UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Devon Energy Corporation

(Exact name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code:

(405) 235-3611

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

          Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     þ Yes     No o

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     þ Yes     No o

          The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2004, was $15,850,866,174.

          On February 28, 2005, 479,420,413 shares of common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Proxy statement for the 2005 annual meeting of stockholders — Part III

TABLE OF CONTENTS

DEFINITIONS

      As used in this document:

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

      This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding Devon’s future financial position, business strategy, budgets, projected revenues, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “believe,” or “continue” or the negative thereof or variations thereon or similar terminology. Although Devon believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from Devon’s expectations (“Cautionary

Statements”) include, but are not limited to, Devon’s assumptions about energy markets, production levels, reserve levels, operating results, competitive conditions, technology, the availability of capital resources, capital expenditure and other contractual obligations, the supply and demand for oil, natural gas, NGLs and other products or services, the price of oil, natural gas, NGLs and other products or services, currency exchange rates, the weather, inflation, the availability of goods and services, drilling risks, future processing volumes and pipeline throughput, general economic conditions, either internationally or nationally or in the jurisdictions in which Devon or its subsidiaries are doing business, legislative or regulatory changes, including changes in environmental regulation, environmental risks and liability under federal, state and foreign environmental laws and regulations, the securities or capital markets and other factors disclosed under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Item 2. Properties — Proved Reserves and Estimated Future Net Revenue,” “Item 7A. Quantitative and Qualitative Disclosure About Market Risk” and elsewhere in this report. All subsequent written and oral forward-looking statements attributable to Devon, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. Devon assumes no duty to update or revise its forward-looking statements based on changes in internal estimates or expectations or otherwise.

PART I

General

      Devon Energy Corporation, including its subsidiaries, (“Devon”) is an independent energy company engaged primarily in oil and gas exploration, development and production, the acquisition of producing properties, the transportation of oil, gas, and NGLs and the processing of natural gas. Through its predecessors, Devon began operations in 1971 as a privately held company. In 1988, Devon’s common stock began trading publicly on the American Stock Exchange under the symbol “DVN”. In October 2004, Devon transferred its common stock listing to the New York Stock Exchange.

      The principal and administrative offices of Devon are located at 20 North Broadway, Oklahoma City, OK 73102-8260 (telephone 405/235-3611).

      Devon operates oil and gas properties in the United States, Canada and various regions located outside North America. Devon’s North American properties are concentrated within five geographic areas. Operations in the United States are focused in the Permian Basin, the Mid-Continent, the Rocky Mountains and onshore and offshore Gulf Coast. Canadian properties are focused in the Western Canadian Sedimentary Basin in Alberta and British Columbia. Properties outside North America are located primarily in Azerbaijan, China, Egypt, and areas in West Africa, including Equatorial Guinea, Gabon and Cote d’Ivoire. In addition to its oil and gas operations, Devon has marketing and midstream operations. These include marketing natural gas, crude oil and NGLs, and the construction and operation of pipelines, storage and treating facilities and gas processing plants. (A detailed description of Devon’s significant properties and associated 2004 developments can be found under “Item 2. Properties”).

      At December 31, 2004, Devon’s estimated proved reserves were 2,077 MMBoe, of which 60% were natural gas reserves and 40% were oil and NGL reserves.

Availability of Reports

      Devon makes available free of charge on its internet website, www.devonenergy.com, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(a) of the Securities Exchange Act of 1934 as soon as reasonably practicable after it electronically files or furnishes them to the SEC.

Strategy

      Devon’s primary objectives are to build reserves, production, cash flow and earnings per share by (a) exploring for new oil and gas reserves, (b) acquiring oil and gas properties and (c) optimizing production and value from existing oil and gas properties. Devon’s management seeks to achieve these objectives by (a) concentrating its properties in core areas to achieve economies of scale, (b) acquiring and developing high profit margin properties, (c) continually disposing of marginal and non-strategic properties, (d) balancing reserves between oil and gas, (e) maintaining a high degree of financial flexibility, and (f) enhancing the value of Devon’s production and reserves through marketing and midstream activities.

Development of Business

      During 1988, Devon expanded its capital base with its first issuance of common stock to the public. This transaction began a substantial expansion program that has continued through the subsequent years. Devon has used a two-pronged strategy of acquiring producing properties and engaging in drilling activities to achieve this expansion. Total proved reserves increased from 8 MMBoe at year-end 1987 (without giving effect to the 1998 and 2000 mergers accounted for as poolings of interests) to 2,077 MMBoe at year-end 2004.

      During the same time period, proved reserves have grown from 0.66 Boe per diluted share at year-end 1987 (without giving effect to the 1998 and 2000 poolings) to 4.16 Boe per diluted share at year-end 2004. This represents a compound annual growth rate of 11%. Another measure of value per share is oil and gas production per share. Production increased from 0.09 Boe per diluted share in 1987 (without giving effect to the 1998 and 2000 poolings) to 0.50 Boe per diluted share in 2004, a compound annual growth rate of 11%.

      During 2004, Devon drilled 274 exploration wells and over 1,900 development wells. See further discussion of Devon’s 2004 exploration and drilling efforts in “Item 2. Properties.”

      Cash flow from operations was $4.8 billion for 2004. This allowed Devon to fully fund its $3.1 billion of capital expenditures, retire approximately $1 billion in long-term debt and add $846 million to cash and short-term investments. The $2.1 billion of cash and short-term investments as of December 31, 2004, is adequate to cover debt maturities through 2007.

      On September 27, 2004, Devon announced two significant initiatives. First, Devon plans to divest oil and gas properties in the offshore Gulf of Mexico and onshore in the United States and Canada, representing approximately 9% of proved North American reserves. By divesting these properties, Devon expects to lengthen the overall reserve life and lower the overall cost structure and improve operating efficiency of its retained properties. Devon began the divestiture process in the fourth quarter of 2004 and expects to complete the sale of most of the properties in the first half of 2005. After-tax sale proceeds are expected to range between $1.0 billion and $1.5 billion and will be used to partially fund the stock buyback program described below.

      Second, Devon announced a stock buyback program to repurchase up to 50 million shares of its common stock. Devon began repurchasing its shares in the open market during October 2004. As of February 28, 2005, Devon had repurchased 12.5 million shares at a total cost of $501 million, or $40.04 per share. Devon intends to continue repurchasing its shares in the open market and in privately negotiated transactions, depending upon market conditions. The shares will be repurchased with cash flow from operations and proceeds from the planned sales of oil and gas properties discussed previously. The stock repurchase program may be discontinued at any time.

      Additionally, Devon announced the declaration of a two-for-one split of Devon’s outstanding common stock. The stock split was applicable to stockholders of record at the close of business on October 29, 2004. The stock split was accomplished through a stock dividend paid on November 15, 2004. All references in this document to shares of Devon common stock, or to amounts based on shares of such stock outstanding, have been adjusted retroactively for the effect of this stock split.

