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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
 
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
 
For the quarterly period ended September 30, 2019
or
 
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
 
Commission File Number 001-32318

DEVON ENERGY CORPORATION
(Exact name of registrant as specified in its charter)

Delaware	 	73-1567067	
(State or other jurisdiction of
incorporation or organization)	 	(I.R.S. Employer
identification No.)	
 	 	
333 West Sheridan Avenue, Oklahoma City, Oklahoma	 	73102-5015	
(Address of principal executive offices)	 	(Zip code)	
Registrant’s telephone number, including area code: (405) 235-3611
Former name, address and former fiscal year, if changed from last report: Not applicable
Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered	
Common Stock, par value $0.10 per share	DVN	The New York Stock Exchange	
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☑    No   ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☑    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	 	☑	Accelerated filer	 	☐	Non-accelerated filer	 	☐	
Smaller reporting company	 	☐	Emerging growth company	 	☐	 	 	 	
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☑
On October 23, 2019, 384.1 million shares of common stock were outstanding.

Table of Contents
DEVON ENERGY CORPORATION
FORM 10-Q
TABLE OF CONTENTS
 
Part I. Financial Information	 	
Item 1.	 	Financial Statements	6	
 	 	Consolidated Comprehensive Statements of Earnings	6	
 	 	Consolidated Statements of Cash Flows	7	
 	 	Consolidated Balance Sheets	8	
 	 	Consolidated Statements of Equity	9	
 	 	Notes to Consolidated Financial Statements	10	
 	 	Note 1 – Summary of Significant Accounting Policies	10	
 	 	Note 2 – Divestitures	11	
 	 	Note 3 – Derivative Financial Instruments	12	
 	 	Note 4 – Share-Based Compensation	14	
 	 	Note 5 – Asset Impairments	15	
 	 	Note 6 – Restructuring and Transaction Costs	15	
 	 	Note 7 – Income Taxes	16	
 	 	Note 8 – Net Earnings (Loss) Per Share From Continuing Operations	17	
 	 	Note 9 – Other Comprehensive Earnings (Loss)	18	
 	 	Note 10 – Supplemental Information to Statements of Cash Flows	18	
 	 	Note 11 – Accounts Receivable	19	
 	 	Note 12 – Property, Plant and Equipment	19	
 	 	Note 13 – Debt and Related Expenses	19	
 	 	Note 14 – Leases	20	
 	 	Note 15 – Asset Retirement Obligations	22	
 	 	Note 16 – Retirement Plans	23	
 	 	Note 17 – Stockholders’ Equity	23	
 	 	Note 18 – Discontinued Operations and Assets Held For Sale	24	
 	 	Note 19 – Commitments and Contingencies	27	
 	 	Note 20 – Fair Value Measurements	28	
Item 2.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29	
Item 3.	 	Quantitative and Qualitative Disclosures About Market Risk	45	
Item 4.	 	Controls and Procedures	45	
 	 	 	 	
Part II. Other Information	 	
Item 1.	 	Legal Proceedings	46	
Item 1A.	 	Risk Factors	46	
Item 2.	 	Unregistered Sales of Equity Securities and Use of Proceeds	46	
Item 3.	 	Defaults Upon Senior Securities	46	
Item 4.	 	Mine Safety Disclosures	46	
Item 5.	 	Other Information	46	
Item 6.	 	Exhibits	47	
 	 	 	 	
Signatures	 	 	48	

 
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DEFINITIONS
Unless the context otherwise indicates, references to “us,” “we,” “our,” “ours,” “Devon” and the “Company” refer to Devon Energy Corporation and its consolidated subsidiaries. All monetary values, other than per unit and per share amounts, are stated in millions of U.S. dollars unless otherwise specified. In addition, the following are other abbreviations and definitions of certain terms used within this Quarterly Report on Form 10-Q:
“ASC” means Accounting Standards Codification.
“ASR” means an accelerated share-repurchase transaction with a financial institution to repurchase Devon’s common stock.
“ASU” means Accounting Standards Update.
“Bbl” or “Bbls” means barrel or barrels.
“Boe” means barrel of oil equivalent. Gas proved reserves and production are converted to Boe, at the pressure and temperature base standard of each respective state in which the gas is produced, at the rate of six Mcf of gas per Bbl of oil, based upon the approximate relative energy content of gas and oil. NGL proved reserves and production are converted to Boe on a one-to-one basis with oil.
“Btu” means British thermal units, a measure of heating value.
“Canada” means the division of Devon encompassing oil and gas properties located in Canada. On June 27, 2019, all of Devon’s Canadian operating assets and operations were divested. All dollar amounts associated with Canada are in U.S. dollars, unless stated otherwise.
“DD&A” means depreciation, depletion and amortization expenses.
“Devon Plan” means Devon Energy Corporation Incentive Savings Plan.
“E&P” means exploration and production activities.
“EnLink” means EnLink Midstream Partners, LP, a master limited partnership.
“FASB” means Financial Accounting Standards Board.
“G&A” means general and administrative expenses.
“GAAP” means U.S. generally accepted accounting principles.
“General Partner” means EnLink Midstream, LLC, the indirect general partner of EnLink, and, unless the context otherwise indicates, EnLink Midstream Manager, LLC, the managing member of EnLink Midstream, LLC.
“Inside FERC” refers to the publication Inside FERC’s Gas Market Report.
“LOE” means lease operating expenses.
“MBbls” means thousand barrels.
“MBoe” means thousand Boe.
“Mcf” means thousand cubic feet.
“MMBoe” means million Boe.
“MMBtu” means million Btu.
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“MMcf” means million cubic feet.
“N/M” means not meaningful.
“NGL” or “NGLs” means natural gas liquids.
“NYMEX” means New York Mercantile Exchange.
“OPIS” means Oil Price Information Service.
“SEC” means United States Securities and Exchange Commission.
“Senior Credit Facility” means Devon’s syndicated unsecured revolving line of credit, effective as of October 5, 2018.
“TSR” means total shareholder return.
“U.S.” means United States of America.
“WTI” means West Texas Intermediate.
“/Bbl” means per barrel.
“/d” means per day.
“/MMBtu” means per MMBtu.
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This report includes “forward-looking statements” as defined by the SEC. Such statements include those concerning strategic plans, our expectations and objectives for future operations, as well as other future events or conditions, and are often identified by use of the words and phrases “expects,” “believes,” “will,” “would,” “could,” “continue,” “may,” “aims,” “likely to be,” “intends,” “forecasts,” “projections,” “estimates,” “plans,” “expectations,” “targets,” “opportunities,” “potential,” “anticipates,” “outlook” and other similar terminology. All statements, other than statements of historical facts, included in this report that address activities, events or developments that Devon 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 our control. Consequently, actual future results could differ materially from our expectations due to a number of factors, including, but not limited to:
 	•	the volatility of oil, gas and NGL prices;	
 	•	uncertainties inherent in estimating oil, gas and NGL reserves;	
 	•	the extent to which we are successful in acquiring and discovering additional reserves;	
 	•	the uncertainties, costs and risks involved in our operations, including as a result of employee misconduct;	
 	•	regulatory restrictions, compliance costs and other risks relating to governmental regulation, including with respect to environmental matters;	
 	•	risks related to regulatory, social and market efforts to address climate change;	
 	•	risks related to our hedging activities;	
 	•	counterparty credit risks;	
 	•	risks relating to our indebtedness;	
 	•	cyberattack risks;	
 	•	our limited control over third parties who operate some of our oil and gas properties;	
 	•	midstream capacity constraints and potential interruptions in production;	
 	•	the extent to which insurance covers any losses we may experience;	
 	•	competition for assets, materials, people and capital;	
 	•	our ability to successfully complete mergers, acquisitions and divestitures; and	
 	•	any of the other risks and uncertainties discussed in this report, our 2018 Annual Report on Form 10-K and our other filings with the SEC.	
All subsequent written and oral forward-looking statements attributable to Devon, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements above. We assume no duty to update or revise our forward-looking statements based on new information, future events or otherwise.

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Part I.  Financial Information
Item 1.  Financial Statements
DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED COMPREHENSIVE STATEMENTS OF EARNINGS
 
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	
 	 	(Unaudited)	 	
Upstream revenues	 	$	1,147	 	 	$	934	 	 	$	2,801	 	 	$	2,717	 	
Marketing revenues	 	 	700	 	 	 	1,222	 	 	 	2,195	 	 	 	3,240	 	
Total revenues	 	 	1,847	 	 	 	2,156	 	 	 	4,996	 	 	 	5,957	 	
Production expenses	 	 	368	 	 	 	417	 	 	 	1,104	 	 	 	1,218	 	
Exploration expenses	 	 	18	 	 	 	22	 	 	 	29	 	 	 	105	 	
Marketing expenses	 	 	684	 	 	 	1,201	 	 	 	2,147	 	 	 	3,216	 	
Depreciation, depletion and amortization	 	 	402	 	 	 	342	 	 	 	1,176	 	 	 	989	 	
Asset impairments	 	 	—	 	 	 	2	 	 	 	—	 	 	 	156	 	
Asset dispositions	 	 	(2	)	 	 	(6	)	 	 	(47	)	 	 	5	 	
General and administrative expenses	 	 	107	 	 	 	128	 	 	 	356	 	 	 	438	 	
Financing costs, net	 	 	60	 	 	 	68	 	 	 	186	 	 	 	521	 	
Restructuring and transaction costs	 	 	10	 	 	 	6	 	 	 	73	 	 	 	91	 	
Other expenses	 	 	6	 	 	 	(9	)	 	 	(3	)	 	 	(73	)	
Total expenses	 	 	1,653	 	 	 	2,171	 	 	 	5,021	 	 	 	6,666	 	
Earnings (loss) from continuing operations before income taxes	 	 	194	 	 	 	(15	)	 	 	(25	)	 	 	(709	)	
Income tax expense (benefit)	 	 	55	 	 	 	(171	)	 	 	16	 	 	 	(161	)	
Net earnings (loss) from continuing operations	 	 	139	 	 	 	156	 	 	 	(41	)	 	 	(548	)	
Net earnings (loss) from discontinued operations, net of income
   taxes	 	 	(30	)	 	 	2,407	 	 	 	328	 	 	 	2,623	 	
Net earnings	 	 	109	 	 	 	2,563	 	 	 	287	 	 	 	2,075	 	
Net earnings attributable to noncontrolling interests	 	 	—	 	 	 	26	 	 	 	—	 	 	 	160	 	
Net earnings attributable to Devon	 	$	109	 	 	$	2,537	 	 	$	287	 	 	$	1,915	 	
Basic net earnings (loss) per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic earnings (loss) from continuing operations per share	 	$	0.35	 	 	$	0.32	 	 	$	(0.10	)	 	$	(1.08	)	
Basic earnings (loss) from discontinued operations per share	 	 	(0.08	)	 	 	4.85	 	 	 	0.79	 	 	 	4.82	 	
Basic net earnings per share	 	$	0.27	 	 	$	5.17	 	 	$	0.69	 	 	$	3.74	 	
Diluted net earnings (loss) per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings (loss) from continuing operations per share	 	$	0.35	 	 	$	0.32	 	 	$	(0.10	)	 	$	(1.08	)	
Diluted earnings (loss) from discontinued operations per share	 	 	(0.08	)	 	 	4.82	 	 	 	0.79	 	 	 	4.82	 	
Diluted net earnings per share	 	$	0.27	 	 	$	5.14	 	 	$	0.69	 	 	$	3.74	 	
Comprehensive earnings (loss):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	 	$	109	 	 	$	2,563	 	 	$	287	 	 	$	2,075	 	
Other comprehensive earnings (loss), net of tax:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign currency translation, discontinued operations	 	 	—	 	 	 	35	 	 	 	78	 	 	 	(47	)	
Release of Canadian cumulative translation adjustment,
   discontinued operations	 	 	—	 	 	 	—	 	 	 	(1,237	)	 	 	—	 	
Pension and postretirement plans	 	 	1	 	 	 	36	 	 	 	16	 	 	 	43	 	
Other comprehensive earnings (loss), net of tax	 	 	1	 	 	 	71	 	 	 	(1,143	)	 	 	(4	)	
Comprehensive earnings (loss):	 	$	110	 	 	$	2,634	 	 	$	(856	)	 	$	2,071	 	
Comprehensive earnings attributable to noncontrolling interests	 	 	—	 	 	 	26	 	 	 	—	 	 	 	160	 	
Comprehensive earnings (loss) attributable to Devon	 	$	110	 	 	$	2,608	 	 	$	(856	)	 	$	1,911	 	
 
See accompanying notes to consolidated financial statements
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	
 	 	(Unaudited)	 	
Cash flows from operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	 	$	109	 	 	$	2,563	 	 	$	287	 	 	$	2,075	 	
Adjustments to reconcile net earnings to net cash from operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (earnings) loss from discontinued operations, net of income taxes	 	 	30	 	 	 	(2,407	)	 	 	(328	)	 	 	(2,623	)	
Depreciation, depletion and amortization	 	 	402	 	 	 	342	 	 	 	1,176	 	 	 	989	 	
Asset impairments	 	 	—	 	 	 	2	 	 	 	—	 	 	 	156	 	
Leasehold impairments	 	 	13	 	 	 	14	 	 	 	15	 	 	 	75	 	
Accretion on discounted liabilities	 	 	10	 	 	 	9	 	 	 	30	 	 	 	27	 	
Total (gains) losses on commodity derivatives	 	 	(127	)	 	 	376	 	 	 	338	 	 	 	976	 	
Cash settlements on commodity derivatives	 	 	71	 	 	 	(175	)	 	 	125	 	 	 	(404	)	
(Gains) losses on asset dispositions	 	 	(2	)	 	 	(6	)	 	 	(47	)	 	 	5	 	
Deferred income tax expense (benefit)	 	 	53	 	 	 	(145	)	 	 	15	 	 	 	(149	)	
Share-based compensation	 	 	23	 	 	 	25	 	 	 	92	 	 	 	112	 	
Early retirement of debt	 	 	—	 	 	 	—	 	 	 	—	 	 	 	312	 	
Other	 	 	2	 	 	 	43	 	 	 	(10	)	 	 	(22	)	
Changes in assets and liabilities, net	 	 	13	 	 	 	(81	)	 	 	(130	)	 	 	(10	)	
Net cash from operating activities - continuing operations	 	 	597	 	 	 	560	 	 	 	1,563	 	 	 	1,519	 	
Cash flows from investing activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(536	)	 	 	(548	)	 	 	(1,532	)	 	 	(1,653	)	
Acquisitions of property and equipment	 	 	(5	)	 	 	(19	)	 	 	(28	)	 	 	(35	)	
Divestitures of property and equipment	 	 	7	 	 	 	89	 	 	 	346	 	 	 	696	 	
Net cash from investing activities - continuing operations	 	 	(534	)	 	 	(478	)	 	 	(1,214	)	 	 	(992	)	
Cash flows from financing activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Repayments of long-term debt principal	 	 	—	 	 	 	(21	)	 	 	(162	)	 	 	(828	)	
Early retirement of debt	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(304	)	
Repurchases of common stock	 	 	(561	)	 	 	(1,698	)	 	 	(1,746	)	 	 	(2,197	)	
Dividends paid on common stock	 	 	(35	)	 	 	(38	)	 	 	(106	)	 	 	(112	)	
Shares exchanged for tax withholdings	 	 	(1	)	 	 	(3	)	 	 	(23	)	 	 	(38	)	
Net cash from financing activities - continuing operations	 	 	(597	)	 	 	(1,760	)	 	 	(2,037	)	 	 	(3,479	)	
Net change in cash, cash equivalents and restricted cash of continuing operations	 	 	(534	)	 	 	(1,678	)	 	 	(1,688	)	 	 	(2,952	)	
Cash flows from discontinued operations:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating activities	 	 	(96	)	 	 	293	 	 	 	(63	)	 	 	643	 	
Investing activities	 	 	7	 	 	 	2,900	 	 	 	2,504	 	 	 	2,350	 	
Financing activities	 	 	(1,571	)	 	 	71	 	 	 	(1,579	)	 	 	174	 	
Effect of exchange rate changes on cash	 	 	(3	)	 	 	10	 	 	 	36	 	 	 	222	 	
Net change in cash, cash equivalents and restricted cash of discontinued operations	 	 	(1,663	)	 	 	3,274	 	 	 	898	 	 	 	3,389	 	
Net change in cash, cash equivalents and restricted cash	 	 	(2,197	)	 	 	1,596	 	 	 	(790	)	 	 	437	 	
Cash, cash equivalents and restricted cash at beginning of period	 	 	3,853	 	 	 	1,525	 	 	 	2,446	 	 	 	2,684	 	
Cash, cash equivalents and restricted cash at end of period	 	$	1,656	 	 	$	3,121	 	 	$	1,656	 	 	$	3,121	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation of cash, cash equivalents and restricted cash:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	1,375	 	 	$	3,102	 	 	$	1,375	 	 	$	3,102	 	
Cash restricted for discontinued operations	 	 	280	 	 	 	—	 	 	 	280	 	 	 	—	 	
Restricted cash included in other current assets	 	 	1	 	 	 	19	 	 	 	1	 	 	 	19	 	
Total cash, cash equivalents and restricted cash	 	$	1,656	 	 	$	3,121	 	 	$	1,656	 	 	$	3,121	 	
 
See accompanying notes to consolidated financial statements
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 	 	September 30, 2019	 	 	December 31, 2018	 	
 	 	(Unaudited)	 	 	 	 	 	
ASSETS	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	1,375	 	 	$	2,414	 	
Cash restricted for discontinued operations	 	 	280	 	 	 	—	 	
Accounts receivable	 	 	787	 	 	 	855	 	
Current assets associated with discontinued operations	 	 	21	 	 	 	283	 	
Other current assets	 	 	383	 	 	 	885	 	
Total current assets	 	 	2,846	 	 	 	4,437	 	
Oil and gas property and equipment, based on successful efforts
   accounting, net	 	 	9,122	 	 	 	8,982	 	
Other property and equipment, net	 	 	1,055	 	 	 	1,044	 	
Total property and equipment, net	 	 	10,177	 	 	 	10,026	 	
Goodwill	 	 	841	 	 	 	841	 	
Right-of-use assets	 	 	219	 	 	 	—	 	
Other long-term assets	 	 	216	 	 	 	276	 	
Long-term assets associated with discontinued operations	 	 	95	 	 	 	3,986	 	
Total assets	 	$	14,394	 	 	$	19,566	 	
LIABILITIES AND STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	
Accounts payable	 	$	513	 	 	$	563	 	
Revenues and royalties payable	 	 	700	 	 	 	832	 	
Short-term debt	 	 	—	 	 	 	162	 	
Current liabilities associated with discontinued operations	 	 	172	 	 	 	338	 	
Other current liabilities	 	 	273	 	 	 	331	 	
Total current liabilities	 	 	1,658	 	 	 	2,226	 	
Long-term debt	 	 	4,295	 	 	 	4,292	 	
Lease liabilities	 	 	244	 	 	 	—	 	
Asset retirement obligations	 	 	526	 	 	 	606	 	
Other long-term liabilities	 	 	431	 	 	 	442	 	
Long-term liabilities associated with discontinued operations	 	 	175	 	 	 	2,285	 	
Deferred income taxes	 	 	523	 	 	 	529	 	
Stockholders' equity:	 	 	 	 	 	 	 	 	
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued
   387 million and 450 million shares in 2019 and 2018, respectively	 	 	39	 	 	 	45	 	
Additional paid-in capital	 	 	2,815	 	 	 	4,486	 	
Retained earnings	 	 	3,812	 	 	 	3,650	 	
Accumulated other comprehensive earnings (loss)	 	 	(116	)	 	 	1,027	 	
Treasury stock, at cost, 0.3 million and 1.0 million shares in 2019 and 2018,
   respectively	 	 	(8	)	 	 	(22	)	
Total stockholders’ equity	 	 	6,542	 	 	 	9,186	 	
Total liabilities and stockholders' equity	 	$	14,394	 	 	$	19,566	 	
 
See accompanying notes to consolidated financial statements

 

