Devon Energy Corporation

Welcome to Devon Energy's first quarter 2026 conference call. At this time, all participants are in a listen-only mode. This call is being recorded. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, Press star 1 again. I'd now like to turn the call over to Mr. Chris Carr, Director of Investor Relations. You may begin.

Good morning, and thank you for joining us on the call today. Last night, we issued Devin's first quarter 2026 earnings release and presentation materials. Throughout the call today, we will make references to these materials to support prepared remarks. The release and slides can be found in the Investor section of the Devin website. Joining me on the call today are Clay Gaspar, President and Chief Executive Officer, Jeff Rittenhour, Chief Financial Officer, John Raines, SVP Asset Management, Tom Hellman, SVP E&P Operations, and Trey Lowe, SVP and Chief Technology Officer. As a reminder, this call will include forward-looking statements as defined under U.S. securities laws. These statements involve risk and uncertainties that may cause actual results to differ materially from our forecasts. please refer to the cautionary language and risk factors provided in the SEC filings and earnings materials. With that, I'll turn the call over to Clay.

Thank you, Chris, and good morning, everyone. Thanks for joining us. Today, we'll focus on Devin's strong first quarter 2026 results, which once again demonstrates the operational excellence and financial discipline that defines this organization. After walking through our Q1 results, I'll turn to a quick update on our transformative merger with Cotera Energy. Now let's turn to slide three for a deeper look at our first quarter results, which reflect strong execution across the business. As you can see on this slide, beating on production and capital once again resulted in impressive free cash flow for the quarter. Our production optimization efforts drove oil to 387,000 barrels per day, reaching the top end of our guidance range. Capital spending came in 6% below the midpoint of our guidance as we continue to capture drilling and completion efficiencies through advanced technology and focused execution across the program. Combined, these efforts translated into $816 million of free cash flow in the quarter, demonstrating the capital efficiency of our program and positioning us to return substantial value to shareholders. I want to emphasize that these results are not isolated wins. That kind of consistency doesn't happen by accident. It's the direct outcome of the exceptional talent and commitment of our teams across every basin. Turning to slide four, What makes this story even more exciting is where we're headed. On a standalone basis, Devon is entering the second quarter with significant upside torque to free cash flow. Production is expected to step up, our cost structure remains well controlled, and the commodity backdrop is meaningfully stronger than what anyone underwrote coming into this year. You can see the sensitivity of this business to commodity prices on the right side of the slide. This is a very compelling yield profile in any environment and it reflects both the operational gains we have delivered and the natural leverage of a high margin portfolio. We are running the program we laid out, capturing the operational gains we committed to and letting free cashflow accrue to our shareholders. Turning to slide five, The key free cash flow strength I just walked through doesn't happen on its own. It's the direct output of the business optimization work we launched just over a year ago. I'm pleased to report that we will achieve our billion-dollar target well ahead of schedule. We will accomplish this major milestone with contributions from every part of the business, including capital efficiency, production optimization, commercial improvements, and corporate cost reductions. I want to take a moment to thank the entire Devon organization for making this happen. When you challenge this high quality team with a clear mission, you might as well consider it done. Business optimization has transitioned from a one-off project to a new cultural mindset. The focus and accountability that we built will translate directly into our integration work with Cotera, and I am confident this foundation will allow us to attack the merger synergies with the same urgency and rigor. The engine behind that innovation is technology and AI. I want to spend an extra minute here because I think it is the most important insight about Devin today that isn't intuitive from just a cursory analysis of the financials. The AI revolution is real. And what is happening across this organization is incredibly exciting. Internally, we talk about the three waves of AI impact. Basically, wave one is a much more immediate connection to Devon's massive stores of data, transforming what was inefficient data hunting time into data analysis and value creation time. After years of cleaning and organizing our data, We have a fully firewalled internal tool called ChatDVN that has been up and running for three years and is today a standard part of our daily workflow. We are now deep into seeing the benefits of Wave 2, where the AI is doing the heavy lifting of complicated calculations and time-consuming work. Examples of this are leveraging AI to write code for new apps and also translating the massive drilling, completion, and production data flow into actionable intel that our engineers can immediately act upon. Wave 2 value is showing up in cutting edge drilling and completion time, directly translating into lower capital costs. We are also having very significant wins in production. leveraging AI-created tools to do real-time artificial lift optimization. We now have over 850 wells on fully autonomous artificial lift optimization with a very impressive productivity improvement. We are