      On April 25, 2003, Devon completed its merger with Ocean Energy, Inc. (“Ocean”). In the transaction, Devon issued 0.828 shares of its common stock for each outstanding share of Ocean common stock, or a total of approximately 148 million shares. Also, Devon assumed approximately $1.8 billion of debt from Ocean. The Ocean merger added approximately 554 million Boe to Devon’s proved reserves.

      On January 24, 2002, Devon completed its merger with Mitchell Energy & Development Corp. (“Mitchell”). Under the terms of this merger, Devon issued approximately 60 million shares of Devon common stock and paid $1.6 billion in cash to the Mitchell stockholders. The Mitchell merger added approximately 404 million Boe to Devon’s proved reserves.

      On October 15, 2001, Devon acquired Anderson Exploration Ltd. (“Anderson”) for approximately $3.5 billion in cash. The Anderson acquisition added approximately 534 million Boe to Devon’s proved reserves.

      To fund the cash portions of the Mitchell merger and the Anderson acquisition, as well as to pay related transaction costs and retire certain long-term debt assumed from Mitchell and Anderson, Devon entered into long-term debt agreements in October 2001 that totaled $6 billion. Half of this total consisted of $3 billion of notes and debentures issued on October 3, 2001. Of this total, $1.25 billion bears interest

at 7.875% and matures in September 2031. The remaining $1.75 billion bears interest at 6.875% and matures in September 2011.

      The remaining $3 billion of the $6 billion of long-term debt was borrowed under a credit facility that was repaid in 2004. The primary sources of the repayments were the issuance of $1.5 billion of debt securities, of which $1.3 billion was used to pay down the credit facility with the remainder used to pay down other debt; $1.4 billion from the sale of certain oil and gas properties in 2002, of which $1.1 billion was used to pay down the credit facility; and cash flow from operations.

Financial Information about Segments and Geographical Areas

      Notes 17 and 18 to the consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of this report contain information on Devon’s segments and geographical areas.

Drilling Activities

      Devon is engaged in numerous drilling activities on properties presently owned and intends to drill or develop other properties acquired in the future. Devon’s 2005 drilling activities will be focused in the Rocky Mountains, Permian Basin, Mid-Continent, Gulf of Mexico and onshore Gulf Coast areas in the U.S., the Western Sedimentary basin of Canada, and in Brazil, China, Egypt, Russia and West Africa outside North America.

      The following tables set forth the results of Devon’s drilling activity for the past five years.

Total Properties

United States Properties

Canadian Properties

International Properties

      As of December 31, 2004, Devon was participating in the drilling of 147 gross (90.64 net) wells in the U.S., 53 gross (28.7 net) wells in Canada and 40 gross (10.03 net) wells internationally. Of these wells, through February 1, 2005, 61 gross (43.44 net) wells in the U.S., 6 gross (3.83 net) wells in Canada, and 2 gross (0.74 net) wells internationally had been completed as productive. An additional 3 gross (3 net) wells in Canada were dry holes. The remaining wells were still in progress.

Customers

      Devon sells its gas production to a variety of customers including pipelines, utilities, gas marketing firms, industrial users and local distribution companies. Existing gathering systems and interstate and intrastate pipelines are used to consummate gas sales and deliveries.

      The principal customers for Devon’s crude oil production are refiners, remarketers and other companies, some of which have pipeline facilities near the producing properties. In the event pipeline facilities are not conveniently available, crude oil is trucked or shipped to storage, refining or pipeline facilities.

      No purchaser accounted for over 10% of Devon’s revenues in 2004.

Oil and Natural Gas Marketing

      The spot market for oil and gas is subject to volatility as supply and demand factors in various regions of North America fluctuate. In addition to fixed price contracts, Devon periodically enters into financial hedging arrangements or firm delivery commitments with a portion of its oil and gas production. These activities are intended to support targeted price levels and to manage Devon’s exposure to price fluctuations. (See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”)

      Devon’s oil production is sold under both long-term (one year or more) and short-term (less than one year) agreements at prices negotiated with third parties.

      Devon’s gas production is also sold under both long-term and short-term agreements at prices negotiated with third parties. Although exact percentages vary daily, as of February 2005, approximately 86% of Devon’s natural gas production was sold under short-term contracts at variable or market-sensitive prices. These market-sensitive sales are referred to as “spot market” sales. Another 12% were committed under various long-term contracts which dedicate the natural gas to a purchaser for an extended period of time, but still at market sensitive prices. Devon’s remaining gas production was sold under long-term fixed price contracts.

      Typically either the entire contract (in the case of short-term contracts) or the price provisions of the contract (in the case of long-term contracts) are re-negotiated from daily intervals up to one-year intervals. The spot market has become progressively more competitive in recent years. As a result, prices on the spot market have been volatile.

Marketing and Midstream Activities

      The primary objective of Devon’s marketing and midstream group is to add value to Devon and other producers to whom Devon provides such services by gathering, processing and marketing oil and gas production in a timely and efficient manner. Devon’s most significant marketing and midstream asset is the Bridgeport processing plant and gathering system located in North Texas. These facilities serve not only Devon’s gas production from the Barnett Shale but also gas production of other producers in the area.

      Devon’s marketing and midstream revenue sources are primarily: (1) selling NGLs that were either extracted from the gas streams processed by Devon-owned plants or purchased from third parties for marketing; and, (2) selling or gathering gas that moves through its gathering systems. Marketing and midstream costs and expenses are incurred from (1) purchasing the gas streams entering Devon-owned gathering systems and plants; (2) fuel needed to operate its plants, compressors and related gathering facilities; (3) purchasing third-party NGLs; and, (4) expenses incurred operating its plants, gathering systems and related facilities.

Competition

      The oil and gas business is highly competitive. Devon encounters competition from major integrated and independent oil and gas companies in acquiring drilling prospects and properties, contracting for drilling equipment and securing trained personnel. Intense competition occurs with respect to marketing, particularly of natural gas. Certain competitors have resources that substantially exceed those of Devon.

Seasonal Nature of Business

      Generally, but not always, the demand for natural gas decreases during the summer months and increases during the winter months. Seasonal anomalies such as mild winters or hot summers sometimes lessen this fluctuation. In addition, pipelines, utilities, local distribution companies and industrial users utilize natural gas storage facilities and purchase some of their anticipated winter requirements during the summer. This can also lessen seasonal demand fluctuations.

Government Regulation

      Devon’s operations are subject to various levels of government controls and regulations in the United States, Canada and international locations in which it operates.

