Q2 2021 Earnings Presentation - August 3, 2021 NYSE: DVN
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Q2 2021 Earnings Presentation August 3, 2021 NYSE: DVN devonenergy.com
Key Takeaways From Our Presentation
FIXED + VARIABLE DIVIDEND INCREASES 44% LEADING THE INDUSTRY WITH
#1 DISCIPLINE & DIVIDENDS
Total dividend of $0.49 per share announced with Q2 results
FREE CASH FLOW GENERATION ACCELERATES
#2
Free cash flow increases >6x vs. prior quarter
BALANCE SHEET CONTINUES TO STRENGTHEN
#3
Reduced outstanding debt by $1.2 billion year-to-date
DELAWARE BASIN DRIVES Q2 OUTPERFORMANCE
#4
Operating results favorable to guidance on production, capital & costs
OUTLOOK STRENGTHENS IN SECOND HALF OF 2021
#5
Dividend payout expected to be highest yield in the S&P 500 index
| Q2 2021 Earnings Presentation 2
Our Cash-Return Business Model
“Our CASH-RETURN business model is DISCIPLINED MODERATING OIL GROWTH targets: up to 5% annually
designed to moderate growth, emphasize GROWTH STRATEGY Growing margins through operational & corporate cost reductions
capital efficiencies, maximize returns and
prioritize the return of increasing amounts REDUCED Returns-driven strategy prioritizes FREE CASH FLOW generation
of cash to shareholders. These principles REINVESTMENT RATES Committed to maintenance capital program in 2021
have positioned Devon to be a PROMINENT
and CONSISTENT builder of economic value
MAINTAIN Target net debt-to-EBITDAX ratio: 1.0x or less
through the cycle.” LOW LEVERAGE Strong liquidity & disciplined hedging enhance FINANCIAL STRENGTH
− Rick Muncrief, President & CEO
PRIORITIZE Deploying free cash flow to dividends & debt reduction
CASH RETURNS Innovative FIXED-PLUS-VARIABLE dividend strategy (pgs. 6 & 7)
COMMITMENT
RUNS DEEP PURSUE Established new environmental performance targets (pg. 16)
ESG EXCELLENCE ESG initiatives incorporated into COMPENSATION structure
| Q2 2021 Earnings Presentation 3
Q2 2021 – Executing on Our Disciplined Strategy
Outstanding Q2 execution Expanding free cash flow Returning value to shareholders
Key quarterly highlights Free cash flow ($ in millions) Q2 2021 cash allocation ($ in billions)
(2)
$589
$1.4 B
~ 65%
9%
> 6x
CAPITAL
SPEND ($MM) BELOW GUIDANCE
IMPROVEMENT ALLOCATED TO
VS. Q1 2021 DIVIDENDS &
PRODUCTION 3% DEBT REDUCTION
VOLUMES (MBOED) ABOVE GUIDANCE
$93
DIVIDENDS & DEBT
CORPORATE 27% CAPITAL INVESTMENT
COSTS ($MM)(1) VERSUS Q2 2020
Q1 2021 Q2 2021 Q2 Uses of Cash
(1) Represents G&A & interest expense compared on a pro forma basis. (2) Free cash flow is defined as operating cash flow ($1,093 million) less cash
capital expenditures ($504 million).
TOTAL DIVIDEND PAYOUT
EXPANDS BY 44% IN Q2
(SEE PAGE 6 FOR DETAILS)
| Q2 2021 Earnings Presentation 4
Outlook Strengthens in Second Half of 2021
FREE CASH FLOW
SET TO EXPAND FUTURE UPSIDE (2)
(1)
(2H 2021 outlook vs. 1H 2021 results)
34% Unhedged commodity view
OIL PRODUCTION: +4% 100% upfront cost synergies
TOTAL CAPITAL: ↆ>10%
CORPORATE COSTS: ↆ7% 28%
24%
FREE CASH FLOW
20%
YIELD
21% SECOND-HALF 2021
FREE CASH FLOW
OUTLOOK
16%
YIELD
Based on mid-point guidance
2H 2021 ANNUALIZED free cash flow
FREE CASH FLOW
YIELD
$60 WTI $70 WTI $80 WTI
Note: Free cash flow yield represents operating cash flow, excluding changes in working capital, less total capital divided by market capitalization. Assumes $3.50 Henry Hub & NGL realizations at 40% of WTI.