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DEVON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Accumulated	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Additional	 	 	 	 	 	 	Other	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Common Stock	 	 	Paid-In	 	 	Retained	 	 	Comprehensive	 	 	Treasury	 	 	Noncontrolling	 	 	Total	 	
 	 	Shares	 	 	Amount	 	 	Capital	 	 	Earnings	 	 	Earnings (Loss)	 	 	Stock	 	 	Interests	 	 	Equity	 	
 	 	(Unaudited)	 	
Three Months Ended September 30, 2019	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance as of June 30, 2019	 	 	410	 	 	$	41	 	 	$	3,352	 	 	$	3,738	 	 	$	(117	)	 	$	(20	)	 	$	—	 	 	$	6,994	 	
Net earnings	 	 	—	 	 	 	—	 	 	 	—	 	 	 	109	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	109	 	
Other comprehensive earnings, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1	 	 	 	—	 	 	 	—	 	 	 	1	 	
Common stock repurchased	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(549	)	 	 	—	 	 	 	(549	)	
Common stock retired	 	 	(23	)	 	 	(2	)	 	 	(559	)	 	 	—	 	 	 	—	 	 	 	561	 	 	 	—	 	 	 	—	 	
Common stock dividends	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(35	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(35	)	
Share-based compensation	 	 	—	 	 	 	—	 	 	 	22	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	22	 	
Balance as of September 30, 2019	 	 	387	 	 	$	39	 	 	$	2,815	 	 	$	3,812	 	 	$	(116	)	 	$	(8	)	 	$	—	 	 	$	6,542	 	
Three Months Ended September 30, 2018	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance as of June 30, 2018	 	 	515	 	 	$	51	 	 	$	6,888	 	 	$	6	 	 	$	1,091	 	 	$	(22	)	 	$	4,834	 	 	$	12,848	 	
Net earnings	 	 	—	 	 	 	—	 	 	 	—	 	 	 	2,537	 	 	 	—	 	 	 	—	 	 	 	26	 	 	 	2,563	 	
Other comprehensive earnings, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	71	 	 	 	—	 	 	 	—	 	 	 	71	 	
Common stock repurchased	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,715	)	 	 	—	 	 	 	(1,715	)	
Common stock retired	 	 	(41	)	 	 	(4	)	 	 	(1,698	)	 	 	—	 	 	 	—	 	 	 	1,702	 	 	 	—	 	 	 	—	 	
Common stock dividends	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(38	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(38	)	
Share-based compensation	 	 	—	 	 	 	—	 	 	 	25	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	25	 	
Divestment of subsidiary equity investment	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	2	 	 	 	 	 	 	 	(4,863	)	 	 	(4,861	)	
Subsidiary equity transactions	 	 	—	 	 	 	—	 	 	 	2	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3	 	 	 	5	 	
Balance as of September 30, 2018	 	 	474	 	 	$	47	 	 	$	5,217	 	 	$	2,505	 	 	$	1,164	 	 	$	(35	)	 	$	—	 	 	$	8,898	 	
Nine Months Ended September 30, 2019	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance as of December 31, 2018	 	 	450	 	 	$	45	 	 	$	4,486	 	 	$	3,650	 	 	$	1,027	 	 	$	(22	)	 	$	—	 	 	$	9,186	 	
Effect of adoption of lease accounting	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(19	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(19	)	
Net earnings	 	 	—	 	 	 	—	 	 	 	—	 	 	 	287	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	287	 	
Other comprehensive loss, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,143	)	 	 	—	 	 	 	—	 	 	 	(1,143	)	
Restricted stock grants, net of cancellations	 	 	3	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Common stock repurchased	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,755	)	 	 	—	 	 	 	(1,755	)	
Common stock retired	 	 	(66	)	 	 	(6	)	 	 	(1,763	)	 	 	—	 	 	 	—	 	 	 	1,769	 	 	 	—	 	 	 	—	 	
Common stock dividends	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(106	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(106	)	
Share-based compensation	 	 	—	 	 	 	—	 	 	 	92	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	92	 	
Balance as of September 30, 2019	 	 	387	 	 	$	39	 	 	$	2,815	 	 	$	3,812	 	 	$	(116	)	 	$	(8	)	 	$	—	 	 	$	6,542	 	
Nine Months Ended September 30, 2018	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance as of December 31, 2017	 	 	525	 	 	$	53	 	 	$	7,333	 	 	$	702	 	 	$	1,166	 	 	$	—	 	 	$	4,850	 	 	$	14,104	 	
Net earnings	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,915	 	 	 	—	 	 	 	—	 	 	 	160	 	 	 	2,075	 	
Other comprehensive loss, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(4	)	 	 	—	 	 	 	—	 	 	 	(4	)	
Restricted stock grants, net of cancellations	 	 	3	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Common stock repurchased	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(2,271	)	 	 	—	 	 	 	(2,271	)	
Common stock retired	 	 	(55	)	 	 	(6	)	 	 	(2,230	)	 	 	—	 	 	 	—	 	 	 	2,236	 	 	 	—	 	 	 	—	 	
Common stock dividends	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(112	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(112	)	
Share-based compensation	 	 	1	 	 	 	—	 	 	 	114	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	114	 	
Divestment of subsidiary equity investment	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	2	 	 	 	 	 	 	 	(4,863	)	 	 	(4,861	)	
Subsidiary equity transactions	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	72	 	 	 	72	 	
Distributions to noncontrolling interests	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(219	)	 	 	(219	)	
Balance as of September 30, 2018	 	 	474	 	 	$	47	 	 	$	5,217	 	 	$	2,505	 	 	$	1,164	 	 	$	(35	)	 	$	—	 	 	$	8,898	 	

See accompanying notes to consolidated financial statements
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.	Summary of Significant Accounting Policies	
The accompanying unaudited interim financial statements and notes of Devon have been prepared pursuant to the rules and regulations of the SEC. Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. The accompanying unaudited interim financial statements and notes should be read in conjunction with the financial statements and notes included in Devon’s 2018 Annual Report on Form 10-K.
The accompanying unaudited interim financial statements in this report reflect all adjustments that are, in the opinion of management, necessary for a fair statement of Devon’s results of operations and cash flows for the three-month and nine-month periods ended September 30, 2019 and 2018 and Devon’s financial position as of September 30, 2019. As further discussed in Note 18, Devon sold its Canadian operations on June 27, 2019 and its ownership interests in EnLink and the General Partner on July 18, 2018. Activity relating to Devon’s Canadian operations and EnLink and the General Partner are classified as discontinued operations within Devon’s consolidated comprehensive statements of earnings and consolidated statements of cash flows. The associated assets and liabilities of Devon’s Canadian operations are presented as assets and liabilities associated with discontinued operations on the consolidated balance sheets.
 
Segment Information
 
Subsequent to the sale of Devon’s Canadian business in 2019 discussed in Note 18, Devon’s oil and gas exploration and production activities are solely focused in the U.S. For financial reporting purposes, Devon aggregates its U.S. operating segments into one reporting segment due to the similar nature of its business. With the reclassification of Devon’s Canadian operations to discontinued operations and assets and liabilities associated with discontinued operations, Devon now has one reporting segment, which is reflected in the consolidated financial statements.
 
The following table presents revenue from contracts with customers that are disaggregated based on the type of good.
 
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	
Oil	 	$	754	 	 	$	794	 	 	$	2,168	 	 	$	2,279	 	
Gas	 	 	144	 	 	 	210	 	 	 	524	 	 	 	672	 	
NGL	 	 	122	 	 	 	306	 	 	 	447	 	 	 	742	 	
Oil, gas and NGL revenues from
   contracts with customers	 	 	1,020	 	 	 	1,310	 	 	 	3,139	 	 	 	3,693	 	
Oil, gas and NGL derivatives	 	 	127	 	 	 	(376	)	 	 	(338	)	 	 	(976	)	
Upstream revenues	 	 	1,147	 	 	 	934	 	 	 	2,801	 	 	 	2,717	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Oil	 	 	407	 	 	 	750	 	 	 	1,157	 	 	 	2,047	 	
Gas	 	 	142	 	 	 	191	 	 	 	532	 	 	 	506	 	
NGL	 	 	151	 	 	 	281	 	 	 	506	 	 	 	687	 	
Total marketing revenues from
   contracts with customers	 	 	700	 	 	 	1,222	 	 	 	2,195	 	 	 	3,240	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	 	$	1,847	 	 	$	2,156	 	 	$	4,996	 	 	$	5,957	 	
 
Recently Adopted Accounting Standards
 
In January 2019, Devon adopted ASU 2016-02, Leases (Topic 842), using the modified retrospective method. See Note 14 for further discussion regarding Devon’s adoption of the leases standard.
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
The SEC released Final Rule No. 33-10532, Disclosure Update and Simplification, which amends various SEC disclosure requirements determined to be redundant, duplicative, overlapping, outdated or superseded as part of the SEC’s ongoing disclosure effectiveness initiative. The rule was effective November 5, 2018. The rule amended numerous SEC rules, items and forms covering a diverse group of topics. Devon has implemented these required changes which generally reduced or eliminated disclosures. Devon adopted the requirement of presenting current and comparative quarterly stockholders’ equity roll forwards in the first quarter of 2019.
The SEC released Final Rule Release No. 33-10618, FAST Act Modernization and Simplification of Regulation S-K, which amends Regulation S-K to modernize and simplify certain disclosure requirements in a manner that reduces costs and burdens on registrants while continuing to provide all material information to investors. The rule became effective May 2, 2019. The rule amended numerous SEC rules, items and forms covering a diverse group of topics, primarily focusing on reducing or eliminating disclosures. Other than presentation, this adoption did not have a material impact on Devon’s consolidated financial statements.
Issued Accounting Standards Not Yet Adopted
The FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement. This ASU will eliminate, add and modify certain disclosure requirements for fair value measurement. The ASU is effective for annual and interim periods beginning January 1, 2020, with early adoption permitted for either the entire standard or only the provisions that eliminate or modify requirements. The ASU requires the additional disclosure requirements to be adopted using a retrospective approach. Devon has evaluated the provisions of this ASU and does not expect any material impact on its disclosures in the notes to the consolidated financial statements.
 
The FASB issued ASU 2018-15, Intangibles, Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU will require a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. This ASU is effective for annual and interim periods beginning January 1, 2020, with early adoption permitted. Entities have the option to adopt the ASU using either a retrospective approach or a prospective approach applied to all implementation costs incurred after the date of the adoption. Devon has evaluated the provisions of this ASU and does not expect any material impact on its consolidated financial statements.
 
2.Divestitures
 
In February 2019, Devon announced its intent to separate its Canadian business and Barnett Shale assets from the Company, based on authorizations provided by its Board of Directors. On June 27, 2019, Devon completed the sale of substantially all of its oil and gas assets and operations in Canada to Canadian Natural Resources Limited for proceeds, net of purchase price adjustments, of $2.6 billion ($3.4 billion Canadian dollars), and recognized a pre-tax gain of $223 million ($480 million, net of tax). Included within this gain is a $34 million ($20 million, net of tax) adjustment to the gain in the third quarter of 2019 related to an interim post closing settlement with Canadian Natural Resources Limited with final closing expected in the fourth quarter of 2019. As a part of the transaction, $436 million of asset retirement obligations were assumed by Canadian Natural Resources Limited. In aggregate, the total estimated proved reserves associated with these assets were approximately 400 MMBoe, or 21% of total proved reserves. In conjunction with the Canadian divestiture, Devon recognized approximately $280 million of restructuring and asset impairment related charges. These costs relate to personnel, office lease abandonment and a firm transportation agreement abandonment. Additional information on these discontinued operations can be found in Note 18.
 
Devon is evaluating multiple methods of separation for the Barnett Shale assets, including a potential sale, merger or spin-off. Estimated proved reserves associated with Devon’s Barnett Shale assets are approximately 46% of total U.S. proved reserves. As of September 30, 2019, Devon’s Barnett Shale assets were considered held for use and had a net carrying value of approximately $1.4 billion. Devon evaluated its Barnett Shale assets for impairment as of September 30, 2019, and concluded an impairment was not required. This conclusion was based on probability-weighted computations applied to fair value estimates of held for use and held for sale options under evaluation. Although an impairment was not required to be recognized at September 30, 2019, should Devon enter into a sale transaction at current market estimates for its Barnett Shale assets, Devon would recognize an impairment based on the estimated transaction value as compared to the carrying value. Devon anticipates reporting all information for its Barnett Shale assets as discontinued operations when all the requisite criteria are met for such financial statement presentation.
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
In the first quarter of 2019, Devon received proceeds of approximately $300 million and recognized a $44 million net gain on asset dispositions, primarily from sales of non-core assets in the Permian Basin. In aggregate, the total estimated proved reserves associated with these divested assets were approximately 25 MMBoe, or less than 2% of total U.S. proved reserves. As of December 31, 2018, assets and liabilities associated with these divested assets were classified as held for sale in the accompanying consolidated balance sheet.
During the second quarter of 2018, Devon sold a portion of its Barnett Shale assets, primarily located in Johnson County for $553 million. Estimated proved reserves associated with these assets were approximately 10% of total proved reserves. The transaction resulted in an adjustment to Devon’s capitalized costs with no gain recognized in the consolidated statement of earnings. In conjunction with the divestiture, Devon settled certain gas processing contracts and recognized an approximately $40 million settlement expense, which is included in asset dispositions within the consolidated statement of earnings.
During the third quarter of 2018, Devon completed the sale of its aggregate ownership interests in EnLink and the General Partner for $3.125 billion and recognized a gain of approximately $2.6 billion ($2.2 billion after-tax). The proceeds from the sale were utilized to increase Devon’s share repurchase program, which is discussed further in Note 17. Additional information on these discontinued operations can be found in Note 18.
 
3.Derivative Financial Instruments
Objectives and Strategies
Devon enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production to hedge future prices received. Additionally, Devon periodically enters into derivative financial instruments with respect to a portion of its oil, gas and NGL marketing activities. These commodity derivative financial instruments include financial price swaps, basis swaps and costless price collars. Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. As of September 30, 2019, Devon did not have any open interest rate swap contracts.
Devon does not intend to hold or issue derivative financial instruments for speculative trading purposes and has elected not to designate any of its derivative instruments for hedge accounting treatment.
Counterparty Credit Risk
By using derivative financial instruments, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon’s policy to enter into derivative contracts only with investment-grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon’s derivative contracts generally contain provisions that provide for collateral payments if Devon’s or its counterparty’s credit rating falls below certain credit rating levels.
Commodity Derivatives
As of September 30, 2019, Devon had the following open oil derivative positions. The first two tables present Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The third table presents Devon’s oil derivatives that settle against the respective indices noted within the table.
 
 	 	Price Swaps	 	 	Price Collars	 	
Period	 	Volume
(Bbls/d)	 	 	Weighted
Average
Price ($/Bbl)	 	 	Volume
(Bbls/d)	 	 	Weighted
Average Floor
Price ($/Bbl)	 	 	Weighted
Average
Ceiling Price
($/Bbl)	 	
Q4 2019	 	 	35,600	 	 	$	61.21	 	 	 	79,500	 	 	$	54.06	 	 	$	64.13	 	
Q1-Q4 2020	 	 	7,238	 	 	$	57.29	 	 	 	31,932	 	 	$	51.85	 	 	$	61.93	 	
Q1-Q4 2021	 	 	493	 	 	$	52.75	 	 	 	1,479	 	 	$	48.48	 	 	$	58.48	 	
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
 	 	Three-Way Price Collars	 	
Period	 	Volume
(Bbls/d)	 	 	Weighted
Average Floor Sold
Price ($/Bbl)	 	 	Weighted
Average Floor Purchased
Price ($/Bbl)	 	 	Weighted
Average
Ceiling Price
($/Bbl)	 	
Q4 2019	 	 	5,000	 	 	$	50.00	 	 	$	63.00	 	 	$	74.80	 	
 
 	 	Oil Basis Swaps	 	
Period	 	Index	 	Volume
(Bbls/d)	 	 	Weighted Average
Differential to WTI
($/Bbl)	 	
Q4 2019	 	Midland Sweet	 	 	28,000	 	 	$	(0.46	)	
Q4 2019	 	Argus LLS	 	 	7,500	 	 	$	5.18	 	
Q4 2019	 	Argus MEH	 	 	26,000	 	 	$	3.33	 	
Q4 2019	 	NYMEX Roll	 	 	38,000	 	 	$	0.45	 	
Q1-Q4 2020	 	Argus MEH	 	 	9,000	 	 	$	3.44	 	
Q1-Q4 2020	 	NYMEX Roll	 	 	44,000	 	 	$	0.34	 	
	 	
As of September 30, 2019, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.
 
 	 	Price Swaps	 	 	Price Collars	 	
Period	 	Volume (MMBtu/d)	 	 	Weighted Average Price ($/MMBtu)	 	 	Volume (MMBtu/d)	 	 	Weighted Average Floor Price ($/MMBtu)	 	 	Weighted Average
Ceiling Price ($/MMBtu)	 	
Q4 2019	 	 	243,300	 	 	$	2.80	 	 	 	195,000	 	 	$	2.64	 	 	$	3.03	 	
Q1-Q4 2020	 	 	81,409	 	 	$	2.77	 	 	 	42,557	 	 	$	2.73	 	 	$	3.03	 	
 
 	 	Natural Gas Basis Swaps	 	
Period	 	Index	 	Volume
(MMBtu/d)	 	 	Weighted Average
Differential to
Henry Hub
($/MMBtu)	 	
Q4 2019	 	Panhandle Eastern Pipe Line	 	 	20,000	 	 	$	(0.56	)	
Q4 2019	 	El Paso Natural Gas	 	 	130,000	 	 	$	(1.46	)	
Q4 2019	 	Houston Ship Channel	 	 	162,500	 	 	$	0.01	 	
Q1-Q4 2020	 	Panhandle Eastern Pipe Line	 	 	30,000	 	 	$	(0.47	)	
Q1-Q4 2020	 	El Paso Natural Gas	 	 	45,000	 	 	$	(0.70	)	
Q1-Q4 2020	 	Houston Ship Channel	 	 	10,000	 	 	$	0.02	 	

As of September 30, 2019, Devon had the following open NGL derivative positions. Devon’s NGL positions settle against the average of the prompt month OPIS Mont Belvieu, Texas index.
 
 	 	 	 	Price Swaps	 	
Period	 	Product	 	Volume (Bbls/d)	 	 	Weighted Average Price ($/Bbl)	 	
Q4 2019	 	Ethane	 	 	1,000	 	 	$	11.55	 	
Q4 2019	 	Natural Gasoline	 	 	4,500	 	 	$	55.93	 	
Q4 2019	 	Normal Butane	 	 	4,000	 	 	$	33.69	 	
Q4 2019	 	Propane	 	 	8,500	 	 	$	30.01	 	
Q1-Q4 2020	 	Natural Gasoline	 	 	1,000	 	 	$	44.84	 	
Q1-Q4 2020	 	Normal Butane	 	 	1,000	 	 	$	23.52	 	
Q1-Q4 2020	 	Propane	 	 	4,500	 	 	$	25.18	 	
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
Financial Statement Presentation
The following table presents the net gains and losses by derivative financial instrument type followed by the corresponding individual consolidated comprehensive statements of earnings caption.
 
 	 	Three Months Ended
September 30,	 	 	Nine Months Ended
September 30,	 	 	
 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	 	
Commodity derivatives:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Upstream revenues	 	$	127	 	 	$	(376	)	 	$	(338	)	 	$	(976	)	 	
Marketing revenues	 	 	—	 	 	 	—	 	 	 	1	 	 	 	(1	)	 	
Interest rate derivatives:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other expenses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	65	 	 	
Net gains (losses) recognized	 	$	127	 	 	$	(376	)	 	$	(337	)	 	$	(912	)	 	
 
The following table presents the derivative fair values by derivative financial instrument type followed by the corresponding individual consolidated balance sheet caption.
 	 	September 30, 2019	 	 	December 31, 2018	 	
Commodity derivative assets:	 	 	 	 	 	 	 	 	
Other current assets	 	$	163	 	 	$	634	 	
Other long-term assets	 	 	15	 	 	 	40	 	
Total derivative assets	 	$	178	 	 	$	674	 	
Commodity derivative liabilities:	 	 	 	 	 	 	 	 	
Other current liabilities	 	$	2	 	 	$	32	 	
Other long-term liabilities	 	 	—	 	 	 	1	 	
Total derivative liabilities	 	$	2	 	 	$	33	 	
 
4.Share-Based Compensation
 
The table below presents the share-based compensation expense included in Devon’s accompanying consolidated comprehensive statements of earnings. The vesting for certain share-based awards was accelerated in conjunction with the reduction of workforce described in Note 6 and is included in restructuring and transaction costs in the accompanying consolidated comprehensive statements of earnings.
 
 	 	Nine Months Ended September 30,	 	
 	 	2019	 	 	2018	 	
G&A	 	$	64	 	 	$	82	 	
Exploration expenses	 	 	1	 	 	 	2	 	
Restructuring and transaction costs	 	 	27	 	 	 	28	 	
Total	 	$	92	 	 	$	112	 	
Related income tax benefit	 	$	13	 	 	$	16	 	
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Under its approved long-term incentive plan, Devon granted share-based awards to certain employees in the first nine months of 2019. The following table presents a summary of Devon’s unvested restricted stock awards and units, performance-based restricted stock awards and performance share units granted under the plan.
 
