Welcome to Devon Energy's Second Quarter 2012 Earnings Conference Call. [Operator Instructions] This call is being recorded. At this time, I'd like to turn the conference over to Mr. Vince White, Senior Vice President of Communications and Investor Relations. Sir, you may begin.

Thank you, operator, and welcome, everybody, to today's second quarter 2012 earnings call and webcast. Today's call will follow our usual format. I'll provide a few preliminary items and then turn the call over to our President and CEO, John Richels for his review. Then Dave Hager, Head of Exploration and Production, will provide the operations update. And following that, our Chief Financial Officer, Jeff Agosta, will finish up with a review of our financial results and outlook. After Jeff's call, we'll have a Q&A session. And our Executive Chairman, Larry Nichols, as well as Darryl Smette, Head of Marketing and Midstream are with us today to help out with the Q&A session. As usual, we'll conclude the call after an hour, so if we do not get to your questions during the Q&A, we'll be around for the remainder of the day to answer your questions. A replay of this call will also be available later today on our website. During the call today, we're going to update some of our forward-looking estimates based on the actual results that we've seen in the first half of the year and our revised outlook for the second half of 2012. In addition to the updates that we're providing during the call, we will file an 8-K later today containing the details of our updated 2012 estimates. To access this guidance, just click on the guidance link found in the Investor Relations section of the Devon website. Please note that all references today to our plans, forecast, expectations and estimates are forward-looking statements under U.S. securities law. And while we always strive to give you the very best information possible, there are numerous factors that could cause our actual results to differ from those estimates. A discussion of risk factors relating to…

Thank you, Vince, and good morning, everyone. While our second quarter earnings fell short of our expectations, when you look beyond the near-term challenges, we stayed right on track with the execution of our long-term strategic plan. We continued to deliver strong growth in oil production, driving company-wide oil production up 26% over the year-ago period and up 5% over the first quarter of the year. In spite of unusually weak Canadian oil price realizations, oil revenue accounted for almost 60% of our upstream revenues in the second quarter. Given the weakness in the NGLs market, it's worth noting that ethane accounted for only about 4% of our second quarter sales. In April, we closed our $2.5 billion joint venture agreement with Sinopec. You might recall that the transaction price included a $900 million cash payment at closing, recovering significantly more than 100% of our land and exploration costs associated with these assets. The remaining $1.6 billion drilling carry will fund 80% of the capital requirements on the joint venture assets over the next few years. Also, in spite of weak second quarter price realizations for much of our production, operating cash flow for the quarter exceeded $1.4 billion and when you combine that with the proceeds from our Sinopec joint venture, total cash inflows approached $2.3 billion. Additionally, we added some attractive hedges, which will stabilize cash flows in the second half of the year. We now have approximately 85% of our oil production locked in, with an average protected floor of $97 per barrel and 65% of our natural gas production protected at $3.76 per Mcf. And finally, we executed a robust oil-focused capital program, while maintaining one of the strongest balance sheets and best liquidity positions in the peer group. We exited the quarter with $7 billion…

Thanks, John, and good morning, everyone. While the second quarter production was impacted by the gas processing disruptions that Vince and John mentioned, we continue to make good progress with the execution of our capital program. We delivered strong oil production growth in both the Permian and Jackfish. We also had encouraging initial well results in some of the new ventures' plays. Before we get to the highlights of the quarter, I'll begin with a quick recap of CapEx. E&P spending totaled $2.1 billion for the quarter, bringing E&P capital for the first 6 months to $3.7 billion. Our 2012 capital program is front-end loaded, especially for leasehold expenditures. But in any case, we are tracking toward the higher end of our previous guidance range of $6.1 billion to $6.5 billion. As a reminder, when we close the Sumitomo transaction, we will have received a total of $1.2 billion in cash this year that is not netted against this capital for reporting purposes. Moving now to specific operating areas, starting in the Permian Basin. Our Permian production averaged a record 58,700 barrels of oil equivalent per day in the second quarter, up 21% over the second quarter of 2011. Looking specifically at our Permian oil production, it grew 24% over the same period, with light oil now accounting for nearly 60% of our total Permian volumes. A key driver of our Permian oil growth continues to be our Bone Springs horizontal program in New Mexico. We have 6 rigs running and in the second quarter, we brought 19 Bone Springs wells online, with average 30-day IP rates of 680 barrels of oil equivalent per day. With these wells generating returns north of 50%, they offer some of the highest returning opportunities in our portfolio. To date, we have identified roughly…

