Q1 2026 Earnings Call Transcript

Welcome to Devon Energy Corporation'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 would now like to turn the call over to Christopher Carr, director of investor relations. You may begin.

Good morning, and thank you for joining us on the call today. Last night, we issued Devon Energy Corporation'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 Investors section of the Devon Energy Corporation website.

Joining me on the call today are Clay Gaspar, president and chief executive officer; Jeffrey Ritenour, 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 risks and uncertainties and may cause actual results to differ materially from our forecast. Please refer to the cautionary language and risk factors provided in the SEC filings and earnings materials.

With that, I will turn the call over to Clay. Thank you, and good morning, everyone. Thanks for joining us.

Today, we will focus on Devon Energy Corporation's strong first quarter 2026 results, which once again demonstrate the operational excellence and financial discipline that define this organization. After walking through our Q1 results, I will turn to a quick update on our transformative merger with Cotera Energy. Now let us 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 the 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 thousand 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 to $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 does not happen by accident. It is 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 are headed. On a stand-alone basis, Devon Energy Corporation 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 cash flow accrue to our shareholders.

Turning to slide five, the key free cash flow strength I just walked through does not happen on its own. It is the direct output of the business optimization work we launched just over a year ago. I am pleased to report that we will achieve our $1 billion 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 thank the entire Devon Energy Corporation 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 Devon Energy Corporation today that is not 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.

Wave one is a much more immediate connection to Devon Energy Corporation'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 two, 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 two 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 Energy Corporation 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 am 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 have 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 $1 billion in present value uplift to our enterprise over the past year.

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 Energy Corporation 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 am pleased to report that both the Devon Energy Corporation and Cotera shareholders voted overwhelmingly to approve the merger on May 4, 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 Energy Corporation 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 position 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 prices. With the repurchase program immediately resuming post close, we are positioned to increase repurchase 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 are 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 pro forma 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 Energy Corporation 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 Energy Corporation a stronger, more focused company on the other side?

To be clear, this merger has added depth and quality of our inventory in the Delaware Basin and positions Devon Energy Corporation 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 Energy Corporation its unique investment proposition. With the Cotera merger on the verge of closing, we are 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. We will now open the call for questions.

Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question.

If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Arun Jayaram of JPMorgan Securities LLC. Your line is open.

Good morning, Clay and team. Clay, I was wondering if you could provide more details on this portfolio review process, which obviously will pick up steam when you close the merger in a couple days. Perhaps you could articulate the criteria that you and the team are looking at to establish what you believe are going to be core assets at Devon Energy Corporation? Could it be inventory durability, commodity price mix, etc.?

And also, if we look forward and you do decide to monetize assets in the portfolio, should we think about your intention to redeploy those proceeds into coring up existing positions or potentially looking at buybacks given what looks to be really compelling valuation of the equity?

Arun, there is a lot there. You hit all of the top five of the questions we presumed we would get today. I will try to be as specific as I can. Of course, you realize the last thing we want to do is box ourselves into something preconceived before we actually do the work, have the deep conversations, do the real critical and objective review, move swiftly, and then make sure we are aligned with our board going forward.

What I would tell you is we are highlighting capital efficiency, inventory depth, free cash flow, and overall fit—how all these pieces fit together—as the tone and nature of the analysis. But I can tell you, it is not a simple formula that we goal-seek on and it spits out an answer. This is stress testing from every conceivable scenario—thinking about near-term wins, thinking about long-term lenses, thinking about the market, and the use of proceeds that you are talking about. And again, going back to that test of how do we make Devon Energy Corporation a better Devon Energy Corporation?

How do we deliver more value near term and long term for our shareholders? We are going to move swiftly, decisively, and aggressively into this. We just do not think it is prudent to box ourselves into any preconceptions of what that could look like with an ill-conceived timeline or any kind of cadence like that. But I appreciate the question.

Got it. And I have a housekeeping question for Jeff. There are some moving pieces regarding 1Q taxes and your forward look on taxes. Could you provide us an updated view on what is going on there, assuming it is related to the move in commodity prices, and what the go-forward cash tax guide could look like?