      In the United States, legislation affecting the oil and gas industry has been pervasive and is under constant review for amendment or expansion. Pursuant to such legislation, numerous federal, state and local departments and agencies have issued extensive rules and regulations binding on the oil and gas industry and its individual members, some of which carry substantial penalties for failure to comply. Such laws and regulations have a significant impact on oil and gas drilling, pipelines, gas processing plants and production activities, increase the cost of doing business and, consequently, affect profitability. Inasmuch as new legislation affecting the oil and gas industry is commonplace and existing laws and regulations are frequently amended or reinterpreted, Devon is unable to predict the future cost or impact of complying with such laws and regulations. Devon considers the cost of environmental protection a necessary and manageable part of its business. Devon has been able to plan for and comply with new environmental initiatives without materially altering its operating strategies.

      Exploration and Production. Devon’s United States operations are subject to various types of regulation at the federal, state and local levels. Such regulation includes requiring permits for the drilling of wells; maintaining bonding requirements in order to drill or operate wells; implementing spill prevention plans; submitting notification and receiving permits relating to the presence, use and release of certain materials incidental to oil and gas operations; and regulating the location of wells, the method of drilling and casing wells, the use, transportation, storage and disposal of fluids and materials used in connection with drilling and production activities, surface usage and the restoration of properties upon which wells have been drilled, the plugging and abandoning of wells and the transporting of production. Devon’s operations are also subject to various conservation matters, including the regulation of the size of drilling and spacing units or proration units, the number of wells which may be drilled in a unit, and the unitization or pooling of oil and gas properties. In this regard, some states allow the forced pooling or integration of tracts to facilitate exploration while other states rely on voluntary pooling of lands and leases, which may make it more difficult to develop oil and gas properties. In addition, state conservation laws establish maximum rates of production from oil and gas wells, generally limit the venting or flaring of gas, and impose certain requirements regarding the ratable purchase of production. The effect of these regulations is to limit the amounts of oil and gas Devon can produce from its wells and to limit the number of wells or the locations at which Devon can drill.

      Certain of Devon’s oil and gas leases, including its offshore Gulf of Mexico leases, most of its leases in the San Juan Basin and many of Devon’s leases in southeast New Mexico, Montana and Wyoming, are granted by the federal government and administered by various federal agencies, including the Minerals Management Service of the Department of the Interior (“MMS”). Such leases require compliance with detailed federal regulations and orders which regulate, among other matters, drilling and operations on lands covered by these leases, and calculation and disbursement of royalty payments to the federal government. The MMS has been particularly active in recent years in evaluating and, in some cases, promulgating new rules and regulations regarding competitive lease bidding and royalty payment obligations for production from federal lands. The Federal Energy Regulatory Commission (“FERC”) also has jurisdiction over certain offshore activities pursuant to the Outer Continental Shelf Lands Act.

      Environmental and Occupational Regulations. Various federal, state and local laws and regulations concerning the discharge of incidental materials into the environment, the generation, storage, transportation and disposal of contaminants or otherwise relating to the protection of public health, natural resources, wildlife and the environment, affect Devon’s exploration, development, processing, and production operations and the costs attendant thereto. These laws and regulations increase Devon’s overall operating expenses. Devon maintains levels of insurance customary in the industry to limit its financial exposure in the event of a substantial environmental claim resulting from sudden, unanticipated and accidental discharges of oil, salt water or other substances. However, 100% coverage is not maintained concerning any environmental claim, and no coverage is maintained with respect to any penalty or fine required to be paid by Devon because of its violation of any federal, state or local law. Devon is committed to meeting its responsibilities to protect the environment wherever it operates and anticipates making increased expenditures of both a capital and expense nature as a result of the increasingly stringent laws

relating to the protection of the environment. Devon’s unreimbursed expenditures in 2004 concerning such matters were immaterial, but Devon cannot predict with any reasonable degree of certainty its future exposure concerning such matters.

      Devon is subject to certain laws and regulations relating to environmental remediation activities associated with past operations, such as the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and similar state statutes. In response to liabilities associated with these activities, accruals have been established when reasonable estimates are possible. Such accruals primarily include estimated costs associated with remediation. Devon has not used discounting in determining its accrued liabilities for environmental remediation, and no material claims for possible recovery from third party insurers or other parties related to environmental costs have been recognized in Devon’s consolidated financial statements. Devon adjusts the accruals when new remediation responsibilities are discovered and probable costs become estimable, or when current remediation estimates must be adjusted to reflect new information.

      Certain of Devon’s subsidiaries acquired in past mergers are involved in matters in which it has been alleged that such subsidiaries are potentially responsible parties (“PRPs”) under CERCLA or similar state legislation with respect to various waste disposal areas owned or operated by third parties. As of December 31, 2004, Devon’s consolidated balance sheet included $7 million of non-current accrued liabilities, reflected in “Other liabilities,” related to these and other environmental remediation liabilities. Devon does not currently believe there is a reasonable possibility of incurring additional material costs in excess of the current accruals recognized for such environmental remediation activities. With respect to the sites in which Devon subsidiaries are PRPs, Devon’s conclusion is based in large part on (i) Devon’s participation in consent decrees with both other PRPs and the Environmental Protection Agency, which provide for performing the scope of work required for remediation and contain covenants not to sue as protection to the PRPs, (ii) participation in groups as a de minimis PRP, and (iii) the availability of other defenses to liability. As a result, Devon’s monetary exposure is not expected to be material.

      Devon is also subject to laws and regulations concerning occupational safety and health. Due to the continued changes in these laws and regulations, and the judicial construction of same, Devon is unable to predict with any reasonable degree of certainty its future costs of complying with these laws and regulations. Devon considers the cost of safety and health compliance a necessary and manageable part of its business. Devon has been able to plan for and comply with new initiatives without materially altering its operating strategies.

      Devon maintains its own internal Environmental, Health and Safety Department. This department is responsible for instituting and maintaining an environmental and safety compliance program for Devon. The program includes field inspections of properties and internal assessments of Devon’s compliance procedures.

      The oil and gas industry in Canada is subject to extensive controls and regulations imposed by various levels of government. It is not expected that any of these controls or regulations will affect Devon’s Canadian operations in a manner materially different than they would affect other oil and gas companies of similar size. The following are the most important areas of control and regulation.

      Exploration and Production. Devon’s Canadian operations are subject to federal and provincial governmental regulations. Such regulations include requiring licenses for the drilling of wells, regulating the location of wells and the method and ability to produce wells, surface usage and the restoration of land upon which wells have been drilled, the plugging and abandoning of wells and the transportation of production from wells. Devon’s Canadian operations are also subject to various conservation regulations, including the regulation of the size of spacing units, the number of wells which may be drilled in a unit, the unitization or pooling of oil and gas properties, the rate of production allowable from oil and gas wells, and the ability to produce oil and gas. In Canada, the effect of such regulation is to limit the amounts of

oil and gas Devon can produce from its wells and to limit the number of wells or the locations at which Devon can drill.

