Devon Energy : Q2 Results Q&A Webcast - Commentary Transcript

1 Devon Energy Second-Quarter 2023 Conference Call

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1. Operator: Welcome to Devon Energy's second-quarter 2023 conference call. At this time all
2. participants are in listen-only mode. This call is being recorded. I'd now like to turn the call over to
3. Mr. Scott Coody, Vice President of Investor Relations. Sir, you may begin.

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1. Scott Coody, Vice President Investor Relations:
2. Good morning and thank you to everyone for joining us on the call today. Last night we issued an
3. earnings release and presentation that cover our results for the second quarter and our outlook for
4. the remainder of 2023. Throughout the call today, we will make references to the earnings
5. presentation to support prepared remarks, and these slides can be found on our website. Also joining
6. me on the call today are Rick Muncrief, our president and CEO, Clay Gaspar, our chief operating
7. officer; Jeff Ritenour, our chief financial officer, and a few other members of our senior management
8. team. Comments today will include plans, forecasts and estimates that are forward-looking
9. statements under U.S. securities law. These comments are subject to assumptions, risks and
10. uncertainties that could cause actual results to differ materially from our forward-looking statements.
11. Please take note of the cautionary language and risk factors provided in our SEC filings and earnings
12. materials. With that, I will turn the call over to Rick.

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1. Rick Muncrief, President and CEO:
2. Thank you, Scott. It is a pleasure to be here this morning, and we appreciate everyone taking the time
3. to join us. Devon's second-quarter performance can be defined as another one of solid execution on
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1. all fronts, as our business continued to strengthen and build operational momentum throughout the
2. quarter. The attractive per-share growth we have consistently delivered quarter after quarter
3. demonstrates the efficiency of our disciplined business model, the quality of our Delaware-focused
4. asset portfolio, the team's execution capabilities and the benefits of our cash-return framework.

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1. The chart on slide 4 provides a very compelling visual of this success, showcasing our impressive
2. track record of value creation. Since we unveiled the industry-first framework in late 2020, we have
3. deployed $12 billion towards dividends, share buybacks, debt reduction and accretive bolt-on
4. acquisitions. The cumulative value of these actions equates to nearly 2-timesthe value of Devon's
5. pro forma market capitalization from just a few years ago! As you can see from our diversified
6. actions to date, we have carefully designed our cash-return framework to be nimble, with the
7. flexibility to allocate free cash flow across multiple avenues to optimize financial results through the
8. cycle. Importantly, this disciplined execution has been rewarded by the market with our equity
9. performance achieving the highest return of any stock in the entire S&P 500 over this period.

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1. Now let's go through some of our second-quarterhighlights and operating trends in greater detail.
2. Beginning with production, the team did a great job growing oil volumes by 8% on a year-over-year
3. basis this past quarter. This result surpassed midpoint guidance expectations and for us set a new all-
4. time high oil production record for the company by averaging 323,000 barrels per day in the quarter.
5. Additionally, this volume growth was supported by an infrastructure that includes several strategic
6. midstream assets that we have selectively invested in through the years and have taken equity stakes
7. in an effort to enhance the results from our core E&P operations.
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1. A key driver of this recording-setting result was higher completion activity in the Delaware Basin. By
2. leveraging the benefits of a temporary fourth frac crew and consistently improving cycle times, we
3. were able to bring online 76 new Delaware wells in the quarter, which was a few more than we
4. originally planned due to efficiency gains. Importantly, the well productivity from this batch of wells
5. in the Delaware was excellent and included a Wolfcamp B appraisal success that strengthens the
6. depth and quality of our resource in the area. We also had a successful redevelopment test in the
7. Eagle Ford and advanced a handful of other interesting appraisal projects across our diversified asset
8. base that reinforces our confidence in the resource upside that currently exists across our portfolio.

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1. Looking ahead, with higher levels of completion activity in the second quarter, we expect our
2. production profile to continue to strengthen in the upcoming third quarter. A good visual of this
3. operational momentum can be seen on slide 7, with oil volumes expected to grow to a range of
4. 322,000 to 330,000 barrels per day in the upcoming quarter.

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1. As I touched on earlier, the capital spending to drive this growth trajectory was a touch ahead of
2. expectations due to very strong execution from our drilling and completion teams that brought
3. forward activity into the quarter. Clay will spend time to cover this topic later, but I am extremely
4. proud to share that we set several operational records at both the basinand company level,
5. contributing to the record-setting drilled and completed feet per day metrics we have achieved year
6. to date.

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1. In addition to our strong operating efficiencies, our business is also beginning to benefit from service
2. cost deflation as contracts are refreshed. This is driven by reduced activity from natural gas focused
3. companies and private producers over the past few months, resulting in improved availability of
4. services and cost deflation in virtually every category. Although this is a very dynamic environment,
5. we have observed the most downward pressure to date in the areas of tubulars, rig rates, fuel and
6. other miscellaneous drilling services that will begin to positively impact our cost structure as we
7. enter the end of this year. We also anticipate price movement with pressure pumping, which is our
8. largest cost category in the very near future, while it's still somewhat premature to say what and set,
9. what our firm outlook is for 2024 is, our expectations for deflationary trends should continue. We
10. have the potential for meaningful savings from peak well costs as pricing improvements gradually
11. flow through our cost structure over the next year or so.

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1. With the free cash flow our business generated, we had another great quarter of cash returns. We
2. returned $462 million to shareholders through our fixed-plus-variable dividend, which we have paid
3. out now for 12 consecutive quarters, we also have an active buyback program that resulted in the
4. repurchase of nearly 4 million shares over the past 3 months. We believe this balance between
5. dividends and buybacks offers investors the powerful combination of an attractive yield and steady
6. per-sharegrowth through the cycle.

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1. Moving to slide 12, with the progress that our business has made year to date, we are well on our
2. way to meeting the capital objectives associated with our 2023 plan. The momentum we have
3. established places us on track to deliver a production per-sharegrowth rate of approximately 9% for
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1. the year. Importantly, the activity required to fund this growth is self-funded at a $40 WTI price or
2. approximately half of where we are today and is delivering returns on capital employed greater than
3. 20% at today's commodity prices.

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1. While once again it is too early to provide firm guidance for next year, the trajectory of our business
2. sets us up for a strong outlook in 2024 as well. Given current market fundamentals, we plan to invest
3. at levels that will sustain our productive capacity and any improvements that we see from lower
4. service costs will accrue to our shareholders in the form of higher free cash flow generation. This
5. disciplined pursuit of value over volume positions us to continue to deliver another year of
6. differentiated cash returns and highly competitive returns on invested capital versus the broader
7. market.

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100 And now with that, I will now turn the call over to Clay to cover our operational highlights.

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1. Clay Gaspar, Chief Operating Officer:
2. Thank you, Rick, and good morning, everyone. Our second quarter operating results demonstrate
3. that our business is performing at a high-level and building momentum as we head into the second
4. half of the year. As Rick touched on, this positive trajectory is underpinned by improving capital
5. efficiency from faster cycle times, improving service costs and positive appraisal results that will
6. contribute to our production profile and financial results over the balance of this year and more
7. significantly into 2024.

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