Yeah, you bet, Arun. You are right. We had some noise in the Q1 tax outcome to the positive. It was a flip from deferred to current, which created a real benefit for us in the first quarter.

And then, as you saw with the second quarter guide, we moved the rate higher as a result of that. That is a function of the flip that we had between current and deferred, but also a function of the higher commodity prices and the capital efficiency that we are seeing. As Clay mentioned in his opening remarks, none of us were expecting to have the level of oil prices that we have seen here in the back half of the first quarter and here into the second quarter, and we are projecting that at least to some degree into the back half of the year. As a result, we are generating significantly more pretax income.

As you have heard me say in the past, free cash flow generation is a good proxy for pretax income. With the capital efficiency that we are seeing from the teams, which has been phenomenal, married with the higher commodity prices, we are getting into a position where we are just seeing some of that tax shield get utilized on a faster basis. As a result, we have moved our expectation for current taxes into the back of the year a little bit higher. For the full year for Devon Energy Corporation on a stand-alone basis, it will still work out to be somewhere around that 10% level, but it will be a little bit higher in the next coming quarters given the low rate we had in the first quarter.

Thanks, Jeff.

Your next question comes from the line of Neal Dingmann of William Blair. Your line is open. Please go ahead.

Morning, Clay. My first question is on Permian activity. Specifically, as we continue to see negative Waha prices, how much does this impact your future Permian decisions based on what you are seeing there, and how much exposure you have to Waha?

Let me pick up on that, and then Jeff can add a little bit of color. I am really proud of the team’s proactive work. As you know, we have been very aggressive in participating in additional pipe. We have helped underwrite some of the pipe.

We have additional capacity coming on with Blackcomb later this year. We are positioned well but certainly have marginal exposure to Waha prices. Inevitably, what we are doing in those environments is looking to the highest gas-oil ratios—the gassiest of our assets—and pulling back on that production during that time. We saw a little bit of that in the first quarter.

We can manage that with the nominal amount of exposure we have by pulling back on some of that activity. We will continue to fight the good fight. When there is a call for Permian gas, think about the opportunities that we will have, especially with the positive realizations once we get the infrastructure built. I am really excited about the future for Delaware when the inevitable call for the gas will come.

Jeff, additional comments?

Yeah, Clay, you nailed it. When Blackcomb comes online later this year, that will further limit our exposure to Waha. We will be, call it, 10% to 15% exposure to Waha at that point going forward. As Clay mentioned, the team has done a great job managing the exposure, shutting in some of the high GOR wells, which has helped us, in addition to the infrastructure takeaway that we have.

We continue to believe there is going to be a need for more takeaway from the basin as we move into 2027 and beyond, and the team is very much focused on evaluating opportunities to further limit our exposure as we move forward.

One other final comment on that: make sure everyone is paying attention not just to the realized gas price, but also some of the value the hedge comes through other line items. We are being thoughtful about how we are protecting; it is not always physical—sometimes it is financial hedges that we have in place that show up in other lines of the financial statements.

Great point. And then, Clay, a second quick one on what I would call new ventures. You all continue to own a decent size of Fervo. Do you anticipate continuing to take positions in additional geothermal or other newer-type ventures?

It is exciting. We have dabbled in a few ideas thinking about how we leverage the amazing talents that we have—geoscience, drilling and completing horizontal wells, and building facilities. That is what we do. Where else can we extrapolate these skills?

What we found is an incredible Fervo team we have really enjoyed the partnership with. Happy to be alongside those guys, and we will continue to look to other ways to expand Devon Energy Corporation’s footprint. Trey, do you have other comments there?

Appreciate the question. There is a lot of exciting things happening at Fervo. We took our stake in the Series D and led that round. We have obviously been very happy with the investment that we have had there financially, as well as the investment that our teams have poured into them with different technical advice over the years, and seen them continue to de-risk enhanced geothermal systems operationally and technically.

