Devon Energy Corporation

11/06/2026 | Press release | Distributed by Public on 11/06/2026 11:01

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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, 2026 compared to previous periods, and in our financial condition and liquidity since December 31, 2025. For information regarding our critical accounting policies and estimates, see our 2025 Annual Report on Form 10-K under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."

Executive Overview

We are a leading independent oil and natural gas exploration and production company whose operations are focused onshore in the United States. Our operations are currently focused in five core areas: Permian Basin, Rockies, Eagle Ford, Anadarko Basin and Marcellus Shale. Our asset base is underpinned by premium acreage in the economic core of the Permian Basin and our diverse, top-tier resource plays, providing a deep inventory of opportunities for years to come.

On February 1, 2026, we entered into the Merger Agreement providing for an all-stock merger of equals with Coterra, which successfully closed on May 7, 2026. The Merger created a leading large-cap shale operator with an asset base anchored by a premier position in the Permian Basin. We expect the combination to unlock substantial value for shareholders by leveraging enhanced scale to improve margins, increase free cash flow and accelerate cash returns through the capture of at least $1.0 billion in sustainable annual pre-tax synergies to be attained through an optimized capital program, operating margin improvements and streamlined corporate costs.

In connection with the Merger, we also initiated a review of our combined asset portfolio. On October 8, 2026, we entered into an agreement to sell our Eagle Ford assets for $4.2 billion in cash, subject to customary purchase price adjustments. The transaction furthers our strategy of focusing on our highest-return, longest-duration assets.

As a company, we remain focused on building economic value by executing on our strategic priorities of moderating production growth, emphasizing capital and operational efficiencies, optimizing reinvestment rates to maximize free cash flow, maintaining low leverage, delivering cash returns to our shareholders and pursuing operational excellence. Our recent performance highlights for these priorities include the following items for the third quarter of 2026:

•
Production totaled 1,668 MBoe/d, including oil production of 553 MBbls/d.
•
Generated $2.8 billion of operating cash flow.
•
Exited with $3.4 billion of liquidity, including $413 million of cash.
•
Retired $750 million of debt, bringing year-to-date retirements to $1.25 billion.
•
Announced a new $8.0 billion share repurchase program in May 2026 and repurchased approximately 8.9 million of our common shares for approximately $415 million, or $46.96 per share, under this share repurchase program during the third quarter of 2026.
•
Paid dividends of $366 million.
•
Remain on track to deliver at least $1.0 billion of annual pre-tax merger synergies by year-end 2027.
•
Earnings attributable to Devon were $1.0 billion, or $0.88 per diluted share.
•
Subsequent to quarter end, entered into an agreement to sell our Eagle Ford assets for $4.2 billion, with closing expected in early 2027.

Our net earnings and operating cash flow are highly dependent upon oil, gas and NGL prices, which can be volatile due to several varying factors. As shown in the graph below, during the first nine months of 2026, commodity prices have experienced heightened volatility, driven primarily by significant geopolitical events, including conflict in the Middle East and disruptions to global oil supply, along with continued uncertainty in global trade policy and OPEC+ production decisions.

Despite the potential negative impacts of higher inflation rates and supply chain disruptions created by these developments, we remain committed to capital discipline and delivering the objectives that underpin our current plan. Our disciplined, returns-driven strategy is designed to adapt to market fluctuations by reducing activity when necessary to maximize free cash flow generation. We will continue to prioritize value creation through moderated capital investment and production growth, particularly with a view of the volatility in commodity prices, supply chain constraints and the economic uncertainty arising from inflation and geopolitical events. Our cash-return objectives remain focused on opportunistic share repurchases, funding our dividends, repaying debt at upcoming maturities and building cash balances. To emphasize our commitment to maximizing free cash flow and creating value for shareholders, we remain on track to deliver at least $1.0 billion of annual pre-tax run-rate synergies by year end 2027, with approximately $700 million of synergies expected to be captured in 2027. We are driving progress on capital optimization, operating margin improvements and a reduced corporate cost structure through the sharing of best practices and technology across the combined company.

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 noncontrolling interests.

Q3 2026 vs. Q2 2026

Our third quarter 2026 and second quarter 2026 net earnings were $1.0 billion and $1.9 billion, respectively. The graph below shows the change in net earnings from the second quarter of 2026 to the third quarter of 2026. The material changes are further discussed by category on the following pages.

