Devon Energy Corporation

Welcome to Devon Energy's fourth quarter 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 Coody, 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 our outlook for Devon in 2023. Throughout the call today, we'll 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 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 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 materially 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, I will cover three key topics, our record-setting performance in 2022, the strong outlook we have for 2023, and the cadence of our capital and production in the upcoming year. Now, to begin with, I'd like to turn your attention to slides six and seven, which cover our results for the past year. As you can see, for Devon Energy, 2022 was another year of outstanding accomplishments. We achieved all the capital objectives associated with our Discipline Operating Plan. We delivered the best financial performance in our company's prestigious 52-year history. and we took important steps during the year to strengthen the depth and quality of our asset portfolio. The slides on slide six show a great visualization of the solid execution we delivered over the course of 2022. Production per share advanced by 9% year over year. This growth resulted from a combination of record oil production that has more than doubled since 2020 to accretive acquisitions and timely stock buybacks. Our streamlined cost structure captured a full benefit of favorable commodity prices, expanding per unit margins year over year. Returns on capital employed set a new company record at 39% for the year. This impressive return profile outpaced the S&P 500 by a substantial margin, and this strong capital efficiency translated into free cash flow reaching an all-time high of $6 billion in 2022, more than doubling the previous year. I want to congratulate the entire team at Devon for these accomplishments in 2022. This type of operational excellence and financial performance differentiates Devon as one of the premier energy companies in the U.S. Another key highlight for 2022 was the market-leading cash returns we delivered to investors. On slide seven, we have included a comparison of our total cash payout that reached around 10% for the year versus other opportunities in the market. As you can see in the red portion of the bar, Devon's dividend payout was more than double that of the energy sector and vastly superior to every sector in the S&P 500. However, I want to be quick to add that we are not just a high-yielding dividend story. We are also compounding per share growth for investors through the execution of our $2 billion share repurchase program. By upsizing this buyback authorization twice during the year, we reduced our outstanding share count by 4% since program inception and security shares at a substantial discount to current trading levels. We also supplemented per share growth in 2022 by deploying a portion of our excess cash toward taking advantage of unique M&A opportunities. These acquisitions in the Wollaston and Eagleford were highly complimentary to existing acreage. We secured them at an attractive and accretive valuation and captured top tier oil resource in the best part of these prolific fields. While tough to come by, these transactions successfully demonstrate another way our plan can create value for shareholders. On slide 11, As we shift our focus to 2023, I want to be clear that there is no change to our discipline strategy. At Devon, we are driven by per share value creation, not the pursuit of produced volumes. For the upcoming year, we have designed a consistent capital program to sustain production, deliver high returns on capital employed, and generate significant free cash flow that can be harvested for shareholders. Now let's run through some of the highlights of our 2023 outlook. Beginning with production, we expect volumes to build throughout 2023 to reach an average of 643,000 to 663,000 BOE per day for the full year, of which approximately half is oil. Combined with the tailwinds from share repurchases and our two well-timed acquisitions, our volumes on a per-share basis are on track to deliver an attractive high single-digit growth rate once again in 2023. The capital investment required to deliver this production profile is expected to range from $3.6 to $3.8 billion, with these capital requirements being self-funded at pricing levels as low as a $40 WTI oil price. This low break-even funding level showcases the durability of our business model and positions us with an attractive free cash flow yield in 2023 that screens as much as two times higher than other key indices in the market. With this strong free cash flow, we will continue to prioritize the funding of our dividend, which includes an 11% hike to our fixed dividend payout beginning in March. We will also have plenty of excess cash after the dividend to evaluate opportunistic share buybacks or take steps to further improve our balance sheet. Lastly, on slide 12, I would like to end today's comments with a few key thoughts on the trajectory of our capital spending and production profile as we progress through 2023. Beginning with capital, we planned for spending to be slightly elevated in the first half of the year due to the addition of a temporary fourth frack crew in the Delaware Basin. This elevated completion activity in the Delaware is expected to be wrapped up by mid-year, resulting in reduced capital spending over the second half of 2023. Looking specifically at first quarter production, we expect volumes to approximate 635,000 BOE per day. Our production during the quarter is expected to be temporarily limited by three factors. First, due to the timing of the activity, we expect to bring online around 90 gross operated wells in the first quarter. This will be our lowest quarterly amount for the year. However, activity does ramp up from here with roughly 15% more wells online per quarter over the remainder of 2023 compared to the first quarter. Another factor impacting near-term production is infrastructure downtime in the Delaware Basin due to a temporary outage at a compressor station in the state line area, along with some minor third-party midstream interruptions in the area. We estimate these outages will limit first quarter volumes by around 10,000 BOE per day. We expect to fully resolve these issues and resume operation by the end of the quarter. Lastly, our forecast is also assuming that we elect to reject ethane at several processing facilities across our portfolio in the first quarter. This is expected to limit volumes by roughly 10,000 BOE per day during the quarter. But the key takeaway here is that while our first quarter production will be held back a bit due to timing of activity and infrastructure, We do expect volumes to fully recover and increase over the remaining few quarters of 2023 to an average of roughly 660,000 BOE per day. So in summary, since we first unveiled the industry's very first cash return framework in late 2020, we have created tremendous amount of value for our shareholders. 2021 was a great year. 2022 was one for the record books. and 2023 is shaping up to be another excellent year for Devon. The outlook beyond 2023 is also exceptionally bright, given my belief that we are still in the early stages of a multi-year energy upcycle. This conviction is anchored by supply constraints from a decade of global underinvestment, ongoing sanctions on Russian production, a generational low in OPEC spare capacity, fiscal discipline among U.S. producers, and the inevitable rise in demand for our products as global economies normalize and grow post-COVID. I fully expect this favorable supply and demand setup to be another catalyst for our equity appreciation as more investors rediscover highly profitable and value-oriented names like Devin. With that, I will now turn a call over to Clay to cover a few operational results and more details regarding our capital activity in 2023.