Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)
þ 	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the quarterly period ended June 30, 2012
or
 
¨ 	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
Commission File Number 001-32318

DEVON ENERGY CORPORATION
(Exact name of registrant as specified in its charter)

 
			
Delaware	 	73-1567067	
(State of other jurisdiction of
incorporation or organization)	 	(I.R.S. Employer
identification No.)	
		
333 West Sheridan Avenue,
Oklahoma City, Oklahoma	 	73102-5015	
(Address of principal executive offices)	 	(Zip code)	
Registrant’s telephone number, including area code: (405) 235-3611
Former address: 20 North Broadway, Oklahoma City, Oklahoma 73102-8260
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   þ     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   þ     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	 	þ	  	Accelerated filer	 	¨	
				
Non-accelerated filer	 	¨   (Do not check if a smaller reporting company)	  	Smaller reporting company	 	¨	
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes   ¨     No   þ
On July 18, 2012, 404.5 million shares of common stock were outstanding.

 

Table of Contents
DEVON ENERGY CORPORATION
FORM 10-Q
 TABLE OF CONTENTS

Part I Financial Information	  				
Item 1. Consolidated Financial Statements	  				
Consolidated Comprehensive Statements of Earnings	  	 	3	  	
Consolidated Statements of Cash Flows	  	 	4	  	
Consolidated Balance Sheets	  	 	5	  	
Consolidated Statements of Stockholders’ Equity	  	 	6	  	
Notes to Consolidated Financial Statements	  	 	7	  	
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	 	20	  	
Item 3. Quantitative and Qualitative Disclosures About Market Risk	  	 	29	  	
Item 4. Controls and Procedures	  	 	30	  	
		
Part II Other Information	  				
Item 1. Legal Proceedings	  	 	31	  	
Item 1A. Risk Factors	  	 	31	  	
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	  	 	31	  	
Item 3. Defaults Upon Senior Securities	  	 	31	  	
Item 4. Mine Safety Disclosures	  	 	31	  	
Item 5. Other Information	  	 	31	  	
Item 6. Exhibits	  	 	32	  	
		
Signatures	  	 	33	  	
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements regarding our expectations and plans, as well as future events or conditions. Such forward-looking statements are based on our examination of historical operating trends, the information used to prepare our December 31, 2011 reserve reports and other data in our possession or available from third parties. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control. Consequently, actual future results could differ materially from our expectations due to a number of factors, such as changes in the supply of and demand for oil, natural gas and NGLs and related products and services; exploration or drilling programs; political or regulatory events; general economic and financial market conditions; and other factors discussed in this report.
All subsequent written and oral forward-looking statements attributable to Devon, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements above. We assume no duty to update or revise our forward-looking statements based on new information, future events or otherwise.
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
 CONSOLIDATED COMPREHENSIVE STATEMENTS OF EARNINGS

 	  	Three Months	 	  	Six Months	 	
 	  	Ended June 30,	 	  	Ended June 30,	 	
 	  	2012	 	 	2011	 	  	2012	 	 	2011	 	
 	  	(Unaudited)	 	
 	  	(In millions, except
per share amounts)	 	
Revenues:	  				 				  				 				
Oil, gas and NGL sales	  	$	1,617	 	 	$	2,200	 	  	$	3,532	 	 	$	4,060	 	
Oil, gas and NGL derivatives	  	 	665	 	 	 	416	 	  	 	810	 	 	 	248	 	
Marketing and midstream revenues	  	 	277	 	 	 	604	 	  	 	714	 	 	 	1,059	 	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total revenue	  	 	2,559	 	 	 	3,220	 	  	 	5,056	 	 	 	5,367	 	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Expenses and other, net:	  				 				  				 				
Lease operating expenses	  	 	513	 	 	 	453	 	  	 	1,027	 	 	 	877	 	
Marketing and midstream operating costs and expenses	  	 	209	 	 	 	456	 	  	 	534	 	 	 	789	 	
Depreciation, depletion and amortization	  	 	684	 	 	 	550	 	  	 	1,364	 	 	 	1,056	 	
General and administrative expenses	  	 	176	 	 	 	135	 	  	 	344	 	 	 	265	 	
Taxes other than income taxes	  	 	100	 	 	 	120	 	  	 	202	 	 	 	228	 	
Interest expense	  	 	99	 	 	 	85	 	  	 	186	 	 	 	166	 	
Restructuring costs	  	 	—  	  	 	 	6	 	  	 	—  	  	 	 	1	 	
Other, net	  	 	44	 	 	 	37	 	  	 	54	 	 	 	27	 	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total expenses and other, net	  	 	1,825	 	 	 	1,842	 	  	 	3,711	 	 	 	3,409	 	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Earnings from continuing operations before income taxes	  	 	734	 	 	 	1,378	 	  	 	1,345	 	 	 	1,958	 	
Current income tax expense (benefit)	  	 	31	 	 	 	36	 	  	 	49	 	 	 	(53	) 	
Deferred income tax expense	  	 	226	 	 	 	1,158	 	  	 	405	 	 	 	1,438	 	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Earnings from continuing operations	  	 	477	 	 	 	184	 	  	 	891	 	 	 	573	 	
Earnings (loss) from discontinued operations, net of tax	  	 	—  	  	 	 	2,559	 	  	 	(21	) 	 	 	2,586	 	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Net earnings	  	$	477	 	 	$	2,743	 	  	$	870	 	 	$	3,159	 	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Basic net earnings per share:	  				 				  				 				
Basic earnings from continuing operations per share	  	$	1.18	 	 	$	0.44	 	  	$	2.20	 	 	$	1.35	 	
Basic earnings (loss) from discontinued operations per share	  	 	—  	  	 	 	6.06	 	  	 	(0.05	) 	 	 	6.09	 	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Basic net earnings per share	  	$	1.18	 	 	$	6.50	 	  	$	2.15	 	 	$	7.44	 	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Diluted net earnings per share:	  				 				  				 				
Diluted earnings from continuing operations per share	  	$	1.18	 	 	$	0.43	 	  	$	2.20	 	 	$	1.34	 	
Diluted earnings (loss) from discontinued operations per share	  	 	—  	  	 	 	6.05	 	  	 	(0.05	) 	 	 	6.07	 	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Diluted net earnings per share	  	$	1.18	 	 	$	6.48	 	  	$	2.15	 	 	$	7.41	 	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Comprehensive earnings:	  				 				  				 				
Net earnings	  	$	477	 	 	$	2,743	 	  	$	870	 	 	$	3,159	 	
Other comprehensive earnings, net of tax:	  				 				  				 				
Foreign currency translation	  	 	(171	) 	 	 	65	 	  	 	(19	) 	 	 	250	 	
Pension and postretirement plans	  	 	5	 	 	 	5	 	  	 	9	 	 	 	11	 	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Other comprehensive earnings, net of tax	  	 	(166	) 	 	 	70	 	  	 	(10	) 	 	 	261	 	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Comprehensive earnings	  	$	311	 	 	$	2,813	 	  	$	860	 	 	$	3,420	 	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
See accompanying notes to consolidated financial statements.
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS

 	  	Six Months	 	
 	  	Ended June 30,	 	
 	  	2012	 	 	2011	 	
 	  	(Unaudited)	 	
 	  	(In millions)	 	
Cash flows from operating activities:	  				 				
Net earnings	  	$	870	 	 	$	3,159	 	
Loss (earnings) from discontinued operations, net of tax	  	 	21	 	 	 	(2,586	) 	
Adjustments to reconcile earnings from continuing operations to net cash from operating activities:	  				 				
Depreciation, depletion and amortization	  	 	1,364	 	 	 	1,056	 	
Deferred income tax expense	  	 	405	 	 	 	1,438	 	
Unrealized change in fair value of financial instruments	  	 	(362	) 	 	 	(74	) 	
Other noncash charges	  	 	114	 	 	 	82	 	
Net decrease (increase) in working capital	  	 	22	 	 	 	(89	) 	
Decrease in long-term other assets	  	 	3	 	 	 	45	 	
Decrease in long-term other liabilities	  	 	(11	) 	 	 	(201	) 	
	  	 	 	 	 	 	 	 	
Cash from operating activities – continuing operations	  	 	2,426	 	 	 	2,830	 	
Cash from operating activities – discontinued operations	  	 	26	 	 	 	(20	) 	
	  	 	 	 	 	 	 	 	
Net cash from operating activities	  	 	2,452	 	 	 	2,810	 	
	  	 	 	 	 	 	 	 	
Cash flows from investing activities:	  				 				
Capital expenditures	  	 	(4,267	) 	 	 	(3,720	) 	
Purchases of short-term investments	  	 	(1,471	) 	 	 	(4,520	) 	
Redemptions of short-term investments	  	 	2,030	 	 	 	1,298	 	
Proceeds from property and equipment divestitures	  	 	864	 	 	 	5	 	
Other	  	 	14	 	 	 	(32	) 	
	  	 	 	 	 	 	 	 	
Cash from investing activities—continuing operations	  	 	(2,830	) 	 	 	(6,969	) 	
Cash from investing activities—discontinued operations	  	 	58	 	 	 	3,170	 	
	  	 	 	 	 	 	 	 	
Net cash from investing activities	  	 	(2,772	) 	 	 	(3,799	) 	
	  	 	 	 	 	 	 	 	
Cash flows from financing activities:	  				 				
Proceeds from borrowings of long-term debt, net of issuance costs	  	 	2,465	 	 	 	—  	  	
Net short-term (repayments) borrowings	  	 	(1,498	) 	 	 	2,340	 	
Credit facility borrowings	  	 	750	 	 	 	—  	  	
Credit facility repayments	  	 	(750	) 	 	 	—  	  	
Proceeds from stock option exercises	  	 	22	 	 	 	96	 	
Repurchases of common stock	  	 	—  	  	 	 	(1,290	) 	
Dividends paid on common stock	  	 	(162	) 	 	 	(140	) 	
Excess tax benefits related to share-based compensation	  	 	1	 	 	 	12	 	
	  	 	 	 	 	 	 	 	
Net cash from financing activities	  	 	828	 	 	 	1,018	 	
	  	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash	  	 	38	 	 	 	32	 	
	  	 	 	 	 	 	 	 	
Net increase in cash and cash equivalents	  	 	546	 	 	 	61	 	
			
Cash and cash equivalents at beginning of period	  	 	5,555	 	 	 	3,290	 	
	  	 	 	 	 	 	 	 	
Cash and cash equivalents at end of period	  	$	6,101	 	 	$	3,351	 	
	  	 	 	 	 	 	 	 	
See accompanying notes to consolidated financial statements.
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS

 	  	June 30,	 	 	December 31,	 	
 	  	2012	 	 	2011	 	
 	  	(Unaudited)	 	 	 	 	
 	  	(In millions, except share data)	 	
ASSETS	  				
Current assets:	  				 				
Cash and cash equivalents	  	$	6,101	 	 	$	5,555	 	
Short-term investments	  	 	944	 	 	 	1,503	 	
Accounts receivable	  	 	1,005	 	 	 	1,379	 	
Other current assets	  	 	1,167	 	 	 	868	 	
	  	 	 	 	 	 	 	 	
Total current assets	  	 	9,217	 	 	 	9,305	 	
	  	 	 	 	 	 	 	 	
Property and equipment, at cost:	  				 				
Oil and gas, based on full cost accounting:	  				 				
Subject to amortization	  	 	64,965	 	 	 	61,696	 	
Not subject to amortization	  	 	4,062	 	 	 	3,982	 	
	  	 	 	 	 	 	 	 	
Total oil and gas	  	 	69,027	 	 	 	65,678	 	
Other	  	 	5,545	 	 	 	5,098	 	
	  	 	 	 	 	 	 	 	
Total property and equipment, at cost	  	 	74,572	 	 	 	70,776	 	
Less accumulated depreciation, depletion and amortization	  	 	(47,331	) 	 	 	(46,002	) 	
	  	 	 	 	 	 	 	 	
Property and equipment, net	  	 	27,241	 	 	 	24,774	 	
	  	 	 	 	 	 	 	 	
Goodwill	  	 	6,007	 	 	 	6,013	 	
Other long-term assets	  	 	1,005	 	 	 	1,025	 	
	  	 	 	 	 	 	 	 	
Total assets	  	$	43,470	 	 	$	41,117	 	
	  	 	 	 	 	 	 	 	
LIABILITIES AND STOCKHOLDERS’ EQUITY	  				 				
Current liabilities:	  				 				
Accounts payable	  	$	1,510	 	 	$	1,471	 	
Revenues and royalties payable	  	 	591	 	 	 	678	 	
Short-term debt	  	 	2,148	 	 	 	3,811	 	
Other current liabilities	  	 	712	 	 	 	778	 	
	  	 	 	 	 	 	 	 	
