Q2 2025 Devon Energy Corp Earnings Call

Asset Management: Tom Helman, SBP in Operations, and Trello, SVP Technology and Chief Technology Officer.

As a reminder, this conference call will include forward-looking statements as defined under us Securities Law.

These statements involve risks and uncertainties that may cause actual results to differ. Materially from our forecast. Please refer to the cautionary language and risk factors provided in our SEC filings and earnings materials.

With that, I'll turn the call over to Clay.

Thank you, Rosie. Good morning, everyone. Thank you for joining us today. Devon delivered another quarter of production outperformance, capital reduction, and improved 2025 outlook driven by our unwavering commitment to operational excellence and financial discipline.

our strategic priorities on slide, 3, remain, steadfast

Operational excellence. Advantaged asset portfolio.

Maintaining Financial strength.

Delivering value to shareholders and cultivating a culture to succeed.

Amid Market volatility, our veteran leadership, team is not distracted by the headline or tweet dour.

We keep our eyes focused on the larger macro signals, and we've got guided our team's energy towards controlling the controllables.

as you'll hear during the quarter, we avoided the distractions and have made significant progress towards our business, optimization goals of making Devon a more efficient value, creation machine,

Our optimization plan will create an incremental billion dollars of annual free cash flow by the end of next year.

While cost cutting is part of the strategy. Our focus is on driving value to the bottom line.

Many of the winds are tied to production enhancements in sighting, a culture of continuous Improvement and a heavy dose of Technology.

Only 4 months into this initiative. Our team is already captured 40% of our Target.

As I sit here today, I'm highly confident in our ability to achieve our 1 billion dollar Target on time and as a result creates significant and sustainable value for our shareholders.

Consistent with our strategy to enhance our asset portfolio. We completed the sale of the Matterhorn pipeline in Q2.

Then on August 1st, we acquired the remaining non-controlling interests and cotton draw midstream.

These transactions are value enhancing and strengthen our financial position to support future growth.

By optimizing our Midstream holdings, these deals bolster our ENT operations and give us long-term value creation for our shareholders.

Let's turn to slide 4 and discuss our quarterly highlights.

The second quarter demonstrated the capital program and diversified portfolio.

As I mentioned, our second quarter production exceeded the top end of our guidance. These results were driven by our franchise asset, the Delaware Basin, and the strong performance of our other assets.

Continue to efficiency gains and effective. Supply Chain, man, management allowed us to outperform expectations with capital spending coming in 7% below guidance.

The impressive performance on both capital and production generated significant Q2 free cash flow of 589 million and further strengthened our financial Foundation.

Approximately 70% of this free. Cash flow was returned to shareholders via dividends and share repurchases underscoring our reinvestment strategy and commitment to delivering meaningful long-term shareholder returns

Let's take a closer look at some of our operational metrics.

Slide 5. Showcases the significant operational? Efficiencies we are achieving across our portfolio.

In the Delaware, our teams have continued to push the envelope from both Drilling and completions.

Our leveraging, our existing, or excuse me, our extensive data streams and our proprietary infra and in drill, AI agents, we're able to capture operational enhancements in real time and drive efficiency in our critical operations and parallel to this real-time operational assistance. We're also leveraging design, improvements simal, Frac, implementation and Relentless, focus on safety and execution.

These enhancements have resulted in another 12% year-over-year Improvement in drilling costs and a 15% Improvement in completion costs.

These are not just 1-time gains. They reflect the ongoing commitment of our teams to drive meaningful, long-term improvements in how we operate

We are seeing similar momentum in the Willison where our Innovative approach has delivered a million dollars in savings per well, since the grace and Mill acquisition last year.

And by leveraging technology.

Finally, in the Eagle Ford, I'm pleased to report that we've fully captured the $2-point savings and achieved $7 million in savings per well that we set out to achieve as part of the dissolution of the JV in April.

Overall, the operational highlights demonstrate how our teams are continuously seeking new ways to drive efficiency and deliver value.

Let's turn to slide 6.

You can see how these operational improvements are driving real capital efficiency gains.

Since November, we've reduced our 2025 Capitol guidance by 10% or 400 million.

We've achieved these Capital reductions while regularly increasing our next quarter production guide and maintaining a strong 2026 production Outlook.

This outcome is a direct result of discipline Capital allocation ongoing operational improvements. And importantly, our commitment to leveraging technology across the business.

Our proprietary AI tools, agents and models are embedded throughout our operations from Drilling and completions to real-time production optimization.

These Technologies enable us to quickly source and analyze, vast amounts of data, make informed decisions faster and continuously refine our workflows

As I mentioned before, we're not just cutting costs. We are optimizing well performance reducing cycle times and streamlining field operations all while while delivering production performance and strengthening our financial position.

These are sustainable structural gains that will translate into more efficient capital deployment, stronger free cash flow, and long-term value. With that, I'll hand the call over to Jeff.

Thanks, Clay. Turning to slide 7, where we highlight another quarter of strong financial performance for Devon.

In the second quarter, we delivered core earnings of 84 cents per share. EBA Dax of 1.8 billion dollars and operating cash flow of 1.5 billion.

After funding our Capital requirements, we generated 589 million in free cash flow.

This was driven by production and exceeding the top end of our guidance reflecting the excellent operating performance highlighted by Clay.

