Devon's first quarter after closing the Coterra merger: production rose 62% to 1,359 MBoe/d and net earnings more than doubled to $1.91B ($2.03/share), helped by $92 oil and a $530M non-cash hedge gain, while Permian gas sold below zero.
Revenue
$7.4B
+73.1% YoY
Net income
$1.9B
+112.6% YoY
Diluted EPS
$2.03
+44.0% YoY
Overview
Devon Energy's second quarter of 2026 (April–June) was its first as a combined company with Coterra Energy. The all-stock merger closed on May 7, 2026, so the quarter includes about eight weeks of Coterra's wells. That timing drives almost every comparison with last year. Net earnings attributable to Devon rose to $1,911 million from $899 million, and diluted earnings per share (EPS, profit divided by the number of shares) rose to $2.03 from $1.41. Four things lifted the result: output up 62% because of the merger, oil prices up sharply (WTI averaged $92.47 a barrel against $63.95 a year earlier), a $530 million paper gain on hedging contracts, and a $201 million gain on Devon's stake in the geothermal company Fervo. Against that, natural gas from the Permian Basin sold at negative prices, and merger costs came to $246 million.
EPS grew much less than profit (44% against 113%) because Devon issued about 531.6 million new shares to Coterra's owners. Average diluted shares rose from 636 million to 940 million, so each share's slice of the larger profit grew less.
Key metrics — Q2 2026 vs. Q2 2025
Metric
Q2 2026
Q2 2025
YoY Change
Total revenues
$7,417M
$4,284M
+73.1%
Oil, gas & NGL sales
$5,106M
$2,710M
+88.4%
Net earnings attributable to Devon
$1,911M
$899M
+112.6%
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Operating margin is shown as n/a because Devon's income statement has no "operating income" subtotal. It lists all expenses, including financing costs, in one block, so the filing gives no figure to compute that margin from. "Boe" means barrel of oil equivalent, a common unit that converts gas to barrels at 6,000 cubic feet per barrel. "MBoe/d" means thousands of Boe per day.
Year to date (six months): total revenues were $11,224M (up 28.5% from $8,736M), net earnings attributable to Devon were $2,031M (up 45.8% from $1,393M), diluted EPS was $2.60 (up 19.8% from $2.17), and operating cash flow was $5,329M (up 52.8% from $3,487M). The first half is much weaker than Q2 alone because Q1 2026 earned only $120M, after a $644M hedge valuation loss.
Why GAAP profit swings so much: the hedges
Devon uses derivative contracts, mostly "collars", to lock in a range of prices for part of its future output. A collar protects Devon if prices fall below a floor. In return, Devon gives up the gain above a ceiling. Accounting rules require Devon to revalue every open contract to market prices each quarter and book the change as profit or loss, even though no cash changes hands until the contract settles. That is why reported profit can jump around from quarter to quarter.
Hedge line (in $M)
Q2 2026
Q1 2026
Q2 2025
Cash settlements (real cash paid or received)
(116)
(57)
67
Valuation changes (non-cash, on open contracts)
530
(644)
169
Total "oil, gas and NGL derivatives" in revenue
414
(701)
236
Two separate effects show up in Q2:
In cash, the hedges cost Devon money. With WTI above $90, oil contracts with ceilings in the low $70s paid out to the other side of the trade: $321M on oil. Gas hedges partly offset that, bringing in $205M because Henry Hub fell. The net cash cost was $116M. On oil alone, hedging cut Devon's realized price from $95.10 to $88.09 a barrel.
On paper, the hedges produced a $530M gain. Q1 had a $644M paper loss. According to the 10-Q, these fair-value changes come from new positions, contracts settling during the period, and where contract prices stand against the futures curve. When a loss-making contract settles, the paper loss already booked for it is reversed. The actual cash loss then shows up in settlements instead.
Devon's own "core earnings", a non-GAAP measure (not defined by accounting standards) that strips out items analysts usually exclude, were $1,479M, or $1.57 per diluted share, against $2.03 reported. Per the earnings release (8-K Exhibit 99.2), the adjustments after tax were: hedge and financial-instrument valuation gains −$408M, the Fervo gain −$155M, a deferred-tax-asset valuation allowance item −$56M, asset sale gains −$20M, merger restructuring and transaction costs +$201M, and impairments +$6M. Q1 2026 core EPS was $1.04. The release does not give a Q2 2025 core figure, so this report makes no like-for-like core comparison with last year.
