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Devon Energy Corporation (DVN) today reported net earnings of $1.0 billion or $2.48 per common share ($2.47 per diluted share) for the quarter ended Sept. 30, 2014. This compares with third-quarter 2013 net earnings of $429 million or $1.06 per common share ($1.05 per diluted share).

Adjusting for items securities analysts typically exclude from their published estimates, the company earned $552 million or $1.34 per diluted share in the third quarter. This represents a 4 percent increase in adjusted earnings compared to the third quarter of 2013.

Devon generated cash flow from operations totaling $1.6 billion in the third quarter. Combined with $2.3 billion of pre-tax proceeds from the sale of non-core U.S. assets, Devon’s total cash inflows for the quarter approached $4 billion.

“Devon’s repositioned portfolio delivered outstanding growth in production and margins in the third quarter,” said John Richels, president and CEO. “With our strong position in many of North America’s best resource plays and our focused efforts to deliver high-quality performance, we saw profitability continue to expand.”

“Based on our strong year-to-date results and the confidence we have in our portfolio, we are raising our full-year production growth outlook to 14 percent, up from our previous guidance of 11 percent,” Richels said. “And we are delivering this incremental production growth without any increase in capital spending.”

Oil Production Exceeds Expectations

In the third quarter, total production from Devon’s retained assets averaged 640,000 oil-equivalent barrels (Boe) per day. This result exceeded the company’s guidance range and represents a 19 percent increase year over year. Oil and liquids production accounted for 55 percent of the company’s retained asset production mix in the third quarter.

Devon delivered record oil production in North America during the third quarter of 2014. Oil production from retained assets averaged 216,000 barrels per day, exceeding the top end of the company’s guidance range by 6,000 barrels per day. This represents a 44 percent increase compared to the third quarter of 2013. The most significant growth came from the company’s U.S. operations, where oil production increased a substantial 77 percent year over year.

Growth in U.S. production was largely attributable to strong results from Devon’s oil development plays. In the third quarter, the company’s world-class Eagle Ford assets continued to deliver prolific well results. Net production in the Eagle Ford increased to an average of 87,000 Boe per day in September, an increase of 76 percent compared to Devon’s first month of ownership in March 2014. In the Permian Basin, led by outstanding results from the Bone Spring play, total production increased to 98,000 Boe per day. This represents a 20 percent increase in Permian production compared to the year-ago quarter.

In Canada, Devon achieved first oil from its Jackfish 3 project in the third quarter, commencing another leg of multi-year oil production growth from its heavy oil business. Additionally, the start-up of Jackfish 3 will begin a new era from the Jackfish complex, with the potential to generate up to a $1 billion per year of free cash flow, after maintenance capital.

Devon Raises Full-Year Production Outlook

Detailed forward-looking guidance for the fourth quarter of 2014 is provided later in the release. Based on year-to-date results and Devon’s fourth-quarter outlook, most operating and financial metrics remain relatively unchanged compared to previous full-year guidance disclosures. A notable update is the company raising the midpoint of its 2014 production outlook from retained assets by 3 percent to approximately 617,000 Boe per day. This incremental production growth is expected to be delivered without additional capital spending.

Operations Report

For additional details on Devon’s core and emerging assets, please refer to the company’s third-quarter 2014 operations report at www.devonenergy.com. Highlights from the operations report include:

  • Raising the Bone Spring type curve
  • Eagle Ford on track to meet production targets
  • Canadian heavy-oil results outperform guidance
  • Raising Cana-Woodford type curve
  • Powder River Basin delivers high-rate development wells

Oil Revenue Grows and Margins Expand

Revenue from oil, natural gas and natural gas liquids sales totaled $2.6 billion in the third quarter, an 11 percent increase compared to the third quarter of 2013. This growth in revenue was attributable to the company’s significant increase in oil production, partially offset by the sale of gas-weighted divestiture assets in both the U.S. and Canada. Third-quarter oil sales accounted for 63 percent of Devon’s total upstream revenues.

Devon’s marketing and midstream operating profit reached $219 million, which exceeded the company’s guidance and represented a 68 percent increase compared to the third quarter of 2013. The year-over-year increase in operating profit was due to expanded margins related to EnLink Midstream.