Total current liabilities	  	 	4,961	 	 	 	6,738	 	
	  	 	 	 	 	 	 	 	
Long-term debt	  	 	8,455	 	 	 	5,969	 	
Asset retirement obligations	  	 	1,942	 	 	 	1,496	 	
Other long-term liabilities	  	 	799	 	 	 	721	 	
Deferred income taxes	  	 	5,088	 	 	 	4,763	 	
Stockholders’ equity:	  				 				
Common stock, $0.10 par value. Authorized 1.0 billion shares; issued 404.5 million and 404.1 million shares in 2012 and 2011, respectively	  	 	40	 	 	 	40	 	
Additional paid-in capital	  	 	3,604	 	 	 	3,507	 	
Retained earnings	  	 	17,016	 	 	 	16,308	 	
Accumulated other comprehensive earnings	  	 	1,565	 	 	 	1,575	 	
	  	 	 	 	 	 	 	 	
Total stockholders’ equity	  	 	22,225	 	 	 	21,430	 	
	  	 	 	 	 	 	 	 	
Commitments and contingencies (Note 17)	  				 				
Total liabilities and stockholders’ equity	  	$	43,470	 	 	$	41,117	 	
	  	 	 	 	 	 	 	 	
See accompanying notes to consolidated financial statements.
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 	  	Common Stock	 	 	Additional
Paid-In	 	 	Retained	 	 	Accumulated
Other
Comprehensive	 	 	Treasury	 	 	Total
Stockholders’	 	
 	  	Shares	 	 	Amount	 	 	Capital	 	 	Earnings	 	 	Earnings	 	 	Stock	 	 	Equity	 	
 	  	(Unaudited)	 	
 	  	(In millions)	 	
Six Months Ended June 30, 2012:	  				 				 				 				 				 				 				
Balance as of December 31, 2011	  	 	404	 	 	$	40	 	 	$	3,507	 	 	$	16,308	 	 	$	1,575	 	 	$	—  	  	 	$	21,430	 	
Net earnings	  	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	870	 	 	 	—  	  	 	 	—  	  	 	 	870	 	
Other comprehensive earnings, net of tax	  	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(10	) 	 	 	—  	  	 	 	(10	) 	
Stock option exercises	  	 	1	 	 	 	—  	  	 	 	22	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	22	 	
Common stock repurchased	  	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(1	) 	 	 	(1	) 	
Common stock retired	  	 	—  	  	 	 	—  	  	 	 	(1	) 	 	 	—  	  	 	 	—  	  	 	 	1	 	 	 	—  	  	
Common stock dividends	  	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(162	) 	 	 	—  	  	 	 	—  	  	 	 	(162	) 	
Share-based compensation	  	 	—  	  	 	 	—  	  	 	 	75	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	75	 	
Share-based compensation tax benefits	  	 	—  	  	 	 	—  	  	 	 	1	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	1	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance as of June 30, 2012	  	 	405	 	 	$	40	 	 	$	3,604	 	 	$	17,016	 	 	$	1,565	 	 	$	—  	  	 	$	22,225	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Six Months Ended June 30, 2011:	  				 				 				 				 				 				 				
Balance as of December 31, 2010	  	 	432	 	 	$	43	 	 	$	5,601	 	 	$	11,882	 	 	$	1,760	 	 	$	(33	) 	 	$	19,253	 	
Net earnings	  	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	3,159	 	 	 	—  	  	 	 	—  	  	 	 	3,159	 	
Other comprehensive earnings, net of tax	  	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	261	 	 	 	—  	  	 	 	261	 	
Stock option exercises	  	 	2	 	 	 	—  	  	 	 	96	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	96	 	
Common stock repurchased	  	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(1,285	) 	 	 	(1,285	) 	
Common stock retired	  	 	(16	) 	 	 	(1	) 	 	 	(1,292	) 	 	 	—  	  	 	 	—  	  	 	 	1,293	 	 	 	—  	  	
Common stock dividends	  	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(140	) 	 	 	—  	  	 	 	—  	  	 	 	(140	) 	
Share-based compensation	  	 	—  	  	 	 	—  	  	 	 	72	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	72	 	
Share-based compensation tax benefits	  	 	—  	  	 	 	—  	  	 	 	12	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	12	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance as of June 30, 2011	  	 	418	 	 	$	42	 	 	$	4,489	 	 	$	14,901	 	 	$	2,021	 	 	$	(25	) 	 	$	21,428	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See accompanying notes to consolidated financial statements.
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
The accompanying unaudited financial statements and notes of Devon Energy Corporation (“Devon”) have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The accompanying financial statements and notes should be read in conjunction with the accompanying financial statements and notes included in Devon’s 2011 Annual Report on Form 10-K.
The accompanying unaudited interim financial statements furnished in this report reflect all adjustments that are, in the opinion of management, necessary to a fair statement of Devon’s financial position as of June 30, 2012 and Devon’s results of operations and cash flows for the three-month and six-month periods ended June 30, 2012 and 2011.
Accounts Payable
Included in accounts payable at June 30, 2012, are liabilities of $99 million representing the amount by which checks issued, but not presented to Devon’s banks for collection, exceed balances in applicable bank accounts. Changes in these liabilities are reflected in cash flows from financing activities.
2. Derivative Financial Instruments
Objectives and Strategies
Devon periodically enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production. These instruments are used to manage the inherent uncertainty of future revenues due to commodity price volatility and typically include financial price swaps, basis swaps, costless price collars and call options.
Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. Devon periodically enters into foreign exchange forward contracts to manage its exposure to fluctuations in exchange rates.
Devon does not hold or issue derivative financial instruments for speculative trading purposes and has elected not to designate any of its derivative instruments for hedge accounting treatment.
Counterparty Credit Risk
By using derivative financial instruments, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon’s policy to enter into derivative contracts only with investment grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon’s derivative contracts contain provisions that provide for collateral payments, depending on levels of exposure and the credit rating of the counterparty.
As of June 30, 2012, Devon holds $107 million cash collateral. Such amount represented the estimated fair value of certain derivative positions in excess of Devon’s credit guidelines. The collateral is reported in other current liabilities in the accompanying balance sheet.
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
Commodity Derivatives
As of June 30, 2012, Devon had the following open oil derivative positions. Devon’s oil derivatives settle against the average of the prompt month NYMEX West Texas Intermediate futures price.

 	  	Price Swaps	 	  	Price Collars	 	  	Call Options Sold	 	
      Period      	  	Volume
(Bbls/d)	 	  	Weighted
Average  Price
($/Bbl)	 	  	Volume
(Bbls/d)	 	  	Weighted
Average Floor  Price
($/Bbl)	 	  	Weighted
Average Ceiling  Price
($/Bbl)	 	  	Volume
(Bbls/d)	 	  	Weighted
Average  Price
($/Bbl)	 	
Q3-Q4 2012	  	 	54,000	  	  	$	105.90	  	  	 	74,000	  	  	$	89.71	  	  	$	123.09	  	  	 	19,500	  	  	$	95.00	  	
Q1-Q4 2013	  	 	31,000	  	  	$	104.13	  	  	 	45,000	  	  	$	91.30	  	  	$	116.23	  	  	 	6,000	  	  	$	120.00	  	
Q1-Q4 2014	  	 	4,000	  	  	$	100.49	  	  	 	2,000	  	  	$	90.00	  	  	$	111.13	  	  	 	6,000	  	  	$	120.00	  	
As of June 30, 2012, Devon had the following open natural gas derivative positions. Devon’s natural gas derivatives settle against the Inside FERC first of the month Henry Hub index.

 	  	Price Swaps	 	  	Price Collars	 	  	Call Options Sold	 	
      Period      	  	Volume
(MMBtu/d)	 	  	Weighted
Average  Price
($/MMBtu)	 	  	Volume
(MMBtu/d)	 	  	Weighted
Average Floor  Price
($/MMBtu)	 	  	Weighted
Average Ceiling  Price
($/MMBtu)	 	  	Volume
(MMBtu/d)	 	  	Weighted
Average  Price
($/MMBtu)	 	
Q3-Q4 2012	  	 	573,370	  	  	$	4.04	  	  	 	991,685	  	  	$	3.71	  	  	$	4.40	  	  	 	487,500	  	  	$	6.00	  	
Q1-Q4 2013	  	 	150,000	  	  	$	4.50	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	
Q1-Q4 2014	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	150,000	  	  	$	5.00	  	
Interest Rate Derivatives
As of June 30, 2012, Devon had the following open interest rate derivative positions:

Notional	  	Fixed Rate Received	 	 	Variable
Rate Paid	  	Expiration	 	
(In millions)	  	 	 	 	 	  	 	 	
$ 100	  	 	1.90	% 	 	Federal funds rate	  	 	August 2012	  	
   750	  	 	3.88	% 	 	Federal funds rate	  	 	July 2013	  	
$ 850	  	 	3.65	% 	 		  				
Foreign Exchange Derivatives
As of June 30, 2012, Devon had the following open foreign exchange rate derivative position:

Forward Contract	 	
Currency	  	Contract
Type	 	  	CAD
Notional	 	  	Fixed Rate
Received	 	  	Expiration	 	
 	  	 	 	  	(In millions)	 	  	(CAD-USD)	 	  	 	 	
Canadian Dollar	  	 	Sell	  	  	$	755	  	  	 	0.9708	  	  	 	September 2012	  	
Financial Statement Presentation
The following table presents the cash settlements and unrealized gains and losses on fair value changes included in the accompanying comprehensive statements of earnings associated with derivative financial instruments. Cash settlements and unrealized gains and losses on fair value changes associated with Devon’s commodity derivatives are presented in the “Oil, gas and NGL derivatives” caption in the accompanying comprehensive statements of earnings. Cash settlements and unrealized gains and losses on fair value changes associated with Devon’s interest rate and foreign currency derivatives are presented in the “Other, net” caption in the accompanying comprehensive statements of earnings.
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 	  	Three Months
Ended June 30,	 	 	Six Months
Ended June 30,	 	
 	  	2012	 	 	2011	 	 	2012	 	 	2011	 	
 	  	(In millions)	 	
Cash settlements:	  				 				 				 				
Commodity derivatives	  	$	267	  	 	$	59	  	 	$	425	  	 	$	145	  	
Interest rate derivatives	  	 	(11	) 	 	 	5	  	 	 	(1	) 	 	 	21	  	
Foreign currency derivatives	  	 	20	  	 	 	—  	  	 	 	9	  	 	 	—  	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total cash settlements	  	 	276	  	 	 	64	  	 	 	433	  	 	 	166	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized gains (losses):	  				 				 				 				
Commodity derivatives	  	 	398	  	 	 	357	  	 	 	385	  	 	 	103	  	
Interest rate derivatives	  	 	(5	) 	 	 	(30	) 	 	 	(15	) 	 	 	(29	) 	
Foreign currency derivatives	  	 	(9	) 	 	 	—  	  	 	 	(8	) 	 	 	—  	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total unrealized gains	  	 	384	  	 	 	327	  	 	 	362	  	 	 	74	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net gain recognized on comprehensive statements of earnings	  	$	660	  	 	$	391	  	 	$	795	  	 	$	240	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The following table presents the derivative fair values included in the accompanying balance sheets.

 	  	Balance Sheet Caption	  	June 30, 2012	 	  	December 31, 2011	 	
 	  	 	  	(In millions)	 	
Asset derivatives:	  		  				  				
Commodity derivatives	  	Other current assets	  	$	759	  	  	$	611	  	
Commodity derivatives	  	Other long-term assets	  	 	209	  	  	 	17	  	
Interest rate derivatives	  	Other current assets	  	 	28	  	  	 	30	  	
Interest rate derivatives	  	Other long-term assets	  	 	9	  	  	 	22	  	
	  		  	 	 	 	  	 	 	 	
Total asset derivatives	  		  	$	1,005	  	  	$	680	  	
	  		  	 	 	 	  	 	 	 	
Liability derivatives:	  		  				  				
Commodity derivatives	  	Other current liabilities	  	$	10	  	  	$	82	  	
Commodity derivatives	  	Other long-term liabilities	  	 	27	  	  	 	—  	  	
Foreign exchange derivatives	  	Other current liabilities	  	 	8	  	  	 	—  	  	
	  		  	 	 	 	  	 	 	 	
Total liability derivatives	  	$	45	  	  	$	82	  	
	  		  	 	 	 	  	 	 	 	
3. Restructuring Costs
In the fourth quarter of 2009, Devon announced plans to divest its offshore assets. As of June 30, 2012, Devon had divested all of its U.S. Offshore and International assets. Since inception of the plan, Devon has incurred $202 million of restructuring costs associated with these divestitures.
The schedule below summarizes restructuring costs presented in the accompanying comprehensive statements of earnings. Restructuring costs related to Devon’s discontinued operations totaled $(8) million and $(2) million in the second quarter and first six months of June 30, 2011. These costs primarily related to cash severance and share-based awards and are not included in the schedule below. There were no costs related to discontinued operations in the six months ended June 30, 2012.

