Stock Quote: NYSE

OKLAHOMA CITY--(BUSINESS WIRE)-- Devon Energy Corp. (NYSE: DVN) today reported operational and financial results for the third quarter of 2016 and provided guidance for the fourth quarter of 2016.

Highlights

• Achieved record-setting well results in U.S. resource plays
• Increased STACK production 38 percent year over year
• Decreased lease operating expenses 37 percent from peak rates
• Expected cost savings to reach $1 billion in 2016
• Completed $3.2 billion asset divestiture program
• Repurchased $1.2 billion of debt

“Devon delivered an outstanding operational performance in the third quarter,” said Dave Hager, president and CEO. “Our development programs generated the best quarterly drill-bit results in Devon’s 45 year history. These prolific well results were centered in the STACK play, where production increased by 38 percent. We also continued to achieve significant cost savings in the quarter and we are on pace to reduce operating and G&A expenses by $1 billion in 2016.”

“In addition to our strong operating performance, we were able to successfully complete our $3.2 billion divestiture program,” Hager said. “These accretive transactions strengthened our investment-grade position and significantly reduced our leverage from earlier this year. This improved financial strength allows us to further accelerate investment in our best-in-class U.S. resource plays, led by the STACK and Delaware Basin.”

Record-Setting Well Results in U.S. Resource Plays

Total production averaged 577,000 oil-equivalent barrels (Boe) per day in the third quarter of 2016. Excluding divestiture properties, production from Devon’s retained asset base amounted to 550,000 Boe per day. With the shift to higher-margin production, oil is now the largest component of the company’s product mix at 45 percent of total volumes. To further enhance the profitability of production, Devon rejected approximately 6,000 barrels per day of ethane during the third quarter.

The majority of Devon’s retained asset production was attributable to its U.S. resource plays, which averaged 410,000 Boe per day. Production in the third quarter benefited from new well activity that achieved record-setting productivity. In aggregate, Devon commenced production on 20 development wells, with initial 30-day rates averaging an all-time quarterly high of 2,000 Boe per day. These prolific results were concentrated in the company’s STACK play, where production increased 38 percent year over year.

In Canada, Devon’s heavy-oil operations also delivered impressive results with net oil production reaching 137,000 barrels per day in the third quarter. Driven by the industry-leading performance of the Jackfish complex, Canadian oil production increased 13 percent compared to the third quarter of 2015.

In the upcoming fourth quarter, oil production from retained assets is expected to be relatively stable compared to the third quarter, ranging between 238,000 and 248,000 barrels per day. Key drivers of the stabilized oil production are high activity levels in the STACK and accelerated completion activity in the Eagle Ford. Top-line production from retained assets is projected to range between 524,000 and 546,000 Boe per day in the fourth quarter.

Operating and G&A Cost Savings to Reach $1 Billion in 2016

Devon’s successful cost-reduction initiatives resulted in lease operating expenses (LOE) of $355 million in the third quarter, which was 7 percent below the low end of guidance. This strong cost result represents a decline of 37 percent from peak costs in mid-2015. The decrease in LOE was primarily driven by improved power and water-handling infrastructure, declining labor expense and lower supply chain costs.

The company also realized significant general and administrative (G&A) cost savings. Net G&A expenditures declined to $141 million in the third quarter. Including capitalized costs, total G&A expense declined to $195 million, a 44 percent improvement compared to peak rates in early 2015. The decrease was driven by reduced personnel costs.

Due to the strong cost performance achieved year to date, the company is lowering its full-year 2016 LOE outlook by $55 million to a midpoint of $1.6 billion. With this improved outlook, Devon is on track to reduce LOE, production taxes and G&A costs by $1 billion compared to 2015.

Upstream Revenue Rises; EnLink Profitability Expands

Improving commodity prices advanced the company’s upstream revenue to $1.1 billion in the third quarter, with per-unit realizations increasing 13 percent compared to the previous quarter. Oil revenue increased to 67 percent of total upstream sales in the third quarter.

Devon’s midstream results also improved, with operating profits totaling $210 million in the third quarter, bringing the year-to-date total to $619 million. This steady source of profitability was driven by the company’s investment in EnLink Midstream. Year-to-date, EnLink-related operating profit has expanded 7 percent compared to the same period in 2015.