The company’s strong cost-containment efforts were reflected in third-quarter expense results. Pre-tax cash costs totaled $16.06 per Boe, a 3 percent decrease compared to the previous quarter. Costs in several categories were lower than guidance, most notably Devon’s largest cash cost, lease operating expenses (LOE). On a unit-of-production basis, LOE totaled $9.47 per Boe, flat compared to the year-ago period and 1 percent lower than the second quarter of 2014.

Overall, the benefits of higher-margin oil production and a low-cost structure resulted in expanded cash margin for Devon. Pre-tax cash margin reached $29.42 per Boe in the third quarter, a 20 percent increase compared to the year-ago period.

Balance Sheet and Liquidity Remain Strong

With investment-grade credit ratings and cash balances of $3.4 billion at the end of the third quarter, Devon’s financial position remains exceptionally strong. At Sept. 30, the company’s net debt totaled $8.7 billion, of which $1.9 billion was attributable to the consolidation of EnLink Midstream and is non-recourse to Devon.

Subsequent to quarter end, in mid-October, Devon announced the redemption of $1.9 billion in senior notes, utilizing a portion of its asset divestiture proceeds. This redemption includes all of the company’s outstanding 2.4% senior notes due 2016, 1.2% senior notes due 2016 and 1.875% senior notes due 2017. Upon redemption later in the month, Devon will complete the debt repayment plan associated with its portfolio transformation.

Attractive Hedges Protect Future Cash Flow

With rapid growth in high-margin production, the company has taken measures to protect its future cash flow. For the fourth quarter of 2014, the company has entered into various swap-and-collar contracts to hedge approximately 60 percent of its expected oil production at an average floor price of $92 per barrel. Nearly 80 percent of Devon’s expected fourth-quarter natural gas production is locked in at an average floor price of $4.28 per thousand cubic feet.

For full-year 2015, the company has 138,000 barrels per day protected through swaps and collars at an average floor price of $91 per barrel. Devon also has 0.5 billion cubic feet per day hedged at an average floor price of $4.20. These hedge positions cover more than 50 percent of Devon’s expected oil production in 2015 and around 30 percent of gas production.

Portfolio Transformation Complete

On Aug. 29, Devon closed the sale of its U.S. non-core assets for $2.3 billion, officially completing its portfolio transformation announced last November. In less than a year, the company transformed its portfolio through three significant steps: an accretive Eagle Ford entry, the creation of EnLink Midstream, and the sale of more than $5 billion of non-core properties in both the U.S. and Canada.

Devon’s retained asset portfolio is now concentrated in some of the most attractive North American resource plays. This formidable and focused asset base creates a platform that supports competitive, high-margin growth for many years.

Non-GAAP Reconciliations

Pursuant to regulatory disclosure requirements, Devon is required to reconcile non-GAAP financial measures to the related GAAP information (GAAP refers to general accepted accounting principles). Adjusted earnings, net debt and pre-tax cash margin are non-GAAP financial measures referenced within this release. Reconciliations of these non-GAAP measures are provided later in this release.

Conference Call Webcast and Supplemental Earnings Materials

Please note that as soon as practicable today, Devon will post additional information, consisting of an operations report and management commentary with associated slides, to its website atwww.devonenergy.com. The company’s third-quarter 2014 conference call will be held at 10 a.m. Central (11 a.m. Eastern) on Wednesday, Nov. 5, 2014, and will serve primarily as a forum for analyst and investor questions and answers.