Production Volumes

Q3 2026

% of Total

Q2 2026

Change

Oil (MBbls/d)

Permian

389

70

%

329

18

%

Rockies

101

18

%

105

-4

%

Eagle Ford

37

7

%

48

-23

%

Anadarko

22

4

%

17

34

%

Other

4

1

%

4

N/M

Total

553

100

%

503

10

%

Q3 2026

% of Total

Q2 2026

Change

Gas (MMcf/d)

Permian

1,543

35

%

1,274

21

%

Rockies

230

5

%

237

-3

%

Eagle Ford

69

2

%

85

-19

%

Anadarko

538

12

%

396

36

%

Marcellus

2,018

46

%

1,258

60

%

Other

2

0

%

2

N/M

Total

4,400

100

%

3,252

35

%

Q3 2026

% of Total

Q2 2026

Change

NGLs (MBbls/d)

Permian

256

67

%

206

24

%

Rockies

48

13

%

47

1

%

Eagle Ford

13

3

%

15

-12

%

Anadarko

65

17

%

45

44

%

Other

-

0

%

1

N/M

Total

382

100

%

314

22

%

Q3 2026

% of Total

Q2 2026

Change

Combined (MBoe/d)

Permian

901

54

%

748

21

%

Rockies

187

11

%

192

-3

%

Eagle Ford

61

4

%

77

-20

%

Anadarko

177

11

%

128

39

%

Marcellus

336

20

%

210

60

%

Other

6

0

%

4

N/M

Total

1,668

100

%

1,359

23

%

From the second quarter of 2026 to the third quarter of 2026, the change in volumes contributed to a $669 million increase in earnings. The increase in volumes was primarily due to a full quarter of production from the Coterra legacy assets in the Permian, Anadarko and Marcellus acquired in the Merger, which closed on May 7, 2026, partially offset by natural well declines and the timing of completions in the Eagle Ford.

Realized Prices

Q3 2026

Realization

Q2 2026

Change

Oil (per Bbl)

WTI index

$

85.63

$

92.47

-7

%

Realized price, unhedged

$

84.69

99%

$

95.10

-11

%

Cash settlements

$

(5.15

)

$

(7.01

)

Realized price, with hedges

$

79.54

93%

$

88.09

-10

%

Q3 2026

Realization

Q2 2026

Change

Gas (per Mcf)

Henry Hub index

$

2.96

$

2.90

2

%

Realized price, unhedged

$

1.97

66%

$

0.35

459

%

Cash settlements

$

0.19

$

0.70

Realized price, with hedges

$

2.16

73%

$

1.05

106

%

Q3 2026

Realization

Q2 2026

Change

NGLs (per Bbl)

WTI index

$

85.63

$

92.47

-7

%

Realized price, unhedged

$

23.81

28%

$

22.70

5

%

Cash settlements

$

-

$

-

Realized price, with hedges

$

23.81

28%

$

22.70

5

%

Q3 2026

Q2 2026

Change

Combined (per Boe)

Realized price, unhedged

$

38.70

$

41.30

-6

%

Cash settlements

$

(1.20

)

$

(0.94

)

Realized price, with hedges

$

37.50

$

40.36

-7

%

From the second quarter of 2026 to the third quarter of 2026, realized prices contributed to a $164 million increase in earnings. Unhedged gas prices increased due to a full quarter of Coterra legacy Marcellus production, which shifted our gas mix away from the Permian, where negative Waha spot pricing impacted the second quarter of 2026. The increase was partially offset by lower unhedged oil prices due to lower WTI index prices.

We currently have approximately 45% and 30% of our remaining anticipated 2026 oil and gas production hedged, respectively. For 2027, we currently have approximately 35% and 10% of our anticipated oil and gas production hedged, respectively, excluding production from our Eagle Ford assets, which we expect to divest in early 2027. For additional information regarding the Eagle Ford divestiture, see Note 2 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

Hedge Settlements

Q3 2026

Q2 2026

Change

Oil

$

(262

)

$

(321

)

-18

%

Natural gas

77

205

N/M

Total cash settlements (1)

$

(185

)

$

(116

)

59

%

(1)
Included as a component of oil, gas and NGL derivatives on the consolidated statements of comprehensive earnings.

