Welcome to Devon Energy's Fourth Quarter and Year-End 2008 Earnings Conference Call. At this time all participants are in a listen-only mode. After the prepared remarks, we will conduct a question-and-answer session. This call is being recorded. At this time, I would like to turn the conference over to Mr. Vince White, Senior Vice President of Investor Relations. Sir, you may begin.

Thank you. Good morning everyone. And welcome to call. I'm going to begin with a few preliminary comments and then turn the call over to our Chairman and CEO, Larry Nichols. He will provide an overview of 2008 and his thoughts on the year ahead. Following Larry's remarks, our President, John Richels will recap our reserves activity and provide a 2008 financial review and 2009 financial outlook. And then Executive Vice President of Exploration and Production, Steve Hadden, will cover fourth quarter operating highlights. We'll conclude the call in about an hour. So if we don't get to your question at the Q&A period, please feel free to follow-up after the call and as always, we'll ask anybody asking a question to limit it to one question and one follow-up. A replay of today's call will be available later through a link on our home page at devonenergy.com. Also later today, we will file a Form 8-K as we customarily do, to provide the forecast data for 2009. This 8-K has detailed estimates for 2009 production by product and geographic region, expense estimates and expected realized prices relative to benchmarked oil and gas prices. The 8-K will also provide details of our 2009 capital plans, and we'll be providing a lot of this information on the call as well. Before we get to the business of the quarter, we are obligated to remind you that the discussions of our expectations, plans, forecast and estimates are all considered forward-looking statements under U.S. securities law. And while we always make every effort to provide you with the very best estimates possible, there are a lot of factors that could cause our actual results to differ from our estimates. For a discussion of the risk factors that could influence those results, I am…

Thanks Vince and good morning everyone. Well 2008 (ph) was really the best year in our history from many operational standpoints and these are the important ones that we'll recap going forward. First, we increased oil and gas production by 6% to 238 million BOE, generating a record oil and gas sales of more than 13 billion. We added 584 million barrels equivalent with the drill-bit, excluding price provisions and that's at the top end of our forecast range. It means we replaced nearly 2.5 times our 2008 production; very good results. When adjusted for items that analysts do not forecast, earnings were record 4.4 billion in 2008 or $9.91 per diluted share. Cash flow before balance sheet changes increased 31% to an all time high of 9.6 billion. As you know we substantially completed our African divestiture program during the year, generating pre-tax proceeds of nearly 3 billion. We drilled a record 2,441 wells with a 98% success rate and that includes 659 wells in the Barnett Shale where we increased production by 31% over 2007. That's very good production growth. We steadily ramped up at Jackfish, our oil sand project in Canada, reaching a record 22,000 barrels per day on a way to 35,000 barrels per day. We added some 800,000 net undeveloped acreage to our lease inventory positioned in us with more than 1.4 million net acreage in four emerging unconventional gas plays. Marketing and midstream business delivered another year of solid results reaching 668 million in operating profits. And we finished the year in a very strong financial position with net debt to adjusted cap to 24%, cash on hand of $379 million. And very early in January last month, we increased our unused capacity on our credit lines to more than 3 billion. So we're…

Thank you, Larry, and good morning everyone. The first area I'm going to cover is our 2008 reserves activity which is summarized in the table in today's new release. Staring with drill-bit reserve additions, and we define drill-bit additions as net discoveries, expansions and performance revisions. These came in at 584 million BOEs. This is above the top of our forecast range and about 2.5 times our 2008 production. When compared with drill bit capital of $9 billion which includes capitalized interest and G&A, our F&D results should be quite competitive with the industry. The most significant reserve growth area was the U.S. onshore where we added 416 million BOEs with the drill bit at a cost of $5.5 billion. The additions were nearly three times our U.S. onshore production of 146 million BOEs, Barnett Shale was again the most important contributor to reserve additions accounting for about two-thirds of those additions. The next largest contributor was East Texas where Carthage and Groesbeck areas combined added 45 million BOEs. This was followed closely by reserve additions in Oklahoma of 43 million BOEs which included 21 million BOEs in our new Cana play that Steve will talk about later on in the call. Drill bit additions of 17 million BOE offshore in the U.S. slightly exceeded production. The cost per barrel analysis of our offshore isn't really very meaningful because we are investing significant capital and appraisal and development operations on our four Lower Tertiary discoveries, but we have not yet booked any proved reserves. We do, however, expect to begin booking Lower Tertiary reserves in 2010 when the Cascade project begins producing. In Canada, we added 141 million BOEs with the drill bit with 102 million barrels of that at Jackfish, and 19 million BOEs at Lloydminster. The only blemish…