EnLink’s growing profitability is derived from an asset base that is positioned in some of the most attractive markets in North America, including the STACK, Midland Basin, Delaware Basin and an NGL business that services end-user demand along the Gulf Coast. In aggregate, the company’s ownership in EnLink is valued at approximately $3.5 billion and will generate cash distributions of $270 million in 2016.

Third-Quarter 2016 Operations Report

For additional details on Devon’s E&P operations, please refer to the company’s third-quarter 2016 operations report at www.devonenergy.com. Highlights from the report include:

• Record-setting well results in the STACK
• Raising Meramec and Woodford type curves
• Accelerating Delaware Basin rig activity
• Wolfcamp drilling to ramp up in 2017
• Eagle Ford resumes completion activity
• Jackfish complex production exceeds nameplate capacity

Divestiture Program Complete: Proceeds Reach $3.2 Billion

Devon’s divestiture program is now complete with total proceeds reaching $3.2 billion. During the quarter, the company closed on the sale of non-core assets in the Midland Basin, East Texas and Granite Wash for $1.8 billion. With the closing of these transactions, the company’s upstream divestiture proceeds have reached $2.1 billion.

Subsequent to quarter end, on Oct. 6, 2016, the company closed on the sale of its 50 percent interest in the Access Pipeline for USD $1.1 billion. In addition to these initial proceeds, Devon also has the right to receive an incremental USD $120 million payment with the sanctioning and development of a new thermal-oil project on Devon’s Pike lease in Alberta, Canada. The sale agreement further allows for Access Pipeline tolls to be reduced by as much as 30 percent with the future development of multiple projects at Pike.

Significant Liquidity and Financial Strength

Devon’s financial position remains exceptionally strong, with investment-grade credit ratings and excellent liquidity. The company exited the third quarter with $2.4 billion of cash on hand. Adjusted for the Access Pipeline sale, cash balances reached $3.5 billion.

In August, the company successfully tendered for $1.2 billion of debt, which is expected to reduce interest expense by $54 million annually. With the tendering activity focused on near-term maturities, Devon has no significant long-term debt maturities until mid-2021.

At the end of September, the company’s consolidated debt totaled $11.4 billion. Excluding non-recourse EnLink obligations and adjusting for Access Pipeline proceeds, adjusted net debt has declined to $4.7 billion.

Devon Increases Hedging Position in 2017

In recent months, Devon has had the opportunity to materially increase its hedging position in 2017. For oil volumes, Devon has utilized a combination of swaps and collars to hedge 83,000 barrels per day of production. For gas volumes, Devon now has 390 million cubic feet per day of production. These hedging positions represent more than 30 percent of current oil and natural gas production.

The company expects to continue to add to its hedging position and is targeting to have approximately 50 percent of its estimated revenues protected in 2017. This risk-management program will be a combination of systematic hedges added on a quarterly basis and discretionary hedges that take advantage of favorable market conditions.

Operating Cash Flow Grows 117 Percent; Earnings Beat Wall Street Consensus

Operating cash flow reached $726 million in the third quarter, a 117 percent increase compared to the second quarter of 2016. Combined with proceeds received from the sale of non-core assets, Devon’s total cash inflows for the quarter reached $2.4 billion.

Devon’s reported net earnings totaled $993 million or $1.89 per diluted share in the third quarter. These earnings results were impacted by certain items securities analysts typically exclude from their published estimates, with the most significant of these items being $1.4 billion in gains related to U.S. asset sales. Excluding these gains and other adjusting items, Devon’s core earnings were $47 million or $0.09 per diluted share, exceeding consensus analyst estimates.

Devon’s core earnings calculation in the third quarter was negatively impacted by an $85 million, non-cash tax charge. Excluding this charge, the company’s core earnings would have been $0.16 per share higher, further widening the margin of outperformance versus analyst expectations.

Updated 2016 Outlook

Detailed forward-looking guidance for the fourth quarter of 2016 is provided later in the release. Based on year-to-date results and Devon’s fourth-quarter outlook, most operating and financial metrics remain relatively unchanged compared to previous guidance disclosures.