      Royalties and Incentives. Each province and the federal government of Canada have legislation and regulations governing land tenure, royalties, production rates and taxes, environmental protection and other matters under their respective jurisdictions. The royalty regime is a significant factor in the profitability of oil and natural gas production. Royalties payable on production from lands other than Crown lands are determined by negotiations between the parties. Crown royalties are determined by government regulation and are generally calculated as a percentage of the value of the gross production with the royalty rate dependent in part upon prescribed reference prices, well productivity, geographical location, field discovery date and the type and quality of the petroleum product produced. From time to time, the governments of Canada, Alberta, British Columbia and Saskatchewan have also established incentive programs such as royalty rate reductions, royalty holidays and tax credits for the purpose of encouraging oil and natural gas exploration or enhanced recovery projects. These incentives generally have the effect of increasing the cash flow to the producer.

      Pricing and Marketing. The price of oil, natural gas and NGLs sold is determined by negotiation between buyers and sellers. An order from the National Energy Board (“NEB”) is required for oil exports from Canada. Any oil export to be made pursuant to an export contract of longer than one year, in the case of light crude, and two years, in the case of heavy crude, requires an exporter to obtain an export license from the NEB. The issue of such a license requires the approval of the Government of Canada. Natural gas exported from Canada is also subject to similar regulation by the NEB. Natural gas exports for a term of less than two years, or for a term of two to twenty years in quantities of not more than 20,000 Mcf per day, must be made pursuant to an NEB order. Any natural gas exports to be made pursuant to a contract of larger duration (to a maximum of 25 years) or in larger quantities require an exporter to obtain a license from the NEB, which requires the approval of the Government of Canada. Exporters are free to negotiate prices and other terms with purchasers, provided that the export contracts meet certain criteria prescribed by the NEB. The governments of Alberta, British Columbia and Saskatchewan also regulate the volume of natural gas which may be removed from those provinces for consumption elsewhere based on such factors as reserve availability, transportation arrangements and market considerations.

      Environmental Regulation. The oil and natural gas industry is subject to environmental regulation pursuant to local, provincial and federal legislation. Environmental legislation provides for restrictions and prohibitions on releases or emissions of various substances produced or utilized in association with certain oil and gas industry operations. In addition, legislation requires that well and facility sites be monitored, abandoned and reclaimed to the satisfaction of provincial authorities. A breach of such legislation may result in the imposition of fines and penalties. Devon is committed to meeting its responsibilities to protect the environment wherever it operates and anticipates making increased expenditures of both a capital and expense nature as a result of the increasingly stringent laws relating to the protection of the environment. Devon’s unreimbursed expenditures in 2004 concerning such matters were immaterial, but Devon cannot predict with any reasonable degree of certainty its future exposure concerning such matters.

      The North American Free Trade Agreement. The North American Free Trade Agreement (“NAFTA”) which became effective on January 1, 1994 carries forward most of the material energy terms contained in the Canada-U.S. Free Trade Agreement. In the context of energy resources, Canada continues to remain free to determine whether exports to the United States or Mexico will be allowed, provided that any export restrictions do not (i) reduce the proportion of energy exported relative to the supply of the energy resource; (ii) impose an export price higher than the domestic price; or (iii) disrupt normal channels of supply. All parties to NAFTA are also prohibited from imposing minimum export or import price requirements.

      Kyoto Protocol. In December 2002 the Government of Canada ratified the Kyoto Protocol. This protocol calls for Canada to reduce its greenhouse gas emissions to 6 percent below 1990 levels during the period between 2008 and 2012. On February 16, 2005, as a result of Russian ratification, the protocol

became legally binding. The protocol is expected to affect the operation of all industries in Canada, including the oil and gas industry. As details of the implementation of emissions reduction initiatives related to this protocol have yet to be announced, the effect on Devon cannot be determined at this time.

      Investment Canada Act. The Investment Canada Act requires Government of Canada approval, in certain cases, of the acquisition of control of a Canadian business by an entity that is not controlled by Canadians. In certain circumstances, the acquisition of natural resource properties may be considered to be a transaction requiring such approval.

      The oil and gas industry is subject to various types of regulation throughout the world. Legislation affecting the oil and gas industry has been pervasive and is under constant review for amendment or expansion. Pursuant to such legislation, government agencies have issued extensive rules and regulations binding on the oil and gas industry and its individual members, some of which carry substantial penalties for failure to comply. Such laws and regulations have a significant impact on oil and gas exploration, drilling and production activities, increase the cost of doing business and, consequently, affect profitability. Inasmuch as new legislation affecting the oil and gas industry is commonplace and existing laws and regulations are frequently amended or reinterpreted, Devon is unable to predict the future cost or impact of complying with such laws and regulations. The following are significant areas of regulation.

      Exploration and Production. Devon’s oil and gas concessions and operating licenses or permits are granted by host governments and administered by various foreign government agencies. Such foreign governments require compliance with detailed regulations and orders which regulate, among other matters, seismic, drilling and production operations on areas covered by concessions and permits and calculation and disbursement of royalty payments, taxes and minimum investments to the government.

      Regulations include requiring permits for acquiring seismic data; drilling wells; maintaining bonding requirements in order to drill or operate wells; implementing spill prevention plans; submitting notification and receiving permits relating to the presence, use and release of certain materials incidental to oil and gas operations; and regulating the location of wells, the method of drilling and casing wells, the use, transportation, storage and disposal of fluids and materials used in connection with drilling and production activities, surface usage and the restoration of properties upon which wells have been drilled, the plugging and abandoning of wells and the transporting of production. Devon’s operations are also subject to regulations which may limit the number of wells or the locations at which Devon can drill.

      Production Sharing Contracts. Many of Devon’s international licenses are governed by Production Sharing Contracts (“PSCs”) between the concessionaires and the granting government agency. PSCs are contracts that define and regulate the framework for investments, revenue sharing, and taxation of mineral interests in foreign countries. Unlike most domestic leases, PSCs have defined production terms and time limits of generally 30 years. Many PSCs allow for recovery of investments including carried government percentages. PSCs generally contain sliding scale revenue sharing provisions. For example, at either higher production rates or higher cumulative rates of return, PSCs allow governments to generally retain higher fractions of revenue.

