Defining Devon / 2005 Annual Report – DEVON ENERGY CORPORATION How we are defined byothers is as important as how we define ourselves. Contents Page 6 Letter to Shareholders – Larry Nichols reviews the year and shares the company’s strategy. Page 8 Five-Year Highlights – Financial highlights from the past five years. Page 0 Q&A – Management answers Wall Street’s questions. Page 3 Community Partners – Devon and its employees give back to communities. Page 6 Environmental, Health and Safety – Safety and environmental stewardship defined. Page 9 Portfolio of Oil and Gas Properties – An in-depth view of Devon’s oil and gas assets. Page 22 -Year Property Data Page 23 Operating Statistics by Area Page 25 Key Property Highlights Page 29 Index to Financials Page 0 Directors and Senior Officers Page 04 Glossary Page 05 Common Stock Trading Data and Investor Information Devon ­ /dev•on/­ Devon is the largest U.S.-based independent oil and gas exploration and production company. Dev•on also owns natural gas pipelines and treatment facilities in many of its producing areas, making Dev•on one of North America’s larger processors of natural gas liquids. Dev•on’s operations are focused primarily in the United States and Canada; however, the company also explores for and produces oil and natural gas in selected areas outside North America. Dev•on is included in the S&P 500 Index and trades on the New York Stock Exchange under the ticker symbol DVN. Terry Belsheim / Landowner – ALBERTA, canada 2 David Walker / Sheriff – Wise COunTY, TeXas 3 Sonja Macys / Executive Director – TucsON AuduBON SOcieTY, ARIZOna 4 Newton Monteiro / Director – NATIOnal peTROleum AGENCY, BRaZil 5 Letter to Shareholders Dear Fellow Shareholders: For Devon Energy Corporation, 2005 was a year defined by accomplishment. Many are readily apparent: oil and gas reserves, revenues, cash flow, earn- ings and earnings per share all climbed to record levels. However, other significant accomplishments are less obvious. RECORD DRILLING BUDGET YIELDS SIGNIFICANT GROWTH At about $4 billion, Devon’s 2005 capital budget rep- resented the highest level of exploration and development investment in our history. And the results of this capital program were a resounding success. We added almost 440 million equivalent barrels of proved oil and gas reserves during the year—nearly double the 226 million barrels we produced. Furthermore, we added these reserves almost entirely with the drill bit at very attractive finding and development costs. Devon’s 2005 reserves growth resulted from drilling activity across our core North American asset base. Onshore in the United States and Canada, we invested $3.3 billion and drilled about 2,260 successful wells. The Barnett Shale continues to be our most signifi- cant area in the United States for growth in oil and gas BUILDING FOR THE LONG RUN reserves. The Barnett is the largest natural gas field in For several years in Devon’s annual reports, I have dis- Texas, and Devon is the largest producer in the field. Drill- cussed our commitment to achieve sustainable success over ing 217 Barnett wells in 2005, we added 690 billion cubic the long term. In a world where oil and gas are increasingly feet of natural gas equivalent reserves, or more than triple scarce commodities, simply developing low-risk opportunities our Barnett production for the year. In addition to growing in our existing producing areas is not enough. We believe that Barnett reserves dramatically, we also increased our Barnett in order to ensure sustainable growth over the longer term, production. Late in the fourth quarter our daily production we must invest today in projects that can provide an uninter- reached an all-time high of 580 million cubic feet of gas rupted stream of growth opportunities tomorrow. Our actions equivalent per day. Continuing this growth trajectory, we reflect this resolve. For several years we have been investing are targeting an exit rate of 630 million cubic feet equiva- hundreds of millions of dollars annually on these longer-term lent per day from the Barnett Shale in 2006. projects. Although these projects do not provide immediate In Canada, during 2005 we added the first 118 mil- results, this strategy is paying off. While Devon’s core North lion barrels of reserves at our Jackfish oil sands project—a American assets delivered the 2005 reserves growth, perhaps project we initiated in 2003. We expect to eventually recover more important were the projects that set the stage for con- a total of 300 million barrels of oil at Jackfish. When fully tinued growth in the future. operational in 2008, we expect this 100% Devon-owned In the deepwater Gulf of Mexico, we drilled delinea- project to produce 35,000 barrels of oil per day, and to do tion wells on both our Cascade and Jack prospects in the so for more than 25 years, without decline. In addition, we lower Tertiary trend. The