Forward-Looking Statements

This press release includes “forward-looking statements” as defined by the Securities and Exchange Commission (SEC). Such statements are those concerning strategic plans, expectations and objectives for future operations. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the company expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Statements regarding future drilling and production are subject to all of the risks and uncertainties normally incident to the exploration for and development and production of oil and gas. These risks include, but are not limited to, the volatility of oil, natural gas and NGL prices; uncertainties inherent in estimating oil, natural gas and NGL reserves; the extent to which we are successful in acquiring and discovering additional reserves; unforeseen changes in the rate of production from our oil and gas properties; uncertainties in future exploration and drilling results; uncertainties inherent in estimating the cost of drilling and completing wells; drilling risks; competition for leases, materials, people and capital; midstream capacity constraints and potential interruptions in production; risk related to our hedging activities; environmental risks; political changes; changes in laws or regulations; our limited control over third parties who operate our oil and gas properties; our ability to successfully complete mergers, acquisitions and divestitures; and other risks identified in our Form 10-K and our other filings with the SEC. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. The forward-looking statements in this press release are made as of the date of this press release, even if subsequently made available by Devon on its website or otherwise. Devon does not undertake any obligation to update the forward-looking statements as a result of new information, future events or otherwise.

The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC’s definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves. This release may contain certain terms, such as resource potential and exploration target size. These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized.The SEC guidelines strictly prohibit us from including these estimates in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 10-K, available atwww.devonenergy.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or from the SEC’s website at www.sec.gov.

About Devon Energy

Devon Energy Corporation is an Oklahoma City-based independent energy company engaged in oil and gas exploration and production. Devon is a leading U.S.-based independent oil and gas producer and is included in the S&P 500 Index. For more information about Devon, please visit our website at www.devonenergy.com.

Quarter Ended Nine Months Ended
PRODUCTION NET OF ROYALTIES September 30, September 30,
2014 2013 2014 2013
Oil / Bitumen (MBbls/d)
United States 136 77 121 70
Canada 80 73 78 79
Retained assets 216 150 199 149
Divested assets 3 15 7 16
Total Oil / Bitumen 219 165 206 165
Natural Gas (MMcf/d)
United States 1,690 1,656 1,656 1,666
Canada 26 17 24 29
Retained assets 1,716 1,673 1,680 1,695
Divested assets 138 710 311 720
Total Natural Gas 1,854 2,383 1,991 2,415
Natural Gas Liquids (MBbls/d)
United States 138 110 129 105
Divested assets 5 19 9 19
Total Natural Gas Liquids 143 129 138 124
Oil Equivalent (Mboe/d)
United States 556 462 526 453
Canada 84 76 82 84
Retained assets 640 538 608 537
Divested assets 31 153 68 155
Total Oil Equivalent 671 691 676 692
KEY OPERATING STATISTICS BY REGION
Quarter Ended September 30, 2014

Avg. Production
(MBoe/d)

Gross Wells
Drilled

Operated Rigs at
September 30, 2014

Permian Basin 98 81 21
Eagle Ford 78 57 3
Canadian Heavy Oil 84 57 5
Barnett Shale 205 13
Anadarko Basin 98 38 3
Mississippian-Woodford Trend 21 52 6
Rockies 22 17 4
Other Assets 34
Retained Assets – Total 640 315 42
Divested assets 31
Devon – Total 671 315 42
PRODUCTION TREND 2013 2014
Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3
Oil (MBbls/d)
Permian Basin 49 50 55 55 56
Eagle Ford 11 40 46
Canadian Heavy Oil 73 81 78 77 80
Barnett Shale 2 2 2 2 2
Anadarko Basin 10 9 9 11 10
Mississippian-Woodford Trend 5 8 10 9 10
Rockies 8 8 8 8 10
Other assets 3 3 2 3 2
Retained assets 150 161 175 205 216
Divested assets 15 16 15 4 3
Total 165 177 190 209 219
Gas (MMcf/d)
Permian Basin 109 116 121 134 136
Eagle Ford 22 86 107
Canadian Heavy Oil 17 28 19 23 26
Barnett Shale 1,009 995 931 932 896
Anadarko Basin 297 294 281 309 323
Mississippian-Woodford Trend 14 19 28 28 32
Rockies 76 75 65 67 66
Other assets 151 141 140 135 130
Retained assets 1,673 1,668 1,607 1,714 1,716
Divested assets 710 660 585 217 138
Total 2,383 2,328 2,192 1,931 1,854
NGL (MBbls/d)
Permian Basin 15 16 16 18 19
Eagle Ford 3 10 14
Canadian Heavy Oil
Barnett Shale 57 56 55 55 54
Anadarko Basin 24 27 29 31 34
Mississippian-Woodford Trend 1 3 5 5 6
Rockies 1 1 1 1 1
Other assets 12 11 10 10 10
Retained assets 110 114 119 130 138
Divested assets 19 18 16 6 5
Total 129 132 135 136 143
Combined (MBoe/d)
Permian Basin 82 86 91 95 98
Eagle Ford 17 65 78
Canadian Heavy Oil 76 86 81 81 84
Barnett Shale 226 224 213 212 205
Anadarko Basin 83 85 85 93 98
Mississippian-Woodford Trend 9 14 19 18 21
Rockies 23 21 20 21 22
Other assets 39 37 37 35 34
Retained assets 538 553 563 620 640
Divested assets 153 143 128 47 31
Total 691 696 691 667 671
BENCHMARK PRICES
(average prices) Quarter 3 September YTD
FY2014 FY2013 FY2014 FY2013
Natural Gas ($/Mcf) – Henry Hub $ 4.07 $ 3.58 $ 4.57 $ 3.67
Oil ($/Bbl) – West Texas Intermediate (Cushing) $ 97.26 $ 105.94 $ 99.67 $ 98.18
REALIZED PRICES Quarter Ended September 30, 2014