The year-ago quarter also had a one-off: a $307M pre-tax gain ($239M after tax) from selling Devon's stake in the Matterhorn pipeline. That flatters Q2 2025 and makes this year's growth look slightly smaller than it was.
Production by basin
Basin (MBoe/d)
Q2 2026
Q2 2025
YoY Change
Permian (incl. Delaware)
748
498
+50.2%
Rockies
192
189
+1.6%
Anadarko
128
90
+42.2%
Marcellus
210
—
new (Coterra)
Eagle Ford
77
60
+28.3%
Other
4
4
—
Total
1,359
841
+61.6%
By product, oil was 503 MBbls/d (up from 387), gas was 3,252 MMcf/d (up from 1,388, +134%), and natural gas liquids (NGLs, such as ethane and propane) were 314 MBbls/d (up from 222). The 10-Q says the former Coterra assets contributed about 488 MBoe/d in Q2. Without them, Devon's own production would be about 871 MBoe/d (our subtraction), roughly 4% above last year. Most of the headline growth is therefore the acquisition, not new drilling. Coterra's Marcellus gas business also shifts the mix toward natural gas. Oil fell from 46% of output to 37%.
Devon's Q2 oil output was 503 MBbls/d, "at the top-end" of guidance. The earnings release credits better-than-expected well performance, mainly in the Delaware Basin.
Prices: strong oil, broken Permian gas
Price
Q2 2026
Q2 2025
YoY Change
WTI benchmark ($/Bbl)
$92.47
$63.95
+44.6%
Oil realized, before hedges ($/Bbl)
$95.10
$61.70
+54.1%
Oil realized, with hedges ($/Bbl)
$88.09
$62.97
+39.9%
Henry Hub benchmark ($/Mcf)
$2.90
$3.44
−15.7%
Gas realized, before hedges ($/Mcf)
$0.35
$1.41
−75.2%
— of which Permian gas ($/Mcf)
$(2.03)
$1.34
—
— of which Marcellus gas ($/Mcf)
$2.17
—
—
NGL realized, before hedges ($/Bbl)
$22.70
$17.71
+28.2%
Oil sold slightly above the WTI benchmark (103% "realization"). The 10-Q links higher oil prices to conflict in the Middle East and disruptions to global oil supply. Gas went the other way. Devon's average gas price was just 12% of Henry Hub, and Permian gas sold for −$2.03 per thousand cubic feet. In other words, Devon effectively paid to have it taken away. The 10-Q attributes this to "expanded regional gas price differentials in the Permian, including negative spot pricing at the Waha hub". In plain terms, there are not enough pipelines to move the gas that comes up with Permian oil, so the local price collapses. Management says these price gaps "began improving in June 2026". It expects further improvement as new pipeline capacity starts in the second half of 2026 and early 2027. Its Q3 guidance for gas is 50–60% of Henry Hub, well above Q2's 12%.
Costs
Production expenses rose to $1,393M from $899M, mostly because of the merger. Cost per unit moved in both directions. Lease operating expense (the day-to-day cost of running wells) fell to $5.06/Boe from $6.48 in Q1. Gathering, processing and transportation rose to $3.16/Boe from $2.54; the 10-Q attributes both per-unit moves to "a different post-merger asset and product mix". G&A per Boe fell to $1.41 from $1.67. Depletion (DD&A, the non-cash cost of using up reserves) was $1,416M, or $11.19/Boe for oil and gas.
Cash flow, capex and free cash flow
Operating cash flow (GAAP): $3,674M (Q2 2025: $1,545M). That figure includes a $924M boost from working capital, such as more money owed by customers and to suppliers after the merger. The company's measure before those balance-sheet changes was $2,750M.
Capital expenditures: $1,318M in cash (Q2 2025: $956M). The accrued figure was $1,269M, which the release says was 2% below the midpoint of guidance. Permian took $786M of the cash spend, Rockies $197M, Eagle Ford $117M, Anadarko $109M and Marcellus $64M.
Adjusted free cash flow: $1,655M (non-GAAP, per 8-K Exhibit 99.2). Free cash flow is the cash left after paying for the drilling program. This version is adjusted operating cash flow of $2,924M, which excludes working-capital swings and adds back $174M of after-tax merger restructuring costs, minus $1,269M of accrued capex. Devon reinvested 43% of that cash flow in capex.