 	  	Three Months
Ended June 30,	 	  	Six Months
Ended June 30,	 	
 	  	2012	 	  	2011	 	  	2012	 	  	2011	 	
 	  	(In millions)	 	
Lease obligations	  	$	—  	  	  	$	2	  	  	$	—  	  	  	$	(2	) 	
Asset impairments	  	 	—  	  	  	 	2	  	  	 	—  	  	  	 	2	  	
Other	  	 	—  	  	  	 	2	  	  	 	—  	  	  	 	1	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Restructuring costs	  	$	—  	  	  	$	6	  	  	$	—  	  	  	$	1	  	

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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
The schedule below summarizes Devon’s restructuring liabilities. Devon’s restructuring liabilities for cash severance related to its discontinued operations totaled $10 million at June 30, 2011 and are not included in the schedule below.

 	  	Other
Current
Liabilities	 	 	Other
Long-Term
Liabilities	 	 	Total	 	
 	  	(In millions)	 	
Balance as of December 31, 2011	  	$	29	  	 	$	16	  	 	$	45	  	
Lease obligations settled	  	 	(9	) 	 	 	(1	) 	 	 	(10	) 	
Cash severance settled	  	 	(5	) 	 	 	—  	  	 	 	(5	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Balance as of June 30, 2012	  	$	15	  	 	$	15	  	 	$	30	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Balance as of December 31, 2010	  	$	31	  	 	$	51	  	 	$	82	  	
Lease obligations settled	  	 	(1	) 	 	 	(7	) 	 	 	(8	) 	
Cash severance settled	  	 	(16	) 	 	 	—  	  	 	 	(16	) 	
Other	  	 	—  	  	 	 	(1	) 	 	 	(1	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Balance as of June 30, 2011	  	$	14	  	 	$	43	  	 	$	57	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
4. Other, net
The components of other, net in the accompanying comprehensive statements of earnings include the following:

 	  	Three Months
Ended June  30,	 	 	Six Months
Ended June 30,	 	
 	  	2012	 	 	2011	 	 	2012	 	 	2011	 	
 	  	(In millions)	 	
Accretion of asset retirement obligations	  	$	28	  	 	$	23	  	 	$	55	  	 	$	46	  	
Interest rate swaps – cash settlements	  	 	11	  	 	 	(5	) 	 	 	1	  	 	 	(21	) 	
Interest rate swaps – unrealized fair value changes	  	 	5	  	 	 	30	  	 	 	15	  	 	 	29	  	
Interest income	  	 	(9	) 	 	 	(4	) 	 	 	(16	) 	 	 	(6	) 	
Other	  	 	9	  	 	 	(7	) 	 	 	(1	) 	 	 	(21	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other, net	  	$	44	  	 	$	37	  	 	$	54	  	 	$	27	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
5. Earnings Per Share
The following table reconciles earnings from continuing operations and common shares outstanding used in the calculations of basic and diluted earnings per share.

 	  	Earnings	 	 	Common
Shares	 	 	Earnings
per Share	 	
 	  	(In millions, except per share amounts)	 	
Three Months Ended June 30, 2012:	  				 				 				
Earnings from continuing operations	  	$	477	  	 	 	404	  	 				
Attributable to participating securities	  	 	(6	) 	 	 	(4	) 	 				
	  	 	 	 	 	 	 	 	 				
Basic earnings per share	  	 	471	  	 	 	400	  	 	$	1.18	  	
Dilutive effect of potential common shares issuable	  	 	—  	  	 	 	—  	  	 				
	  	 	 	 	 	 	 	 	 				
Diluted earnings per share	  	$	471	  	 	 	400	  	 	$	1.18	  	
	  	 	 	 	 	 	 	 	 				
Three Months Ended June 30, 2011:	  				 				 				
Earnings from continuing operations	  	$	184	  	 	 	422	  	 				
Attributable to participating securities	  	 	(2	) 	 	 	(5	) 	 				
	  	 	 	 	 	 	 	 	 				
Basic earnings per share	  	 	182	  	 	 	417	  	 	$	0.44	  	
Dilutive effect of potential common shares issuable	  	 	—  	  	 	 	2	  	 				
	  	 	 	 	 	 	 	 	 				
Diluted earnings per share	  	$	182	  	 	 	419	  	 	$	0.43	  	

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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 	  	Earnings	 	 	Common
Shares	 	 	Earnings
per Share	 	
 	  	(In millions, except per share amounts)	 	
Six Months Ended June 30, 2012:	  				 				 				
Earnings from continuing operations	  	$	891	  	 	 	404	  	 				
Attributable to participating securities	  	 	(10	) 	 	 	(4	) 	 				
	  	 	 	 	 	 	 	 	 				
Basic earnings per share	  	 	881	  	 	 	400	  	 	$	2.20	  	
Dilutive effect of potential common shares issuable	  	 	—  	  	 	 	1	  	 				
	  	 	 	 	 	 	 	 	 				
Diluted earnings per share	  	$	881	  	 	 	401	  	 	$	2.20	  	
	  	 	 	 	 	 	 	 	 				
Six Months Ended June 30, 2011:	  				 				 				
Earnings from continuing operations	  	$	573	  	 	 	425	  	 				
Attributable to participating securities	  	 	(6	) 	 	 	(5	) 	 				
	  	 	 	 	 	 	 	 	 				
Basic earnings per share	  	 	567	  	 	 	420	  	 	$	1.35	  	
Dilutive effect of potential common shares issuable	  	 	—  	  	 	 	2	  	 				
	  	 	 	 	 	 	 	 	 				
Diluted earnings per share	  	$	567	  	 	 	422	  	 	$	1.34	  	
	  	 	 	 	 	 	 	 	 				
Certain options to purchase shares of Devon’s common stock are excluded from the dilution calculation because the options are antidilutive. During the three-month and six-month periods ended June 30, 2012, 8.9 million shares and 6.7 million shares, respectively, were excluded from the diluted earnings per share calculations. During the three-month and six-month periods ended June 30, 2011, 3.1 million shares were excluded from the diluted earnings per share calculations.
6. Other Comprehensive Earnings
Components of other comprehensive earnings consist of the following:

 	  	Three Months
Ended June 30,	 	 	Six Months
Ended June 30,	 	
 	  	2012	 	 	2011	 	 	2012	 	 	2011	 	
 	  	(In millions)	 	
Foreign currency translation:	  				 				 				 				
Beginning accumulated foreign currency translation	  	$	1,954	  	 	$	2,178	  	 	$	1,802	  	 	$	1,993	  	
Change in cumulative translation adjustment	  	 	(179	) 	 	 	67	  	 	 	(20	) 	 	 	262	  	
Income tax expense	  	 	8	  	 	 	(2	) 	 	 	1	  	 	 	(12	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ending accumulated foreign currency translation	  	 	1,783	  	 	 	2,243	  	 	 	1,783	  	 	 	2,243	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pension and postretirement benefit plans:	  				 				 				 				
Beginning accumulated pension and postretirement benefits	  	 	(223	) 	 	 	(227	) 	 	 	(227	) 	 	 	(233	) 	
Recognition of net actuarial loss and prior service cost in earnings	  	 	7	  	 	 	8	  	 	 	13	  	 	 	17	  	
Income tax expense	  	 	(2	) 	 	 	(3	) 	 	 	(4	) 	 	 	(6	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ending accumulated pension and postretirement benefits	  	 	(218	) 	 	 	(222	) 	 	 	(218	) 	 	 	(222	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accumulated other comprehensive earnings, net of tax	  	$	1,565	  	 	$	2,021	  	 	$	1,565	  	 	$	2,021	  	

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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
7. Supplemental Information to Statements of Cash Flows

 	  	Six Months Ended June 30,	 	
 	  	2012	 	 	2011	 	
 	  	(In millions)	 	
Net change in working capital:	  				 				
Decrease (increase) in accounts receivable	  	$	384	  	 	$	(100	) 	
Increase in other current assets	  	 	(191	) 	 	 	(41	) 	
Increase in accounts payable	  	 	13	  	 	 	9	  	
(Decrease) increase in revenues and royalties payable	  	 	(139	) 	 	 	130	  	
Decrease in other current liabilities	  	 	(45	) 	 	 	(87	) 	
	  	 	 	 	 	 	 	 	
Net decrease (increase) in working capital	  	$	22	  	 	$	(89	) 	
	  	 	 	 	 	 	 	 	
Supplementary cash flow data – total operations:	  				 				
Interest paid (net of capitalized interest)	  	$	169	  	 	$	160	  	
Income taxes paid (received)	  	$	88	  	 	$	(125	) 	
8. Short-Term Investments
The components of short-term investments include the following:

 	  	June 30, 2012	 	  	December 31, 2011	 	
 	  	(In millions)	 	
Canadian treasury, agency and provincial securities	  	$	644	  	  	$	1,155	  	
U.S. treasuries	  	 	300	  	  	 	201	  	
Other	  	 	—  	  	  	 	147	  	
	  	 	 	 	  	 	 	 	
Short-term investments	  	$	944	  	  	$	1,503	  	
	  	 	 	 	  	 	 	 	
9. Accounts Receivable
The components of accounts receivable include the following:

 	  	June 30, 2012	 	 	December 31, 2011	 	
 	  	(In millions)	 	
Oil, gas and NGL sales	  	$	668	  	 	$	928	  	
Joint interest billings	  	 	199	  	 	 	247	  	
Marketing and midstream revenues	  	 	105	  	 	 	174	  	
Other	  	 	47	  	 	 	39	  	
	  	 	 	 	 	 	 	 	
Gross accounts receivable	  	 	1,019	  	 	 	1,388	  	
Allowance for doubtful accounts	  	 	(14	) 	 	 	(9	) 	
	  	 	 	 	 	 	 	 	
Net accounts receivable	  	$	1,005	  	 	$	1,379	  	

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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
10. Other Current Assets
The components of other current assets include the following:

 	  	June 30, 2012	 	  	December 31, 2011	 	
 	  	(In millions)	 	
Derivative financial instruments	  	$	787	  	  	$	641	  	
Inventories	  	 	220	  	  	 	102	  	
Income taxes receivable	  	 	40	  	  	 	35	  	
Current assets held for sale	  	 	—  	  	  	 	21	  	
Other	  	 	120	  	  	 	69	  	
	  	 	 	 	  	 	 	 	
Other current assets	  	$	1,167	  	  	$	868	  	
	  	 	 	 	  	 	 	 	
11. Property and Equipment
In April 2012, Devon closed its joint venture transaction with Sinopec International Petroleum Exploration & Production Corporation. Pursuant to the agreement, Sinopec paid approximately $900 million in cash and received a 33.3% interest in five of Devon’s new ventures exploration plays in the U.S. at closing of the transaction. Additionally, Sinopec is required to fund approximately $1.6 billion of Devon’s share of future exploration, development and drilling costs associated with these plays. Devon recognized the cash proceeds received at closing as a reduction to U.S. oil and gas property and equipment. No gain or loss was recognized.
12. Other Current Liabilities
The components of other current liabilities include the following:

 	  	June 30, 2012	 	  	December 31, 2011	 	
 	  	(In millions)	 	
Deferred income taxes payable	  	$	253	  	  	$	172	  	
Accrued interest	  	 	142	  	  	 	131	  	
Other	  	 	317	  	  	 	475	  	
	  	 	 	 	  	 	 	 	
Other current liabilities	  	$	712	  	  	$	778	  	
	  	 	 	 	  	 	 	 	
13. Debt
Long-Term Debt
In May 2012, Devon issued $2.5 billion of senior notes that are unsecured and unsubordinated obligations of Devon. Devon used the net proceeds to repay outstanding commercial paper and credit facility borrowings. The schedule below summarizes the key terms of these notes ($ in millions).

1.875% due May 15, 2017	  	$	750	  	
3.25% due May 15, 2022	  	 	1,000	  	
4.75% due May 15, 2042	  	 	750	  	
Discount and issuance costs	  	 	(35	) 	
	  	 	 	 	
Net proceeds	  	$	2,465	  	
	  	 	 	 	
Commercial Paper
As of June 30, 2012, Devon had $2.1 billion of outstanding commercial paper at an average rate of 0.40 percent.
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
Credit Lines
On April 7, 2012, $0.46 billion of Devon’s Senior Credit Facility matured and was not extended. After the maturity, Devon maintains a $2.19 billion syndicated, unsecured revolving line of credit (the “Senior Credit Facility”). As of June 30, 2012, there were no borrowings under the Senior Credit Facility.
The Senior Credit Facility contains only one material financial covenant. This covenant requires Devon’s ratio of total funded debt to total capitalization, as defined in the credit agreement, to be less than 65 percent. As of June 30, 2012, Devon was in compliance with this covenant with a debt-to-capitalization ratio of 23.8 percent.
14. Asset Retirement Obligations
The schedule below summarizes changes in Devon’s asset retirement obligations.