Disciplined, capital investment resulting in a 7%, outperformance versus expectations and production costs improving 5%. From the prior period, due to reduced, downtime lower work over expenses and lower production taxes,

In addition, to strong organic free cash flow. We closed the 372 million deveste of our Equity interest in the Matterhorn pipeline, resulting in 307 million pre-tax gain with the associated taxes. From this year. Our current tax rate was approximately 21% for the quarter above, our recent run rate,

With this robust cast generation, we delivered significant value to shareholders paying 156 million in dividends and allocating 249 million to share repurchases.

We remain firmly committed to our Capital, allocation framework balancing High return Investments with substantial, cash returns to shareholders.

Moving to slide 8, our financial strength and liquidity position remain a clear differentiator for Devon.

We exited the quarter with 4.8 billion in total liquidity, including 1.8 billion dollars in cash on hand.

Our net debt to EBA tax ratio improved to 0.9 times, reflecting our ongoing focus on maintaining a strong balance sheet.

Our 2.5 billion debt reduction plan is progressing well with 500 million already retired.

Additionally, we plan to accelerate the retirement of our 4855 million, senior notes maturing in December.

Taking advantage of the no-penalty call option, we've elected to retire these notes on September 1, a quarter earlier than originally planned, saving $7 million in interest expense in 2025.

Another differentiator for Devon is our success on the Midstream and marketing front.

After quarter in, we acquired all outstanding non-controlling interest in Cotton draw Midstream for 260 million. This transaction gives us 100% ownership of the asset and full access to its cash. Flows. Resulting in savings of over. 50%, that would have been paid to our partner.

These savings are incremental to our 1 billion dollar business optimization plan announced earlier in the year. Further improving our multi-year, cash inflows.

Full ownership of cotton draw, Midstream, strengthens our competitive position in the Basin and supports future growth in 1 of our most prolific areas.

Alongside the Matterhorn pipeline of deer. This acquisition demonstrates, our commitment to creating value and enhancing our EMP operations through our strategic, Midstream Investments.

Seller of Midstream assets. Moving forward. We remain open to additional opportunities in the Midstream space, and creating additional value with our investments.

On the gas marketing front, we're focused on maximizing realizations and positioning our gas production to benefit from increasing demand driven by LNG expansion and power generation. In the second quarter, we executed two new agreements that advance these objectives and further diversify our natural gas sales portfolio.

The first is a 10 year, gas sales agreement to an LG counterparty, starting in 2028, under which Devin will sell 50 million cubic feet. A day of natural gas at a gulf coast delivery point with pricing index to International markets as LNG. Build out, creates additional demand for natural gas, we expect to pursue more opportunities to add exposure to International price markers.

The second is a permanent gas sales agreement with competitive power Ventures based in ranch Energy Center to support its proposed 1,350 megawatt power plant. With an expected. Start in 2028, 7 will supply 65 million cubic feet per day of natural gas for a 7-year term with pricing indexed, to Ott West Power prices.

This pricing construct further limits Devon's exposure to the WTI price weakness we've seen in the Basin for some time.

Now, turning to slide 9 to touch on guidance.

For the second consecutive quarter. We're raising our oil production Outlook while lowering Capital spending. We now expect full year oil volume to range from 384,000 to 390,000 barrels per day. Reflecting continued, strong well, productivity and Bass Performance across our portfolio.

Total Capital guidance is being reduced by 100 million dollars to a range of 3.6 to 3.8 billion.

Importantly, our breakeven funding level remains highly competitive at less than $45, including the dividend.

At today's strip. Pricing this positions us to generate approximately 3 billion dollars in free cash flow for the year underscoring the resilience and flexibility of our business model.

I'd also like to highlight the positive impact of the recently, passed Federal legislation, which provides meaningful tax benefits for Devon.

These changes are expected to enhance our free cash flow profile in 2025 and Beyond further. Strengthening our ability to reinvest in the business and return Capital to shareholders.

While our tax rate will be somewhat volatile over the next few quarters as we incorporate the new legislation. We now expect our full year 2025 current tax rate to be about to be around, 10% down. From our previous estimate of 15%, adding nearly $300 million in projected cash flow for the year.

Looking Beyond 2025, we expect to no longer be subject to the corporate Alternative Minimum Tax. As a result, we anticipate our ongoing current tax rate will be significantly. Lower than previous estimates, ranging between 5 and 10%.

This reduction will provide Devon with increased cash flow of approximately 1 billion dollars over the next 3 years. Assuming a similar pricing environment and capital spend. This is an addition to the 1 billion dollars of incremental free cash flow from our business optimization plan.

Looking ahead to the third quarter, we expect to build on the momentum established in the first half of the year. Our operational execution remains strong, and we anticipate stable production of 387,000 barrels of oil per day.

With the capital efficiency improvements and as new wells come online and optimization initiatives take effect, we expect lower capital costs compared to the first two quarters.

As our teams continue to deliver on key Milestones, we're confident that Devon is well, positioned to deliver another quarter of strong results, and create additional value for our shareholders.

Shifting gears now to talk about the business. Optimization plan on slide 10.

On the right side of the slide, you'll see a scorecard tracking, our progress as we achieve Milestones, that generate additional cash flow. Will update this graph to provide clear visibility into the timing and impact of these benefits.

In the course of only 4 months, we've achieved 4% of our 1 billion goal.

From the dark blue bars on the graph, you can see the progress we've made by Category 2 today.

