Devon Energy (DVN) Q4 2025 Earnings Transcript

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DATE

Wednesday, February 18, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• President and Chief Operating Officer — Clay M. Gaspar
• Executive Vice President and Chief Financial Officer — Jeffrey L. Ritenour
• Executive Vice President, Exploration and Production — John D. Raines
• Executive Vice President and Chief Technology Officer — Trey Lowe

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TAKEAWAYS

• Merger Synergies -- Management announced a $1 billion annual pretax run-rate synergy target from the Cotera Energy merger, to be achieved by year-end 2027, described as “incremental to our business optimization program.”
• Free Cash Flow -- Devon Energy (NYSE:DVN) generated $700 million of free cash flow in Q4 and $3.1 billion for the full year.
• Production -- Oil production in Q4 exceeded the top end of guidance, attributed to “strong new well performance and outstanding base production management.”
• Operating Costs -- Operating costs improved significantly throughout the year due to enhanced reliability and operational efficiency.
• Capital Spending -- Capital expenditures finished 4% below guidance, driven by drilling and completion efficiencies.
• Reserve Replacement -- The 2025 capital program achieved a reserve replacement rate of 193% at a finding and development (F&D) cost just over $6 per BOE.
• Capital Efficiency -- Efficiency improved by more than 15% from the preliminary 2025 outlook, allowing increased value extraction per dollar invested.
• Well Productivity -- Well productivity stood over 20% above peer average, while capital efficiency outperformed the industry by 13%.
• Business Optimization Program -- 85% of the $1 billion cost-reduction target has been achieved; full target is expected to be reached during 2026.
• Interest Expense Reduction -- Planned term loan repayment in Q3 will result in $50 million annual interest savings.
• Shareholder Returns -- The company returned $2.2 billion to shareholders in 2025 through dividends, share buybacks, and debt retirement.
• Dividend Increase -- The quarterly dividend rose 9% to $0.24 per share in 2025, with plans for a new 31% increase post-merger, pending board approval.
• Share Repurchases -- Shares outstanding were reduced by approximately 5% over the past year, and over $5 billion in new share repurchase authorization is planned post-merger pending board approval.
• Balance Sheet Strength -- Year-end cash totaled $1.4 billion, and the net debt-to-EBITDA ratio was under one turn.
• Q1 2026 Production Outlook -- Production is expected to average around 830,000 BOE per day, with roughly 10,000 BOE per day of weather-related downtime in January.
• Portfolio Transactions -- Midstream, marketing, and leasing deals added over $1 billion to enterprise NAV during 2025, on top of business optimization improvements.
• Fervo Energy Investment -- The company now owns approximately 15% of Fervo Energy, an innovative geothermal company utilizing enhanced drilling techniques.
• Base Production Optimization -- Base production outperformed by about 5,000 barrels of oil per day for the year, or nearly 2% of the base.
• Base Decline Rate -- The base decline rate is in the mid-30% range, with downtime declining to inside of 5% from a historical average of 7%.
• Delaware Basin -- The Delaware Basin will produce over half of total output and cash flow in the combined company, driven by multi-zone co-development; about 90% of 2026 drilling activity is weighted to New Mexico, with similar well productivity expected year over year.
• Williston Lateral Lengths -- Williston Basin laterals are increasing from an average of two miles in 2025 to roughly three miles in 2026, with four-mile laterals being introduced; this is expected to lower breakeven costs.

SUMMARY

Devon Energy underscored transformational value from the pending Cotera Energy merger, aiming for $1 billion in annual pretax synergies and immediate capital returns to shareholders. Management highlighted disciplined operational execution, evidenced by production exceeding guidance, improved cost management, enhanced capital efficiency, and strong base production performance. A significant step-up in both dividend level and share repurchase authorization is planned upon merger close, reflecting board-level confidence in the combined company’s future cash generation. The company also described major balance sheet strength highlighted by cash reserves, low leverage, and investment in next-generation geothermal technology, all reinforcing flexible and shareholder-focused capital allocation for 2026 and beyond.

• The integration of best practices, technology, and 100 active workstreams under the optimization program has shifted cost discipline and culture across business lines.
• Interest expense savings of $50 million are expected via near-term debt repayment, facilitating greater free cash flow conversion.
• Strategic portfolio transactions in 2025 contributed materially to enterprise net asset value, independent of recurring operational gains.
• The company maintains that weather-related Q1 2026 downtime has not altered full-year production outlook, and updated combined guidance will follow merger completion.