The thing that we did not expect going into that first investment was the power demand that we see for firm, always-on, 365-day power across the United States, especially the Western United States. We continue to be pretty bullish on that power demand story. This gives us some exposure to it, and we are definitely interested as the technology continues to get de-risked. But I think back to the spirit of the initial question: we are pouring ourselves into the success of Fervo at this point, and that has been our focus as a company.

Your next question comes from the line of Neil Singhvi Mehta of Goldman Sachs. Your line is open. Please go ahead.

Good morning, Clay and team, and congrats on the shareholder vote. That is where I wanted to start—the synergies. It sounds like you are tracking towards the $1 billion of cost optimization and the margin stuff and the corporate cost stuff, but could you talk about early wins and thoughts on whether you could pull forward the year-end 2027 target? Make this a little more tangible for us.

Neil, I love the attitude. We have not even started the race, and you already want to pull forward the finish line. That is my kind of thinking. I am exceptionally confident in this combined team’s ability to pull the rope in the same direction, get integrated, and get a unified culture.

I mentioned the 156 projects that are already identified. What does not come through in the numbers is the mutual excitement of the wins we are seeing from both sides of the ledger. It is really a true synergistic opportunity. We are seeing those things in all the major categories—from D&C capital optimization, which will come really quickly, to upside in production, to thinking about how we reallocate capital inside of the portfolio.

Even the hardest work that we do around what is the optimal spacing, staggering, sequencing, and completion design in the Delaware Basin—we have two really strong teams that have worked these very hard problems in isolation. Now you have the benefit of two strong teams, brilliant folks, coming together and sharing their best ideas. If I have ever seen synergy, it is that. Rewinding back to the WPX–Devon merger: we signed the deal, worked so hard to get to that point, and then looked at each other and said, okay, what do we do now?

We started scrambling to figure out how to capture these things, monitor, track, hold ourselves accountable, and make sure it is flowing through the financials. The beautiful thing about our position today is we have established some really great mechanics behind this. Trey led the business optimization project. It is already very fluent on this side of the family—how that works.

I do not anticipate any issues in getting those mechanics applied to all of the opportunities. And I will go back to my comments from the script: technology is the key innovative underwriter of so much of this, and we are just getting started. We are in the exceptionally early innings of those wins. With this combined footprint—this amazing Delaware Basin is our crown jewel asset—you combine the two positions together and then apply all of these brilliant ideas and people and technology.

Just watch out. We cannot wait to deliver on this. As I said, I consider it the floor, certainly not the ceiling.

That is a great point about the Delaware really becoming the star of the portfolio on a pro forma basis. You already have a Delaware-concentrated program, but it is only going to be more so. Maybe you can comment on the advantage of moving a little bit more toward being Delaware-focused versus diversified, recognizing you have a portfolio process that you are looking at, but at a high level, what would be some advantages of being more focused as an organization?

I do not want to presume that we are in any way not focused. We certainly have the scale, the capabilities, and the teams in place that it is not like we can only work in one basin at a time. We want to be exceptionally objective about all possibilities to enhance this company’s value, both short and long term, for our shareholders. I will go back to the prepared remarks about the opportunities that we have to really do the thorough work, diligently evaluate every scenario, and not just which basins we are in, but thinking about all of the potential upside we have in other areas and how these pieces work together.

Do not forget, this ranking in opportunities can significantly change when you apply $1 billion of synergies. Think about the enhancement of opportunities that we have with much lower D&C cost, with better production, thinking about how we stack and stagger these wells and improve outcomes. That can really change the game and put us in a strong position. Maybe with the assets we have, maybe we see something else that fits even better into the portfolio as a bolt-on opportunity.

All of that is on the table, as it always is. We do not want to presume one direction before we actually do the work and have the important alignment conversations that we need to have with the new management team and, importantly, with the board as well.

Your next question comes from the line of Scott Andrew Gruber of Citigroup. Your line is open. Please go ahead.

Good morning. Clay, you are obviously flush with cash here, and you have the integration in front of you, so you and the team may not be inclined to change the combined activity program much and just focus on synergy capture. I am thinking about where you could deploy some extra cash. I think about refracs in the Eagle Ford or even the Bakken in this environment.