Oil /Bitumen

Gas NGL Total
(Per Bbl) (Per Mcf) (Per Bbl) (Per Boe)
United States $ 90.23 $ 3.61 $ 25.82 $ 38.90
Canada (1) $ 65.88 $ 0.76 $ 63.46 $ 63.23
Realized price without hedges $ 81.37 $ 3.57 $ 25.90 $ 41.92
Cash settlements $ (1.06 ) $ 0.15 $ 0.01 $ 0.07
Realized price, including cash settlements $ 80.31 $ 3.72 $ 25.91 $ 41.99
Quarter Ended September 30, 2013
Oil /Bitumen Gas NGL Total
(Per Bbl) (Per Mcf) (Per Bbl) (Per Boe)
United States $ 101.40 $ 3.08 $ 24.36 $ 32.72
Canada (1) $ 79.88 $ 2.67 $ 48.48 $ 49.65
Realized price without hedges $ 90.51 $ 3.00 $ 26.23 $ 36.84
Cash settlements $ (4.00 ) $ 0.24 $ 0.02 $ (0.12 )
Realized price, including cash settlements $ 86.51 $ 3.24 $ 26.25 $ 36.72
Nine Months Ended September 30, 2014
Oil Gas NGL Total
(Per Bbl) (Per Mcf) (Per Bbl) (Per Boe)
United States $ 92.55 $ 4.04 $ 26.80 $ 39.81
Canada (1) $ 65.54 $ 3.80 $ 50.57 $ 55.85
Realized price without hedges $ 81.84 $ 4.02 $ 27.34 $ 42.38
Cash settlements $ (2.43 ) $ (0.12 ) $ $ (1.11 )
Realized price, including cash settlements $ 79.41 $ 3.90 $ 27.34 $ 41.27
Nine Months Ended September 30, 2013
Oil Gas NGL Total
(Per Bbl) (Per Mcf) (Per Bbl) (Per Boe)
United States $ 93.94 $ 3.13 $ 25.12 $ 31.12
Canada (1) $ 60.14 $ 3.05 $ 46.54 $ 41.29
Realized price without hedges $ 75.48 $ 3.11 $ 26.83 $ 33.71
Cash settlements $ 0.02 $ 0.14 $ 0.08 $ 0.50
Realized price, including cash settlements $ 75.50 $ 3.25 $ 26.91 $ 34.21

