DBRS Confirms Devon Energy Corp. & Subsids at BBB & BBB(low)

Dominion Bond Rating Service (“DBRS”) has confirmed the ratings for Devon Energy Corporation (“Devon” or the “Company”) and its related subsidiaries as indicated above. The rating trends remain Positive reflecting the following factors:
(1) Supported by a strong pricing environment Devon has substantially improved its balance sheet, with debt-to-capital (including operating leases) declining to 37% at March 31, 2005, from 62% at year-end 2002. The Company has also built a significantly improved liquidity position with cash on hand of US$2.5 billion, which will be available to repay almost US$2 billion of debt maturing over the 2005-2007 period, further strengthening its balance sheet. Devon’s US$2.7 billion-US$3.1 billion capital budget for 2005 can be managed comfortably, with substantial excess cash flow expected. Earnings and cash flow should remain strong in 2005.
(2) The Company is near completion of its announced asset sales program, with total proceeds net of tax expected to be about US$2 billion, or 33% higher than initial expectations. The assets being sold are generally higher decline fields, the sale of which should improve Devon’s reserve life index, which has been somewhat below peer average. Proceeds from the asset sales are being directed toward share repurchases throughout the remainder of 2005, the bulk of which was completed in the second quarter of 2005. However, debt repayment and retaining a strong balance sheet remain Devon’s first priority, and share repurchases will be prudently managed going forward. Balance sheet leverage on a net basis should be maintained in the low 30% range in 2005.
(3) Operationally, Devon is one of the largest oil and gas producers in North America, with production weighted about 60% toward natural gas and located about 87% in the U.S. and Canada. Although the Company’s U.S. onshore asset base is relatively mature and production is more expensive and difficult to maintain, Devon has positioned itself well through acquisitions in recent years that should provide good medium-term growth opportunities. The Company has made significant investments in a number of areas that should drive growth over the next few years, including: (a) the Barnett Shale in Texas that has substantial low-risk development opportunities; (b) the deepwater Gulf of Mexico, which despite higher risk, should provide significant growth; and (c) western Canada oil sands development from long-life reserves and, to a lesser extent, natural gas. The Company has exhibited weak internal reserve replacement performance in recent years, notwithstanding substantial growth through acquisitions. However, internal reserve replacement should improve to the 145%-170% range in 2005, and should be sustained at that level for the next several years as the Company focuses less on acquisitions and more on opportunities within its portfolio.

Notes:
Devon Finance Corporation’s rating is based on the irrevocable guarantee of Devon Energy Corporation.
Devon Canada Corporation’s rating is based on Devon Energy Corporation, but is one “notch” below it, reflecting the lack of an irrevocable guarantee.