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 2026

Q2 2026

Change

LOE

$

764

$

626

22

%

Gathering, processing & transportation

490

391

25

%

Production taxes

376

357

5

%

Property taxes

21

19

11

%

Total

$

1,651

$

1,393

19

%

Per Boe:

LOE

$

4.98

$

5.06

-2

%

Gathering, processing & transportation

$

3.20

$

3.16

1

%

Percent of oil, gas and NGL sales:

Production taxes

6.3

%

7.0

%

-9

%

Production expenses increased primarily due to a full quarter of expenses associated with the Coterra legacy assets acquired in the Merger. Production taxes as a percentage of oil, gas and NGL sales decreased primarily due to a different post-merger asset and product mix.

DD&A

Q3 2026

Q2 2026

Change

Oil and gas per Boe

$

10.72

$

11.19

-4

%

Oil and gas

$

1,647

$

1,383

19

%

Other property and equipment

37

33

13

%

Total DD&A

$

1,684

$

1,416

19

%

DD&A increased in the third quarter of 2026 primarily due to a full quarter of DD&A associated with the Coterra legacy assets acquired in the Merger. For additional information regarding the Merger, see Note 2 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

G&A

Q3 2026

Q2 2026

Change

G&A per Boe

$

1.18

$

1.41

-17

%

Labor and benefits

$

107

$

95

13

%

Non-labor

73

80

-9

%

Total

$

180

$

175

3

%

G&A increased primarily due to a full quarter of labor and benefits costs associated with the Merger. However, our G&A per Boe rate decreased due to a shift in asset mix following the Merger, as increased production volumes drove Boe growth at a faster rate than the corresponding increase in G&A.

Other Items

Q3 2026

Q2 2026

Change in earnings

Commodity hedge valuation changes (1)

$

(729

)

$

530

$

(1,259

)

Marketing and midstream operations

(20

)

23

(43

)

Exploration expenses

14

16

2

Asset dispositions

-

(25

)

(25

)

Net financing costs

147

125

(22

)

Restructuring and transaction costs

69

246

177

Other, net

8

(187

)

(195

)

$

(1,365

)

(1)
Included as a component of oil, gas and NGL derivatives on the consolidated statements of comprehensive 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.

Restructuring and transaction costs reflect employee related costs and various transaction costs related to the Merger. For additional information, see Note 6 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

During the second quarter of 2026, we recognized a gain on our Fervo investment of approximately $201 million in other, net. For additional information, see Note 13 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

Income Taxes

Q3 2026

Q2 2026

Current expense

$

276

$

378

Deferred expense (benefit)

(32

)

95

Total expense

$

244

$

473

Current tax rate

22

%

16

%

Deferred tax rate

-3

%

4

%

Effective income tax rate

19

%

20

%

For discussion on income taxes, see Note 7 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

September 30, 2026 YTD vs. September 30, 2025 YTD

Our nine months ended September 30, 2026 net earnings were $3.0 billion, compared to net earnings of $2.1 billion for the nine months ended September 30, 2025. The graph below shows the change in net earnings from the nine months ended September 30, 2025 to the nine months ended September 30, 2026. The material changes are further discussed by category on the following pages.

Production Volumes

Nine Months Ended September 30,

2026

% of Total

2025

Change

Oil (MBbls/d)

Permian

315

65

%

222

42

%

Rockies

103

21

%

109

-5

%

Eagle Ford

43

9

%

42

2

%

Anadarko

17

4

%

12

43

%

Other

3

1

%

3

N/M

Total

481

100

%

388

24

%

Nine Months Ended September 30,

2026

% of Total

2025

Change

Gas (MMcf/d)

Permian

1,219

40

%

801

52

%

Rockies

232

8

%

235

-1

%

Eagle Ford

76

3

%

83

-8

%

Anadarko

391

13

%

262

49

%

Marcellus

1,100

36

%

-

N/M

Other

1

0

%

-

N/M

Total

3,019

100

%

1,381

119

%

Nine Months Ended September 30,

2026

% of Total

2025

Change

NGLs (MBbls/d)

Permian

200

66

%

129

56

%

Rockies

47

15

%

48

-2

%

Eagle Ford

13

4

%

12

5

%

Anadarko

45

15

%

29

55

%

Other

-

0

%

-

N/M

Total

305

100

%

218

40

%

Nine Months Ended September 30,

2026

% of Total

2025

Change

Combined (MBoe/d)

