DEVON ENERGY CORP /OK/, PREM14A, 1996-10-21

DEVON ENERGY CORP /OK/
PREM14A, 1996-10-21
CRUDE PETROLEUM & NATURAL GAS

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<PAGE> 1

SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12

DEVON ENERGY CORPORATION
- - - --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

- - - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.

(1) Title of each class of securities to which transaction applies:

Common Stock, par value $.10
- - - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:

9,954,000
- - - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):

$26.75 per share based on the average of the high and low prices reported on the
American Stock Exchange on October 16, 1996.
- - - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

$266,269,500
- - - --------------------------------------------------------------------------------
(5) Total fee paid:

$53,254.00
- - - --------------------------------------------------------------------------------

/ / Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

- - - --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

- - - --------------------------------------------------------------------------------
(3) Filing Party:

- - - --------------------------------------------------------------------------------
(4) Date Filed:

- - - --------------------------------------------------------------------------------
<PAGE> 2
[DEVON ENERGY CORPORATION LETTERHEAD]

October 21, 1996

Dear Devon Shareholder:

On October 17, 1996, Devon Energy Corporation and Kerr-McGee Corporation
agreed to merge Kerr-McGee's North American onshore oil and gas exploration and
production business and properties into Devon. This transaction is subject to
certain conditions, including approval by the Devon shareholders. If it is
completed, this merger will have a significant impact on Devon. Our oil and gas
reserves will increase almost 50%, and our undeveloped property inventory will
more than double. In exchange, Devon will issue 9.95 million new shares of
common stock to Kerr-McGee. As a result, Kerr-McGee will become Devon's largest
shareholder.

Devon's board of directors believes that this transaction will be
beneficial to the shareholders of Devon. As a Devon shareholder, you will be
asked to vote upon issues related to this transaction at a special shareholders'
meeting. We plan to hold the meeting in November or early December 1996.

Enclosed are preliminary proxy materials for the special meeting. These
materials are preliminary because they have not yet been reviewed by the
Securities and Exchange Commission. Upon receipt of clearance from the
Securities and Exchange Commission, we will promptly send you the final proxy
materials, including a proxy card. We expect to mail the final materials within
the next four weeks.

Sincerely,

/s/ J. LARRY NICHOLS

J. LARRY NICHOLS
President and Chief Executive
Officer
<PAGE> 3

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

20 North Broadway, Suite 1500
Oklahoma City, Oklahoma 73102-8260

To Our Shareholders:

Devon Energy Corporation, an Oklahoma Corporation ("Devon") and Kerr-McGee
Corporation, a Delaware Corporation ("Kerr-McGee") have agreed to transfer
Kerr-McGee's two subsidiaries, which hold its U.S. onshore and Canadian oil and
exploration and production business and properties, to Devon. The transaction
will add approximately 53 million barrels of oil equivalent and 370,000 net
undeveloped acres of leasehold and mineral interests to Devon's property base.
Kerr-McGee will receive 9,954,000 shares of Devon common stock, or about 31% of
Devon's total shares outstanding, in exchange for these properties.

The agreement is subject to a number of conditions. The most important are
approval by Devon's shareholders of (i) the issuance of the Devon shares to
Kerr-McGee and (ii) an amendment to Devon's certificate of incorporation to
increase the number of shares of common stock authorized for issuance.
Therefore, a special meeting of the shareholders of Devon will be held in
, Oklahoma City, Oklahoma on , 1996, at
a.m., local time. The purpose of the meeting is to consider and vote on the
following matters:

1. The issuance of 9,954,000 shares of Devon common stock to Kerr-McGee in
exchange for all of Kerr-McGee's North American onshore oil and gas
exploration and production business and properties;

2. An amendment to Devon's certificate of incorporation to increase the
number of authorized shares of Devon common stock from 120 million
shares to 400 million shares; and

3. Such other matters as may properly come before the meeting or any
adjournment thereof.

If the required shareholder proposals are approved at the special meeting,
and certain other conditions are satisfied, it is expected that the transaction
with Kerr-McGee will be completed on December 31, 1996.

Stockholders of record at the close of business on , 1996, are
entitled to notice of and to vote at the meeting. The attached proxy statement
explains the details of the transaction between Devon and Kerr-McGee, and the
proposals to be voted on at the special meeting. For reasons outlined in the
attached proxy statement, THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
MATTERS BEING VOTED UPON.

IMPORTANT

YOUR PROXY IS IMPORTANT TO ASSURE A QUORUM AT THE MEETING. WHETHER OR NOT
YOU EXPECT TO ATTEND THE MEETING, PLEASE BE SURE THAT THE ENCLOSED FORM OF
PROXY* IS PROPERLY COMPLETED, DATED, SIGNED AND RETURNED WITHOUT DELAY. PLEASE
USE THE ENCLOSED RETURN ENVELOPE. IT REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.