Of note, in the fourth quarter, the company expects to increase its rig activity in the U.S. from five operated rigs running in the third quarter to as many as 10 operated rigs by year end. This activity is expected to result in approximately $400 million to $425 million of E&P capital expenditures in the fourth quarter.

Non-GAAP Reconciliations

Pursuant to regulatory disclosure requirements, Devon is required to reconcile non-GAAP (generally accepted accounting principles) financial measures to the related GAAP information. Net debt, adjusted net debt, core earnings, and core earnings per share referenced within the commentary of this release are non-GAAP financial measures. Reconciliations and other important information regarding these non-GAAP measures are provided within the tables of this release.

Conference Call Webcast and Supplemental Earnings Materials

Please note that as soon as practicable today, Devon will post an operations report to its website at www.devonenergy.com. The company’s third-quarter conference call will be held at 10 a.m. Central (11 a.m. Eastern) on Wednesday, Nov. 2, 2016, and will serve primarily as a forum for analyst and investor questions and answers.

Forward-Looking Statements

This press release includes "forward-looking statements" as defined by the Securities and Exchange Commission (SEC). Such statements include those concerning strategic plans, expectations and objectives for future operations, and are often identified by use of the words “expects,” “believes,” “will,” “would,” “could,” “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 press release that address activities, events or developments that the company expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Statements regarding our business and operations are subject to all of the risks and uncertainties normally incident to the exploration for and development and production of oil and gas. These risks include, but are not limited to: the volatility of oil, gas and NGL prices, including the currently depressed commodity price environment; 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 exploration and development activities; risks related to our hedging activities; counterparty credit risks; regulatory restrictions, compliance costs and other risks relating to governmental regulation, including with respect to environmental matters; risks relating to our indebtedness; our ability to successfully complete mergers, acquisitions and divestitures; the extent to which insurance covers any losses we may experience; our limited control over third parties who operate our oil and gas properties; midstream capacity constraints and potential interruptions in production; competition for leases, materials, people and capital; cyberattacks targeting our systems and infrastructure; and any of the other risks and uncertainties identified in our Form 10-K and our other filings with the SEC. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. The forward-looking statements in this press release are made as of the date of this press release, even if subsequently made available by Devon on its website or otherwise. Devon does not undertake any obligation to update the forward-looking statements as a result of new information, future events or otherwise.

The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC's definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves. This release may contain certain terms, such as resource potential, potential locations, risk and unrisked locations, estimated ultimate recovery (or EUR), exploration target size and other similar terms. These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized. The SEC guidelines strictly prohibit us from including these estimates in filings with the SEC. Investors are urged to consider closely the disclosure in our Form 10-K, available at www.devonenergy.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or from the SEC’s website at www.sec.gov.

About Devon Energy

Devon Energy is a leading independent energy company engaged in finding and producing oil and natural gas. Based in Oklahoma City and included in the S&P 500, Devon operates in several of the most prolific oil and natural gas plays in the U.S. and Canada with an emphasis on a balanced portfolio. The company is the second-largest oil producer among North American onshore independents. For more information, please visit www.devonenergy.com.

DEVON ENERGY CORPORATION
FINANCIAL AND OPERATIONAL INFORMATION
				Quarter Ended								Nine Months Ended
PRODUCTION NET OF ROYALTIES				September 30,								September 30,
				2016				2015				2016				2015
Oil and bitumen (MBbls/d)
U. S. - Core				108				140				124				143
Heavy Oil				137				121				128				107
Retained assets				245				261				252				250
Divested assets				6				21				13				24
Total				251				282				265				274
Natural gas liquids (MBbls/d)
U. S. - Core				96				108				107				109
Divested assets				8				26				17				27
Total				104				134				124				136
Gas (MMcf/d)
U. S. - Core				1,231				1,319				1,292				1,336
Heavy Oil				18				16				20				21
Retained assets				1,249				1,335				1,312				1,357
Divested assets				75				251				165				262
Total				1,324				1,586				1,477				1,619
Oil equivalent (MBoe/d)
U. S. - Core				410				467				446				474
Heavy Oil				140				124				132				111
Retained assets				550				591				578				585
Divested assets				27				89				57				95
Total				577				680				635				680