Permian

718

56

%

484

48

%

Rockies

189

15

%

196

-4

%

Eagle Ford

68

5

%

68

N/M

Anadarko

127

10

%

84

50

%

Marcellus

183

14

%

-

N/M

Other

5

0

%

4

N/M

Total

1,290

100

%

836

54

%

From the nine months ended September 30, 2025 to the nine months ended September 30, 2026, the change in volumes contributed to a $2.9 billion increase in earnings. Due to the Merger closing on May 7, 2026, volumes now include Coterra legacy assets in the Permian, Anadarko and Marcellus. Volumes associated with these Coterra legacy assets were approximately 431 MBoe/d in the nine months ended September 30, 2026.

Realized Prices

Nine Months Ended September 30,

2026

Realization

2025

Change

Oil (per Bbl)

WTI index

$

83.40

$

66.79

25

%

Realized price, unhedged

$

84.34

101%

$

64.66

30

%

Cash settlements

$

(4.89

)

$

0.69

Realized price, with hedges

$

79.45

95%

$

65.35

22

%

Nine Months Ended September 30,

2026

Realization

2025

Change

Gas (per Mcf)

Henry Hub index

$

3.64

$

3.39

7

%

Realized price, unhedged

$

1.34

37%

$

1.78

-24

%

Cash settlements

$

0.35

$

0.08

Realized price, with hedges

$

1.69

46%

$

1.86

-9

%

Nine Months Ended September 30,

2026

Realization

2025

Change

NGLs (per Bbl)

WTI index

$

83.40

$

66.79

25

%

Realized price, unhedged

$

22.01

26%

$

18.79

17

%

Cash settlements

$

-

$

0.07

Realized price, with hedges

$

22.01

26%

$

18.86

17

%

Nine Months Ended September 30,

2026

2025

Change

Combined (per Boe)

Realized price, unhedged

$

39.83

$

37.86

5

%

Cash settlements

$

(1.02

)

$

0.47

Realized price, with hedges

$

38.81

$

38.33

1

%

From the nine months ended September 30, 2025 to the nine months ended September 30, 2026, realized prices contributed to a $2.5 billion increase in earnings. This increase was primarily due to higher unhedged realized oil and NGL prices. This increase was partially offset by lower unhedged realized gas prices and oil hedge cash settlements.

Hedge Settlements

Nine Months Ended September 30,

2026

2025

Change

Oil

$

(643

)

$

73

-981

%

Natural gas

285

30

850

%

NGL

-

4

N/M

Total cash settlements (1)

$

(358

)

$

107

-435

%

(1)
Included as a component of oil, gas and NGL derivatives on the consolidated statements of comprehensive earnings.

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

Nine Months Ended September 30,

2026

2025

Change

LOE

$

1,876

$

1,443

30

%

Gathering, processing & transportation

1,072

636

69

%

Production taxes

938

576

63

%

Property taxes

52

51

2

%

Total

$

3,938

$

2,706

46

%

Per Boe:

LOE

$

5.33

$

6.32

-16

%

Gathering, processing & transportation

$

3.05

$

2.78

9

%

Percent of oil, gas and NGL sales:

Production taxes

6.7

%

6.7

%

0

%

Production expenses increased primarily due to the Merger closing on May 7, 2026, partially offset by positive results from the recently completed pre-merger business optimization plan. LOE per Boe decreased and gathering, processing & transportation per Boe increased due to a different post-merger asset and product mix. Production taxes increased primarily due to higher oil, gas and NGL sales, on which production taxes are assessed, driven by higher production volumes following the Merger.

DD&A and Asset Impairments

Nine Months Ended September 30,

2026

2025

Change

Oil and gas per Boe

$

11.10

$

11.52

-4

%

Oil and gas

$

3,908

$

2,630

49

%

Other property and equipment

96

75

27

%

Total DD&A

$

4,004

$

2,705

48

%

Asset impairments

$

-

$

254

N/M

DD&A increased in the first nine months of 2026 primarily due to higher volumes driven by the Merger and new well activity in the Permian.

In the first quarter of 2025, we rationalized two headquarters-related real estate assets resulting in total asset impairments of $254 million. See Note 5 in "Part I. Financial Information - Item 1. Financial Statements" of this report for further discussion.