 	 	Restricted Stock	 	 	Performance-Based	 	 	Performance	 	
 	 	Awards and Units	 	 	Restricted Stock Awards	 	 	Share Units	 	
 	 	Awards and
Units	 	 	Weighted
Average
Grant-Date
Fair Value	 	 	Awards	 	 	Weighted
Average
Grant-Date
Fair Value	 	 	Units	 	 	 	 	 	Weighted
Average
Grant-Date
Fair Value	 	
 	 	(Thousands, except fair value data)	 	
Unvested at 12/31/18	 	 	5,963	 	 	$	35.47	 	 	 	302	 	 	$	35.93	 	 	 	2,868	 	 	 	 	 	$	30.14	 	
Granted	 	 	4,404	 	 	$	25.49	 	 	 	—	 	 	$	—	 	 	 	741	 	 	 	 	 	$	28.97	 	
Vested	 	 	(4,402	)	 	$	33.62	 	 	 	(149	)	 	$	38.03	 	 	 	(145	)	 	 	 	 	$	37.23	 	
Forfeited	 	 	(700	)	 	$	27.44	 	 	 	—	 	 	$	—	 	 	 	(1,301	)	 	 	 	 	$	11.80	 	
Unvested at 9/30/19	 	 	5,265	 	 	$	29.73	 	 	 	153	 	 	$	33.88	 	 	 	2,163	 	 	(1	)	 	$	40.31	 	

(1)	A maximum of 4.3 million common shares could be awarded based upon Devon’s final TSR ranking.	
The following table presents the assumptions related to the performance share units granted in 2019, as indicated in the previous summary table.
 
 	 	2019	 	
Grant-date fair value	 	$	28.43	 	 	—	 	$	29.53	 	
Risk-free interest rate	 	2.48%	 	
Volatility factor	 	39.1%	 	
Contractual term (years)	 	2.89	 	
 
The following table presents a summary of the unrecognized compensation cost and the related weighted average recognition period associated with unvested awards and units as of September 30, 2019.
 
 	 	 	 	 	 	Performance-Based	 	 	 	 	 	
 	 	Restricted Stock	 	 	Restricted Stock	 	 	Performance	 	
 	 	Awards and Units	 	 	Awards	 	 	Share Units	 	
Unrecognized compensation cost	 	$	97	 	 	$	—	 	 	$	18	 	
Weighted average period for recognition (years)	 	 	2.6	 	 	 	1.7	 	 	 	1.5	 	
 
5.Asset Impairments
Asset Impairments
During the first nine months of 2018, Devon recognized $109 million of proved asset impairments relating to U.S. non-core assets no longer in its development plans and approximately $47 million of non-oil and gas asset impairments.
Unproved Impairments
During the first nine months of 2019 and 2018, Devon impaired certain non-core acreage in the U.S. that it no longer intends to pursue for exploration opportunities, resulting in unproved impairments of $15 million and $76 million, respectively. Unproved impairments are included in exploration expenses in the consolidated comprehensive statements of earnings.
6.Restructuring and Transaction Costs
During the first quarter of 2019, Devon announced workforce reductions and other initiatives designed to enhance its operational focus and cost structure in conjunction with the portfolio transformation announcement further discussed in Note 2. As a result, Devon recognized $73 million of restructuring expenses during the first nine months of 2019. Of these expenses, $27 million resulted from
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
accelerated vesting of share-based grants, which are noncash charges. Additionally, $5 million resulted from settlements of defined retirement benefits.
During the first nine months of 2018, Devon recognized $91 million in personnel related restructuring expenses related to workforce reductions. Of these expenses, $28 million resulted from accelerated vesting of share-based grants, which are noncash charges. Additionally, $15 million resulted from estimated settlements of defined retirement benefits.
Devon anticipates recognizing additional restructuring charges in 2019, primarily when the separation of its Barnett Shale assets is completed.
The following table summarizes Devon’s restructuring liabilities.

 	 	Other	 	 	Other	 	 	 	 	 	
 	 	Current	 	 	Long-term	 	 	 	 	 	
 	 	Liabilities	 	 	Liabilities	 	 	Total	 	
Balance as of December 31, 2018	 	$	39	 	 	$	3	 	 	$	42	 	
Changes related to 2019 workforce reductions	 	 	22	 	 	 	—	 	 	 	22	 	
Changes related to prior years' restructurings	 	 	(31	)	 	 	(2	)	 	 	(33	)	
Balance as of September 30, 2019	 	$	30	 	 	$	1	 	 	$	31	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance as of December 31, 2017	 	$	17	 	 	$	17	 	 	$	34	 	
Changes related to prior years' restructurings	 	 	32	 	 	 	(11	)	 	 	21	 	
Balance as of September 30, 2018	 	$	49	 	 	$	6	 	 	$	55	 	
 
7.Income Taxes
The following table presents Devon’s total income tax expense (benefit) and a reconciliation of its effective income tax rate to the U.S. statutory income tax rate.
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	
Earnings (loss) from continuing operations
   before income taxes	 	$	194	 	 	$	(15	)	 	$	(25	)	 	$	(709	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current income tax expense (benefit)	 	$	2	 	 	$	(26	)	 	$	1	 	 	$	(12	)	
Deferred income tax expense (benefit)	 	 	53	 	 	 	(145	)	 	 	15	 	 	 	(149	)	
Total income tax expense (benefit)	 	$	55	 	 	$	(171	)	 	$	16	 	 	$	(161	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. statutory income tax rate	 	 	21	%	 	 	21	%	 	 	21	%	 	 	21	%	
State income taxes	 	 	6	%	 	 	47	%	 	 	(8	%)	 	 	0	%	
Change in unrecognized tax benefits	 	 	0	%	 	 	151	%	 	 	(6	%)	 	 	3	%	
Other	 	 	1	%	 	 	43	%	 	 	(70	%)	 	 	(1	%)	
Deferred tax asset valuation allowance	 	 	0	%	 	 	897	%	 	 	0	%	 	 	0	%	
Effective income tax rate	 	 	28	%	 	 	1,159	%	 	 	(63	%)	 	 	23	%	
 
Devon estimates its annual effective income tax rate to record its quarterly provision for income taxes in the various jurisdictions in which it operates. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur.
   During the third quarter of 2018, Devon realized $22 million of previously unrecognized benefits, including $2 million of interest, as a result of the expiration of certain U.S. federal statutes of limitation.
In the table above, the “other” effect is composed of permanent differences primarily related to stock compensation for which dollar amounts do not increase or decrease in relation to the change in pre-tax earnings. Generally, such items have an insignificant impact on Devon’s effective income tax rate. However, these items had a more noticeable impact to the rate in the first nine months of
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
2019 and the three months ended September 30, 2018 due to the low relative net loss in each period. In total, “other” represents $18 million of income tax expense in the first nine months of 2019 and $6 million of income tax benefit in the third quarter of 2018.
 
Through the first six months of 2018, Devon maintained a 100% valuation allowance against its U.S. deferred tax assets resulting from prior year cumulative financial losses, oil and gas impairments, and significant net operating losses for U.S. federal and state income tax. However, upon closing the EnLink divestiture in the third quarter of 2018, Devon realized a pre-tax gain of $2.6 billion. Based on its net deferred tax liability position, current period projected net operating loss utilization, and projections of future taxable income, Devon reassessed its position and determined that it was no longer in a full valuation allowance position, maintaining only valuation allowances against certain deferred tax assets, including certain tax credits and state net operating losses. As part of its reassessment, Devon determined that apart from the sale of EnLink and the General Partner, Devon would have remained in a full valuation allowance position. Accordingly, the deferred tax benefit resulting from the release of the valuation allowance that was generated in the first two quarters was allocated to continuing operations, while the $259 million of deferred tax benefit resulting from the release of the remainder of the full valuation allowance position was allocated entirely to discontinued operations.
 
On June 27, 2019, Devon completed the sale of substantially all of its Canadian oil and gas assets and operations in Canada. Devon’s foreign earnings have not been considered indefinitely reinvested since the announcement of the plan to separate the assets in the first quarter of 2019. As the separation took the form of an asset sale and Devon has retained certain non-operating obligations to be settled over time, Devon has not recorded a deferred tax asset or corresponding valuation allowance related to its Canadian investment.
As the Canadian sale closed during the second quarter of 2019, Devon has recorded materially all tax impacts related to the Canadian business in discontinued operations. Additional information on these discontinued operations can be found in Note 18.
 
8.	Net Earnings (Loss) Per Share from Continuing Operations	
The following table reconciles net earnings (loss) from continuing operations and weighted-average common shares outstanding used in the calculations of basic and diluted net earnings (loss) per share from continuing operations.
 
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	
Net earnings (loss) from continuing operations:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings (loss) from continuing operations	 	$	139	 	 	$	156	 	 	$	(41	)	 	$	(548	)	
Attributable to participating securities	 	 	(1	)	 	 	(1	)	 	 	(1	)	 	 	(1	)	
Basic and diluted earnings (loss) from continuing
   operations	 	$	138	 	 	$	155	 	 	$	(42	)	 	$	(549	)	
Common shares:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Common shares outstanding - total	 	 	397	 	 	 	491	 	 	 	415	 	 	 	513	 	
Attributable to participating securities	 	 	(5	)	 	 	(5	)	 	 	(6	)	 	 	(6	)	
Common shares outstanding - basic	 	 	392	 	 	 	486	 	 	 	409	 	 	 	507	 	
Dilutive effect of potential common shares issuable	 	 	2	 	 	 	3	 	 	 	—	 	 	 	—	 	
Common shares outstanding - diluted	 	 	394	 	 	 	489	 	 	 	409	 	 	 	507	 	
Net earnings (loss) per share from continuing operations:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	$	0.35	 	 	$	0.32	 	 	$	(0.10	)	 	$	(1.08	)	
Diluted	 	$	0.35	 	 	$	0.32	 	 	$	(0.10	)	 	$	(1.08	)	
Antidilutive options (1)	 	 	1	 	 	 	2	 	 	 	1	 	 	 	2	 	

(1)	Amounts represent options to purchase shares of Devon’s common stock that are excluded from the diluted net earnings per share calculations because the options are antidilutive.	
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
9.	Other Comprehensive Earnings (Loss)	
Components of other comprehensive earnings consist of the following:

 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	
Foreign currency translation:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Beginning accumulated foreign currency translation and other	 	$	—	 	 	$	1,227	 	 	$	1,159	 	 	$	1,309	 	
Change in cumulative translation adjustment	 	 	—	 	 	 	35	 	 	 	78	 	 	 	(61	)	
Release of Canadian cumulative translation adjustment (1)	 	 	—	 	 	 	—	 	 	 	(1,237	)	 	 	—	 	
Income tax benefit	 	 	—	 	 	 	—	 	 	 	—	 	 	 	14	 	
Ending accumulated foreign currency translation	 	 	—	 	 	 	1,262	 	 	 	—	 	 	 	1,262	 	
Pension and postretirement benefit plans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Beginning accumulated pension and postretirement benefits	 	 	(117	)	 	 	(136	)	 	 	(132	)	 	 	(143	)	
Recognition of net actuarial loss and prior service cost in
   earnings (2)	 	 	1	 	 	 	2	 	 	 	5	 	 	 	9	 	
Curtailment and settlement of pension benefits (3)	 	 	—	 	 	 	45	 	 	 	15	 	 	 	45	 	
Income tax expense	 	 	—	 	 	 	(11	)	 	 	(4	)	 	 	(11	)	
Ending accumulated pension and postretirement benefits	 	 	(116	)	 	 	(100	)	 	 	(116	)	 	 	(100	)	
Other	 	 	—	 	 	 	2	 	 	 	—	 	 	 	2	 	
Accumulated other comprehensive earnings (loss), net of tax	 	$	(116	)	 	$	1,164	 	 	$	(116	)	 	$	1,164	 	

(1)	In conjunction with the sale of substantially all of its Canadian oil and gas assets and operations in Canada, Devon released the cumulative translation adjustment as part of its gain on the disposition of its Canadian business. See Note 18 for additional details.	
(2)	These accumulated other comprehensive earnings components are included in the computation of net periodic benefit cost, which is a component of other expenses in the accompanying consolidated comprehensive statements of earnings. See Note 16 for additional details.	
(3)	These accumulated other comprehensive earnings are included within components of other expenses and restructuring and transaction costs in the accompanying consolidated comprehensive statements of earnings.	

10.	Supplemental Information to Statements of Cash Flows	
 
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	
Changes in assets and liabilities, net:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable	 	$	54	 	 	$	(93	)	 	$	85	 	 	$	(255	)	
Other current assets	 	 	2	 	 	 	4	 	 	 	9	 	 	 	(91	)	
Other long-term assets	 	 	14	 	 	 	3	 	 	 	(1	)	 	 	(63	)	
Accounts payable	 	 	3	 	 	 	3	 	 	 	(18	)	 	 	96	 	
Revenues and royalties payable	 	 	(73	)	 	 	(5	)	 	 	(133	)	 	 	205	 	
Other current liabilities	 	 	13	 	 	 	33	 	 	 	(77	)	 	 	128	 	
Other long-term liabilities	 	 	—	 	 	 	(26	)	 	 	5	 	 	 	(30	)	
Total	 	$	13	 	 	$	(81	)	 	$	(130	)	 	$	(10	)	
Supplementary cash flow data - total operations:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest paid (net of capitalized interest)	 	$	81	 	 	$	61	 	 	$	242	 	 	$	275	 	
Income taxes paid	 	$	—	 	 	$	37	 	 	$	16	 	 	$	31	 	

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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
11.	Accounts Receivable	
Components of accounts receivable include the following:
 
 	 	September 30, 2019	 	 	December 31, 2018	 	
Oil, gas and NGL sales	 	$	396	 	 	$	413	 	
Joint interest billings	 	 	161	 	 	 	150	 	
Marketing revenues	 	 	208	 	 	 	284	 	
Other	 	 	28	 	 	 	15	 	
Gross accounts receivable	 	 	793	 	 	 	862	 	
Allowance for doubtful accounts	 	 	(6	)	 	 	(7	)	
Net accounts receivable	 	$	787	 	 	$	855	 	
 
12.Property, Plant and Equipment
 
The following table presents the aggregate capitalized costs related to Devon’s oil and gas and non-oil and gas activities.
 
 	 	September 30, 2019	 	 	December 31, 2018	 	
Property and equipment:	 	 	 	 	 	 	 	 	
Proved	 	$	41,681	 	 	$	40,378	 	
Unproved and properties under development	 	 	752	 	 	 	833	 	
Total oil and gas	 	 	42,433	 	 	 	41,211	 	
Less accumulated DD&A	 	 	(33,311	)	 	 	(32,229	)	
Oil and gas property and equipment, net	 	 	9,122	 	 	 	8,982	 	
Other property and equipment	 	 	1,754	 	 	 	1,707	 	
Less accumulated DD&A	 	 	(699	)	 	 	(663	)	
Other property and equipment, net	 	 	1,055	 	 	 	1,044	 	
Property and equipment, net	 	$	10,177	 	 	$	10,026	 	

13.	Debt and Related Expenses	
A summary of debt is as follows:
 	 	September 30, 2019	 	 	December 31, 2018	 	
 	 	 	 	 	 	 	 	 	
6.30% due January 15, 2019	 	$	—	 	 	$	162	 	
5.85% due December 15, 2025	 	 	485	 	 	 	485	 	
7.50% due September 15, 2027	 	 	73	 	 	 	73	 	
7.875% due September 30, 2031 (1)	 	 	675	 	 	 	675	 	
7.95% due April 15, 2032 (1)	 	 	366	 	 	 	366	 	
5.60% due July 15, 2041	 	 	1,250	 	 	 	1,250	 	
4.75% due May 15, 2042	 	 	750	 	 	 	750	 	
5.00% due June 15, 2045	 	 	750	 	 	 	750	 	
Net discount on debentures and notes	 	 	(20	)	 	 	(21	)	
Debt issuance costs	 	 	(34	)	 	 	(36	)	
Total debt	 	 	4,295	 	 	 	4,454	 	
Less amount classified as short-term debt	 	 	—	 	 	 	162	 	
Total long-term debt (2)	 	$	4,295	 	 	$	4,292	 	

 	(1)	These senior notes were included in the 2018 tender offer repurchases discussed below.	
 	(2)	The balance as of December 31, 2018 excludes the $1.5 billion of Senior Notes classified as liabilities held for sale that were retired early in July 2019 utilizing a portion of the proceeds from the sale of Devon’s Canadian business. See Note 18 for additional details.	

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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
Credit Lines
Devon has a $3.0 billion Senior Credit Facility. As of September 30, 2019, Devon had no outstanding borrowings under the Senior Credit Facility and had issued $2 million in outstanding letters of credit under this facility. The Senior Credit Facility contains only one material financial covenant. This covenant requires Devon’s ratio of total funded debt to total capitalization, as defined in the credit agreement, to be no greater than 65%. Under the terms of the credit agreement, total capitalization is adjusted to add back noncash financial write-downs such as impairments. As of September 30, 2019, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 18.9%.
 
In connection with the closing of the sale of its Canadian business, Devon reallocated and terminated all Canadian commitments under the Senior Credit Facility in accordance with the terms of the credit agreement governing the Senior Credit Facility. The termination of the Canadian subfacility was effective as of June 27, 2019, and such termination did not decrease the $3.0 billion in total revolving commitments under, or otherwise modify the terms of, the Senior Credit Facility.
Retirement of Senior Notes
In January 2019, Devon repaid the $162 million of 6.30% senior notes at maturity.
In the first quarter of 2018, Devon completed tender offers to repurchase $807 million in aggregate principal amount of debt securities, using cash on hand. This included $384 million of the 7.875% senior notes due September 30, 2031 and $423 million of the 7.95% senior notes due April 15, 2032. Devon recognized a $312 million charge on early retirement of debt, consisting of $304 million in cash retirement costs and $8 million of noncash charges. These costs, along with other charges associated with retiring the debt, are included in net financing costs in the consolidated comprehensive statements of earnings.
In July 2018, Devon repaid $20 million of 8.25% senior notes at maturity.
Net Financing Costs
The following schedule includes the components of net financing costs.
 
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	
Interest based on debt outstanding	 	$	65	 	 	$	68	 	 	$	195	 	 	$	219	 	
Early retirement of debt	 	 	—	 	 	 	—	 	 	 	—	 	 	 	312	 	
Other	 	 	(5	)	 	 	—	 	 	 	(9	)	 	 	(10	)	
Total net financing costs	 	$	60	 	 	$	68	 	 	$	186	 	 	$	521	 	
 
14.Leases
 
Devon adopted ASU No. 2016-02, Leases (Topic 842), as of January 1, 2019, using the modified retrospective transition approach. ASC 842 supersedes the previous lease accounting requirements in ASC 840 and requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. ASC 842 establishes a right-of-use model that requires a lessee to recognize a right-of-use asset and lease liability on the balance sheet for all leases with a term longer than 12 months. At adoption, using the modified retrospective transition approach, Devon recorded right-of-use lease assets of $394 million and lease liabilities of $380 million. Additionally, Devon recorded a $24 million before tax, $19 million net of tax, cumulative-effect adjustment to reduce retained earnings. Comparative periods have been presented in accordance with ASC Topic 840 and do not include any retrospective adjustments to reflect the adoption of Topic 842. Excluding land easements and rights-of-way, all leases that existed at January 1, 2019 or were entered into or modified thereafter, are accounted for under Topic 842. Devon elected the practical expedient provided in the standard that allows the new guidance to be applied prospectively to all new or modified land easements and rights-of-way. Devon also elected a policy not to recognize right-of-use assets and lease liabilities related to short-term leases with terms of 12 months or less. Additionally, Devon elected to account for lease components separately from the nonlease components.
 
Devon made certain significant assumptions and judgments in determining its right-of-use asset and lease liability balances. First is the determination of whether a contract contains a lease. Devon considered the presence of an identified asset that is physically distinct, and for which the supplier does not have substantive substitution rights and whether Devon has the right to control the underlying asset. Second, Devon assessed lease terms and considered whether Devon is reasonably certain to extend leases or exercise
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
purchase options. Certain of Devon’s leases include one or more options to renew, with renewal terms that can extend the lease term for additional years. Certain leases also include options to purchase the leased property. For options to renew or purchase that Devon is reasonably certain to exercise, these costs are recognized as part of the right-of-use assets and lease liabilities. Third, significant judgments have been made in determining discount rates. Devon estimates discount rates using market rates that approximate collateralized borrowings over the remaining term of Devon’s lease payments.
 
Devon’s right-of-use operating lease assets are for certain leases related to real estate, drilling rigs and other equipment related to the exploration, development and production of oil and gas. Devon’s right-of-use financing lease assets are related to real estate. Certain of Devon’s lease agreements include variable payments based on usage or rental payments adjusted periodically for inflation. Devon’s lease agreements do not contain any material residual value guarantees or restrictive covenants.  
 
The following table presents Devon’s right-of-use assets and lease liabilities as of September 30, 2019.
 