 	  	Six Months Ended June 30,	 	
 	  	2012	 	 	2011	 	
 	  	(In millions)	 	
Asset retirement obligations as of beginning of period	  	$	1,563	  	 	$	1,497	  	
Liabilities incurred	  	 	33	  	 	 	23	  	
Liabilities settled	  	 	(34	) 	 	 	(39	) 	
Revision of estimated obligation	  	 	399	  	 	 	16	  	
Accretion expense on discounted obligation	  	 	55	  	 	 	46	  	
Foreign currency translation adjustment	  	 	(10	) 	 	 	28	  	
	  	 	 	 	 	 	 	 	
Asset retirement obligations as of end of period	  	 	2,006	  	 	 	1,571	  	
Less current portion	  	 	64	  	 	 	72	  	
	  	 	 	 	 	 	 	 	
Asset retirement obligations, long-term	  	$	1,942	  	 	$	1,499	  	
	  	 	 	 	 	 	 	 	
During the first quarter of 2012, Devon recognized revisions to its asset retirement obligations totaling $399 million. The primary factor contributing to this revision was an overall increase in abandonment cost estimates for certain of its production operations facilities.
15. Retirement Plans
The following table presents the components of net periodic benefit cost for Devon’s pension and postretirement benefit plans.

 	  	Pension Benefits	 	 	Postretirement Benefits	 	
 	  	Three Months
Ended June  30,	 	 	Six Months
Ended June 30,	 	 	Three Months
Ended June 30,	 	 	Six Months
Ended June 30,	 	
 	  	2012	 	 	2011	 	 	2012	 	 	2011	 	 	2012	 	  	2011	 	 	2012	 	 	2011	 	
 	  	(In millions)	 	
Service cost	  	$	10	  	 	$	9	  	 	$	21	  	 	$	18	  	 	$	—  	  	  	$	1	  	 	$	—  	  	 	$	1	  	
Interest cost	  	 	15	  	 	 	15	  	 	 	30	  	 	 	30	  	 	 	—  	  	  	 	—  	  	 	 	1	  	 	 	1	  	
Expected return on plan assets	  	 	(16	) 	 	 	(11	) 	 	 	(32	) 	 	 	(21	) 	 	 	—  	  	  	 	—  	  	 	 	—  	  	 	 	—  	  	
Amortization of prior service cost	  	 	1	  	 	 	1	  	 	 	2	  	 	 	2	  	 	 	—  	  	  	 	(1	) 	 	 	(1	) 	 	 	(1	) 	
Net actuarial loss	  	 	6	  	 	 	8	  	 	 	12	  	 	 	16	  	 	 	—  	  	  	 	—  	  	 	 	—  	  	 	 	—  	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Net periodic benefit cost	  	$	16	  	 	$	22	  	 	$	33	  	 	$	45	  	 	$	—  	  	  	$	—  	  	 	$	—  	  	 	$	1	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
16. Stockholders’ Equity
In the second quarter of 2012, Devon’s stockholders adopted the 2012 amendment to the 2009 Long-Term Incentive Plan (“2009 Plan Amendment”), which expires June 2, 2019. The 2009 Plan Amendment increases the number of shares authorized for issuance from 21.5 million shares to 47 million shares. To calculate shares issued under the 2009 Long-Term Incentive Plan subsequent to the 2009 Plan Amendment, options and stock appreciation rights represent one share and other awards represent 2.38 shares.
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
Dividends
Devon paid common stock dividends of $162 million and $140 million in the first six months of 2012 and 2011, respectively. The quarterly cash dividend was $0.16 per share in the first quarter of 2011. Devon increased the dividend rate to $0.17 per share in the second quarter of 2011 and further increased the dividend rate to $0.20 per share in the first quarter of 2012.
17. Commitments and Contingencies
Devon is party to various legal actions arising in the normal course of business. Matters that are probable of unfavorable outcome to Devon and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, Devon’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. None of the actions are believed by management to involve future amounts that would be material to Devon’s financial position or results of operations after consideration of recorded accruals. Actual amounts could differ materially from management’s estimates.
Royalty Matters
Numerous natural gas producers and related parties, including Devon, have been named in various lawsuits alleging royalty underpayments. The suits allege that the producers and related parties used below-market prices, made improper deductions, used improper measurement techniques and entered into gas purchase and processing agreements with affiliates that resulted in underpayment of royalties in connection with natural gas and NGLs produced and sold. Devon’s largest exposure for such matters relates to royalties in the states of Oklahoma and New Mexico. Devon does not currently believe that it is subject to material exposure with respect to such royalty matters.
Environmental Matters
Devon is subject to certain laws and regulations relating to environmental remediation activities associated with past operations, such as the Comprehensive Environmental Response, Compensation, and Liability Act and similar state statutes. In response to liabilities associated with these activities, loss accruals primarily consist of estimated uninsured remediation costs. Devon’s monetary exposure for environmental matters is not expected to be material.
Chief Redemption Matters
In 2006, Devon acquired Chief Holdings LLC (“Chief”) from the owners of Chief, including Trevor Rees-Jones, the majority owner of Chief. In 2008, a former owner of Chief filed a petition against Rees-Jones, as the former majority owner of Chief, and Devon, as Chief’s successor pursuant to the 2006 acquisition. The petition claimed, among other things, violations of the Texas Securities Act, fraud and breaches of Rees-Jones’ fiduciary responsibility to the former owner in connection with Chief’s 2004 redemption of the owner’s minority ownership stake in Chief.
On June 20, 2011, a court issued a judgment against Rees-Jones for $196 million, of which $133 million of the judgment was also issued against Devon. Both Rees-Jones and Devon are appealing the judgment. If the appeal is unsuccessful, Devon can and will seek full payment of the judgment and any related interest, costs and expenses from Rees-Jones pursuant to an existing indemnification agreement between Rees-Jones, certain other parties and Devon. Devon does not expect to have any net exposure as a result of the judgment. However, because Devon does not have a legal right of set off with respect to the judgment, Devon has recorded in the accompanying June 30, 2012 and December 31, 2011, balance sheets both a $133 million long-term liability relating to the judgment with an offsetting $133 million long-term receivable relating to its right to be indemnified by Rees-Jones and certain other parties pursuant to the indemnification agreement.
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
Other Matters
Devon is involved in other various routine legal proceedings incidental to its business. However, to Devon’s knowledge, there were no other material pending legal proceedings to which Devon is a party or to which any of its property is subject.
18. Fair Value Measurements
The following tables provide carrying value and fair value measurement information for certain of Devon’s financial assets and liabilities. The carrying values of cash, accounts receivable, other current receivables, accounts payable, other payables and accrued expenses included in the accompanying balance sheets approximated fair value at June 30, 2012 and December 31, 2011. Therefore, such financial assets and liabilities are not presented in the following tables.

 	  	 	 	 	 	 	 	Fair Value Measurements Using:	 	
 	  	Carrying
Amount	 	 	Total Fair
Value	 	 	Level 1
Inputs	 	  	Level 2
Inputs	 	 	Level 3
Inputs	 	
 	  	(In millions)	 	
June 30, 2012 assets (liabilities):	  				 				 				  				 				
Cash equivalents	  	$	5,841	  	 	$	5,841	  	 	$	850	  	  	$	4,991	  	 	$	—  	  	
Short-term investments	  	$	944	  	 	$	944	  	 	$	300	  	  	$	644	  	 	$	—  	  	
Long-term investments	  	$	69	  	 	$	69	  	 	$	—  	  	  	$	—  	  	 	$	69	  	
Commodity derivatives	  	$	968	  	 	$	968	  	 	$	—  	  	  	$	968	  	 	$	—  	  	
Commodity derivatives	  	$	(37	) 	 	$	(37	) 	 	$	—  	  	  	$	(37	) 	 	$	—  	  	
Interest rate derivatives	  	$	37	  	 	$	37	  	 	$	—  	  	  	$	37	  	 	$	—  	  	
Foreign exchange derivatives	  	$	(8	) 	 	$	(8	) 	 	$	—  	  	  	$	(8	) 	 	$	—  	  	
Debt	  	$	(10,603	) 	 	$	(12,260	) 	 	$	—  	  	  	$	(12,241	) 	 	$	(19	) 	
						
December 31, 2011 assets (liabilities):	  				 				 				  				 				
Cash equivalents	  	$	5,123	  	 	$	5,123	  	 	$	929	  	  	$	4,194	  	 	$	—  	  	
Short-term investments	  	$	1,503	  	 	$	1,503	  	 	$	201	  	  	$	1,302	  	 	$	—  	  	
Long-term investments	  	$	84	  	 	$	84	  	 	$	—  	  	  	$	—  	  	 	$	84	  	
Commodity derivatives	  	$	628	  	 	$	628	  	 	$	—  	  	  	$	628	  	 	$	—  	  	
Commodity derivatives	  	$	(82	) 	 	$	(82	) 	 	$	—  	  	  	$	(82	) 	 	$	—  	  	
Interest rate derivatives	  	$	52	  	 	$	52	  	 	$	—  	  	  	$	52	  	 	$	—  	  	
Debt	  	$	(9,780	) 	 	$	(11,380	) 	 	$	—  	  	  	$	(11,295	) 	 	$	(85	) 	
The following methods and assumptions were used to estimate the fair values in the tables above.
Level 1 Fair Value Measurements
Cash equivalents and short-term investments — Amounts consist primarily of U.S. and Canadian treasury securities and money market investments. The fair value approximates the carrying value.
Level 2 Fair Value Measurements
Cash equivalents and short-term investments — Amounts consist primarily of Canadian agency and provincial securities and commercial paper investments. The fair value is based upon quotes from brokers, which approximate the carrying value.
Commodity, interest rate and foreign exchange derivatives — The fair values of commodity and interest rate derivatives are estimated using internal discounted cash flow calculations based upon forward curves and quotes obtained from brokers for contracts with similar terms or quotes obtained from counterparties to the agreements.
Debt — Devon’s debt instruments do not actively trade in an established market. The fair values of its fixed-rate debt are estimated based on rates available for debt with similar terms and maturity. The fair values of Devon’s variable-rate commercial paper and credit facility borrowings are the carrying values.
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
Level 3 Fair Value Measurements
Long-term investments — Devon’s long-term investments presented in the tables above consisted entirely of auction rate securities. Due to auction failures and the lack of an active market for Devon’s auction rate securities, quoted market prices for these securities were not available. Therefore, Devon used valuation techniques that rely on unobservable inputs to estimate the fair values of its long-term auction rate securities. These inputs were based on the AAA credit rating of the securities, the probability of full repayment of the securities considering the U.S. government guarantees substantially all of the underlying student loans, the collection of all accrued interest to date and continued receipts of principal at par. As a result of using these inputs, Devon concluded the estimated fair values of its long-term auction rate securities approximated the par values as of June 30, 2012 and December 31, 2011.
Debt — Devon’s Level 3 debt consisted of a non-interest bearing promissory note. Due to the lack of an active market, quoted marked prices for this note, or similar notes, were not available. Therefore, Devon used valuation techniques that rely on unobservable inputs to estimate the fair value of its promissory note. The fair value of this debt is estimated using internal discounted cash flow calculations based upon estimated future payment schedules and a 3.125% interest rate.
Included below is a summary of the changes in Devon’s Level 3 fair value measurements during the first six months of 2012 and 2011.

 	  	Six Months Ended June 30,	 	
 	  	2012	 	 	2011	 	
 	  	(In millions)	 	
Long-term investments balance at beginning of period	  	$	84	  	 	$	94	  	
Redemptions of principal	  	 	(15	) 	 	 	(1	) 	
	  	 	 	 	 	 	 	 	
Long-term investments balance at end of period	  	$	69	  	 	$	93	  	

									
 	  	Six Months Ended June 30,	 	
 	  	2012	 	 	2011	 	
 	  	(In millions)	 	
Debt balance at beginning of period	  	$	(85	) 	 	$	(144	) 	
Foreign exchange translation adjustment	  	 	(1	) 	 	 	(4	) 	
Accretion of promissory note	  	 	—  	  	 	 	(2	) 	
Redemptions of principal	  	 	67	  	 	 	46	  	
	  	 	 	 	 	 	 	 	
Debt balance at end of period	  	$	(19	) 	 	$	(104	) 	
	  	 	 	 	 	 	 	 	
19. Discontinued Operations
In March 2012, Devon received $71 million upon closing the divestiture of its operations in Angola, which completed Devon’s offshore divestiture program that was announced in November 2009. In aggregate, Devon’s U.S. and International offshore divestitures generated total proceeds of $10.1 billion, or approximately $8 billion after-tax, assuming repatriation of a substantial portion of the foreign proceeds under current U.S. tax law.
Revenues related to Devon’s discontinued operations totaled $43 million in the six months ended June 30, 2011. Devon did not have revenues related to its discontinued operations during the second quarter of 2011 or the first six months of 2012. Earnings (loss) from discontinued operations before income taxes totaled $(16) million in the six months ended June 30, 2012 and $2.6 billion for the second quarter and first six months of 2011, respectively. Devon did not have any earnings in the second quarter of 2012. Earnings (loss) from discontinued operations in 2012 and 2011 were primarily due to Devon’s International divestiture transactions.
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
The following table presents the main classes of assets and liabilities associated with Devon’s discontinued operations at December 31, 2011. Devon did not have assets or liabilities held for sale at June 30, 2012.