      Environmental Regulations. Various government laws and regulations concerning the discharge of incidental materials into the environment, the generation, storage, transportation and disposal of waste or otherwise relating to the protection of public health, natural resources, wildlife and the environment, affect Devon’s exploration, development, processing and production operations and the costs attendant thereto. In general, this consists of preparing Environmental Impact Assessments in order to receive required environmental permits to conduct seismic acquisition, drilling or construction activities. Such regulations also typically include requirements to develop emergency response plans, waste management plans, environmental protection plans and spill contingency plans. In some countries, the application of worldwide standards, such as ISO 14000 governing Environmental Management Systems, are required to be implemented for international oil and gas operations. Additionally, the Kyoto Protocol will have requirements similar to those for Canada for the oil and gas industry in Azerbaijan, Brazil, China, Egypt,

Equatorial Guinea, Nigeria and Russia. As details of the implementation of emissions reduction initiatives related to this protocol have yet to be announced, the effect on Devon’s international operations, if any, cannot be determined at this time.

Employees

      As of December 31, 2004, Devon’s staff consisted of 3,900 full-time employees. Devon believes that it has good labor relations with its employees.

      Substantially all of Devon’s properties consist of interests in developed and undeveloped oil and gas leases and mineral acreage located in Devon’s core operating areas. These interests entitle Devon to drill for and produce oil, natural gas and NGLs from specific areas. Devon’s interests are mostly in the form of working interests and, to a lesser extent, overriding royalty, mineral and net profits interests, foreign government concessions and other forms of direct and indirect ownership in oil and gas properties.

      Devon also has certain midstream assets, including natural gas and NGL processing plants and pipeline systems. Devon’s most significant midstream assets are its Bridgeport assets serving the Barnett Shale development in North Texas. These assets include approximately 2,400 miles of pipeline, a 650 MMcf per day gas processing plant, and a 15,000 Bbls per day NGL fractionator.

Proved Reserves and Estimated Future Net Revenue

      The process of estimating oil, gas and NGL reserves is complex and requires significant judgment in the evaluation of available geological, engineering and economic data for each reservoir. The reserve estimates for a given reservoir may change substantially over time as a result of, among other things, additional development activity, production history and viability of production under varying economic conditions. Consequently, material revisions to existing reserve estimates may occur in the future.

      Devon’s policies regarding booking reserves (1) require proved reserves to be in compliance with the SEC definitions and guidance and (2) assign responsibilities for reserves bookings to Devon’s Reserve Evaluation Group (the “Group”). The policies also require that reserve estimates be made by qualified reserves estimators (“QREs”), as defined by the Society of Petroleum Engineers’ standards. A list of QREs is kept by the Senior Advisor — Corporate Reserves. All QREs are required to receive education covering the fundamentals of SEC proved reserves assignments.

      The Group is responsible for internal reserves evaluation and certification and includes the Manager — E&P Budgets and Reserves and the Senior Advisor — Corporate Reserves. The Group reports independently of any of Devon’s operating divisions. The Vice President — Planning and Evaluation is directly responsible for overseeing the Group and reports to the President of Devon.

      No portion of the Group’s compensation is dependent on the quantity of reserves booked.

      Throughout the year, the Group performs internal audits of each operating division’s reserves. Selection criteria of reserves that are audited include major fields and major changes (additions and revisions) to reserves. In addition, the Group reviews reserve estimates with each of the third-party petroleum consultants as discussed below.

      In addition to internal audits, Devon engages three independent petroleum consulting firms to perform both external reserves preparation and audits. Ryder Scott Company, L.P. prepared the reserves estimates for all offshore Gulf of Mexico properties and for 98% of the international proved reserves. LaRoche Petroleum Consultants, Ltd. audited the reserves estimates for about 73% of the domestic onshore properties. AJM Petroleum Consultants prepared estimates covering 22% of Devon’s Canadian reserves.

      Set forth below is a summary of the reserves which were evaluated, either by preparation or audit, by independent petroleum consultants for each of the years ended 2004, 2003 and 2002.

      “Prepared” reserves are those estimates of quantities of reserves which were prepared by an independent petroleum consultant. “Audited” reserves are those quantities of reserves which were estimated by Devon employees and audited by an independent petroleum consultant. An audit is an examination of a company’s proved oil and gas reserves and net cash flow by an independent petroleum consultant that is conducted for the purpose of expressing an opinion as to whether such estimates, in aggregate, are reasonable and have been estimated and presented in conformity with generally accepted petroleum engineering and evaluation principles.

      Devon follows what it believes to be a rational approach not only to recording oil and gas reserves, but also to subjecting these reserves to reviews by independent petroleum consultants. As discussed above, the reserve estimates for all of our Gulf of Mexico and international properties are prepared by an independent petroleum consulting firm every year (excluding 2% of Devon’s 2004 and 2003 international reserves that were estimated by in-house engineers). Additionally, in Canada an independent petroleum consulting firm prepares approximately a rolling one-third of our properties each year so that the reserve estimates for substantially all the Canadian properties are prepared by outside engineers over a three-year cycle.

      For the U.S. onshore properties, reserve estimates of individually significant properties are either prepared or audited by an independent petroleum consulting firm, while estimates of minor properties are prepared by in-house engineers. This approach results in independent engineers preparing or auditing over 50% of our U.S. onshore reserves each year.

      Over any three-year period, more than 95% of Devon’s company-wide reserve estimates are prepared or audited by an independent petroleum consulting firm. Devon believes this approach provides a high degree of assurance about the validity of our reserve estimates. This is evidenced by the fact that in the past five years, Devon’s annual revisions to its reserve estimates, which have been both increases and decreases in individual years, have averaged approximately 2% of the previous year’s estimate.

      In addition to internal and external reviews, three independent members of Devon’s Board of Directors have been assigned to a Reserves Committee. The Reserves Committee assists the Board of Directors with the oversight of (1) the annual review and evaluation of Devon’s consolidated oil, gas and NGL reserves; (2) the integrity of Devon’s reserves evaluation and reporting system; (3) Devon’s compliance with legal and regulatory requirements related to reserves evaluation, preparation, and disclosure; (4) the qualifications and independence of Devon’s independent engineering consultants; and (5) Devon’s business practices and ethical standards in relation to the preparation and disclosure of reserves. The Reserves Committee meets at lease twice a year to discuss reserves issues and policies and periodically meets separately with Devon’s senior reserves engineering personnel and its independent petroleum consultants.

      The following table sets forth Devon’s estimated proved reserves and the related estimated pre-tax future net revenues, pre-tax 10% present value and after-tax standardized measure of discounted future net cash flows as of December 31, 2004. These estimates correspond with the method used in presenting the “Supplemental Information on Oil and Gas Operations” in Note 18 to Devon’s Consolidated Financial Statements included herein.

      As presented in the previous table, Devon had 1,652 MMBoe of proved developed reserves at December 31, 2004. Proved developed reserves consist of proved developed producing reserves and proved developed non-producing reserves. The following table provides additional information regarding Devon’s proved developed reserves at December 31, 2004.