Thanks John and good morning to everyone. Our operated rig activity peaked in 2008 with 112 rigs running company wide. But in response to falling product prices, we began tapering back activity in the second half of the year and by year-end had just 96 operated rigs running company wide. We are currently operating 68 rigs and expect to be down to 32 operated rigs by the end of the first quarter. Full year 2008 exploration and development capital came in at $9.3 billion, including $3.8 billion in the fourth quarter. Keep in mind that our fourth quarter capital included about $900 million in undeveloped acreage capture bringing expenditures for new acreage up to almost $2 billion for the full year. In our third quarter conference call, we indicated that we are in the process of making significant investments in undeveloped acreage, notably in four new unconventional gas plays. We previously talked about two of these areas, the Haynesville and Horn River, But I'll discuss the other two plays. First is an emerging Mid-continent shale play called Cana. Named for Canadian county in Oklahoma, the Cana play targets the deep Woodford Shale down in the Anadarko Basin. Devon is the largest leaseholder in the play with 112,000 net acres located in Canadian Blaine and Kettle (ph) Counties in West Central Oklahoma. Although the shale and the clean-up play is the same shale formation found in the Oklahoma basin and Eastern Oklahoma, there are some important differences. The shale in the Cana play is found at greater depths ranging from 11,500 feet to 14,500 feet or an average about 5000 feet deeper than the shale found in Eastern Oklahoma. The higher pressures at these depths result in greater storage capacity in the reservoir. Initial gas in place estimates for the Cana…

Thanks Steve. Operator we are ready to take the first question. I'll remind everybody that we ask you to limit it to one question and one follow-up per caller.

Thank you. (Operator Instructions). Your first question comes from the line of Rehan Rashid with FBR Capital Markets. Please proceed.

Just a quick question on the Haynesville front. Should we go a little bit faster there at based on what everybody else is announcing or maybe just how do you think about progressing from here?

Yeah, based on what we see relative to Devon's position, we are very encouraged with reservoir results we saw. We did have some mechanical problems on the first two wells. We have another well that's completing and flowing back... today starting to flow back as we speak. And we're very pleased with those early results we're bringing on relatively slowly. We also have couple of wells that are drilling, horizontal wells that are drilling and coming down. So we think we're moving through our acreage in a pace that we think in this environment is very appropriate to identify the potential derisk the areas of the play and move forward into a full commercial development. So we're pretty pleased with where we are considering the environment that we're in. And again, the reservoir information that we have on our Haynesville position is very positive from our perspective.

Okay. Thank you.

Your next question comes from the line of David Heikkinen with Tudor Pickering Holt, please proceed.

Good morning. As I think about your capital budget and targets outspending cash flow by $1 billion this year. As you look at 2009 and 2010, can you keep up that pace or are you betting on a 2010 rebound? Would you continue to outspend as you look forward to next year? If there is a recovery in gas and oil, just wanted to get your perspective on how is this a V bottom, U bottom recovery or how you plan a multiyear program?

David, this is Vince. As we said in the call we would not continue on a multiyear basis to outspend cash flow. We're adamant about protecting our balance sheet, and frankly we think there is a real lack of visibility on the link of the economic downturn. And we'll have to see how the industry responds, see how quickly natural gas process will recover. The main thing that we're going into this year with a... for you to stay flexible and adjust our spending in response to the market environment.

Just a follow up there, how much of capital this year is tied to longer term project or kind of larger projects that are more fixed?

David it's about when you take in into account all the pieces of it. So that is, we're doing Jackfish 2 and as Steve described what we're doing in the Lower Tertiary and in Brazil, it accounts for about 1.6 billion of our total CapEx for the year.

Thank you guys.

David I might add. We're really balancing two things as we go through this year. On the one hand, we have one of the stronger balance sheets in the industry and we want to protect it. On the other hand, we want to position ourselves so that when the recession does end which it will and when gas prices do increase, which they will, as production in the country declines. The Devon is in the best position possible to have fully evaluated the Haynesville as well as all of our other plays and to have both the employees of the companies as well as the assets well positioned to really take off so that we can be selling gas into the rebounding market, rather than trying to maximize gas production now when gas prizes are week. That makes no sense at all. That's not a good way to create shareholder value. So, we are trying to keep the company in good financial condition to evaluate the assets and to position ourselves where we can achieve maximum production growth at the right time. When that happens? Hard to say. We'll evaluate that continuously as we go forward.

