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

Good morning, and thank you for joining us on the call today. Last night, we issued Devon'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 website. Joining me on the call today are Clay Gaspar, President and Chief Executive Officer, Jeff 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 risk and uncertainties and may cause actual results to differ materially from our forecast. Please refer to the cautionary language and risks factors provided in the SEC filings and earnings materials.

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

Thank you, Chris. Good morning, everyone. Thanks for joining us. Today we'll focus on Devon's strong first-quarter 2026 results, which once again demonstrates the operational excellence and financial discipline that defines this organization. After walking through our Q1 results, I'll turn to a quick update on our transformative merger with Coterra Energy. Let's turn to slide 3 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 387,000 barrels per day, reaching the top end of our guidance range.

Capital spending came in 6% below the midpoint of our guidance as we continue to capture drilling and completion efficiencies through advanced technology and focused execution across the program. Combined, these efforts translated into $816 million of free cash flow in the quarter, demonstrating the capital efficiency of our program and positioning us to return substantial value to shareholders. I want to emphasize that these results are not isolated wins. That kind of consistency doesn't happen by accident. It's the direct outcome of the exceptional talent and commitment of our teams across every basin. Turning to slide 4, what makes this story even more exciting is where we're headed. On a standalone basis, Devon is entering the second quarter with significant upside torque to free cash flow.

Production is expected to step up, our cost structure remains well controlled, and the commodity backdrop is meaningfully stronger than what anyone underwrote coming into this year. You can see the sensitivity of this business to commodity prices on the right side of the slide. This is a very compelling yield profile in any environment, and it reflects both the operational gains we have delivered and the natural leverage of a high-margin portfolio. We are running the program we laid out, capturing the operational gains we committed to, and letting free cash flow accrue to our shareholders. Turning to slide 5, the key free cash flow strength I just walked through doesn't happen on its own. It's the direct output of the business optimization work we launched just over a year ago. I'm pleased to report that we will achieve our billion-dollar target well ahead of schedule.

We will accomplish this major milestone with contributions from every part of the business, including capital efficiency, production optimization, commercial improvements, and corporate cost reductions. I want to take a moment to thank the entire Devon organization for making this happen. When you challenge this high-quality team with a clear mission, you might as well consider it done. Business optimization has transitioned from a one-off project to a new cultural mindset. The focus and accountability that we built will translate directly into our integration work with Coterra, 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 one minute here because I think it is the most important insight about Devon today that isn't intuitive from just a cursory analysis of the financials.

The AI revolution is real, and what is happening across this organization is incredibly exciting. Internally, we talk about the three waves of AI impact. Basically, wave 1 is a much more immediate connection to Devon's massive stores of data, transforming what was inefficient data hunting time into data analysis and value creation time. After years of cleaning and organizing our data, we have a fully firewalled internal tool called ChatDVN that has been up and running for three years and is today a standard part of our daily workflow. We are now deep into seeing the benefits of wave 2, where the AI is doing the heavy lifting of complicated calculations and time-consuming work. Examples of this are leveraging AI to write code for new apps. 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 is leading the industry there. Slide 6 is a great example of where technology and AI are showing up across the business. We have shown this slide in past quarters to highlight some of the key initiatives that have contributed to the success of the business optimization plan.

I'm not gonna walk through all of these today, but the one thing I do wanna 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 Coterra integration. Turning to slide 7, as we've discussed in past quarters, parallel to driving incremental value out of the day-to-day business, we are also regularly evaluating opportunities to optimize our portfolio and enhance shareholder value. The strategic transition, 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 in a power-generating sector with more significant growth potential. Now turning to slide 8, to what I know is top of mind for many of you, the status of our transformative merger with Coterra Energy. I'm pleased to report that both the Devon and Coterra shareholders have 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. Combining two strong operational teams overlapping in each other's best basins creates substantial opportunity to enhance efficiency and drive results. Pro forma, Devon will be one of the largest independent E&P companies in the U.S. In addition to scale, our asset quality, inventory depth, and balance sheet strength positions us to deliver durable free cash flow and returns through any commodity cycle. Our go-forward shareholder return framework will be thoughtfully designed and competitive with our highest quality peers. It will be balanced between dividends, share repurchases, and debt repayment. Subject to formal board approval, our dividend will increase by over 30% on a per-share basis starting in the 2nd quarter.