This quarter we're reducing 2025 Capital by another hundred million dollars. Roughly 75 million of which is directly attributable to our business. Optimization efforts with the remaining 25 million resulting from deflationary pressures. As clay mentioned, our Drilling and completion teams are leveraging artificial intelligence to drive Capital efficiency. While our production teams, continue to innovate lift techniques to sustain production levels.

Senior notes this year resulting in $30 million in annual savings to our run rate, call structure as a reminder 100 million dollars of the 150 million Target in corporate costs will be met with debt retirement. We expect to achieve this Target in the third quarter of 2026, with the pay down of the term loan.

Finishing our business optimization discussion on slide 11. As we've said before, our intent is to be open and transparent with this plan. Communicating often we've included more details here on initiatives underway at Milestones achieved with that on now. Turn the call back over to Rosie for Q&A.

Thank you, Jeff. We'll now open the call to Q&A. Please limit yourself to one question and a follow-up with that. Operator, please, we'll take the first call.

Thank you. Our first question comes from Nail Meta with Goldman Sachs.

Please go ahead. Neil.

Yeah, thank thanks so much. Appreciate all the color here today. Um, we just love love your perspective of, um,

on getting, um, on the non-oil realizations. I think it, it was clear is you're executing very well on oil. The net backs are good on oil ngls, and, uh, in local gas prices have continued to be a headwind for a lot of producers, including you guys. And so, as you think about the back half of this year, and into next year, and then some even from the marketing agreements that you announced here today, what are you doing to to?

Try to to capture better uh, on on the non-oil side of the equation.

Hey, Neil is Clay. Thanks, thanks for the question. And and 1 of the acknowledgement of the good work that our Midstream marketing teams are doing every day. You know, we highlighted a couple of deals um this quarter but it just it's on top of all the other good work that we've done. I'll let Jeff dig in a little bit more on those part 2 2 particular deals but I think it's a great opportunity just to us continue to acknowledge uh the work that we've been doing in this space for quite some time now.

Yeah, this is Jeff. Yeah I get appreciate the question. And as as you know, well we've talked about this for a number of of quarters in a row. Now um you know our our broader marketing philosophy specific to our natural gas and again the bulk of our natural gas production obviously comes out of the Delaware Basin today. Um you know followed by by our Oklahoma gas production, but specifically in the Delaware, our approach is has been to move. Those molecules away from waha, right? We talked about the, the weakness that we've seen in waha for some time. Um, you know, we've we've been involved with some of our Midstream Investments and our broader, um, you know, commitment to firm transportation to move, molecules away from Maha, and to the demand Center, uh, specifically to the Gulf Coast. So, you know, where we sit today, when we look at our wahawk exposure, um less than 15% of our gas actually has direct wahawk exposure, in Basin, the rest of that, we either hedge, uh, you know, our exposure or our firm transportation and our firm sales.

Else to our to our counterparties, move those molecules away mostly to uh, to the Gulf Coast again, as we look forward between Matterhorn, and our blackcomb, um, uh, you know, commitment that we've made the pipeline that will come on. Uh, later late, excuse me in the second half of next year. Um, we're going to be approaching over a billion dollars of, of Transport out of basin. So, we feel really good about the work. Excuse me billion dollar BCF a day. So a BCF a day of Transport, uh, out of basin, uh, which makes it feel really good about the work, the team's done as, as clay mentioned, uh, to really, uh, limit our exposure to wahal and to go for basis on top of that, obviously, with the announcements, uh, that that we mentioned today and our opening remarks, um, we're always happy to see incremental in Basin demand, show up. Uh, and so the cpv you know, powergen opportunity is something that we're excited about again, relatively small relative to our our, um, our production profile and the Delaware but every bit helps and, you know, particular

I particularly like the idea of the, um, you know, the index to the power price, which we're bullish on, and think that again provides some real diversity to our gas sales portfolio.

Yeah, that's great color guys, and then slide 10, uh, always helpful. So see how you guys are score carding across the buckets of business optimization?

Just unpack this for us a little bit. How is that 40% that you've achieved in in the first 4 months? Compared relative to your expectations? And what's, what's the next key Milestone? You guys are really focused on here.

Other categories, the ideas that are being implemented Today. Show up in in the financials, in the coming, in the coming quarters. Um, we're some of the examples that that I would share. We continue to see our teams lean on technology and AI. Uh, the way that all of our employees are working today is changing in real time. And, and we've seen the adoption and the investment that we've made over a number of years. Really take fire and we're our leadership team has set an expectation and and table Stakes. Really that, we expect all of our employees, to use these new tools and that's showing up in a lot of these business optimization initiatives that we have across the company,

Um, 1 that I would highlight is, in our, in our production space. And we've got a, a new analytics, uh, that we've just kind of had a breakthrough in the last quarter of how we're tying all of our real-time streaming data from the field into our, um, AI systems and into our agents and allowed us to come up with a new way of how we're analyzing our production faults across the company. This is going to result in millions of dollars of savings. And we've got many of those ideas that are being implemented today. That we're going to continue to uh to see grow legs and show up in the financials in the coming quarter.

And and you know, I wanted to pile on that. Uh I want to reiterate something that Jeff mentioned in his prepared remarks. Um The credibility of this program is really, really important to us when we announced it, you know, back in uh 4 months. Or so ago, we knew we weren't going to get an instantaneous credit of a billion dollars of incremental free cash flow baked into our share price that we needed to earn it.