INDUSTRY GLOSSARY

• BOE (Barrels of Oil Equivalent): A standardized unit for reporting oil and gas output, combining produced oil, natural gas, and NGL volumes using an energy-equivalent basis.
• F&D Cost (Finding and Development Cost): The average investment required to find and develop a new barrel of oil equivalent, often used as a measure of capital efficiency.
• LOE (Lease Operating Expense): The recurring cost of operating wells and equipment on producing leases.
• GP&T (Gathering, Processing and Transportation): The costs associated with handling, treating, and moving hydrocarbon output to market.
• Artificial Lift Optimization: Use of advanced technologies, including AI, to enhance subsurface methods that increase the output of oil and gas wells.
• Base Decline Rate: The rate at which production from existing wells diminishes before accounting for new drilling or optimization.
• Enterprise NAV (Net Asset Value): An estimate of total corporate value based on asset holdings and liabilities, frequently adjusted for non-core transaction impacts.

Full Conference Call Transcript

Clay M. Gaspar: Thank you, Chris. Good morning, everyone, and thanks for joining us. Today, we will focus on Devon Energy Corporation’s strong fourth quarter and full year 2025 results. Before diving into those very impressive results, I also want to cover the highlights of our recently announced merger with Cotera Energy. I am incredibly excited about this merger and what it means for our shareholders. The combination of these two outstanding companies creates a clear path to superior value creation that neither company could achieve independently. The merger unites complementary portfolios with substantial and overlapping positions across the best U.S. shale basins.

At the heart of this combined portfolio is a world-class position in the Delaware Basin, which will generate more than half of our total production and cash flow, backed by a decade-plus of top-tier inventory. Beyond the Delaware, the geographic diversity and balanced commodity mix provide strength throughout the volatility of the commodity price cycle. The scale and operational overlap of our combined platform will unlock substantial value. By implementing best practices, optimizing our cost structure, and maximizing our infrastructure utilization, we will capture significant synergies. In total, we expect to deliver $1 billion in annual pretax run-rate synergies by year-end 2027.

To be clear, these synergy targets are incremental to our business optimization program and reflect true operational and efficiency gains. And importantly, if there are any net reductions in activity levels, these capital savings will be incremental to our announced $1 billion target. I want to emphasize that we have a strong record of delivering on these business optimization wins. Our proven framework and experience will be leveraged to identify, deliver, and communicate these merger synergies. Another critical benefit to this transaction is the enhanced free cash flow generation from the pro forma company.

With this uplift, we plan to accelerate capital returns to shareholders through higher dividends and expect a significant new share repurchase authorization to deliver cash returns consistent with best-in-class peers. Bottom line, this transformative merger checks all the boxes and positions us to be an industry leader that delivers differentiated value to investors. With that strategic perspective, let us now turn back to Devon Energy Corporation’s impressive fourth quarter and full year 2025 results, which demonstrate the strong operational and financial momentum that we are bringing to this combination. Let us turn to slide four for a deeper look at how our disciplined execution delivered another quarter of exceptional results.

As you can see displayed on the left, beating on production, operating costs, and capital resulted in impressive free cash flow for Q4. Our production optimization efforts drove oil above the top end of the guide, fueled by strong new well performance and outstanding base production management. Operating costs significantly improved from the start of the year, reflecting enhanced reliability and relentless operational efficiency. Capital spending finished 4% better than guidance as we continue to capture drilling and completion efficiencies through advanced technology and a culture of continuous improvement. Combined, these efforts translated into $700 million of free cash flow, positioning us to return substantial value to shareholders.

I want to emphasize that these results are not just one-off isolated wins. They are direct outcomes of disciplined execution across our entire portfolio. This consistency is evident in our full year performance and reflects the effectiveness of both our strategy and our team. I also want to quickly highlight our impressive reserve performance for 2025. Our capital program achieved a reserve replacement rate of 193% of production at an F&D cost of just over $6 per BOE. While a single-year reserves booking should never be viewed as a sole measure of success, this result provides compelling evidence of the quality and sustainability of our advantaged multibasin portfolio. Turning to slide five.