Those appear to be an area where you can deploy some modest incremental capital and get a quick payback but not really deplete core inventory. Just some thoughts there.

Appreciate that. We are always looking to enhance within the existing portfolio through capital allocation, and refracs are a great example of that. One thing—we have probably gone quieter on refracs over the last several quarters, and here is the leading indicator that came from that. We have improved our D&C cost and efficiency so much that now the drilling side of the equation, which is basically the part that you are eliminating in a refrac, has improved to the point that refracs now have to compete with new wells.

We have probably done less of those. We are excited about other things we have in the hopper—some longer-term wins around enhanced oil recovery, some exciting early projects we have there. We have talked about surfactants we have tested in the Permian and other areas we are working on as well. Those are really impressive returns.

That probably accrues more to the LOE side of the ledger than the capital side. We want to remain disciplined on our capital. We ultimately have our long-term best interests in mind, along with shorter-term wins, and however we can improve those wins along the way, we are happy to deliver.

With this extra cash, you mentioned EOR and surfactants being a hot topic. What do you do with extra cash around the margin? Do you push harder on EUR or deploy more into AI and try to accelerate incorporation of those technologies into your operations?

I think there is a disconnect from these projects to the billions of dollars of free cash flow. Surfactants are incredibly cost effective. Some other ideas we are investing in and de-risking over time are relatively small investments and probably will remain that way for a bit. The cash you are talking about—the billions of dollars of free cash flow that we, stand-alone Devon Energy Corporation, and certainly as a combined company, will generate—we think about dividend policy, share repurchases, and debt repayment.

We optimize those and want to be nimble, as different quarters can present different opportunities. It is important we get aligned with our board. These are absolutely board-level conversations. Structurally, what we have talked about pre-close is enhancing the dividend, likely announcing a very significant share repurchase program we could move aggressively on, and then looking at the debt.

Inevitably, when you combine companies, just like when I look back at WPX, there were some real day-one early wins we were able to do on the debt front to enhance value to shareholders. Those are the more material opportunities for cash return to shareholders.

Your next question comes from the line of Analyst of UBS. Your line is open. Please go ahead.

Thanks. Good morning, guys. On the merger webcast, you put out that you had 10-plus years of inventory at the current development pace. I know this was a third-party estimate, but given that you are going through this big cost-reduction program, once you start adding those into the equation, how are you thinking about the pro forma depth of that base?

Does it push toward 15 years or greater? It feels like the cost of supply of that base is moving much lower for you.

Certainly, the cost of the wells can materially extend the runway. Think about the creaming curve and that tail that is just on the bubble—as you lower those costs, more of those yellow lights turn into green over time. I might ask John to add color on combining the Delaware Basin footprint.

Yeah, we need to go do a lot more of that work to get you more specific numbers, but I will give you a corollary back to 2025. With all the capital efficiencies we had in 2025, we saw our costs consistently move lower. That allowed us to do really good work on downspacing. When I go back and look at the risked resource replacement we had in the Delaware Basin from our appraisal and specifically downspacing, we replaced almost 100% of our consumption. When I think about that kind of additional resource gain and combine that across the two-company asset base, third-party estimates already pushed our inventory well beyond 10 years.

I have to imagine that as we see learnings—from better staggering, better landing, and completion design—and lower cost, we are going to see that same trend over the two companies.

Got it. Thanks for that. Given the pro forma asset base and stronger balance sheet, is this opening up new investment opportunities and doors for you? Do you foresee more of these earlier-stage investments in companies like Fervo or WaterBridge? Or do you want to get more integrated, build your own midstream infrastructure, or look at long-cycle exploration opportunities?

Thanks for that question. That is part of our DNA. We have a bunch of entrepreneurs here, and what is really awesome is when we get aligned on what winning looks like. We did this work as stand-alone Devon Energy Corporation over the last six quarters with our board.

Last year’s September strategy session was a magical moment. We walked out understanding what long-term success really looked like, and it was empowering for people around the company who are thinking about amending and extending the opportunity set we have above and beyond just drilling additional wells. While that is always going to be our core business, I am excited about leveraging the knowledge, position, scale, and footprint that we have and turning additional opportunities. Going forward, Tom Hellman is going to lead a lot of that effort for us.