(1) Changes represent 1H 2021 actual results vs. midpoint guidance for the 2H 2021. (2) Excludes commodity hedges and includes upfront benefit of cost synergies.
| Q2 2021 Earnings Presentation 5
Accelerating Cash Returns to Shareholders
A history of returning cash to shareholders
(Dividends per share)
28
FIXED + VARIABLE DIVIDEND
CONSECUTIVE
(BASED ON Q2 FINANCIAL RESULTS)
YEARS
OF DIVIDEND PAYMENTS FIXED DIVIDEND $0.11 PER SHARE
(>10% CAGR SINCE 1993)
VARIABLE
VARIABLE DIVIDEND $0.38 PER SHARE
TOTAL PAYOUT $0.49 PER SHARE
$0.68
SPECIAL
($0.26/share)
RAISING
DIVIDEND PAYOUT 44% (VS. Q1 2021)
$0.35
$0.30
$0.24 FIXED
FIXED
($0.44/share)
($0.42/share)
FOR Q2 VARIABLE DIVIDEND
2017 2018 2019 2020 2021e
CALCULATION (SEE PG. 18 FOR DETAILS)
| Q2 2021 Earnings Presentation 6
Highest Dividend Yield Opportunity in S&P 500 Index
Fixed-plus-variable dividend strategy results in market-leading payout
Annualized dividend yield based on 2H 2021e midpoint guidance
>10%
(1)
HIGHEST DIVIDEND YIELD
IN S&P 500 INDEX
#1 ranked yield in the S&P 500 by a wide margin
VARIABLE >7 times higher than the average yield of the S&P 500
Dividend payout comfortably funded within free cash flow
(2)
3.6% Strong financial position:
Our Investment-Grade Financial Strength
Substantial debt reduction completed year to date
Outstanding debt maturities through 2030 ($MM)
$4,500
Reduced outstanding debt by $1.2 billion year to date
EXECUTING ON OUR
Net debt-to-EBITDAX on track to reach
Devon’s Unique Value Proposition
Beginning stages of a new energy upcycle
Energy market capitalization as % of S&P 500
3 Devon offers a unique
18% Great Recession Value Proposition…
16%
Gulf War
15% (1)
VERSUS S&P 500
1 Roughly every decade
Energy Market Capitalization as % of S&P 500
brings with it a new 4x 2021e EV/EBITDA 15x
Energy Cycle… 20% 2021e FCF Yield 4%
12%
>10% 2021e Dividend Yield 1.4%
6%
Dot-Com Bubble
5% 2 This energy upcycle is in
its Infancy Stage…
COVID-19 Crisis
2%
0%
Note: Sourced from Wolfe Research, Raymond James & FactSet. (1) Represents 2H 2021e annualized based on midpoint guidance at $70 WTI. See slides 5 & 7 for more details and assumptions on estimated free cash flow & dividend yields.
| Q2 2021 Earnings Presentation 9
Preliminary Thoughts on 2022 Outlook
#1 POSITIONED FOR STRONG CASH FLOW GROWTH
IMPROVED hedge book accelerates revenue growth
A TRUSTED NAME
Captured merger SYNERGIES to substantially EXPAND MARGINS IN THE ENERGY INDUSTRY
Integration COMPLETED, no cash outflows from restructuring
Cumulative impact: >$1 BILLION of incremental cash flow
#2 CASH-RETURN MODEL TO BUILD MOMENTUM
Committed to leading the industry with DISCIPLINE & DIVIDENDS
NO CHANGE to capital allocation framework (see pg. 3)
Free cash flow generation continues to be TOP PRIORITY
MARKET FUNDAMENTALS to dictate capital allocation, NOT PRICE
| Q2 2021 Earnings Presentation 10AssetOperations
Overview Update
NYSE: DVN
devonenergy.comOn Track to Achieve 2021 Capital Objectives
No change to disciplined capital plan in 2021 WILLISTON
Oil production (MBOD)
BASIN
291 290-300 280 – 290 FY 2020
284 MBOD POWDER RIVER
BASIN
2021e UPSTREAM BUDGET
$1.6-$1.8 Billion
Q2 2021 Q3 2021e FY 2021e (80% ALLOCATED TO DELAWARE)
ANADARKO
Note: 2020 production is pro forma and represents the combined results for legacy Devon and WPX.