      No estimates of Devon’s proved reserves have been filed with or included in reports to any federal or foreign governmental authority or agency since the beginning of the last fiscal year except (i) in filings with the SEC and (ii) in filings with the Department of Energy (“DOE”). Reserve estimates filed by Devon with the SEC correspond with the estimates of Devon reserves contained herein. Reserve estimates filed with the DOE are based upon the same underlying technical and economic assumptions as the estimates of Devon’s reserves included herein. However, the DOE requires reports to include the interests of all owners in wells that Devon operates and to exclude all interests in wells that Devon does not operate.

      The prices used in calculating the estimated future net revenues attributable to proved reserves do not necessarily reflect market prices for oil, gas and NGL production subsequent to December 31, 2004. There can be no assurance that all of the proved reserves will be produced and sold within the periods indicated, that the assumed prices will be realized or that existing contracts will be honored or judicially enforced.

Production, Revenue and Price History

      Certain information concerning oil, natural gas and NGL production, prices, revenues (net of all royalties, overriding royalties and other third party interests) and operating expenses for the three years ended December 31, 2004, is set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Well Statistics

      The following table sets forth Devon’s producing wells as of December 31, 2004:

Developed and Undeveloped Acreage

      The following table sets forth Devon’s developed and undeveloped oil and gas lease and mineral acreage as of December 31, 2004.

Operation of Properties

      The day-to-day operations of oil and gas properties are the responsibility of an operator designated under pooling or operating agreements. The operator supervises production, maintains production records, employs field personnel and performs other functions.

      Devon is the operator of 19,506 of its wells. As operator, Devon receives reimbursement for direct expenses incurred in the performance of its duties as well as monthly per-well producing and drilling overhead reimbursement at rates customarily charged in the area. In presenting its financial data, Devon records the monthly overhead reimbursements as a reduction of general and administrative expense, which is a common industry practice.

      Devon’s North American properties are concentrated within five geographic areas. Operations in the United States are focused in the Permian Basin, the Mid-Continent, the Rocky Mountains and onshore and offshore Gulf Coast regions. Canadian properties are focused in the Western Canadian Sedimentary Basin in Alberta and British Columbia. Properties outside North America are located primarily in Azerbaijan, China, Egypt and areas in West Africa, including Equatorial Guinea, Gabon, and Cote d’Ivoire. Additionally, Devon has exploratory interests, but no current producing assets, in other international countries including Angola, Brazil, Nigeria and Syria. Maintaining a tight geographic focus in selected core areas has allowed Devon to improve operating and capital efficiency.

      The following table sets forth proved reserve information on the most significant geographic areas in which Devon’s properties are located as of December 31, 2004.

      The following descriptions of Devon’s properties in the United States are as of December 31, 2004. Devon plans to divest certain of these properties in 2005. Information provided below may be materially different after the planned divestitures.

      Devon’s Permian Basin assets are located in portions of Southeast New Mexico and West Texas. These assets include conventional oil and gas properties producing from a wide variety of geologic formations and depths. The Permian Basin represented 9% of Devon’s proved reserves at December 31, 2004.

      Devon’s leasehold position in Southeast New Mexico encompasses more than 117,000 net acres of developed lands and 231,000 net acres of undeveloped land and minerals. Historically, Devon has been a very active operator in this area, developing gas from the high productivity Morrow formation and oil in the lower risk Delaware formation.

      In the West Texas portion of the Permian Basin, Devon maintains a base of oil production with long-life reserves. Many of these reserves are from both operated and non-operated positions in large enhanced oil recovery units such as the Wasson ODC Unit, the Willard Unit, the Reeves Unit, the North Welch Unit and the Anton Irish (Clearfork) Unit. These oil-producing units often exhibit low decline rates. Devon also owns a significant acreage position in West Texas with over 210,000 net acres of developed lands and over 232,000 net acres of undeveloped land and minerals at December 31, 2004.

      The Mid-Continent region includes portions of Texas, Oklahoma and Kansas. These areas encompass a wide variety of geologic formations and productive depths and produce both oil and natural gas. Devon’s Mid-Continent production has historically come from conventional oil and gas properties. However, the Barnett Shale in North Texas, acquired by Devon in 2002, is a non-conventional gas resource. The Mid-Continent region represented 20% of Devon’s proved reserves at December 31, 2004. Approximately 77% of Devon’s proved reserves in the Mid-Continent area are in the Barnett Shale.

      The Barnett Shale, Devon’s largest producing field, is known as a tight gas formation. This means that in its natural state, the formation is resistant to the production of natural gas. However, the application of available technology has made the Barnett Shale a low-risk and highly profitable natural gas operation. Devon holds 535,000 net acres and over 1,900 producing wells in the Barnett Shale. Devon’s average working interest is approximately 95%.

      Devon has experienced success extracting gas from the Barnett Shale by using light sand fracturing. Light sand fracturing yields better results than earlier techniques, is less expensive and can be used to complete new wells and to refracture existing wells to increase production rates. Devon is also applying horizontal drilling, closer well spacing and reservoir optimization techniques to further enhance the value of the Barnett Shale.

      Devon’s marketing and midstream operations gather and process its Barnett Shale production along with Barnett Shale production from unrelated third parties. The gathering system consists of approximately 2,400 miles of pipeline, a 650 MMcf per day gas processing plant, and a 15,000 Bbls per day NGL fractionator.

      In 2005, Devon plans to drill a total of 226 new Barnett Shale wells including 156 horizontals and 70 verticals. About two-thirds of the horizontal wells will be drilled outside the core development area in an effort to further expand the productive area of the field. The Barnett Shale is expected to continue to be an important producing area for Devon for the foreseeable future. Current net production from the Barnett Shale is approximately 93 MBoe per day.

      Devon’s operations in the Rocky Mountain region include properties in Wyoming, Montana, Utah, and Northern New Mexico. These assets include conventional oil and gas properties and coalbed natural gas projects. As of December 31, 2004, the Rocky Mountain region comprised 9% of Devon’s proved reserves.

      Approximately 19% of Devon’s proved reserves in the Rocky Mountains are from coalbed natural gas. Devon began producing coalbed natural gas in the San Juan Basin of New Mexico in the mid-1980s and began drilling coalbed natural gas wells in the Powder River Basin of Wyoming in 1998. As of December 31, 2004, Devon had approximately 1,360 producing coalbed natural gas wells in the Powder River Basin. Devon’s net coalbed natural gas production from the basin was approximately 76 MMcf per day as of December 31, 2004. Devon plans to drill 120 new wells and deepen 44 existing wells in the Powder River Basin in 2005. Current production in the basin is primarily from the Wyodak coal formation. Development of the deeper Big George formation is expanding the play into the western portion of the Powder River Basin. Devon also plans to plug and abandon 100 wells in the Powder River Basin in 2005.