BY ORDER OF THE BOARD OF DIRECTORS

MARIAN J. MOON
Corporate Secretary

Oklahoma City, Oklahoma
, 1996

* No proxy card is enclosed with this preliminary Proxy Statement, but will be
enclosed with the definitive Proxy Statement.
<PAGE> 4

SUBJECT TO COMPLETION, DATED OCTOBER 21, 1996

PRELIMINARY
PROXY STATEMENT
FOR

DEVON ENERGY CORPORATION

SPECIAL MEETING OF SHAREHOLDERS
, 1996

---------------------

This Proxy Statement (the "Proxy Statement") relates to a proposed
transaction whereby Devon would acquire all of Kerr-McGee's North American
onshore oil and gas exploration and production business and properties (the
"Kerr-McGee Properties") in exchange for 9,954,000 shares of Devon common stock,
par value $0.10 per share ("Common Stock").

If the proposed transaction (the "Transaction") is consummated, Devon's
property base would be expanded by approximately 50% with the addition of 53
million equivalent barrels of oil and gas reserves in the U.S. and Canada
(estimated as of the anticipated effective date of December 31, 1996) and 370
thousand net acres of undeveloped leasehold and mineral interests. The
properties are concentrated in the Permian Basin, the Rocky Mountains and the
Mid-Continent region of the United States -- areas in which Devon already owns
significant interests -- and in the Western Canada Sedimentary Basin of western
Canada -- a new producing province for Devon.

Because Kerr-McGee will own a relatively large block of Devon Common Stock,
Devon and Kerr-McGee will enter into two additional agreements which define and
limit their respective rights and obligations. In addition, Devon's board of
directors has amended, and will further amend, Devon's share rights plan to
prevent the Transaction from triggering the rights thereunder. The intent of
these agreements is to (i) allow Kerr-McGee to be represented on Devon's board
of directors in proportion to Kerr-McGee's ownership of outstanding Devon Common
Stock; (ii) limit Kerr-McGee's ability to gain control of Devon; (iii) provide
Kerr-McGee the ability to sell all or a portion of its Devon Common Stock,
subject to certain restrictions designed to avoid a detrimental effect on Devon;
(iv) allow Kerr-McGee to maintain the percentage of Devon Common Stock it
acquires in the Transaction; and (v) maintain the anti-takeover defenses
currently available to the Devon shareholders. See "Description of the
Transaction -- Future Relationships between Kerr-McGee and Devon" for a detailed
description of these arrangements.

Devon's Common Stock is traded on the American Stock Exchange (the "AMEX")
under the symbol "DVN." The AMEX requires shareholder approval of the issuance
of Common Stock to Kerr-McGee because the Transaction would increase Devon's
outstanding shares by 20% or more. In addition, the Agreement and Plan of Merger
among Devon, Kerr-McGee and certain of their subsidiaries dated October 17, 1996
(the "Merger Agreement") requires that Devon's shareholders approve the issuance
of the Common Stock to Kerr-McGee. The Merger Agreement also requires that Devon
amend its certificate of incorporation to increase the number of authorized
shares of Devon Common Stock from 120 million shares to 400 million shares.
These two requirements to obtain shareholder approval are together referred to
as the "Required Proposals." The Required Proposals will be submitted to a vote
of the shareholders of Devon at a special meeting to be held on ,
1996. Approval of each of the Required Proposals requires the favorable vote of
not less than a majority of the shares of Devon Common Stock entitled to vote
thereon. The satisfaction of certain other conditions will also be required to
consummate the Transaction. See "Description of the Transaction -- Conditions to
the Transaction."

The preliminary Proxy Statement was sent to the shareholders of Devon on or
about October 21, 1996. The definitive Proxy Statement and form of proxy are
first being sent to the shareholders of Devon on or about , 1996.

---------------------

The date of this Proxy Statement is , 1996
<PAGE> 5

[SIGNIFICANT AREAS OF INTEREST MAP]
<PAGE> 6

[WESTERN CANADA SEDIMENTARY BASIN MAP]