 	  	Balance Sheet Caption	  	December 31, 2011	 	
 	  	 	  	(In millions)	 	
Other current assets	  	Other current assets	  	$	21	  	
Property and equipment, net	  	Other long-term assets	  	$	132	  	
			
Accounts payable	  	Other current liabilities	  	$	20	  	
Other current liabilities	  	Other current liabilities	  	$	28	  	
20. Segment Information
Devon manages its operations through distinct operating segments, or divisions, which are defined primarily by geographic areas. For financial reporting purposes, Devon aggregates its U.S. divisions into one reporting segment due to the similar nature of the businesses. However, Devon’s Canadian division is reported as a separate reporting segment primarily due to the significant differences between the U.S. and Canadian regulatory environments. Devon’s segments are all primarily engaged in oil and gas producing activities. Revenues are all from external customers.

 	  	U.S.	 	  	Canada	 	 	Total	 	
 	  	(In millions)	 	
Three Months Ended June 30, 2012:	  				  				 				
Oil, gas and NGL sales	  	$	1,014	  	  	$	603	  	 	$	1,617	  	
Oil, gas and NGL derivatives	  	$	665	  	  	$	—  	  	 	$	665	  	
Marketing and midstream revenues	  	$	250	  	  	$	27	  	 	$	277	  	
Depreciation, depletion and amortization	  	$	439	  	  	$	245	  	 	$	684	  	
Interest expense	  	$	84	  	  	$	15	  	 	$	99	  	
Earnings from continuing operations before income taxes	  	$	727	  	  	$	7	  	 	$	734	  	
Income tax expense (benefit)	  	$	259	  	  	$	(2	) 	 	$	257	  	
Earnings from continuing operations	  	$	468	  	  	$	9	  	 	$	477	  	
Capital expenditures	  	$	1,985	  	  	$	384	  	 	$	2,369	  	
				
Three Months Ended June 30, 2011:	  				  				 				
Oil, gas and NGL sales	  	$	1,438	  	  	$	762	  	 	$	2,200	  	
Oil, gas and NGL derivatives	  	$	416	  	  	$	—  	  	 	$	416	  	
Marketing and midstream revenues	  	$	554	  	  	$	50	  	 	$	604	  	
Depreciation, depletion and amortization	  	$	350	  	  	$	200	  	 	$	550	  	
Interest expense	  	$	40	  	  	$	45	  	 	$	85	  	
Earnings from continuing operations before income taxes	  	$	1,148	  	  	$	230	  	 	$	1,378	  	
Income tax expense	  	$	1,135	  	  	$	59	  	 	$	1,194	  	
Earnings from continuing operations	  	$	13	  	  	$	171	  	 	$	184	  	
Capital expenditures	  	$	1,499	  	  	$	334	  	 	$	1,833	  	
				
Six Months Ended June 30, 2012:	  				  				 				
Oil, gas and NGL sales	  	$	2,250	  	  	$	1,282	  	 	$	3,532	  	
Oil, gas and NGL derivatives	  	$	810	  	  	$	—  	  	 	$	810	  	
Marketing and midstream revenues	  	$	649	  	  	$	65	  	 	$	714	  	
Depreciation, depletion and amortization	  	$	870	  	  	$	494	  	 	$	1,364	  	
Interest expense	  	$	155	  	  	$	31	  	 	$	186	  	
Earnings from continuing operations before income taxes	  	$	1,260	  	  	$	85	  	 	$	1,345	  	
Income tax expense	  	$	444	  	  	$	10	  	 	$	454	  	
Earnings from continuing operations	  	$	816	  	  	$	75	  	 	$	891	  	
Property and equipment, net	  	$	18,818	  	  	$	8,423	  	 	$	27,241	  	
Total assets	  	$	24,916	  	  	$	18,554	  	 	$	43,470	  	
Capital expenditures (2)	  	$	3,531	  	  	$	1,183	  	 	$	4,714	  	
 
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DEVON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 	  	U.S.	 	  	Canada	 	  	Total	 	
 	  	(In millions)	 	
Six Months Ended June 30, 2011:	  				  				  				
Oil, gas and NGL sales	  	$	2,650	  	  	$	1,410	  	  	$	4,060	  	
Oil, gas and NGL derivatives	  	$	248	  	  	$	—  	  	  	$	248	  	
Marketing and midstream revenues	  	$	977	  	  	$	82	  	  	$	1,059	  	
Depreciation, depletion and amortization	  	$	668	  	  	$	388	  	  	$	1,056	  	
Interest expense	  	$	77	  	  	$	89	  	  	$	166	  	
Earnings from continuing operations before income taxes	  	$	1,586	  	  	$	372	  	  	$	1,958	  	
Income tax expense	  	$	1,290	  	  	$	95	  	  	$	1,385	  	
Earnings from continuing operations	  	$	296	  	  	$	277	  	  	$	573	  	
Property and equipment, net	  	$	14,472	  	  	$	7,955	  	  	$	22,427	  	
Total continuing assets (1)	  	$	19,972	  	  	$	18,435	  	  	$	38,407	  	
Capital expenditures	  	$	2,751	  	  	$	880	  	  	$	3,631	  	

(1)	Amounts in the table above do not include assets held for sale related to Devon’s discontinued operations, which totaled $130 million at June 30, 2011. There were no assets held for sale at June 30, 2012.	
(2)	Capital expenditures for the first six months of 2012 presented above include the $399 million revision to Devon’s asset retirement obligations presented in Note 14. Of the $399 million, $110 million relates to the U.S. and $289 million relates to Canada.	
21. Subsequent Event
In August 2012, Devon announced a transaction with Sumitomo Corporation that Devon expects to close in the third quarter of 2012. Under the agreement, Sumitomo will pay $1.365 billion, including $340 million at closing and $1.025 billion toward Devon’s share of future drilling costs, and will receive a 30% interest in the Cline and Midland-Wolfcamp shale plays.
 
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 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
The following discussion and analysis addresses material changes in our results of operations and capital resources and uses for the three-month and six month periods ended June 30, 2012, compared to the three-month and six-month periods ended June 30, 2011, and in our financial condition and liquidity since December 31, 2011. For information regarding our critical accounting policies and estimates, see our 2011 Annual Report on Form 10-K under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Overview of 2012 Results
During the second quarter and first six months of 2012, our continuing operations generated net earnings of $477 million, or $1.18 per diluted share, and $891 million, or $2.20 per diluted share, for the respective periods. This compares to net earnings of $184 million, or $0.43 per diluted share, and $573 million, or $1.34 per diluted share for the second quarter and first six months of 2011, respectively. Key measures of our financial performance are summarized below:
 
 	•	 	Total production rose by 3% and 6% during the second quarter and first six months of 2012, respectively. Our production growth was driven by oil production, which climbed 26% to 149 MBbls per day in the second quarter of 2012.	
 
 	•	 	The combined realized price without hedges for oil, gas and NGLs decreased 29% to $26.18 per Boe and 19% to $28.28 per Boe in the second quarter and first six months of 2012, respectively.	
 
 	•	 	Oil, gas and NGL derivatives generated a net gain of $665 million and $810 million in the second quarter and first six months of 2012, respectively, and generated a net gain of $416 million and $248 million in the second quarter and first six months of 2011, respectively. Included in these amounts were cash receipts of $267 million and $425 million in the second quarter and first six months of 2012, respectively, and $59 million and $145 million in the second quarter and first six months of 2011, respectively.	
 
 	•	 	Marketing and midstream operating profit decreased 54% to $68 million and 33% to $180 million in the second quarter and first six months of 2012, respectively.	
 
 	•	 	Per unit operating costs increased 10% to $8.30 per Boe and 9% to $8.23 per Boe in the second quarter and first six months of 2012, respectively.	
 
 	•	 	Operating cash flow from continuing operations decreased 14% to $2.4 billion.	
 
 	•	 	Capital spending totaled approximately $4.3 billion in the first six months of 2012.	
Second Quarter Operational Developments
 
 	•	 	Permian Basin oil production increased 24 percent over the second quarter of 2011. Oil production accounted for nearly 60 percent of the 59,000 Boe per day produced in the Permian Basin during the second quarter.	
 
 	•	 	We brought 19 Bone Spring wells online in the second quarter. Initial daily production averaged 680 Boe per day.	
 
 	•	 	Net production from our Jackfish oil sands projects averaged a record 51,000 barrels per day in the second quarter. This represents a 63 percent increase in oil production over the year-ago quarter. Construction of our third Jackfish oil sands project is now approximately 40 percent complete. Plant startup is targeted for late 2014.	
 
 	•	 	We filed a regulatory application in June for the first phase of our Pike, an oil sands project with gross production capacity of 105,000 barrels per day. Pike is located immediately adjacent to the company’s highly successful Jackfish projects.	
 
 	•	 	In April, we closed our $2.5 billion joint venture agreement with Sinopec. The transaction included an approximate $900 million cash payment at closing, recovering significantly more than 100 percent of our initial land and exploration costs. The remaining $1.6 billion drilling-carry will fund 80 percent of the joint venture’s capital requirements over the next few years.	
 
 	•	 	We continued to increase our exposure in the Mississippian oil play by adding 400,000 net acres in Oklahoma. In total, we now have 545,000 net acres in this emerging light-oil resource play.	
 
 	•	 	We brought six Granite Wash wells online in the second quarter. Initial production from these wells averaged 1,270 Boe per day.	
 
 	•	 	Net production from the Cana-Woodford Shale averaged 280 million cubic feet of natural gas equivalent per day in the second quarter of 2012. Liquids production increased 59 percent year-over-year, accounting for 30 percent of total Cana-Woodford production.	
 
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Results of Operations
Production, Prices and Revenues

 	  	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
 	  	2012	 	  	2011	 	  	Change (1)	 	 	2012	 	  	2011	 	  	Change (1)	 	
Oil (MBbls/d)	  				  				  				 				  				  				
U.S.	  	 	56	  	  	 	46	  	  	 	+21	% 	 	 	55	  	  	 	44	  	  	 	+27	% 	
Canada	  	 	93	  	  	 	72	  	  	 	+29	% 	 	 	90	  	  	 	72	  	  	 	+25	% 	
	  	 	 	 	  	 	 	 	  				 	 	 	 	  	 	 	 	  				
Total	  	 	149	  	  	 	118	  	  	 	+26	% 	 	 	145	  	  	 	116	  	  	 	+26	% 	
	  	 	 	 	  	 	 	 	  				 	 	 	 	  	 	 	 	  				
Gas (MMcf/d)	  				  				  				 				  				  				
U.S.	  	 	2,050	  	  	 	2,029	  	  	 	+1	% 	 	 	2,061	  	  	 	1,996	  	  	 	+3	% 	
Canada	  	 	519	  	  	 	612	  	  	 	-15	% 	 	 	538	  	  	 	591	  	  	 	-9	% 	
	  	 	 	 	  	 	 	 	  				 	 	 	 	  	 	 	 	  				
Total	  	 	2,569	  	  	 	2,641	  	  	 	-3	% 	 	 	2,599	  	  	 	2,587	  	  	 	0	% 	
	  	 	 	 	  	 	 	 	  				 	 	 	 	  	 	 	 	  				
NGLs (MBbls/d)	  				  				  				 				  				  				
U.S.	  	 	90	  	  	 	92	  	  	 	-2	% 	 	 	96	  	  	 	88	  	  	 	+9	% 	
Canada	  	 	12	  	  	 	10	  	  	 	+22	% 	 	 	12	  	  	 	10	  	  	 	+19	% 	
	  	 	 	 	  	 	 	 	  				 	 	 	 	  	 	 	 	  				
Total	  	 	102	  	  	 	102	  	  	 	0	% 	 	 	108	  	  	 	98	  	  	 	+10	% 	
	  	 	 	 	  	 	 	 	  				 	 	 	 	  	 	 	 	  				
Combined (MBoe/d) (2) 	  				  				  				 				  				  				
U.S.	  	 	488	  	  	 	476	  	  	 	+2	% 	 	 	495	  	  	 	465	  	  	 	+7	% 	
Canada	  	 	191	  	  	 	184	  	  	 	+4	% 	 	 	191	  	  	 	180	  	  	 	+6	% 	
	  	 	 	 	  	 	 	 	  				 	 	 	 	  	 	 	 	  				
Total	  	 	679	  	  	 	660	  	  	 	+3	% 	 	 	686	  	  	 	645	  	  	 	+6	% 	

(1)	Percentage changes are based on actual figures rather than the rounded figures presented.	
(2)	Gas production is converted to Boe at the rate of six Mcf of gas per Bbl of oil, based upon the approximate relative energy content of gas and oil. NGL production is converted to Boe on a one-to-one basis with oil.	