BASIN
Q2 2021 KEY OPERATING HIGHLIGHTS DELAWARE
BASIN
Capital spending 9% below midpoint guidance
EAGLE
Q2 oil beat driven by well productivity in the Delaware Basin FORD
Operating expenses improved 6% compared to last quarter
| Q2 2021 Earnings Presentation 12Delaware Basin – Our Capital-Efficient Growth Engine
KEY ASSET ATTRIBUTES
HIGH-MARGIN OIL GROWTH Eddy Lea
+22%
191
NET ACRES: 400,000
VS. Q2 2020
MBOD DIVERSIFED: 65% non-federal land
3 POTATO BASIN APPRAISAL
172 PERMIT INVENTORY: 4 years
2nd Bone Spring test (3 wells)
166 Avg. lateral length: 11,800’ CAPITAL ACTIVITY: 13 rigs/4 crews
Avg. IP30: 3,200 BOED/well
156
New Mexico 2 COTTON DRAW DEVELOPMENT
15 Wolfcamp wells online
Avg. lateral length: 9,400’
Texas
Avg. IP30: 3,100 BOED/well
Q2 2020 2H 2020 Q1 2021 Q2 2021
Loving
EXECUTING ON OUR DISCIPLINED PLAN Winkler
1 STATELINE DEVELOPMENT
1 Successful Stateline co-development activity 18 Bone Spring & Wolfcamp wells
Avg. lateral length: 10,000’
2 Wolfcamp development program building momentum Avg. IP30: 3,700 BOED/well
3 Bone Spring appraisal unlocks resource potential Reeves
Ward
Note: 2020 oil production is pro forma and represents the combined results for legacy Devon and WPX.
| Q2 2021 Earnings Presentation 13Delaware Basin – Operating Efficiencies Advance
Achieving capital efficiencies… Reducing field level costs… Delivering margin expansion
Development D&C costs per foot (excludes facilities) LOE & GP&T per Boe Field-level operating margin ($/BOE)
ↆ7%
$33.79
$940 $6.44
$846 YEAR OVER YEAR
$5.97
42%
$614 $16.52
IMPROVEMENT $543
2X
IMPROVEMENT
2018 2019 2020 Q2 2021 Q2 2020 Q2 2021 Q3 2020 Q4 2020 Q1 2021 Q2 2021
DEVELOPMENT FOCUS
ACCELERATES EFFICIENCIES
| Q2 2021 Earnings Presentation 14Free Cash Flow Generating Assets
Liquids-rich resource play with exposure to rising gas & NGL prices
ANADARKO CASH FLOW UPSIDE
Dow JV drilling program underway with plans to spud up to 30 wells in 2021
BASIN
6 legacy Meramec DUCs brought online in Q2 (avg. IP30: 1,800 BOED)
Divestiture contingency
payments of up to
High-margin oil resource opportunity in economic core of the play $70 million annually(1)
WILLISTON
Commenced 1st production on 13 wells in Q2 (avg. IP30: 2,900 BOED; 82% oil)
BASIN Strategic Delaware midstream
Projected to generate nearly $700 mm of free cash flow in 2021 (@$70 WTI) partnership distributions:
>$25 million annually
Reestablished operational momentum with 21 new wells online YTD
EAGLE
New well activity drives Q2 volumes 20% higher vs. Q1 (avg. IP30: 2,300 BOED)
FORD
Expect to maintain production profile with 2 rig lines in 2H 2021
Top-tier emerging oil resource play with stacked-pay potential
POWDER RIVER
Technical teams focused on advancing Niobrara delineation efforts
BASIN
Minimal leasehold obligations provide capital flexibility
(1) Payments associated with legacy Barnett Shale and Rockies divestiture packages.
