Devon Energy NYSE: DVN reported first-quarter 2026 results that management said reflected stronger-than-expected operational execution, lower capital spending and robust free cash flow, while also outlining plans for the company’s pending merger with Coterra Energy.
President and Chief Executive Officer Clay Gaspar said Devon’s oil production reached 387,000 barrels per day in the quarter, at the top end of the company’s guidance range. Capital spending came in 6% below the midpoint of guidance, which Gaspar attributed to drilling and completion efficiencies and operational execution across the company’s program.
Those results helped Devon generate $816 million of free cash flow during the quarter. Gaspar said the outcome reflected “operational excellence and financial discipline” and was not an isolated performance.
“That kind of consistency doesn’t happen by accident,” Gaspar said. “It’s the direct outcome of the exceptional talent and commitment of our teams across every basin.”
Business Optimization Target Reached Ahead of Schedule
Gaspar said Devon expects to achieve its $1 billion business optimization target ahead of schedule, with contributions from capital efficiency, production optimization, commercial improvements and corporate cost reductions.
Management framed the initiative as a continuing operating model rather than a one-time cost program. Gaspar said the company plans to apply the same approach to the integration of Coterra once the merger closes.
Technology and artificial intelligence were a major theme of the call. Gaspar said Devon has used an internal, firewalled AI tool called ChatDVN for three years and described the company as moving through “three waves” of AI adoption, from improving access to internal data to redesigning processes around AI.
John Raines, senior vice president of asset management, said Devon has deployed AI-driven autonomous artificial lift optimization on more than 850 wells, with plans to expand toward 1,500 wells across the portfolio. Raines said a 2025 pilot of the company’s smart gas lift program showed a 2% to 3% uplift, and early results from broader implementation have exceeded the pilot phase.
Coterra Merger Expected to Close
Gaspar said Devon and Coterra shareholders voted overwhelmingly on May 4 to approve the merger, which the company expected to close the following day. He said the combination would create one of the largest independent exploration and production companies in the U.S., with increased scale, deeper inventory and a stronger free cash flow profile.
Devon expects to provide combined full-year guidance in mid-June after management and the board align on the company’s plan.
Gaspar said the $1 billion synergy target for the merger should be considered “the floor, not the ceiling.” He said integration teams had already identified 156 distinct value capture opportunities, including drilling and completion capital optimization, production upside and capital reallocation within the combined portfolio.
Subject to formal board approval, Devon plans to increase its dividend by more than 30% on a per-share basis starting in the second quarter. Gaspar also said both companies paused share repurchase programs between announcement and close, which allowed them to build cash during a stronger commodity price environment. He said Devon expects its buyback program to resume immediately after closing, with the potential to increase repurchase activity beyond legacy levels.
Portfolio Review to Follow Combination
Management repeatedly emphasized that Devon will conduct a full review of the combined company’s assets after the merger. Gaspar said every asset “has to compete for its capital and earn its seat at the table,” while cautioning that the company does not have predetermined outcomes.
In response to analyst questions, Gaspar said the review would consider capital efficiency, inventory depth, free cash flow and overall strategic fit. He said Devon would evaluate potential actions based on whether they leave the company “stronger” and “more focused.”
Gaspar also said applying the expected merger synergies could change how assets rank within the portfolio, particularly if lower drilling and completion costs or improved production performance enhance returns.
Asked about possible divestitures, Chief Financial Officer Jeff Ritenour said Devon would evaluate any transactions on an after-tax net present value basis. He said the company would consider structures such as exchanges or joint ventures where appropriate to reduce tax impact and maximize free cash flow.
Permian Gas, Taxes and Capital Allocation
On Permian natural gas pricing, management said Devon has only marginal exposure to Waha pricing and has worked to reduce that exposure through transportation capacity and production management. Gaspar said the company has pulled back production from higher gas-oil ratio wells during periods of weak pricing.
Ritenour said the Blackcomb Pipeline, expected to come online later this year, should further limit Devon’s Waha exposure to roughly 10% to 15% going forward.
Ritenour also addressed taxes, saying Devon’s first-quarter tax results benefited from a shift between deferred and current taxes. He said higher commodity prices and capital efficiency were increasing pre-tax income and accelerating use of the company’s tax shield. On a standalone Devon basis, he said full-year current taxes were still expected to be around 10%, though higher in coming quarters than in the first quarter.
Gaspar said the company’s larger free cash flow base after the Coterra deal will be allocated across dividends, share repurchases and debt repayment, subject to board discussions. Ritenour said investors should expect the combined company to maintain balance sheet strength consistent with the historical approach of both Devon and Coterra.
Fervo Investment and Market Outlook
Devon also highlighted its investment in Fervo Energy, which recently filed an S-1 for an initial public offering. Gaspar said the filing provides a public marker for Devon’s investment and reflects value created through a partnership that applies Devon’s expertise in geoscience, horizontal drilling, completions and data analytics to geothermal energy.
Trey Lowe, senior vice president and chief technology officer, said Devon remains focused on supporting Fervo as the company continues to de-risk enhanced geothermal systems. He said demand for firm, always-on power in the U.S., especially in the western part of the country, has strengthened the investment case.
On the macro environment, Gaspar said Devon continues to monitor global oil supply and demand, international storage levels and the back end of the oil futures curve rather than making decisions based on short-term price moves. Ritenour said Devon’s marketing team has seen benefits from its oil export program, including premiums relative to domestic opportunities in the back half of the first quarter, with continued strength expected in the second quarter.
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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