Thanks Larry.

Your next question comes from the line of Ben Dell with Stanford Bernstein. Please proceed

Hi guys,

Good morning.

I had two quick questions. The first was on the $27 million pretax charge that you took due to the change in the vesting policy. It seems like a big number. Can you give us some outlines of what the change in the policy was?

Ben this is Vince. I'll attempt to address it. First, this was a change made early in the year and it was to bring our vesting policy for Senior Executives and to align with our peer companies. And what it does is allow for retiring executives, allow them to continue to vest upon retirement. And one of the ideas behind this is to prevent an incentive to hastily sell the company as someone moves towards retirement, we've seen that happen a couple of times in our industry. The main shift is that it accelerates the expense, it's not a significantly increase in expense, but it changes the period during which it's recognized. So, I hope that helps you add some color.

Yeah. That's great. And then just on production question. Given your new outlook for 2009 can you give us some indication of what that would mean specifically to your Barnett volumes?

Yeah, Ben, this is Steve. The Barnett volumes will rise slightly from the average production that we mentioned in the press release. So, we'll have... we'll continue to benefit from over 600 wells that we drilled this past year. We'll drill another 200 plus wells on an operated basis, and of course we'll have some non-operated wells. So the average production year-over-year for the Barnett will go up. Rate wise we may see a little bit of tailing off as we get into the late third and the fourth quarter, depending on what we do as we look at things in the middle of this year.

Okay. Great. Thank you.

Your next question comes from the line of Robert Christensen with Buckingham Research Group. Please proceed.

Yeah. Any other Lower Tertiary well cutting expected for 2009?

Well, no, not in 2009. We're... what we are focusing on right now is the development of Cascade and driving that to first production. So we'll finish drilling the first producing well which we're on right now and then we will move to drilling the second producing well and then go through completing those two wells, and that will carry into early 2010. We also are working on the drilling of the appraisal well on Cascada and that's really in its early phases and will continue through the middle of this year or so. And then, we are moving forward with some additional work that we are dong on Jack and St. Malo, but there is no additional Lower Tertiary well cuts that are planned at this point in our portfolio for 2009.

Thank you.

Your next question comes from the line of Joe Allman with JP Morgan. Pease proceed.

Yes, thank you. Good morning everybody. Steve, what are your thoughts on the production at Cascade and what kind of ramp up do you expect and what kind of capacity you expect out there and also any updated thoughts on the complexity of the reservoir?

Well first, we are in the process of drilling our third Cascade 3 which is going to be both producing well and we'll side track that well to just further confirm any issues that relate to any compartmentalization. We haven't seen that as a major barrier at all. Right now, we think as far as the interplay between the reservoir quality and the fluid quality, that's going to be fine. And with the completions that we are running we could probably see in the range of 10,000 barrels a day or better on a per well basis. And this will be the first long term flow test of these Lower Tertiary wells. And we are really looking forward to that. So not really overly concerned about the complexity issues, very interested to get these wells on, get that long term production test and move forward there.

Okay. And how is like capacity there at the facility there?

The capacity of facility is about 80,000 barrels a day in total. And remember that facility is shared between the Sinop development and our Cascade development. Cascade has about 40,000 barrels a day of capacity allocated to it right now. So we're well positioned there. And then we can expand that capacity in the future as we go through the stage development of the project.

Great. How about the Cana program, what kind of infrastructure should (ph) it have besides having to build the processing facility?

Joe, this is Darryl. We are moving down building processing plant right now. It looks like there will be about 200 million a day plant to start with. We are also putting in the number of gathering systems in the main export line to center delivery compressions point. We are currently in the process of negotiating with the two or three different companies for a long haul pipeline out of this area. Those negotiations are ongoing but right now we feel very comfortable that we'll be able to have the plant up and running by mid 2010 with all the facilities and we'll be able to keep up with the E&P production.

Okay. Thanks Darryl, thanks Steve.

Next question comes from the line of Joe Magner with Tristone. Please proceed.

Good morning, thank you. Perhaps you touched on a little bit earlier. I just wanted to talk about the liquidity position and the capital availability you'll have, even if you have been cash flow issued $2 billion. You will be sitting on north of 2 billion in cash and available capacity on your revolvers. Can you just walk us through the priorities for your use of that capital if we do see recovery within the bad timing but upon recovery how you would prioritize that?