Additionally, both companies paused their share repurchase programs between deal announcement and close, building cash during a period of unexpectedly strong commodity price. With the repurchase program immediately resuming post-close, we were positioned to increase repurchases activity beyond our legacy level and capitalize on any discount to our intrinsic and relative value. Integration planning is progressing extremely well, and I wanna be clear, the $1 billion synergy target is the floor, not the ceiling. In fact, as of this morning, our integration teams have already identified 156 distinct value capture opportunities, underscoring both the depth of the upside and the sense of urgency we're bringing to this work. Once we close, we will move quickly to bring the same business optimization discipline to the integration effort and provide transparency in every step along the way. Before I close, I wanna 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 has a 55-year history of buying and selling assets, and we are always seeking opportunities to enhance near and long-term shareholder value. Every asset in the combined portfolio has to compete for its capital and earn its seat at the table. We have initiated a complete review of all assets against our strategic and financial criteria.

While we do not have any preconceptions about future actions, we are excited to thoroughly review the portfolio with the soon-to-be-combined board and remain open to all alternatives that enhance long-term value.

We will be thoughtful, disciplined, and move with speed. Every option will be measured against one test. Does it leave Devon a stronger, more focused company on the other side? To be clear, this merger has added depth and quality of inventory in the Delaware Basin and positions Devon to deliver peer-leading capital efficiency for the foreseeable future. Our discipline paired with operational excellence, financial strength, and unwavering commitment to shareholder returns is what gives Devon its unique investment proposition. With the Coterra merger on the verge of closing, 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.

Your first question comes from Arun Jayaram of J.P. Morgan Securities LLC.

Yeah. 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, when you close the merger in a couple days. Perhaps you could maybe articulate kind of the criteria that you and the team are looking at to establish what you believe are gonna be core assets at Devon. You know, could it be inventory durability, commodity price mix, et cetera? Also that if we look forward and you do decide to monetize some assets in the portfolio, should we think about your intention to redeploy those assets, redeploy those proceeds into perhaps coring up existing positions or potentially looking at buybacks given what looks to be a really compelling valuation of the equity?

Arun, there's a lot there. You hit all of the top 5 of the questions we presumed we would get today. I will try and be very as specific as I can. Of course, you realize the last thing we wanna do is box ourselves into something that is preconceived before we actually do the work, have the deep conversations, do the real critical review and objective review. Again, moving swiftly then making sure we're aligned with our board going forward. What I would tell you is kind of highlighting, thinking about capital efficiency, inventory depth, free cash flow, overall fit. You know, how all these pieces fit together is kind of the tone and the nature of the analysis.

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, the use of proceeds that you're talking about. Again, going back to that test of how do we make Devon a better Devon? How do we deliver more value near-term and long-term for our shareholders? I appreciate the question, and I'm sure we will get plenty of follow-ups. The most important thing for us is please know that we are gonna move swiftly, decisively, aggressively into this.

We just do not think it's prudent to box ourselves to any preconceptions of what that could look like with an ill-conceived timeline or any kind of cadence like that. Appreciate the question.

Got it. I have a housekeeping question for Jeff. I was wondering, Jeff, there's some moving pieces regarding 1Q taxes and your forward look on taxes. Could you just provide us an updated view on what's going on there? Obviously, assuming it's related to the move in commodity prices. Just give us some thoughts on what the go-forward cash tax guide could look like.

Yeah, you bet, Arun. You're right. We had some noise in the Q1 tax outcome up to the positive. Obviously, it was a flip from deferred to current, which created a real benefit for us in the first quarter. Then as you saw with the second quarter guide, you know, we moved the rate higher as a result of that. That's 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're seeing.

As Clay mentioned in his opening remarks, we, you know, none of us were expecting to have the level of oil prices that we've seen here in the back half of the first quarter and here into the second quarter, and we're projecting that at least to some degree into the back half of the year. As a result, we're generating significantly more pre-tax income. As you know, you've heard me say in the past, free cash flow generation is a good proxy for pre-tax income. With the capital efficiency that we're seeing from the teams, which has been phenomenal, married with the higher commodity prices, we're really getting into a position where we're just seeing some of that tax shield get utilized on a faster basis.

As a result, we've moved our expectation for current taxes into the back half of the year a little bit higher. You know, for the full year for Devon on a standalone basis, we'll still work out to be somewhere around that 10% level. But they'll be a little bit higher in the, 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 Dingman of William Blair. Your line is open. Please go ahead.

Morning, Clay. Clay, my first question's on Permian activity. Specifically as we continue to see higher WAHA, you know, kind of negative WAHA prices. How much does this impact your future, you know, Permian decision based on, you know, what you're seeing there, and maybe how much exposure you have to WAHA?

Yeah. Let me pick up on that, then Jeff can add a little bit of color. Really proud of the team's proactive work. As you know, we've been very aggressive in participating in additional pipe. We've helped underwrite some of the pipe. We have additional capacity coming on with Blackcomb Pipeline later this year. Positioned well, certainly have marginal exposure to WAHA prices. You know, inevitably what we're doing in those environments is we're looking to the highest gas oil ratios, the gassiest of our assets and pulling back on that production during that time. You saw a little bit of that in the 1st quarter. We can manage that exposure with the nominal amount of exposure we have by pulling back on some of that activity. We'll continue to fight the good fight.

