Devon Energy Corporation

Welcome to Devon Energy's second quarter earnings conference call. At this time, all participants are in the listen-only mode. This call is being recorded. I would 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 today. Last night, we issued an earnings release and presentation to cover our results for the quarter and our forward-looking outlook. Throughout the call today, we will 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 Rittenhour, our chief financial officer, and a few other members of our senior management team. Comments today will contain plans, forecasts, estimates, and 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. We sincerely appreciate everyone taking the time to join us this morning on the webcast. Devin's second quarter can best be defined as one of comprehensive execution across every element of our discipline strategy that resulted in expanded margins, growth in free cash flow, and the return of significant value to our shareholders through higher dividends and the reduction of debt. Following our transformative merger that closed earlier this year, I'm very pleased with the progress the team has made, and our second quarter results demonstrate the impressive momentum our business is quickly established. Even today, as we celebrate Devon's 50th anniversary as a company this year, we're only getting started, and our talented team is eager, energized, and extremely motivated to win. As investors seek exposure to commodity-oriented names, it is important to recognize that Devon is a premier energy company and a must-own name in this space. We have the right mix of assets, proven management, financial strength, and a shareholder-friendly business model designed to lead the energy industry in capital, discipline, and dividends. Turning to slide four, the power of Devon's portfolio was showcased by our second quarter results as we continued to deliver on exactly what we promised to do both operationally and financially. Efficiencies drove capital spending 9% below guidance. Strong well productivity resulted in production volumes above a midpoint. The capture of merger-related synergies drove sharp declines in corporate cost. These efforts translated into a six-fold increase in free cash flow from just a quarter ago. And with this excess cash, we increased our dividend payout by 44%. And we retired $710 million of low premium debt in the quarter. Now, Jeff will cover the return of capital shareholders in more detail later, but investors should take note. This systematic return of value to shareholders is a clear differentiator for Devin. Now, moving to slide five. While I'm very pleased with the results our team had delivered year to date, the setup for the second half of the year is even better with our operation scale to generate increasing amounts of pre-cash flow. This improved outlook is summarized in a white box at the top left of this slide. With the trifecta of an improving production profile, lower capital, and reduced corporate cost, Devon is positioned to deliver an annualized free cash flow yield in the second half of the year of approximately 20% at today's pricing. I believe it is of utmost importance to reiterate that even with this outstanding free cash flow outlook, there is no change to our capital plan this year. Turning your attention to slide 7. Now, with this powerful stream of free cash flow, our dividend policy provides us the flexibility to return even more cash to shareholders than any company in the entire S&P 500 index. To demonstrate this point, we've included a simple comparison of our annualized dividend yield in the second half of 2021, assuming a 50% variable dividend payout. As you can see, Devon's implied dividend yield is not only best in class in the E&P space, but we also possess the top-ranked yield in the entire S&P 500 index by a wide margin. In fact, at today's pricing, our yield is more than seven times higher than the average company that is represented in the S&P 500 index. Our dividend is comfortably funded within free cash flow and is accompanied by a strong balance sheet that is projected to have a leverage ratio of less than one turn by year-end. Investors need to take notice. Devon offers a truly unique investment opportunity for the near-zero interest rate world that we live in today. Now, looking beyond Devon to the broader E&P space, I'm also encouraged this earnings season by the announcement from Pioneer on their variable dividend implementation, as well as a growing number of other peers who have elected to prioritize higher dividend payouts. These disciplined actions will further enhance the investment thesis for our industry, paving the way for higher fund flows as investors rediscover the attractive value proposition of the E&P space. Now moving to slide 10. While the remainder of 2021 is going to be outstanding for Devin, simply put, the investment thesis only gets stronger as I look ahead to next year. We should have one of the most advantaged cash flow growth outlooks in the industry as we capture the full benefit of merger-related cost synergies, restructuring expenses roll-off, and our hedge book vastly improves. At today's prices... These structural tailwinds could result in more than $1 billion of incremental cash flow in 2022. To put it in perspective, this incremental cash flow would represent cash flow per share growth of more than 20% year over year if you held all other factors constant. Now, while it's still too early to provide formal production and capital targets for next year, there will be no shift to our strategy. we will continue to execute on our financially driven model that prioritizes free cash flow generation. Given the transparent framework that underpins our capital allocation, our behavior will be very predictable as we continue to limit reinvestment rates and drive per share growth through margin expansion and cost reductions. We have no intention of adding incremental barrels into the market until demand-side fundamentals sustainably recover, and it becomes evident that OPEC Plus spare oil capacity is effectively absorbed by the world markets. The bottom line is we are unwavering in our commitment to lead the industry with discipline, capital allocation, and higher dividends. And with that, I will now turn the call over to Clay to cover some of the great operational results we delivered in the past quarter. Thanks, Rick, and good morning, everyone.