Thanks, Dave, and good morning, everyone. This morning, I will take you through a brief review of the key drivers that shaped our second quarter results and, where called for, provide updated guidance for the second half of the year. Beginning with production, our second quarter reported production totaled 61.8 million oil equivalent barrels or 679,000 Boe per day, a 3% increase compared to the same period a year ago. This result is about 6,000 barrels per day or 1% shy of the lower end of the guidance range we provided last quarter. As Vince mentioned earlier, interruptions of midstream facilities reduced our second quarter volumes by approximately 16,000 Boe per day. Had these outages not occurred, production would have been at the top end of our guidance range. Fortunately, the disruptions impacted only gas and NGL volumes, so our oil production was on target. For the quarter, our oil production increased by 26% over the second quarter of 2011 to an average of 149,000 barrels per day. Strong year-over-year growth in the Permian and Jackfish drove the performance. For the third quarter, we expect production to increase to a range of 680,000 to 690,000 barrels per day in spite of the plant turnaround at our Jackfish facility. The turnaround at Jackfish will reduce oil volumes by approximately 10,000 barrels per day in both the third and fourth quarters. Even with these curtailments, we still expect that our oil production will increase more than 20% in 2012. Moving to price realizations and beginning with Canadian oil, supply and demand for Canadian crudes remains very tight. Consequently, any disruptions in refinery capacity, or pipeline takeaway, can have a dramatic effect on pricing. This has resulted in increased price volatility and has made it difficult to predict price realizations. In the second…

Thank you, Jeff. In summary, while second quarter earnings were impacted by low price realization and downtime at the midstream facilities, our operating results continue to reflect the successful execution of our plan. We delivered year-over-year oil production growth of 26%. Our exploration program delivered encouraging results in the Mississippian trend and the Cline Shale, and we also opportunistically added to our acreage position in both of these promising opportunities. We comfortably funded a robust capital program, while maintaining an exceptionally strong balance sheet. Subsequent to quarter end, we announced a $1.4 billion joint venture agreement with Sumitomo to explore and develop the Cline play. And finally, we remain fully committed to exercising capital discipline, maximizing our margins, maintaining our balance sheet strength and optimizing our growth and cash flow per share on a debt adjusted basis. So with that, I'll turn the call back over to Vince for Q&A. Vince?

Operator, we're ready for the first question.

Your first question comes the line of Scott Hanold with RBC Capital Markets.

A question on the Cline Shale. What is the infrastructure need there right now? And is part of this development, or I'm sorry, the joint venture cover development ops in the infrastructure out there?

Yes, this is Darryl and I'll answer that. The whole Cline Shale is a big area obviously. There is a lot of the area out there that really has no infrastructure at all in terms of pipelines, gas processing plants, things of that nature. So infrastructure definitely, in a lot of these areas, will have to be built. There are a few little areas in Sterling County where there is some infrastructure and some of the wells that Dave talked about that have been drilled there are close to that infrastructure. But in general, when we go forward, and I think we're going to have success here, infrastructure will be an area that we have to focus on, either Devon, in terms of its midstream operations, or a third party or a combination thereof. The agreement with Sumitomo allows them to participate in midstream activities, if we choose to go forward with that, or if they choose to go forward with that, so that would be an option for them. But right now, that decision, whether they would participate in any midstream facilities has not been made by them.

Scott, end of the day, I might just add, this is an area though where thousands of wells have been drilled historically by the industry. So there is, as far as, ongoing ability to drill and complete wells, there is an infrastructure that works for that. What Darryl was addressing earlier is, obviously, accurate from the midstream facility side.

Understood. So are the 40 wells that you're drilling, targeting sort of areas where some more of the development infrastructure is at this point, or are you going to spread them across the plays just to delineate better?

Well, right now, it looks like it's going to be some of both, so we can test the play from a wider context. But some areas are going to have a little bit of infrastructure and some of the wells that we will drill probably will not have the infrastructure right now.