You can see how our focus on operational excellence and disciplined execution culminated in outstanding full year 2025 results. Our track record speaks for itself. Quarter after quarter, we drove meaningful improvements to our outlook. Since our preliminary guidance, we delivered an incremental 9,000 barrels of oil per day while reducing capital spend by nearly $500 million. These results reflect a sustained commitment to margin enhancement, technology adoption, and continuous improvement across our entire organization. The impact is clear. Capital efficiency improved by more than 15% from our preliminary 2025 outlook, enabling us to extract more value from every dollar invested. Turning to slide six.

As we have shown many times in the past, our capital efficiency results rank consistently among the very best in the industry. On the left-hand side of the slide, our well productivity stands more than 20% above peer average. On the right side, Devon Energy Corporation’s capital efficiency outperforms industry by 13%. Together, leading well productivity and capital efficiency translate directly into the strong free cash flow generation that powers our cash return framework. Turning to slide seven. Another critical driver of Devon Energy Corporation’s strong performance is our business optimization program. In less than a year, we have captured 85% of our $1 billion target, and we are firmly on track to achieve the remaining savings during 2026.

As an aside, I think it is important to remind you that this goal is focused on sustainable free cash flow. The progress of this goal will manifest in multiples of this dollar amount to our enterprise value. This outlook of continued progress is supported by several key catalysts. The planned term loan repayment in the third quarter will deliver $50 million in annual interest savings. At the same time, we are accelerating the implementation of AI-enabled artificial lift optimization and advanced analytics well beyond the pilot programs that we have mentioned on prior calls. Additional benefits will come from operating cost improvements through condition-based maintenance and enhanced drilling and completion cycle times.

Beyond these initiatives, we have more than 100 active workstreams focused on driving sustained base production gains while reducing the capital required for our maintenance programs. Most importantly, this initiative has fundamentally transformed how we operate. Continuous improvement and accountability are embedded into our culture, empowering our teams to deliver sustainable value well beyond the initial target. Business optimization is no longer a program with an end date; it has become core to how Devon Energy Corporation operates every single day. Turning to slide eight. As we discussed last quarter, parallel to driving incremental value out of the day-to-day business, we are also regularly evaluating opportunities to rationalize our portfolio to enhance shareholder value.

Throughout 2025, we executed on strategic transactions via midstream, marketing, and leasing that collectively delivered over $1 billion of value uplift to our enterprise NAV. To be clear, these gains are in addition to the improvements from our business optimization initiative. New this quarter, I wanted to highlight our continued investment in Fervo Energy. We recently participated in their Series E funding round, bringing our investment to approximately 15% in this innovative geothermal energy company. Fervo is pioneering next-generation geothermal technology, and we see compelling strategic and financial opportunities in this partnership.

It leverages our core skills of geoscience expertise, land leasing, horizontal drilling and completions, and subsurface production and recovery skills, while positioning Devon Energy Corporation in a power-generating sector with significant growth potential. I will now hand the call over to Jeffrey L. Ritenour.

Jeffrey L. Ritenour: Thanks, Clay. Turning to slide nine. Devon Energy Corporation delivered another year of strong financial results. In 2025, we generated $3.1 billion in free cash flow, demonstrating the strength of our asset base and the effectiveness of our operational execution. This robust free cash flow enabled us to return $2.2 billion to shareholders through dividends, share buybacks, and debt retirement. We remain committed to growing our fixed dividend through the cycle. In 2025, we increased our quarterly dividend by 9% to $0.24 per share.

Following the expected close of the Devon Energy Corporation and Kotera merger, and pending board approval, we plan to raise our fixed quarterly dividend by another 31%, reflecting our strong confidence in the combined company’s ability to capture synergies and to deliver an enhanced cash return profile to shareholders. We are also focused on opportunistically reducing our share count, returning value through buybacks. Over the past year, we have reduced our shares outstanding by approximately 5% through disciplined repurchases. Following the merger close and with board approval, we anticipate a new share repurchase authorization of more than $5 billion, providing significant capacity to deliver strong per-share growth over the next several years.

