15% vs. 2018) 16% 16% — Dedicated frac crew to lower PRB costs (17% vs. 2018) >15% more wells drilled for ~10% less capital (vs. 2018) CAPITAL PROGRAM FUNDED AT $46 WTI 7 Q4 2018 Management Commentary
Disciplined Growth Benefits From Buyback Activity Focused on delivering sustainable, high-margin Positioned for high-return growth in 2019 >20% growth (funded at $46 WTI) New Devon U.S oil production (MBOD) (2019 exit rate vs. FY 2018) — Driven by U.S. oil growth (+13%-18% vs. 2018) — U.S. oil exit rate: >20% vs. 2018 avg. 13% - 18% — Top-line production to advance (+8% vs. 2018) 121 — Eagle Ford timing to impact Q1 (see pg. 13) OIL GROWTH 2018 vs 2019 Margins to benefit from improved cost structure FY 2018 Q1 2019e Q2 2019e 2H 2019e 2019e Exit Rate — LOE rates to decline ~10% by Q4 2019 Repurchase program accelerates per-share growth — Additional cost saving initiatives underway (pg. 5) Outstanding shares (MM) Board increased share-repurchase authorization 527 521 to $5 billion 491 ~30 % 459 — Potential to reduce share count by ~30% 437 SHARE COUNT — $3.4 billion repurchased to date (~90 million shares) ~375 (1) REDUCTION Q1 2018 Q2 2018 Q3 2018 Q4 2018 Feb. 2019 YE 2019e ((1) Assumes shares are repurchased at current share price. 8 Q4 2018 Management Commentary
New Devon: 3-Year Performance T argets RETURN ON CAPITAL TARGET: >15% (1) (At $50 WTI & $3 HH) CUMULATIVE FREE CAPITAL PROGRAM OIL GROWTH COST SAVINGS DEBT TARGET CASH FLOW Funded $1.6 12% – 17% $780 MM 1.0x to 1.5x (2) At $46 WTI CAGR (FY2018 – 2021) By 2021 BILLION Assumes $3 HH price At $55 WTI & $3 HH Total Light-Oil Production See pg. 5 for detail Debt to EBITDA Improve financial strength and flexibility Free Cash Flow Sustainably pay and grow dividend Priorities Opportunistically repurchase shares (See page 10 for FCF sensitivities) Reinvest in high-return U.S. oil business (1) Internal rate of return on capital investment after burdening for G&A and corporate costs. Metric further detailed in proxy and driver of management compensation. (2) Assumes cost savings detailed on page 5 are fully realized at the beginning of 2019. 9 Q4 2018 Management Commentary
New Devon: Free Cash Flow Yield to Investors (1) $2.3B 10% 3-YEAR CAPITAL PLAN Cumulative Free $2.4 Cash Flow OIL CAGR: 12%-17% $2.0 8% (1) BREAKEVEN: $46 WTI $1.6B Cumulative Free Cash Flow ($B) Free Cash Yield (Annual Avg.) (BREAKEVEN CALC INCLUSIVE OF ALL CAPEX) Cumulative Free Cash Flow $1.6 6% (1) $0.8B $1.2 4% Cumulative Free Cash Flow $0.8 2% $0.4 $- 0% 2019 - 2021 2019 - 2021 2019 - 2021 ($50 WTI) ($55 WTI) ($60 WTI) Cumulative Free Cash Flow Free Cash Flow Yield (Annual Avg.) Note: Free cash flow yield assumes market capitalization based on current share price multiplied by expected shares outstanding at year-end 2019 (~375 mm shares). Cumulative free cash flow represents the aggregate operating cash flow less total capital requirements before dividend. Assumes $3 HH price. (1) Assumes cost savings detailed on page 5 are fully realized at the beginning of 2019. 10 Q4 2018 Management Commentary
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