 	  	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
 	  	2012 (1)	 	  	2011 (1)	 	  	Change	 	 	2012 (1)	 	  	2011 (1)	 	  	Change	 	
Oil (per Bbl)	  				  				  				 				  				  				
U.S.	  	$	88.74	  	  	$	98.28	  	  	 	-10	% 	 	$	93.98	  	  	$	93.84	  	  	 	0	% 	
Canada	  	$	54.88	  	  	$	73.65	  	  	 	-25	% 	 	$	58.47	  	  	$	67.29	  	  	 	-13	% 	
Total	  	$	67.67	  	  	$	83.31	  	  	 	-19	% 	 	$	72.02	  	  	$	77.32	  	  	 	-7	% 	
Gas (per Mcf)	  				  				  				 				  				  				
U.S.	  	$	1.72	  	  	$	3.72	  	  	 	-54	% 	 	$	2.00	  	  	$	3.61	  	  	 	-45	% 	
Canada	  	$	1.91	  	  	$	4.08	  	  	 	-53	% 	 	$	2.24	  	  	$	4.05	  	  	 	-45	% 	
Total	  	$	1.76	  	  	$	3.80	  	  	 	-54	% 	 	$	2.05	  	  	$	3.71	  	  	 	-45	% 	
NGLs (per Bbl)	  				  				  				 				  				  				
U.S.	  	$	29.50	  	  	$	40.43	  	  	 	-27	% 	 	$	31.56	  	  	$	38.04	  	  	 	-17	% 	
Canada	  	$	45.87	  	  	$	58.80	  	  	 	-22	% 	 	$	49.92	  	  	$	56.49	  	  	 	-12	% 	
Total	  	$	31.42	  	  	$	42.20	  	  	 	-26	% 	 	$	33.55	  	  	$	39.90	  	  	 	-16	% 	
Combined (per Boe)	  				  				  				 				  				  				
U.S.	  	$	22.86	  	  	$	33.19	  	  	 	-31	% 	 	$	24.98	  	  	$	31.53	  	  	 	-21	% 	
Canada	  	$	34.66	  	  	$	45.55	  	  	 	-24	% 	 	$	36.83	  	  	$	43.23	  	  	 	-15	% 	
Total	  	$	26.18	  	  	$	36.63	  	  	 	-29	% 	 	$	28.28	  	  	$	34.80	  	  	 	-19	% 	

(1)	The prices presented exclude any effects due to oil, gas and NGL derivatives.	
 
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The volume and price changes in the tables above caused the following changes to our oil, gas and NGL sales between the three months ended June 30, 2012 and 2011.

 	  	Oil	 	 	Gas	 	 	NGLs	 	 	Total	 	
 	  	(In millions)	 	
2011 sales	  	$	897	  	 	$	913	  	 	$	390	  	 	$	2,200	  	
Changes due to volumes	  	 	229	  	 	 	(25	) 	 	 	2	  	 	 	206	  	
Changes due to prices	  	 	(211	) 	 	 	(478	) 	 	 	(100	) 	 	 	(789	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2012 sales	  	$	915	  	 	$	410	  	 	$	292	  	 	$	1,617	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The volume and price changes in the tables above caused the following changes to our oil, gas and NGL sales between the six months ended June 30, 2012 and 2011.

 	  	Oil	 	 	Gas	 	 	NGLs	 	 	Total	 	
 	  	(In millions)	 	
2011 sales	  	$	1,616	  	 	$	1,737	  	 	$	707	  	 	$	4,060	  	
Changes due to volumes	  	 	428	  	 	 	17	  	 	 	76	  	 	 	521	  	
Changes due to prices	  	 	(139	) 	 	 	(785	) 	 	 	(125	) 	 	 	(1,049	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2012 sales	  	$	1,905	  	 	$	969	  	 	$	658	  	 	$	3,532	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Oil Sales
A 26 percent increase in production during the second quarter and first six months of 2012 caused oil sales to increase by $229 million and $428 million, respectively. The increases were primarily due to continued development of our Jackfish thermal heavy oil projects and Permian Basin properties.
Oil sales decreased $211 million and $139 million during the second quarter and first six months of 2012, respectively, as a result of 19 percent and 7 percent decreases, respectively, in our realized price without hedges. The largest contributor to the decreases in each period to our realized price was the widening differential to the NYMEX West Texas Intermediate index price attributable to our Canadian oil production.
Gas Sales
Gas sales decreased $478 million and $785 million in the second quarter and first six months of 2012, respectively, as a result of 54 percent and 45 percent decreases, respectively, in our realized price without hedges. These decreases were largely due to the broad deterioration of gas prices in the North American market.
Gas sales decreased $25 million during the second quarter due to a 3 percent decrease in production and increased $17 million during the first six months of 2012 as a result of a slight increase in production. Our gas production has remained somewhat steady as a result of the continued development activities in the liquids-rich gas portions of our Barnett and Cana-Woodford Shales. Production gains from development in these liquids-rich regions were partially offset by natural declines in our other operating areas, particularly those that produce dry gas.
NGL Sales
NGL sales decreased $100 million and $125 million in the second quarter and first six months of 2012, respectively, as a result of 26 percent and 16 percent decreases, respectively, in our realized price without hedges. The lower prices were largely due to decreases in NGL prices at the Mont Belvieu, Texas hub price.
NGL sales increased $2 million and $76 million in the second quarter and first six months of 2012, respectively, as a result of production increases in each period. The increases in production were primarily due to continued drilling in the liquids-rich gas portions of the Barnett Shale, Cana-Woodford Shale and Granite Wash.
 
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Oil, Gas and NGL Derivatives
The following tables provide financial information associated with our oil, gas and NGL hedges. The first table presents the cash settlements and unrealized gains and losses that are recognized as components of our revenues. The subsequent tables present our oil, gas and NGL prices with, and without, the effects of the cash settlements. The prices do not include the effects of unrealized gains and losses.

 	  	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
 	  	2012	 	 	2011	 	 	2012	 	 	2011	 	
 	  	(In millions)	 	
Cash settlements:	  				 				 				 				
Gas derivatives	  	$	211	  	 	$	74	  	 	$	374	  	 	$	165	  	
Oil derivatives	  	 	57	  	 	 	(16	) 	 	 	51	  	 	 	(21	) 	
NGL derivatives	  	 	(1	) 	 	 	1	  	 	 	—  	  	 	 	1	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total cash settlements	  	 	267	  	 	 	59	  	 	 	425	  	 	 	145	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized gains (losses) on fair value changes:	  				 				 				 				
Gas derivatives	  	 	(280	) 	 	 	49	  	 	 	(184	) 	 	 	(8	) 	
Oil derivatives	  	 	679	  	 	 	308	  	 	 	570	  	 	 	110	  	
NGL derivatives	  	 	(1	) 	 	 	—  	  	 	 	(1	) 	 	 	1	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total unrealized gains on fair value changes	  	 	398	  	 	 	357	  	 	 	385	  	 	 	103	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Oil, gas and NGL derivatives	  	$	665	  	 	$	416	  	 	$	810	  	 	$	248	  	

 	  	Three Months Ended June 30, 2012	 	
 	  	Oil
(Per Bbl)	 	 	Gas
(Per Mcf)	 	 	NGLs
(Per Bbl)	 	 	Total
(Per Boe)	 	
Realized price without hedges	  	$	67.67	  	 	$	1.76	  	 	$	31.42	  	 	$	26.18	  	
Cash settlements of hedges	  	 	4.17	  	 	 	0.90	  	 	 	—  	  	 	 	4.33	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Realized price, including cash settlements	  	$	71.84	  	 	$	2.66	  	 	$	31.42	  	 	$	30.51	  	

 	  	Three Months Ended June 30, 2011	 	
 	  	Oil
(Per Bbl)	 	 	Gas
(Per Mcf)	 	 	NGLs
(Per Bbl)	 	 	Total
(Per Boe)	 	
Realized price without hedges	  	$	83.31	  	 	$	3.80	  	 	$	42.20	  	 	$	36.63	  	
Cash settlements of hedges	  	 	(1.49	) 	 	 	0.31	  	 	 	0.05	  	 	 	0.99	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Realized price, including cash settlements	  	$	81.82	  	 	$	4.11	  	 	$	42.25	  	 	$	37.62	  	

 	  	Six Months Ended June 30, 2012	 	
 	  	Oil
(Per Bbl)	 	 	Gas
(Per Mcf)	 	 	NGLs
(Per Bbl)	 	 	Total
(Per Boe)	 	
Realized price without hedges	  	$	72.02	  	 	$	2.05	  	 	$	33.55	  	 	$	28.28	  	
Cash settlements of hedges	  	 	1.92	  	 	 	0.79	  	 	 	0.01	  	 	 	3.40	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Realized price, including cash settlements	  	$	73.94	  	 	$	2.84	  	 	$	33.56	  	 	$	31.68	  	

 	  	Six Months Ended June 30, 2011	 	
 	  	Oil
(Per Bbl)	 	 	Gas
(Per Mcf)	 	 	NGLs
(Per Bbl)	 	 	Total
(Per Boe)	 	
Realized price without hedges	  	$	77.32	  	 	$	3.71	  	 	$	39.90	  	 	$	34.80	  	
Cash settlements of hedges	  	 	(1.00	) 	 	 	0.35	  	 	 	0.06	  	 	 	1.25	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Realized price, including cash settlements	  	$	76.32	  	 	$	4.06	  	 	$	39.96	  	 	$	36.05	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
A summary of our outstanding commodity derivatives is included in Note 2 to the financial statements included in “Item 1. Consolidated Financial Statements” of this report. Cash settlements presented in the tables above represent realized gains or losses related to these various instruments.
In addition to cash settlements, we also recognize unrealized changes in the fair values of our oil, gas and NGL derivative instruments in each reporting period. The changes in fair value resulted from new positions and settlements that occurred during each period, as well as the relationships between contract prices and the associated forward curves. Including the cash settlements discussed above, our oil, gas and NGL derivatives generated a net gain of $665 million and $416 million in the second quarter of 2012 and 2011, respectively. Including the cash settlements discussed above, our oil, gas and NGL derivatives generated a net gain of $810 million and $248 million in the first six months of 2012 and 2011, respectively.
 
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Marketing and Midstream Revenues and Operating Costs and Expenses

 	  	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
 	  	2012	 	  	2011	 	  	Change (1)	 	 	2012	 	  	2011	 	  	Change (1)	 	
 	  	($ in millions)	 	
Marketing and midstream:	  				  				  				 				  				  				
Revenues	  	$	277	  	  	$	604	  	  	 	-54	% 	 	$	714	  	  	$	1,059	  	  	 	-33	% 	
Operating costs and expenses	  	 	209	  	  	 	456	  	  	 	-54	% 	 	 	534	  	  	 	789	  	  	 	-32	% 	
	  	 	 	 	  	 	 	 	  				 	 	 	 	  	 	 	 	  				
Operating profit	  	$	68	  	  	$	148	  	  	 	-54	% 	 	$	180	  	  	$	270	  	  	 	-33	% 	

(1)	Percentage changes are based on actual figures rather than the rounded figures presented.	
During the second quarter and first six months of 2012, marketing and midstream operating profit decreased $80 million and $90 million, respectively, primarily due to lower gas and NGL prices.
Lease Operating Expenses (“LOE”)

 	  	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
 	  	2012	 	  	2011	 	  	Change (1)	 	 	2012	 	  	2011	 	  	Change (1)	 	
LOE ($ in millions):	  				  				  				 				  				  				
U.S.	  	$	259	  	  	$	224	  	  	 	+15	% 	 	$	511	  	  	$	432	  	  	 	+18	% 	
Canada	  	 	254	  	  	 	229	  	  	 	+11	% 	 	 	516	  	  	 	445	  	  	 	+16	% 	
	  	 	 	 	  	 	 	 	  				 	 	 	 	  	 	 	 	  				
Total	  	$	513	  	  	$	453	  	  	 	+13	% 	 	$	1,027	  	  	$	877	  	  	 	+17	% 	
	  	 	 	 	  	 	 	 	  				 	 	 	 	  	 	 	 	  				
LOE per Boe:	  				  				  				 				  				  				
U.S.	  	$	5.84	  	  	$	5.18	  	  	 	+13	% 	 	$	5.68	  	  	$	5.15	  	  	 	+10	% 	
Canada	  	$	14.61	  	  	$	13.71	  	  	 	+7	% 	 	$	14.83	  	  	$	13.63	  	  	 	+9	% 	
Total	  	$	8.30	  	  	$	7.55	  	  	 	+10	% 	 	$	8.23	  	  	$	7.52	  	  	 	+9	% 	