And so, there's 4 things that I wanted to point out that we have specifically set aside as incremental to this business, optimization the billion dollars of annual free cash flow. So, last quarter, we talked about the proceeds from out of horn. We are not claiming credit for that in our business. Optimization model this quarter. We talked about CDM and the benefits associated with 50 million plus of dollars. Not going out the door that we are not claiming Credit. In addition, we've talked before about the deflationary dollars that will not occur to this uh tally as well. And then the really big 1, this quarter is the taxes obviously 300 plus million dollars a year will absolutely enhance our free cash flow but we're not claiming credit uh, on this business optimization for those 4 important things. So, think of it this way, we're going to achieve the billion dollars of incremental free cash flow by the end of next year. And a sustainable routable way each year going forward plus these other very, very significant High.

And so, I think the credibility is, is worth underscoring about 3 times, just to make sure that you guys are here. And as we're trying to be as transparent and open, uh, as we can on this and really holding ourselves accountable to achieving some really big things and I would I would tell you is the team is crushing it. So thanks for the question.

Thank you. Our next question comes from Scott Gruber with Citigroup.

Please go ahead Scott.

Yes, good morning. Um it's nice to see the full year oil volumes kicking higher here is the Improvement output. You know, drive you to to shift higher how you think about the maintenance levels of production in in 26 to use the new run rate from this year.

Yeah, thanks for the question, Scott. Look. We are obviously next year's a little still too early to talk about. We're not uh, providing guidance yet but obviously we're doing the work. The work that we do this year, really sets up the work for next year. And what we're still doing is goal seeking for that kind of mid 380s as the right run rate going forward. So I don't think this is a reset we're going to have some Quarters at a little hotter and a little bit lower um but we're still running kind of that mid 380s as the right oil rate for us. So this is not a a reset uh, going forward

I guess with the production enhancement efforts,

you know, with that not to the higher and it's kind of why why keep it at the the mid 38 is or that just kind of breaking into some conservatism

Yeah, so we're you know, obviously we're thinking a lot about the macro, we feel like the oil Market is just generally well supplied and what that translates into US. Is that we think maintenance capital is the right uh, right approach from an investment standpoint. So as we accrue benefits on the production, side on the capital side, on the LOE side, what we're attempting to do is, is approve. Those benefits on the cost side of the equation, ultimately, in a reduced Capital, uh, benefit. Now it's hard to do that on a quarter to quarter basis and so you see, like, we, we've got it next quarter to midpoint of 387. You had don't think of that as as a runaway growth. This is just the incredibly good work of the teams. What we're trying to do is make sure that we balance, uh,

very thoughtful about trying to be routable and smooth in that Outlook and that's what we're solving for when we're looking at 26 and really Beyond

Yeah. John's got 1 more point.

Yeah, and I, I think just to add to Clay's comments, uh, the, the downshift, in, in rig and horsepower count that you saw as an Alton q1's reflective of that. So as we have these production optimization gains a lot of times they show up, uh, in a lot of small ways and we see it more in real time. And to place point we see that in the next quarter. And so, uh, that's that's the reason you're seeing a little bit higher guide for the next quarter. Um, but the Behavior, Uh, that clay described really manifest in in q1 and Q2 and you're seeing those those rig drops uh you know here at the second half of the year and that's reflective of what I think you'll see us uh do go forward when we have these production wins and and think about the benefits that Scott, I mean we we are all, you know, just cherishing. This amazing portfolio, that portfolio that we have. And each time, we're able to kind of moderate that activity flatten, That Base decline, lower that, um, that the amount of Maintenance Capital that's required that extends, that Runway, even fur further. So there,

There's many magnitudes of benefit associated with the good work that we're doing on this business optimization.

Thank you. Our next question comes from John Freeman with Raymond James.

On, please go ahead.

Thank you. Uh, this morning landbridge announced a produced water, pore space agreement. Uh, with y'all starting in 2227, uh, it looks like you are getting out ahead of you know, what could potentially be an issue in in the permit of just hoping y'all could maybe allow it on that deal and how much runway you see it providing all

Yeah, John, you're, you're, you're uh, exactly right on. On us, getting out ahead of it. I would just tell you this deal. Uh, is very consistent with our water management strategy in the Delaware Basin and maybe I'll hit that at a high level.

So first, um, it's probably worth noting, uh, just the magnitude of the water production we have in the Delaware Basin. We're managing.

At any given time, uh, anywhere from a million to 1.2 1.3 billion, barrels a day. And so the first call on that water really for us is our water recycle and reuse. Uh, you know, depending on how many Frack Crews we have running at any given time how much third party water demand may be out there. Uh, we can send maybe 25 to 30 for 5%, maybe on a really good day, 40% of our water.

Uh, back to recycle and we'll reuse that in our operations. Uh, but beyond that, we've got to manage that water. And we've done a couple of things of the past few years to be really proactive in that space. Uh, 1 was our joint venture with Waterbridge, uh, predominantly on the Texas side of the Basin. Uh, We've since, um, expanded that partnership a bit, uh, on the New Mexico side. The, the other thing that we've done and more predominantly on the Mexico, side is continue to build out our infrastructure into what we call a super system and specific to New Mexico. Uh, we now have the ability to move water, uh, from asset to asset bidirectionally, it gives us a lot of flexibility. And then what we do, uh, on the back end of that is we have a lot of strategic Partnerships with third parties, uh, to be able to move that water around. And so, the deal that you saw announced this morning,

Is uh, simply 1 of those, uh, strategic relationships with the third party. We've really leveraged a water Bridge JV, uh, to be allowed to allow us to to do that. And so, in in 2027, um, when that deal, uh, really becomes effective, we'll now have the ability to move that water, uh, to a part of the Basin, uh, that's much lower in terms of poor pressures and the Delaware Mountain Group. And so I see this as a, a strategic Advantage for Devin going forward. Uh, it's a win-win for our partners on the deal, uh, and for Devon.