 	 	Finance	 	 	Operating	 	 	Total	 	
Right-of-use assets	 	$	203	 	 	$	16	 	 	$	219	 	
Lease liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Current lease liabilities (1)	 	$	7	 	 	$	12	 	 	$	19	 	
Long-term lease liabilities	 	 	240	 	 	 	4	 	 	 	244	 	
Total lease liabilities	 	$	247	 	 	$	16	 	 	$	263	 	

(1)	Current lease liabilities are included in other current liabilities on the consolidated balance sheets.	
 
The following table presents Devon’s total lease cost.
 
 	 	 	Three Months Ended	 	 	Nine Months Ended	 	
 	 	 	September 30, 2019	 	
Operating lease cost	Property, plant and equipment; G&A	 	$	10	 	 	$	35	 	
Short-term lease cost (1)	Property, plant and equipment; G&A	 	 	18	 	 	 	69	 	
Financing lease cost:	 	 	 	 	 	 	 	 	 	
Amortization of right-of-use assets	DD&A	 	 	6	 	 	 	18	 	
Interest on lease liabilities	Net financing costs	 	 	3	 	 	 	8	 	
Variable lease cost	G&A	 	 	1	 	 	 	2	 	
Lease income	G&A	 	 	(1	)	 	 	(3	)	
Net lease cost	 	 	$	37	 	 	$	129	 	

(1)	Short-term lease cost excludes leases with terms of one month or less.	
 
The following table presents Devon’s additional lease information for the three and nine months ended September 30, 2019.
 
 	 	Three Months Ended	 	 	Nine Months Ended	 	
 	 	September 30, 2019	 	 	September 30, 2019	 	
 	 	Finance	 	 	Operating	 	 	Finance	 	 	Operating	 	
Cash outflows for lease liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating cash flows	 	$	2	 	 	$	—	 	 	$	5	 	 	$	1	 	
Investing cash flows	 	$	—	 	 	$	10	 	 	$	—	 	 	$	37	 	
Right-of-use assets obtained in exchange for new
   lease liabilities	 	$	—	 	 	$	—	 	 	$	—	 	 	$	1	 	
Weighted average remaining lease term (years)	 	 	8.3	 	 	 	2.3	 	 	 	8.3	 	 	 	2.3	 	
Weighted average discount rate	 	 	4.2	%	 	 	3.4	%	 	 	4.2	%	 	 	3.4	%	
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
The following table presents Devon’s maturity analysis as of September 30, 2019 for leases expiring in each of the next 5 years and thereafter.
 
 	 	Finance	 	 	Operating (1)	 	 	Total (2)	 	
2019	 	$	2	 	 	$	4	 	 	$	6	 	
2020	 	 	7	 	 	 	8	 	 	 	15	 	
2021	 	 	7	 	 	 	2	 	 	 	9	 	
2022	 	 	8	 	 	 	1	 	 	 	9	 	
2023	 	 	8	 	 	 	1	 	 	 	9	 	
Thereafter	 	 	306	 	 	 	1	 	 	 	307	 	
Total lease payments	 	 	338	 	 	 	17	 	 	 	355	 	
Less: interest	 	 	(91	)	 	 	(1	)	 	 	(92	)	
Present value of lease liabilities	 	$	247	 	 	$	16	 	 	$	263	 	

(1)	During the third quarter of 2019, in addition to normal amortization, Devon had early terminations that resulted in a $37 million reduction in right of use assets and lease liabilities which includes $9 million of other expenses within Devon’s consolidated comprehensive statements of earnings. 	
(2)	Under previous lease accounting standard, ASC 840, Devon’s lease obligations as of December 31, 2018 expiring in each of the next 5 years and thereafter were $61 million for 2019, $48 million for 2020, $18 million for 2021, $9 million for 2022, $8 million for 2023 and $33 million thereafter.	
 
Devon rents or subleases certain real estate to third parties. The following table presents Devon’s expected lease income as of September 30, 2019 for each of the next 5 years and thereafter.

 	 	Operating	 	
 	 	Lease Income	 	
2019	 	$	2	 	
2020	 	 	6	 	
2021	 	 	6	 	
2022	 	 	6	 	
2023	 	 	7	 	
Thereafter	 	 	51	 	
Total	 	$	78	 	

15.	Asset Retirement Obligations	
 
The following table presents the changes in Devon’s asset retirement obligations.
 	 	Nine Months Ended September 30,	 	
 	 	2019	 	 	2018	 	
Asset retirement obligations as of beginning of period	 	$	623	 	 	$	704	 	
Liabilities incurred	 	 	14	 	 	 	24	 	
Liabilities settled and divested	 	 	(51	)	 	 	(71	)	
Revision of estimated obligation	 	 	(63	)	 	 	1	 	
Accretion expense on discounted obligation	 	 	21	 	 	 	26	 	
Asset retirement obligations as of end of period	 	 	544	 	 	 	684	 	
Less current portion	 	 	18	 	 	 	20	 	
Asset retirement obligations, long-term	 	$	526	 	 	$	664	 	
 
During the first nine months of 2019, Devon reduced its asset retirement obligations by $63 million, primarily due to changes in the future cost estimates and retirement dates for its oil and gas assets.
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
During the first nine months of 2018, Devon reduced its asset retirement obligations by $61 million, primarily as a result of Devon’s 2018 divestitures. For additional information, see Note 2.
 
16.	Retirement Plans	
 
During the third quarter of 2018, Devon entered into a group annuity contract, under which a third party permanently assumed certain of Devon’s defined benefit pension obligations. The purchase of this group annuity contract reduced Devon’s pension assets and liabilities by approximately $190 million, representing approximately 15% of the total obligations of Devon’s pension plans. In connection with this transaction, Devon recorded a settlement expense of approximately $34 million, which was reclassified from other comprehensive earnings to other expense on the consolidated comprehensive statements of earnings during the third quarter of 2018.
 
The following table presents the components of net periodic benefit cost for Devon’s pension benefits plan. There was $1 million of net periodic benefit credit for postretirement benefit plans for the nine months ended September 30, 2019 and 2018, respectively.
 
 	 	Pension Benefits	 	
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	
Service cost	 	$	2	 	 	$	2	 	 	$	5	 	 	$	7	 	
Interest cost	 	 	7	 	 	 	9	 	 	 	24	 	 	 	29	 	
Expected return on plan assets	 	 	(10	)	 	 	(11	)	 	 	(29	)	 	 	(38	)	
Amortization of prior service cost (1)	 	 	—	 	 	 	—	 	 	 	1	 	 	 	1	 	
Net actuarial loss (1)	 	 	1	 	 	 	3	 	 	 	7	 	 	 	10	 	
Net periodic benefit cost (2)	 	$	—	 	 	$	3	 	 	$	8	 	 	$	9	 	

(1)	These net periodic benefit costs were reclassified out of other comprehensive earnings.	
(2)	The service cost component of net periodic benefit cost is included in G&A expense and the remaining components of net periodic benefit costs are included in other expenses in the accompanying consolidated comprehensive statements of earnings.	
 
17.	Stockholders’ Equity	
Share Repurchase Program
In March 2018, Devon announced a share repurchase program to buy up to $1.0 billion of its common stock. In June 2018, in conjunction with the announced divestiture of its investment in EnLink and the General Partner, Devon increased its program by an additional $3.0 billion. In February 2019, Devon’s Board of Directors authorized an expansion of the share repurchase program by an additional $1.0 billion, bringing the total to $5.0 billion. The share repurchase program expires December 31, 2019.
The table below provides information regarding purchases of Devon’s common stock that were made during 2018 and the first nine months of 2019 (shares in thousands).  
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 	 	Total Number of
Shares Purchased	 	 	Dollar Value of
Shares Purchased	 	 	Average Price Paid
per Share	 	
First quarter 2018:	 	 	 	 	 	 	 	 	 	 	 	 	
Open-Market	 	 	2,561	 	 	$	82	 	 	$	32.19	 	
Second quarter 2018:	 	 	 	 	 	 	 	 	 	 	 	 	
Open-Market	 	 	11,154	 	 	 	439	 	 	 	39.35	 	
Third quarter 2018:	 	 	 	 	 	 	 	 	 	 	 	 	
Open-Market	 	 	16,492	 	 	 	712	 	 	 	43.13	 	
ASR	 	 	24,330	 	 	 	1,000	 	 	 	41.10	 	
Total	 	 	40,822	 	 	 	1,712	 	 	 	41.92	 	
Fourth quarter 2018:	 	 	 	 	 	 	 	 	 	 	 	 	
Open-Market	 	 	23,612	 	 	 	745	 	 	 	31.57	 	
First quarter 2019:	 	 	 	 	 	 	 	 	 	 	 	 	
Open-Market	 	 	36,141	 	 	 	1,024	 	 	 	28.33	 	
Second quarter 2019:	 	 	 	 	 	 	 	 	 	 	 	 	
Open-Market	 	 	5,911	 	 	 	159	 	 	 	27.01	 	
Third quarter 2019:	 	 	 	 	 	 	 	 	 	 	 	 	
Open-Market	 	 	22,137	 	 	 	550	 	 	 	24.80	 	
Total inception-to-date	 	 	142,338	 	 	$	4,711	 	 	$	33.09	 	
 
Dividends
 
The table below summarizes the dividends Devon paid on its common stock.
 
 	Amounts	 	 	Rate Per Share	 	
Quarter Ended 2019:	 	 	 	 	 	 	 	
First quarter	$	34	 	 	$	0.08	 	
Second quarter	 	37	 	 	$	0.09	 	
Third quarter	 	35	 	 	$	0.09	 	
Total year-to-date	$	106	 	 	 	 	 	
Quarter Ended 2018:	 	 	 	 	 	 	 	
First quarter	$	32	 	 	$	0.06	 	
Second quarter	 	42	 	 	$	0.08	 	
Third quarter	 	38	 	 	$	0.08	 	
Total year-to-date	$	112	 	 	 	 	 	
Devon raised its quarterly dividend by 12.5%, to $0.09 per share, beginning in the second quarter of 2019. In the second quarter of 2018, Devon increased the quarterly dividend rate from $0.06 to $0.08 per share.
 
18.	Discontinued Operations and Assets Held For Sale	
 
Canada
 
On May 29, 2019, Devon announced it had entered into an agreement to sell substantially all of its oil and gas assets and operations in Canada to Canadian Natural Resources Limited. Devon concluded that the transaction was a strategic shift and met the requirements of assets held for sale and discontinued operations upon the authorization to enter the agreement by Devon’s Board of Directors. As part of its assessment, Devon considered the following: 1) Devon is exiting its entire heavy oil and Canadian operations; 2) Devon’s Canadian operations is a separate reportable segment and is a component of Devon’s business; and 3) the transaction resulted in a material reduction in total assets, revenues, net earnings and total proved reserves. As a result, Devon has classified the results of operations and cash flows related to its Canadian operations as discontinued operations on its consolidated financial statements. Additionally, Devon ceased depreciation and amortization for all plant, property and equipment and intangible assets classified as assets held for sale on the date the sales agreement was approved by the Board of Directors.
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
On June 27, 2019, Devon completed the sale of its Canadian business for $2.6 billion ($3.4 billion Canadian dollars), net of purchase price adjustments, and recognized a pre-tax gain of $223 million ($480 million net of tax, primarily due to a significant deferred tax benefit). Included within this gain is a $34 million ($20 million, net of tax) adjustment to the gain in the third quarter of 2019 related to an interim post closing settlement with Canadian Natural Resources Limited with final closing expected in the fourth quarter of 2019. Current (cash) income tax associated with the sale was approximately $100 million. The disposition of substantially all of Devon’s Canadian oil and gas assets resulted in Devon releasing its historical cumulative foreign currency translation adjustment of $1.2 billion from accumulated other comprehensive earnings to be included within the gain computation. The historical cumulative foreign currency translation portion of the gain is not taxable. As of September 30, 2019, $280 million of the Canadian cash balance is restricted for funding certain tax and other obligations related to the Canadian business and is classified as cash restricted for discontinued operations on the consolidated balance sheets.
 
In conjunction with the sale of Devon’s Canadian business, Devon recognized approximately $280 million of restructuring and asset impairment related charges. Canadian Natural Resources Limited has reimbursed Devon for approximately $50 million of these restructuring costs, under the terms of the disposition agreement. Along with certain tax obligations, these costs will be funded with the restricted cash described above. These charges consist of $154 million related to a firm transportation agreement abandonment and $56 million related to office lease abandonment and associated asset impairment charges. Cash payments for the abandonment charges total approximately $6 million per quarter. Additionally, there are $67 million of employee related costs, including approximately $40 million of noncash accelerated vesting of employee stock awards. As mentioned above, Canadian Natural Resources Limited reimbursed the Company for approximately $50 million of these costs pursuant to the disposition agreement and Devon funded the remaining employee related costs during the third quarter of 2019.
 
Prior to the second quarter of 2019, Devon’s Canadian business maintained a valuation allowance against certain capital loss carryforwards and net operating losses. As a result of the sale of substantially all of Devon’s Canadian oil and gas assets and operations in Canada and the lack of future forecasted income, all but approximately $29 million of the Canadian deferred tax assets have been offset with a valuation allowance.
 
As announced on June 27, 2019, Devon utilized a portion of the sales proceeds to early retire its $500 million of the 4.00% senior notes due July 15, 2021 and $1.0 billion of the 3.25% senior notes due May 15, 2022. Devon recognized a charge on the early retirement of these notes in the third quarter of 2019 consisting of $52 million in cash retirement costs and $6 million of noncash charges.
 
EnLink
 
On June 6, 2018, Devon announced that it had entered into an agreement to sell its aggregate ownership interests in EnLink and the General Partner for $3.125 billion. Upon entering into the agreement to sell its ownership interest in June 2018, Devon concluded that the transaction was a strategic shift and met the requirements of assets held for sale and discontinued operations. As a result, Devon classified the results of operations and cash flows related to EnLink and the General Partner as discontinued operations on its consolidated financial statements.
 
On July 18, 2018, Devon completed the sale of its aggregate ownership interests in EnLink and the General Partner for $3.125 billion and recognized a gain of approximately $2.6 billion ($2.2 billion after-tax). Current (cash) income tax associated with the transaction was approximately $12 million. The vast majority of the tax effect relates to deferred tax expense offset by the valuation allowance adjustment.
 
As part of the sale agreement, Devon extended its fixed-fee gathering and processing contracts with respect to the Bridgeport and Cana plants with EnLink through 2029. Although the agreements were extended to 2029, the minimum volume commitments for the Bridgeport and Cana plants expired at the end of 2018. Devon has minimum volume commitments for gathering and processing of 77-128 MMcf/d with EnLink at the Chisholm plant through early 2021.
 
Prior to the divestment of Devon’s aggregate ownership of EnLink and the General Partner, certain activity between Devon and EnLink were eliminated in consolidation. Subsequent to the divestment, all activity related to EnLink represent third-party transactions and are no longer eliminated in consolidation.
 
During the first nine months of 2019 and from the period of July 19, 2018 through September 30, 2018, Devon had net outflows of approximately $422 million and $200 million with EnLink, respectively, which primarily related to gathering and processing expenses. These net outflows represent gross cash amounts and not net working interest amounts.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

The following table presents the amounts reported in the consolidated comprehensive statements of earnings as discontinued operations.
 	 	Three months ended September 30,	 	 	Nine months ended September 30,	 	
 	 	Canada	 	 	EnLink	 	 	Total	 	 	Canada	 	 	EnLink	 	 	Total	 	
2019	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Upstream revenues	 	$	(7	)	 	$	—	 	 	$	(7	)	 	$	628	 	 	$	—	 	 	$	628	 	
Marketing and midstream revenues	 	 	—	 	 	 	—	 	 	 	—	 	 	 	38	 	 	 	—	 	 	 	38	 	
Total revenues	 	 	(7	)	 	 	—	 	 	 	(7	)	 	 	666	 	 	 	—	 	 	 	666	 	
Production expenses	 	 	(1	)	 	 	—	 	 	 	(1	)	 	 	293	 	 	 	—	 	 	 	293	 	
Exploration expenses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	13	 	 	 	—	 	 	 	13	 	
Marketing and midstream expenses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	18	 	 	 	—	 	 	 	18	 	
Depreciation, depletion and amortization	 	 	—	 	 	 	—	 	 	 	—	 	 	 	128	 	 	 	—	 	 	 	128	 	
Asset impairments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	37	 	 	 	—	 	 	 	37	 	
Asset dispositions	 	 	(34	)	 	 	—	 	 	 	(34	)	 	 	(223	)	 	 	—	 	 	 	(223	)	
General and administrative expenses	 	 	2	 	 	 	—	 	 	 	2	 	 	 	33	 	 	 	—	 	 	 	33	 	
Financing costs, net	 	 	59	 	 	 	—	 	 	 	59	 	 	 	85	 	 	 	—	 	 	 	85	 	
Restructuring and transaction costs	 	 	5	 	 	 	—	 	 	 	5	 	 	 	244	 	 	 	—	 	 	 	244	 	
Other expenses	 	 	5	 	 	 	—	 	 	 	5	 	 	 	8	 	 	 	—	 	 	 	8	 	
Total expenses	 	 	36	 	 	 	—	 	 	 	36	 	 	 	636	 	 	 	—	 	 	 	636	 	
Earnings (loss) from discontinued operations before income taxes	 	 	(43	)	 	 	—	 	 	 	(43	)	 	 	30	 	 	 	—	 	 	 	30	 	
Income tax benefit	 	 	(13	)	 	 	—	 	 	 	(13	)	 	 	(298	)	 	 	—	 	 	 	(298	)	
Net earnings (loss) from discontinued operations, net of tax	 	$	(30	)	 	$	—	 	 	$	(30	)	 	$	328	 	 	$	—	 	 	$	328	 	
2018	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Upstream revenues	 	$	398	 	 	$	—	 	 	$	398	 	 	$	1,003	 	 	$	—	 	 	$	1,003	 	
Marketing and midstream revenues	 	 	25	 	 	 	360	 	 	 	385	 	 	 	66	 	 	 	3,567	 	 	 	3,633	 	
Total revenues	 	 	423	 	 	 	360	 	 	 	783	 	 	 	1,069	 	 	 	3,567	 	 	 	4,636	 	
Production expenses	 	 	137	 	 	 	—	 	 	 	137	 	 	 	451	 	 	 	—	 	 	 	451	 	
Exploration expenses	 	 	10	 	 	 	—	 	 	 	10	 	 	 	28	 	 	 	—	 	 	 	28	 	
Marketing and midstream expenses	 	 	16	 	 	 	302	 	 	 	318	 	 	 	34	 	 	 	2,912	 	 	 	2,946	 	
Depreciation, depletion and amortization	 	 	74	 	 	 	—	 	 	 	74	 	 	 	246	 	 	 	244	 	 	 	490	 	
Asset impairments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Asset dispositions	 	 	—	 	 	 	(2,607	)	 	 	(2,607	)	 	 	—	 	 	 	(2,607	)	 	 	(2,607	)	
General and administrative expenses	 	 	19	 	 	 	7	 	 	 	26	 	 	 	61	 	 	 	65	 	 	 	126	 	
Financing costs, net	 	 	7	 	 	 	9	 	 	 	16	 	 	 	3	 	 	 	98	 	 	 	101	 	
Restructuring and transaction costs	 	 	4	 	 	 	—	 	 	 	4	 	 	 	13	 	 	 	—	 	 	 	13	 	
Other expenses	 	 	(21	)	 	 	(1	)	 	 	(22	)	 	 	88	 	 	 	(8	)	 	 	80	 	
Total expenses	 	 	246	 	 	 	(2,290	)	 	 	(2,044	)	 	 	924	 	 	 	704	 	 	 	1,628	 	
Earnings from discontinued operations before income taxes	 	 	177	 	 	 	2,650	 	 	 	2,827	 	 	 	145	 	 	 	2,863	 	 	 	3,008	 	
Income tax expense (benefit)	 	 	33	 	 	 	387	 	 	 	420	 	 	 	(18	)	 	 	403	 	 	 	385	 	
Net earnings from discontinued operations, net of tax	 	 	144	 	 	 	2,263	 	 	 	2,407	 	 	 	163	 	 	 	2,460	 	 	 	2,623	 	
Net earnings attributable to noncontrolling interests	 	 	—	 	 	 	26	 	 	 	26	 	 	 	—	 	 	 	160	 	 	 	160	 	
Net earnings from discontinued operations, attributable to Devon	 	$	144	 	 	$	2,237	 	 	$	2,381	 	 	$	163	 	 	$	2,300	 	 	$	2,463	 	
 
The following table presents the carrying amounts of the assets and liabilities associated with discontinued operations on the consolidated balance sheets. The assets and liabilities associated with discontinued operations at September 30, 2019 and December 31, 2018 are primarily related to the divestiture of Devon’s Canadian business. Included within assets and liabilities associated with discontinued operations at December 31, 2018 are $197 million of assets and $69 million of liabilities related to the divestiture of non-core upstream Permian Basin assets which closed in January 2019 as further discussed in Note 2.
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 	 	September 30, 2019	 	 	December 31, 2018	 	
Cash restricted for discontinued operations	 	$	280	 	 	$	—	 	
 	 	 	 	 	 	 	 	 	