In addition to dividends and buybacks, we also possess an investment-grade balance sheet and excellent liquidity. We ended the year with $1.4 billion in cash and a net debt-to-EBITDA ratio of less than one turn. This financial strength provides flexibility to invest in high-returning opportunities while consistently returning significant capital to our shareholders. Lastly, I want to touch on our outlook. Looking specifically at the first quarter, we expect production to average around 830,000 BOE per day. This guidance reflects approximately 10,000 BOE per day of weather-related downtime in January. Even with this temporary disruption, our previously provided full-year 2026 guidance remains unchanged. Upon the close of the merger, we plan to provide updated guidance for the combined entity.

Before we open the call to questions, I want to note that today, we would like to focus the Q&A on Devon Energy Corporation’s standalone results and outlook. As you can appreciate, we are limited in what we can discuss regarding the pending merger at this time. We expect to file our S-4 registration statement in the coming weeks, which will provide additional details on the transaction. With that, Operator, we will take our first question. We kindly ask that each caller limit themselves to one question.

Operator: Thank you. If you would like to ask a question today, please do so now by pressing star followed by the number 1 on your telephone keypad. As a reminder, to allow everyone a chance to ask a question today, we request that you please limit yourself to one question per person. Our first question comes from Neil Singhvi Mehta with Goldman Sachs. Neil, please go ahead.

Neil Singhvi Mehta: Yeah. Morning, Clay. I will try to speak on the standalone business here and just your perspective on the business optimization and where you are relative to the $1 billion of the pretax target. And what are the key milestones you are focused on in 2026? Of the buckets, which is the one that you feel you are most focused on as a management team right now?

Clay M. Gaspar: Yeah. Thanks for the question, Neil. We are really excited about the progress. You know, we launched this thing a year ago, and I can tell you it was a bit aspirational as we thought about how do we come up with all of these numbers. We knew that there was so much more potential to unlock. We did not have a line-by-line attribution to each individual piece. And I can tell you it has been really exciting to see the organization just really unlock around this. As we have talked about before, it has been very heavy leaning on technology. I think we are just scratching the surface on some of that real potential.

But as we mentioned in the prepared remarks, one year in we are now at 85%. We have clear line of sight to being able to achieve the full $1 billion. And I think, importantly, as we think about the skill set and the culture around identification, tracking, and communicating, I think that really translates into our next challenge going forward, which we are incredibly excited about. I might ask Trey just to give some additional thoughts as he is a little closer to this on a day-to-day basis.

Trey Lowe: Appreciate the question, Neil. Clay mentioned this in our opening comments that we now are up over 100 workstreams that we are tracking related to business optimization. We have a ton of confidence in what we see coming forward. Over the last few quarters, we have talked a lot about what we are doing in the production space, specifically with trials around gas lift optimization and a few other topics. What we can confidently say and what we are really excited about at the team level is a lot of the investments we have made in artificial intelligence and in the platforms that we have built over the last year are really coming to fruition in the production space.

We have seen those advantages already in the drilling results that we have had. You are going to start to see over first quarter and second quarter a lot of the projects that we trialed in 2025 start to scale. And so as we scale these things, which, all of these technologies are very scalable, do that across the entire organization. We are going to see a lot of benefits flow through on the production side, ultimately resulting in our ability to lower capital long term, and we will see improvements on the LOE. Thanks, guys.

Operator: Our next question comes from Neal Dingmann with William Blair. Neal, please go ahead.

Neal Dingmann: Good morning, Clay. Thanks for the time. My question is on the Delaware position, I guess, whether it is standalone or pro forma. I am just wondering with the larger upcoming position, is there plans to target even longer laterals and potentially upspace the wells to boost results? And then I am just wondering would you continue to be as active on the ground game there as you have been in recent months?

Clay M. Gaspar: Yeah. Thanks for the question, Neal. The Delaware Basin is just an incredible piece of business, stack of rocks, and a great place to work. And so incredibly excited about our current position and the pro forma position as well. What I would tell you is the truism of the best place to find oil is where you found oil before continues to hold true. We think about additional landing zones. We think about innovative technology. We think about improving recovery. We think about flattening our base decline, lowering our downtime. All of these mechanisms that we are so excited about absolutely translate into this incredible position that we have in the Delaware Basin.

You know, as we go forward, you bet, we are going to be in a very strong financial position to be opportunistic as we have been. I think that continues in a position of strength. You know, how we think about those opportunities, I think we will be in a great position to maximize those opportunities. So thanks for the question. Thanks, buddy.