| For
Q2 2021 Earnings
additional Presentation
results and guidance see our Q2 earnings release tables 15Committed to Aggressive Emissions Reductions
ENVIRONMENTAL PERFORMANCE TARGETS
0.5
GHG EMISSIONS GHG EMISSIONS INTENSITY METHANE EMISSIONS FLARING INTENSITY ROUTINE FLARING
50 65 % ENTIRELY
SCOPE 1 & 2 SCOPE 1 & 2 INTENSITY
NET ZERO
GHG EMISSIONS FOR
% % OR
LOWER ELIMINATE
OF GROSS NATURAL GAS AS DEFINED BY THE
SCOPE 1 & 2 BY 2050 REDUCTION BY 2030 REDUCTION BY 2030
PRODUCED BY 2025 WORLD BANK BY 2030
HIGHLY-REGARDED ESG RATINGS & RECOGNITION
For more information
on these initiatives,
please refer to the
Sustainability portion
of Devon’s website
| Q2 2021 Earnings Presentation 16AssetAppendix
Overview
NYSE: DVN
devonenergy.comFree Cash Flow Priorities
FIXED DIVIDEND Q2 VARIABLE DIVIDEND CALCULATION
#1 Paid quarterly at $0.11 per share
Target payout: up to 10% of operating cash flow $1,099 MM – Adjusted Cash Flow (Non-GAAP)
− $509 MM – Capital Expenditures (Accrued)
VARIABLE DIVIDEND $590 MM – Adjusted Free Cash Flow (Non-GAAP)
Calculated on a quarterly basis
Up to 50% of excess free cash flow
− $75 MM – Fixed Quarterly Dividend ($0.11/share)
$515 MM – Excess Free Cash Flow
#2
BALANCE SHEET IMPROVEMENT × 50% Payout (Board Discretion: Up to 50%)
Reduced outstanding debt by >$1.2 billion year to date $257 MM – Variable Dividend ($0.38/share)
Net debt-to-EBITDAX target: 1.0x or less
SHAREHOLDERS of record on September 13, 2021
SHARE REPURCHASES
#3 PAYABLE on September 30, 2021
Potential for opportunistic buybacks
Note: Adjusted cash flow represents operating cash flow ($1,093 mm) before balance sheet changes (+$17 mm) excluding cash restructuring charges (-$23 mm). See Devon’s second-quarter 2021 earnings materials for more details regarding the variable dividend calculation.
| Q2 2021 Earnings Presentation 18Investor Contacts & Notices
Investor Relations Contacts 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;
Scott Coody Chris Carr midstream capacity constraints and potential interruptions in production; the extent to which insurance covers any losses we may experience;
VP, Investor Relations Manager, Investor Relations competition for assets, materials, people and capital; risks related to investors attempting to effect change; our ability to successfully
complete mergers, acquisitions and divestitures; risks related to the recent merger with WPX, including the risk that we may not realize the
405-552-4735 405-228-2496
anticipated benefits of the merger or successfully integrate the two legacy businesses; and any of the other risks and uncertainties discussed
in Devon’s 2020 Annual Report on Form 10-K (the “2020 Form 10-K”) or other SEC filings.
Email: investor.relations@dvn.com
The forward-looking statements included in this communication speak only as of the date of this communication, represent current
reasonable management’s expectations as of the date of this communication and are subject to the risks and uncertainties identified above as
Investor Notices well as those described in the 2020 Form 10-K and in other documents we file from time to time with the SEC. We cannot guarantee the
accuracy of our forward-looking statements, and readers are urged to carefully review and consider the various disclosures made in the 2020
Forward-Looking Statements Form 10-K and in other documents we file from time to time with the SEC. All subsequent written and oral forward-looking statements
This communication includes “forward-looking statements” within the attributable to Devon, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements above. We do not
meaning of the federal securities laws. Such statements include those undertake, and expressly disclaim, any duty to update or revise our forward-looking statements based on new information, future events or
concerning strategic plans, our expectations and objectives for future otherwise.
operations, as well as other future events or conditions, and are often
identified by use of the words and phrases “expects,” “believes,” “will,” Use of Non-GAAP Information
“would,” “could,” “continue,” “may,” “aims,” “likely to be,” “intends,” This presentation may include non-GAAP (generally accepted accounting principles) financial measures. Such non-GAAP measures are not
“forecasts,” “projections,” “estimates,” “plans,” “expectations,” “targets,” alternatives to GAAP measures, and you should not consider these non-GAAP measures in isolation or as a substitute for analysis of our
“opportunities,” “potential,” “anticipates,” “outlook” and other similar results as reported under GAAP. For additional disclosure regarding such non-GAAP measures, including reconciliations to their most directly
terminology. All statements, other than statements of historical facts, comparable GAAP measure, please refer to Devon’s second-quarter 2021 earnings materials and related Form 10-Q filed with the SEC.
included in this communication 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 and adversely from our expectations due to a number of
factors, including, but not limited to: the volatility of oil, gas and NGL
prices; risks relating to the COVID-19 pandemic or other future
pandemics; 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
| Q2 2021 Earnings Presentation 19You can also read