Thinking about the firepower we are going to have and the combined skills the company is going to bring together, there is definitely more to come. It helps longer-term investors think about Devon Energy Corporation’s value longer term and the sustainability of our ability to hold on to this free cash flow. It is all positive, and I am excited about where this could evolve over time.

Your next question comes from the line of Phillip Jungwirth of BMO. Your line is open. Please go ahead.

Thanks, and first, congrats on achieving the $1 billion business optimization savings, which some of us were skeptical of. On the AI discussion, could you give more color around the fully autonomous artificial lift optimization—how to think about this relative to gas lift or ESP or basin-specific—and any estimate on how much you think this is improving runtime, which is very important at current oil prices?

Phil, thank you for the acknowledgment on the business optimization. There were a lot of skeptics, and rightfully so. This was about creating a sustainable $1 billion of incremental value without a transaction to lean on. I knew the organization had it; there was an untapped resource.

It has moved from a project to more of a cultural norm, and it goes back to this hunger for data and the power of technology to do something with that data. I could not be more proud of the organization’s achievement. On artificial lift, essentially every well is on some form of artificial lift. We started with gas lift as a primary opportunity, and this extends to every other form as well.

John can add additional color.

Extremely proud of the Smart Gas Lift program. We are using AI models to develop a physics-based calculation to optimize gas-lift injection rates on a closed-loop system that goes directly to the wells. We piloted this back in 2025, and we saw about a 2% to 3% uplift. We have now moved into full implementation in the Delaware Basin.

We are over 850 wells at this point, and we have seen uplift in excess of what we saw in the pilot phase. We are on our way to 1.5 thousand wells across the portfolio. I do not want to give a specific number on uplift yet—just that it is better than what we saw in the pilot because it is early. We are already taking similar AI-derived models to look at other forms of artificial lift—ESPs and rod pumps.

Those models are calculating the optimal rate for those wells. We are in the pilot phase on subsets of wells, identifying wells that may be producing below optimal injection rates, leading to actionable insights for our engineers. We are testing these insights and already seeing production uplift. Much like Smart Gas Lift, these are programs we will be able to scale.

Smart Gas Lift has been a massive success for us, and I am looking forward to rolling these programs out as well.

Great. And a question on cash taxes as it relates to the portfolio review process. I know you have been buying and selling assets at Devon Energy Corporation for over 55 years, but you have probably never generated as much free cash flow, with Cotera in a similar position. Is there any ability to shield taxable gain for the pro forma company, or is this something that will have to be factored in and overcome in any value-creation analysis?

Phil, we have to go away and do the work to give you a more definitive answer. Without question, to the extent that we land on executing some divestitures, we will evaluate that all on an after-tax basis. Some of the assets that we hold today certainly have a low basis, so we will have to be thoughtful about how we structure those transactions and be creative—how we work through them and structure appropriately to maximize free cash flow. We will look at all of it on an after-tax NPV basis.

We will have the opportunity to look at different exchanges and even some JVs where it makes sense to try to minimize the impact as we work through.

Your next question comes from the line of John Freeman of Raymond James. Your line is open. Please go ahead.

Following up on the prior discussion on AI benefits on the artificial lift side and tying that into synergies: when I use the last 12 months of what you achieved on business optimization as a roadmap on synergies, certain buckets got realized quickly—corporate overhead and commercial opportunities—while the bucket that took the longest was production optimization. Looking at the buckets on slide nine for synergy capture and the AI artificial lift discussion, am I thinking about it right that now that you have the benefit of that, the bucket that took the longest in optimization may not have to take as long for these synergy buckets?

You are exactly right. Some of these will be early wins. Production is notoriously one of those slower-burning opportunities—you are talking about relatively small wins on hundreds or thousands of wells, and that takes time to work in. The great news is we have been doing the work and have the flywheel effect going.