Operator: The next question comes from Doug Leggate with Wolfe Research. Doug, please go ahead.

Doug Leggate: Thanks. Good morning.

Clay M. Gaspar: Clay. You are making it hard for us. Now we all want to ask questions about the merger and all that stuff, but we will try and behave ourselves and not do that.

Doug Leggate: Morning. So I do not want to waste my question on something you are not going to answer, so I am going to try something else. Exploration, Clay, you and I have talked about this before, about perhaps the loss of collective capability on some of your peers. We are seeing speculation, or perhaps not so much speculation, that you guys are now looking internationally. I wonder if you could just frame for us whether it is conventional or unconventional, domestic or international, what is the role of exploration in Devon Energy Corporation?

If I may ask you to opine just on a broader issue, what does this say about the maturity of U.S. shale if indeed you are pursuing opportunities elsewhere?

Clay M. Gaspar: Yeah. That is a great question, Doug. I am happy to talk about it. You know, when I think about it internally, we have some terminology we use around pillars. Pillar one is make Devon Energy Corporation a better Devon Energy Corporation, and that is clearly the focus around this business optimization, all of the work that we are doing with technology leaning in efficiency that just translates into everything else that we do. Importantly, buys us the credibility to be able to consider things above and beyond just making Devon Energy Corporation a better Devon Energy Corporation.

Pillar two is a little bit more organic in nature, and these are things that, you know, we mentioned Fervo on this call. We think about what the potential is from there. We have talked about exploration. We have clearly been interested in understanding the potential not just here in the U.S., but around the globe. I would tell you, those are long-dated investments, long-dated relationship builds, things that we need to evaluate over time. And as we know, the best time to evaluate those are when you are in an incredible position of strength. And so I think about our portfolio today, the free cash flow that we just displayed in full year 2025.

As I look forward to our capabilities going forward, this is exactly the right time for us to really think about leveraging not just our financial strength, but our operational strength.

And so when I think about the skills that we have and really exporting that or at least leveraging that into other opportunities, these things can be multiple years in the making, but we want to make sure that we are in a position where, one, we really objectively understand skills that we currently have, how we evolve those over time, where business opportunities are in adjacent businesses or businesses that look slightly different than what we do today, and then really hunt for those opportunities where that Venn diagram overlaps, and be in a ready position to be able to capture those opportunities, albeit most of those will evolve over time, but be ready to capture those and be positioned for that opportunity when those do come up.

What I would tell you is please do not mistake any work that we are doing for next-decade opportunities to conflate anything of a lack of confidence in the near term. The confidence in the near term is exactly why we need to be doing things to think about the next decade for Devon Energy Corporation and well beyond the positions that we are in today. Again, from a position of strength, that is exactly what we are doing, continuing to refine the skills that we have, think about things creative and beyond our current footprint, and then be ready for when those stars do align, then we can jump right on them.

Doug Leggate: You confirm the Kuwait interest, Clay?

Clay M. Gaspar: Yeah. What I would tell you is we have explored interest in a lot of places. That is a long, long way from putting material dollars to work. What I would tell you is to really understand the potential that we have. For example, the work that we are doing in resource plays domestically, clearly, there will be opportunities internationally.

For us to understand and evaluate where that potentially could fit in our long-term horizons, we absolutely need to be engaged in those conversations, getting our name out there, participating in that, so that we can understand the surface challenges, the kind of above-ground risks, and how do we quantify that and put it in context to other opportunities that we have.

So while I will avoid commenting on any one particular deal because I think it is way too early for any of that, I can confirm that we are exploring a lot of different ideas and opportunities so that, one, we have a better relative positioning and an understanding of what will absolutely fit us best for our longer-term horizons. Thanks for the question, Doug.

Doug Leggate: Terrific. Thanks.

Operator: Thank you.

Operator: The next question comes from Kalei Akamine with Bank of America. Please go ahead.

Kalei Akamine: Hey. Good morning, guys. My question is on cash OpEx. I am noticing that LOE plus GP&T on the full-year guide is lower than what you put in six to new. Can you talk about the cadence of the lower cost there and whether it is reflective of the GP&T optimization efforts on the NGL front?