(1) The reported Canadian gas volumes include volumes that are produced from certain of our leases and then transported to our Jackfish operations where the gas is used as fuel. However, the revenues and expenses related to this consumed gas are eliminated in our consolidated financials.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts) Quarter Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Oil, gas and NGL sales $ 2,588 $ 2,341 $ 7,824 $ 6,367
Oil, gas and NGL derivatives 748 (141 ) 29 (95 )
Marketing and midstream revenues 2,000 514 5,718 1,501
Total operating revenues 5,336 2,714 13,571 7,773
Lease operating expenses 584 600 1,764 1,684
Marketing and midstream operating expenses 1,781 383 5,092 1,128
General and administrative expenses 195 143 595 460
Production and property taxes 140 115 427 353
Depreciation, depletion and amortization 842 691 2,409 2,069
Asset impairments 7 1,960
Restructuring costs 2 4 44 50
Gains and losses on asset sales 11 (1,072 ) 11
Other operating items 18 27 74 82
Total operating expenses 3,562 1,981 9,333 7,797
Operating income (loss) 1,774 733 4,238 (24 )
Net financing costs 116 100 359 306
Other nonoperating items 4 (6 ) 111 (4 )
Earnings (loss) before income taxes 1,654 639 3,768 (326 )
Income tax expense (benefit) 613 210 1,698 (99 )
Net earnings (loss) 1,041 429 2,070 (227 )
Net earnings attributable to noncontrolling interests 25 55
Net earnings (loss) attributable to Devon $ 1,016 $ 429 $ 2,015 $ (227 )
Net earnings (loss) per share attributable to Devon:
Basic $ 2.48 $ 1.06 $ 4.94 $ (0.57 )
Diluted $ 2.47 $ 1.05 $ 4.91 $ (0.57 )
Weighted average common shares outstanding:
Basic 409 406 408 406
Diluted 411 407 410 407
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions)
Quarter ended September 30, 2014

Devon U.S.
& Canada

EnLink Eliminations Total
Oil, gas and NGL sales $ 2,588 $ $ $ 2,588
Oil, gas and NGL derivatives 748 748
Marketing and midstream revenues 1,344 855 (199 ) 2,000
Total operating revenues 4,680 855 (199 ) 5,336
Lease operating expenses 584 584
Marketing and midstream expenses 1,320 660 (199 ) 1,781
General and administrative expenses 170 25 195
Production and property taxes 132 8 140
Depreciation, depletion and amortization 768 74 842
Restructuring costs 2 2
Other operating items 20 (2 ) 18
Total operating expenses 2,996 765 (199 ) 3,562
Operating income 1,684 90 1,774
Net financing costs 102 14 116
Other nonoperating items 12 (8 ) 4
Earnings before income taxes 1,570 84 1,654
Income tax expense 595 18 613
Net earnings 975 66 1,041
Net earnings attributable to noncontrolling interests 25 25
Net earnings attributable to Devon $ 975 $ 41 $ $ 1,016
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions) Quarter Ended Nine Months
September 30, Ended September 30,
2014 2013 2014 2013
Cash flows from operating activities:
Net earnings (loss) $ 1,041 $ 429 $ 2,070 $ (227 )
Adjustments to reconcile net earnings (loss)
to net cash from operating activities:
Depreciation, depletion and amortization 842 691 2,409 2,069
Gains and losses on asset sales 11 (1,072 ) 11
Asset impairments 7 1,960
Deferred income tax expense (benefit) 23 260 800 (181 )
Derivatives and other financial instruments (804 ) 168 (43 ) 65
Cash settlements on derivatives and financial instruments 44 (2 ) (201 ) 147
Other noncash charges 128 19 357 195
Net change in working capital 296 24 766 (104 )
Change in long-term other assets (38 ) (50 ) (115 ) (28 )
Change in long-term other liabilities 27 44 47 92
Net cash from operating activities 1,559 1,601 5,018 3,999
Cash flows from investing activities:
Acquisitions of property, equipment and businesses

(31

)

(6,255

)
Capital expenditures

(1,672

) (1,650 )

