Devon Energy Corporation

2024. 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 Rittner, 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 our 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.

Hey, thank you, Scott, and I appreciate everyone taking time to join us this morning. For today, my comments will be centered on four key themes, Devon's accomplishments in 2023, the catalyst of our improved outlook for 2024, the depth of the resource we possess in our portfolio, and the strategic priorities that will drive our free cash flow allocation going forward. Now, beginning with the fourth quarter, we exited the year with a solid quarter of execution highlighted by production that exceeded the top end of guidance, meeting consistence across all products. Discipline and reinvestment resulted in our 14th consecutive quarter of free cash flow and we took steps to increase cash returns by stepping up the pace of our stock buyback. These positive results rounded out another successful year for Devon, where we achieved several key milestones that I am extremely proud of. On slide seven, you can see we delivered production growth rate of 8% in 2023, resulting in new high all-time production for oil. This healthy growth rate was also paired with returns on capital employed that outpaced the S&P 500 by a substantial margin for the third straight year. With the free cash flow our business produced, we rewarded shareholders with an impressive cash return yield of around 10% that was balanced between buybacks and dividends. As I touched on during the last call, our team has done a great job of designing a plan to deliver improved capital efficiency in 2023, excuse me, 2024. With the current industry conditions, We still believe it is prudent to deploy a steady capital program designed to optimize returns while maintaining volumes around levels where we exit 2023. Importantly, we expect to deliver this production for 10% less capital versus last year, funded at a WTI breakeven price of around $40. In conjunction with this outlook and given the confidence that we have in the underlying health of our business, the Board has approved a 10% increased or fixed dividend payout. Now looking briefly at the trajectory of our capital and production profile in 2024, on slide 9, we plan to be spending to be slightly elevated in the first half of the year due to the addition of a fourth completion crew in the Delaware Basin. Due to timing of completions and recent curtailments from extreme winter weather, we expect first quarter production to be the lowest quarter of the year. However, we expect volumes and capital efficiency to move higher over the remainder of the year. In 2024, a key contributor to our improved capital efficiency will be the well productivity improvements we expect to achieve in the Delaware Basin. Turning to slide 12, and with the easing of constraints across the basin, we plan to concentrate roughly 70% of the Delaware's capital in New Mexico while optimizing the remaining activity across our acreage in Texas. This allocation to New Mexico is meaningfully higher than what we were able to deploy during 2023 and is more in line with our historic activity in the basin. Overall, this refined capital allocation is expected to increase well productivity in the Delaware by up to 10% on a year-over-year basis. Given the two-thirds of our Delaware basin inventories in New Mexico, we anticipate being able to sustain our pace of activity on both sides of the state line for the foreseeable future. With this advantage acreage footprint, you can see on slide 14 that we have one of the largest inventories among operators in the basin, providing us with a multi-decade resource that will drive our enterprise-wide performance for many years to come. The quality of our Delaware weighted resource base combined with our discipline strategy positions us to generate a differentiated amount of free cash flow for many years to come. As you can see on slides 15 and 16, our business is set to deliver a free cash flow yield that is up to three times that offered by the broader markets. With this free cash flow, we are targeting a cash return payout of around 70% while earmarking the remainder to further strengthen our balance sheet. With our flexible cash return framework, we will judiciously allocate our free cash flow toward the best opportunity, whether that be buybacks or dividends. Given that the equity market is heavily discounting valuations in the energy sector, it's an easy decision to prioritize a buyback over the variable dividend to capture the incredible value that Devon offers at these historically low valuations. Slide 19 helps better visualize this compelling value proposition. On the right, you can see energy represents less than 4% of the S&P 500 while contributing more than 10% of the EBITDA in 2023. This is noteworthy given the energy's S&P weighting historically tracks its earnings contribution over time. I believe this gap exists due to extreme valuations in tech, combined with a pervasive misunderstanding of hydrocarbon demand over time. With global energy demand forecasted to increase 50% by 2050, the world is going to need growth from all sources of energy, including oil and natural gas. With the world's power needs continuing to grow, it is evident that peak oil demand is nowhere in sight, and our industry will be an important contributor of energy growth for the foreseeable future. Furthermore, high-quality names like Devin provide significant equity upside over time as you collect outsized cash returns. And as I said earlier, this is why we are putting our money to work actively repurchasing shares. And with that, I'll turn the call over to Clay.