G&A

Nine Months Ended September 30,

2026

2025

Change

G&A per Boe

$

1.36

$

1.56

-13

%

Labor and benefits

$

266

$

189

41

%

Non-labor

214

168

27

%

Total

$

480

$

357

34

%

G&A increased primarily due to the Merger closing on May 7, 2026. However, our G&A per Boe rate decreased due to a shift in asset mix following the Merger, as increased production volumes drove Boe growth at a faster rate than the corresponding increase in G&A.

Other Items

Nine Months Ended September 30,

2026

2025

Change in earnings

Commodity hedge valuation changes (1)

$

(843

)

$

111

$

(954

)

Marketing and midstream operations

(13

)

(42

)

29

Exploration expenses

55

38

(17

)

Asset dispositions

(24

)

(342

)

(318

)

Net financing costs

381

348

(33

)

Restructuring and transaction costs

334

36

(298

)

Other, net

(162

)

-

162

$

(1,429

)

(1)
Included as a component of oil, gas and NGL derivatives on the consolidated statements of comprehensive 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.

During the second quarter of 2025, we sold our investment in Matterhorn for $372 million and recognized a pre-tax gain of $307 million ($239 million, net of tax), which was recorded to asset dispositions. For additional information, see Note 2 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

Restructuring and transaction costs reflect employee related costs and various transaction costs related to the Merger. The majority of these costs were recorded in the second quarter of 2026. For additional information, see Note 6 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

During the first nine months of 2026, we recognized a gain on our Fervo investment of approximately $201 million in other, net. For additional information, see Note 13 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

Income Taxes

Nine Months Ended September 30,

2026

2025

Current expense

$

466

$

278

Deferred expense

297

322

Total expense

$

763

$

600

Current tax rate

12

%

10

%

Deferred tax rate

8

%

12

%

Effective income tax rate

20

%

22

%

For information on income taxes, see Note 7 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

Capital Resources, Uses and Liquidity

Sources and Uses of Cash

The following table presents the major changes in cash, cash equivalents and restricted cash for the three and nine months ended September 30, 2026 and 2025.

Three Months Ended September 30,

Nine Months Ended September 30,

2026

2025

2026

2025

Operating cash flow

$

2,808

$

1,690

$

8,137

$

5,177

Cash acquired in Merger

-

-

581

-

Capital expenditures

(1,464

)

(870

)

(3,621

)

(2,760

)

Acquisitions of property and equipment

(320

)

(197

)

(3,239

)

(221

)

Divestitures of property, equipment and investments

6

38

96

543

Investment activity, net

(85

)

5

(75

)

15

Debt activity

(750

)

(485

)

(1,250

)

(485

)

Repurchases of common stock

(414

)

(250

)

(680

)

(800

)

Common stock dividends

(366

)

(151

)

(887

)

(470

)

Noncontrolling interest activity, net

-

(260

)

-

(269

)

Repayment of finance leases

(3

)

-

(8

)

(274

)

Other

(8

)

(1

)

(75

)

(24

)

Net change in cash, cash equivalents and restricted cash

$

(596

)

$

(481

)

$

(1,021

)

$

432

Cash, cash equivalents and restricted cash at end of period

$

413

$

1,278

$

413

$

1,278

Operating Cash Flow and Cash Acquired in Merger

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 grew approximately 57% during the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. The increase was due to the Merger and significantly higher prices in the first nine months of 2026. Operating cash flow funded our capital expenditures, and we continued to return value to our shareholders by utilizing cash flow and cash balances for share repurchases, dividends and debt retirements.

Capital Expenditures

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,

2026

2025

2026

2025

Permian

$

859

$

462

$

2,094

$

1,418

Rockies

199

197

619

652

Eagle Ford

105

138

338

431

Anadarko

126

34

264

118

Marcellus

121

-

185

-

Other

-

1

2

3

Total oil and gas

1,410

832

3,502

2,622

Midstream

38

29

84

95

Other

16

9

35

43

Total capital expenditures

$

1,464

$

870

$

3,621

$

2,760

Capital expenditures consist primarily of amounts related to our oil and gas exploration and development operations, midstream operations and other corporate activities. Our capital investment program is driven by a disciplined allocation process focused on moderating our production growth and maximizing our returns. As such, our capital expenditures for the first nine months of 2026 represented approximately 45% of our operating cash flow. Capital expenditures increased in 2026 primarily due to the Merger closing on May 7, 2026 and results now include activity related to Coterra legacy assets in the Permian, Anadarko and Marcellus.