now moving into wave three, where we are redesigning internal processes from the ground up with AI at the center. That is the frontier, and Devon is leading the industry there. Slide six is a great example of where technology and AI are showing up across the business. We have shown this slide in past quarters to highlight some of the key initiatives that have contributed to the success of the business optimization plan. I'm not going to walk through all of these today, but the one thing I do want to point out is this. The ability to see business optimization show up in the financials is what gives the program its credibility. On the right side of the slide, we have highlighted key milestones along with where we started and where we ended so that you can track the progress directly. This is the same playbook we will leverage with the Cotera integration. Turning to slide seven, as we've discussed in past quarters, parallel to driving incremental value out of the day-to-day business, we are also regularly evaluating opportunities to optimize our portfolio and enhance shareholder value. The strategic transactions and portfolio actions we have executed have already collectively delivered over a billion dollars in present value uplift to our enterprise over the past year, and these gains are in addition to the improvements from our business optimization initiative. The primary update this quarter is on Fervo, which recently filed its S-1 for an IPO, an important milestone for Fervo and for our investment. This milestone is significant in providing a public marker for our investment, highlighting the value uplift we have created. The partnership is pioneering next generation geothermal technology and leveraging our core skills in geoscience, horizontal drilling and completions, and data analytics, while positioning Devon in a power generating sector with more significant growth potential. Now turning to slide eight, to what I know is top of mind for many of you, the status of our transformative merger with Cotera Energy. I'm pleased to report that both the Devon and Cotera shareholders have voted overwhelmingly to approve the merger on May 4th, and we expect this transaction to close tomorrow. I could not be more excited about what this combination means for our shareholders. The industrial logic is undeniable, and combining two strong operational teams overlapping in each other's best basins creates substantial opportunity to enhance efficiency and drive results. Pro forma, Devon will be one of the largest independent E&P companies in the United States. In addition to scale, our asset quality, inventory depth, and balance sheet strength positions us to deliver durable free cash flow and returns through any commodity cycle. Our go-forward shareholder return framework will be thoughtfully designed and competitive with our highest quality peers. It will be balanced between dividends, share repurchases, and debt repayment. Subject to formal board approval, our dividend will increase by over 30% on a per-share basis starting in the second quarter. Additionally, both companies paused their share repurchase programs between deal announcement and close, building cash during a period of unexpectedly strong commodity price. With the repurchase program immediately resuming post-close, we were positioned to increase repurchases activity beyond our legacy level and capitalize on any discount to our intrinsic and relative value. Integration planning is progressing extremely well, and I want to be clear, the $1 billion Synergy target is the floor, not the ceiling. In fact, as of this morning, our integration teams have already identified 156 distinct value capture opportunities, underscoring both the depth of the upside and the sense of urgency we're bringing to this work. Once we close, we will move quickly to bring the same business optimization discipline to the integration effort and provide transparency in every step along the way. Before I close, I want to address something directly. Naturally, on the back of the announcement of our merger, we have fielded questions about the opportunity to reallocate capital within our performer portfolio and also the opportunity to evaluate the go-forward asset composition of the company. First, I am confident that with our new combined portfolio, we will have opportunities to further enhance the efficiency of the capital investment program. Second, Actively managing our portfolio is core to who we are as a company. Devon has a 55-year history of buying and selling assets, and we are always seeking opportunities to enhance near and long-term shareholder value. Every asset in the combined portfolio has to compete for its capital and earn its seat at the table. We have initiated a complete review of all assets against our strategic and financial criteria. While we do not have any preconceptions about future actions, we are excited to thoroughly review the portfolio with the soon-to-be combined board and remain open to all alternatives that enhance long-term value. We will be thoughtful, disciplined, and move with speed. Every option will be measured against one test. Does it leave Devon a stronger, more focused company on the other side? To be clear, this merger has added depth and quality of inventory in the Delaware Basin and positions Devon to deliver peer-leading capital efficiency for the foreseeable future. Our discipline, paired with operational excellence, financial strength, and unwavering commitment to shareholder returns is what gives Devon its unique investment proposition. With the Cotera merger on the verge of closing, we're entering an exciting new chapter that builds on this strong foundation. We expect to provide combined full-year guidance in mid-June once management and the board have appropriate time to align on the company's plan. With that, operator, I would like to turn to our first question.