Devon Energy Corporation — 2022 Form 10-K
Business context and reporting period. Devon is a U.S. independent oil and gas exploration and production company, with operations across five core basins and its largest program in the Delaware Basin. This annual filing covers the fiscal year ended December 31, 2022; it does not provide a standalone fourth-quarter income statement. The 2021 comparison reflects the WPX merger, completed January 7, 2021, and 2022 acquisitions in the Williston Basin and Eagle Ford.
Financial and operating performance
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenues | $19.169 billion | $12.206 billion |
| Oil, gas and NGL sales | $14.082 billion | $9.531 billion |
| Net earnings attributable to Devon | $6.015 billion; diluted EPS $9.12 | $2.813 billion; diluted EPS $4.19 |
| Operating cash flow | $8.530 billion | $4.899 billion |
| Capital expenditures | $2.542 billion | $1.989 billion |
| Production | 610 MBoe/d, up 7% | 572 MBoe/d |
2022 unhedged realized price was $63.20/Boe, up 38%; after hedge settlements it was $57.12/Boe, up 48%. WTI averaged $94.39/Bbl and Henry Hub gas $6.65/Mcf. Production expenses were $2.797 billion, up 31%; production cost excluding production and property taxes was $7.92/Boe in the field data. Non-GAAP field-level cash margin was $11.285 billion, or $50.65/Boe, versus $7.400 billion, or $35.47/Boe, in 2021.
At year-end, debt was $6.440 billion, including $251 million current; cash, cash equivalents and restricted cash totaled $1.454 billion. Management reported $4.5 billion of liquidity, including approximately $1.5 billion of cash and $3.0 billion of available revolving credit. The company reported a 23% debt-to-capitalization ratio under its credit agreement covenant and investment-grade ratings with stable outlooks.
Material changes versus 2021
- Net earnings attributable to Devon more than doubled, while operating cash flow rose 74%, principally on higher commodity prices and 7% greater production.
- Oil and gas sales increased with higher realized prices and volumes. Total revenues also include substantial marketing and midstream revenues, which are largely offset by related expenses.
- Production growth was led by the Delaware Basin and supplemented by the 2022 Eagle Ford and Williston acquisitions; Williston legacy production declined.
- Production expenses increased 31%, reflecting inflation, higher activity and acquired volumes, as well as higher commodity-linked production and property taxes.
- Cash returned to shareholders increased: 2022 dividends paid were $3.379 billion and share repurchases were $718 million. The company ended the year with lower cash balances after acquisitions and shareholder distributions.
Outlook, risks and unusual items
- 2023 plan: Capital expenditures were budgeted at approximately $3.6–$3.8 billion, about 35% above 2022. Management expected oil production to remain at similar levels to 2022, adjusted for acquisitions, and approximately 60% of capital spending to go to the Delaware Basin.
- Commodity and cost outlook: Management expected oil, natural gas and NGL prices to be lower in 2023 than in 2022, citing recession concerns, inflation, interest rates, supply and demand, and gas export capacity. It warned that elevated cost inflation could pressure margins, while expecting material free cash flow at current commodity prices.
- Hedges and shareholder returns: Year-end 2022 hedges covered approximately 25% of anticipated 2023 oil volumes and 20% of gas volumes. In February 2023, Devon declared a $0.89-per-share dividend, including a fixed $0.20 and variable $0.69, subject to Board discretion. The $2.0 billion repurchase authorization was scheduled to expire May 4, 2023.
- Nonrecurring and accounting items: 2022 GAAP earnings included a $698 million noncash gain from derivative fair-value changes before tax; realized hedge settlements reduced cash realizations by $1.356 billion. A $144 million benefit related to a performance guarantee also affected other income. Income tax expense was $1.738 billion, including $1.179 billion deferred; management expected the 2023 current tax rate could approach the mid-teens, depending partly on commodity prices and tax-law effects.
- Key risks: Commodity-price volatility, production declines and reserve-estimation uncertainty; inflation and supply-chain constraints; dependence on third-party midstream capacity; regulatory, environmental and climate-related costs; water and seismicity restrictions; counterparty, cyber and insurance risks; and debt and dividend flexibility.
- Contingencies: The filing identifies EPA notices concerning historical air-emission and permit matters; management said each resolution could result in a fine or penalty exceeding $300,000. The company also disclosed royalty disputes, climate-related lawsuits, Louisiana environmental claims and a contested federal order concerning California offshore platform decommissioning. Management stated it could not predict certain outcomes and denied liability in specified matters.
Important facts for investors to verify
- How 2023 realized commodity prices, hedge settlements and production compare with the assumptions underlying the capital and cash-return plan.
- Whether the $3.6–$3.8 billion capital budget, production outlook and inflation-mitigation expectations were achieved.
- Debt maturities, liquidity and covenant headroom, particularly the $242 million due in 2023 and revolving facility maturity in October 2024.
- The sustainability of variable dividends and buybacks, which depend on cash generation and Board approval.
- Reserve revisions, development economics and the standardized measure: $31.314 billion at year-end 2022, based on prescribed SEC assumptions and a 10% discount rate, not market value.
- Developments in the disclosed EPA, royalty, climate and decommissioning matters, and any related financial exposure.
The financial statements received an unqualified audit opinion from KPMG, which also concluded internal control over financial reporting was effective. KPMG identified proved-reserve estimates used in depletion as a critical audit matter. Non-GAAP measures, including field-level cash margin, are company-defined and should be considered alongside GAAP results.