Think of this. When there is a call for Permian gas, you know, think about the opportunities that we'll have, especially when we've got the positive realizations once we get the infrastructure built. Really excited about the future for Delaware when the inevitable call for the gas will come. Jeff, additional comments?

Yeah. No, Clay, you nailed it. As Clay mentioned, when Blackcomb Pipeline comes online later this year, that'll further limit our exposure to WAHA. We'll be, you know, call it 10%-15% exposure to WAHA at that point going forward. As Clay mentioned, the team's done a great job of trying to manage the exposure, you know, shutting in some of the high GOR wells, which has helped us in addition to the infrastructure takeaway that we've got. We continue to believe there's gonna be a need for more takeaway from the basin as we move to 2027 and beyond. As Clay mentioned, the team's very much focused on evaluating opportunities to further limit our exposure as we move forward into the future.

Just one other final comment on that.

Thank you.

Making sure that everyone is paying attention not just to get realized gas price, but also some of the value the hedge comes through other line items. Making sure we're being thoughtful about how we're protecting is not always physical. Sometimes it's financial hedges that we have in place that show up in other lines of the financial statements.

Great point. Clay, just a second quick one, just on what I would call new ventures. Y'all continue to own a decent size of Fervo, I'm just wondering, do y'all anticipate continuing to take positions, maybe in additional geothermal, other what I'd call newer type ventures?

Yeah, it's exciting. I mean, I think we have, you know, we've dabbled in a few ideas, thinking about how do we leverage this amazing, you know, the talents that we have. You think about geoscience, you think about drilling horizontal and wells and completing horizontal wells and building facilities. Like, that's what we do. Like, where else can we extrapolate these skills? What we found is an incredible Fervo team we've really enjoyed the partnership with. Happy to be alongside those guys, and we'll continue to look to other ways to expand Devon's footprint. Trey, do you have other comments there?

Appreciate the question. There's a lot of exciting things happening at Fervo and, you know, we took our stake in the Series D and led that round. We've obviously been very happy with the investment that we've had there financially as well as the investment that, you know, our teams have poured into them with just different technical advice over the years and seen them continue to de-risk enhanced geothermal systems operationally and technically. The thing that we didn't expect really going into that first investment was the power demand that we see for firm, you know, always on 365-day power that we're seeing across the United States, especially Western United States. We continue to be pretty bullish on that power demand story.

This gives us some exposure to it, and we're definitely interested as the technology continues to get de-risking. I think back to the spirit of the initial question, we're pouring ourselves into the success of Fervo at this point, and that's been our focus as a company.

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

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

Neal, I love the attitude, man. We hadn't even started the race and you already wanna pull forward the finish line. That's my kinda, my kinda thinking. What I would tell you is I am exceptionally confident in this combined team's ability to really come to, you know, pulling the rope in the same direction, getting integrated, getting a unified culture. I mentioned the 156 projects that are already identified. What doesn't come through in the numbers is the mutual excitement of the wins we're seeing from both sides of the ledger. It's really a true synergistic opportunity. We're seeing those things in all the major categories, you know, From D&C capital optimization, that will come really quickly. We're seeing some upside in production. We're thinking about how do we reallocate capital inside the portfolio.

Even the hardest work that we do around what's the optimal spacing, staggering, sequencing, and completion design of a place like the Delaware Basin, you know, we've got two really strong teams that have worked these very hard problems in isolation, and now you've got the benefit of two strong teams, brilliant folks, coming together and sharing their best ideas. Boy, that If I've ever seen synergy, it's that. What gets me exceptionally excited is kind of the mechanics behind it. I rewind back to the WPX-Devon merger. We signed the deal, worked so hard to get to the point, and then we looked at each other and said, "Okay, what do we do now?" Man, we started scrambling just to figure out how do we capture these things?

How do we monitor, track, hold ourselves accountable, you know, make sure that it's flowing through the financials? The beautiful thing with this position we're in today is we've just established some really great mechanics behind this. Trey Lowe led that, the business optimization project. It's already very fluent on this side of the family on how that works. I don't anticipate any issues in getting those mechanics applied to all of the opportunities. Then I'll go back to my comments, you know, from the script. Technology is the key innovative underwriter of so much of this, and we're just getting started. I love bragging on the team.