KEY OPERATING STATISTICS BY REGION
				Quarter Ended September 30, 2016
				Avg. Production				Gross Wells				Operated Rigs at
				(MBoe/d)				Drilled				September 30, 2016
STACK				92				37				4
Delaware Basin				59				8				1
Eagle Ford				61				4				—
Heavy Oil				140				3				1
Barnett Shale				166				—				—
Rockies Oil				16				—				—
Other assets				16				—				—
Retained assets				550				52				6
Divested assets				27				—				—
Total				577				52				6

PRODUCTION TREND				2015								2016
				Quarter 3				Quarter 4				Quarter 1				Quarter 2				Quarter 3
Oil and bitumen (MBbls/d)
STACK				7				9				15				19				21
Delaware Basin				41				42				38				36				31
Eagle Ford				62				60				59				41				33
Heavy Oil				121				121				126				121				137
Barnett Shale				1				1				1				1				1
Rockies Oil				16				15				17				15				11
Other assets				13				12				12				11				11
Retained assets				261				260				268				244				245
Divested assets				21				18				17				15				6
Total				282				278				285				259				251
Natural gas liquids (MBbls/d)
STACK				22				24				30				30				23
Delaware Basin				8				11				12				13				12
Eagle Ford				26				27				24				17				13
Barnett Shale				47				49				46				46				44
Rockies Oil				2				1				1				1				1
Other assets				3				3				2				3				3
Retained assets				108				115				115				110				96
Divested assets				26				24				22				21				8
Total				134				139				137				131				104
Gas (MMcf/d)
STACK				229				253				306				289				292
Delaware Basin				70				82				84				99				92
Eagle Ford				155				152				144				103				85
Heavy Oil				16				24				15				28				18
Barnett Shale				807				786				768				757				730
Rockies Oil				41				38				32				31				19
Other assets				17				16				17				14				13
Retained assets				1,335				1,351				1,366				1,321				1,249
Divested assets				251				232				215				206				75
Total				1,586				1,583				1,581				1,527				1,324
Oil equivalent (MBoe/d)
STACK				67				75				96				97				92
Delaware Basin				61				66				63				65				59
Eagle Ford				113				113				107				76				61
Heavy Oil				124				125				129				126				140
Barnett Shale				183				181				175				173				166
Rockies Oil				25				23				23				21				16
Other assets				18				18				18				16				16
Retained assets				591				601				611				574				550
Divested assets				89				80				74				70				27
Total				680				681				685				644				577

BENCHMARK PRICES
(average prices)				Quarter 3										September YTD
				2016					2015					2016					2015
Oil ($/Bbl) - West Texas Intermediate (Cushing)				$	45.02				$	46.69				$	41.41				$	51.11
Natural Gas ($/Mcf) - Henry Hub				$	2.81				$	2.77				$	2.28				$	2.80
REALIZED PRICES				Quarter Ended September 30, 2016
				Oil /Bitumen					NGL					Gas					Total
				(Per Bbl)					(Per Bbl)					(Per Mcf)					(Per Boe)
United States				$	42.51				$	9.80				$	2.24				$	20.26
Canada				$	23.71					N/M					N/M				$	23.23
Realized price without hedges				$	32.27				$	9.80				$	2.24				$	20.98
Cash settlements				$	0.84				$	0.10				$	(0.04	)			$	0.32
Realized price, including cash settlements				$	33.11				$	9.90				$	2.20				$	21.30
				Quarter Ended September 30, 2015
				Oil /Bitumen					NGL					Gas					Total
				(Per Bbl)					(Per Bbl)					(Per Mcf)					(Per Boe)
United States				$	42.09				$	8.80				$	2.24				$	20.66
Canada				$	25.10					N/M					N/M				$	24.55
Realized price without hedges				$	34.78				$	8.80				$	2.24				$	21.37
Cash settlements				$	21.16				$	—				$	0.47				$	9.86
Realized price, including cash settlements				$	55.94				$	8.80				$	2.71				$	31.23
				Nine Months Ended September 30, 2016
				Oil /Bitumen					NGL					Gas					Total
				(Per Bbl)					(Per Bbl)					(Per Mcf)					(Per Boe)
United States				$	36.89				$	8.84				$	1.70				$	17.16
Canada				$	18.58					N/M					N/M				$	18.15
Realized price without hedges				$	28.03				$	8.84				$	1.70				$	17.37
Cash settlements				$	(0.57	)			$	(0.06	)			$	0.12				$	0.02
Realized price, including cash settlements				$	27.46				$	8.78				$	1.82				$	17.39
				Nine Months Ended September 30, 2015
				Oil /Bitumen					NGL					Gas					Total
				(Per Bbl)					(Per Bbl)					(Per Mcf)					(Per Boe)
United States				$	45.91				$	9.50				$	2.27				$	22.18
Canada				$	27.84					N/M					N/M				$	27.06
Realized price without hedges				$	38.81				$	9.50				$	2.27				$	22.98
Cash settlements				$	19.48				$	—				$	0.53				$	9.11
Realized price, including cash settlements				$	58.29				$	9.50				$	2.80				$	32.09

CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share amounts)				Quarter Ended												Nine Months Ended
				September 30,												September 30,
				2016						2015						2016						2015
Oil, gas and NGL sales				$	1,113					$	1,338					$	3,023					$	4,264
Oil, gas and NGL derivatives					79						414						(30	)					426
Marketing and midstream revenues					1,690						1,849						4,503						5,569
Gains on asset sales					1,351						-						1,351						-
Total revenues and other					4,233						3,601						8,847						10,259
Lease operating expenses					355						510						1,215						1,625
Marketing and midstream operating expenses					1,480						1,637						3,884						4,939
General and administrative expenses					141						198						482						661
Production and property taxes					67						91						220						315
Depreciation, depletion and amortization					394						744						1,420						2,488
Asset impairments					319						5,851						4,851						15,479
Restructuring and transaction costs					(5	)					—						266						—
Other operating items					17						14						41						54
Total operating expenses					2,768						9,045						12,379						25,561
Operating income (loss)					1,465						(5,444	)					(3,532	)					(15,302	)
Net financing costs					243						136						570						378
Other nonoperating items					44						43						150						46
Earnings (loss) before income taxes					1,178						(5,623	)					(4,252	)					(15,726	)
Income tax expense (benefit)					171						(1,714	)					(228	)					(5,435	)
Net earnings (loss)					1,007						(3,909	)					(4,024	)					(10,291	)
Net earnings (loss) attributable to noncontrolling interests					14						(402	)					(391	)					(369	)
Net earnings (loss) attributable to Devon				$	993					$	(3,507	)				$	(3,633	)				$	(9,922	)
Net earnings (loss) per share attributable to Devon:
Basic				$	1.90					$	(8.64	)				$	(7.22	)				$	(24.45	)
Diluted				$	1.89					$	(8.64	)				$	(7.22	)				$	(24.45	)
Weighted average common shares outstanding:
Basic					524						411						509						411
Diluted					527						411						509						411

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
				Quarter Ended												Nine Months Ended
				September 30,												September 30,
				2016						2015						2016						2015
Cash flows from operating activities:
Net earnings (loss)				$	1,007					$	(3,909	)				$	(4,024	)				$	(10,291	)
Adjustments to reconcile net earnings (loss) to net cash from operating activities:
Depreciation, depletion and amortization					394						744						1,420						2,488
Asset impairments					319						5,851						4,851						15,479
Gains on asset sales					(1,351	)					-						(1,351	)					-
Deferred income tax expense (benefit)					86						(1,708	)					(300	)					(5,348	)
Derivatives and other financial instruments					(58	)					(481	)					359						(606	)
Cash settlements on derivatives and financial instruments					15						730						(133	)					1,913
Other					169						171						190						437
Net change in working capital					136						67						181						93
Change in long-term other assets					(3	)					52						10						211
Change in long-term other liabilities					12						36						7						(74	)
Net cash from operating activities					726						1,553						1,210						4,302
Cash flows from investing activities:
Capital expenditures					(421	)					(1,080	)					(1,659	)					(4,229	)
Acquisitions of property, equipment and businesses					(3	)					(113	)					(1,641	)					(530	)
Divestitures of property and equipment					1,680						27						1,889						35
Other					34						(3	)					7						(8	)
Net cash from investing activities					1,290						(1,169	)					(1,404	)					(4,732	)
Cash flows from financing activities:
Borrowings of long-term debt, net of issuance costs					816						277						1,662						3,328
Repayments of long-term debt					(2,173	)					(252	)					(2,722	)					(1,773	)
Net short-term debt repayments					—						(169	)					(626	)					(932	)
Early retirement of debt					(82	)					—						(82	)					—
Issuance of common stock					—						—						1,469						—
Sale of subsidiary units					—						—						—						654
Issuance of subsidiary units					59						9						835						13
Dividends paid on common stock					(32	)					(99	)					(190	)					(296	)
Contributions from noncontrolling interests					146						5						151						12
Distributions to noncontrolling interests					(77	)					(68	)					(224	)					(186	)
Other					(2	)					(3	)					(9	)					(18	)
Net cash from financing activities					(1,345	)					(300	)					264						802
Effect of exchange rate changes on cash					(9	)					(22	)					5						(65	)
Net change in cash and cash equivalents					662						62						75						307
Cash and cash equivalents at beginning of period					1,723						1,725						2,310						1,480
Cash and cash equivalents at end of period				$	2,385					$	1,787					$	2,385					$	1,787

