state of the oil and gas industry...leverage the enlink advantage —largely eliminates midstream...
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NYSE: DVNdevonenergy.com
State of the Oil and Gas Industry
April 2016
Notices
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Safe HarborSome of the information provided in this presentation includes “forward‐looking statements” as defined by the Securities and Exchange Commission. Words such as “forecasts," "projections," "estimates," "plans," "expectations," "targets," and other comparable terminology often identify forward‐looking statements. Such statements concerning future performance are subject to a variety of risks and uncertainties that could cause Devon’s actual results to differ materially from the forward‐looking statements contained herein, including as a result of the items described under "Risk Factors" in our most recent Form 10‐K.
Cautionary Note to Investors The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC's definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves. This presentation may contain certain terms, such as resource potential, risked or unrisked resource, potential locations, risked or unrisked locations, exploration target size and other similar terms. These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized. The SEC guidelines strictly prohibit us from including these estimates in filings with the SEC. Investors are urged to consider closely the disclosure in our Form 10‐K, available from us at Devon EnergyCorporation, Attn. Investor Relations, 333 West Sheridan, Oklahoma City, OK 73102‐5015. You can also obtain this form from the SEC by calling 1‐800‐SEC‐0330 or from the SEC’s website at www.sec.gov.
2009 Asset Portfolio
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Brazil• 12 Offshore Blocks• Polvo Development
Azerbaijan• ACG Development
China• 5 Offshore Blocks• Panyu Development
GOM ShelfGOM Deepwater
U.S. Onshore• Barnett Shale• Permian Basin• Cana Woodford• Arkoma Woodford• Granite Wash• PRB CBM• Washakie• Bear Paw• Groesbeck• Carthage• Haynesville/Bossier
Canadian ConventionalHeavy Oil
2016 Asset PortfolioA Leading North American E&P
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Heavy Oil
Barnett Shale
Rockies Oil
Anadarko Basin
Oil Assets
Liquids‐Rich Gas Assets
Eagle Ford
Permian Basin
Deep inventory of opportunities
₋ High‐quality Permian Basin, Anadarko Basin and Rockies positions
₋ Prolific Eagle Ford assets₋ World‐class heavy‐oil projects₋ Top‐tier liquids‐rich gas plays
Focused and balanced asset portfolio
₋ Proved reserves: 2.2 billion BOE₋ Net production: 681 MBOED in Q4₋ Upstream revenue: 68% oil in Q4
Approach to Current Environment
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Protect the balance sheet
— Committed to investment‐grade credit ratings
— Balance capital investment with cash flow
— Upstream asset sales to reduce debt
Preserve financial flexibility
— Cash and credit facility availability: >$5 billion(1)
— No significant near‐term debt maturities
Leverage the EnLink advantage
— Largely eliminates midstream capital requirements
— Cash distributions: ≈$270 million annually
Maintain Financial Strength and Flexibility
(1) Pro Forma for the Felix transaction that closed January 2016 and equity offering that occurred in February 2016.
Significant Financial Flexibility
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>$5 billion of liquidity(1) (credit facility maturing in late 2019)
Only financial covenant: debt‐to‐capitalization ratio <65% (24% at 12/31/15)
No significant debt maturities until December 2018
$350 $125
$750$700
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Debt Maturities – Next 5 Years(12/31/15, $ Millions)
Liquidity
Pro Forma Liquidity(1)($ Millions)
>$5,000
Cash
CreditFacility
2016 2017 2018 2019 2020
(1) Pro Forma for the Felix transaction that closed January 2016 and equity offering that occurred in February 2016.
Disciplined Capital Allocation
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2016 Outlook
E&P capital reduced by ≈75%
— Focused on top U.S. resource plays
— Preserve operational continuity
Prepared to dynamically allocate capital
— Minimal service contracts >12 months
— No long‐term project commitments
— Leases held by production
Expect to reduce costs by >$1 billion annually
— Targeting operating and G&A cost savings of ≈$800 million annually
— Adjusted dividend saves ≈$300 million annually
Annualized Cost Savings
2016 E&P Capital Guidance$900 million ‐ $1.1 Billion
STACK33%
Delaware Basin20%
Eagle Ford20%
Heavy Oil18%
7%2%Rockies
Barnett
Dividend
G&A
Operating Costs
Value
>$1 Billion
$300 ‐ $400 MM
≈$300 MM
$400 ‐ $500 MM
Devon TodayA Leading North American E&P
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Premier asset portfolio
Platform for sustainable growth
Delivering superior execution
Investment grade credit
Disciplined capital allocation
The Current Landscape
Supply and Demand Basics
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Q1 ‘16 Global supply: 96.4 MMBD
U.S., 20%
China, 12%
India, 5%
Other Non‐OECD, 35%
Other OECD, 38%
Global Oil Demand
Q1 ‘16 Global demand: 94.8 MMBD
U.S., 13%
Russia, 12%
Saudi Arabia, 11%
Other OPEC, 30%
Other Non‐OPEC, 34%
Global Oil Supply
Crude Oil PricesForecast exceeds WTI futures
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$100
$62
$79
$95 $94 $98$93
$49
$0
$20
$40
$60
$80
$100
$120
$140
$160
2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F
WTI NYMEX Crude Oil Price
WTI Annual Avg. Futures at 4/13/2016 Consensus
Financial Crisis
OPEC Reduces Quota
Arab Spring
OPEC Quota increase
Iraq Supply FearsIEA Lowers Demand Forecast
Iran Deal Reached China Noise
Iran Supply Fears
OPEC Maintains Quota
Production freeze talk
Iran Production
U.S. DollarIncreased Demand
Where Are Crude Prices Today?