John D. Raines: Clay, this is John. You cut out a little bit, so jump in if I am not answering your question. But just for the cadence on OpEx for the full year, we have continued to make consistent improvements on our workflow and our workover optimization. We have consistently reduced our failure rates. That really contributed to a lot of the drop in LOE plus GP&T for the full year. Going into Q4, we actually saw some tailwinds on some recurring items. Trey mentioned, and Clay mentioned in his comments, the condition-based maintenance approach. We are very early innings in that. We are starting to scale that.

We started changing some of our maintenance approaches in the Delaware Basin, and we have already seen some costs come out of the system. And so that contributed to the Q4 number. From a power standpoint, we have also energized two microgrids in the Delaware Basin. With that, we are able to release a lot of site-specific generation. So just good blocking and tackling on the LOE front. About the time you cut out, I think you were talking about Q1. We do see an uptick there on LOE plus GP&T. Really, what is driving that is twofold. One, it is a little bit of a soft spot in our volumes for the year.

As Jeff mentioned, we had the weather downtime that hit us in Q1. But then, very specifically, we have got line of sight to just some higher workover activity in the Williston that was mainly weather-driven, and then some workover activity in the Eagle Ford that is driven by some well cleanouts. On the GP&T front, you did see the drop-off in Q4, and that is absolutely related to one of our new gathering and processing contracts going effective in the Delaware Basin. And so that is at a much lower rate, and you are seeing that contribute as well.

Kalei Akamine: Sorry for dropping off.

John D. Raines: You did answer the question, John. Thank you.

Kalei Akamine: Okay. Thank you. The next—

Operator: The next question comes from John Freeman with Raymond James. Please go ahead.

John Freeman: Yeah. Thank you. Just following up on the last question on the OpEx side. It sounded like, Clay, maybe that when you talked about the expanding of the automation of the artificial lift optimization, and I think you said sort of above and beyond what you all had contemplated previously. I am just trying to get a sense. Does that mean that there is potential that you all could ultimately exceed that kind of $1 billion target with just sort of, whether it is that or some of the other talents that you all sort of outlined on slide seven?

I am just trying to get a sense of what is left to be accomplished for the billion and if there is potential upside based on some of this.

Clay M. Gaspar: Yeah, John. What I was really just trying to articulate and frame is that while we have achieved 85%, we have a great deal of confidence in being able to achieve the full billion. Yet more to come on that particular topic, but that will be something that will unfold in the coming quarters. Just again reiterating, we have not changed the $1 billion target. I think what has changed is just our approach that this is how we work going forward, and there are so many smaller wins that just do not make the headlines that I am equally excited about.

I see this kind of contagion around the organization and all parts of the company really contributing and thinking differently about how do they get their share of the contribution to this sustained free cash flow win. And to me, that is just a winning culture. So I really feel confident in the $1 billion, and I feel equally confident that there is more to come in regard to just the change in culture and innovativeness that we are leaning towards.

John Freeman: Thanks, Clay. Well done.

Clay M. Gaspar: You, John.

Operator: The next question comes from Arun Jayaram with JPMorgan. Please go ahead.

Arun Jayaram: Yeah. Good morning, gentlemen. I was wondering if you could just maybe provide some insights around the 2026 program. You are spending, or plan to spend, about $3.5 billion upstream. How should we think about capital allocation between regions outside of the Delaware? Looks like, you know, today, you are operating about half of your rigs in the Delaware. But how should we think about capital allocation between the Mid-Con, Williston Basin, Eagle Ford, Kirby?

Clay M. Gaspar: Yeah. Arun, I would say directionally, think of it pretty similar to how we have been allocating. Clearly, I do not want to get ahead of myself. Once we get the deal closed, that will be a first order of business. You know, as I mentioned on the last call, really thinking about those opportunities around capital allocation and stepping up the value creation there.

Arun Jayaram: Understood. And my follow-up is just you guys have had some really good opportunities in terms of portfolio management thinking about Matterhorn, and your investment in WaterBridge. Clay, I was wondering maybe you could elaborate on the ownership position in Fervo Energy. You know, I think Fervo, we saw them at Baker Hughes’s recent annual meeting, has some really unique technology in geothermal. But talk about the decision to invest in Fervo and value creation potential for Devon Energy Corporation shareholders from that?

Clay M. Gaspar: Thanks for the question, Arun. This is Trey.