Acquisitions of Property and Equipment

During the first nine months of 2026, we completed acquisitions of property primarily related to state and federal land sales in the Permian for approximately $2.8 billion. For additional information, see Note 2 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

Divestitures of Property, Equipment and Investments

During the first nine months of 2026, we received proceeds of $96 million from asset dispositions.

During the first nine months of 2025, we generated additional cash flow by monetizing our investment in Matterhorn for $372 million and divesting headquarters-related real estate assets for $134 million as part of our real estate rationalization initiatives. For additional information regarding these divestitures, see Note 2 and Note 5, respectively, in "Part I. Financial Information - Item 1. Financial Statements" in this report.

Investment Activity

During the first nine months of 2026 and 2025, we received distributions from our investments of $32 million and $27 million, respectively. We contributed $107 million and $12 million to our investments during the first nine months of 2026 and 2025, respectively. The 2026 contributions primarily relate to our investment in Solitude. For additional information, see Note 13 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

Debt Activity

During the first nine months of 2026, we retired $1.25 billion of debt, including repayment of the $1.0 billion Term Loan. For additional information, see Note 14 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

During the first nine months of 2025, we early redeemed the $485 million of 5.85% senior notes due in December 2025 pursuant to the "par-call" rights set forth in the indenture document.

Shareholder Distributions and Stock Activity

We repurchased approximately 15.1 million shares of common stock for $686 million and approximately 23.7 million shares of common stock for $800 million under the share repurchase programs authorized by our Board of Directors in the first nine months of 2026 and 2025, respectively. For additional information, see Note 17 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

The following table summarizes our common stock dividends during the third quarter and total for the first nine months of 2026 and 2025. In connection with the Merger, Devon most recently raised its fixed dividend by approximately 33% from $0.24 to $0.32 per share in the second quarter of 2026.

Dividends

Rate Per Share

2026:

First quarter

$

155

$

0.24

Second quarter

366

$

0.32

Third quarter

366

$

0.32

Total year-to-date

$

887

2025:

First quarter

$

163

$

0.24

Second quarter

156

$

0.24

Third quarter

151

$

0.24

Total year-to-date

$

470

Noncontrolling Interest Activity, net

On August 1, 2025, Devon completed the acquisition of all outstanding noncontrolling interests in CDM for $260 million. Accordingly, all future net income and cash flows from CDM are fully attributable to Devon and there will be no further distributions to or contributions from noncontrolling interest holders.

During the first nine months of 2025, we distributed $23 million to, and received $14 million in contributions from, our noncontrolling interests in CDM.

Repayment of Finance Lease

During the first nine months of 2025, we paid $274 million in cash to extinguish a finance lease related to a headquarters-related real estate asset as part of our real estate rationalization initiatives.

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 landowners to enhance our existing portfolio of assets.

On May 7, 2026, Devon and Coterra completed an all-stock merger of equals transaction. The strategic combination is expected to unlock substantial value for shareholders by leveraging enhanced scale to improve margins, increase free cash flow and accelerate cash returns through the capture of at least $1.0 billion in sustainable annual pre-tax synergies. Following the successful completion of the Merger, we announced an $8.0 billion share repurchase program that expires on June 30, 2029. We also raised our fixed dividend by approximately 33% from $0.24 to $0.32 per share in the second quarter of 2026. In connection with the Merger, we initiated a review of our combined asset portfolio. As a result of this review, in October 2026, we entered into an agreement to sell our Eagle Ford assets. For additional information, see Note 2 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

Historically, our primary sources of capital funding and liquidity have been our operating cash flow and cash on hand. 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. 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, as well as execute our cash-return business model.

Operating Cash Flow

Key inputs into determining our planned capital investment are the amount 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 2026, we held approximately $413 million of cash. Our operating cash flow forecasts are sensitive to many variables and include a measure of uncertainty as actual results 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 uncertainty arising from geopolitical events, including conflict in the Middle East and related disruptions to global oil supply, weather, changes in public policy and other highly 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. The key terms of our oil, gas and NGL derivative financial instruments as of September 30, 2026 are presented in Note 3 in "Part I. Financial Information - Item 1. Financial Statements" of this report.