CONSOLIDATED BALANCE SHEETS
(in millions)				September 30,						December 31,
				2016						2015
Current assets:
Cash and cash equivalents				$	2,385					$	2,310
Accounts receivable					1,092						1,105
Assets held for sale					717						—
Other current assets					257						606
Total current assets					4,451						4,021
Property and equipment, at cost:
Oil and gas, based on full cost accounting:
Subject to amortization					75,431						78,190
Not subject to amortization					3,637						2,584
Total oil and gas					79,068						80,774
Midstream and other					10,320						10,380
Total property and equipment, at cost					89,388						91,154
Less accumulated depreciation, depletion and amortization					(73,219	)					(72,086	)
Property and equipment, net					16,169						19,068
Goodwill					3,963						5,032
Other long-term assets					2,230						1,330
Total assets				$	26,813					$	29,451
Current liabilities:
Accounts payable				$	529					$	906
Revenues and royalties payable					860						763
Short-term debt					350						976
Liabilities held for sale					202						—
Other current liabilities					910						650
Total current liabilities					2,851						3,295
Long-term debt					11,004						12,056
Asset retirement obligations					1,230						1,370
Other long-term liabilities					1,036						853
Deferred income taxes					631						888
Stockholders’ equity:
Common stock					52						42
Additional paid-in capital					7,487						4,996
Retained earnings (accumulated deficit)					(1,977	)					1,781
Accumulated other comprehensive earnings					278						230
Total stockholders’ equity attributable to Devon					5,840						7,049
Noncontrolling interests					4,221						3,940
Total stockholders’ equity					10,061						10,989
Total liabilities and stockholders’ equity				$	26,813					$	29,451
Common shares outstanding					524						418

CONSOLIDATING STATEMENTS OF OPERATIONS
(in millions)
				Quarter Ended September 30, 2016
				Devon U.S. & Canada						EnLink						Eliminations						Total
Oil, gas and NGL sales				$	1,113					$	—					$	—					$	1,113
Oil, gas and NGL derivatives					79						—						—						79
Marketing and midstream revenues					766						1,104						(180	)					1,690
Gains on asset sales					1,351						—						—						1,351
Total revenues and other					3,309						1,104						(180	)					4,233
Lease operating expenses					355						—						—						355
Marketing and midstream operating expenses					784						876						(180	)					1,480
General and administrative expenses					111						30						—						141
Production and property taxes					57						10						—						67
Depreciation, depletion and amortization					268						126						—						394
Asset impairments					319						—						—						319
Restructuring and transaction costs					(5	)					—						—						(5	)
Other operating items					20						(3	)					—						17
Total operating expenses					1,909						1,039						(180	)					2,768
Operating income					1,400						65						—						1,465
Net financing costs					195						48						—						243
Other nonoperating items					46						(2	)					—						44
Earnings before income taxes					1,159						19						—						1,178
Income tax expense					164						7						—						171
Net earnings					995						12						—						1,007
Net earnings attributable to noncontrolling interests					—						14						—						14
Net earnings (loss) attributable to Devon				$	995					$	(2	)				$	—					$	993