I can go for the next 30 minutes on the excitement around some of the work that we're doing and how it turns ideas into value. I can tell you, we are in the exceptionally early innings of those wins. Now with this combined footprint, this amazing Delaware Basin as our crown jewel asset, you combine the 2 positions together, then you start applying all of these brilliant ideas and people and technology, it. Just watch out. We can't wait to deliver on this. Like I said, I consider it the floor, certainly not the ceiling.

Yeah. That's a great point about the Delaware really becoming the star of the portfolio in a pro forma basis. You already have a Delaware-concentrated program, but it's only gonna be more so. I think you alluded to this, so I maybe you can kinda comment on that a little bit. What would be the advantage of moving the portfolio a little bit more towards being Delaware-focused versus diversified, recognizing you've got a portfolio process that you're looking at. Just at a high level, what would be some advantages of being more focused as an organization?

Yeah. I Look, I don't wanna presume that we are in any way not focused. you know, we certainly have the scale, the capabilities, the teams in place, that it's not like we can only work in one basin at a time. I don't want that at all to be the presumption going in or some kind of limiting factor. I think we wanna be exceptionally objective about all of the possibilities on how to enhance this company's value, both short and long term, for our shareholders.

I'll go back to the prepared remarks, about the opportunities that we have to really do the thorough work, to move through diligently, evaluate every scenario, in not just which basins we're in, but thinking about all of the potentials, the upside that we have in other areas, and how do these pieces work together. Don't forget, this ranking and opportunities can significantly change when you apply $1 billion of synergies. Think about the enhancement of the opportunities that we have with much lower D&C cost, with better production. Thinking about how do we stack and stagger these wells and improve the outcomes. You know, 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, you know, as a bolt-on type opportunity. All of that's on the table, as it always is. I just wanna emphasize, we don't wanna 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.

We'll stay tuned. Thanks, Clay.

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

Good morning. Clay, you're obviously flush with cash here. You have the integration in front of you. Guessing you and the team may not be inclined to change the combined activity program much and just, you know, focus on synergy capture. I am thinking about, you know, where you could deploy some extra cash. I'd think about refracs in the Eagle Ford or even the Bakken in this environment. You know, those appear to be an area where you can deploy some modest incremental capital, get a quick payback, but not, you know, really deplete core inventory. Just some thoughts there.

Yeah, appreciate that. We're always looking to enhance, and that could be within the existing portfolio, capital allocation, and refracs are a great example of that. I would say one thing. We've probably gone quieter on refracs over the last several quarters. Here's the odd result or the leading indicator that came from that. We have improved our D&C cost and efficiency so much that now we're seeing the drilling side of the equation, which is basically the part that you're eliminating in a refrac. We have driven those costs and efficiency so much that it's becoming those refracs now have to compete with new wells. We've probably done less of those.

We're excited about some other things that we have in the hopper, some longer-term wins around enhanced oil recovery, some exciting early projects we have there. We've talked about the surfactants that we've done tests on the Permian and other areas we're working on as well. Those are really impressive returns. That probably accrues more to the LOE side of the ledger than the capital side. Certainly always looking where we can make a differential investment to lean in. We wanna remain disciplined on our capital. We ultimately have, you know, our long-term best interests in mind along with these, the shorter term wins. However we can improve those wins along the way, we're happy to deliver on.

No, that's good color and good perspective. You know, with this extra cash, you kind of, you know, mentioned the investigation of EOR and obviously surfactants have been a hot topic the last couple quarters. You know, what do you do with your extra cash? I mean, do you push harder on EOR or try to deploy more surfactants? You know, do you deploy more into AI and try to accelerate incorporation of, you know, those technologies into your operations? Just kind of what do you do around the margin with the extra cash?

Yeah, I think there's a pretty big disconnect from these projects we're doing on the margins. I mean, surfactants are incredibly, cost-effective, let's just say. When we think about some of these other ideas that we're investing in de-risking over time, they are relatively small investments and probably will remain that way for a bit. The cash that you're talking about, the billions of dollars of free cash flow that we as standalone Devon, and certainly as a combined company, will generate, I think we think about, you know, dividend policy. We think about share repurchases, and we think about debt, repayment. How do we optimize those? As you well know, you know, different quarters and different opportunities can present different opportunities that we wanna be nimble around.

Once again, it's important we get aligned with our board. These are absolutely board-level conversations that we wanna make sure we don't preempt that process. We need to get aligned with them. I think structurally what we've talked about, you know, pre-close, is enhancing that dividend. Likely to announce a very significant share repurchase program that we could move aggressively on. Of course, we look at the debt. Inevitably, when you combine companies, just like when I look back at WPX, there were some real day one early wins that we were able to do on the debt front to enhance value to shareholders. I would say that's the probably more material opportunities that we have for cash return to shareholders.

Gotcha. Yeah, I was just wondering about those kinda second-level investments that may accelerate. Appreciate all the color. Thank you, Clay.