Appreciate the, uh, the color. Uh, and then just following up on the uh, the new Gas marketing agreement with uh, with cpv. Uh, you're you've got a competitor that's that's also participating in data scores, the right to also purchase power from that facility for their own operations. Do y'all have it somewhere agreement in place?

To add there. Uh, but over on the Texas side, we we haven't fully electrified a number of our facilities. And that includes, uh, some of our Midstream compression which would really cause our load demand to be uh, significantly uh higher, uh, to that. We also have dedicated substations on the Texas side, good partnership and relationship with Encore. So on a relative need basis, that's not simply something that that uh, we we have as much of

Thank you. Our next question comes from. Paul Cheng with Scotia Bank.

Please go ahead. Paul.

Uh, thank you, uh, good morning.

Um, maybe Kate, if we uh, uh, can we look at Barkan? Um, maybe that the data is wrong, but uh, it does look like the well productivity is maybe come down a bit and also from the uh, third party data. So can you give us some idea that, uh, are we seeing? That is just a, a, a tip or that the deterioration is something that need to work on and also whether you have a sufficient scale now after the great, some, uh, acquisition that you think you have

And the second question is that uh, on eco fund uh that after the dissolve of the joint venture, can you give us some idea that now you reset. I suppose that you reset the base uh and how's the Caden on your activity and also your production Outlook uh for that over the next several quarters. Thank you.

Yeah, Paul. This is John. I'll do my best to answer both those questions. Starting in the Williston, um really the phenomenon you're seeing there is, uh, back, uh, and what would be, uh, probably some of the newer public data. You're seeing coming from Q4, uh, that was largely our Missouri River pad on the east side of the Basin, which is our legacy asset. Uh, simply put, the geology is higher quality there. You're going to see, uh, more productive wells. So, as we've shifted our activity over to the west side of the Basin on the newly acquired Grayson asset, on a relative basis, you're going to see well productivity, uh, be a bit lower. What I would tell you though, relative to our expectations, our well productivity has been, uh, quite good on the west side of the Basin. So, very consistent with our expectations and really, uh, no concerns, uh, on our part with, with Williston, uh, well, uh, productivity.

I think second on your question, on the eagle for it if I heard you correctly. Uh yes there's absolutely been uh sort of a a reset on on our production there. As we close the bpx dissolution on the first day of the quarter uh bpx took a, a disproportionate amount of the the the production on that deal while we took more of the upside. And so, uh, really when you look uh post bpx dissolution closure, um we've got about 55 more Wells that we want to bring on uh throughout the course of the year on that asset. That's about 90% in dwit uh County uh on the Blackhawk field formerly part of that JV. And we feel really good uh about uh our ability to continue to grow production uh back to uh the levels uh sort of pre pre pre pre pre-split.

Thank you. Our next question comes from

Handled with RBC.

Yeah, thanks. So hey Jeff you you kind of mentioned the uh the the windfall. You all are going to get from the obba. Um, to trying to think you said a billion dollars over the next, you know, few years. What is the plan on on allocating the cash? Like, what, what are you targeting to do with that? Could that be for incremental shareholder returns? Do you, you know, would you rather focus on maybe?

You know paying off the term loan faster. But you know, just give me your thoughts on how to allocate that.

Debt reduction Target out in front of us as well. So as we acrew this incremental, free cash flow from our business, optimization game plan, uh, from the the tax savings that we've seen or expect to see, um, that will our crew to our balance sheet and we'll, we'll likely, uh, accelerate some of the debt reduction that we have planned here over the course of the next, you know, 18 months or so.

Okay, I appreciate that. My follow-up is, is on the end of Darko. I'm in in Paul Highland, obviously, there's some moving Parts on, you know, both black and the eagle for production. But I I think the end article and, you know, stepped up, you know, pretty strongly with this court as well. Can you tell us where you all are with, um, the JV there and, and you know, how to think about that production and, you know, obviously it's got a little bit more of a gas mix. So be interesting to hear your kind of thoughts on, you know, investing in that area. Um, and, and your views on the gas macro,

Yeah. Um, as far as the Anadarko, a lot of what we're doing there is, um, really Prosecuting our, uh, Dow JV. Uh, so as you recall, that's a, a 49. Well, commitment. We kicked off, I believe here in the second, uh, quarter. And so we've been, uh, Prosecuting that activity, uh, with that, uh, the production growth that you've seen, uh, sort of quarter over quarter there, um, would have largely been tied to the new well, IDs associated with that activity. Now, I will say relative, uh, to

To q1. We did have some weather impacts in q1. So uh, the growth uh, probably appears to be a little bit more than what it otherwise would be. But we've been consistently, uh running. Um,

uh,

2 rigs in that Basin. Um,

You know, now for, um, much, much of the year.

I'd say the activity is pretty consistent.

Thank you. Our next question comes from Doug luggage with wolf research. Hey, go ahead, Doug.

Uh, thank you. Good morning. Clay. Can you hear me okay?