From a midstream perspective. Yes, that's what he's answering. But we are testing a good portion of our acreage to just get an idea of the prospectivity of various parts of our acreage.

Okay. And as a follow-up on the Mississippian play, you're moving some rigs in there. How are you allocating those rigs versus your new acreage versus the stuff you're doing with Sinopec? How does that work?

Well, we have drilled a number of wells on the Sinopec acreage. We're now moving the rigs, for the current time, up to the new acreage and that's where our rigs are located presently and we'll probably continue to evaluate both of those areas throughout the rest of the year.

Okay. So you've got 7 rigs in the play right now. How many are in the JV versus your own owned acreage? And what would you expect that to be at year end?

Right now, we have all 7 rigs working in our own acreage and none in the JV acreage. We do anticipate we will be moving back into the JV acreage later this year, though. And I can't give you an exact count. We're continuing to still ramp up our activities and we -- but we're going to have significantly more rigs working by the end of the year than we have working now. But Scott, I think it would be a little speculative to go exactly how many rigs and exactly where they'd be located. But I think that you'll see, for the rest of the year, that we will have some rigs working in both those areas, with an increased rig count.

Okay, when you say -- I mean just as sort of a ballpark, when you say significant there, are you saying maybe like doubling the rig count from where you're at right now? Is that sort of -- kind of a ballpark rate?

That's certainly very possible, Scott.

Your next question comes from the line of Steven Sheppard [ph] with Simmons & Company.

I'm just wondering, to what extent has ethane rejection led to the Mid-Con basis maybe coming in weaker relative to other parts of the country and subsequently driving the weakness at corporate level you all had in gas realizations in 2Q?

I'm not sure I understood the question. Could you repeat it, please?

So with ethane rejection, I mean, is -- the fact that ethane's not going into the liquid stream, moving back into the dry gas stream, is that at all exacerbating the problem that you're seeing in the Mid-Con? Or is it strictly just higher gas production that's driving that? I'm just asking what …

Okay, thank you. That probably has a little bit of an impact, but not a lot of impact, I don't think. Our view is that there's probably somewhere around 200 million to maybe 300 million of additional volume, primarily in the Mid-Continent, as a result of ethane being rejected. And as you very well know, ethane prices in Conway have been down to $0.02, $0.03 a gallon. So there has been some rejection there. But the overall impact, while there is some, I think, that's very, very minor based on what we can tell.

Okay, that's great. On the Mitz Line [ph], the new acreage, can you disclose the price that you paid per acre there?

In areas where we're still looking at prospective acreage acquisitions, we generally decline to get real specific.

Okay, that's fine. And I've just got a couple more. Exploration CapEx, up pretty substantially quarter-over-quarter. Can you give us a little bit more visibility on the progression of that through the end of the year?

21 This is Jeff. That was -- we closed a lot of our acreage acquisitions in the second quarter. So that would be flowing through the exploration capital. And we indicated on our last quarterly call that we did expect Q2, the second quarter, to be very lumpy with regard to acreage acquisitions. And as David indicated, our capital program is more front-end loaded this year.

Particularly with regard to acreage, that's when we picked up the Cline Shale acreage, a lot of the Mississippian acreage and so that's what you saw the impact of.

I know you know this, but I will just remind you, as Dave pointed out, that from a reporting point of view, we acquired this additional acreage. We brought in more than 100% of a lot of this acreage and that doesn't get netted out from a reporting perspective. So that skews the capital numbers a little bit because you don't see what the money that we're taking in on the other side.

Okay. And just one more, in the Midland-Wolfcamp and Cline areas where you executed the new JV, beyond 2012, what do you think the rig ramp might look like there? How many gross wells do you think you can drill in each of those regions going forward?

Well, we, obviously, need to see results first. And so it's somewhat speculative to -- at this point, to go too far out. But you can see, when you put together an acreage position of 650,000 acres like we have on this, we have anticipated a fairly aggressive ramp-up, if the results continue to perform as we expect and as we've seen. So I would see that -- I'm not going to give you an exact number here but -- because the economics are potentially very strong, you can anticipate a pretty strong ramp-up of rigs as we move into 2013. And of course, we'll be discussing that with our new partners, and they're -- Sumitomo, and they're anticipating this as well.