(5,013

) (5,219 )
Proceeds from property and equipment divestitures 2,260 282 5,202 316
Purchases of short-term investments (1,076 )
Redemptions of short-term investments 869 3,419
Redemptions of long-term investments 57
Other 3 1 87 83
Net cash from investing activities 560 (498 ) (5,922 ) (2,477 )
Cash flows from financing activities:
Proceeds from borrowings of long-term debt, net of issuance costs 438 4,158
Net short-term debt repayments (456 ) (82 ) (1,318 ) (1,577 )
Long-term debt repayments (275 ) (4,265 )
Proceeds from stock option exercises 9 92 1
Proceeds from issuance of subsidiary units 52 72
Dividends paid on common stock (98 ) (89 ) (287 ) (259 )
Distributions to noncontrolling interests (46 ) (187 )
Other (13 ) (4 ) 5
Net cash from financing activities (389 ) (171 ) (1,739 ) (1,830 )
Effect of exchange rate changes on cash (28 ) 25 (15 ) (9 )
Net change in cash and cash equivalents 1,702 957 (2,658 ) (317 )
Cash and cash equivalents at beginning of period 1,706 3,363 6,066 4,637
Cash and cash equivalents at end of period $ 3,408 $ 4,320 $ 3,408 $ 4,320
CONSOLIDATED BALANCE SHEETS
(in millions)
September 30, December 31,
Current assets: 2014 2013
Cash and cash equivalents $ 3,408 $ 6,066
Accounts receivable 2,009 1,520
Other current assets 556 419
Total current assets 5,973 8,005
Property and equipment, at cost:

Oil and gas, based on full-cost accounting:

Subject to amortization 73,733 73,995
Not subject to amortization 3,642 2,791
Total oil and gas 77,375 76,786
Other 9,204 6,195
Total property and equipment, at cost 86,579 82,981
Less accumulated depreciation, depletion and amortization (51,410 ) (54,534 )
Property and equipment, net 35,169 28,447
Goodwill 8,310 5,858
Other long-term assets 1,387 567
Total assets $ 50,839 $ 42,877
Current liabilities:
Accounts payable $ 1,344 $ 1,229
Revenues and royalties payable 1,455 786
Short-term debt 1,898 4,066
Income taxes payable 651 1
Other current liabilities 646 573
Total current liabilities 5,994 6,655
Long-term debt 10,161 7,956
Asset retirement obligations 1,348 2,140
Other long-term liabilities 926 834
Deferred income taxes 5,642 4,793
Stockholders’ equity:
Common stock 41 41
Additional paid-in capital 4,004 3,780
Retained earnings 17,138 15,410
Accumulated other comprehensive earnings 993 1,268
Total stockholders’ equity attributable to Devon 22,176 20,499
Noncontrolling interests 4,592

Total stockholders’ equity 26,768 20,499
Total liabilities and stockholders’ equity $ 50,839 $ 42,877
Common shares outstanding 409 406
CAPITAL EXPENDITURES
(in millions) Quarter Ended September 30, 2014
U.S. Canada Total
Exploration $ 49 $ 2 $ 51
Development

1,044

213

1,257
Exploration and development capital $

1,093

$

215

$ 1,308
Capitalized G&A 94
Capitalized interest 12
Acquisitions 6
Devon midstream capital 96
Other capital 32
Total (1) $ 1,548
(1) Excludes $207 million attributable to EnLink.
Nine Months Ended September 30, 2014
U.S. Canada Total
Exploration $ 187 $ 34 $ 221
Development

2,872 684 3,556
Exploration and development capital $ 3,059 $ 718 $ 3,777
Capitalized G&A 268
Capitalized interest 32
Eagle Ford, Cana and other acquisitions 6,366
Devon midstream capital 275
Other capital 85
Total (1) $ 10,803
(1) Excludes $491 million attributable to EnLink.

NON-GAAP FINANCIAL MEASURES

The United States Securities and Exchange Commission has adopted disclosure requirements for public companies such as Devon concerning Non-GAAP financial measures. (GAAP refers to generally accepted accounting principles). The Company must reconcile the Non-GAAP financial measure to related GAAP information.

ADJUSTED EARNINGS
(in millions)

Devon’s reported net earnings include items of income and expense that are typically excluded by securities analysts in their published estimates of the company’s financial results. Devon believes these non-GAAP measures facilitate comparisons of its performance to earnings estimates published by securities analysts. Devon also believes these non-GAAP measures can facilitate comparisons of its performance between periods and to the performance of its peers. The following table summarizes the effects of these items on third-quarter 2014 earnings.