Thank you, Doug. I can hear you fantastically.

Okay, great stuff. I just wanted to check that. There were no connection issues with this time around. So thanks for your patience. I sincerely appreciate you. Check questions.

That's no good. Good, good stuff. I I you have no idea how many times I said that last time around. But um, anyway, I I did ask actually want to ask a question last call, and I didn't get to for some reason, and it was about the BP separation. Um, and I, I want to address 1 specific issue.

What BP talks about is that they chose their acreage.

Because they had problems with the Wilcox, in the stability of the Wilcox sand in the eastern part of the play, which caused sidetracks, all sorts of operating problems, and so on. They wanted to avoid that going forward. I wonder if you could address that as it relates to your experience of operating in that part of the Eagle Ford. And I've got a follow-up for Jeff, if that's okay.

Sure. Yeah, happy to address that. So I mean this this is a classic win-win. Uh, I think I think bpx was really happy to get the acreage. That they that they did satisfied. Some of the objectives that they had. Uh, as John mentioned they've got a disproportionate share of the production day 1 but I can tell you, we were equally uh, happy to get the Acres that we did. We have more Running Room, more upside. We've seen this very material Savings in in capital cost that completely changes the game. We feel very confident in our ability to execute As you move to that Northeast area, it is more challenging drilling, but we are much much more confident to having our DNC team jump all over that. We see a lot of Runway, uh, We've executed that we didn't have the slide this quarter, but if you look back at last quarter, we showed as we continue to move and take over these material, savings are real, as we continue to move to the Northeast, there's a, a, a, an extra step that we will take in regards to the casing string. But

What it does is at this lower cost structure, it continues to open up significant Runway and we just see so much more upside. So it it's 1 of the 1 of the things that we are super excited about uh the the team has done an exceptional job on executing on some of the uh the objectives that we had. As I mentioned in my prepared remarks, our stated goal was to north of million dollars. We had kind of whispered, we really think it's 2.7. We've now achieved that 2.7 million per well and as you know that changes the game on the upside potential of that Runway and even the more challenging acreage to the Northeast we just have so much more Running Room and so much more uh upside value to create from there.

Strength.

Yeah. So the wells that we're comparing Apples to Apples, that is the, um, that's the 2.7 million, but we needed to be able to achieve that as we move to the Northeast. Most of those Wells are going to be the same casing design. So, where we apply the incremental casing designs, they were cost prohibitive before. And so, just had no value in our portfolio with this improved savings, even if we have to add an extra casing string, which would require some extra cost, these were main, uh, value creative and and acred to the positive on mpv4. So that that incremental case ensuring where necessary is incremental, but know that that overall savings still allows these Wells to be, um, competitive in our portfolio.

That's great. Thanks for the clarity. So my my follow-up, Jeff. Um, I guess there's a couple of pieces to this and it starts with cash tax. Um, you've given the next 3 years. My question is, I I I I know it's not, there's no Precision here, but this idea that um, you you now get idc's on a 10 of as well. I guess, as long as the current Administration is in place for an extended period of time, what does it look like beyond the next touristy years? And I guess my, my part B would be, um, clearly this is chemical windfall. Um, I think I heard you say that you're prepared to put cash on the balance sheet and reduce net debt. Am I overthinking that?

No, that's exactly right. Doug. Yeah, as we continue to uh and I obviously the tax is is impactful. But uh also the free cash flow. We're going to generate with our business, optimization game plan, and some of the other things that we've talked about here today, that, that clay mentioned previously. Um, you know, again things can change in the world, uh, but based on our current forecast, we're going to be we generating significant free free cash flow going forward incremental that that to what we would have thought of even just a few months ago. And so our game plan is not to change our, our shareholder return framework at this point in time. Acrew that cash to the balance sheet. Help us achieve that 2 and a half billion dollar debt reduction that we set out on the back of the, the grace of Mill acquisition. So, that's absolutely our current thoughts around, how we're going to allocate this Capital going forward. And and again, as we work through our capital budget here, over the coming months, uh, we'll obviously provide some incremental guidance on 2026, um, and and things may change a bit, but the current thought process is, uh, continue to work towards that 2 and a half billion dollar debt reduction, beyond the the cash.

Return to shareholders to your, to your question about longer term kind of tax profile as I highlighted in my opening remarks. Um, you know, the benefit of of camt going away for the corporate Altman tax going away for us. Um or uh as a result of the ID IDC deductions, we'll have a a tax rate of current tax rate closer to that 5% level. As we look at 2026, it'll it'll move a little higher in 2027, probably closer to that 10% that I highlighted in the comments.

And then beyond then, you know, again assuming kind of current price structure Uh current capital investment, you'll likely see that current tax rate Trend higher, but as we look out in our projections, you know, if we look at the, you know, the current tax rate we had here in the second quarter was obviously elevated with the, with the huge gain that we had on the on the matter horn sale. Um, but if you go back another quarter and see if being in kind of the High Teens, we don't get back to that kind of level in our projections until you know, 67 years out. Right? Uh, under the current construct. So, um, definitely a benefit for us. Obviously, the, the bulk of that comes here over the next 3 years, with the acceleration of the Rd R&D expense seen in the bonus depreciation. Um, but really carries forward, even beyond the next 3 years, uh, until things level out.

Thank you. Our next question comes from Arun, G. With the JP Morgan.

Please go ahead.