Accounts receivable	 	$	3	 	 	$	37	 	
Other current assets	 	 	18	 	 	 	246	 	
Current assets associated with discontinued operations	 	 	21	 	 	 	283	 	
Oil and gas property and equipment, based on
   successful efforts accounting, net	 	 	—	 	 	 	3,829	 	
Other property and equipment, net	 	 	—	 	 	 	78	 	
Other long-term assets	 	 	95	 	 	 	79	 	
Long-term assets associated with discontinued operations	 	 	95	 	 	 	3,986	 	
Total assets associated with discontinued operations	 	$	396	 	 	$	4,269	 	
 	 	 	 	 	 	 	 	 	
Accounts payable	 	$	6	 	 	$	101	 	
Revenues and royalties payable	 	 	3	 	 	 	67	 	
Other current liabilities	 	 	163	 	 	 	170	 	
Current liabilities associated with discontinued operations	 	 	172	 	 	 	338	 	
Long-term debt	 	 	—	 	 	 	1,493	 	
Asset retirement obligations	 	 	—	 	 	 	424	 	
Other long-term liabilities	 	 	175	 	 	 	20	 	
Deferred income taxes	 	 	—	 	 	 	348	 	
Long-term liabilities associated with discontinued operations	 	 	175	 	 	 	2,285	 	
Total liabilities associated with discontinued operations	 	$	347	 	 	$	2,623	 	

19.	Commitments and Contingencies	
Devon is party to various legal actions arising in the normal course of business. Matters that are probable of an unfavorable outcome to Devon and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, Devon’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. None of the actions are believed by management to likely involve future amounts that would be material to Devon’s financial position or results of operations after consideration of recorded accruals. Actual amounts could differ materially from management’s estimates.
Royalty Matters
Numerous oil and natural gas producers and related parties, including Devon, have been named in various lawsuits alleging royalty underpayments. Devon is currently named as a defendant in a number of such lawsuits, including some lawsuits in which the plaintiffs seek to certify classes of similarly situated plaintiffs. Among the allegations typically asserted in these suits are claims that Devon used below-market prices, made improper deductions, used improper measurement techniques and entered into gas purchase and processing arrangements with affiliates that resulted in underpayment of royalties in connection with oil, natural gas and NGLs produced and sold. Devon is also involved in governmental agency proceedings and royalty audits and is subject to related contracts and regulatory controls in the ordinary course of business, some that may lead to additional royalty claims. Devon does not currently believe that it is subject to material exposure with respect to such royalty matters.
Environmental Matters
Devon is subject to certain laws and regulations relating to environmental remediation activities associated with past operations, such as the Comprehensive Environmental Response, Compensation, and Liability Act and similar state statutes. In response to liabilities associated with these activities, loss accruals primarily consist of estimated uninsured remediation costs. Devon’s monetary exposure for environmental matters is not expected to be material.
Beginning in 2013, various parishes in Louisiana filed suit against more than 100 oil and gas companies, including Devon, alleging that the companies’ operations and activities in certain fields violated the State and Local Coastal Resource Management Act of 1978, as amended, and caused substantial environmental contamination, subsidence and other environmental damages to land and water bodies located in the coastal zone of Louisiana. The plaintiffs seek, among other things, the payment of the costs necessary to
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
clear, re-vegetate and otherwise restore the allegedly impacted areas. Although Devon cannot predict the ultimate outcome of these matters, Devon is vigorously defending against these claims.
Other Matters
Devon is involved in other various legal proceedings incidental to its business. However, to Devon’s knowledge, there were no material pending legal proceedings to which Devon is a party or to which any of its property is subject.
 
20.	Fair Value Measurements	
The following table provides carrying value and fair value measurement information for certain of Devon’s financial assets and liabilities. The carrying values of cash, cash restricted for discontinued operations, accounts receivable, other current receivables, accounts payable, other current payables, accrued expenses and lease liabilities included in the accompanying consolidated balance sheets approximated fair value at September 30, 2019 and December 31, 2018, as applicable. Therefore, such financial assets and liabilities are not presented in the following table.
 
 	 	 	 	 	 	 	 	 	 	Fair Value Measurements Using:	 	
 	 	Carrying	 	 	Total Fair	 	 	Level 1	 	 	Level 2	 	
 	 	Amount	 	 	Value	 	 	Inputs	 	 	Inputs	 	
September 30, 2019 assets (liabilities):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents	 	$	624	 	 	$	624	 	 	$	624	 	 	$	—	 	
Commodity derivatives	 	$	178	 	 	$	178	 	 	$	—	 	 	$	178	 	
Commodity derivatives	 	$	(2	)	 	$	(2	)	 	$	—	 	 	$	(2	)	
Debt	 	$	(4,295	)	 	$	(5,392	)	 	$	—	 	 	$	(5,392	)	
December 31, 2018 assets (liabilities):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents	 	$	1,505	 	 	$	1,505	 	 	$	1,405	 	 	$	100	 	
Commodity derivatives	 	$	674	 	 	$	674	 	 	$	—	 	 	$	674	 	
Commodity derivatives	 	$	(33	)	 	$	(33	)	 	$	—	 	 	$	(33	)	
Debt	 	$	(4,454	)	 	$	(4,494	)	 	$	—	 	 	$	(4,494	)	
 
The following methods and assumptions were used to estimate the fair values in the table above.
Level 1 Fair Value Measurements
Cash equivalents – Amounts consist primarily of money market investments and the fair value approximates the carrying value.
Level 2 Fair Value Measurements
 
Cash equivalents – Amounts primarily consist of Canadian agency and provincial securities investments. The fair value approximates the carrying value.
 
Commodity derivatives – The fair value of commodity derivatives is estimated using internal discounted cash flow calculations based upon forward curves and data obtained from independent third parties for contracts with similar terms or data obtained from counterparties to the agreements.
 
Debt – Devon’s debt instruments do not actively trade in an established market. The fair values of its debt are estimated based on rates available for debt with similar terms and maturity.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis addresses material changes in our results of operations for the three-month and nine-month periods ended September 30, 2019 compared to previous periods and in our financial condition and liquidity since December 31, 2018. For information regarding our critical accounting policies and estimates, see our 2018 Annual Report on Form 10-K under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Overview of 2019 Results
 
In February of this year, we announced plans to transition to “New Devon,” an upstream company with world-class oil assets, operating under a disciplined returns-driven strategy focused on delivering value to our shareholders. We have made significant progress toward completion of our New Devon portfolio and cost reduction objectives as evidenced by these 2019 highlights:
 
 	•	Closed on the sale of our Canadian business for $2.6 billion ($3.4 billion Canadian dollars) in June 2019.	
 	•	Completed workforce and other cost reduction initiatives with more than $200 million of annualized G&A savings expected by the end of 2019.	
 	•	Improved capital efficiency by reducing capital expenditures approximately 10% and drilling 10% more wells compared to 2018.	
 	•	Retired $1.7 billion of senior notes, reducing annualized financing costs by $60 million.	
 	•	Repurchased $4.7 billion of our $5.0 billion share repurchase program, representing a reduction of more than 25% in outstanding shares since the program’s inception.	
 	•	Increased our quarterly common stock dividend 12.5% to $0.09 per share beginning in the second quarter of 2019.	
 	•	Increased Delaware Basin and Powder River Basin production 55% in the third quarter of 2019 compared to the third quarter of 2018.	
Trends of our quarterly earnings, operating cash flow, EBITDAX and capital expenditures are shown below. Except for EBITDAX, the charts present amounts pertaining to both Devon’s continuing and discontinued operations. “Core earnings” and “EBITDAX” are financial measures not prepared in accordance with GAAP. For a description of these measures, including reconciliations to the comparable GAAP measures, see “Non-GAAP Measures” in this Item 2.

 
Our net earnings in recent quarters have been significantly impacted by divestiture transactions and temporary, noncash adjustments to the value of our commodity hedges. Net earnings in the third quarter of 2018 included a $2.2 billion after-tax gain on our EnLink disposition. Net earnings in the fourth quarter of 2018 included a $0.9 billion hedge valuation gain and a $0.2 billion gain on asset dispositions—both net of taxes. Net earnings in the first quarter of 2019 included a $0.5 billion after-tax hedge valuation loss. Net earnings in the second quarter of 2019 included $0.3 billion for net after-tax gains and charges related to our Canadian disposition. Excluding these amounts, our core earnings have been more stable over recent quarters but continue to be heavily influenced by commodity prices.
 
Despite our portfolio enhancements, aggressive cost reductions and operational advancements, our financial results continue to be challenged by commodity prices. Our earnings declined in the fourth quarter of 2018 and the first quarter of 2019 due to a decrease in the price we received for our Heavy Oil production in Canada. While Canadian prices began to improve in the first half of 2019, NGL and natural gas prices declined. Led by a 51% decrease in the Mont Belvieu blended index for our NGL products from the third quarter of 2018 to the third quarter of 2019, our unhedged combined realized price dropped 24%. The effects of these price drops
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overshadowed our efforts that grew New Devon’s high-margin oil volumes 19%, while simultaneously reducing production and administrative costs 13% compared to 2018.

 
Like earnings, our operating cash flow is sensitive to volatile commodity prices. As prices have declined, our operating cash flow has been negatively impacted. Additionally, our disposition of EnLink in the third quarter of 2018 and our Canadian business in the second quarter of 2019 caused declines in operating cash flow in subsequent quarters. EBITDAX, which excludes financial amounts related to our EnLink and Canadian businesses, has been more stable over the past five quarters as our New Devon production growth and cost reductions countered price declines experienced over the same time period. Regardless of cash flow fluctuations, we remain focused on managing our capital investment to generate free cash flow. As operating cash flow has declined, we have adjusted our capital development plans accordingly.
 
We exited the third quarter of 2019 with liquidity comprised of $1.7 billion of cash, inclusive of $280 million of cash restricted for discontinued operations, and $3.0 billion of available credit under our Senior Credit Facility. After completing the $1.5 billion of early retirement of debt in July 2019, we have $4.3 billion of debt outstanding with no maturities until the end of 2025. We currently have approximately 75% of our expected oil production and approximately 45% of our expected gas production protected with hedges for the remainder of 2019. These contracts consist of collars and swaps based off the WTI oil benchmark and the Henry Hub natural gas index. Additionally, we have entered into regional basis swaps in an effort to protect price realizations across our portfolio. We are currently building our 2020 and 2021 hedge positions at market prices.
Results of Operations
The following graphs, discussion and analysis are intended to provide an understanding of our results of operations and current financial condition. To facilitate the review, these numbers are being presented before consideration of earnings attributable to noncontrolling interests. Analysis of the change in net earnings from continuing operations is shown below and analysis of the change in net earnings from discontinued operations is shown on page 37.
 
Continuing Operations	
 
Q3 2019 vs. Q2 2019
Our third quarter 2019 net earnings from continuing operations were $139 million and decreased $27 million, or 16%, compared to the second quarter of 2019. The graph below shows the change in net earnings from the second quarter 2019 to the third quarter 2019. The material changes are further discussed by category on the following pages.

 
 
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Production Volumes
 	 	Q3 2019	 	 	% of Total	 	 	Q2 2019	 	 	Change	 	
Oil (MBbls/d)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Delaware Basin	 	 	70	 	 	 	47	%	 	 	67	 	 	 	+5	%	
STACK	 	 	32	 	 	 	21	%	 	 	31	 	 	 	+2	%	
Powder River Basin	 	 	18	 	 	 	12	%	 	 	15	 	 	 	+18	%	
Eagle Ford	 	 	22	 	 	 	14	%	 	 	23	 	 	 	- 3	%	
Other	 	 	6	 	 	 	4	%	 	 	6	 	 	 	- 1	%	
New Devon	 	 	148	 	 	 	98	%	 	 	142	 	 	 	+4	%	
U.S. divest assets	 	 	3	 	 	 	2	%	 	 	3	 	 	 	+19	%	
Total	 	 	151	 	 	 	100	%	 	 	145	 	 	 	+4	%	
 
 	 	Q3 2019	 	 	% of Total	 	 	Q2 2019	 	 	Change	 	
Gas (MMcf/d)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Delaware Basin	 	 	167	 	 	 	17	%	 	 	158	 	 	 	+6	%	
STACK	 	 	317	 	 	 	32	%	 	 	313	 	 	 	+2	%	
Powder River Basin	 	 	28	 	 	 	3	%	 	 	22	 	 	 	+27	%	
Eagle Ford	 	 	75	 	 	 	7	%	 	 	81	 	 	 	- 8	%	
Other	 	 	1	 	 	 	0	%	 	 	1	 	 	 	- 5	%	
New Devon	 	 	588	 	 	 	59	%	 	 	575	 	 	 	+2	%	
U.S. divest assets	 	 	417	 	 	 	41	%	 	 	423	 	 	 	- 1	%	
Total	 	 	1,005	 	 	 	100	%	 	 	998	 	 	 	+1	%	

 	 	Q3 2019	 	 	% of Total	 	 	Q2 2019	 	 	Change	 	
NGLs (MBbls/d)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Delaware Basin	 	 	28	 	 	 	26	%	 	 	27	 	 	 	+4	%	
STACK	 	 	37	 	 	 	33	%	 	 	40	 	 	 	- 9	%	
Powder River Basin	 	 	2	 	 	 	2	%	 	 	2	 	 	 	+25	%	
Eagle Ford	 	 	11	 	 	 	10	%	 	 	12	 	 	 	- 13	%	
Other	 	 	1	 	 	 	1	%	 	 	1	 	 	 	+17	%	
New Devon	 	 	79	 	 	 	72	%	 	 	82	 	 	 	- 4	%	
U.S. divest assets	 	 	30	 	 	 	28	%	 	 	30	 	 	 	+1	%	
Total	 	 	109	 	 	 	100	%	 	 	112	 	 	 	- 3	%	
 
 	 	Q3 2019	 	 	% of Total	 	 	Q2 2019	 	 	Change	 	
Combined (MBoe/d)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Delaware Basin	 	 	127	 	 	 	30	%	 	 	120	 	 	 	+6	%	
STACK	 	 	121	 	 	 	28	%	 	 	124	 	 	 	- 2	%	
Powder River Basin	 	 	25	 	 	 	6	%	 	 	21	 	 	 	+21	%	
Eagle Ford	 	 	45	 	 	 	10	%	 	 	49	 	 	 	- 8	%	
Other	 	 	7	 	 	 	2	%	 	 	7	 	 	 	- 0	%	
New Devon	 	 	325	 	 	 	76	%	 	 	321	 	 	 	+1	%	
U.S. divest assets	 	 	103	 	 	 	24	%	 	 	103	 	 	 	- 0	%	
Total	 	 	428	 	 	 	100	%	 	 	424	 	 	 	+1	%	
 
From the second quarter of 2019 to the third quarter of 2019, an increase in production volumes contributed to a $38 million increase in earnings. Continued development in the Delaware Basin and Powder River Basin drove production increases for New Devon and were slightly offset by decreased activity in the Eagle Ford.
Field Prices
 	 	Q3 2019	 	 	Realization	 	 	Q2 2019	 	 	Change	 	
Oil (per Bbl)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
WTI index	 	$	56.34	 	 	 	 	 	 	$	59.85	 	 	 	- 6	%	
Realized price, unhedged	 	$	54.39	 	 	 	97%	 	 	$	57.09	 	 	 	- 5	%	
Cash settlements	 	$	2.17	 	 	 	 	 	 	$	(0.41	)	 	 	 	 	
Realized price, with hedges	 	$	56.56	 	 	 	100%	 	 	$	56.68	 	 	 	- 0	%	
 
 	 	Q3 2019	 	 	Realization	 	 	Q2 2019	 	 	Change	 	
Gas (per Mcf)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Henry Hub index	 	$	2.23	 	 	 	 	 	 	$	2.64	 	 	 	- 16	%	
Realized price, unhedged	 	$	1.56	 	 	 	70%	 	 	$	1.61	 	 	 	- 3	%	
Cash settlements	 	$	0.24	 	 	 	 	 	 	$	0.20	 	 	 	 	 	
Realized price, with hedges	 	$	1.80	 	 	 	81%	 	 	$	1.81	 	 	 	- 1	%	
 
 	 	Q3 2019	 	 	Realization	 	 	Q2 2019	 	 	Change	 	
NGLs (per Bbl)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Mont Belvieu blended index (1)	 	$	16.18	 	 	 	 	 	 	$	19.05	 	 	 	- 15	%	
Realized price, unhedged	 	$	12.09	 	 	 	75%	 	 	$	14.79	 	 	 	- 18	%	
Cash settlements	 	$	1.84	 	 	 	 	 	 	$	1.03	 	 	 	 	 	
Realized price, with hedges	 	$	13.93	 	 	 	86%	 	 	$	15.82	 	 	 	- 12	%	
(1)Based upon composition of our NGL barrel.
 
 	 	Q3 2019	 	 	Q2 2019	 	 	Change	 	
Combined (per Boe)	 	 	 	 	 	 	 	 	 	 	 	 	
Realized price, unhedged	 	$	25.93	 	 	$	27.24	 	 	 	- 5	%	
Cash settlements	 	$	1.80	 	 	$	0.60	 	 	 	 	 	
Realized price, with hedges	 	$	27.73	 	 	$	27.84	 	 	 	- 0	%	
 
From the second quarter of 2019 to the third quarter of 2019, field prices contributed to a $69 million decrease in earnings. Unhedged realized oil, gas and NGL prices decreased primarily due to lower WTI, Henry Hub and Mont Belvieu index prices. These decreases were partially offset by favorable hedge cash settlements across each of our products.

 

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Hedge Settlements
 
 	 	Q3 2019	 	 	Q2 2019	 	 	Change	 	
 	 	Q	 	 	 	 	 	 	 	 	 	
Oil	 	$	31	 	 	$	(6	)	 	 	+617	%	
Natural gas	 	 	22	 	 	 	18	 	 	 	+22	%	
NGL	 	 	18	 	 	 	11	 	 	 	+64	%	
Total cash settlements	 	$	71	 	 	$	23	 	 	 	+209	%	
 
Cash settlements as presented in the tables above represent realized gains or losses related to the instruments described in Note 3 in “Part I. Financial Information – Item 1. Financial Statements” in this report.  
 
Production Expenses
 
 	 	Q3 2019	 	 	Q2 2019	 	 	Change	 	
LOE	 	$	138	 	 	$	133	 	 	 	+4	%	
Gathering, processing & transportation	 	 	162	 	 	 	161	 	 	 	+1	%	
Production taxes	 	 	60	 	 	 	66	 	 	 	- 9	%	
Property taxes	 	 	8	 	 	 	11	 	 	 	- 27	%	
Total	 	$	368	 	 	$	371	 	 	 	- 1	%	
Per Boe:	 	 	 	 	 	 	 	 	 	 	 	 	
LOE	 	$	3.50	 	 	$	3.44	 	 	 	+2	%	
Gathering, processing &
   transportation	 	$	4.12	 	 	$	4.17	 	 	 	- 1	%	
Percent of oil, gas and NGL sales:	 	 	 	 	 	 	 	 	 	 	 	 	
Production taxes	 	 	5.9	%	 	 	6.3	%	 	 	- 7	%	
 
Field-Level Cash Margin
The table below presents the field-level cash margin for each of our operating areas. Field-level cash margin is computed as oil, gas and NGL revenues less production expenses and is not prepared in accordance with GAAP. A reconciliation to the comparable GAAP measures is found in “Non-GAAP Measures” in this Item 2. The changes in production volumes, field prices and production expenses, shown above, had the following impact on our field-level cash margins by asset.
 
 	 	Q3 2019	 	 	$ per BOE	 	 	Q2 2019	 	 	$ per BOE	 	
Field-level cash margin (non-GAAP)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Delaware Basin	 	$	284	 	 	$	24.42	 	 	$	267	 	 	$	24.46	 	
STACK	 	 	157	 	 	$	14.08	 	 	 	177	 	 	$	15.77	 	
Powder River Basin	 	 	63	 	 	$	27.12	 	 	 	60	 	 	$	31.79	 	
Eagle Ford	 	 	100	 	 	$	24.02	 	 	 	120	 	 	$	26.63	 	
Other	 	 	18	 	 	$	27.76	 	 	 	15	 	 	$	22.67	 	
New Devon	 	 	622	 	 	$	20.79	 	 	 	639	 	 	$	21.88	 	
U.S. divest assets	 	 	30	 	 	$	3.20	 	 	 	41	 	 	$	4.38	 	
Total	 	$	652	 	 	$	16.57	 	 	$	680	 	 	$	17.63	 	

 

Depreciation, Depletion and Amortization
 
 	 	Q3 2019	 	 	Q2 2019	 	 	Change	 	
Oil and gas per Boe	 	$	9.49	 	 	$	9.48	 	 	 	+0	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Oil and gas	 	$	373	 	 	$	365	 	 	 	+2	%	
Other property and equipment	 	 	29	 	 	 	29	 	 	 	- 2	%	
Total	 	$	402	 	 	 	394	 	 	 	+2	%	
 
General and Administrative Expenses

 	 	Q3 2019	 	 	Q2 2019	 	 	Change	 	
Labor and benefits	 	$	89	 	 	$	92	 	 	 	- 3	%	
Non-labor	 	 	38	 	 	 	40	 	 	 	- 5	%	
Reimbursed G&A	 	 	(20	)	 	 	(18	)	 	 	+ 11	%	
Total Devon	 	$	107	 	 	$	114	 	 	 	- 6	%	
 
Labor and benefits and non-labor expenses decreased primarily as a result of continued workforce reduction and cost savings initiatives.
 