OTHER KEY STATISTICS
(in millions)				Quarter Ended September 30, 2016
				Devon U.S. & Canada						EnLink						Eliminations					Total
Cash flow statement related items:
Operating cash flow				$	517					$	209					$	—				$	726
Capital expenditures				$	(285	)				$	(136	)				$	—				$	(421	)
Divestitures of property and equipment				$	1,676					$	4					$	—				$	1,680
EnLink distributions received (paid)				$	66					$	(143	)				$	—				$	(77	)
Issuance of subsidiary units				$	—					$	59					$	—				$	59
Balance sheet statement items:
Net debt (1)				$	5,784					$	3,185					$	—				$	8,969

(1) Net debt is a non-GAAP measure. For a reconciliation of the comparable GAAP measure, see "Non-GAAP Financial Measures" later in this release.

CAPITAL EXPENDITURES
(in millions)
				Quarter Ended September 30, 2016					Nine Months Ended September 30, 2016
Exploration and development capital				$	231				$	816
Capitalized G&A and interest					71					230
Acquisitions					16					1,547
Other					7					19
Devon capital expenditures (1)				$	325				$	2,612

(1) Excludes $132 million and $816 million attributable to EnLink for the third quarter and first nine months of 2016, respectively.

NON-GAAP FINANCIAL MEASURES

This press release includes non-GAAP financial measures. These non-GAAP measures are not alternatives to GAAP measures, and you should not consider these non-GAAP measures in isolation or as a substitute for analysis of our results as reported under GAAP. Below is additional disclosure regarding each of the non-GAAP measures used in this press release, including reconciliations to their most directly comparable GAAP measure.

CORE EARNINGS

Devon’s reported net earnings include items of income and expense that are typically excluded by securities analysts in their published estimates of the company’s financial results. Accordingly, the company also uses the measures of core earnings and core earnings per share attributable to Devon. Devon believes these non-GAAP measures facilitate comparisons of its performance to earnings estimates published by securities analysts. Devon also believes these non-GAAP measures can facilitate comparisons of its performance between periods and to the performance of its peers. The following table summarizes the effects of these items on third-quarter 2016 earnings.

(in millions, except per share amounts)				Quarter Ended September 30, 2016
				Before-tax						After-tax						After Noncontrolling Interests						Per Share
				(Millions)
Earnings attributable to Devon (GAAP)				$	1,178					$	1,007					$	993					$	1.89
Adjustments:
Gains on asset sales					(1,351	)					(787	)					(787	)					(1.48	)
Deferred tax asset valuation allowance					—						(408	)					(408	)					(0.78	)
Fair value changes in financial instruments and foreign currency					(16	)					(3	)					(3	)					(0.01	)
Restructuring and transaction costs					(5	)					(3	)					(3	)					(0.01	)
Early retirement of debt					84						53						53						0.10
Asset impairments					319						202						202						0.38
Core earnings attributable to Devon (Non-GAAP) (1)				$	209					$	61					$	47					$	0.09

(1) Devon's core earning calculation was negatively impacted by an $85 million, non-cash tax charge or $0.16 per share.

NET DEBT AND ADJUSTED NET DEBT

Devon defines net debt as debt less cash and cash equivalents and net debt attributable to the consolidation of EnLink Midstream as presented in the following table. Adjusted net debt is net debt further adjusted for the proceeds Devon received from the Access Pipeline divestiture transaction that closed in October of 2016 or the cash consideration for the Felix acquisition. Devon believes that adjusting for these items, including the asset sale proceeds and the Felix cash consideration, against debt and adjusting for EnLink net debt provides a clearer picture of the future demands on cash from Devon to repay debt.

(in millions)				September 30, 2016
				Devon U.S. & Canada						EnLink						Devon Consolidated
Total debt (GAAP)				$	8,109					$	3,245					$	11,354
Less cash and cash equivalents					(2,325	)					(60	)					(2,385	)
Net debt (Non-GAAP)					5,784						3,185						8,969
Proceeds from asset sales					(1,100	)					—						(1,100	)
Adjusted net debt (Non-GAAP)				$	4,684					$	3,185					$	7,869

