Devon Energy Corporation

I would now like to turn the call over to Mr. Scott Cody, Vice President of Investor Relations. Sir, you may begin. Good morning, and thank you for joining us on the call today. Last night, we issued an earnings release and presentation that cover our results for the quarter and updated outlook. Throughout the call today, we 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 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 a pleasure to be here this morning. We appreciate everyone taking the time to join us. For today, I plan to focus my comments on the trajectory of our business for the remainder of 2023 and highlight the steps we're taking to further improve capital efficiency as we head into 2024. Now, let's start with a brief review of our financial and operating performance. In the third quarter, Devon delivered a production per share growth rate of 10% year over year. This strong growth rate was fueled by our franchise asset in the Delaware Basin, accretive acquisitions, and an opportunistic share repurchases over the past year. On a barrel of oil equivalent basis, our total volumes were within the guidance range, but oil volumes were slightly softer due to select well performance in the Williston, coupled with minor infrastructure constraints in the Delaware Basin. We will cover the Delaware in greater detail later in the call, but these constraints were temporary and have a visible pathway to correction with the industry's ongoing build-out of infrastructure. Turning to capital for the quarter, with our disciplined plan, we kept reinvestment rates to just over 50% of cash flow. This resulted in our free cash flow more than doubling versus the second quarter, and we rewarded shareholders with a 57% increase to our dividend payout. In the fourth quarter, we expect Devon's production to be around 650,000 BOE per day, of which oil is expected to approximate 315,000 barrels per day. Now, as a reminder, we dropped our fourth frack crew in the Delaware mid-year to replenish our duck inventory, and the impact of this lower completion activity will lead to a minor decline in our production versus the third quarter. We've also modeled in the effects of project timing and weather impacts, some of which we've already experienced. However, we do expect our financial performance in the fourth quarter to be very strong, with operating margins set to expand and free cash flow to be quite robust. Overall, the fourth quarter is set up to round out another successful year financially for our company. While we have certainly faced some challenges this year, we're on track to deliver one of the best years in our 50-plus year history in terms of returns and free cash flow generation. Importantly, as we head into 2024, our focus remains the same. We intend to deliver growth on a per share basis and maximize free cash flow generation while balancing the need to appropriately reinvest in our business for the future. To achieve these objectives, we have incorporated our learnings over the past year, pushed service costs lower, and sharpened our capital allocation to deliver a step-change improvement in well productivity and efficiency. On slide 8, we outline the key attributes underpinning our improved outlook for 2024. First and foremost, with continued volatility in commodity pricing, we believe it is prudent to construct a capital plan with consistent activity levels to maintain production at a level around 650,000 BOE per day with oil at approximately 315,000 barrels per day. With ongoing macro uncertainty and with the ample spare capacity that OPEC Plus possesses, we have no intention of adding incremental barrels into the market at this point in time. This disciplined approach reflects our commitment to pursuing value over volume and shareholders will benefit from our high-graded slate of development projects designed to enhance capital efficiency and returns on capital employed. To deliver this production profile in 2024, we anticipate a capital investment of $3.3 to $3.6 billion. This level of spending represents an improvement of 10% compared to 2023, and we expect to fund this program at pricing levels below $40 per barrel. In summary, we see delivering flat production for 10% less capex. Now turning to slide nine, our improved capital efficiency in 2024 is driven by concentrating more than 60% of our spending in the Delaware Basin. Our plan will shift a higher mix of activity to multi-zone Wolf Camp developments in New Mexico, which is the core of the play as infrastructure constraints have eased over the past and will continue over the coming months. We also plan to high-grade capital activity across other key assets in our portfolio. This includes limiting Williston Basin activity to only our highest impact opportunities and decreasing appraisal activity in the Eagle Forge. With this refined capital allocation, we expect to improve well productivity by 5% to 10% in 2024, anchored by our franchise asset in the Delaware Basin. And lastly, we expect our capital efficiency to also benefit from improved service costs as contracts refresh over the next few quarters. Now, with this operating plan in 2024, we are positioned to deliver free cash flow growth of around 20% in 2024 at $80 WTI pricing. As you can see on slide 11, with this strong outlook, that translates into uniquely attractive free cash flow yield of 11%, which is up to three times higher than what the broader equity markets can offer. Simply put, this is one of the most critical aspects of the Devon plan. On slide 12, with this stream of free cash flow, as we've done in the past, we plan to target a cash return payout of around 70%, which is in line with our average annual payout to shareholders since we unveiled this industry-first model in 2020. A key priority heading into next year is to continue to grow our fixed dividend. We believe the certainty that comes with a fixed dividend is valued by shareholders and is better capitalized within our equity price, especially if the yield is competitive with that of the broader markets. With the remainder of our free cash flow, we will stay flexible as we always have been by judiciously allocating toward the best opportunities, whether that be increased stock buybacks, variable dividends, or taking additional steps to improve our balance sheet. However, given our current stock price, we expect to pursue buybacks at a level that will most likely result in our variable payout being below the 50% threshold in the near term. to capture the incredible value our equity offers at these trading levels. And with that, I'll now turn the call over to Clay for a rundown of our recent operational performance.