Other Items
 
 	 	Q3 2019	 	 	Q2 2019	 	 	Change in earnings	 	
Commodity hedge valuation changes (1)	 	$	56	 	 	$	117	 	 	$	(61	)	
Marketing operations	 	 	16	 	 	 	17	 	 	 	(1	)	
Exploration expenses	 	 	18	 	 	 	7	 	 	 	(11	)	
Asset dispositions	 	 	(2	)	 	 	(1	)	 	 	1	 	
Net financing costs	 	 	60	 	 	 	66	 	 	 	6	 	
Restructuring and transaction costs	 	 	10	 	 	 	12	 	 	 	2	 	
Other expenses	 	$	6	 	 	$	8	 	 	 	2	 	
 	 	 	 	 	 	 	 	 	 	$	(62	)	
 
 	(1)	Included as a component of upstream revenues on the consolidated comprehensive statements of earnings.	
 
We recognize fair value changes on our oil, gas and NGL derivative instruments in each reporting period. The changes in fair value resulted from new positions and settlements that occurred during each period, as well as the relationship between contract prices and the associated forward curves. For additional information see Note 3 in “Part I. Financial Information – Item 1. Financial Statements” in this report.
 
Income Taxes

 	 	Q3 2019	 	 	Q2 2019	 	
Current expense	 	$	2	 	 	$	2	 	
Deferred expense	 	 	53	 	 	 	69	 	
Total expense	 	$	55	 	 	$	71	 	
Effective income tax rate	 	 	28	%	 	 	30	%	
 
For discussion on income taxes, see Note 7 in “Part I. Financial Information – Item 1. Financial Statements” in this report.
 
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Q3 2019 vs. Q3 2018
 
Our third quarter 2019 net earnings from continuing operations were $139 million and decreased $17 million, or 11%, compared to the third quarter of 2018. The graph below shows the change in net earnings from the third quarter of 2018 to the third quarter 2019. The material changes are further discussed on the following pages.

 

September 30, 2019 YTD vs. September 30, 2018 YTD
 
Our nine months ended September 30, 2019 net loss from continuing operations was $41 million and increased $507 million compared to the nine months ended September 30, 2018. The graph below shows the change in net earnings from the nine months ended September 30, 2018 to the nine months ended September 30, 2019. The material changes are further discussed on the following pages.

 

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Production Volumes
 
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2019	 	 	% of Total	 	 	2018	 	 	Change	 	 	2019	 	 	% of Total	 	 	2018	 	 	Change	 	
Oil (MBbls/d)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Delaware Basin	 	 	70	 	 	 	47	%	 	 	44	 	 	 	+61	%	 	 	66	 	 	 	45	%	 	 	41	 	 	 	+60	%	
STACK	 	 	32	 	 	 	21	%	 	 	29	 	 	 	+9	%	 	 	32	 	 	 	22	%	 	 	32	 	 	 	- 1	%	
Powder River Basin	 	 	18	 	 	 	12	%	 	 	15	 	 	 	+24	%	 	 	16	 	 	 	11	%	 	 	14	 	 	 	+16	%	
Eagle Ford	 	 	22	 	 	 	14	%	 	 	31	 	 	 	- 29	%	 	 	23	 	 	 	16	%	 	 	27	 	 	 	- 15	%	
Other	 	 	6	 	 	 	4	%	 	 	5	 	 	 	+5	%	 	 	6	 	 	 	4	%	 	 	6	 	 	 	- 0	%	
New Devon	 	 	148	 	 	 	98	%	 	 	124	 	 	 	+19	%	 	 	143	 	 	 	98	%	 	 	120	 	 	 	+19	%	
U.S. divest assets	 	 	3	 	 	 	2	%	 	 	9	 	 	 	- 68	%	 	 	3	 	 	 	2	%	 	 	10	 	 	 	- 69	%	
Total	 	 	151	 	 	 	100	%	 	 	133	 	 	 	+13	%	 	 	146	 	 	 	100	%	 	 	130	 	 	 	+12	%	
Gas (MMcf/d)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Delaware Basin	 	 	167	 	 	 	17	%	 	 	103	 	 	 	+62	%	 	 	157	 	 	 	16	%	 	 	97	 	 	 	+62	%	
STACK	 	 	317	 	 	 	32	%	 	 	337	 	 	 	- 6	%	 	 	321	 	 	 	32	%	 	 	330	 	 	 	- 3	%	
Powder River Basin	 	 	28	 	 	 	3	%	 	 	18	 	 	 	+56	%	 	 	23	 	 	 	2	%	 	 	14	 	 	 	+62	%	
Eagle Ford	 	 	75	 	 	 	7	%	 	 	84	 	 	 	- 11	%	 	 	80	 	 	 	8	%	 	 	74	 	 	 	+8	%	
Other	 	 	1	 	 	 	0	%	 	 	2	 	 	 	- 32	%	 	 	1	 	 	 	0	%	 	 	1	 	 	 	- 7	%	
New Devon	 	 	588	 	 	 	59	%	 	 	544	 	 	 	+8	%	 	 	582	 	 	 	58	%	 	 	516	 	 	 	+13	%	
U.S. divest assets	 	 	417	 	 	 	41	%	 	 	491	 	 	 	- 15	%	 	 	426	 	 	 	42	%	 	 	589	 	 	 	- 28	%	
Total	 	 	1,005	 	 	 	100	%	 	 	1,035	 	 	 	- 3	%	 	 	1,008	 	 	 	100	%	 	 	1,105	 	 	 	- 9	%	
NGLs (MBbls/d)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Delaware Basin	 	 	28	 	 	 	26	%	 	 	19	 	 	 	+50	%	 	 	26	 	 	 	24	%	 	 	15	 	 	 	+73	%	
STACK	 	 	37	 	 	 	33	%	 	 	40	 	 	 	- 9	%	 	 	37	 	 	 	34	%	 	 	38	 	 	 	- 0	%	
Powder River Basin	 	 	2	 	 	 	2	%	 	 	2	 	 	 	+59	%	 	 	2	 	 	 	2	%	 	 	1	 	 	 	+57	%	
Eagle Ford	 	 	11	 	 	 	10	%	 	 	15	 	 	 	- 30	%	 	 	12	 	 	 	11	%	 	 	12	 	 	 	- 5	%	
Other	 	 	1	 	 	 	1	%	 	 	1	 	 	 	+23	%	 	 	1	 	 	 	1	%	 	 	1	 	 	 	+15	%	
New Devon	 	 	79	 	 	 	72	%	 	 	77	 	 	 	+3	%	 	 	78	 	 	 	72	%	 	 	67	 	 	 	+17	%	
U.S. divest assets	 	 	30	 	 	 	28	%	 	 	36	 	 	 	- 16	%	 	 	30	 	 	 	28	%	 	 	39	 	 	 	- 23	%	
Total	 	 	109	 	 	 	100	%	 	 	113	 	 	 	- 3	%	 	 	108	 	 	 	100	%	 	 	106	 	 	 	+2	%	
Combined (MBoe/d)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Delaware Basin	 	 	127	 	 	 	30	%	 	 	79	 	 	 	+59	%	 	 	118	 	 	 	28	%	 	 	72	 	 	 	+63	%	
STACK	 	 	121	 	 	 	28	%	 	 	126	 	 	 	- 3	%	 	 	123	 	 	 	29	%	 	 	125	 	 	 	- 2	%	
Powder River Basin	 	 	25	 	 	 	6	%	 	 	19	 	 	 	+33	%	 	 	22	 	 	 	5	%	 	 	18	 	 	 	+25	%	
Eagle Ford	 	 	45	 	 	 	10	%	 	 	60	 	 	 	- 25	%	 	 	48	 	 	 	11	%	 	 	52	 	 	 	- 7	%	
Other	 	 	7	 	 	 	2	%	 	 	7	 	 	 	+2	%	 	 	7	 	 	 	2	%	 	 	7	 	 	 	+2	%	
New Devon	 	 	325	 	 	 	76	%	 	 	291	 	 	 	+12	%	 	 	318	 	 	 	75	%	 	 	274	 	 	 	+16	%	
U.S. divest assets	 	 	103	 	 	 	24	%	 	 	127	 	 	 	- 19	%	 	 	104	 	 	 	25	%	 	 	147	 	 	 	- 29	%	
Total	 	 	428	 	 	 	100	%	 	 	418	 	 	 	+2	%	 	 	422	 	 	 	100	%	 	 	421	 	 	 	+0	%	
From the third quarter of 2018 to the third quarter of 2019, an increase in production volumes contributed to a $88 million increase in earnings. From the nine months ended 2018 to the nine months ended 2019, an increase in production volumes contributed to a $224 million increase in earnings. Strong performance in the Delaware Basin and Powder River Basin development programs drove production growth for New Devon and were offset by decreased activity in the Eagle Ford and lower production volumes associated with our U.S. divested assets.
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Field Prices
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2019	 	 	Realization	 	 	2018	 	 	Change	 	 	2019	 	 	Realization	 	 	2018	 	 	Change	 	
Oil (per Bbl)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
WTI index	 	$	56.34	 	 	 	 	 	 	$	69.60	 	 	 	- 19	%	 	$	57.02	 	 	 	 	 	 	$	66.79	 	 	 	- 15	%	
Realized price, unhedged	 	$	54.39	 	 	97%	 	 	$	64.80	 	 	 	- 16	%	 	$	54.46	 	 	96%	 	 	$	64.09	 	 	 	- 15	%	
Cash settlements	 	$	2.17	 	 	 	 	 	 	$	(12.20	)	 	 	 	 	 	$	1.79	 	 	 	 	 	 	$	(10.97	)	 	 	 	 	
Realized price, with hedges	 	$	56.56	 	 	100%	 	 	$	52.60	 	 	 	+8	%	 	$	56.25	 	 	99%	 	 	$	53.12	 	 	 	+6	%	
Gas (per Mcf)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Henry Hub index	 	$	2.23	 	 	 	 	 	 	$	2.91	 	 	 	- 23	%	 	$	2.67	 	 	 	 	 	 	$	2.90	 	 	 	- 8	%	
Realized price, unhedged	 	$	1.56	 	 	70%	 	 	$	2.21	 	 	 	- 29	%	 	$	1.91	 	 	71%	 	 	$	2.23	 	 	 	- 14	%	
Cash settlements	 	$	0.24	 	 	 	 	 	 	$	0.01	 	 	 	 	 	 	$	0.08	 	 	 	 	 	 	$	0.11	 	 	 	 	 	
Realized price, with hedges	 	$	1.80	 	 	81%	 	 	$	2.22	 	 	 	- 19	%	 	$	1.99	 	 	75%	 	 	$	2.34	 	 	 	- 15	%	
NGLs (per Bbl)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Mont Belvieu blended index (1)	 	$	16.18	 	 	 	 	 	 	$	33.05	 	 	 	- 51	%	 	$	19.39	 	 	 	 	 	 	$	28.99	 	 	 	- 33	%	
Realized price, unhedged	 	$	12.09	 	 	75%	 	 	$	29.59	 	 	 	- 59	%	 	$	15.08	 	 	78%	 	 	$	25.60	 	 	 	- 41	%	
Cash settlements	 	$	1.84	 	 	 	 	 	 	$	(2.50	)	 	 	 	 	 	$	1.14	 	 	 	 	 	 	$	(1.62	)	 	 	 	 	
Realized price, with hedges	 	$	13.93	 	 	86%	 	 	$	27.09	 	 	 	- 49	%	 	$	16.22	 	 	84%	 	 	$	23.98	 	 	 	- 32	%	
Combined (per Boe)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Realized price, unhedged	 	$	25.93	 	 	 	 	 	 	$	34.06	 	 	 	- 24	%	 	$	27.23	 	 	 	 	 	 	$	32.16	 	 	 	- 15	%	
Cash settlements	 	$	1.80	 	 	 	 	 	 	$	(4.54	)	 	 	 	 	 	$	1.11	 	 	 	 	 	 	$	(3.52	)	 	 	 	 	
Realized price, with hedges	 	$	27.73	 	 	 	 	 	 	$	29.52	 	 	 	- 6	%	 	$	28.34	 	 	 	 	 	 	$	28.64	 	 	 	- 1	%	
 
 	(1)	Based upon composition of our NGL barrel.	
 
From the third quarter of 2018 to the third quarter of 2019, field prices contributed to a $378 million decrease in earnings. From the nine months ended 2018 to the nine months ended 2019, field prices contributed to a $778 million decrease in earnings. Unhedged realized oil, gas and NGL prices decreased primarily due to lower WTI, Henry Hub and Mont Belvieu index prices. These decreases were partially offset by favorable hedge cash settlements across each of our products.
 
Hedge Settlements
 
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	
Cash settlements:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Oil derivatives	 	$	31	 	 	$	(150	)	 	$	71	 	 	$	(390	)	
Gas derivatives	 	 	22	 	 	 	1	 	 	 	24	 	 	 	33	 	
NGL derivatives	 	 	18	 	 	 	(26	)	 	 	33	 	 	 	(47	)	
Total cash settlements	 	$	71	 	 	$	(175	)	 	$	128	 	 	$	(404	)	
 
Production Expenses
 
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2019	 	 	2018	 	 	Change	 	 	2019	 	 	2018	 	 	Change	 	
LOE	 	$	138	 	 	$	142	 	 	 	- 3	%	 	$	403	 	 	$	444	 	 	 	- 9	%	
Gathering, processing & transportation	 	 	162	 	 	 	181	 	 	 	- 11	%	 	 	482	 	 	 	543	 	 	 	- 11	%	
Production taxes	 	 	60	 	 	 	80	 	 	 	- 25	%	 	 	190	 	 	 	201	 	 	 	- 5	%	
Property taxes	 	 	8	 	 	 	14	 	 	 	- 46	%	 	 	29	 	 	 	30	 	 	 	- 2	%	
Total	 	$	368	 	 	$	417	 	 	 	- 12	%	 	$	1,104	 	 	$	1,218	 	 	 	- 9	%	
Per Boe:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
LOE	 	$	3.50	 	 	$	3.72	 	 	 	- 6	%	 	$	3.50	 	 	$	3.87	 	 	 	- 10	%	
Gathering, processing & transportation	 	$	4.12	 	 	$	4.71	 	 	 	- 13	%	 	$	4.18	 	 	$	4.72	 	 	 	- 12	%	
Percent of oil, gas and NGL sales:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Production taxes	 	 	5.9	%	 	 	6.0	%	 	 	- 3	%	 	 	6.1	%	 	 	5.4	%	 	 	+12	%	
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LOE decreased for the three month and nine month periods of 2019 compared to the same periods in 2018 primarily due to the impact of our U.S. non-core asset divestitures. Gathering, processing and transportation decreased in the three month and nine month periods of 2019 compared to the same time periods of 2018 primarily due to the expiration of the EnLink Bridgeport minimum volume commitment at the end of 2018. Production taxes decreased during the third quarter and first nine months of 2019 compared to the same time periods in 2018 due to lower wellhead revenues, upon which the production taxes are assessed.
 
Field-Level Cash Margin
 
The changes in production volumes, field prices and production expenses, shown above, had the following impact on our field-level cash margins by asset.
 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	2019	 	 	$ per BOE	 	 	2018	 	 	$ per BOE	 	 	2019	 	 	$ per BOE	 	 	2018	 	 	$ per BOE	 	
Field-Level Cash Margin (non-GAAP)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Delaware Basin	$	284	 	 	$	24.42	 	 	$	225	 	 	$	30.85	 	 	$	785	 	 	$	24.42	 	 	$	612	 	 	$	31.09	 	
STACK	 	157	 	 	$	14.08	 	 	 	260	 	 	$	22.56	 	 	 	537	 	 	$	16.03	 	 	 	741	 	 	$	21.79	 	
Powder River Basin	 	63	 	 	$	27.12	 	 	 	71	 	 	$	40.68	 	 	 	173	 	 	$	28.55	 	 	 	196	 	 	$	40.56	 	
Eagle Ford	 	100	 	 	$	24.02	 	 	 	220	 	 	$	39.46	 	 	 	349	 	 	$	26.44	 	 	 	532	 	 	$	37.46	 	
Other	 	18	 	 	$	27.76	 	 	 	17	 	 	$	27.41	 	 	 	46	 	 	$	23.95	 	 	 	58	 	 	$	31.38	 	
New Devon	 	622	 	 	$	20.79	 	 	 	793	 	 	$	29.63	 	 	 	1,890	 	 	$	21.77	 	 	 	2,139	 	 	$	28.68	 	
U.S. divest assets	 	30	 	 	$	3.20	 	 	 	100	 	 	$	8.56	 	 	 	145	 	 	$	5.09	 	 	 	336	 	 	$	8.34	 	
Total	$	652	 	 	$	16.57	 	 	$	893	 	 	$	23.22	 	 	$	2,035	 	 	$	17.65	 	 	$	2,475	 	 	$	21.55	 	
 
Other Items
 	 	Three Months Ended September 30,	 	 	 	 	 	 	Nine Months Ended September 30,	 	 	 	 	 	
 	 	2019	 	 	2018	 	 	Change in earnings	 	 	2019	 	 	2018	 	 	Change in earnings	 	
Commodity hedge valuation changes (1)	 	$	56	 	 	$	(201	)	 	$	257	 	 	$	(466	)	 	$	(572	)	 	$	106	 	
Marketing operations	 	 	16	 	 	 	21	 	 	 	(5	)	 	 	48	 	 	 	24	 	 	 	24	 	
Exploration expenses	 	 	18	 	 	 	22	 	 	 	4	 	 	 	29	 	 	 	105	 	 	 	76	 	
Asset impairments	 	 	—	 	 	 	2	 	 	 	2	 	 	 	—	 	 	 	156	 	 	 	156	 	
Asset dispositions	 	 	(2	)	 	 	(6	)	 	 	(4	)	 	 	(47	)	 	 	5	 	 	 	52	 	
Net financing costs	 	 	60	 	 	 	68	 	 	 	8	 	 	 	186	 	 	 	521	 	 	 	335	 	
Restructuring and transaction costs	 	 	10	 	 	 	6	 	 	 	(4	)	 	 	73	 	 	 	91	 	 	 	18	 	
Other expenses	 	$	6	 	 	$	(9	)	 	 	(15	)	 	$	(3	)	 	$	(73	)	 	 	(70	)	
 	 	 	 	 	 	 	 	 	 	$	243	 	 	 	 	 	 	 	 	 	 	$	697	 	
 
 	(1)	Included as a component of upstream revenues on the consolidated comprehensive statements of earnings.	
 
Exploration expense decreased due to recognizing $76 million in unproved impairments related to certain non-core acreage in the U.S during the first nine months of 2018 compared to the $15 million during the first nine months of 2019. Asset impairments decreased due to recognizing $109 million of proved asset impairments and $47 million of non-oil and gas asset impairments during the first nine months of 2018. Net financing costs decreased primarily due to $312 million of early retirement charges associated with our debt retirement in 2018.

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Discontinued Operations	
 
Results of Operations – Discontinued Operations
 
The table below presents key components from discontinued operations for the time periods presented. Discontinued operations primarily consist of the aggregate ownership interests in EnLink and the General Partner that Devon divested in July 2018 as well as the Canadian business that Devon sold in June 2019. For additional information on discontinued operations, see Note 18 in “Part I. Financial Information – Item 1. Financial Statements” in this report.
 