Quarter Ended September 30, 2014
Before-Tax After-Tax
Net earnings attributable to Devon (GAAP) $ 1,016
Fair value changes in financial instruments and foreign currency (733 ) (466 )
Restructuring costs 2 2
Current tax on property divestiture(1)

543

Deferred tax on property divestiture(1)

(543

)

Adjusted earnings attributable to Devon (Non-GAAP) $ 552
Diluted share count 411
Adjusted diluted earnings per share attributable to Devon (Non-GAAP) $ 1.34

(1) In the third quarter of 2014, Devon completed its U.S. non-core divestiture program. In conjunction with the divestiture closing, Devon recognized $543 million of current income tax expense. The current tax expense was entirely offset by the recognition of deferred tax benefits.

NET DEBT
(in millions)

Devon defines net debt as debt less cash and cash equivalents as presented in the following table. Devon believes that netting these sources of cash against debt provides a clearer picture of the future demands on cash to repay debt.

September 30,
2014 2013
Total debt (GAAP) $ 12,059 $ 10,068
Adjustments:
Cash and cash equivalents 3,408 4,320
Net debt (Non-GAAP) $ 8,651 $ 5,748

PRE-TAX CASH MARGIN

Devon defines pre-tax cash margin as revenues from commodity sales and marketing and midstream operations, less expenses for lease operations, marketing and midstream operations, cash-based general and administrative, production and property taxes and net financing costs, with the result divided by total production. Devon believes that pre-tax cash margin can facilitate comparisons of our performance between periods and to the performance of our peers.

DEVON ENERGY CORPORATION
FORWARD LOOKING GUIDANCE
PRODUCTION GUIDANCE Quarter 4
Low High
Oil and bitumen (MBbls/d)
United States 145 150
Canada 83 88
Total 228 238
Natural gas (MMcf/d)
United States 1,610 1,660
Canada 19 24
Total 1,629 1,684
Natural gas liquids (MBbls/d)
United States 131 136
Total Boe (MBoe/d)
United States 544 563
Canada 86 92
Total 630 655
PRICE REALIZATIONS GUIDANCE Quarter 4
Low High
Oil and bitumen – % of WTI
United States 86 % 96 %
Canada 63 % 73 %
Natural gas – % of Henry Hub 87 % 93 %
NGL – realized price $ 20 $ 30
OTHER GUIDANCE ITEMS Quarter 4
($ millions, except Boe) Low High
Marketing & midstream operating profit $ 200 $ 220
Lease operating expenses per Boe $ 9.75 $ 9.95
General & administrative expenses per Boe $ 3.50 $ 3.70
Production and property taxes as % of upstream sales 4.8 % 5.8 %
Depreciation, depletion and amortization per Boe $ 13.75 $ 14.75
Net financing costs $ 115 $ 125
Current income tax rate 5.0 % 8.0 %
Deferred income tax rate 24.0 % 30.0 %
Total income tax rate 29.0 % 38.0 %
Net earnings attributable to noncontrolling interests $ 20 $ 30
CAPITAL EXPENDITURES GUIDANCE Quarter 4
(in millions) Low High
Exploration and development $ 1,400 $ 1,500
Capitalized G&A and interest 100 120
Total oil and gas 1,500 1,620
Midstream (1) 50 80
Corporate and other 40 60
Devon capital expenditures $ 1,590 $ 1,760
(1) Excludes capital expenditures related to EnLink.
COMMODITY HEDGES
Oil Commodity Hedges
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)

Q4 2014 75,000 $ 94.14 64,750 $ 89.33 $ 100.00 42,000 $ 116.43
Oil Basis Swaps
Period Index Volume (Bbls/d)

Weighted Average Differential to
WTI ($/Bbl)

Q4 2014 Western Canadian Select 50,000 $ (17.40 )
Natural Gas Commodity Hedges
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)

Q4 2014 800,000 $ 4.42 460,000 $ 4.03 $ 4.51 500,000 $ 5.00
Natural Gas Basis Swaps
Period Index Volume (MMBtu/d)

Weighted Average Differential
to Henry Hub ($/MMBtu)

Q4 2014 AECO 94,781 $ (0.52 )

Devon’s oil derivatives that settle against the average of the prompt month NYMEX West Texas Intermediate futures price. Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index.