Thank you, Rick, and good morning, everyone. For today, I plan to focus my comments on our Delaware Basin operations, as well as outlining the actions we plan to take to sharpen our capital allocation and drive efficiencies in our business over the next year. Let's begin on slide 15 with an overview of our Delaware Basin activity which accounts for roughly 60% of our capital spending for this year. With this level of investment during the quarter, we ran a consistent program of 16 rigs and brought on 59 new wells. Well productivity was very strong, with 30-day rates averaging 3,000 BOE per day, and improved average productivity combined with the benefits of elevated completion activity in the first half of the year drove another quarter of production growth from our franchise asset. That said, our growth rate in the quarter was held back by a few wind and lightning storms that impacted power for our facility as well as our third-party infrastructure. These storms stranded a few thousand barrels per day during the quarter. The infrastructure and the wells are back online, and we don't see any negative impacts on the ultimate recovery of these wells. On slide 16, you can see our impressive well productivity in the Delaware Basin during the quarter. It was highlighted by three important projects. On the far left of the slide, Devon's top result for the quarter was the Bora Bora project, developing the Upper Wolf Camp at our Todd area. With 30-day rates from Bora Bora averaging 4,600 BOEs per well, with the cost coming in under budget, these returns are expected to be well into the triple digits for this project. Another noteworthy project was our CBR17 development in Texas. where 30-day production rates average 4,100 BOE per day per well. The CBR17 results were enabled by a 3,000-acre trade completed about a year ago that I highlighted on a previous call. This key trade, which unlocked our ability to pursue extended reach laterals, by extending our laterals to two miles for this project, we added several million dollars of net present value in this project alone. On the right, another key result for us was the Haflinger project, where we co-developed multiple zones in the Wolf Camp A and B. While rates were restricted due to infrastructure, recoveries on this are on track to reach 1.5 million BOE per day per well, excuse me, per well. With solid returns from our Wolf Camp B appraisal to date, we now plan on bringing forward the value of this opportunity by co-developing the upper Wolf Camp where possible in the future activity. Looking forward to the project level details, slide 17 provides a nice visual of the well productivity we achieved in the Delaware Basin during the third quarter. On the left, as I touched on earlier, 30-day average rates for the Delaware wells we brought online reached 3,000 BOE per day. These high impact wells exhibited a 20% plus improvement from the first half of 2023. reaching the highest quarterly level in more than a year. This performance is great to see given our well productivity over the past year has been held back slightly by elevated appraisal requirements and infrastructure constraints. The 2023 infrastructure constraints result in a shifting of a portion of our capital to less prolific areas in the basin and at times, constrained peak rates across a subset of our new wells. As you can see on the right hand side of the slide, We also made progress improving our cycle times across our drilling and completions operations in the basin. Third quarter results were highlighted by our completion space exceeding 2,000 feet per day for the fifth consecutive quarter. And we drilled several pace setting wells that achieved spud rig release times of less than 15 days. With the momentum we've established, we believe we can build upon these results and capture further efficiencies as we head into 2024. Turning to slide 18, as Rick touched on earlier, we're excited about the plan we have in place to drive improved well productivity in the Delaware with our 2024 plan. With the ongoing industry build out of infrastructure in the form of electrification, compression, localized processing, and downstream takeaway, we plan to allocate approximately 70% of our capital to the Delaware Basin and specifically to the core of New Mexico, while we can optimize the remaining activity across our acreage in Texas. As you can see on the chart on the left, by refining our focus on high impact wolf camp zones in the core of the play with less appraisal requirements, we expect Delaware productivity to improve by 10% in 2024. Looking beyond 2024, we have a long runway of high value inventory in the Delaware that positions Devon to deliver highly competitive results for the foreseeable future. As we've discussed in the past, we've identified more than a decade of risk inventory across the Delaware, and we expect to steadily replenish this inventory over time as we successfully characterize the many upside opportunities across this SPAC play resource. In addition to our internal estimates, there are plenty third-party services that can provide an in-depth evaluation of our resource base. A great example of this on slide 19 that references the recent Inveris Permian inventory report. While I won't go through all of the details in the slide, there are three key takeaways you should have. First, we have one of the largest remaining inventories of any operator in the Delaware. Second, the quality of this inventory is excellent. with returns exceeding a PB10 breakeven at $40 WTI. And third, we possess significant upside to our risk resource for many known geological viable zones that have yet to be fully characterized. So in summary, with the Delaware accounting for roughly 60% of Devon's total risk resource, we're going to be delivering some excellent results for quite some time. And with that, I'll turn the call to Jeff for a financial review. Jeff?