Yeah, yeah. Good morning, gentlemen. I wanted to follow up, uh, Jeff, on the commercial opportunities or the $200 million that you've realized in that bucket. What is the timing of when you're?

You'll get those savings is that early in the year, but maybe just a helpful because it is a pretty meaningful. Uh, needle mover.

Got it, got it. I just want to make sure, because on the slide it says it's not captured in your 2025 outlook, but you'll get that later this year. Yeah. Yeah, and the reason for that is it's not impacting 2025, so it's really a 2026 benefit.

Got it, got it. Um,

I got a 1 follow up. Uh, clay. As you have contemplated a higher degree of co-development between the wolf Camp, B and wolf Camp a zones in the Delaware Basin. I think the mix is going to 30% this year versus 10 last year. I was wondering if you could comment on how, uh, you're seeing the interplay between the wolf Camp, B and wolf Camp a zones. And and just talk about, you know, are you seeing any impacts to, you know, productivity uh in that wolf Camp a Zone?

Hey everyone. Thanks for the question. I, you know, when we think about these kind of um these decisions these are very um, macro uh, portfolio oriented. And so, when we're doing the trade-off, we're thinking about rate of return, we're thinking about npv and we're thinking about quantification of the portfolio and we're trying to balance and optimize all 3 of those. I'm going to kick it to John. He can talk a little bit more in detail about what we're seeing kind of Well to Well. And then importantly, how do we plan to continue uh on this path rolling forward?

Yeah, a rune and Clay. Thanks for the setup there because uh I I do think it starts with Excuse me. The the trade-offs, pardon me.

Um, as clay mentioned is we shift more into this multi-zone co-development we know we're taking a little bit of a dear term trade-off on a bit lower. Well productivity in exchange for a more optimized, Net Present Value across our inventory, but importantly, a more sustainable and longer term inventory Runway. And so, when you ask the question specifically is the inclusion of the wolf Camp B, impacting the wolf Camp a. I would tell you generally know, that's not what we're seeing. We've appraised uh, that that uh, potential impact. Now, over a couple of years, we've really optimized both our Landings and our spacings to get these large multi-zone developments, right? And I'll tell you the, the, the the benefit we see is really avoiding the depletion effect on future inventory. And so if we wanted to prop up our well, productivity and just mow down our best zones, we could do that. And what we'd probably do is mow down our wolf Camp a, uh, but if we

We did that we would be sacrificing the productivity of the wolf Camp. Be later on, you'd see depletion effects in those Wells and those Wells would be lower productivity out in time. So this is a good reason of why we're so convicted in this multi-zone. Code development, philosophy. So limited to no impacts on the a but the real win there is we're maintaining the productivity of the B Wells.

I hope that answers your question.

Thank you. Our next question comes from Bessie, Jiang with Barkley's.

Please go ahead Betty.

Good morning. It's great to see the operational momentum translating into free cash flow generation. It's a follow-up to you, Jeff. We talked a lot about the balance of capital allocation. Maybe I can ask differently.

Um, you are you are uh, grinding that or paying down that 2.5 billion dollar of net bet, um, reduction faster than previously expected with all these efficiency gains, um, lower capex, and tax savings. Um, what do you think is the optimal debt level for this business going forward? Um, we see you potentially um reaching that 2.5 billion, talk Target by and the uh 26 maybe early 27. Is that after that we could see a potential increase in tax

Correct. Thanks.

Our business. So, I think about that as kind of the optimal absolute level. And, again, I want to reiterate that that's certainly a priority for us. But the benefit of, again,

Accruing. This cash to the balance sheet and we'll absolutely consider some acceleration of of the debt repayment as I talked about earlier, but that cash on the on the balance sheet provides us optimal flexibility. So without question, we're going to continue to be talking to our board about how do we uh continue to build upon the cash returns to our shareholders and so don't take any of my comments as precluding the option, you know, down the road of of that increasing over time. But certainly in the near term, the priority is is uh is on the debt repayment.

That's very clear. Um, thanks. My follow-up is, um,

Is there a locking of the next layer of resources? Given the lower cost structure, whether that's coming from the streaming or upstream?

do you see other, um,

Resource opportunities. That's getting unlocked. Now that was previously uneconomical. And there are the prior higher cost structure if so like where where it could be some of these opportunities.

Yeah, Betty. I I think the, the best example that I would point you to their, and we've talked about this on, on previous calls is, uh, our objectives, for instance, in the Powder River Basin. Uh, when you look at, uh, what we're doing there and what we're trying to accomplish there, I'd say there's really 2 deliverables 1. We want to deliver more consistent and competitive well results. So when you look back to 2024 and what we've done in 2025, we've delivered uh, very consistent results. In fact, some of, uh, the more consistent results in our our portfolio. Uh, these are some of the, the best results we've delivered the NRA thus far, the second aspect of our strategic objectives. There is we've got a consistently lower or well cost. And so, when you look specifically at some of these optimizations in the work, we're doing, you know, we've been uh, historically north of of 13 million dollars on a 3-mile nyra. Well, we've made a lot of progress. We've gotten closer to

Uh, call it a $12 million type. Well, when you look forward at some of the upcoming programs, some of the design changes, we're making some of the scaled benefits we'll achieve. Uh, we have a vision. Well, a concept out there, uh, that aligns very well with our business optimization to get to a $10 million type of DNC costs uh for a 3-mile night IRA. Well, and that's the perfect example of taking something that's margin.

Competitive in our portfolio today and making it competitive.