Further, when considering the current commodity price environment and our current hedge position, we expect to achieve our capital investment priorities. We remain committed to capital discipline and focused on delivering the objectives that underpin our capital plan for 2026.

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.

Cost savings and synergies resulting from the Merger are expected to be attained through an optimized capital program, operating margin improvements and streamlined corporate costs. We remain on track to deliver at least $1.0 billion of annual pre-tax run-rate synergies by year-end 2027, with approximately $700 million of synergies expected to be captured in 2027. Shared best practices and technology are driving progress across these initiatives, strengthening margins and maximizing capital efficiency across the combined portfolio.

Additionally, the economic uncertainty arising from geopolitical events, including conflict in the Middle East and related disruptions to global oil supply, as well as evolving U.S. trade policies and tariff actions, may contribute to higher inflation rates and disrupt supply chains, negatively impacting our cash flow. While we actively work to mitigate the impact of these potential risks

through operational efficiencies gained from the scale of our operations, as well as by leveraging long-standing relationships with our suppliers, the ultimate impacts remain uncertain.

Restructuring and Transaction Related Costs - Merger-related restructuring and transaction cost cash outflows were paid in the first nine months of 2026, with additional costs expected to be paid primarily through the end of 2027. Payments extending beyond 2026 relate primarily to employee costs and the associated employee severance benefits, costs to modify or abandon vendor contracts and the acceleration of certain employee benefits triggered by the Merger.

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 owners 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, joint interest owners and counterparties. Such mechanisms include, under certain conditions, requiring letters of credit, prepayments or cash collateral postings.

Assumption of Coterra Debt

In conjunction with the Merger closing on May 7, 2026, we assumed a principal value of approximately $3.5 billion of Coterra debt.

Repayment of Debt

During the first nine months of 2026, we retired $1.25 billion of debt, including repayment of the $1.0 billion Term Loan. Following these repayments, we have no outstanding debt maturities until the second quarter of 2027. We expect these repayments to lower our annual cash net financing costs by approximately $60 million.

Credit Availability

As of September 30, 2026, we had approximately $3.0 billion of available borrowing capacity 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, 2026, there were no borrowings under our commercial paper program, and we were in compliance with the Senior Credit Facility's financial covenant.

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 the size and scale of our production. Our credit rating from Standard and Poor's Financial Services is BBB+ with a stable outlook. Our credit rating from Fitch is BBB+ with a positive outlook. Our credit rating from Moody's Investor Service is Baa2 with a positive outlook. Any rating downgrades may result in additional letters of credit or cash collateral being posted under certain contractual arrangements.

There are no "rating triggers" in any of our contractual debt obligations that would accelerate scheduled maturities should our debt rating fall below a specified level. However, a downgrade could adversely impact our interest rate on any credit facility borrowings and the ability to economically access debt markets in the future.

Cash Returns to Shareholders

We are committed to returning cash to shareholders through dividends and share repurchases. Our Board of Directors will consider a number of factors when setting the quarterly dividend, if any, including a general target of paying out approximately 10% to 15% of operating cash flow through the fixed dividend. In addition to the fixed quarterly dividend, we may pay a variable dividend or complete share repurchases. The declaration and payment of any future dividend, whether fixed or variable, will remain at the full discretion of our Board of Directors and will depend on our financial results, cash requirements, future prospects and other factors deemed relevant by the Board.

In November 2026, Devon announced a cash dividend in the amount of $0.32 per share payable in the fourth quarter of 2026 and will total approximately $363 million.

Following the completion of the Merger, we announced an $8.0 billion share repurchase program that expires on June 30, 2029. Through October 2026, we had executed approximately $725 million of the authorized program.

Capital Expenditures

Our capital expenditures budget for the remainder of 2026 is expected to be approximately $1.3 billion to $1.4 billion. Our budget includes the Eagle Ford assets through the expected closing of the sale.

Contractual Obligations

As a result of the Merger, we increased our material contractual obligations, which include debt and related interest expense, asset retirement obligations, lease obligations, operational agreements, drilling and facility obligations, various tax obligations and other obligations. As discussed above, we estimate the combination of our sources of capital will continue to be adequate to fund our short- and long-term contractual obligations.

