Devon Energy Corporation

Welcome to Devon Energy's fourth quarter and year-end 2020 earnings conference call. At this time, all participants are in a listen-only mode. This call is being recorded. I'd now like to turn the call over to Mr. Scott Coote, Vice President of Investor Relations. Sir, you may begin.

Good morning, and thank you to everyone for joining us on the call. Last night, we issued an earnings release and presentation that cover our results for the year and our forward-looking outlook for Devon in 2021. Throughout the call today, we'll make references to our earnings presentation to support our prepared remarks, and these slides can be found on our website. Also joining me on the call today are Rick Moncrief, our president and CEO, Clay Gaspar, our chief operating officer, Jeff Rittner, our chief financial officer, and a few other members of our senior management team, including Dave Hager, our executive chairman. comments today will include plans forecasts and estimates that are forward-looking statements under u.s securities law these comments are subject to assumptions risks and uncertainties that could cause actual results to differ from our forward-looking statements please take note of the cautionary language and risk factors provided in our sec filings and earnings materials with that i'll turn the call over to rick thank you scott it's great to be here this morning we certainly appreciate everyone taking time to join us

With the merger of equals between Devon and WPX Energy now finalized, we have an exciting story to share with you about the prospects of our new company. We have definitely timed this merger well, catching the very bottom of the cycle and positioning ourselves to capture the full upside presented by the recent strengthening of macro fundamentals. With these more favorable conditions, the team at Devon is not taking anything for granted. We are extremely focused on capturing synergies and executing our plans We remain disciplined with our capital program, and we are delivering some very positive results well ahead of plan, even with all the disruptions driven by COVID-19, politics, and recently, winter weather. We will provide an update on the impact from this Arctic storm later on, but our field personnel are doing a tremendous job fighting through these challenging conditions and meeting the energy needs of consumers in tough times like these. Extreme weather like this is a good reminder of how the products we produce are absolutely essential to protect and improve the quality of life for society. Now, for those of you who are new to our story, let's turn to slide three of the presentation to briefly review the advantage attributes of the go-forward Devon. In January, we successfully closed the all-stock merger of equals between Devon Devon Energy and WPX Energy in only three months. This is a remarkable pace to complete a transaction of this scale, and I want to thank both organizations for their dedication and efforts to reach this milestone. Progress on integrating the merger is also off to a great start with our blended leadership team and staffs working remarkably well together. By bringing together our respective companies, Shareholders will benefit from enhanced scale, immediate cost synergies, higher free cash flow, and a financial strength to accelerate the return of cash to shareholders through our innovative fixed plus variable dividend strategy. also adding to devon's investment thesis is our attractive valuation which i believe to be the best value available in the entire energy space as we execute on our strategy and more evidence continues to emerge that we will be able to efficiently develop our federal acres in the delaware basin i truly expect devon to re-rate higher now jumping to slide five the power of the combined company was showcased by our outstanding fourth quarter results That outperforms street expectations. Across the portfolio, our teams are delivering results that continue to exceed production and capital efficiency targets while successfully driving down per unit operating costs and maximizing margins. This is evidenced by several noteworthy accomplishments in the fourth quarter, including our oil production exceeded guidance by 5%, driven by well performance, not higher activity. Our operating and corporate costs also exhibited sharp declines year over year. And importantly, these efforts translated into $263 million of free cash flow. A couple with the closing of our Barnett divestiture, we generated nearly $600 million of excess free cash flow during the fourth quarter, a truly fantastic result for our organization. Now moving to slide six. Devin has a long history of returning cash to shareholders, paying an uninterrupted quarterly dividend for 28 consecutive years. The combination of Devin and WPX will allow us to step up our game by implementing our Fix Plus variable dividend strategy. And with the free cash flow we generated in the quarter, I am proud to deliver on our commitment to reward shareholders with higher cash returns by declaring an industry-first variable dividend of $0.19 per share. Jeff will cover the details of the differentiating dividend policy later on, but this fixed plus variable dividend framework will be a staple of our capital allocation process, allowing us to return meaningful and appropriate amounts of cash to shareholders across a variety of market conditions. Now, moving ahead to slide 11, the positive momentum of our business has established is also resulting in an improved operational and financial outlook for 2021. And how do I define an improved outlook? Well, it's very simple. Lower break-even funding levels and higher free cash flow generation. Beginning with production, given the strong results we delivered over the second half of 2020, we now expect to maintain a higher level of oil volumes throughout 2021. This enhanced outlook is underpinned by improved capital efficiency compared to what we estimated at the time of our merger announcement last year. Even after raising production expectations in 2021, our upstream capital program is coming below our previous expectations at approximately $1.7 billion, representing a reinvestment ratio of less than 70%, assuming a $50 WTI price tag. Also of note, most of the corporate capital we expect to spend in 2021 will not be repeated in 2022 or beyond. Combined with the merger-related cost synergies that Jeff will cover later on, we are effectively lowering our funding requirements in 2021 to a WTI breakeven price of $32, which positions Devon with a free cash flow yield of 13% at today's pricing. Furthermore, on an unhedged basis and assuming year-end run rates for cost synergies, our free cash flow yield expands to greater than 20%. This free cash flow yield screens at the very top of our industry makes Devon a uniquely attractive investment proposition when compared to the record high valuations for most other sectors and asset classes in the market today. And lastly on this slide, while a recent uptick in commodity prices are certainly a welcome change and very beneficial to our free cash flow generation, I want to be very clear with this message. We have no intentions of adding any growth projects until demand fundamentals recover, inventory overhangs clear up, and OPEC Plus curtailed volumes are effectively absorbed by the world markets. Importantly, I encourage other producers to be very thoughtful and disciplined when it comes to capital plans. High returns on capital employed, reduced reinvestment rates, and free cash flow generation will determine the winners and losers in this upcoming cycle, not just top-line growth. Devon will be a leader in this movement. The final topic I would like to cover today is Devon's commitment to top-tier ESG performance. Excellence in ESG is a core value here at Devon. We believe that performance in ESG impacts every aspect of our business, both operationally and financially, including our social license to operate over the long term. On the environmental front, Devon's top priorities will be the reduction of greenhouse gas emissions, methane intensity rates, and the advancement of water recycling. Once we fully integrate our operations from the merger, a top-line goal of mine this year is to establish quantitative targets for these environmental priorities. In addition to these objectives, we are also sharpening our governance practices, which include initiatives to refine executive compensation to further enhance alignment with our shareholders and advance initiatives to foster inclusion and diversity within our organization. The bottom line is this. We are committed to responsible operations to advance the best interest of all stockholders. And with that, I'll turn the call over to Clay to cover our operating highlights for the quarter. Clay?