Trey Lowe: I have been a part of the Fervo investment decision since we started at Devon Energy Corporation, and honestly, we originally got introduced to the team there through some of our technical contacts on the engineering and geoscience side. Fervo is a pioneer in a space with enhanced geothermal systems, and that basically means they are using horizontal drilling and multistage hydraulic fracturing to build out geothermal systems. And it looks a lot like what we have led the way on, the subsurface interpretation and with how we have characterized, as an example, hydraulic fractures. So we got to know them on a technical basis originally.

Then we met the management team, got to know the founders really well, and ultimately started to really see a lot of the things that we liked about what Fervo was doing, and wanted to support them and to better understand that geothermal business. That has led us over the last couple years to where we are today, where we are now a 15% owner in the business, and continue to be really enthusiastic about what they are doing. Operationally, they are having a lot of success. They continue to drive well cost down, and we have been supporting them with technical support throughout that process to help make their business better.

Arun Jayaram: Great. Thanks.

Operator: The next question comes from Phillip J. Jungwirth with BMO. Please go ahead.

Phillip J. Jungwirth: Thanks. Hi, good morning. I will try not to ask this in relation to the merger, but Jeff will be heading up commercial, which has become an increasingly important role for large E&Ps. So the question is more just how do you see the commercial opportunity for Devon Energy Corporation standalone, and where is the current focus now for the company?

Clay M. Gaspar: Well, I think that does venture into an area we probably do not want to spend too much time on, but I can reiterate what we said on the last call. Once we get the company combined, the management team, the new board, I think it is going to be a really exciting platform to reevaluate, as I just mentioned, some things near term like capital allocation. Also thinking about asset rationalization, thinking about some of these long-term opportunities. Remember, we are going to have an incredible financial footprint, operational footprint, portfolio, I think that just really opens up the door to a lot more possibilities.

So without getting too far ahead of ourselves, I would just say the financial foundation is there. And we feel really good about that positioning and really opening the doors to additional opportunities.

Phillip J. Jungwirth: Makes sense. Appreciate the answer.

Operator: The next question comes from John Freeman with Johnson Rice. Please go ahead.

John Freeman: Morning, Clay, to you and the whole Devon Energy Corporation team there. I do not intend to make this a post-deal question, but I acknowledge it may be. But I wondered if you could talk about the dividend, how you chose that new level. It is a big bump. And what the thought process is there to arrive at, you know, $0.315 is the right number?

Clay M. Gaspar: Yeah. I think a big bump from our side. From the Kotera side, it is basically on par with what they had been doing. And so I think that was the foundation. Now, obviously, again, this is all presupposing a little bit on what the new pro forma board will approve, but we have got it to $0.315, which, again, is a nice bump on our side. And then, in combination, we also project that the board will approve a very substantial share repurchase program. I think that gives us a lot of latitude in addition to being able to pay down some debt that is coming due.

I think it just gives us a great framework of opportunities to return this very significant free cash flow directly back to shareholders.

John Freeman: That is great. Thanks, Clay.

Clay M. Gaspar: You bet, Charles.

Operator: The next question comes from Paul Cheng with Scotiabank. Please go ahead.

Paul Cheng: Thank you. Good morning, team. In the fourth quarter, the results are really very impressive. I mean, you have lesser number of Q and then production is actually higher than expected. I just want to see how we pick the bowl, or if there is some one-off item that we should be aware of, such as the timing of when the wells come on stream. Anything that you can share on that? And also, for the outperformance, how much is really coming from the new well and how much is from the base operation doing better?

Clay M. Gaspar: We did have an outstanding fourth quarter. That is on the back of quarter-after-quarter performance. There is an overall downdraft in cost structure. That is efficiency. That is technology. There is also an updraft in productivity. So thinking about how do we get more out of these precious resources that we have in the portfolio today. And what you see in the fourth quarter is that really coming together. Well, quarter to quarter, it is always going to vary just a little bit. I mean, you bring on these big pads. Just a shift in a couple of weeks from beginning to a little bit later in the quarter can manifest in different near-term ebbs and flows.

I would look at the overall quarter-over-quarter progress, and I think that I feel very confident in extending well into 2026 and beyond. I think that is what we are most excited about. This business optimization was really code for how do we all get really hungry and really creative on that incremental value opportunity. I might turn to John and ask him his thoughts on the balance of new wells.