Thanks, Rob.

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

Yeah, thanks. Good morning, guys. On the merger webcast, you had put out there that you had, you know, 10+ years of inventory at the current development pace. I know this was a third-party estimate, but I'm curious, given that you guys are going through this big, you know, cost reduction program, once you start adding those into the equation here, how are you thinking about the kinda pro forma depth of that base? Does it push towards 15 years? Is it greater than that? Cause it feels like the cost of supply of that base is moving much lower for you.

Well, certainly the cost of the wells can materially extend the runway. Think about the, kinda the creaming curve and that tail that are just right on the bubble. As you lower those costs, more of those yellow lights turn into green over time. I might ask John just to add a little bit of color on what he's seeing when he thinks about combining the Delaware Basin footprint.

Yeah, Josh, we need to go do a lot more of that work to get you probably more specific numbers. I'll give you just a corollary back to 2025. When I think about all the capital efficiencies we had in 2025, we saw our costs consistently move lower. That allowed us to do some really good work on downspacing. When I go back and look at the risk resource replacement that we had the Delaware Basin from not only our appraisal, but specifically downspacing, we replaced almost 100% of our consumption. When I think about that kind of additional resource gain, combining that across the two company asset base, you know, you already had third-party estimates pushing our inventory well beyond 10 years.

I gotta imagine that as we see learnings, as Clay mentioned, from better staggering, from better landing, completion design, but also as we see lower costs, we're gonna see that same trend of the two companies.

Yeah. Got it. Thanks for that. You know, just given the significantly larger pro forma asset base and stronger balance sheet, is this opening up new investment opportunities and doors for you guys? You know, do you foresee more of these kinda earlier stage investments in companies like Fervo or WaterBridge, or do you wanna get more integrated, build your own midstream infrastructure, look at long cycle exploration opportunities? Clay, any thoughts there would be great. Thanks.

Yeah. Thanks for that question, Josh. I think that's just kind of part of our DNA. I mean, we got a bunch of entrepreneurs around here, and I think what is really awesome is when we really get aligned on what winning looks like. We've done this work, solo Devon, you know, over the last six quarters or so with our board, and it was a real magical moment last year, the September strategy session. We walked out really kind of understanding what long-term success really looked like, and I think it was so empowering for all the folks around the company that are just thinking about, you know, kind of these, amending and extending the opportunity set that we have, above and beyond just, you know, straight drilling additional wells.

While that's always gonna be our core business, I'm really excited about how do we think about leveraging the knowledge, the position, the scale, the footprint that we have and really turning additional opportunities. Part of the go forward, Tom Hellman is gonna lead a lot of that effort for us, and it is You know, to think about the firepower that we're gonna have, the combined skills that the company's gonna bring together, there's definitely more to come, and I think it really helps the longer term investors, think about Devon's value, longer term and the sustainability of our ability to hold onto this free cash flow. I think it's all positive and really 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. First congrats on achieving the $1 billion business optimization savings, which some of us were skeptical of. Coming back to the AI discussion, I was hoping you could give more color around the fully autonomous artificial lift optimization, just how to think about this relative to gas lift or ESP or basin specific. Any estimate on how much you think this is improving runtime, which is obviously very important at current oil prices.

Yeah. Phil, first of all, thanks for the acknowledgment on the business optimization. I can tell you there were a lot of skeptics. You weren't the only one, and rightfully so. I mean, this was, you know, something that we were going to create a sustainable $1 billion of incremental value kind of out of thin air. We didn't have a transaction to lean on. It was just, you know, a few of us changing offices and sitting in different seats. I knew the organization had it. I just felt like there was just kind of this untapped resource. I talked about it in my prepared remarks about this moving from a project to more like a cultural norm, and it goes back to this hunger for data. Like, how do we not just compare against ourselves, the best in the business?

Maybe it's not even the best in the business. Maybe it's the best in any business. How do we think about that next incremental step? The power of technology and really doing something with that data, it's so infectious around the organization. I'm incredibly excited, and I couldn't be more proud of the organization's achievement on that. First of all, thank you for that acknowledgement. I'm gonna turn to John Raines and just see specifically on the artificial lift, because maybe the audience doesn't know this, but essentially every well in all of our companies are on some form of artificial lift. We've started with gas lift as a primary opportunity, but I can tell you this extends to every other form of artificial lift as well.

Anyway, let me turn to John. He can add additional color.

I think Clay did a good job of providing color in his earlier remarks. Extremely proud of the smart gas lift program. We're using smart AI models there to develop a physics-based calculation to optimize gas lift injection rates. That's on a closed loop system. It's going directly to the wells, we piloted this back in 2025. To your question on uplift, we saw about a 2%-3% uplift. We've now moved into full implementation in the Delaware Basin. We're over 850 wells at this point in time, we've seen uplift that is in excess of what we saw in the pilot phase. We are on our way to 1,500 wells across the portfolio. I don't wanna give a specific number on uplift just yet.

