Devon Energy's 1Q06 Earnings Increase 24%

Devon Energy Corporation (NYSE: DVN) reported net earnings for the quarter ended March 31, 2006, of $700 million, or $1.58 per common share ($1.56 per diluted common share). These results compare with first-quarter 2005 net earnings of $563 million, or $1.17 per common share ($1.14 per diluted common share). Net earnings increased 24 percent in the first quarter of 2006 compared with the first quarter of 2005. Diluted earnings per share increased by a greater 37 percent in the most recent quarter. This dramatic growth in earnings per share reflects both improved operating performance and the effects of Devon's share repurchase initiatives. Devon has been repurchasing its common stock since 2004, significantly reducing the number of shares outstanding. The company had an average of 449 million diluted common shares outstanding in the first quarter of 2006, compared with an average of 496 million diluted shares outstanding in the 2005 first quarter.

First-quarter 2006 reported net earnings of $700 million were reduced by certain items securities analysts typically exclude from their published estimates. Excluding these items, Devon earned $793 million, or $1.76 per diluted share. The excluded items are described in detail in this news release.

Drilling Activity Includes 300th Horizontal Barnett Shale Well

Devon drilled 656 wells in the first quarter of 2006 with a 98 percent overall success rate. Notable operations in the quarter included:

     *  62 wells drilled by Devon in the Barnett Shale in north Texas and
        preparations to drill more than 300 wells in total in the field during
     *  Initiation of production from Devon's 300th operated horizontal
        Barnett Shale well. Devon is the largest producer in the field with
        2,164 total wells producing.
     *  Completion of Devon's first horizontal wells in the Groesbeck area in
        east Texas. These wells are yielding production rates four times
        greater than typical vertical wells but at just two and a half times
        the cost.
     *  Commencement of an extended production test of the deepwater Jack well
        in the Gulf of Mexico's lower Tertiary trend. Test results are
        expected in the second half of 2006.
     *  Drilling 30 wells in the Iron River field and 45 wells in the
        Manatokan and End Lake fields in the Lloydminster area of western
     *  Continuation of platform fabrication for the offshore Polvo project in
        Brazil. Devon expects first oil production from Polvo in July of 2007.

    Higher Prices and Expiration of Hedges Drive Sales Growth

Sales of oil, gas and natural gas liquids increased 17 percent to $2.3 billion in the quarter ended March 31, 2006. Higher realized oil, gas and natural gas liquids prices more than offset lower production volumes in the first quarter of 2006. Another factor increasing Devon's 2006 oil and natural gas sales relative to 2005 was the expiration of hedges that capped realized prices in 2005. None of Devon's 2006 oil or natural gas production is currently hedged.

Devon's first-quarter 2006 average realized natural gas price increased 30 percent to $7.13 per thousand cubic feet in 2006, compared with $5.50 per thousand cubic feet in 2005. The first-quarter 2006 average realized oil price increased 55 percent to $53.35 per barrel compared with $34.47 per barrel in 2005. The average realized price for natural gas liquids in the first quarter of 2006 was $30.18 per barrel, 24 percent greater than the $24.30 per barrel realized in the first quarter of 2005.

On a barrel of oil equivalent (Boe) basis, Devon's combined oil, gas and natural gas liquids production averaged 568 thousand Boe per day in the first quarter of 2006. This was 14 percent less than first quarter 2005 average daily production of 660 thousand Boe per day. The decrease in 2006 production was primarily attributable to property divestitures completed subsequent to the first quarter of 2005 and the impact of hurricanes in the second half of 2005. If not for the impact of the 2005 hurricanes, first-quarter 2006 production would have been approximately two percent above first-quarter 2005 production from retained properties.

Marketing and midstream operating profit increased 45 percent in the first quarter of 2006 to $123 million. Marketing and midstream revenues increased 11 percent to $462 million. Related expenses increased only two percent to $339 million.

Operating Cost Pressures Mitigated by Divestitures

Devon's divestiture program in 2005 included properties selected in part because of higher relative operating costs. Divesting higher cost properties has mitigated somewhat the effects of rising costs of oilfield services and supplies. Consequently, first-quarter 2006 lease operating expenses were essentially unchanged at $349 million in the first quarter of 2006 compared with $348 million in the first quarter of 2005.

Production taxes increased six percent to $83 million in the first quarter of 2006. This increase reflects the significant increase in oil and gas revenues.

Depreciation, depletion and amortization (DD&A) of oil and gas properties decreased six percent to $507 million compared with $541 million in the first quarter of 2005. Unit DD&A increased nine percent to $9.92 per Boe.

General and administrative (G&A) expenses increased 54 percent to $90 million compared with the first quarter of 2005. First-quarter 2006 expenses include $6 million for stock option compensation costs. Beginning in 2006, accounting rules require that these costs be expensed.

Interest expense for the first quarter of 2006 decreased to $101 million. This was 14 percent lower than in same quarter in 2005.

Income tax expense was $427 million in the first quarter of 2006, or 38 percent of pre-tax earnings. This included $123 million of deferred taxes that do not require the use of cash.

Cash Flow Before Balance Sheet Changes Increases to $1.5 Billion

Cash flow before balance sheet changes reached $1.5 billion in the first quarter of 2006. This allowed Devon to fund its $1.4 billion exploration and development program, increase dividends and repurchase common stock.

At March 31, 2006, cash and short-term investments were $2.2 billion. At March 31, 2006, net debt had been reduced to 19 percent of adjusted capitalization, compared with 25 percent at March 31, 2005. Reconciliations of cash flow before balance sheet changes, net debt and adjusted capitalization, which are non-GAAP measures, are provided in this release.

Items Excluded from Published Earnings Estimates

Devon's reported net earnings include items of income and expense that are typically excluded by securities analysts in their published estimates for the company's financial results. These items and their effects upon first-quarter 2006 reported earnings were as follows:

     *  A change in fair value of derivative financial instruments decreased
        first-quarter 2006 earnings by $12 million pre-tax ($8 million after
     *  A reduction in the carrying value of oil and gas properties reduced
        first-quarter 2006 earnings by $85 million before and after income

The following table summarizes the effects of these items on first-quarter 2006 earnings and income taxes.

     Summary of Items Typically Excluded by Securities Analysts
     (in millions)                                                   Cash Flow
                                Pretax                       After-tax  Sheet
                               Earnings  Income Tax Effect    Earnings Changes
                                Effect Current Deferred Total  Effect  Effect
    Change in fair value of
     financial instruments      $(12)    ---     (4)     (4)    (8)      ---
    Reduction in the carrying
     value of properties         (85)    ---    ---     ---    (85)      ---
       Totals                   $(97)    ---     (4)     (4)   (93)      ---

In aggregate, these items decreased first-quarter 2006 net earnings by $93 million, or 21 cents per common share (20 cents per diluted share).


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