Devon Energy Corporation

Welcome to Devon Energy's fourth quarter and year-end 2021 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 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 that cover our results for the year and outlook in 2022. Throughout the call today will make references to the earnings presentation to support prepared remarks and these slides can be found on our website. Also joining me on the call today are rick monkey our President CEO clay gaspar our chief operating officer Jeff written our our chief financial officer and a few other members of our senior management team. comments today include will include plans forecasts and estimates that are forward looking statements under US 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 appreciate everyone taking the time to join us on the call today. For Devon Energy, 2021 was a transformational year that can best be defined by our willingness to be a first mover and pursue bold strategic consolidation, our operational excellence and unyielding commitment to capital discipline, and the groundbreaking deployment of our industry leading cash return business model underpinned by our fixed plus variable dividend. As you can see on slide five of our presentation, An event that was foundational for success in 2021 was a merger of equals between Devon and WPX that brought together two highly compatible organizations with complementary assets to create an elite E&P company. This transaction was perfectly timed at the very bottom of the cycle and set the groundwork for Devon's significant value creation during the year. With this advantage platform, we executed on our Delaware-focused operating plan and captured cost synergies that resulted in $600 million of annual cash flow improvements. These margin expansion efforts combined with a disciplined capital allocation framework that prioritized value over volumes resulted in Devon generating the highest level of free cash flow in our prestigious 50-year history. With this powerful stream of free cash flow, We delivered on exactly what our shareholder-friendly business model was designed for, and that is to lead the industry in cash returns. As you can see on the graphic, we rewarded shareholders with outsized dividends, opportunistic share buybacks, and we took meaningful steps to strengthen our investment-grade balance sheet. This disciplined execution was rewarded by the market with our share price achieving the highest return of any stock in the entire S&P 500 index during 2021. I am so very proud of what we accomplished and I want to extend my sincerest gratitude to everyone involved. Our team comprehensively executed on the tenets of our strategy while responsibly providing our nation with a low cost and reliable energy source that is the lifeblood of our modern economy. Turning to slide six, while 2021 was a record-setting year for Devon, the setup for 2022 is even better. With the operational momentum we have established, we have designed a capital program to efficiently sustain production at a ultra-low WTI break-even funding level of around $30 a barrel. Combined with the full benefit of merger-related cost synergies and a vastly improved hedge book, we're positioned to deliver free cash flow growth of more than 70% compared to 2021. As you can see on the graph, this strong outlook translates into a free cash flow yield of 14%, assuming an $85 WTI price. Clay will run through the details of our operating plan later, but simply put, we expect 2022 to be another great year for Devon. Turning your attention to slide seven, With this significant stream of free cash flow, the top priority for our free cash flow is the funding of our fixed plus variable dividend. This cash return strategy is 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. With this differentiated framework, we've increased Devon's dividend payout for five consecutive quarters and, in aggregate, we paid out $1.3 billion of dividends in 2021, which is a per share increase of roughly two times that of 2020. Importantly, we expect our dividend growth story to only strengthen in 2022. As you can see on the bar chart, we're on pace to essentially double our dividend again in the upcoming year, which equates to around 8%. I would like to highlight that this attractive yield includes a substantial increase to our fixed dividend that we announced last night. This 45% increase in the fixed dividend reflects the confidence we have in our underlying business and financial performance as we head into 2022. Now, on slide nine, I want to briefly showcase how our unique dividend policy offers a quite compelling alternative for yield-seeking investors. To demonstrate this point, we've included a simple comparison of our estimated dividend yield in 2022 compared to other commonly referenced yields in the financial markets. As you can see, Devon's yield of 8% is approximately six times higher than the S&P 500 index and well in excess of the prevailing interest rate you can get from a 10-year treasury. While I fully acknowledge that these three instruments possess different risk and volatility characteristics, I believe it's important to highlight the outsized income that Devon offers in this yield-starved world we live in today. On slide 10, in addition to our market-leading dividend payout, we're also excited to announce that we are increasing our share repurchase authorization by 60% to $1.6 billion. At a multiple of less than five times cash flow, We believe our business trades at a substantial discount to the intrinsic value, especially given the structural improvements we've made to expand margins and returns. Given this favorable setup, we have put our money where our mouth is by aggressively repurchasing $589 million of shares just in the fourth quarter alone. With the board expanding the capacity of our repurchase program, we will continue to be opportunistic buyers of our stock throughout the upcoming year. And lastly, the diagram on slide 12, I believe, does a great job of summarizing what we've created here at Devon. We've assembled a high-quality asset portfolio and a team that has worked incredibly hard to deliver on our commitment to expand margins and deliver growth and free cash flow, accelerate our cash returns with our market-leading dividend payout, enhance per share growth with opportunistic buybacks, and take consistent and meaningful steps to further enhance our financial strength. While 2021 was a record year, we're only getting started. At Devon, we have the right mix of assets, proven management, the right team, and a shareholder-friendly business model designed to continue to lead the energy industry in capital disciplines and cash returns. And with that, I'll now turn to Clay. for the call to continue and provide an overview of our recent operational results and upcoming capital plan. Clay?