We have been methodical and thoughtful in how we built toward this. The $1 billion synergy will benefit from the work we have done to date—so more to come. I will turn to Trey—there are many other exciting things on the AI front in that category, and Trey is also co-leading the integration and has an insightful purview into the synergy goals.

Appreciate the question, John. One of the outcomes I am optimistic about is that the tailwinds we are seeing on business optimization will carry through the synergy work, specifically the production items like Smart Gas Lift, as well as another collection of workstreams. The process we have built around which ideas become workstreams that we track, measure, and push forward—and the AI and technology, data-driven solutions that work—we are going to continue to push all of that forward with our structure. We have built a culture around it.

The other thing we have learned over the last year is what our investors and analysts care about and how we can keep you updated as we make progress, and how we categorize and communicate it in a transparent way. We are 100% excited about the tailwinds on the production side, and the flywheel in all categories should set us up really well.

Thanks, Trey. This was another really active quarter on the ground game side, especially in the Delaware Basin. Should we assume that is going to remain robust as you work to complement both companies' positions in the Delaware?

Yes, you should assume that is going to remain fairly robust. We have been very successful with our ground game. Since last year, we have added well over 100 net locations, predominantly in the Delaware Basin, with our ground game. In Q1, we had another great success.

Our acquisition capital was roughly $150 million—90% Delaware Basin. That was not only success in the January lease sale but a lot of good knife-fighting behind the scenes and good work by the land team. It has been an instrumental part of our business, and you can expect us to remain very active on that front.

Your next question comes from the line of Betty Jiang of Barclays. Your line is open. Please go ahead.

Good morning. A follow-up on the buyback. Clay, could you speak to the logistics of having a new buyback authorized under the new board? You alluded to going beyond the legacy level. Could we see a catch-up on the buyback going forward to make whole on the repurchases that would have happened by the two stand-alone companies?

That is one way to look at it, but I would not presume we are trying to make up for lost time on any specific numbers. When we get the authorization of the new board, which is imminent, then we will be able to communicate that and get to work on a go-forward approach. Obviously, we had a cadence before, Cotera had a cadence before—how do we combine that and think about the best approach? There is an art and a science to share buybacks.

There is real excitement from both legacy teams that we have an opportunity to return shareholder value with a tremendous amount of free cash flow and leverage that to buy back material shares.

Makes sense. And a follow-up on target debt levels. The combined entity is going to generate a lot of free cash flow. How do you view the optimal debt level going forward? Would you ever want to be at net zero net debt, or how do you think about the right leverage at a mid-cycle price level?

You are on the track of one of the most common debates we have had with our board over the years—how best to return shareholder value: dividends, share repurchases, and, of course, debt. I do not want to jump in front of the important conversations we are going to have with the new combined board. You are hitting on the right opportunities, and all will be evaluated when we think about the incredible free cash flow of the combined entity. I look forward to updating everyone once we get alignment on the go-forward plan.

Jeff, other thoughts?

Betty, both companies historically have had phenomenal balance sheets—investment grade—with a lot of flexibility for the company. I think investors should expect that to continue as we go forward. As Clay said, we have to do some work with the board, but I expect you will see a philosophy on both the share repurchase program and the balance sheet consistent with what you saw from each company on a stand-alone basis historically.

Great. That makes sense. Very much look forward to the pro forma update.

Thanks, Betty.

Your next question comes from the line of Doug Leggate of Wolfe Research. Your line is open. Please go ahead.

Thanks so much. Good morning, everyone. I have two questions. You talked about the number of initiatives you have already identified, obviously upside to the synergy target.

Have you been able to get under the hood on the combined company and Cotera’s portfolio and assets, given the merger has not closed yet? How should we think about the veracity of the $1 billion target versus the number of opportunities you mentioned in your prepared remarks?

We have moved aggressively. For a combined 70 billion company to do a sign-to-close in three months is moving with incredible speed. At the same time, we have been incredibly disciplined on what we can and cannot do—there are very strict rules around what we could and could not share. There is an ability to use something called a clean room, where we can exchange certain data with third parties, and we have done some things like that.