      Devon’s most significant conventional gas project in the Rocky Mountain region is the Washakie field in Wyoming. Devon is continuing to develop and grow production from this field. In 2004, Devon added 62 producing wells in the Washakie field and plans to drill another 84 wells in 2005. Devon has interests in over 200,000 gross acres and an inventory of more than 300 drilling locations. Devon’s current net production from Washakie is approximately 15 MBoe per day.

      Devon’s Gulf Coast onshore properties are located in South and East Texas, Louisiana and Mississippi. Most of the wells in the region are completed in conventional sandstone formations. At December 31, 2004, the Gulf Coast accounted for approximately 12% of Devon’s proved reserves.

      Devon’s operations in South Texas have focused on exploration in the Edwards, Wilcox and Frio/ Vicksburg formations. Devon has high working interests, up to 100%, in several producing fields.

      East Texas is an important conventional gas producing region for Devon. Carthage and Groesbeck are two of the primary producing areas. Wells produce from the Cotton Valley sands, the Travis Peak sands and from shallower sands and carbonates. Devon has interests in nearly 1,900 producing wells in East Texas and plans to drill 106 wells in Carthage and 37 wells in Groesbeck in 2005. Devon’s current net production from East Texas is about 42 MBoe per day.

      The offshore Gulf of Mexico accounted for 16% of Devon’s 2004 production and 8% of year-end proved reserves. Devon is among the largest independent oil and gas producers in the Gulf of Mexico and operates 450 platforms and caissons. Gulf of Mexico operations are typically differentiated by water depth. The shelf is defined by water depths of 600 feet or less. The deep water is at depths beyond 600 feet. Devon operates in both the shelf and deepwater areas. However, Devon expects to divest a significant number of its Gulf of Mexico shelf producing assets in 2005.

      In 2004, Devon commenced production from two new deepwater fields. Red Hawk (Garden Banks 876) commenced production in July and is currently producing in excess of 120 MMcf of gas per day. Devon has a 50% working interest in Red Hawk. Magnolia (Garden Banks 783) began producing oil and gas in December. In February 2005, Magnolia was producing about 7 MBoe per day net to Devon’s 25% working interest from two of an expected eight total producing wells.

      In addition to its producing properties, Devon has a significant inventory of exploration prospects in the Gulf of Mexico. Devon has an interest in 85 undeveloped blocks on the shelf and 526 undeveloped deepwater blocks.

      On the shallow-water shelf, the industry is beginning to explore for oil and gas reserves at depths in excess of 15,000 feet. Devon has an interest in 28 of these “deep shelf” prospects and expects to drill as many as 8 deep shelf exploratory wells during 2005.

      In the deepwater Gulf of Mexico, almost all historical production of oil and gas has been from Miocene aged reservoirs. Devon currently produces approximately 55 MBoe per day from the deepwater Gulf and has an inventory of 18 undrilled Miocene prospects. During 2005, Devon expects to drill exploratory wells on four Miocene prospects.

      In recent years, the industry has begun to explore for oil below the Miocene in older formations that are collectively referred to as the “lower Tertiary.” To date, Devon has participated in three lower Tertiary discoveries and has an interest in 23 additional undrilled lower Tertiary prospects.

      Cascade (Walker Ridge 206) was drilled in 2002 and was Devon’s first discovery in the lower Tertiary trend. Devon has a 25% working interest in the discovery and expects to drill an appraisal well on the prospect in 2005. Devon’s second lower tertiary discovery was in 2003 at St. Malo (Walker Ridge 678). During 2004, Devon appraised the St. Malo discovery with a second well. The St. Malo appraisal well encountered more than 400 net feet of oil pay. Devon has a 22.5% working interest in

St. Malo and plans to drill a second appraisal well on the St. Malo prospect in 2005. In 2004, Devon drilled its third lower Tertiary discovery at Jack (Walker Ridge 759). The Jack well encountered more than 350 net feet of oil pay. Devon has a 25% working interest in Jack and plans to drill an appraisal well on the prospect in 2005. In addition, Devon plans to test at least one additional lower Tertiary prospect during 2005.

      Devon is among the largest independent oil and gas producers in Canada and operates in most of the producing basins in Western Canada. As of December 31, 2004, 29% of Devon’s proved reserves were Canadian. Devon’s Canadian assets will be reduced by the planned 2005 non-core property divestiture program.

      Many of the Canadian basins where Devon operates are accessible for drilling only in the winter when the ground is frozen. Consequently, the winter season, from December through March, is the most active drilling period. Devon expects to drill about 400 wells in the 2004-2005 winter program and spend $475 million, or nearly half of the full year Canadian capital budget.

      The Deep Basin in West-Central Alberta accounted for 16% of Devon’s Canadian proved reserves at December 31, 2004. Devon holds 480,000 net undeveloped acres in the Deep Basin, where it drilled 187 wells in 2004 and has another very active drilling program planned for 2005. The profitability of Devon’s operations in the Deep Basin is enhanced by its ownership in nine gas processing plants in the area. Deep Basin reservoirs tend to be rich in liquids, producing up to 50 barrels of NGLs with each MMcf of gas.

      Other important conventional oil and gas exploration and development areas for Devon in Canada include the Peace River Arch, Northeast British Columbia and the Central Plains. Devon drilled 149, 115 and 90 wells, respectively, in these areas in 2004.

      Devon also drills for and produces “cold-flow” heavy oil in the Lloydminster area of Alberta and Saskatchewan where oil is found in multiple horizons generally at depths of 1,000 to 2,000 feet. Lloydminster accounted for 12% of Devon’s 2004 Canadian proved reserves.

      The oil sands of Eastern Alberta are a vast North American hydrocarbon resource. Devon holds over 140,000 net acres of oil sands leases in Alberta. In December 2004, Devon received final regulatory approval to proceed with development of its Jackfish oil sands project, in which Devon has a 100% working interest. The project is expected to produce 35 MBbls per day of thermal heavy oil when fully operational in 2008. Devon expects to invest $195 million at Jackfish in 2005 for site preparation, facilities construction and initial well drilling. Devon also owns interests in the Surmont and Dover oil sands projects which are among those expected to be divested in 2005.

      In addition to its core properties in the United States and Canada, Devon also looks outside North America for longer-term reserve and production growth. At December 31, 2004, these international areas accounted for 13% of Devon’s worldwide proved reserves.

      The most significant international producing property is the ExxonMobil-operated Zafiro oil field on Block B, offshore Equatorial Guinea in West Africa. During 2004, Devon’s share of production from Zafiro averaged 47 MBbls per day. Devon’s share of production from Zafiro is expected to be reduced by about 20% in 2005. The expected reduction is the result of field decline and a change in Devon’s share of production under the terms of the production sharing contract.

      Devon will continue drilling development wells on Block B in 2005. Devon has also identified exploratory prospects on Block B and on three additional blocks in Equatorial Guinea in which it has interests. Exploratory wells on Blocks B and P are planned for 2005.