 	 	Three Months Ended	 	 	Nine Months Ended	 	
 	 	September 30,	 	 	June 30,	 	 	September 30,	 	 	September 30,	 	 	September 30,	 	
 	 	2019	 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	
Upstream revenues	 	$	(7	)	 	$	388	 	 	$	398	 	 	$	628	 	 	$	1,003	 	
Production expenses	 	$	(1	)	 	$	153	 	 	$	137	 	 	$	293	 	 	$	451	 	
Marketing margin	 	$	—	 	 	$	3	 	 	$	67	 	 	$	20	 	 	$	687	 	
Gain on sale of Canadian operations	 	$	(34	)	 	$	(189	)	 	$	—	 	 	$	(223	)	 	$	—	 	
Gain on sale of EnLink and General Partner interests	 	$	—	 	 	$	—	 	 	$	(2,607	)	 	$	—	 	 	$	(2,607	)	
Asset impairments	 	$	—	 	 	$	37	 	 	$	—	 	 	$	37	 	 	$	—	 	
Restructuring and transaction costs	 	$	5	 	 	$	236	 	 	$	4	 	 	$	244	 	 	$	13	 	
Net earnings from discontinued operations, net of tax	 	$	(30	)	 	$	329	 	 	$	2,407	 	 	$	328	 	 	$	2,623	 	
Production (MMBoe)	 	 	—	 	 	 	9	 	 	 	10	 	 	 	19	 	 	 	31	 	
Realized price, unhedged (per Boe)	 	$	—	 	 	$	43.03	 	 	$	31.24	 	 	$	38.98	 	 	$	26.79	 	
 
Q3 2019 vs. Q2 2019
 
Net earnings from discontinued operations, net of tax decreased $359 million due to the divestment of Devon’s Canadian operations during the second quarter of 2019.
 
Q3 2019 vs. Q3 2018  
 
Net earnings from discontinued operations, net of tax decreased $2.4 billion as we recognized a $2.6 billion ($2.2 billion after-tax) gain on the sale of our aggregate ownership interests in EnLink and the General Partner during the third quarter of 2018. Net earnings from discontinued operations also decreased due to the divestment of Devon’s Canadian operations during the second quarter of 2019.
 
September 30, 2019 YTD vs. September 30, 2018 YTD
 
Net earnings from discontinued operations, net of tax decreased $2.3 billion as we recognized a $2.6 billion ($2.2 billion after-tax) gain on the sale of our aggregate ownership interests in EnLink and the General Partner during the first nine months of 2018. Marketing margins were lower in 2019 due to Devon’s divestment of EnLink and the General Partner. Net earnings from discontinued operations also decreased due to the divestment of Devon’s Canadian operations during the second quarter of 2019. In conjunction with the sale of our Canadian business, we recognized a pre-tax gain of $223 million. Additionally, we recognized approximately $280 million of restructuring and asset impairment related charges related to the sale.

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Capital Resources, Uses and Liquidity
Sources and Uses of Cash
The following table presents the major changes in cash and cash equivalents for the nine months ended September 30, 2019 and 2018.
 
 	 	Three months ended September 30,	 	 	Nine months ended September 30,	 	
 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	
Operating cash flow from continuing operations	 	$	597	 	 	$	560	 	 	$	1,563	 	 	$	1,519	 	
Divestitures of property and equipment	 	 	7	 	 	 	89	 	 	 	346	 	 	 	696	 	
Capital expenditures	 	 	(536	)	 	 	(548	)	 	 	(1,532	)	 	 	(1,653	)	
Acquisitions of property and equipment	 	 	(5	)	 	 	(19	)	 	 	(28	)	 	 	(35	)	
Debt activity, net	 	 	—	 	 	 	(21	)	 	 	(162	)	 	 	(1,132	)	
Repurchases of common stock	 	 	(561	)	 	 	(1,698	)	 	 	(1,746	)	 	 	(2,197	)	
Common stock dividends	 	 	(35	)	 	 	(38	)	 	 	(106	)	 	 	(112	)	
Other	 	 	(1	)	 	 	(3	)	 	 	(23	)	 	 	(38	)	
Net change in cash, cash equivalents and restricted cash
   from discontinued operations	 	 	(1,663	)	 	 	3,274	 	 	 	898	 	 	 	3,389	 	
Net change in cash, cash equivalents and restricted cash	 	$	(2,197	)	 	$	1,596	 	 	$	(790	)	 	$	437	 	
Cash, cash equivalents and restricted cash at end of period	 	$	1,656	 	 	$	3,121	 	 	$	1,656	 	 	$	3,121	 	
 
Operating Cash Flow
 
As presented in the table above, net cash provided by operating activities continued to be a significant source of capital and liquidity. Operating cash flow funded all our capital expenditures during the three months and nine months ended September 30, 2019. We utilized available cash balances and divestiture proceeds to supplement our operating cash flows and fund other investing and financing cash uses.
Divestitures of Property and Equipment
During the first nine months of 2019, we sold non-core U.S. assets for approximately $346 million, net of customary purchase price adjustments. During the first nine months of 2018, we sold non-core U.S. assets, including certain Barnett Shale assets, for $696 million. For additional information, please see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report.
Capital Expenditures and Acquisitions of Property and Equipment
The amounts in the table below reflect cash payments for capital expenditures, including cash paid for capital expenditures incurred in prior periods.
 
 	 	Three months ended September 30,	 	 	Nine months ended September 30,	 	
 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	
Delaware Basin	 	$	263	 	 	$	197	 	 	$	733	 	 	$	529	 	
STACK	 	 	88	 	 	 	200	 	 	 	325	 	 	 	629	 	
Powder River Basin	 	 	98	 	 	 	35	 	 	 	214	 	 	 	113	 	
Eagle Ford	 	 	39	 	 	 	48	 	 	 	147	 	 	 	176	 	
Other	 	 	16	 	 	 	63	 	 	 	56	 	 	 	174	 	
Total oil and gas	 	 	504	 	 	 	543	 	 	 	1,475	 	 	 	1,621	 	
Delaware midstream	 	 	28	 	 	 	—	 	 	 	39	 	 	 	—	 	
Other	 	 	4	 	 	 	5	 	 	 	18	 	 	 	32	 	
Total capital expenditures	 	$	536	 	 	$	548	 	 	$	1,532	 	 	$	1,653	 	
Acquisitions	 	$	5	 	 	$	19	 	 	$	28	 	 	$	35	 	
 
Capital expenditures consist of amounts related to our oil and gas exploration and development operations and other corporate activities. Our capital program is designed to operate within or near operating cash flow and maintain significant flexibility. Our capital investment program is driven by a disciplined allocation process focused on returns. Our capital expenditures are lower in 2019 primarily due to our decreased spending in the STACK, partially offset by increased capital investment in higher margin assets in the Delaware and Powder River Basin.
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Debt Activity
During the first nine months of 2019, our debt decreased $162 million due to the repayment of our 6.30% senior notes at maturity.
During the first nine months of 2018, our debt decreased $828 million due to completed tender offers of certain long-term debt as well as the maturity of certain senior notes. In conjunction with the tender offers, we recognized a $312 million charge on the early retirement of debt, including $304 million of cash retirement costs and fees. For additional information, see Note 13 in “Part I. Financial Information – Item 1. Financial Statements” in this report.
Shareholder Distributions and Stock Activity
The following table summarizes our common stock dividends during the first nine months of 2019 and 2018. Beginning with the second quarter of 2019, we increased our quarterly dividend to $0.09 per share.
 
 	Amounts	 	 	Rate Per Share	 	
Quarter Ended 2019:	 	 	 	 	 	 	 	
First quarter	$	34	 	 	$	0.08	 	
Second quarter	 	37	 	 	$	0.09	 	
Third quarter	 	35	 	 	$	0.09	 	
Total year-to-date	$	106	 	 	 	 	 	
Quarter Ended 2018:	 	 	 	 	 	 	 	
First quarter	$	32	 	 	$	0.06	 	
Second quarter	 	42	 	 	$	0.08	 	
Third quarter	 	38	 	 	$	0.08	 	
Total year-to-date	$	112	 	 	 	 	 	
We repurchased 64.2 million shares of common stock for $1.7 billion in the first nine months of 2019 and 54.5 million shares of common stock for $2.2 billion in the first nine months of 2018 under a share repurchase program authorized by our Board of Directors. For additional information, see Note 17 in “Part I. Financial Information – Item 1. Financial Statements” in this report.
Cash Flows from Discontinued Operations
All cash flows in the following table relate to activities of our divested Canadian operations and our aggregate ownership interests in EnLink and the General Partner, which were divested in June 2019 and July 2018, respectively.
 
 	 	Three Months Ended	 	 	Nine Months Ended	 	
 	 	September 30,	 	 	September 30,	 	
 	 	2019	 	 	2018	 	 	2019	 	 	2018	 	
Settlements of intercompany foreign denominated assets/liabilities	 	$	(1	)	 	$	—	 	 	$	(32	)	 	$	(243	)	
Other	 	 	(95	)	 	 	293	 	 	 	(31	)	 	 	886	 	
Operating activities	 	 	(96	)	 	 	293	 	 	 	(63	)	 	 	643	 	
Divestitures of property and equipment - Canadian operations	 	 	7	 	 	 	—	 	 	 	2,608	 	 	 	—	 	
Divestitures of investments - EnLink and General Partner	 	 	—	 	 	 	3,104	 	 	 	—	 	 	 	3,104	 	
Capital expenditures and other	 	 	—	 	 	 	(204	)	 	 	(104	)	 	 	(754	)	
Investing activities	 	 	7	 	 	 	2,900	 	 	 	2,504	 	 	 	2,350	 	
Debt activity, net	 	 	(1,552	)	 	 	67	 	 	 	(1,552	)	 	 	347	 	
Distributions to noncontrolling interests	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(217	)	
Other	 	 	(19	)	 	 	4	 	 	 	(27	)	 	 	44	 	
Financing activities	 	 	(1,571	)	 	 	71	 	 	 	(1,579	)	 	 	174	 	
Settlements of intercompany foreign denominated assets/liabilities	 	 	1	 	 	 	—	 	 	 	32	 	 	 	243	 	
Other	 	 	(4	)	 	 	10	 	 	 	4	 	 	 	(21	)	
Effect of exchange rate changes on cash	 	 	(3	)	 	 	10	 	 	 	36	 	 	 	222	 	
Net change in cash, cash equivalents and restricted cash of
   discontinued operations	 	$	(1,663	)	 	$	3,274	 	 	$	898	 	 	$	3,389	 	
Foreign currency denominated intercompany loan activity during the first nine months of 2019 and 2018 resulted in a realized loss of $32 million and $243 million, respectively, as a result of the strengthening of the U.S. dollar in relation to the Canadian dollar.
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There was an offset in the effect of exchange rate changes on cash line in the above table, resulting in no impact to the net change in cash, cash equivalents and restricted cash.
On June 27, 2019, Devon completed the sale of substantially all its oil and gas assets and operations in Canada for proceeds of $2.6 billion. On July 18, 2018, Devon completed the sale of its aggregate ownership interests in EnLink and the General Partner for $3.125 billion. As a result of these divestitures, operating cash flow from the three months and nine months ended September 30, 2019 decreased from the same periods in 2018. Additionally, operating cash flow was negatively affected in the first quarter of 2019 primarily due to realization impacts associated with the widening Canadian differentials in the fourth quarter of 2018. See Note 2 and Note 18 in “Part I. Financial Information – Item 1. Financial Statements” in this report for additional details on these divestitures.
In July 2019, we retired $1.5 billion of senior notes prior to maturity. For additional information, see Note 18 in “Part I. Financial Information – Item 1. Financial Statements” in this report.
Devon received $134 million in distributions from EnLink and the General Partner during the first nine months of 2018. Distributions to noncontrolling interests in the table above exclude the distributions EnLink and the General Partner paid to Devon, which have been eliminated in consolidation.
Liquidity
The business of exploring for, developing and producing oil and natural gas is capital intensive. Because oil, natural gas and NGL reserves are a depleting resource, we, like all upstream operators, must continually make capital investments to grow and even sustain production. Generally, our capital investments are focused on drilling and completing new wells and maintaining production from existing wells. At opportunistic times, we also acquire operations and properties from other operators or land owners to enhance our existing portfolio of assets.
 
Historically, our primary sources of capital funding and liquidity have been our operating cash flow, cash on hand and asset divestiture proceeds. Additionally, we maintain a commercial paper program, supported by our revolving line of credit, which can be accessed as needed to supplement operating cash flow and cash balances. If needed, we can also issue debt and equity securities, including through transactions under our shelf registration statement filed with the SEC. In February 2019, we announced plans to separate our Canadian and Barnett Shale assets and operations. In June 2019, we closed on the sale of our Canadian business and expect to complete the separation of our Barnet Shale assets by the end of 2019. We plan to use the proceeds from these transactions to repay debt and return cash to shareholders. We estimate the combination of our sources of capital will continue to be adequate to fund our planned capital requirements as discussed in this section.
 
Operating Cash Flow
Key inputs into determining our planned capital investment are the amounts of cash we hold and operating cash flow we expect to generate over the next one to three or more years. At the end of the third quarter of 2019, we held approximately $1.7 billion of cash, inclusive of $280 million of cash restricted for discontinued operations. Our operating cash flow forecasts are sensitive to many variables and include a measure of uncertainty as the actual results of these variables may differ from our expectations.
Commodity Prices – The most uncertain and volatile variables for our operating cash flow are the prices of the oil, gas and NGLs we produce and sell. Prices are determined primarily by prevailing market conditions. Regional and worldwide economic activity, weather and other substantially variable factors influence market conditions for these products. These factors, which are difficult to predict, create volatility in prices and are beyond our control.
To mitigate some of the risk inherent in prices, we utilize various derivative financial instruments to protect a portion of our production against downside price risk. We hedge our production in a manner that systematically places hedges for several quarters in advance, allowing us to maintain a disciplined risk management program as it relates to commodity price volatility. We supplement the systematic hedging program with discretionary hedges that take advantage of favorable market conditions. The key terms to our oil, gas and NGL derivative financial instruments as of September 30, 2019 are presented in Note 3 in “Part I. Financial Information – Item 1. Financial Statements” of this report.
Operating Expenses – Commodity prices can also affect our operating cash flow through an indirect effect on operating expenses. Significant commodity price decreases can lead to a decrease in drilling and development activities. As a result, the demand and cost for people, services, equipment and materials may also decrease, causing a positive impact on our cash flow as the prices paid for services and equipment decline. However, the inverse is also generally true during periods of rising commodity prices.
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For 2019, we are aggressively optimizing our cost structure in conjunction with our Canadian and planned Barnett Shale asset divestitures, as we focus on our remaining four U.S. oil plays, align our workforce with the retained business and reduce outstanding debt. These optimizations include cost reductions and efficiencies related to our capital programs, operating expenses, including G&A, interest expense and production expenses.
Credit Losses – Our operating cash flow is also exposed to credit risk in a variety of ways. This includes the credit risk related to customers who purchase our oil, gas and NGL production, the collection of receivables from our joint-interest partners for their proportionate share of expenditures made on projects we operate and counterparties to our derivative financial contracts. We utilize a variety of mechanisms to limit our exposure to the credit risks of our customers, partners and counterparties. Such mechanisms include, under certain conditions, requiring letters of credit, prepayments or collateral postings.
 
Divestitures of Property and Equipment
 
In February 2019, we announced the separation of our Canadian and Barnett Shale businesses. In June 2019, we completed the sale of our Canadian operations for $2.6 billion ($3.4 billion Canadian dollars) and are progressing on the separation of our Barnett Shale assets. For additional information, see Note 2 in “Part I. Financial Information – Item 1. Financial Statements” in this report.
 
Subsequent to the third quarter of 2019, we entered into an agreement to form a midstream partnership in the Delaware Basin. As part of the transaction, Devon will contribute gathering system and compression assets in the Cotton Draw area to the partnership in exchange for a $100 million cash distribution funded by the partner. Devon will continue to operate the assets pursuant to the management services agreement. The partner also committed $40 million of expansion capital to the partnership to fund the build out of the Cotton Draw assets over the next several years.
Capital Expenditures
Our exploration and development budget for the fourth quarter of 2019 is expected to range from $375 million to $420 million, excluding capital associated with our Barnett Shale assets.
Credit Availability
As of September 30, 2019, we had approximately $3.0 billion of available borrowings under our Senior Credit Facility. This credit facility supports our $3.0 billion of short-term credit under our commercial paper program. At September 30, 2019, there were no borrowings under our commercial paper program, and we were in compliance with the facility’s financial covenant. In connection with the closing of the sale of our Canadian business, we reallocated and terminated all Canadian commitments under the Senior Credit Facility in accordance with the terms of the credit agreement governing the Senior Credit Facility. The termination of the Canadian subfacility was effective as of June 27, 2019, and such termination did not decrease the $3.0 billion in total revolving commitments under, or otherwise modify the terms of, the Senior Credit Facility.
Debt Ratings
We receive debt ratings from the major ratings agencies in the U.S. In determining our debt ratings, the agencies consider a number of qualitative and quantitative items including, but not limited to, commodity pricing levels, our liquidity, asset quality, reserve mix, debt levels, cost structure, planned asset sales and production growth opportunities. Our credit rating from Standard and Poor’s Financial Services is BBB with a negative outlook. Our credit rating from Fitch is BBB+ with a negative outlook. Our credit rating from Moody’s Investor Service is Ba1 with a positive outlook. Any rating downgrades may result in additional letters of credit or cash collateral being posted under certain contractual arrangements.
Share Repurchase Program
In February 2019, our Board of Directors authorized an expansion of our pre-existing share repurchase program by an additional $1.0 billion to $5.0 billion. The share repurchase program expires December 31, 2019. Through October 31, 2019, we had executed $4.8 billion of the authorized program.

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Critical Accounting Estimates
Income Taxes
On June 27, 2019, we divested substantially all of our Canadian oil and gas assets and operations in Canada. Our foreign earnings have not been considered indefinitely reinvested since the announcement of the plan to separate the assets in the first quarter of 2019. For additional information see Note 7 in “Part I. Financial Information – Item 1. Financial Statements” in this report.
Valuation of Long-Lived Assets
 
Management evaluates assets for impairment through an established process in which changes to significant assumptions such as prices, volumes and future development plans are reviewed. Changes to any of these assumptions could result in lower undiscounted pre-tax cash flows and impact both the recognition and timing of impairments.
 