Joe, that's a little hard to determine it at this time. I mean your summary is pretty close. Obviously without I think about $2.1 billion of available credit at the end of the year assuming we overspent by $1 billion. And Larry made the point and it's a great point, the real art here for us is to take advantage of our considerable financial strength and good asset bases that we have and hit the accelerator at the right time when we see a light at the end of the tunnel. Certainly a lot of what we're doing this year is as Larry has indicated already is that we're not spending a lot. We're not trying to accelerate gas production into a very weak commodity price market. We're focusing on these longer term projects. However, we have so much in our inventory in these gas projects that we can very quickly start to ramp up production if we see the picture turning around and commodity prices improving. But we haven't really developed our detailed thinking on how that 2010, for example, capital program might look. But we have such a great inventory that we'll be able to move that up pretty quickly.

Yes, there is no doubt that at a point time we will go back to maximizing production growth... the 31% production growth we got at the Barnett this past year. So we will go back to maximizing the Barnett as well as Haynesville, as well as Cana as we continue to derisk those. So as the gas markets improve which they will, recognizing in the U.S. we have... the whole nation has an average decline of about 31%. Supply and demand will get back in line and in due course we'll go back to full throttle on all of our gas plays.

Okay. There's specific concerns about possible acquisitions but it sounds like to summarize your focus initially would be on organic opportunity. And just one quick follow-up, any plans to alter or update your hedging strategy at this point in time?

Yes, this is Darryl. First, let me just tell you where we are... reemphasize where we are in our hedging program. Currently we only have 265 million hedged for 2009, no oil hedge for 2009, no gas hedges or oil hedges hedged in 2010. Historically Devon has not been a big user of the financial hedging market. However as we're getting into more long-term projects, we are currently evaluating whether we want to put a consistent hedging policy in place. So we do not have one at the present time. It's something we are looking at and we'll move that forward as we look at the long-term projects we have in front of us.

Thank you.

We've got time for one more question.

Your final question comes from the line of Bryan Singer with Goldman Sachs. Please proceed.

Thank you. What gas price would you need to see to ramp-up the rig counts? And if you look at where you are decreasing your capital on rigs now, what's the area that maybe would be the last one to be laid down but then be the first that would be brought back?

Brian, this is Vince. Just a couple of observations. The calculus of where to cut back is a lot more complex and it might appear at first wash. We need to keep our workforce engaged. We need to keep the service and supply industries engaged. And so really our cutbacks are across the board in North America in all short cycle time projects. And consequently depending on the degree of recovery of prices, our ramp-up would also be across the board. We're prepared to do that. Clearly, one of our most intense areas of activity over the last couple of years and in the future is the Barnett Shale. And we've got a lot of running room there. So it's clear that we would, under current market conditions would dramatically accelerate there if we had additional cash flow available to us. But really, I think it would be across the North American landscape.

And that would... what price would you need to see to ramp things back?

While our limiting factor being not the economics on the play so much as our cash flow. Each incremental improvement in our view of prices will give us more cash flow to invest.

Great. And lastly, could you talk about your backlog? What levels of oil and gas production onshore U.S. in general terms is waiting completion or completed the waiting time?

Brian, I'll tell you that it's an interesting number to get at, but we generally can probably run about a couple... take the Barnett Shale for instance, we drilled operated, non-operated, we drilled 680 wells last year. We probably came into this year with an inventory of a couple of 100 wells yet to be completed. And so, that's probably a pretty good indicator in the bulk of those. The other plays are relatively early. Some of the plays like Cana and obviously the Haynesville plays are really ramping up and so they don't have nearly an inventory or a hangover like that. But the Barnett is probably reflective of what inventory we came into this year with.

Brian, I might add one more point on that on your question on the price. The price can't be answered in average strike (ph) without reflection on the costs. Our industry has in the fourth quarter of last year, we had 2008 cost structure with prices were back in the 2001, 2002 level. Rig costs and all the service supply costs are going to come down. They are coming down dramatically and they will continue to come down. And we will get back in balance. It's kind of hard to say where that balance will happen, but they will get back in balance. They have in every other cycle and there is no logical reason why this won't happen. And so declining costs during the rest of this year make it feasible to be more active in some area at a better price, at a price realization that we're not at this moment. So those two, you got to balance those two.

Great. Thank you.

We're couple minutes past the hours.

So, as I said we'll go ahead and respect your time and cut off the call at this point. As usual, we'll be around for the rest of day, if you'd like to contact us with any questions that we didn't get to. Thank you for your participation.