I just wanna say it's better than what we saw in the pilot phase because it's early. We're already taking similar types of technology, meaning AI-derived models, to look at other forms of artificial lift that you mentioned. We're looking at ESPs and rod pumps at this point in time. Those models that we've derived are looking at the wells. They're calculating what should be the optimal production rate for those wells. Right now, we're in the pilot phase. We're looking at subsets of wells, but we're identifying wells that may be producing below their optimal injection rates. What that's leading to is some actionable insights for our engineers. We're going out, we're testing these insights, and we're already seeing production uplift.

Much like the Smart gas lift program, these are other programs that we're going to be able to scale throughout our portfolio. Smart gas lift has been a massive success for us, and I'm looking forward to being able to roll these 3 types of programs out as well.

No, that's great. I also had a question on cash taxes, but it's more as it relates to the portfolio review process. I know you've been buying and selling assets at Devon for over 55 years, but probably never generated this much free cash flow with Coterra in a similar position. Just wondering if there's any ability to shield taxable gains for the pro forma company or is this just something that's gonna have to be factored in and overcome in any value creation analysis?

Yeah. Phil, again, we've got to go away and do the work to give you a more definitive answer. Without question, we're gonna evaluate, you know, to the extent that we do land on executing on some divestitures, you know, we'll absolutely be evaluating that all on an after-tax basis. As you point out, you know, some of the assets that we hold in the portfolio today certainly have a low basis. We'll have to be thoughtful about how we structure those transactions and be creative, hopefully, as to how we work through those transactions to structure them appropriately to maximize the free cash flow.

We'll absolutely be looking at all that on an after-tax net present value basis. You know, we'll have the opportunity to look at different exchanges that we might do and even some JVs where it makes sense to try to minimize the impact of that as we work through it.

Thank you.

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

Thank you. Just following up on the prior discussion on sort of the AI benefits on the artificial lift side, and then tying that into the earlier discussion on synergies. When I kinda use like the last 12 months of what y'all achieved on the business optimization side as kind of a roadmap on the synergies, when I look at the business optimization, there were certain buckets that got realized really quickly. The obviously the corporate overhead, the commercial opportunities, and then the bucket that took the longest to ultimately get realized was the production optimization. When I look at the buckets that y'all have got on slide 9 for the synergy capture, the discussion notes it had on kinda the AI artificial lift side.

Am I thinking about it right that now that you've got the benefit of that you didn't have day one when you were doing the business optimization, that that bucket that took the longest in an optimization side maybe doesn't have to take as long when I'm looking at kinda these synergy buckets here?

Yeah. Man, John, appreciate the question. You're exactly right. Some of these will be early wins. Production is notoriously just kinda one of those slower burning opportunities. You're talking about, you know, relatively small wins on hundreds or maybe thousands of wells, and that takes time to kinda work in. The great news is we've been doing the work. We've kinda got the flywheel effect going. We've been very methodical and thoughtful in how we've built towards this. The synergy $1 billion will benefit from the work that we've done to date, more to come. I might just turn to Trey and just see. There's, you know, so many other things exciting on the AI front from that category.

Of course, Trey's also co-leading the integration, and so he has a very great, a very insightful purview into the synergy goals as well.

Appreciate the question, John Raines. I think you're asking the right things on this one. One of the outcomes that I'm really optimistic about is that the tailwinds that we're seeing on business optimization will carry through the synergy work that we have ongoing, specifically the production items, the things like what John Raines mentioned with smart gas lift, as well as another collection of work streams. Clay Gaspar mentioned it a few times now, but that process that we've built around which ideas become work streams that we track and measure and push forward, what are the AI and technology data-driven solutions that work, we're going to continue to push all of that forward with our structure. We've built a culture around it, we're really excited about that.

The other thing that we haven't mentioned yet that I would share is, you know, we've learned over the last year what we think our investors and our analysts care about and how we can keep all of you updated as we make progress on these things and how we categorize it and we communicate it in a way that's transparent, we're gonna continue to do that going forward as well. So we're, yeah, 100% excited about the tailwinds that we're carrying on the production side, but also just the flywheel that we've built in all of these categories I think are gonna set us up really well.

Thanks, Trey. Then, this was another really active quarter on the ground game side, especially in the, in the Delaware Basin. Should we assume that that's gonna remain pretty robust as y'all work hard to kinda complement both companies' positions in the Delaware?