Thank you, Rick, and good morning, everyone. The Devin team did a really good job of rounding out 2023 by exceeding our operational targets for the fourth quarter. These positive results were driven by three key factors. Number one, improved uptime, driving base production. Number two, increased efficiencies through faster cycle times, resulting in lower capital per well. And number three, better new well productivity, improving our wedge production volume. Slide five provides a good visual of these favorable operating trends. The chart on the left highlights the efficiencies we've delivered in our drilling and completions operations. On the right, you can see this track record of efficiency gains is also paired with some of the best well productivity of any producer in the U.S. While these results can certainly vary from quarter to quarter, our consistency over time demonstrates the quality of our assets and execution capabilities. The most significant contributor to disadvantaged capital efficiency was our franchise asset in the Delaware Basin. In the fourth quarter, roughly 60% of our capital was deployed to this prolific basin, allowing us to run a consistent program of 16 rigs. With this activity, we brought online 62 new wells. grew productivity 6% year over year and expanded our duck inventory allowing us to add a fourth completion crew earlier this year. While we had strong results across our acreage position in the quarter, the top contributors to our performance were several large pads within our cotton draw and state lawn areas. A cotton draw in the core of the basin We brought on 11 three-mile laterals that showcased the stacked pay potential and prolific rates this area can deliver. These extended reach wells were diversified across five different producing intervals in the Avalon, Bone Spring, and Wolf Camp formations. In aggregate... The oil-weighted production from these wells achieved 30-day rates of 4,400 BOE per day, with impressive per-well recoveries trending as high as 4 million BOE. In addition to the high rates at Cotton Draw, we also delivered record-setting drilling and completion times. This performance included a record completion pace of 3,100 feet per day, and drilling times for these three-mile laterals came in as low as 19 days. with the final mile drilled in a record time of just over 24 hours. Another standout performance during the quarter, and possibly my favorite in terms of naming convention, was our Claw Hammer project in the state line area. Claw Hammer was named by a geologist after the style of playing the beat banjo that his dad used in their family jam sessions. The good news for him and his family is that these wells are fantastic. This eight-well pad consists of two monolaterals co-developed in multiple intervals in the Wolf Camp A. With production rates averaging 3,900 BOE per day, this package of wells deliver the highest well productivity per lateral foot of any project during the quarter. As I look ahead to 2024, I expect another big year for the Delaware Basin as we have a great slate of projects lined up. We plan to bring online around 215 wells for the year with most of the capital deployed towards the best parts of our acreage in Southern Lee and Eddy counties and the state line area of Texas. This plan is designed to deliver improved capital efficiency and better well productivity through the full column of development of the Upper Wolf Camp along with select landing zones in the Wolf Camp B where applicable. The de-risking of multiple targets in the Wolf Camp B over the past year has allowed us to pursue more extensive multi-zone developments in 2024, bolstering our high-quality inventory, delivering higher net present value per project, and still delivering exceptional rates of return. Turning to slide 13, to build upon Rick's comments from earlier, we're confident in our ability to deploy more capital to the core of the Delaware because of a long list of improvements in infrastructure. These improvements include two BCF a day of processing additions, gas processing additions, expansions to the downstream gas takeaway, enhanced water handling capabilities with our water bridge joint venture, build out of gathering and compression, and investment in self-generated power and microgrids to increase the reliability of the electrical infrastructure. With these improvements, we are very well positioned to execute on our 2024 plan. In fact, year to date, we're delivering at a pace ahead of schedule, allowing us to fully offset the winter weather downtime we experienced in January across the field. Shifting to the Eagleford, the successful integration of our Validus acquisition was one of the key drivers of the production increase of 56% during 2023. With our enhanced scale in the basin, the team did a great job of capturing synergies by driving improvements across each phase of our operations. This progress can be seen through several indicators, including year-over-year 15% decrease in production costs a 30% plus improvement in completion cycle times over the course of the year, and we set a company record spud to rig release of only five days. Our activity during the year continued to demonstrate that the Eagleford provides one of the most promising opportunities for resource upside in the U.S. shale. Through tighter redevelopment spacing and refrags, our capital program not only replenished but expanded our risk resource in the play to an inventory runway of around 10 years at today's pace of activity. Looking to 2024, our key focus for the Eagle Four team is to sharpen capital efficiency by incorporating appraisal learnings from the past year along with more balanced activity across DeWitt and Carnes counties. This plan is expected to deliver single-digit production growth for roughly $75 million less capital over last year. In the Rockies, we possess a unique combination of assets that can provide both growth and free cash flow. Specifically in the Powder River Basin, we're building upon the well productivity improvements achieved over the past couple of years. where the average six-month cutens increased nearly 20% from historic levels. A recent highlight was the SHU Iberlin 3X well, which reached peak rates in Q4. This three-mile Nyer Bear well achieved initial production rates greater than 1,500 BOE per day with an 85% oil cut and then hung in at that rate for quite a while. In addition to the strong oil productivity, the Iberland attained a record drilling performance of 1,350 feet per day, a 45% improvement compared to the average Naira well. In 2024, our efforts will be focused on refining spacing, reducing costs, and continue to ready this asset for full development in later part of this decade. In the Williston, I want to thank the team for safely working through the incredibly severe winter storm weather that we experienced in January and rapidly restoring affected production. As I look into 2024, our focus for this asset will be to optimize base production, deploy selective investments to high-confidence projects, and harvest $300 million of field-level cash flow. So far this year, our capital program is off to a great start with our Bull Moose project maxing out our production facilities at over 15,000 barrels of oil per day, with several of the wells flowing 3,000 barrels per day or more during their flow back. Lastly, I'd like to briefly cover our activity in the Anadarko Basin, where we delivered an 8% production growth rate during 2023. The three-rig drilling program, funded by our Dow Joint Venture, delivered very impressive well production. The value of this production was also enhanced by our ability to route volumes into the premium southeast gas markets and by the team driving operational costs 10% lower. In 2024, we plan to maintain a similar pace of drilling activity in the Anadarko with a keen focus on developing the liquids-rich window of the play where returns from our joint venture activity will benefit from higher condensate cuts. And with that, I'll turn the call to Jeff for financial review.