Devon Energy Earns $416 Million in First-Quarter 2011; North American Onshore Production Increases 7 Percent

Devon Energy Corporation (NYSE:DVN) today reported net earnings of $416 million for the quarter ended March 31, 2011, or $0.97 per common share ($0.97 per diluted common share). This compares with first-quarter 2010 net earnings of $1.2 billion, or $2.67 per common share ($2.66 per diluted common share). The decrease in quarterly earnings is primarily attributable to non-cash, unrealized changes in the fair value of oil, gas and NGL derivatives.

First-quarter 2011 financial results were impacted by certain items securities analysts typically exclude from their published estimates. The most significant of the adjusting items was a non-cash, unrealized loss on oil, gas and NGL derivatives of $254 million before-tax ($166 million after-tax). Excluding these adjusting items, Devon earned $575 million or $1.34 per diluted common share in the first quarter of 2011. The adjusting items are discussed in more detail later in this news release.

Production Growth Exceeds Guidance, Driven By Strong Liquids Growth

Production from continuing operations averaged 629,000 oil-equivalent barrels (Boe) per day in the first quarter of 2011, in spite of curtailments related to severe winter weather. Compared to the first quarter of 2010, Devon’s North American onshore production increased seven percent and exceeded the top-end of the company’s guidance by 4,000 barrels per day. First-quarter production benefited from better than expected results from several core properties, including the Cana-Woodford and Barnett Shale.

Devon continued to deliver strong oil and natural gas liquids production growth in the first quarter of 2011. In aggregate, liquids production averaged 207,000 barrels per day. This represents an 11 percent increase in North American onshore liquids production compared to the first quarter of 2010 and a five percent increase over the fourth quarter of 2010.

Cana-Woodford Shale Production Growth Leads Operating Highlights

• Production from the company’s Cana-Woodford Shale play averaged a record 162 million cubic feet of natural gas equivalent per day in the first quarter of 2011. This represents a 120 percent increase compared to the first-quarter of 2010.
• In the Permian Basin, oil and natural gas liquids production increased 17 percent over the first-quarter 2010. In aggregate, liquids production accounted for nearly 75 percent of the 44,000 equivalent barrels per day produced in the Permian Basin during the first quarter.
• In Canada, the company plans to commence steam injection at Jackfish 2 in May with first production expected by year-end. At full production Jackfish 2 is expected to produce 35,000 barrels per day before royalties for more than 20 years.
• Immediately adjacent to its Jackfish lease, the company successfully completed the drilling of 135 appraisal wells on its Pike oil sands lease. The results were consistent with company expectations and will assist in determining the optimal development configuration. Devon anticipates filing a regulatory application for the first phase of Pike in the first half of 2012.
• Net production from the Barnett Shale exceeded 1.2 billion cubic feet of natural gas equivalent per day in the first quarter, including 43,000 barrels per day of liquids. This was an 11 percent increase over the first quarter of 2010.
• Devon brought six operated Granite Wash wells online in the first quarter. Initial production from these wells averaged 1,760 barrels of oil-equivalent per day, including 250 barrels of oil and 490 barrels of natural gas liquids per day. The company has an average working interest of 84 percent in these wells.

Although production increased, revenues from oil, gas and natural gas liquids sales declined 10 percent to $1.9 billion in the first quarter of 2011. Lower natural gas prices more than offset the increase in production.

The company’s average realized natural gas price, before the impact of hedges, decreased 25 percent to $3.62 per thousand cubic feet in the first quarter of 2011, as compared to $4.80 per thousand cubic feet in the first quarter of 2010. Devon’s average realized oil price increased five percent in the first quarter of 2011, to $70.95 per barrel. This compares with an average realized price of $67.58 per barrel in the year-ago period. The average realized natural gas liquids price increased four percent over the first quarter of 2010 to $37.39 per barrel.

Marketing and midstream operating profit was $122 million in the first quarter of 2011. Increased gas throughput and strong cost control drove the company’s solid first quarter result.

Cost Containment Mitigates Industry Inflation

Devon’s cost containment efforts were reflected in first-quarter 2011 expense results. In spite of rising industry costs and a stronger Canadian dollar, company expenses in most categories declined or reflected only nominal per-unit increases.

Lease operating expenses (LOE) in the first quarter of 2011 were $424 million. On a unit of production basis, LOE increased only one percent compared with the first quarter of 2010. Devon's focus on controlling costs combined with the divestiture of higher-cost offshore assets helped offset industry inflation and the strengthening of the Canadian dollar.

First-quarter general and administrative expenses were $130 million, or six percent lower than the first quarter of 2010. Lower personnel costs and efficiencies gained through the company’s strategic repositioning drove most of the savings.

Depreciation, depletion and amortization expense (DD&A) increased four percent to $442 million in the first quarter of 2011. However, on a unit of production basis, DD&A increased only two percent to $7.80 per Boe.

Interest expense for the first quarter of 2011 decreased to $81 million, a six percent decline year-over-year. The decrease was attributable to lower interest rates.

