Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

7.Income Taxes

Income Tax Expense

The following table presents Devon’s income tax components.

	Year Ended December 31,
	2023			2022			2021
Current income tax expense (benefit):
U.S. federal	$	441		$	501		$	10
Various states		27			65			9
Canada		(3	)		(7	)		(3	)
Total current income tax expense		465			559			16
Deferred income tax expense:
U.S. federal		365			1,090			18
Various states		11			82			22
Canada		—			7			9
Total deferred income tax expense		376			1,179			49
Total income tax expense	$	841		$	1,738		$	65

Total income tax expense differed from the amounts computed by applying the U.S. federal income tax rate to earnings before income taxes as a result of the following:

	Year Ended December 31,
	2023			2022			2021
Earnings before income taxes	$	4,623		$	7,775		$	2,898
U.S. statutory income tax rate		21	%		21	%		21	%
State income taxes		1	%		1	%		1	%
Income tax credits		(3	%)		0	%		0	%
Other		(1	%)		0	%		2	%
Deferred tax asset valuation allowance		0	%		0	%		(22	%)
Effective income tax rate		18	%		22	%		2	%

2023

In 2023, Devon recognized income tax credits associated with its qualified research activities. This includes actual credits generated in the 2018-2022 tax years as well as estimated credits for the 2023 tax year.

2021

Prior to 2021, Devon maintained a valuation allowance against all U.S. federal deferred tax assets. Devon recognized approximately $250 million of deferred tax liabilities to account for the Merger. The recognition of these deferred tax liabilities caused a decrease to Devon’s net deferred tax assets and a corresponding decrease to the valuation allowance Devon had recognized on its U.S. federal deferred tax assets.

Due to significant increases in commodity pricing and projections of future income, in the fourth quarter of 2021, Devon reassessed its evaluation of the realizability of deferred tax assets in future years and determined that a U.S. federal valuation allowance was no longer necessary. As such, Devon removed its remaining $84 million U.S. federal valuation allowance.

Deferred Tax Assets and Liabilities

The following table presents the tax effects of temporary differences that gave rise to Devon’s deferred tax assets and liabilities.

	December 31,
	2023			2022
Deferred tax assets:
Capital loss carryforwards	$	542		$	523
Net operating loss carryforwards		447			526
Accrued liabilities		194			209
Asset retirement obligation		148			119
Other, including tax credits		25			14
Total deferred tax assets before valuation allowance		1,356			1,391
Less: valuation allowance		(826	)		(814	)
Net deferred tax assets		530			577
Deferred tax liabilities:
Property and equipment		(2,304	)		(1,969	)
Fair value of derivative financial instruments		(50	)		(33	)
Other		(14	)		(38	)
Total deferred tax liabilities		(2,368	)		(2,040	)
Net deferred tax liability	$	(1,838	)	$	(1,463	)

At December 31, 2023, Devon has recognized $447 million of deferred tax assets related to various net operating loss carryforwards available to offset future taxable income. Devon has $139 million of U.S. federal net operating loss carryforwards, of which $117 million expires between 2030 and 2036, and $22 million does not expire. Devon has $5 million of Canadian net operating loss carryforwards, all of which are covered by a valuation allowance. Devon also has $303 million of state net operating loss carryforwards primarily expiring between 2024 and 2040, $264 million of which are covered by a valuation allowance.

Devon’s remaining $139 million U.S. federal net operating losses were acquired from WPX as a result of the Merger. These net operating losses are subject to limitation pursuant to Section 382 of the Internal Revenue Code of 1986, which relates to limitations upon the 50% or greater change of ownership of an entity during any three-year period. The Company anticipates utilizing these net operating losses prior to their expiration.

Devon's remaining Canadian deferred tax assets of $557 million, primarily made up of $542 million of capital losses, are fully covered by a valuation allowance.

Unrecognized Tax Benefits

The following table presents changes in Devon’s unrecognized tax benefits.

	December 31,
	2023		2022
	(Millions)
Balance at beginning of year	$	73	$	36
Tax positions taken in prior periods		10		51
Settlements		—		(14	)
Balance at end of year	$	83	$	73

Devon's 2023 unrecognized tax benefit balance includes $4 million of interest. At December 31, 2023 and December 31, 2022, there were $83 million and $73 million, respectively, of current unrecognized tax benefits that if recognized would affect the annual effective tax rate. Deferred unrecognized tax benefits of $42 million at December 31, 2021 are not included in the table above but are accounted for in Devon’s deferred tax disclosure above. Due to utilization of tax attributes in 2022, $42 million of Devon’s deferred unrecognized tax benefits were reclassified as current unrecognized tax benefits.

Included below is a summary of the tax years, by jurisdiction, that remain subject to examination by taxing authorities.

Jurisdiction	Tax Years Open
U.S. federal	2015-2023
Various U.S. states	2019-2023
Canada	2006-2023

Certain statute of limitation expirations are scheduled to occur in the next twelve months. Devon is currently in various stages of the audit and administrative review process for certain open tax years.