The big cash outflow was an acquisition, not drilling. Devon paid about $2.6B at a federal (BLM) lease sale for roughly 16,300 net acres in the Delaware Basin in New Mexico. The release says this adds about 400 drilling locations, with development planned from 2027. It was paid from cash on hand, so cash fell to $1.0B from $1.8B at the end of Q1.
Shareholder returns and balance sheet
Fixed dividend raised 33% to $0.32 per share at closing, from $0.24. The Q2 payout was $366M, and the same rate is declared for Q3. No variable dividend was paid. The 10-Q says Devon "may" pay one, but capital returns beyond the fixed dividend are going through buybacks.
New $8.0B buyback program, running to June 30, 2029. The cash-flow statement shows $197M of repurchases in Q2. The release puts it at 4.3M shares, and the 10-Q at about 4.4M shares for about $202M (≈$45.48 per share), counted through a slightly different date. Buybacks reached about $300M through July.
Debt: Devon took on about $3.5B of Coterra debt at closing. In Q2 it repaid $500M: $250M of the term loan and early redemption of $250M of 3.77% notes due September 2026. In July it repaid the remaining $750M of the term loan. Total debt at June 30 was $11,388M and net debt was $10,379M. Per the release, that is 1.2 times trailing annual EBITDAX (earnings before interest, taxes, depletion and exploration costs), up from 0.9 times. Devon has no debt maturities until Q2 2027.
The release counts $1,063M returned to shareholders in the quarter: dividends of $366M, buybacks of $197M and debt reduction of $500M.
Takeaway: The $2.03 EPS overstates the underlying quarter. About $0.46 per share came from a non-cash hedge revaluation, a one-off gain on Fervo and a tax item, partly offset by merger costs, which leaves core EPS at $1.57. In cash, the hedges actually cost Devon $116M. The real story is scale plus oil price: the merger added about 488 MBoe/d and $92 WTI lifted oil revenue. Those gains were partly offset by Permian gas selling below zero, which will not improve until new pipelines are running.
Guidance and outlook
Management kept full-year 2026 guidance "unchanged from June". That guidance covers standalone Devon plus Coterra from May 7:
Guidance
Q3 2026
Full-year 2026
Total production (MBoe/d)
1,660–1,690
1,364–1,398
Oil (MBbls/d)
550–560
495–505
Total capital
$1,400–1,500M
$4,800–5,000M
Gas price, % of Henry Hub
50–60%
40–50%
LOE per Boe
$4.60–4.90
$5.00–5.20
The 10-Q puts capex for the rest of 2026 at $2.7–2.9B. The merger target is at least $1.0B of annual pre-tax synergies (cost and efficiency savings) on a run-rate basis by year-end 2027, with about $600M captured during 2027. Devon has also started an "asset-by-asset" portfolio review of the combined company, so asset sales are possible.
Our read: Q3 will be the first full quarter with Coterra, so production and cash flow will step up again mechanically. Q3 guidance of 1,660–1,690 MBoe/d is roughly 22–24% above Q2. Three things to watch:
Waha gas prices. Improving Permian takeaway is the main source of upside that Devon doesn't have to drill for.
Hedge settlements if oil stays high. About 30% of remaining 2026 oil is hedged, much of it in collars with ceilings around $72–73 a barrel (per the hedge schedule in the release), so cash hedge losses will continue while WTI is above that level.
Leverage and buybacks. Net debt rose to about $10.4B after the $2.6B lease purchase. The pace of buybacks against the $8.0B authorization will show how much cash management is willing to hand back while the balance sheet absorbs that purchase.
The 10-Q also mentions a possible material cash deposit tied to Canada Revenue Agency tax assessments on Devon's former Canadian business, which Devon says it will contest.
Sources: Devon Energy Form 10-Q for the quarter ended June 30, 2026 (filed August 5, 2026). Core earnings, adjusted free cash flow, net debt/EBITDAX, per-basin realized prices and Q3/full-year guidance come from Devon's Q2 2026 earnings release and supplemental tables (Form 8-K, Exhibits 99.1 and 99.2, August 4, 2026). Non-GAAP figures are the company's own.