We have been able to exchange a certain amount to now, but had to work a lot of this independently. Of course, even to get to the merger agreement and get the deal signed, both teams needed to work this independently and understand the why for their shareholders. Between sign and close, we have been able to share some data and get closer by leveraging third parties and staying well inside the lines, but working together closer and closer. Starting tomorrow, it is full speed ahead.

We will find additional opportunities. I feel very confident in the outcome. I am not raising the $1 billion number or accelerating the timeline. What I want to give investors confidence in is when we say $1 billion by the end of next year, we feel confident, and we will be able to deliver, much like we delivered on our last business optimization goal.

The difference is the flywheel effect Trey mentioned—we already have a running start on some opportunities. When we really unleash the combined organization without restraints, it will be even more exciting in unlocking value. We will be incredibly disciplined each quarter, holding ourselves accountable, and as you have done, hold us accountable to delivering on these numbers.

Thank you. My follow-up is on portfolio mix. There has been discussion about the mismatch with gas and oil assets and with the Marcellus. Do you agree or disagree that having a skewed mix toward gas has risks in terms of confusing investors?

While I will not talk about any specific investor, we get investor feedback all day, every day. I am excited about the combination. Two of the three basins have significant overlap from the Cotera side, and we are seeing synergies to make those assets better. Certainly, we have some other assets that either were solo Devon Energy Corporation or solo Cotera, and all of those, as I said earlier, need to earn their seat at the table.

I am not presumptive on which assets will compete or not. We will move with thoroughness, diligence, and swiftness to evaluate all options. Part of the evaluation is what investors want from us—investors plural, as there are many views. We are not just trying to answer the question du jour, but thinking about investor sentiment that can stand the test of time—what investors will be excited about six months, 12 months, two years, four years from now.

That is what we are goal-seeking. It is not just solving for a specific geography. We are thinking about capital efficiency, inventory depth, free cash flow, and how it all fits together. Do not underestimate what applying $1 billion of synergies could mean to one asset or another.

With the skill set that we have, how do we unlock additional potential? That all needs to be thoroughly evaluated. We are moving fast on this, and we are not going to slow down, but it is right to be very thoughtful and make the right decisions before showing our hand on any of these important considerations.

Your final question comes from the line of Analyst of Pickering Energy Partners. Your line is open. Please go ahead.

Thanks for getting me on. Clay, I would be interested in your take on the macro environment here given the supply disruption, and what signals you are looking for that would drive you to contemplate more than a maintenance program.

Historically, we have said we think the world is well supplied in oil—that was two or three quarters ago—with OPEC still bringing barrels back on. We are watching demand from Asia, Europe, and the U.S., and trying to watch at a macro level how supply and demand line up. Over the last couple of months, that dynamic has changed significantly. I think it is too early to call the end or how this resolves itself.

Meanwhile, there are a lot of barrels off the market. We are watching international storage levels come down over time. That influences where we think the back end of the curve is trading and where it normally should be. We will continue to watch this.

We have talked about not steering the ship with the front end of the curve. Oil price can bounce around $5 to $10 at a time, and trying to optimize on that can be ill-sought. We are watching the back end of the curve and the macro fundamentals. From our view, things are evolving, and we will continue to watch closely.

Shifting gears a bit on oil realizations, they were a little lower this quarter than prior quarters. Any comments on that pricing, and will you see any benefits from the Brent–WTI spread that has materialized across any of your assets going forward?

You bet. I want to brag again on our marketing team. They have done a phenomenal job with our oil export program, and in the back half of the first quarter we started to see real benefit from that—getting some premiums to what we could have achieved domestically via the export program. I expect the same in the second quarter.

We should see strength on a relative basis as a result of that export program. Kudos to the team—they have been really thoughtful as we built that out over the last couple of years, and it is starting to pay dividends, particularly in the volatile environment Clay just described.

Appreciate the answers. Thanks, guys.

I will now pass the call back to Christopher Carr for closing remarks.

Thank you for your interest in Devon Energy Corporation today. If there are any further questions, please reach out to the investor relations team. Have a good day. Thanks.

This concludes today's call. Thank you for attending. You may now disconnect.