(1)	Percentage changes are based on actual figures rather than the rounded figures presented.	
LOE increased $0.75 per Boe and $0.71 per Boe during the second quarter and first six months of 2012, respectively. The largest contributor to the higher unit cost is related to our liquids production growth, particularly at our Jackfish thermal heavy oil projects in Canada and in the Permian Basin in the U.S. Such projects generally require a higher cost to produce per unit than our gas projects. We also experienced upward pressures on costs in certain operating areas, which also contributed to the higher LOE per Boe.
Depreciation, Depletion and Amortization (“DD&A”)

 	  	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
 	  	2012	 	  	2011	 	  	Change (1)	 	 	2012	 	  	2011	 	  	Change (1)	 	
DD&A ($ in millions):	  				  				  				 				  				  				
Oil & gas properties	  	$	612	  	  	$	485	  	  	 	+26	% 	 	$	1,228	  	  	$	927	  	  	 	+32	% 	
Other properties	  	 	72	  	  	 	65	  	  	 	+12	% 	 	 	136	  	  	 	129	  	  	 	+6	% 	
	  	 	 	 	  	 	 	 	  				 	 	 	 	  	 	 	 	  				
Total	  	$	684	  	  	$	550	  	  	 	+24	% 	 	$	1,364	  	  	$	1,056	  	  	 	+29	% 	
	  	 	 	 	  	 	 	 	  				 	 	 	 	  	 	 	 	  				
DD&A per Boe:	  				  				  				 				  				  				
Oil & gas properties	  	$	9.89	  	  	$	8.08	  	  	 	+22	% 	 	$	9.83	  	  	$	7.95	  	  	 	+24	% 	
Other properties	  	 	1.18	  	  	 	1.08	  	  	 	+9	% 	 	 	1.09	  	  	 	1.10	  	  	 	-1	% 	
	  	 	 	 	  	 	 	 	  				 	 	 	 	  	 	 	 	  				
Total	  	$	11.07	  	  	$	9.16	  	  	 	21	% 	 	$	10.92	  	  	$	9.05	  	  	 	21	% 	

(1)	Percentage changes are based on actual figures rather than the rounded figures presented.	
 
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Oil and gas property DD&A increased during the second quarter and first six months of 2012 largely due to increases in the DD&A rates. The largest contributor to the higher rates were our drilling and development activities subsequent to the end of the second quarter of 2011.
Under the full-cost method of accounting, capitalized costs of oil and gas properties, net of accumulated DD&A and deferred income taxes, may not exceed the full cost “ceiling” at the end of each quarter. The ceiling is calculated separately for each country and is the present value of estimated future net cash flows from proved oil and gas reserves, discounted 10 percent, net of related tax effects. Estimated future net cash flows are calculated using end-of-period costs and an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months. If natural gas prices remain depressed, we expect to incur full-cost ceiling write-downs, or additional DD&A, related to our U.S. oil and gas properties in the third quarter of 2012.
General and Administrative Expenses (“G&A”)

 	  	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
 	  	2012	 	 	2011	 	 	Change (1)	 	 	2012	 	 	2011	 	 	Change (1)	 	
 	  	($ in millions)	 	
Gross G&A	  	$	296	  	 	$	245	  	 	 	+21	% 	 	$	584	  	 	$	483	  	 	 	+21	% 	
Capitalized G&A	  	 	(92	) 	 	 	(81	) 	 	 	+14	% 	 	 	(183	) 	 	 	(162	) 	 	 	+13	% 	
Reimbursed G&A	  	 	(28	) 	 	 	(29	) 	 	 	-3	% 	 	 	(57	) 	 	 	(56	) 	 	 	+1	% 	
	  	 	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 				
Net G&A	  	$	176	  	 	$	135	  	 	 	+30	% 	 	$	344	  	 	$	265	  	 	 	+30	% 	
	  	 	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 				
Net G&A per Boe	  	$	2.85	  	 	$	2.26	  	 	 	+26	% 	 	$	2.76	  	 	$	2.27	  	 	 	+21	% 	

(1)	Percentage changes are based on actual figures rather than the rounded figures presented.	
Net G&A and net G&A per Boe increased during 2012 largely due to higher employee compensation and benefits. Employee costs increased primarily from an expansion of our workforce as part of growing production operations at certain of our key areas, including Jackfish, the Permian and the Cana-Woodford shale.
Taxes Other Than Income Taxes

 	  	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
 	  	2012	 	 	2011	 	 	Change (1)	 	 	2012	 	 	2011	 	 	Change (1)	 	
 	  	($ in millions)	 	
Production	  	$	51	  	 	$	68	  	 	 	-25	% 	 	$	104	  	 	$	124	  	 	 	-16	% 	
Ad valorem and other	  	 	49	  	 	 	52	  	 	 	-5	% 	 	 	98	  	 	 	104	  	 	 	-5	% 	
	  	 	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 				
Taxes other than income taxes	  	$	100	  	 	$	120	  	 	 	-16	% 	 	$	202	  	 	$	228	  	 	 	-11	% 	
	  	 	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 				
Percentage of oil, gas and NGL revenue:	  				 				 				 				 				 				
Production	  	 	3.16	% 	 	 	3.10	% 	 	 	+2	% 	 	 	2.95	% 	 	 	3.06	% 	 	 	-4	% 	
Ad valorem and other	  	 	3.04	% 	 	 	2.34	% 	 	 	+29	% 	 	 	2.78	% 	 	 	2.55	% 	 	 	+9	% 	
	  	 	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 				
Total	  	 	6.20	% 	 	 	5.44	% 	 	 	+14	% 	 	 	5.73	% 	 	 	5.61	% 	 	 	+2	% 	

(1)	Percentage changes are based on actual figures rather than the rounded figures presented.	
Taxes other than income taxes as a percentage of our oil, gas and NGL revenues increased in both 2012 periods primarily due to ad valorem and other taxes, which do not change in direct correlation with oil, gas and NGL revenues.
Interest Expense

 	  	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
 	  	2012	 	 	2011	 	 	Change (1)	 	 	2012	 	 	2011	 	 	Change (1)	 	
 	  	($ in millions)	 	
Interest based on debt outstanding	  	$	108	  	 	$	100	  	 	 	+9	% 	 	$	207	  	 	$	198	  	 	 	+5	% 	
Capitalized interest	  	 	(13	) 	 	 	(17	) 	 	 	-28	% 	 	 	(29	) 	 	 	(37	) 	 	 	-22	% 	
Other	  	 	4	  	 	 	2	  	 	 	+18	% 	 	 	8	  	 	 	5	  	 	 	+46	% 	
	  	 	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 				
Interest expense	  	$	99	  	 	$	85	  	 	 	+17	% 	 	$	186	  	 	$	166	  	 	 	+12	% 	

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Interest based on debt outstanding increased during the second quarter and first six months of 2012 as a result of additional debt borrowings. Borrowings were primarily used to fund capital expenditures in excess of our operating cash flow.
Other, net

 	  	Three Months
Ended June  30,	 	 	Six Months
Ended June 30,	 	
 	  	2012	 	 	2011	 	 	2012	 	 	2011	 	
 	  	(In millions)	 	
Accretion of asset retirement obligations	  	$	28	  	 	$	23	  	 	$	55	  	 	$	46	  	
Interest rate swaps – cash settlements	  	 	11	  	 	 	(5	) 	 	 	1	  	 	 	(21	) 	
Interest rate swaps – unrealized fair value changes	  	 	5	  	 	 	30	  	 	 	15	  	 	 	29	  	
Interest income	  	 	(9	) 	 	 	(4	) 	 	 	(16	) 	 	 	(6	) 	
Other	  	 	9	  	 	 	(7	) 	 	 	(1	) 	 	 	(21	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other, net	  	$	44	  	 	$	37	  	 	$	54	  	 	$	27	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income Taxes
The following table presents our total income tax expense and a reconciliation of our effective income tax rate to the U.S. statutory income tax rate.

 	  	Three Months
Ended June 30,	 	 	Six Months
Ended June 30,	 	
 	  	2012	 	 	2011	 	 	2012	 	 	2011	 	
Total income tax expense (in millions)	  	$	257	  	 	$	1,194	  	 	$	454	  	 	$	1,385	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. statutory income tax rate	  	 	35	% 	 	 	35	% 	 	 	35	% 	 	 	35	% 	
State income taxes	  	 	1	% 	 	 	1	% 	 	 	1	% 	 	 	1	% 	
Taxation on Canadian operations	  	 	(1	%) 	 	 	(2	%) 	 	 	(2	%) 	 	 	(2	%) 	
Assumed repatriations	  	 	—  	  	 	 	54	% 	 	 	—  	  	 	 	38	% 	
Other	  	 	—  	  	 	 	(1	%) 	 	 	—  	  	 	 	(1	%) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Effective income tax expense rate	  	 	35	% 	 	 	87	% 	 	 	34	% 	 	 	71	% 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings (Loss) From Discontinued Operations

 	  	Three Months
Ended June 30,	 	 	Six Months
Ended June 30,	 	
 	  	2012	 	  	2011	 	 	2012	 	 	2011	 	
 	  	(In millions)	 	
Operating earnings	  	$	—  	  	  	$	12	  	 	$	—  	  	 	$	42	  	
Gain (loss) on sale of oil and gas properties	  	 	—  	  	  	 	2,546	  	 	 	(16	) 	 	 	2,546	  	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Earnings (loss) before income taxes	  	 	—  	  	  	 	2,558	  	 	 	(16	) 	 	 	2,588	  	
Income tax expense (benefit)	  	 	—  	  	  	 	(1	) 	 	 	5	  	 	 	2	  	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Earnings (loss) from discontinued operations	  	$	—  	  	  	$	2,559	  	 	$	(21	) 	 	$	2,586	  	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Earnings decreased in 2012 primarily as a result of the $2.5 billion gain ($2.5 billion after-tax) recognized from the divestiture of our Brazil operations in the second quarter of 2011.
 
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Capital Resources, Uses and Liquidity
Sources and Uses of Cash
The following table presents the major source and use categories of our cash and cash equivalents.

 	  	Six Months Ended June 30,	 	
 	  	2012	 	 	2011	 	
 	  	(In millions)	 	
Operating cash flow – continuing operations	  	$	2,426	  	 	$	2,830	  	
Debt activity, net	  	 	967	  	 	 	2,340	  	
Divestitures of property and equipment	  	 	935	  	 	 	3,256	  	
Short-term investment activity, net	  	 	559	  	 	 	(3,222	) 	
Capital expenditures	  	 	(4,267	) 	 	 	(3,720	) 	
Common stock repurchases and dividends	  	 	(162	) 	 	 	(1,430	) 	
Other	  	 	88	  	 	 	7	  	
	  	 	 	 	 	 	 	 	
Net increase in cash and cash equivalents	  	$	546	  	 	$	61	  	
	  	 	 	 	 	 	 	 	
Cash and cash equivalents at end of period	  	$	6,101	  	 	$	3,351	  	
	  	 	 	 	 	 	 	 	
Short-term investments at end of period	  	$	944	  	 	$	3,367	  	
	  	 	 	 	 	 	 	 	
Operating Cash Flow – Continuing Operations
Net cash provided by operating activities (“operating cash flow”) continued to be a significant source of capital and liquidity in the first six months of 2012. Our operating cash flow decreased approximately 14 percent during 2012 primarily due to lower commodity prices and higher expenses, partially offset by additional cash flow from our production growth.
In 2011, we completed our offshore divestiture program that was announced in November 2009. This program generated approximately $8 billion in after-tax proceeds, which provided us with substantial liquidity to invest in our North America property base. During the first six months of 2012 and 2011, our operating cash flow funded approximately 60 percent and 75 percent, respectively, of our cash payments for capital expenditures. Leveraging our liquidity, we largely used debt to fund the remainder of our cash-based capital expenditures. This cash flow deficit was largely expected as we have allocated approximately 25% of our 2012 capital expenditure budget to exploratory projects and leasehold acquisitions that are not yet generating production revenues.
Debt Activity, Net
During the first six months of 2012, we received $2.5 billion from the issuance of long-term debt, the proceeds of which were primarily used to repay outstanding commercial paper and credit facility borrowings. We also utilized short-term borrowings of $967 million to fund capital expenditures in excess of our operating cash flow.
During the first six months of 2011, we utilized commercial paper borrowings of $2.3 billion to fund capital expenditures and common share repurchases.
Divestitures of Property and Equipment
During the second quarter of 2012, we closed our joint venture transaction with Sinopec. Sinopec paid approximately $900 million in cash and received a 33.3% interest in five of our new ventures exploration plays in the U.S. Sinopec is also required to fund approximately $1.6 billion of our share of future exploration, development and drilling costs associated with these plays. In the first quarter of 2012, we received $71 million from the divestiture of our Angola operations.
During the second quarter of 2011, we completed the divestiture of our operations in Brazil, generating $3.3 billion in net proceeds.
Short-term Investments
During the first six months of 2012 and 2011, we had net short-term investment redemptions totaling $0.6 billion and net purchases totaling $3.2 billion, respectively. The 2012 redemptions were used to supplement our operating cash flow to fund our capital expenditures. The 2011 activity was primarily related to our investment of a portion of the International offshore divestiture proceeds into marketable securities.
 