Yeah. John, this is John. Yes, you should assume that that's gonna remain fairly robust. We've been very successful with our ground game. I think you saw, pardon me, you saw in our materials since last year we've added well over 100 net locations in predominantly the Delaware Basin with our ground game. Q1, we had another great success. I think you saw our acquisition capital of roughly $150 million. That was 90% Delaware Basin. That was not only success in the January lease sale, but a lot of really good knife fighting behind the scenes and good work by the land team. It's been an instrumental part of our business, and you can expect us to remain very active on that front.

Thanks, guys. Appreciate it.

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

Hi. Good morning. I truly just have 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 in the prepared remarks that you could go beyond the legacy level. Could we see a catch-up on the buyback going forward just to make whole on the repurchases that would have happened by the standalone, the two standalone companies?

Yeah. That's, I think that's one way to look at it, but I wouldn't presume that we're trying to make up for lost time on any specific numbers. When we get the board authorization of the new board, which is gonna be imminent, then we will be able to communicate that, and we will get to work on a standalone, you know, go forward, how do we think about this, what's the right opportunity. Obviously, we had a cadence before. Coterra had a cadence before. How do we combine that and think about the best approach?

There's an art and science to share buybacks, but I think there's a real excitement from both sides. Of the legacy teams that we have a real opportunity to return shareholder value with a tremendous amount of free cash flow, and then leveraging the opportunity to buy back material shares.

No, that makes sense. I'll follow up on target debt levels. The combined entity is going to generate a lot of free cash flow, and we covered that earlier. Just thinking about how you view the optimal debt level going forward, would you ever want to be at a level that's net zero net debt? How do you think about the right leverage at a mid-cycle price level?

Yeah, Betty, you're on the track of probably the most common debates we've gotten in with our board over the years on how's the best way to return shareholder value, dividends, share repurchases, and of course, debt as well. I certainly don't wanna jump in front of the important conversations we're gonna have with the new combined board, but I think you're hitting around on the right opportunities. All of these are will be evaluated when we think about the incredible free cash flow of the combined entity, and I look forward to updating everyone once we get a alignment on the go-forward plan. Jeff, you have any other thoughts along those lines?

No, I would say, Betty, I think both companies historically have been, you know, have both had phenomenal balance sheets, a lot of strength, a lot of both investment grade, creates a lot of flexibility for the company. I think, you know, investors should expect that to continue as we go forward. As Clay said, we've got to do some work with the board just to do the math and get aligned. I expect you'll see, you know, a philosophy on both the share repurchase program and the balance sheet that's pretty consistent with what you saw from each of the companies on a standalone basis historically.

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

Thanks, Betty.

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

Thanks so much. Good morning, everyone. Gosh, you had to put me on right after the debt buyback discussion, didn't you?

sorry, Doug. It's totally my bad. You can push that one on Betty.

I got 2 questions, neither of which you'll probably be able to answer, Clay, but I'm gonna have a go anyway. You talked about the number of initiatives that you've already identified. Obviously, it's an upside to the synergy target question. My question is, have you been able to get under the hood on the combined company and Coterra's, you know, portfolio assets and so on, given that the merger has not closed yet? What's the veracity to which you've been able to define that billion-dollar, excuse me, target versus the number of opportunities that you mentioned in your prepared remarks?

Just trying to get a feel for how to, don't wanna sound conservative and lead you down that road, but it sounds to me that if you haven't been under the hood, you know, how do we think about the risk of that billion-dollar synergy?

Yeah. Thanks for the question, Doug, and I can add some color on that. Look, we have moved aggressively. I don't know if it's, you know, if everyone kinda sees this, but for a combined $70 billion dollar company to do a sign to close in 3 months is moving with incredible speed. At the same time, we've been incredibly disciplined on what we can and can't do, and there's, you know, very strict rules around what we could and couldn't share. There's an interesting little ability to use something called a clean room, where we can exchange certain data with third parties, and we've done some things like that. We've been able to exchange a certain amount to now, okay?

We have to work a lot of this independently, and of course, even to get to the merger agreement and get the deal signed, both teams needed to work this and understand the why of why their shareholders are going to benefit from this. We work this independently. Between sign and close, we've been able to share some data and get closer and closer by leveraging, you know, like I said, third parties and the ability to stay well inside the lines, but make sure that we are working together closer and closer. Obviously starting tomorrow, it's full speed ahead, take off all the shackles, and we'll find additional opportunities. What I would tell you is we've been able to work close enough together where I feel very confident in the outcome. I am not raising the number on the $1 billion.

I'm not accelerating the timeline. What I just want to give the 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 that Trey mentioned earlier. We already have kind of a running start on some of these opportunities, and so it just gives me even greater confidence that we'll be able to achieve this combination. Certainly, we see opportunities in lots of different categories, but when we really unleash the combined organization, without the restraints of we can't talk about all of these long list of things, it'll be even that much more exciting and unlocking of value. Feel really good about it. More to come.