John D. Raines: Yeah. Thanks, Clay. I mean, really, the story is twofold. We did have some help from timing on the wedge. We had three incredible programs come on in the fourth quarter. The timing helped, but also the wells all outperformed our internal expectations there. The well mix for us, it changes quarter to quarter. But we had a pretty balanced well mix. These three programs in particular had good balance of Wolfcamp B, Bone Spring, but also Wolfcamp A. So all of those things were contributing factors, but Clay is right. We would be remiss not to talk about the base. Throughout the course of 2025, we saw a lot of production optimization through various projects on the base.

And all in all, for the full year, the base outperformed by about 5,000 barrels of oil a day. So when you think about that type of contribution on the base, it is almost 2% of the base. That is just a huge part of our business and an exceptional result and exceptional value to the company.

Paul Cheng: Hey, John. What is the underlying base decline that we are right now for you guys?

John D. Raines: Paul, if you were asking about decline rates, right now our base decline rate is right in the mid-30% range.

Paul Cheng: Does that change from previously? Or that is still the same? Because I would imagine with your better base operation, your underlying rate should be lower or should be less.

John D. Raines: Yeah. I would say we have had some tailwinds on the base. The decline rate itself has not changed dramatically year-over-year. Now, granted, we are, call it, one year into a lot of these production optimization projects. What I would tell you is our downtime is significantly lower. Historically, that was in the 7% range. As we go into this year, we are looking at something inside of 5%. So that is really where you are seeing a lot of the base wins show up.

Paul Cheng: Thank you.

Operator: Thank you.

Operator: The next question comes from Kevin McCurdy with Pickering Energy Partners. Please go ahead, Kevin.

Kevin McCurdy: Hey. Good morning. I wanted to stick on the Delaware productivity as it was very impressive in 4Q. Is there anything you can comment on the standalone 2026 program and how it compares to the 2025 program in terms of the zones you are targeting, the geography, and the forecasted productivity?

John D. Raines: Yeah. Great question. I will hit on that at a high level. So just top line, 2025 well productivity, 2026 is going to look very similar to that. We moved more wholesomely into the multi-zone co-development in 2025. We are firmly into that development methodology, so you will see very consistent well productivity in 2026. When I think about the mix, the one thing I would ask folks to consider is I am going to talk about the full year, but these things can vary pretty significantly quarter to quarter. But as I think about the program, about 90% of our activity is going to be weighted to New Mexico.

When I break that down a little bit further by area, we will see a little bit of an uptick in Todd this year. In the Delaware, it is about 30%. Cotton Draw is about 25%. Stateline is about 15%, and the balance of that activity is really spread out across the remainder of the Delaware Basin. Zone mix is another thing. We have got a lot of diversity in the zones for 2026, just like we did in 2025. But just to break it down at a high level, we are about 40% Wolfcamp, we are about 45% Bone Spring, and about 15% Avalon.

So all those things are very similar to 2025, and because of that, we are expecting pretty consistent year-over-year well productivity.

Kevin McCurdy: Great detail. Thank you.

Operator: Our final question today comes from Matthew Portillo with TPH. Please go ahead.

Matthew Portillo: Good morning, Clay and team. I actually had a question on the Bakken. Looking into state data, you already have an impressive mix of three-mile laterals in the development program. As you continue to shift more capital to the Grayson acreage, I was just curious how that mix shift might change for three- to four-mile lateral development moving forward and what that might mean for the breakeven of the asset base?

John D. Raines: Yeah, Matt. Great question. I mean, when you look back at 2025, admittedly, our lateral lengths were a little bit probably shorter than what we wanted just given the layout of some of the units that we had last year. So we averaged closer to about a two-mile lateral in the Williston. As you fast forward into 2026, we are going to average something closer to a three-mile lateral. But when you look at the breakout, we are starting to introduce four-mile laterals into the equation. We are actually drilling our first four-mile pad right now. So the teams have continued to optimize the program for longer lateral development.

And, of course, as you go longer, you are enhancing the economics of those programs, and the breakevens are coming in pretty significantly.

Matthew Portillo: Thank you.

Clay M. Gaspar: It looks like we have kind of exhausted the question list. Thanks for your interest today. And if you have further questions, please reach out to the Investor Relations team. Have a good day.

Operator: Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.

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