Okay, great. And what's a good well cost to use in those regions? What have you seen there in terms of gross well cost?

Yes, gross well costs that we're using in the Wolfcamp Shale, we see on the order of around $6 million or so -- $6.5 million or so, in the Midland Basin so far. And very similar well cost that we've seen out in the Cline as well.

Your next question comes from the line of Brian Lively with Tudor, Pickering. Brian Lively - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: On the JV acreage, could you guys clarify how much production are you conveying with the deal?

It's minimal. Current production is less than 500 barrels a day that we'd be conveying. Brian Lively - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay. And then just more strategically, if we're trying to look at 2013 from a high level given the commentary around NGL expectations from a pricing perspective and some of the results from some of the newer exploration areas, should we, one, assume that spending will be within cash flows net of deal proceeds? And with that, would we expect just more -- incrementally more capital allocation to the MF Line [ph] into the Permian and away from plays like the Barnett and Cana, and perhaps the Utica, Michigan area?

Brian, let me take a shot at that. Obviously, we're early going into our 2013 planning so we haven't kind of crystallized all of that. We are in the position that we can take some of those proceeds that we got from our offshore and reinvest them into onshore project. All things being equal, though, as Dave has already said, we're reducing our rig count in places like the Barnett and Cana, and moving them more into these light oil places because of the economics. But I do want to make the point that, in the liquids-rich portions of the Cana and the Barnett, we still get some pretty darn good returns. When you're looking forward from this point, doesn't really matter what gas prices are for '12 anymore. We're really looking at 2013 prices for all of our capital activities. And if you take a $3.75 Henry Hub price next year, which I think is pretty close to what Wall Street is using and very close to the Strip as well so we're all in the same ballpark. Once you take into consideration our midstream uplift, and even at a 31% NGL realization, we're seeing a low-20s rate of return in the Barnett and an almost 30% rate of return in the Cana. So there are portions of those 2 plays that still make a lot of sense to the point that we can -- if we're going to focus in those best areas, we're going to move some of those rigs on to some of these new oil plays where we really have a whole lot of expectation and potential for the future. And the other question, living within cash flow, again, over the last couple of years, we have taken some of those proceeds from the offshore and have reinvested them in rebuilding or changing -- adding significantly to our light oil potential in the company. We've done a lot of that and my guess is we're -- while we have the capacity to do it, with some uncertainty on the commodities pricing side, we'll just have to be careful as we go into next year to make that final determination of how much we're going to spend. I think that it's kind of early, but my guess is, we'll be trending towards our cash flow. Brian Lively - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay. So I guess you're still saying that you might use some of the, I guess, the $7 billion that you still have to fund some opportunities, even if it were to exceed your cash flow levels, or no?

Well, I think not to the extent we have, but we still have that capacity if we want to. I mean, we've added a lot and, as I was saying earlier, when you got a million net acres and a couple of highly perspective oil plays, we've got a lot of running room on those plays already, so we're pretty happy with what we've put together to this point in time.

This is Vince. I'd add that the 2 JVs that we've entered into will allow us to get a lot more activity out of any given capital spend. So we could achieve similar results of developing our core development plays, while evaluating acreage and exploration plays with a reduced amount of capital.

Your next question comes from the line of Brian Singer with Goldman Sachs.

Going back to the Cline, can you estimate the impact of both cost and IPs that you think slick water would have relative to the Stroman Ranch well you highlighted? And then can you also talk about when you would plan to move drilling more meaningfully to the northeast within your acreage?

Well, about -- they're improvement costs but not a significant reduction in costs, relative in the overall well cost going to slick water. We can't say for certain how much improvement there will be going to slick water, but we have certainly seen in the Wolfcamp Shale that the -- going to slick water is a cleaner frac and we've seen much better results in the Wolfcamp Shale and operators have gone to slick water, primarily in the Wolfcamp Shale. We think the Cline is very similar and we know that some other operators also have recently moved to slick waters there also and it appears they're getting better results. So we need to actually complete the well to know for sure. But we're very optimistic that, based on all the other results we've seen in that area, we're going to see a pretty significant improvement. And again, we've just drilled one well on 650,000 acres, so far. So it's so early on. We're just very confident that we're going to be in a range based on the other wells that we've seen drilled in the area. And we are going to be moving some of the rigs off to the northeast to test some of that acreage as well later this year. So as I said, we're going to be moving the rigs around the acreage to get a good handle on what the overall prospectivity of various parts of the acreage position are.