As Trey mentioned, we're going to be incredibly disciplined each quarter on updating you, holding ourselves accountable, and as you've done, hold us accountable to delivering on these numbers.

Thanks, Clay. I thought I'd give it a go. My follow-up is probably a question you can't answer either, but I'm gonna give this a go as well. I'm gonna speak, you know, directly and perhaps bluntly about the reason Coterra succumbed to external pressure. The mismatch with the gas and the oil assets, the mismatch with the Marcellus, I know the board has to review this, but we all saw the letter from Kimmeridge. Where do you stand on the portfolio mix? Do you agree or disagree that, you know, having a skewed mix towards gas, you know, makes you know, has risks in terms of confusing investors?

Well, thanks for the question and while I won't talk about any specific investor, we get investor feedback, as you would imagine, all day, every day from every angle. What I can tell you is I'm excited about the combination. You know, two of the three basins have significant overlap from the Coterra side. We're seeing some of these synergies, these opportunities to make those assets better. Certainly, we have some other assets that either were solo Devon or solo Coterra. All of those, as I said earlier, they need to earn their seat at the table, and I do not wanna be presumptive. I am not presumptive on which assets will be able to compete or not.

I think that's absolutely the right approach, and we're gonna go through that with thoroughness, diligence, swiftness to evaluate all of those options. Certainly part of the evaluation is how do investors, what do investors want from us? Again, that's not that's investors very, very plural, not singular investor, because there's lots of different views out there. Obviously not just trying to answer the question du jour, but thinking about investor sentiment that can stand the test of time. What are investors really gonna be excited about 6 months, 12 months, 2 years, 4 years from now? Those are the things that we really try and really goal seek towards, and that's the hard conversations that we're gonna have, again, with the new management team and certainly with the board going forward. Excited about that work.

As we think about, you know, it's not just solving for a specific geography. You know, we're really thinking about those things that I pointed to earlier, capital efficiency, inventory depth, free cash flow, how does it all fit together? Don't underestimate what applying $1 billion of synergies could mean to one asset or another. When we think about this, the skill set that we have, how do we unlock additional potential, that all needs to be thoroughly evaluated and that will come. Believe me, we are moving fast on this, we're not gonna slow down.

It is the right thing to do to make sure that we are very thoughtful and that we make the right decisions, before we try and show our hands on which way we're gonna go on any of these important considerations.

Yeah, great point. Thanks, Clay.

Thank you, Doug.

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

Hey, thanks for getting me on. Clay, I'd be interested in your take on the macro environment here, given the supply disruption, and maybe if you'd care to comment on it, what signals you're looking for that would drive you to capitulate more than a maintenance program.

Yeah, it's a great question, Kevin. You know, historically, we've said on the call, we think the world is well supplied in oil. You know, this is circa two or three quarters ago. We had OPEC still bringing barrels back on. You know, we're watching demand from Asia, from Europe, from the U.S. We're trying to really watch at a macro level how that supply and demand is really kinda lining up. Certainly, over the last couple of months, that dynamic has changed very significantly. I think it's too early to call, kinda the end or how this thing resolves itself. Meanwhile, there's a lot of barrels off the market.

We're watching international storage, levels, you know, come down over time, and that certainly influences where we think, the back end of the curve, one, is trading, but also where it normally should be. We'll continue to watch this. We talked about before, we don't steer the ship with the front end of the curve. oil price, as we see it today, can bounce around, $5, $10 at a time, and that can just, that can be an ill sought of try to optimize on that. We're watching the back end of the curve. We're watching the macro fundamentals. What I would tell you is, from our view, things are evolving, and we'll continue to watch that very closely.

Okay. Maybe shifting gears a little bit on oil realizations, they're just a little bit lower this quarter than prior quarters. Any comments on that pricing? Will you see any benefits from the Brent WTI spread that's kind of materialized here across any of your assets going forward? Thanks.

Yeah, you bet. I wanna brag again on our marketing team a little bit. They've done a really phenomenal job with our oil export program and kind of the back half of the first quarter, we started to see some real benefit of that with getting some premiums to, you know, what we could have achieved domestically, you know, via the export program. I expect that to be the same case in the second quarter. We should see strength in the second quarter on a relative basis as a result of that export program. Kudos to the team. They've been really thoughtful as we built that out over the last couple years, and it's really starting to pay dividends, you know, particularly in the volatile environment that Clay just described.

Appreciate the answers. Thanks, guys.

Thank you. I will now pass the call back to Mr. Chris Carr for closing remarks.

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