As commodity prices have decreased in 2019, management remains focused on generating free cash flow and continues to evaluate future development plans across our portfolio of assets. Should management materially reduce planned capital investment and commodity prices remain suppressed, recognition of material asset impairments could become more likely for certain of our assets. Based on our most recent impairment evaluations, if commodity prices remain suppressed and we materially reduce future development plans, our STACK asset would be the most likely asset to require recognition of a material impairment of capitalized costs.
For additional information regarding our critical accounting policies and estimates, see our 2018 Annual Report on Form 10-K.
Non-GAAP Measures
We make reference to “core earnings (loss) attributable to Devon” and “core earnings (loss) per share attributable to Devon” in “Overview of 2019 Results” in this Item 2 that are not required by or presented in accordance with GAAP. These non-GAAP measures are not alternatives to GAAP measures and should not be considered in isolation or as a substitute for analysis of our results reported under GAAP. Core earnings (loss) attributable to Devon, as well as the per share amount, represent net earnings excluding certain noncash and other items that are typically excluded by securities analysts in their published estimates of our financial results. For more information on the results of discontinued operations for our Canadian operations and for EnLink and the General Partner, see Note 18 in “Part I. Financial Information – Item 1. Financial Statements” in this report. Our non-GAAP measures are typically used as a quarterly performance measure. Amounts excluded relate to asset dispositions, the gain on the sale of Devon’s aggregate ownership interests in EnLink and the General Partner and the gain on the sale of Canadian operations, noncash asset impairments (including noncash unproved asset impairments), deferred tax asset valuation allowance, costs associated with early retirement of debt, fair value changes in derivative financial instruments and foreign currency, settlements related to minimum volume contract commitments, restructuring and transaction costs associated with the workforce reductions in 2019 and 2018 and restructuring and transaction costs associated with the divestment of our Canadian operations in 2019.
We believe these non-GAAP measures facilitate comparisons of our performance to earnings estimates published by securities analysts. We also believe these non-GAAP measures can facilitate comparisons of our performance between periods and to the performance of our peers.
Below are reconciliations of our core earnings and core earnings per share attributable to Devon to their comparable GAAP measures.
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 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	Before tax	 	 	After tax	 	 	After Noncontrolling Interests	 	 	Per Diluted Share	 	 	Before tax	 	 	After tax	 	 	After Noncontrolling Interests	 	 	Per Diluted Share	 	
2019	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings (loss) attributable to Devon (GAAP)	$	194	 	 	$	139	 	 	$	139	 	 	$	0.35	 	 	$	(25	)	 	$	(41	)	 	$	(41	)	 	$	(0.10	)	
Adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Asset dispositions	 	(2	)	 	 	(1	)	 	 	(1	)	 	 	(0.00	)	 	 	(47	)	 	 	(36	)	 	 	(36	)	 	 	(0.09	)	
Asset and exploration impairments	 	14	 	 	 	11	 	 	 	11	 	 	 	0.03	 	 	 	16	 	 	 	13	 	 	 	13	 	 	 	0.03	 	
Deferred tax asset valuation allowance	 	—	 	 	 	4	 	 	 	4	 	 	 	0.01	 	 	 	—	 	 	 	2	 	 	 	2	 	 	 	0.00	 	
Fair value changes in financial instruments	 	(57	)	 	 	(44	)	 	 	(44	)	 	 	(0.12	)	 	 	465	 	 	 	358	 	 	 	358	 	 	 	0.86	 	
Restructuring and transaction costs	 	10	 	 	 	8	 	 	 	8	 	 	 	0.02	 	 	 	73	 	 	 	57	 	 	 	57	 	 	 	0.14	 	
Core earnings attributable to
   Devon (Non-GAAP)	$	159	 	 	$	117	 	 	$	117	 	 	$	0.29	 	 	$	482	 	 	$	353	 	 	$	353	 	 	$	0.84	 	
Discontinued Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings (loss) attributable to Devon (GAAP)	$	(43	)	 	$	(30	)	 	$	(30	)	 	$	(0.08	)	 	$	30	 	 	$	328	 	 	$	328	 	 	$	0.79	 	
Adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gain on sale of Canadian operations	 	(34	)	 	 	(20	)	 	 	(20	)	 	 	(0.05	)	 	 	(223	)	 	 	(480	)	 	 	(480	)	 	 	(1.16	)	
Asset and exploration impairments	 	—	 	 	 	—	 	 	 	—	 	 	 	0.00	 	 	 	37	 	 	 	27	 	 	 	27	 	 	 	0.07	 	
Deferred tax asset valuation allowance	 	—	 	 	 	(4	)	 	 	(4	)	 	 	(0.01	)	 	 	—	 	 	 	23	 	 	 	23	 	 	 	0.05	 	
Early retirement of debt	 	58	 	 	 	45	 	 	 	45	 	 	 	0.11	 	 	 	58	 	 	 	45	 	 	 	45	 	 	 	0.11	 	
Fair value changes in financial instruments and
   foreign currency and other	 	(6	)	 	 	(9	)	 	 	(9	)	 	 	(0.01	)	 	 	(29	)	 	 	(32	)	 	 	(32	)	 	 	(0.08	)	
Restructuring and transaction costs	 	5	 	 	 	4	 	 	 	4	 	 	 	0.01	 	 	 	244	 	 	 	178	 	 	 	178	 	 	 	0.44	 	
Core earnings (loss) attributable to
   Devon (Non-GAAP)	$	(20	)	 	$	(14	)	 	$	(14	)	 	$	(0.03	)	 	$	117	 	 	$	89	 	 	$	89	 	 	$	0.22	 	
Total	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings attributable to Devon (GAAP)	$	151	 	 	$	109	 	 	$	109	 	 	$	0.27	 	 	$	5	 	 	$	287	 	 	$	287	 	 	$	0.69	 	
Adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Continuing Operations	 	(35	)	 	 	(22	)	 	 	(22	)	 	 	(0.06	)	 	 	507	 	 	 	394	 	 	 	394	 	 	 	0.94	 	
Discontinued Operations	 	23	 	 	 	16	 	 	 	16	 	 	 	0.05	 	 	 	87	 	 	 	(239	)	 	 	(239	)	 	 	(0.57	)	
Core earnings attributable to Devon (Non-GAAP)	$	139	 	 	$	103	 	 	$	103	 	 	$	0.26	 	 	$	599	 	 	$	442	 	 	$	442	 	 	$	1.06	 	
2018	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings (loss) attributable to Devon (GAAP)	$	(15	)	 	$	156	 	 	$	156	 	 	$	0.32	 	 	$	(709	)	 	$	(548	)	 	$	(548	)	 	$	(1.08	)	
Adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Asset dispositions	 	(6	)	 	 	(5	)	 	 	(5	)	 	 	(0.01	)	 	 	5	 	 	 	4	 	 	 	4	 	 	 	0.01	 	
Asset and exploration impairments	 	20	 	 	 	17	 	 	 	17	 	 	 	0.03	 	 	 	237	 	 	 	183	 	 	 	183	 	 	 	0.36	 	
Deferred tax asset valuation allowance	 	—	 	 	 	(131	)	 	 	(131	)	 	 	(0.27	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	0.00	 	
Early retirement of debt	 	—	 	 	 	—	 	 	 	—	 	 	 	0.00	 	 	 	312	 	 	 	240	 	 	 	240	 	 	 	0.47	 	
Fair value changes in financial instruments	 	202	 	 	 	155	 	 	 	155	 	 	 	0.32	 	 	 	509	 	 	 	393	 	 	 	393	 	 	 	0.76	 	
Restructuring and transaction costs	 	6	 	 	 	5	 	 	 	5	 	 	 	0.01	 	 	 	91	 	 	 	70	 	 	 	70	 	 	 	0.14	 	
Core earnings attributable to
   Devon (Non-GAAP)	$	207	 	 	$	197	 	 	$	197	 	 	$	0.40	 	 	$	445	 	 	$	342	 	 	$	342	 	 	$	0.66	 	
Discontinued Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings attributable to Devon (GAAP)	$	2,827	 	 	$	2,407	 	 	$	2,381	 	 	$	4.82	 	 	$	3,008	 	 	$	2,623	 	 	$	2,463	 	 	$	4.82	 	
Adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gain on sale of EnLink and the General Partner	 	(2,607	)	 	 	(1,963	)	 	 	(1,963	)	 	 	(3.98	)	 	 	(2,607	)	 	 	(1,963	)	 	 	(1,963	)	 	 	(3.84	)	
Deferred tax asset valuation allowance	 	—	 	 	 	(259	)	 	 	(259	)	 	 	(0.53	)	 	 	—	 	 	 	(311	)	 	 	(311	)	 	 	(0.61	)	
Fair value changes in financial
   instruments and foreign currency	 	(43	)	 	 	(35	)	 	 	(35	)	 	 	(0.07	)	 	 	101	 	 	 	89	 	 	 	82	 	 	 	0.16	 	
EnLink minimum volume commitments	 	—	 	 	 	—	 	 	 	—	 	 	 	0.00	 	 	 	(48	)	 	 	(39	)	 	 	(14	)	 	 	(0.03	)	
Restructuring and transaction costs	 	4	 	 	 	3	 	 	 	3	 	 	 	0.01	 	 	 	13	 	 	 	10	 	 	 	10	 	 	 	0.02	 	
Core earnings attributable to
   Devon (Non-GAAP)	$	181	 	 	$	153	 	 	$	127	 	 	$	0.25	 	 	$	467	 	 	$	409	 	 	$	267	 	 	$	0.52	 	
Total	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings attributable to Devon (GAAP)	$	2,812	 	 	$	2,563	 	 	$	2,537	 	 	$	5.14	 	 	$	2,299	 	 	$	2,075	 	 	$	1,915	 	 	$	3.74	 	
Adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Continuing Operations	 	222	 	 	 	41	 	 	 	41	 	 	 	0.08	 	 	 	1,154	 	 	 	890	 	 	 	890	 	 	 	1.74	 	
Discontinued Operations	 	(2,646	)	 	 	(2,254	)	 	 	(2,254	)	 	 	(4.57	)	 	 	(2,541	)	 	 	(2,214	)	 	 	(2,196	)	 	 	(4.30	)	
Core earnings attributable to
   Devon (Non-GAAP)	$	388	 	 	$	350	 	 	$	324	 	 	$	0.65	 	 	$	912	 	 	$	751	 	 	$	609	 	 	$	1.18	 	
43

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EBITDAX and Field-Level Cash Margin
To assess the performance of our assets, we use EBITDAX and Field-Level Cash Margin. We compute EBITDAX as net earnings from continuing operations before income tax expense; financing costs, net; exploration expenses; depreciation, depletion and amortization; asset impairments; asset disposition gains and losses; non-cash share-based compensation; non-cash valuation changes for derivatives and financial instruments; restructuring and transaction costs; accretion on discounted liabilities; and other items not related to our normal operations. Field-Level Cash Margin is computed as oil, gas and NGL revenues less production expenses. Production expenses consist of lease operating, gathering, processing and transportation expenses, as well as production and property taxes.
We exclude financing costs from EBITDAX to assess our operating results without regard to our financing methods or capital structure. Exploration expenses and asset disposition gains and losses are excluded from EBITDAX because they generally are not indicators of operating efficiency for a given reporting period. DD&A and impairments are excluded from EBITDAX because capital expenditures are evaluated at the time capital costs are incurred. We exclude share-based compensation, valuation changes, restructuring and transaction costs, accretion on discounted liabilities and other items from EBITDAX because they are not considered a measure of asset operating performance.
We believe EBITDAX and Field-Level Cash Margin provide information useful in assessing our operating and financial performance across periods. EBITDAX and Field-Level Cash Margin as defined by Devon may not be comparable to similarly titled measures used by other companies and should be considered in conjunction with net earnings from continuing operations.
Below are reconciliations of net earnings to EBITDAX and a further reconciliation to Field-Level Cash Margin. We have excluded the EBITDAX and Field-Level Cash Margin for our U.S. divested assets and the Barnett Shale to compute Adjusted EBITDAX and Adjusted Field-Level Cash Margin for New Devon. We use Adjusted EBITDAX and Adjusted Field-Level Cash Margin to assess the performance of our portfolio of upstream assets on a “same-store” basis across periods.

 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	2019	 	 	2018	 	 	2019	 	 	2018	 	
Net earnings (GAAP)	$	109	 	 	$	2,563	 	 	$	287	 	 	$	2,075	 	
Net (earnings) loss from discontinued operations, net of tax	 	30	 	 	 	(2,407	)	 	 	(328	)	 	 	(2,623	)	
Financing costs, net	 	60	 	 	 	68	 	 	 	186	 	 	 	521	 	
Income tax expense (benefit)	 	55	 	 	 	(171	)	 	 	16	 	 	 	(161	)	
Exploration expenses	 	18	 	 	 	22	 	 	 	29	 	 	 	105	 	
Depreciation, depletion and amortization	 	402	 	 	 	342	 	 	 	1,176	 	 	 	989	 	
Asset impairments	 	—	 	 	 	2	 	 	 	—	 	 	 	156	 	
Asset dispositions	 	(2	)	 	 	(6	)	 	 	(47	)	 	 	5	 	
Share-based compensation	 	20	 	 	 	23	 	 	 	64	 	 	 	82	 	
Derivative and financial instrument non-cash valuation changes	 	(57	)	 	 	202	 	 	 	465	 	 	 	509	 	
Restructuring and transaction costs	 	10	 	 	 	6	 	 	 	73	 	 	 	91	 	
Accretion on discounted liabilities and other	 	7	 	 	 	(10	)	 	 	(2	)	 	 	(10	)	
EBITDAX (non-GAAP)	 	652	 	 	 	634	 	 	 	1,919	 	 	 	1,739	 	
Marketing revenues and expenses, net	 	(16	)	 	 	(21	)	 	 	(48	)	 	 	(24	)	
Commodity derivative cash settlements	 	(71	)	 	 	175	 	 	 	(128	)	 	 	404	 	
General and administration expenses, cash-based	 	87	 	 	 	105	 	 	 	292	 	 	 	356	 	
Field-level cash margin (non-GAAP)	$	652	 	 	$	893	 	 	$	2,035	 	 	$	2,475	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EBITDAX (non-GAAP)	$	652	 	 	$	634	 	 	$	1,919	 	 	$	1,739	 	
EBITDAX, U.S. divested assets	 	(4	)	 	 	(28	)	 	 	(12	)	 	 	(106	)	
EBITDAX, Barnett Shale	 	(26	)	 	 	(72	)	 	 	(133	)	 	 	(230	)	
Adjusted EBITDAX (non-GAAP)	$	622	 	 	$	534	 	 	$	1,774	 	 	$	1,403	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Field-level cash margin (non-GAAP)	$	652	 	 	$	893	 	 	$	2,035	 	 	$	2,475	 	
Field-level cash margin, U.S. divested assets	 	(4	)	 	 	(28	)	 	 	(12	)	 	 	(106	)	
Field-level cash margin, Barnett Shale	 	(26	)	 	 	(72	)	 	 	(133	)	 	 	(230	)	
Adjusted field-level cash margin (non-GAAP)	$	622	 	 	$	793	 	 	$	1,890	 	 	$	2,139	 	
 
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Commodity Price Risk
As of September 30, 2019, we have commodity derivatives that pertain to a portion of our estimated production for the last three months of 2019, as well as for 2020 and 2021. The key terms to our open oil, gas and NGL derivative financial instruments are presented in Note 3 in “Part I. Financial Information – Item 1. Financial Statements” in this report.
The fair values of our commodity derivatives are largely determined by the forward curves of the relevant price indices. At September 30, 2019, a 10% change in the forward curves associated with our commodity derivative instruments would have changed our net positions by approximately $130 million.
Interest Rate Risk
As of September 30, 2019, we had total debt of $4.3 billion. All of this debt was based on fixed interest rates averaging 6.0%.
Foreign Currency Risk
Devon has certain Canadian dollar obligations resulting from its divestment of its Canadian operations which are to be paid with the cash restricted for discontinued operations. These balances are remeasured using the applicable exchange rate as of the end of the reporting period. A 10% unfavorable change in the Canadian-to-U.S. dollar exchange rate would not have materially impacted our September 30, 2019 balance sheet for these items. See Note 18 in “Part I. Financial Information – Item 1. Financial Statements” in this report for additional information.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information relating to Devon, including its consolidated subsidiaries, is made known to the officers who certify Devon’s financial reports and to other members of senior management and the Board of Directors.
Based on their evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of September 30, 2019 to ensure that the information required to be disclosed by Devon in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.
Changes in Internal Control Over Financial Reporting
We implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new lease accounting standard on our financial statements to facilitate its adoption in the first quarter of 2019. There were no significant changes to our internal control over financial reporting due to the adoption of the new lease accounting standard. There were no other changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
45

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PART II. Other Information
Item 1. Legal Proceedings
We are involved in various legal proceedings incidental to our business. However, to our knowledge as of the date of this report, there were no material pending legal proceedings to which we are a party or to which any of our property is subject.
Please see our 2018 Annual Report on Form 10-K and other SEC filings for additional information.
Item 1A. Risk Factors
There have been no material changes to the information included in Item 1A. “Risk Factors” in our 2018 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding purchases of our common stock that were made by us during the third quarter of 2019 (shares in thousands).
Period	 	Total Number of
Shares Purchased (1)	 	 	Average Price
Paid per Share	 	 	Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs (2)	 	 	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)	 	
July 1 - July 31	 	 	7,579	 	 	$	27.12	 	 	 	7,561	 	 	$	633	 	
August 1 - August 31	 	 	9,459	 	 	$	23.15	 	 	 	9,444	 	 	$	415	 	
September 1 - September 30	 	 	5,135	 	 	$	24.44	 	 	 	5,132	 	 	$	289	 	
Total	 	 	22,173	 	 	$	24.80	 	 	 	22,137	 	 	 	 	 	

 	(1)	In addition to shares purchased under the share repurchase program described below, these amounts also included 36,000 shares received by us from employees for the payment of personal income tax withholding on vesting transactions.	
 	(2)	On March 7, 2018, we announced a $1.0 billion share repurchase program. On June 6, 2018, we announced the expansion of this program to $4.0 billion. On February 19, 2019, we announced a further expansion to $5.0 billion with a December 31, 2019 expiration date. As of September 30, 2019, we had repurchased 142.3 million common shares for $4.7 billion, or $33.09 per share, under our share repurchases program. Future purchases under the program will be made in open-market, private transactions or through the use of ASR programs.	
 
Under the Devon Plan, eligible employees made purchases of shares of our common stock through an investment in the Devon Stock Fund, which is administered by an independent trustee. Eligible employees purchased approximately 2,700 shares of our common stock in the third quarter of 2019, at then-prevailing stock prices, that they held through their ownership in the Stock Fund. We acquired the shares of our common stock sold under the Devon Plan through open-market purchases.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
46

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Item 6. Exhibits
 
Exhibit
Number	 	Description	
 	 	
10.1*	 	Employment Agreement, dated effective September 13, 2019, by and between Devon Energy Corporation and Mr. David G. Harris (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed September 16, 2019; File No. 001-32318).	
 	 	
10.2*	 	Amendment 2019-1, executed effective September 10, 2019, to the Supplemental Retirement Income Plan of Devon Energy Corporation.	
 	 	
31.1	 	Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	
31.2	 	Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	
32.1	 	Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	
32.2	 	Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	
101.INS	 	Inline XBRL Instance Document – the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	
 	 	
101.SCH	 	Inline XBRL Taxonomy Extension Schema Document.	
 	 	
101.CAL	 	Inline XBRL Taxonomy Extension Calculation Linkbase Document.	
 	 	
101.DEF	 	Inline XBRL Taxonomy Extension Definition Linkbase Document.	
 	 	
101.LAB	 	Inline XBRL Taxonomy Extension Labels Linkbase Document.	
 	 	
101.PRE	 	Inline XBRL Taxonomy Extension Presentation Linkbase Document.	
 	 	
104	 	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).	
___________
*Indicates management contract or compensatory plan or arrangement.
 
47

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 	 	 	 	DEVON ENERGY CORPORATION	
 	 	 	
Date: November 6, 2019	 	 	 	/s/ Jeremy D. Humphers	
 	 	 	 	Jeremy D. Humphers	
 	 	 	 	Senior Vice President and Chief Accounting Officer	

48

Exhibit 10.2
AMENDMENT 2019-1
TO THE
SUPPLEMENTAL RETIREMENT INCOME PLAN OF
DEVON ENERGY CORPORATION
The Supplemental Retirement Income Plan of Devon Energy Corporation (the "Plan") is amended, effective as of the date of execution hereof, as follows:
1.Effective as of September 10, 2019, a new Section 4.1(i) ("Variation in Calculation of Supplemental Benefit Under Appendix C") is added to the Plan immediately following Section 4.1(h) ("Variation in the Calculation of Supplemental Benefit Under Appendix B"), such new Section 4.1(i) to read as follows:

 	"(i)	Variation in Calculation of Supplemental Benefit Under Appendix C.  The calculation of the Supplemental Benefit for the Participants listed on Appendix C shall be determined by incorporating the additional modifications described on Appendix C.  The provisions of this Plan as modified in this Section 4.1(i) shall replace and supersede any prior letter agreements between the Company and such Participants."	
2.Effective as of September 10, 2019, a new Appendix C is added to the Plan to read as follows:
"APPENDIX C
The following Participants shall have their Supplemental Benefit calculated in accordance with the provisions of this Appendix C:  
Tony D. Vaughn
Lyndon C. Taylor.
The determination of the Supplemental Benefit under this Plan for the Participants listed in this Appendix C will be in accordance with the terms of the Plan but will be made as though the changes set forth on this Appendix C were made to the Plan.
I.The determination of the Supplemental Benefit under this Plan for the Participants listed in this Appendix C will be made as though the following Section (vi) is part of Section 4.1(b).
(vi)For purposes of determining the Participant's Target Benefit, the Early Retirement Adjustment Factor in Article VIII of the Retirement Plan shall be determined as if the Participant was three years older than the Participant's actual age."
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

DB1/ 108907356.2

 

 
IN WITNESS WHEREOF, Devon Energy Corporation (acting through its authorized delegate) has caused this Amendment 2019-1 to the Plan to be executed this 21st day of October 2019.  
DEVON ENERGY CORPORATION
 
By:  /s/ Tana K. Cashion
Name:  Tana K. Cashion
Title:  Senior Vice President, Human Resources

 
[Signature Page to Amendment 2019-1 to the Supplemental Retirement Income Plan of Devon Energy Corporation]

 

Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David A. Hager, certify that:
1.     I have reviewed this quarterly report on Form 10-Q of Devon Energy Corporation;
2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: November 6, 2019	 	 	
 	 	 	
 	 	/s/ David A. Hager	
 	 	David A. Hager	
 	 	President and Chief Executive Officer	

Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey L. Ritenour, certify that:
1.     I have reviewed this quarterly report on Form 10-Q of Devon Energy Corporation;
2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: November 6, 2019	 	 	
 	 	 	
 	 	/s/ Jeffrey L. Ritenour	
 	 	Jeffrey L. Ritenour	
 	 	Executive Vice President and Chief Financial Officer	

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Report of Devon Energy Corporation (“Devon”) on Form 10-Q for the period ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Hager, President and Chief Executive Officer of Devon, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 	(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	
 	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Devon.	

 	
/s/ David A. Hager	
David A. Hager	
President and Chief Executive Officer	
November 6, 2019	

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Report of Devon Energy Corporation (“Devon”) on Form 10-Q for the period ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey L. Ritenour, Executive Vice President and Chief Financial Officer of Devon, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 	(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	
 	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Devon.	

 	
/s/ Jeffrey L. Ritenour	
Jeffrey L. Ritenour	
Executive Vice President and Chief Financial Officer	
November 6, 2019