Financial Position Remains Strong; Share Repurchase Plan on Schedule

Devon generated $1.5 billion of cash flow before balance sheet changes in the first quarter of 2011, a four percent increase over the year-ago quarter. The company utilized this cash flow and liquidity provided through asset sales to fund its total capital program and return nearly $800 million to its shareholders in the form of stock buybacks and dividend payments.

As of March 31, 2011, the company had repurchased 26.4 million shares at a total cost of $1.9 billion. Devon expects to complete the stock repurchase program by the end of 2011.

Devon exited the first quarter of 2011 with cash and short-term investments of $3.4 billion and a net debt to adjusted capitalization ratio of 15 percent. Reconciliations of cash flow before balance sheet changes, net debt and adjusted capitalization, which are non-GAAP measures, are provided in this release.

Devon Adds Oil and Gas Hedges

The rise in oil prices has provided Devon the opportunity to add historically attractive oil hedges. For the full-year 2012, the company has entered into various swap and collar contracts to hedge 76,000 barrels per day of oil production. Of this total, 22,000 barrels per day of oil production is swapped at a weighted average price of $107 per barrel. The remaining 54,000 barrels per day utilizes costless collars with a weighted average ceiling of $126 per barrel and a floor of $86 per barrel. Oil hedges are based on West Texas Intermediate crude oil delivered at Cushing, Oklahoma.

The recent volatility in the natural gas market also provided the company a chance to bolster its natural gas hedging position. For the remaining three quarters of 2011, Devon now has 900 million cubic feet per day protected through hedges at a weighted average floor price of $5.24 per thousand cubic feet. In addition, the company has also initiated a gas hedging position for 2012 with swap and collar contracts covering 390 million cubic feet per day at a weighted average floor price of $4.93 per thousand cubic feet.

Strategic Repositioning Nearing Completion

Devon expects to receive regulatory approval for the $3.2 billion sale of its assets in Brazil during the second quarter of 2011. Following the close of this transaction, Devon will have substantially completed its planned International and Gulf of Mexico divestitures. In aggregate, sales proceeds from the combined divestitures will exceed $10 billion with after-tax proceeds approximating $8 billion.

In accordance with accounting standards, Devon has reclassified the assets, liabilities, and results of its international segment as discontinued operations for all accounting periods presented in this release. Although revenues and expenses for prior periods were reclassified, previously reported net earnings were not impacted. Included with this release is a table of revenues, expenses, production categories, and the amounts reclassified as discontinued operations for each period presented.

Items Excluded from Published Earnings Estimates

Devon's reported net earnings include items of income and expense that are typically excluded by securities analysts in their published estimates of the company's financial results. These items and their effects upon reported earnings for the first quarter of 2011 were as follows:

Items affecting continuing operations:

• A change in the fair value of oil, gas and NGL derivative instruments decreased first-quarter earnings by $254 million pre-tax ($166 million after tax).
• The reversal of previously accrued restructuring costs increased first-quarter earnings by $5 million pre-tax ($3 million after tax).
• A change in fair value of interest-rate and other financial instruments increased first-quarter earnings by $1 million pre-tax ($1 million after tax).

Items affecting discontinued operations:

• The decision to divest international assets generated financial benefits that increased first-quarter earnings by $10 million pre-tax ($6 million after tax).
• Restructuring costs decreased first-quarter earnings by $6 million pre-tax ($3 million after tax).

The following tables summarize the effects of these items on first-quarter 2011 earnings, income taxes and cash flow.

In aggregate, these items decreased first-quarter 2011 net earnings by $159 million, or $0.37 per common share ($0.37 cents per diluted share). These items and their associated tax effects increased first-quarter 2011 cash flow before balance sheet changes by $105 million.

Conference Call to be Webcast Today

Devon will discuss its first-quarter 2011 financial and operating results in a conference call webcast today. The webcast will begin at 10 a.m. Central Time (11 a.m. Eastern Time). The webcast may be accessed from Devon’s internet home page at www.devonenergy.com.

This press release includes "forward-looking statements" as defined by the Securities and Exchange Commission. 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; drilling risks; environmental risks; and political or regulatory changes. 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 United States Securities and Exchange Commission 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 for the fiscal year ended December 31, 2010, available from us at Devon Energy Corporation, Attn. Investor Relations, 20 North Broadway, Oklahoma City, OK 73102. 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.

Devon Energy Corporation is an Oklahoma City-based independent energy company engaged in oil and gas exploration and production. Devon is a leading U.S.-based independent oil and gas producer and is included in the S&P 500 Index. For more information about Devon, please visit our website at www.devonenergy.com.

DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION

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. Cash flow before balance sheet changes is a Non-GAAP financial measure. Devon believes cash flow before balance sheet changes is relevant because it is a measure of cash available to fund the company’s capital expenditures, dividends and to service its debt. Cash flow before balance sheet changes is also used by certain securities analysts as a measure of Devon’s financial results.

Devon believes that using net debt for the calculation of "net debt to adjusted capitalization” provides a better measure than using debt. Devon defines net debt as debt less cash, cash equivalents and short-term investments. Devon believes that netting these sources of cash against debt provides a clearer picture of the future demands on cash to repay debt.