Tax Contingencies

As we are regularly audited by tax authorities, we have and will continue to have our tax positions challenged. Certain tax authorities require material cash deposits be made to further dispute and respond to any of our challenged tax positions. The Canada Revenue Agency ("CRA") proposed several material adjustments to prior tax years relating to our legacy Canadian business. We have been engaging with the CRA to resolve these matters, and the CRA has issued formal assessments for certain of such adjustments. We disagree with the adjustments and intend to vigorously contest the assessments, which may require us to make material cash deposits while the matters are being resolved.

Divestitures of Property and Equipment

In October 2026, we entered into an agreement to sell our Eagle Ford assets for $4.2 billion in cash, subject to customary purchase price adjustments. The transaction is expected to close in early 2027, subject to regulatory approvals and customary closing conditions. We intend to use the proceeds to accelerate share repurchases and to strengthen the balance sheet through debt reduction. Additional information is included in Note 2 in "Part I. Financial Information - Item 1. Financial Statements" in this report.

Critical Accounting Estimates

Purchase Accounting

Periodically, we acquire assets and assume liabilities in transactions accounted for as business combinations, such as the Merger with Coterra. In connection with the Merger, we allocated the $24.9 billion of purchase price consideration to the assets acquired and liabilities assumed based on estimated fair values as of the date of the acquisition.

We made a number of assumptions in estimating the fair value of assets acquired and liabilities assumed in the Merger. The most significant assumptions relate to the estimated fair values of proved and unproved oil and gas properties. Since sufficient market data was not available regarding the fair values of proved and unproved oil and gas properties, we prepared estimates and engaged third-party valuation experts. Significant judgments and assumptions are inherent in these estimates and include, among other things, estimates of reserve quantities, estimates of future commodity prices, drilling plans, expected development costs, lease operating costs, reserve risk adjustment factors and an estimate of an applicable market participant discount rate that reflects the risk of the underlying cash flow estimates.

Estimated fair values ascribed to assets acquired can have a significant impact on future results of operations presented in Devon's financial statements. A higher fair value ascribed to a property results in higher DD&A expense, which results in lower net earnings. Fair values are based on estimates of future commodity prices, reserve quantities, development costs and operating costs. In the event that future commodity prices or reserve quantities are lower than those used as inputs to determine estimates of acquisition date fair values, the likelihood increases that certain costs may be determined to not be recoverable.

Income Taxes

The amount of income taxes recorded requires interpretations of complex rules and regulations of federal, state, provincial and foreign tax jurisdictions. We recognize current tax expense based on estimated taxable income for the current period and the applicable statutory tax rates. We routinely assess potential uncertain tax positions and, if required, estimate and establish accruals for such amounts. We have recognized deferred tax assets and liabilities for temporary differences, operating losses and other tax carryforwards. We routinely assess our deferred tax assets and reduce such assets by a valuation allowance if we deem it is more likely than not that some portion or all of the deferred tax assets will not be realized.

On July 4, 2025, OBBB was signed into law. In addition to other provisions, OBBB includes permanent reinstatement of 100% bonus depreciation and the expensing of domestic research costs beginning in 2025 and allows for deduction of intangible drilling costs as part of the computation of the CAMT beginning in 2026. On February 18, 2026, the IRS issued additional interim CAMT guidance through Notice 2026-7. In addition to other provisions, the Notice includes a new AFSI adjustment beginning in 2025 for amortization of domestic research costs, including accelerated amortization under the OBBB transition rule, the impact of which was recorded in the first quarter of 2026. We continue to monitor for additional OBBB guidance.

Further, in the event we were to undergo an "ownership change" (as defined in Section 382 of the Internal Revenue Code of 1986, as amended), our ability to use net operating losses and tax credits generated prior to the ownership change may be limited. Generally, an "ownership change" occurs if one or more shareholders, each of whom owns five percent or more in value of a corporation's stock, increase their aggregate percentage ownership by more than 50 percent over the lowest percentage of stock owned by those shareholders at any time during the preceding three-year period. Based on currently available information, we do not believe an ownership change has occurred during the third quarter of 2026 for Devon; however, the Merger resulted in an ownership change for Coterra, which increases the likelihood Devon could experience an ownership change over the next three years.

For additional information regarding our critical accounting policies and estimates, see our 2025 Annual Report on Form 10-K.

Devon Energy Corporation published this content on November 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 06, 2026 at 17:01 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]