      Devon also has active offshore exploration programs in other countries in West Africa and Brazil. Devon made a discovery in 2004 offshore Brazil on Block BM-C-8 and plans follow-up drilling in 2005. Devon also plans to drill potentially high-impact exploratory wells offshore Nigeria and Angola in 2005.

      Devon’s second most significant international producing asset is its Panyu project offshore China. Panyu, in the Pearl River Mouth of the South China Sea, was discovered in 1998. Panyu production began late in 2003. Field production peaked in 2004 and averaged about 19 MBbls per day to Devon’s interest during the year. Devon plans to drill and complete up to 10 additional development wells and test two or three exploratory prospects in the area during 2005. Devon expects its net production from Panyu to average about 15 MBbls per day in 2005.

      In Azerbaijan, Devon has a 5.6% carried working interest in the Azeri-Chirag-Gunashli, or ACG, oil development project in the Caspian Sea. Devon estimates that the ACG field contains over 4.7 billion barrels of gross proved oil reserves. Oil production from the ACG field will increase dramatically upon completion of the Baku-T’Bilisi-Ceyhan pipeline, which is expected in 2005. Devon’s net share of ACG production is expected to peak between 40,000 to 50,000 barrels per day in 2008 or 2009.

      Devon also holds interests in Cote d’Ivoire, Gabon, Ghana, Egypt, Russia, Indonesia and Syria. In 2004, Devon entered into several joint ventures with partners to test Devon’s exploratory acreage in Egypt.

Title to Properties

      Title to properties is subject to contractual arrangements customary in the oil and gas industry, liens for current taxes not yet due and, in some instances, other encumbrances. Devon believes that such burdens do not materially detract from the value of such properties or from the respective interests therein or materially interfere with their use in the operation of the business.

      As is customary in the industry, other than a preliminary review of local records, little investigation of record title is made at the time of acquisitions of undeveloped properties. Investigations, generally including a title opinion of outside counsel, are made prior to the consummation of an acquisition of producing properties and before commencement of drilling operations on undeveloped properties.

Royalty Matters

      Numerous gas producers and related parties, including Devon, have been named in various lawsuits alleging violation of the federal False Claims Act. The suits allege that the producers and related parties used below-market prices, improper deductions, improper measurement techniques and transactions with affiliates which resulted in underpayment of royalties in connection with natural gas and natural gas liquids produced and sold from federal and Indian owned or controlled lands. The principal suit in which Devon is a defendant is United States ex rel. Wright v. Chevron USA, Inc. et al. (the “Wright case”). The suit was originally filed in August 1996 in the United States District Court for the Eastern District of Texas, but was consolidated in October 2000 with the other suits for pre-trial proceedings in the United States District Court for the District of Wyoming. On July 10, 2003, the District of Wyoming remanded the Wright case back to the Eastern District of Texas to resume proceedings. Trial is set for February 2007 if the suit continues to advance. Devon believes that it has acted reasonably, has legitimate and strong defenses to all allegations in the suit, and has paid royalties in good faith. Devon does not currently believe that it is subject to material exposure in association with this lawsuit and no liability has been recorded in connection therewith.

      Devon is a defendant in certain private royalty owner litigation filed in Wyoming regarding deductibility of certain post production costs from royalties payable by Devon. A significant portion of such production is, or will be, transported through facilities owned by Thunder Creek Gas Services, L.L.C., of which Devon owns a 75% interest. Devon believes that it has acted reasonably and paid royalties in good faith and in accordance with its obligations under its oil and gas leases and applicable law, and Devon does not believe that it is subject to material exposure in association with this litigation.

Tax Treatment of Exchangeable Debentures

      As described more fully in Note 8 to the consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of this report, Devon has certain exchangeable debentures, with a principal amount totaling $760 million, which are exchangeable at the option of the holders into shares of ChevronTexaco common stock owned by Devon. The debentures were assumed, and the ChevronTexaco common stock was acquired, by Devon in the 1999 PennzEnergy merger.

      The Internal Revenue Service (“IRS”) recently examined the 1998 income tax return of PennzEnergy’s predecessor, and the IRS formally notified Devon in April 2004 that it disagreed with certain tax treatments of the exchangeable debentures and similar exchangeable debentures retired in 1998. Devon did not agree with the IRS positions and contested the claim of additional taxes. In June 2004, Devon formally protested the IRS notice and requested a conference with the IRS Appeals Office. A preliminary appeals conference was held in October 2004, and additional appeals meetings were held in November and December 2004. This matter was resolved in February 2005, when the IRS agreed with Devon and concluded that no taxes were due.

Other Matters

      Devon is involved in other various routine legal proceedings incidental to its business. However, to Devon’s knowledge as of the date of this report, there were no other material pending legal proceedings to which Devon is a party or to which any of its property is subject.

      There were no matters submitted to a vote of security holders during the fourth quarter of 2004.

PART II

Market Price

      Devon’s common stock has been traded on the New York Stock Exchange (the “NYSE”) since October 12, 2004. Prior to October 12, 2004, Devon’s common stock was traded on the American Stock Exchange (the “AMEX”). From December 15, 1998 to August 27, 2004, a class of Devon exchangeable shares traded on The Toronto Stock Exchange under the symbol “NSX”. These shares were essentially equivalent to Devon common stock and were exchangeable at any time, on a one-for-one basis, for common shares of Devon at the holder’s option. The last remaining exchangeable shares outstanding were exchanged for Devon common stock on August  27, 2004.

      The following table sets forth the high and low sales prices for Devon common stock as reported by the NYSE and AMEX for the periods indicated.

      On February 28, 2005, there were 18,623 holders of record of Devon common stock.

Dividends

      Devon commenced the payment of regular quarterly cash dividends on its common stock on June 30, 1993, in the amount of $0.015 per share. Effective December 31, 1996, Devon increased its quarterly dividend payment to $0.025 per share. Effective March 31, 2004, Devon increased its quarterly dividend payment to $0.05 per share. Effective March 31, 2005, Devon will increase the quarterly dividend payment to $0.075 per share. Devon anticipates continuing to pay regular quarterly dividends in the foreseeable future.

Issuer Purchases of Equity Securities

      The following table sets forth information with respect to repurchases by Devon of its shares of common stock during the fourth quarter of 2004.

      The following selected financial information (not covered by the independent auditors’ report) should be read in conjunction with “Item 1. Business — Development of Business,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and the notes thereto included in “Item 8. Financial Statements and Supplementary Data.” Note 2 to the consolidated financial statements included in Item 8 of this report contains information on the merger which occurred in 2003, as well as unaudited pro forma financial data for the years 2003 and 2002. Note 16 to the consolidated financial statements included in Item 8 contains information on operations which were discontinued in 2002.