And then, going over to the Utica, how committed are you to acreage retention in 2/3 of your Utica acreage in the oil window? And do you see any differences in characteristics in the Knox County well versus the first 2 wells?

Well, we're committed to economics. And we were committed to really drilling wells that are going to meet our economic thresholds. And the first 2 were disappointing, but it was on the far northwestern part of our acreage. We do see some -- because we are essentially very near the original well where we took a core in, that appeared to have good thermal maturity and good permeability, we are somewhat more optimistic in this well than we were the previous 2 wells. But even more so, as we move to the east with our additional drilling activity that we're going to be doing throughout the rest of the year, probably drill about 5 more wells for the rest of the year. We're going to be moving more where the rest of the industry activity is. And so that part of the acreage is probably even more prospective.

And then, Brian, and the other thing is a couple of these plays, like that one and that portion of the play, we always said this was highly exploration in nature because there wasn't a lot of experience by the industry. And it's one of the reasons why we got in there and acquired our acreage for a few hundred dollars an acre rather than thousands an acre. So this is something that -- as Dave has correctly pointed out, we're going to be driven by economics on this thing, not by desire to hold acreage if it's not making sense in any portion of any play.

Your next question comes from the line of Bob Brackett with S&B. Bob Brackett - Sanford C. Bernstein & Co., LLC., Research Division: I just have a follow-up on the question on Ashland and Medina. Have those 2 wells condemned the area? Or are you going to go back and try some different things further down the road?

Well, those 2 wells were not encouraging in that immediate area. And it's exploration, you always have to drill more wells and as each one you drill, you may learn some more things that could or could not make the acreage there work. But the first 2 wells were not encouraging, so we just -- we need to get more well results in and perhaps with additional well results will give us a reason to go back there. But we're not focused in that area right now. Bob Brackett - Sanford C. Bernstein & Co., LLC., Research Division: But do you think it was the frac or the geology that failed on you?

We think it's geology. Bob Brackett - Sanford C. Bernstein & Co., LLC., Research Division: Okay, so it's the geology. Another question I had, can you update us on the offshore cash? I mean, you've talked about it before. And also, would you have any appetite to look at international shales, outside of North America, given you've got a war chest outside of the U.S.?

Just an update, Bob, on the offshore cash. We have all but a few hundred million dollars of the $7 billion, is sitting offshore at this point in time. And so that hasn't really changed a whole lot since we talked to you before. As far as looking internationally, we're never close-minded about it but we have just repositioned the company to take advantage of our expertise and our portfolio in North America, and we've got an awful lot of really exciting opportunities ahead of us. And with the things that we've added recently, I think we really want to get more into that and really understand the potential and develop this big asset-base that we've got here before we start thinking of those other things. But you know us, we're never close-minded about anything. But right now, I have to tell you we're not looking internationally because we really have a whole lot on our plate here that we think is going to provide us a lot of drilling opportunities for a long time.

Your last question comes from the line of David Tameron with Wells Fargo.

Can you talk a little bit about Canadian asset sales? And I think you guys had mentioned at the Analyst Day, you could potentially shed some assets up there. Can you talk about where you're at in that process?

David, as Dave said earlier, we're doing -- we've done a fair bit of exploration work here over the last little while. I think we're still evaluating our position in Canada. We've got some -- we've had some optimistic results, I think, on some of the acreage and we're just not ready to make a call like that at this point in time.

Okay. And then let me take my follow-up to a different direction. Can you talk about -- there's rumors that you guys were drilling up near Abilene, and you got a trace, and not necessarily a Cline or Wolfcamp, but a Mississippian-type formation, can you give us any -- or Mississippian H formation, can you give us some color on that?

No. We can't give you any color on that at this point.

All right. Well, I show the top of the hour. So thank you for participating in our call today, and we look forward to talking to you next quarter.

This concludes today's conference call. You may now disconnect.