DBRS Confirms Ratings of Devon Energy Corporation and Its Subsidiary

DBRS has today confirmed the ratings of Devon Energy Corporation (Devon or the Company) and its subsidiary, Devon Finance Corporation, as listed above. All trends are Stable. The rating action reflects Devon’s strong business risk profile, underpinned by its significant size and scale of operations, despite a relatively weaker financial risk profile that has shown modest improvement in 2014, with the Company undergoing significant transformation over the past few years. The Stable trend is reflective of DBRS’s expectation that, with the completion of Company’s divestiture program and entry into another high-growth liquids-rich resource play, Devon’s profitability, cash flow and key credit metrics will not weaken materially from the current levels.

Similar to many of its other North American natural gas-weighted peers, Devon has been focused on increasing its oil and liquids-rich gas production while reducing its exposure to the depressed North American natural gas environment. The Company has been able to increase its crude oil and liquids-rich production by approximately 90 per cent from 2009 levels. By the end of 2014, with the completion of its non-core divestiture program and production from its recently acquired Eagle Ford assets, DBRS expects the proportion of liquids in Devon’s production to increase to approximately 60% (30% in 2009). With strong growth potential, significant size and scale of operations across North America and accelerated shift toward an oil-focused portfolio, Devon’s business risk profile is expected to remain strong for its current ratings.

Devon’s financial risk profile has lagged behind the relative strength of its business risk profile. Capital expenditure has remained elevated since 2010 to support the transition toward a liquids-focused production that, coupled with depressed natural gas prices over the past few years, led to material deterioration in Devon’s key credit metrics. Devon’s financial risk profile weakened considerably in 2012/2013. However, the completion of its non-core divestiture program in 2014, increased higher-margin liquids production and robust liquids pricing have improved Devon’s key credit metrics, although its metrics remain weaker than its DBRS-rated peers. DBRS expects proceeds from sale of the Company’s non-core U.S. assets (announced June 30, 2014) to be primarily used for debt reduction, which should further alleviate pressure from its metrics.

Notes:
The rating of Devon Finance Corporation is based on an irrevocable guarantee of Devon Energy Corporation.

All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Companies in the Oil and Gas Industry, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.