Thank you. Our next question.

Philip, please go ahead.

Thanks, good morning.

You you mentioned being open to additional investments in the Midstream space and and was just hoping you could expand on this. And and maybe what part of the value chain that could that could be um and what the target level of investment be assuming you're planning to plan to fund this with Devin's balance sheet.

Yeah, thanks for the question. Phil, you know, I think what's really interesting about this quarter is you see an example of us highlighting, a Midstream asset sale and a mystery and asset acquisition. And both were really excited about, we think they were, uh, cost beneficial, structurally, beneficial value, creating opportunities. And so don't think of us as maybe only going 1 Direction on this, but always trying to do the work to find out what is the better scenario to make us a better company. Uh, in the case of Matterhorn, we had a tremendous 5 bagger return on that, uh, on that investment we've held on to the um, to the capacity. And then importantly, we we made, we allowed the pipe to get put into the ground which was the initial motivation. So check, check, check on that. We retain the capacity. We um,

We're doing a really good job there. When we think about something like CDM,

Of optimizing our business there and and creating as low as cost structure as possible for our Core Business. And then on the on the Midstream side is Clay reference. This, um, it's really a thought process around a broader, marketing portfolio and and making sure that we can achieve the, you know, the highest realized price for our molecules and all of our basins. So, as clay, gave a great example with Matterhorn, we made an investment there. And as as, as he said, we're ecstatic with the, with the significant gain that we achieved there, but the real driver of that investment was to make sure that pipe got built and make sure we could get our molecules via firm transport to the demand Center. So that's really the, the broader, strategic philosophy, if you will, of all things Midstream investment for us,

Okay, great. And then yeah, yeah, strong Delaware production in the quarter, and, and just following up on the, the code Development question. Um, that now, now that we're halfway through the year, uh, can you talk about how this generally help performance has been versus expectations. Um, any any key learnings, uh, so far? And then how optimized do you think you are, uh, at the moment? As far as overall, completion intensity per per dfu.

Yeah, I'll uh, I'll start with, uh, productivity. So, as you heard me mention earlier,

We've we've developed more um momentum into our multi-zone development, philosophy. I think we've been talking about that for a number of quarters. Uh when you look at the well productivity from uh the wells that we brought online this year, I think the public data set right now is q1 and so uh what I would tell you generally is those well results are very consistent with our expectations. Now I've also seen uh some newsletters some data points, some chatter out there that well productivity is dropping off in a big way. Uh so I do want to provide, I would caution folks against calling that a trend. Uh, and I want to provide a little bit of context around our q1 data set. Uh, so specifically, if you look at it, it's a very weighted to the wolf Camp b or the deeper wolf Camp as well as disproportionately weighted to uh, the Avalon. Uh, when you look at sort of our total, well, mixed this year for the Delaware Basin, we anticipate 30% to be wolf camp.

Be yet. We brought on 60% of our total wolf Camp, be Wells, uh, here in the first quarter. So uh what we would really anticipate is returning a bit to a a non-life well mixed uh throughout the next few, uh, quarters with that. We're going to see uh well productivity uh increase. So we feel

Very good, uh, about what we're seeing there. I think your, uh, second question, uh, was around optimizing on, uh, completions. Uh, this is something that we're always looking at. We're always, uh, adopting, uh, different completion designs, uh, based on what we're seeing, uh, with our own appraisal or benchmarking against competitors. Uh, there are, um,

Some completion design changes we're making and and in certain parts of our areas and other parts. We feel that we're dialed in for instance we were talking to the team. Uh just earlier this week uh about our completion design intensity and 1 of our zones and 1 of our assets and we're going to dial that up based on what we're seeing. So we continue to optimize around completions as well as uh all aspects of our uh development planning which you know, would include Landings and spacings and and other design parameters.

Thank you.

Comes from David Deckle, bomb with TD Securities.

Please go ahead. David.

Yeah, thanks everyone for squeezing me on. Um,

No clay. I I wanted to just get back to some of the initiatives um particularly on Commercial opportunities. Um, and so far it looks like the savings achieved have been in the Delaware. Um, do you anticipate focusing on on other areas of the portfolio? Uh, that that might enhance some of the economic specifically in areas like Anna, Darko or is there?

More work needs to be done, particularly in Delaware, from an administering renegotiation perspective.

Yeah, David that for sure the the big wins have been in the Delaware to where most of our activity is. There's a, there's a opportunity for active renegotiation there, but we have made wins in the antaro as well. We continue to focus. Uh, there we see the tremendous gas potential that we just need to unlock, uh, more value. Make sure we're hanging on to the the dollars that come in the door a little bit better. And so I'd say that's another area that we will continue to see uh, in a crew benefits.

Quantified opportunities have been captured. Are they more a function of better realizations, or are you getting materially better rates here?

Yeah, David. It's a mix of both. So given the nature of the contracts depending on where it is and and, and how the contract is constructed, um, sometimes you'll see that run through our realizations on gas, and ngls, in particular, uh, in the Delaware. But at other times, it'll run through GPT so it can be a little, a little difficult to follow in the financials from time to time. But, um, absolutely. It's a mix of all the

Thank you.

Thank you, Emily. And I want to thank everyone for your interest in Devon, and for your participation in our call today. If you have further questions, or for those of you who did not get through on the call today, please reach out to Chris or me.

Have a good day.

Thank you all for joining us today. This concludes our call, and you may now disconnect your lines.