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Lowering Prices Raising Prices
OPEC Production
2015 Hedges
GOM Startup ProjectsMacro &
China Economy CAPEX
Reductions
MegaprojectDelaysDrilling
Efficiencies & Cost
Increased Global
Militancy
‐43%
‐100%
‐80%
‐60%
‐40%
‐20%
0%
20%
Year‐on‐Year (2015‐2016) Change in Capex
Capex Guidance Weighted Average
North America E&P Capex Guidance
‐100%
‐80%
‐60%
‐40%
‐20%
0%
20%
Year‐On‐Year (2014‐2015) Change in Capex
Capex Guidance Weighted Average
CAPEX down over 65% in two years
$0
$20
$40
$60
$80
$100
$120
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
2014 2015 2016
Baker Hughes Land Rig Count vs. WTI Pricing
WTI (NYMEX) (r‐axis) Baker Hughes Land Rig Count
U.S. Onshore Rigs vs. WTI Pricing
Rig Count down 75% since January 2014
U.S. Production Forecasts
15
9.18
7.5
8.0
8.5
9.0
9.5
10.0
Jan 15
Feb 15
Mar 15
Apr 1
5
May 15
Jun 15
Jul 15
Aug 15
Sep 15
Oct 15
Nov 15
Dec 15
Jan 16
Feb 16
Mar 16
Apr 1
6
May 16
Jun 16
Jul 16
Aug 16
Sep 16
Oct 16
Nov 16
Dec 16
Jan 17
Feb 17
Mar 17
Apr 1
7
May 17
Jun 17
Jul 17
Aug 17
Sep 17
Oct 17
Nov 17
Dec 17
EIA U.S. Production Forecasts (MMBOD)Jan. '15 Apr. '16
9.69
8.11
7.79
Major Projects on Hold
• Nearly 70 major oil projects shelved worldwide in 2015
• Those projects worth $380 billion
• 27 billion Boe affected
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Crude OilNon‐OPEC, Non‐U.S. Production
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‐1.0
‐0.8
‐0.6
‐0.4
‐0.2
0.0
0.2
0.4
0.6
0.8
1.0
‐1.0
‐0.8
‐0.6
‐0.4
‐0.2
0.0
0.2
0.4
0.6
0.8
1.0
2012 2013 2014 2015 2016 2017
Non‐OPEC, Non‐U.S. Production Growth Y/Y (MMBD)
Mexico North Sea Australia Russia
Malaysia Brazil Colombia Yemen
Canada Rest of Non‐OPEC, Non‐US Total (r axis)
OPEC Production
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30
31
31
32
32
33
33
OPEC Production (MMBD)
Global Oil Demand
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85
87
89
91
93
95
97
99
2012 2013 2014 2015 2016F 2017F
Global Oil Demand (MMBD)
Crude OilOECD Inventory
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1Q132Q13
3Q134Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q163Q16
4Q161Q17
2Q17
3Q174Q17
1Q18
2Q18
3Q184Q18
1Q19
(200)
(100)
0
100
200
300
400
500
OECD Commercial Inventories Relative to the Five‐Year Average (MMBbl)
Increasing inventory;
oversupplied$25‐$35
Returning to balance$40‐$50
Normalizing inventory levels
$65‐$70
Need supply growth equal to demand growth
$70+
Significant inventorydraws$50‐$60
How About Natural Gas?
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• Minimal dry gas drilling
• Significant identified resources
• LNG export facilities come online 2016‐20
• Wildcards– Globally
– Increased utilization and transition away from coal
– Megaprojects investments
– Weather, weather, weather0
10
20
30
40
50
60
70
80
90
Jan‐12
May‐12
Sep‐12
Jan‐13
May‐13
Sep‐13
Jan‐14
May‐14
Sep‐14
Jan‐15
May‐15
Sep‐15
Jan‐16
May‐16
Sep‐16
Jan‐17
May‐17
Sep‐17
U.S. Dry Gas Production (BCFD)Total Dry Marcellus/Utica (r‐axis)
Natural Gas 2015/16 Heating SeasonNot supportive of gas prices
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1,000
1,500
2,000
2,500
3,000
3,500
4,000
10‐Year Avg. 5‐Year Avg. 2011/12: "Winter that wasn't" 2015‐16
Total Season Heating Degree Days
Natural GasInventory
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0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
1 5 9 13 17 21 25 29 33 37 41 45 49
U.S. Natural Gas Storage (TCF)5 Yr. Range 5 Yr. Avg. 2015 2016
Summary
• Time (and higher commodity prices) heals all wounds– Crude oil supply and demand fundamentals improving, although lack of investment will yield a multi‐year effect
– Natural gas is quietly going from bearish to bullish– Cash flow will be directed towards the balance sheet first and then drill bit
– Service companies will need to resurrect margins– Investment horizon risk pared back
• A couple key items that could further delay recovery– Battle of influence in the Middle East, Saudi Arabia vs Iran– Global macro health effects on demand
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