information gained from these wells are evaluating the area around Jackfish for the potential to boosts our confidence that these exciting discoveries may double, or possibly even triple, the size of the project. soon lead to full-scale development. The next step toward a The Barnett Shale and Jackfish projects are only two development decision, an extended production test, is now examples of the many projects across North America that cur- under way at Jack. Flow rates, pressure data and other res- rently contribute to Devon’s growth. I invite you to explore ervoir measurements will enable Devon and its partners to these projects and numerous others in more detail in the select a development approach and optimize the design of Portfolio of Oil and Gas Properties beginning on page 19. production facilities. 6 Letter to Shareholders Assuming the lower Tertiary can be economically devel- DELIVERING ON THE PROMISE oped, it will be a new producing horizon in the deepwater Record 2005 earnings and cash flow coupled with the Gulf of Mexico. Devon, with three delineated discoveries in proceeds from the property divestitures provided Devon with hand and a leading acreage position in the play, is ideally unprecedented amounts of free cash. We deployed this capi- positioned to benefit from this emerging resource. tal with a focus on optimizing value per share. In addition to Also in 2005, we sanctioned the development of Polvo. successfully deploying the largest capital budget in our his- Devon operates and owns 60% of this 2004 oil discovery in tory, we purchased $2.3 billion of our common stock in 2005, the Campos Basin offshore Brazil. Platform fabrication is cur- reducing outstanding shares by 8%. Also during the year, we rently under way and we expect first production in the sec- repaid $1.3 billion in debt, reducing net debt to just 19% of ond half of 2007. This initial development should establish adjusted capital. The bottom line? During 2005 we increased about 50 million barrels of proved reserves. Furthermore, in the proved oil and gas reserves behind each Devon share by 2006 we plan to drill three additional wells in the area in an 11% while reducing overall indebtedness. attempt to expand the project. In addition to first production at Polvo, 2007 will also DEFINING OUR FUTURE bring us a significant increase in oil production from Azerbai- With our 2006 capital budget we expect to again add jan. Devon’s 5.6% carried interest in the ACG field is subject more than 400 million equivalent barrels of oil and gas to payout provisions that we should satisfy in the first half reserves, entirely through drilling. And despite upward cost of 2007. At that point, Devon’s share of ACG production will pressure and intense competition for equipment and person- jump to between 30,000 and 35,000 barrels of oil per day nel, we expect to again deliver very competitive finding and from the current 1,300 barrels per day. development costs in 2006. As I look ahead in 2006 and beyond, the opportunity GULF STORMS BRING CHALLENGES AND ACCOMPLISHMENTS for Devon has never been more clearly defined. We have The storms that devastated portions of the U.S. Gulf Coast a high-quality base of core properties delivering a steady in 2005 touched Devon in many ways. Dozens of Devon’s Gulf stream of oil and gas reserves and production. We have the area employees lived directly in the path of hurricanes, and visibility of significant production growth from large-scale a number of employees lost their homes in the storms. In the development projects already in hand, including the Bar- face of personal hardships, those employees remained incred- nett Shale, Jackfish, Polvo and ACG. Furthermore, we have ibly dedicated to ensuring that Devon’s personnel and assets a large, high-quality inventory of exploration opportuni- were safeguarded. I am both humbled by their dedication and ties and a skilled and dedicated workforce to fuel Devon’s proud of their performance. growth into the next decade. I’m also very proud of the response of Devon’s employ- In this 2005 Annual Report, we explore how Devon is ees who were not directly impacted by the storms. Employees defined by many of those whose lives have been touched by throughout the company responded with overwhelming gen- the company. You will hear from representatives of the invest- erosity and compassion for their fellow employees. ment community, regulatory agencies, our employees, our Our Gulf team also did an excellent job of responding to business partners and members of the communities where the storms from an operational standpoint. As a result of the Devon’s employees live and work. I am extremely proud of dedicated efforts of Devon’s employees, we had no injuries the values embodied by Devon and its employees and to hear or reported spills throughout this entire ordeal and our sus- these values reflected in the words of others.