(in millions)				December 31, 2015
				Devon U.S. & Canada						EnLink						Devon Consolidated
Total debt (GAAP)				$	10,023					$	3,090					$	13,113
Less cash and cash equivalents					(2,292	)					(18	)					(2,310	)
Net debt (Non-GAAP)					7,731						3,072						10,803
Cash consideration for Felix acquisition					850						—						850
Adjusted net debt (Non-GAAP)				$	8,581					$	3,072					$	11,653

	DEVON ENERGY CORPORATION
	FORWARD LOOKING GUIDANCE
PRODUCTION GUIDANCE					Quarter 4
					Low				High
	Oil and bitumen (MBbls/d)
	U.S.				103				108
	Heavy Oil				135				140
	Total				238				248
	Natural gas liquids (MBbls/d)
	Total				85				90
	Gas (MMcf/d)
	U.S.				1,190				1,230
	Heavy Oil				14				16
	Total				1,204				1,246
	Oil equivalent (MBoe/d)
	U.S.				387				403
	Heavy Oil				137				143
	Total				524				546

PRICE REALIZATIONS GUIDANCE				Quarter 4
				Low						High
Oil and bitumen - % of WTI
U.S.					86	%					96	%
Canada					50	%					60	%
NGL - realized price				$	8					$	13
Natural gas - % of Henry Hub					78	%					88	%

OTHER GUIDANCE ITEMS				Quarter 4
($ millions, except %)				Low						High
Marketing & midstream operating profit				$	205					$	225
Lease operating expenses				$	360					$	400
General & administrative expenses				$	140					$	160
Production and property taxes				$	55					$	65
Depreciation, depletion and amortization				$	400					$	450
Other operating items				$	20					$	30
Net financing costs (1)				$	140					$	160
Current income tax rate					0.0	%					0.0	%
Deferred income tax rate					35.0	%					45.0	%
Total income tax rate					35.0	%					45.0	%
Net earnings attributable to noncontrolling interests				$	-					$	-

(1) Fourth quarter includes $13 million of non-cash accretion on EnLink’s installment purchase obligations.

CAPITAL EXPENDITURES GUIDANCE				Quarter 4
(in millions)				Low					High
Exploration and development				$	400				$	425
Capitalized G&A					50					60
Capitalized interest					15					20
Other					5					15
Devon capital expenditures (2)				$	470				$	520

(2) Excludes capital expenditures related to EnLink.

COMMODITY HEDGES
				Oil Commodity Hedges
				Price Swaps									Price Collars														Call Options Sold
Period				Volume (Bbls/d)				Weighted Average Price ($/Bbl)					Volume (Bbls/d)				Weighted Average Floor Price ($/Bbl)					Weighted Average Ceiling Price ($/Bbl)					Volume (Bbls/d)				Weighted Average Price ($/Bbl)
Q4-2016				40,848				$	49.02				20,000				$	40.85				$	50.85				18,500				$	55.00
Q1-Q4 2017				31,075				$	52.48				51,744				$	45.06				$	57.96		-						$	-
Q1-Q4 2018				740				$	51.26				1,973				$	45.96				$	55.96		-						$	-

Oil Basis Swaps

Period

Index

Volume (Bbls/d)

Weighted Average Differential to WTI ($/Bbl)

Q4-2016

Western Canadian Select

33,000

(13.40)

				Natural Gas Commodity Hedges
				Price Swaps									Price Collars														Call Options Sold
Period				Volume (MMBtu/d)				Weighted Average Price ($/MMBtu)					Volume (MMBtu/d)				Weighted Average Floor Price ($/MMBtu)					Weighted Average Ceiling Price ($/MMBtu)					Volume (MMBtu/d)				Weighted Average Price ($/MMBtu)
Q4 2016				155,000				$	2.83				385,000				$	2.74				$	2.97				400,000				$	2.80
Q1-Q4 2017				159,151				$	3.08				230,904				$	2.91				$	3.31				-				$	-
Q1-Q4 2018				11,096				$	3.35				8,630				$	3.18				$	3.48				-				$	-

Devon’s oil derivatives settle against the average of the prompt month NYMEX West Texas Intermediate futures price. Devon’s natural gas derivatives settle against the Inside FERC first of the month Henry Hub index. Commodity hedge positions are shown as of October 28, 2016.

View source version on businesswire.com: http://www.businesswire.com/news/home/20161101006642/en/

Source: Devon Energy Corporation