Devon Energy (NYSE:DVN) executives highlighted strong fourth-quarter and full-year 2025 operating and financial results while also outlining the strategic rationale and early expectations for the company’s recently announced merger with Coterra Energy. Management repeatedly emphasized that the Q&A portion of the call would focus on Devon’s standalone performance and outlook given limitations on discussing the pending transaction.
Merger with Coterra: portfolio scale and synergy targets
President and CEO Clay Gaspar said the combination with Coterra creates a “clear path to superior value creation” and would unite “complementary portfolios” across major U.S. shale basins. Gaspar described a “world-class position” in the Delaware Basin as central to the combined company, stating it is expected to generate more than half of total production and cash flow and be supported by “a decade+ of top-tier inventory.” He added that geographic diversity and a balanced commodity mix should provide resilience across commodity cycles.
On shareholder returns post-close, Gaspar said the pro forma company’s enhanced free cash flow would support higher dividends and a significant new share repurchase authorization aimed at delivering cash returns consistent with best-in-class peers.
Fourth-quarter execution: production, costs, capital, and free cash flow
Gaspar said Devon’s fourth-quarter results benefited from beating guidance on production, operating costs, and capital spending, translating into $700 million of free cash flow for the quarter. He said oil production exceeded the top end of guidance due to production optimization, strong new-well performance, and base production management.
He also pointed to operating cost improvements through the year, which he attributed to reliability gains and operational efficiency. Capital spending finished 4% better than guidance, which he said reflected drilling and completion efficiencies enabled by technology and continuous improvement.
In reserves, Gaspar said Devon delivered a 193% reserve replacement rate in 2025 at a finding and development cost of just over $6 per BOE, adding that while one year of reserve bookings should not be viewed as a sole measure of success, the result supported the “quality and sustainability” of Devon’s multi-basin portfolio.
Full-year 2025 results and business optimization progress
Chief Financial Officer Jeff Ritenour said Devon generated $3.1 billion in free cash flow in 2025 and returned $2.2 billion to shareholders through dividends, buybacks, and debt retirement. He said the company increased its quarterly dividend by 9% in 2025 to $0.24 per share and reiterated a commitment to growing the fixed dividend through the cycle.
Ritenour said that following the expected close of the merger—pending board approval—Devon plans to raise the fixed quarterly dividend by 31%. In the Q&A, Gaspar said the guided level was $0.315 per share and described it as “a nice bump” for Devon and “basically on par” with Coterra’s prior level.
On repurchases, Ritenour said Devon reduced shares outstanding by approximately 5% over the past year through repurchases. He also said that after the merger closes and with board approval, the company anticipates a new share repurchase authorization of more than $5 billion.
Gaspar also provided an update on Devon’s business optimization program, stating the company has captured 85% of its $1 billion pre-tax target in less than a year and remains on track to achieve the remaining savings during 2026. Management cited several drivers discussed on the call, including:
- Planned term loan repayment in the third quarter, expected to deliver $50 million in annual interest savings
- Expanding AI-enabled artificial lift optimization and advanced analytics beyond earlier pilot programs
- Operating cost improvements through condition-based maintenance
- Improved drilling and completion cycle times
Chief Technology Officer Trey Lowe said Devon is tracking more than 100 work streams tied to business optimization and indicated that investments in artificial intelligence platforms are beginning to “come to fruition” in production operations, with projects trialed in the second half of 2025 expected to scale through the first and second quarters.
Asked whether the company could exceed the $1 billion target, Gaspar said Devon has not changed the target and emphasized confidence in achieving it, while also describing a broader cultural shift toward continuous improvement.
Operating costs and efficiency initiatives
In response to questions on cash operating expenses, SVP Asset Management John Raines said workflow and workover optimization and reduced failure rates contributed to the year-over-year drop in LOE and GP&T. He said Devon is in the “early innings” of scaling condition-based maintenance and has started changing maintenance approaches in the Delaware Basin, which has already reduced costs.
Raines also said Devon energized two microgrids in the Delaware Basin, which allowed the company to release some site-specific generation. For first-quarter cost cadence, he said Devon expects an uptick in LOE plus GP&T driven by lower volumes due to weather-related downtime and higher workover activity in the Williston (weather-driven) and Eagle Ford (well cleanouts).
On GP&T, Raines said a fourth-quarter decline was related to a new Delaware Basin gathering and processing contract that went effective at a lower rate.
2026 outlook, basin activity, and operational details
For the first quarter, Ritenour guided to production of about 830,000 BOE per day, noting approximately 10,000 BOE per day of weather-related downtime in January. He said Devon’s previously provided full-year 2026 guidance remains unchanged and that the company plans to provide updated guidance for the combined entity after the merger closes.
On capital allocation, Gaspar said 2026 spending by region should be “pretty similar” directionally to prior allocation, while noting capital allocation decisions would be a priority after the deal closes.
In the Delaware Basin, management addressed fourth-quarter outperformance and repeatability. Gaspar said quarter-to-quarter timing can shift results, but he expressed confidence in extending progress into 2026 and beyond. Raines said three programs came online in the fourth quarter and benefited from timing, but also outperformed internal expectations. He said for full-year 2025, base production outperformed by about 5,000 barrels of oil per day, and he put Delaware base decline in the “mid-30%” range. Raines also said downtime improved meaningfully, from around 7% historically to an expected level “inside of 5%” going into the year.
Raines provided additional detail on Devon’s standalone 2026 Delaware program, saying well productivity should look similar to 2025 as the company continues multi-zone co-development. He said roughly 90% of activity would be weighted to New Mexico, with approximate area allocation of about 30% in Delaware, 25% Cotton Draw, and 15% State Line, with the remainder spread across the basin. By zone, he said the mix is expected to be about 40% Wolfcamp, 45% Bone Spring, and 15% Avalon.
In the Williston Basin, management said lateral lengths are expected to increase in 2026. Raines said 2025 laterals averaged closer to two miles due to unit layouts, while 2026 is expected to average closer to three miles, with four-mile laterals being introduced. He said Devon is drilling its first four-mile pad and that longer laterals should improve program economics and “bring break-evens in pretty significantly.”
Separately, Gaspar discussed Devon’s longer-dated opportunity set, including exploration and adjacent areas, stressing that evaluating “next decade opportunities” should not be interpreted as reduced near-term confidence. When asked about speculation around international opportunities, Gaspar said the company is exploring “a lot of different ideas and opportunities” and engaging in conversations to understand risks and fit, while avoiding comment on any particular deal.
Finally, Gaspar noted Devon’s continued investment in Fervo Energy, saying Devon participated in Fervo’s Series E round, bringing its ownership to approximately 15%. Lowe said Fervo is developing enhanced geothermal systems using horizontal drilling and multi-stage hydraulic fracturing, and he said Devon has provided technical support as Fervo works to reduce well costs.
About Devon Energy (NYSE:DVN)
Devon Energy Corporation (NYSE: DVN) is an independent oil and gas exploration and production company headquartered in Oklahoma City, Oklahoma. The company focuses on the exploration, development, production and marketing of hydrocarbons, including crude oil, natural gas liquids (NGLs) and natural gas. Devon operates as an upstream energy company that acquires, evaluates and develops onshore resource plays using a combination of drilling, completion and production optimization techniques.
Core business activities include identifying and developing energy reserves, operating well programs and managing reservoir performance to generate production and cash flow.
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