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Capital Expenditures
The amounts in the table below reflect cash payments for capital expenditures, including cash paid for capital expenditures incurred in prior periods.

 	  	Six Months Ended June 30,	 	
 	  	2012	 	  	2011	 	
 	  	(In millions)	 	
U.S.	  	$	3,055	  	  	$	2,375	  	
Canada	  	 	807	  	  	 	936	  	
	  	 	 	 	  	 	 	 	
Total oil and gas	  	 	3,862	  	  	 	3,311	  	
Midstream	  	 	206	  	  	 	151	  	
Other	  	 	199	  	  	 	258	  	
	  	 	 	 	  	 	 	 	
Total continuing operations	  	$	4,267	  	  	$	3,720	  	
	  	 	 	 	  	 	 	 	
Our capital expenditures consist of amounts related to our oil and gas exploration and development operations, our midstream operations and other corporate activities. The vast majority of our capital expenditures are for the acquisition, drilling and development of oil and gas properties, which totaled $3.9 billion and $3.3 billion in the first six months of 2012 and 2011, respectively. The 17% growth in exploration and development capital spending in the first six months of 2012 was primarily due to increased new ventures exploratory activity and unproved leasehold acquisitions.
Capital expenditures for our midstream operations are primarily for the construction and expansion of natural gas processing plants, natural gas gathering systems and oil transportation facilities. Our midstream capital expenditures are largely impacted by oil and gas drilling activities.
Common Stock Repurchases and Dividends
In connection with our offshore divestitures noted above, we conducted a $3.5 billion share repurchase program, which we completed in the fourth quarter of 2011. Since the second quarter of 2011, we have increased our quarterly dividend rate 18%.
The following table summarizes our repurchases and our common stock dividends (amounts and shares in millions) during the first six months of 2012 and 2011.

 	  	2012	 	  	2011	 	
 	  	Amount	 	  	Shares	 	  	Per Share	 	  	Amount	 	  	Shares	 	  	Per Share	 	
Repurchases	  	$	—  	  	  	 	—  	  	  	$	—  	  	  	$	1,290	  	  	 	15.3	  	  	$	84.48	  	
Dividends	  	$	162	  	  	 	N/A	  	  	$	0.20	  	  	$	140	  	  	 	N/A	  	  	$	0.165	  	
Liquidity
Historically, our primary sources of capital and liquidity have been our operating cash flow and cash on hand. Additionally, we maintain revolving lines of credit and a commercial paper program, which can be accessed as needed to supplement operating cash flow and cash balances. Other available sources of capital and liquidity include debt and equity securities that can be issued pursuant to our shelf registration statement filed with the SEC. We estimate the combination of these sources of capital will be adequate to fund future capital expenditures, debt repayments and other contractual commitments. The following sections discuss changes to our liquidity subsequent to filing our 2011 Annual Report on Form 10-K.
Operating Cash Flow
Our operating cash flow is sensitive to many variables, the most volatile of which are the prices of the oil, gas and NGLs we produce. We expect operating cash flow to continue to be our primary source of liquidity. To mitigate some of the risk inherent in prices, we have utilized various derivative financial instruments to set minimum and maximum prices on our 2012 production. The key terms to our oil, gas and NGL derivative financial instruments as of June 30, 2012 are presented in Note 2 to the financial statements under “Item 1. Consolidated Financial Statements” of this report.
 
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Credit Availability
As of July 18, 2012, we had $2.1 billion of available capacity under our syndicated, unsecured Senior Credit Facility and $2.6 billion of commercial paper borrowings outstanding.
The Senior Credit Facility contains only one material financial covenant. This covenant requires us to maintain a ratio of total funded debt to total capitalization, as defined in the credit agreement, of no more than 65 percent. As of June 30, 2012, we were in compliance with this covenant with a debt-to-capitalization ratio of 23.8 percent.
Although we ended the second quarter of 2012 with approximately $7.0 billion of cash and short-term investments, the vast majority of this amount consists of proceeds from our International offshore divestitures that are held by certain of our foreign subsidiaries. We do not currently expect to repatriate such amounts to the U.S. If we were to repatriate a portion or all of the cash and short-term investments held by these foreign subsidiaries, we would be required to accrue and pay current income taxes in accordance with current U.S. tax law. With these proceeds remaining outside of the U.S., we expect to continue using commercial paper and credit facility borrowings in the U.S. to supplement our U.S. operating cash flow. We do not expect near-term increases in such borrowings will have a material effect on our overall liquidity or financial condition.
Capital Expenditures
We previously disclosed that we expected our 2012 capital expenditures to range from $6.2 billion to $6.8 billion. In the first half of 2012, we expanded our new ventures exploration activities, targeting oil and liquids-rich opportunities. As a result, we increased our total estimated 2012 capital expenditures by $1.0 billion.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Commodity Price Risk
We have commodity derivatives that pertain to a portion of our production for the last six months of 2012, as well as 2013 and 2014. The key terms to all our oil, gas and NGL derivative financial instruments as of June 30, 2012 are presented in Note 2 to the financial statements under “Item 1. Consolidated Financial Statements” of this report.
The fair values of our commodity derivatives are largely determined by estimates of the forward curves of the relevant price indices. At June 30, 2012, a 10 percent change in the forward curves associated with our commodity derivative instruments would have changed our net asset positions by the following amounts:

 	  	10% Increase	 	 	10% Decrease	 	
 	  	(In millions)	 	
Gain/(loss):	  				 				
Oil derivatives	  	$	(380	) 	 	$	397	  	
Gas derivatives	  	$	(103	) 	 	$	100	  	
Interest Rate Risk
At June 30, 2012, we had total debt outstanding of $10.6 billion. Our long-term debt of $8.5 billion bears fixed interest rates averaging 5.4 percent. The remaining $2.1 billion of commercial paper borrowings bears interest at fixed rates which averaged 0.40 percent. Such borrowings typically have maturity rates between 1 and 90 days.
As of June 30, 2012, we had open interest rate swap positions that are presented in Note 2 to the financial statements under “Item 1. Consolidated Financial Statements” of this report. The fair values of our interest rate swaps are largely determined by estimates of the forward curves of the Federal Funds rate. A 10 percent change in these forward curves would not have materially impacted our balance sheet at June 30, 2012.
 
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Foreign Currency Risk
Our net assets, net earnings and cash flows from our Canadian subsidiaries are based on the U.S. dollar equivalent of such amounts measured in the Canadian dollar functional currency. Assets and liabilities of the Canadian subsidiaries are translated to U.S. dollars using the applicable exchange rate as of the end of a reporting period. Revenues, expenses and cash flow are translated using an average exchange rate during the reporting period. A 10 percent unfavorable change in the Canadian-to-U.S. dollar exchange rate would not materially impact our June 30, 2012 balance sheet.
Our non-Canadian foreign subsidiaries have a U.S. dollar functional currency. However, one of these foreign subsidiaries holds Canadian-dollar cash and engages in short-term intercompany loans with Canadian subsidiaries that are sometimes based in Canadian dollars. Additionally, at June 30, 2012, we held foreign currency exchange forward contracts to hedge exposures to fluctuations in exchange rates on the Canadian-dollar cash. The increase or decrease in the value of the forward contracts is offset by the increase or decrease to the U.S. dollar equivalent of the Canadian-dollar cash. The value of the intercompany loans increases or decreases from the remeasurement of the loans into the U.S. dollar functional currency. Based on the amount of the intercompany loans as of June 30, 2012, a 10 percent change in the foreign currency exchange rates would not have materially impacted our balance sheet.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information relating to Devon, including its consolidated subsidiaries, is made known to the officers who certify Devon’s financial reports and to other members of senior management and the Board of Directors.
Based on their evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of June 30, 2012, to ensure that the information required to be disclosed by Devon in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.
Changes in Internal Control Over Financial Reporting
On April 1, 2012, we implemented SAP, a company-wide enterprise resource planning software system. SAP replaced certain of our accounting and other systems that are used to record and report our financial results and associated disclosures. In conjunction with the SAP implementation, we modified the design, operation and documentation of our internal controls over financial reporting.
Except as described above, there were no other changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
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 PART II. Other Information
Item 1. Legal Proceedings
There have been no material changes to the information included in Item 3. “Legal Proceedings” in our 2011 Annual Report on Form 10-K.
Item 1A. Risk Factors
There have been no material changes to the information included in Item 1A. “Risk Factors” in our 2011 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding purchases of our common stock that were made by us during the second quarter of 2012.

                Period                 	  	Total Number of
Shares
Purchased (1)	 	  	Average Price
Paid per Share	 	  	Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs	 	  	Maximum Dollar Value of
Shares that May Yet Be
Purchased Under the
Plans or Programs	 	
 	  	 	 	  	 	 	  	 	 	  	(In millions)	 	
April 1 – April 30	  	 	2,007	  	  	$	69.95	  	  	 	—  	  	  	$	—  	  	
May 1 – May 31	  	 	5,971	  	  	$	62.47	  	  	 	—  	  	  	$	—  	  	
June 1 – June 30	  	 	1,744	  	  	$	57.76	  	  	 	—  	  	  	$	—  	  	
	  	 	 	 	  				  	 	 	 	  				
Total	  	 	9,722	  	  	$	63.17	  	  	 	—  	  	  				

(1)	Share repurchases represent shares received by us from employees and directors for the payment of personal income tax withholding on restricted stock vesting and stock option exercises.	
Under the Devon Canada Corporation Savings Plan (the “Canadian Plan”), eligible Canadian employees may purchase shares of our common stock through an investment in the Canadian Plan, which is administered by an independent trustee, Sun Life Assurance Company of Canada. Eligible Canadian employees purchased approximately 6,600 shares of our common stock in the second quarter of 2012, at then-prevailing stock prices, that they held through their ownership in the Canadian Plan. We acquired the shares sold under the Canadian Plan through open-market purchases. These shares and any interest in the Canadian Plan were offered and sold in reliance on the exemptions for offers and sales of securities made outside of the U.S., including under Regulation S for offers and sales of securities to employees pursuant to an employee benefit plan established and administered in accordance with the law of a country other than the U.S.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
 Item 5. Other Information 
None.
 
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 Item 6. Exhibits 
(a) Exhibits required by Item 601 of Regulation S-K are as follows:

Exhibit
Number	  	Description	
31.1	  	Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
		
31.2	  	Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
		
32.1	  	Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
		
32.2	  	Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
		
101.INS	  	XBRL Instance Document	
		
101.SCH	  	XBRL Taxonomy Extension Schema Document	
		
101.CAL	  	XBRL Taxonomy Extension Calculation Linkbase Document	
		
101.LAB	  	XBRL Taxonomy Extension Labels Linkbase Document	
		
101.PRE	  	XBRL Taxonomy Extension Presentation Linkbase Document	
		
101.DEF	  	XBRL Taxonomy Extension Definition Linkbase Document	
 
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 SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	 		 	DEVON ENERGY CORPORATION	
			
Date: August 1, 2012	 		 	/s/ Jeffrey A. Agosta	
	 		 	Jeffrey A. Agosta	
	 		 	Executive Vice President and Chief Financial Officer	

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INDEX TO EXHIBITS

Exhibit
Number	  	Description	
31.1	  	Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
		
31.2	  	Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
		
32.1	  	Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
		
32.2	  	Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
		
101.INS	  	XBRL Instance Document	
		
101.SCH	  	XBRL Taxonomy Extension Schema Document	
		
101.CAL	  	XBRL Taxonomy Extension Calculation Linkbase Document	
		
101.LAB	  	XBRL Taxonomy Extension Labels Linkbase Document	
		
101.PRE	  	XBRL Taxonomy Extension Presentation Linkbase Document	
		
101.DEF	  	XBRL Taxonomy Extension Definition Linkbase Document	
 
34

Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Richels, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Devon Energy Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 1, 2012

/s/ John Richels	
John Richels	
President and Chief Executive Officer	

Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey A. Agosta, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Devon Energy Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 1, 2012

/s/ Jeffrey A. Agosta	
Jeffrey A. Agosta	
Executive Vice President and Chief Financial Officer	

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Report of Devon Energy Corporation (“Devon”) on Form 10-Q for the period ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, , John Richels, President and Chief Executive Officer of Devon, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
 	(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	
 
 	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Devon.	

/s/ John Richels	
John Richels	
President and Chief Executive Officer	
August 1, 2012	

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Report of Devon Energy Corporation (“Devon”) on Form 10-Q for the period ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey A. Agosta, Executive Vice President and Chief Financial Officer of Devon, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
 	(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	
 
 	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Devon.	

/s/ Jeffrey A. Agosta	
Jeffrey A. Agosta	
Executive Vice President and Chief Financial Officer	
August 1, 2012