<TABLE>
<CAPTION>
ESTIMATED PROVED RESERVES AS OF ESTIMATED PROVED RESERVES AS OF
DECEMBER 31, 1995 DECEMBER 31, 1995
-------------------------------------------------- ----------------------------------------------
OIL AND NGLS ESTIMATED PROVED RESERVES AS OF
BASIN: LOCATION (MBBLS) BASIN: LOCATION (MMCF)
------------------------------------- ------------ ------------------------------------- -------
<S> <C> <C> <C>
Permian Basin: West Texas and
Southeast New Mexico Permian Basin: West Texas and
Devon 44,433 Southeast New Mexico
Kerr-McGee Properties 6,533 Devon 83,513
Pro Forma(3) 50,966 Kerr-McGee Properties 36,098
Rocky Mountains: Wyoming and Pro Forma(3) 119,611
North Dakota Rocky Mountains: Wyoming and
Devon 7,330 North Dakota
Kerr-McGee Properties 7,463 Devon 65,841
Pro Forma(3) 14,793 Kerr-McGee Properties 45,729
San Juan Basin: Northwest Pro Forma(3) 111,570
New Mexico San Juan Basin: Northwest
Devon 35 New Mexico
Kerr-McGee Properties - Devon 176,068
Pro Forma(3) 35 Kerr-McGee Properties -
Mid-Continent: Oklahoma and Pro Forma(3) 176,068
Texas Panhandle Mid-Continent: Oklahoma and
Devon 1,489 Texas Panhandle
Kerr-McGee Properties 1,036 Devon 30,479
Pro Forma(3) 2,525 Kerr-McGee Properties 55,639
Other Areas of the U.S. Pro Forma(3) 86,118
Devon 648 Other Areas of the U.S.
Kerr-McGee Properties 2,131 Devon 7,945
Pro Forma(3) 2,779 Kerr-McGee Properties 16,927
Western Canada Sedimentary Basin: Pro Forma(3) 24,872
Alberta, Canada Western Canada Sedimentary Basin:
Devon - Alberta, Canada
Kerr-McGee Properties 9,595 Devon -
Pro Forma(3) 9,595 Kerr-McGee Properties 49,687
Grand Total Pro Forma(3) 49,687
Devon 53,935 Grand Total
Kerr-McGee Properties 26,758 Devon 363,846
Pro Forma(3) 80,693 Kerr-McGee Properties 204,080
Pro Forma(3) 567,926

<CAPTION>
ESTIMATED PROVED RESERVES AS OF
DECEMBER 31, 1995
----------------------------------------------------------
BASIN: LOCATION MBOE(1) MBOE%(2)
------------------------------------- ------- --------
<S> <C> <C> <C>
Permian Basin: West Texas and
Southeast New Mexico
Devon 58,352 51%
Kerr-McGee Properties 12,549 21%
Pro Forma(3) 70,901 40%
Rocky Mountains: Wyoming and [INDEX MAP]
North Dakota
Devon 18,304 16%
Kerr-McGee Properties 15,085 25%
Pro Forma(3) 33,389 19%
San Juan Basin: Northwest
New Mexico
Devon 29,380 26%
Kerr-McGee Properties - 0%
Pro Forma(3) 29,380 17%
Mid-Continent: Oklahoma and
Texas Panhandle
Devon 6,568 6%
Kerr-McGee Properties 10,309 17%
Pro Forma(3) 16,877 10%
Other Areas of the U.S.
Devon 1,972 1%
Kerr-McGee Properties 4,952 8%
Pro Forma(3) 6,924 4%
Western Canada Sedimentary Basin:
Alberta, Canada
Devon - 0%
Kerr-McGee Properties 17,876 29%
Pro Forma(3) 17,876 10%
Grand Total
Devon 114,576 100%
Kerr-McGee Properties 60,771 100%
Pro Forma(3) 175,347 100%
</TABLE>

- - - -----------------------

(1) Gas reserves are converted to Boe at the rate of six Mcf per Boe.

(2) Percentage which MBoe for the basin or region bears to total MBoe for all
Proved Reserves.

(3) Assuming the Transaction is effective as of December 31, 1995.
<PAGE> 7

TABLE OF CONTENTS

<TABLE>
<S> <C>
Summary............................................................................... 3
Summary Unaudited Pro Forma Financial Information..................................... 9
Summary Oil and Gas Information....................................................... 12
Summary Historical Financial Data..................................................... 13
General Information................................................................... 15
The Devon Meeting..................................................................... 15
Description of the Transaction........................................................ 16
Market Prices and Dividends........................................................... 24
Pro Forma Financial Information....................................................... 25
Devon's Selected Financial Data....................................................... 34
Kerr-McGee's Properties Selected Financial Data....................................... 35
Devon Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 36
Kerr-McGee Management's Discussion and Analysis of Results of Operations for the
Kerr-McGee Properties............................................................... 50
Business and Properties............................................................... 54
Management and Directors of Devon..................................................... 65
Description of Devon Capital Stock.................................................... 69
Incorporation of Certain Documents by Reference....................................... 71
Experts............................................................................... 71
Submission of Stockholder Proposals................................................... 72
Index to Financial Statements......................................................... F-1
Addendum A -- Agreement and Plan of Merger............................................ A-1
</TABLE>

CERTAIN DEFINITIONS

As used in this Proxy Statement:

"Mcf" means thousand cubic feet

"MMcf" means million cubic feet

"Bcf" means billion cubic feet

"Boe" means barrels of oil equivalent

"MBoe" means thousand barrels of oil equivalent

"MMBoe" means million barrels of oil equivalent

"Bbl" means barrel

"MBbls" means thousand barrels

"MMBbls" means million barrels

"Oil" includes crude oil and condensate

"NGLs" means natural gas liquids

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain of the matters discussed under the captions "Devon Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business and Properties" and elsewhere in this Proxy Statement or in the
information incorporated by reference herein may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of Devon to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Some of the factors that may cause such material differences are set
forth herein under the captions "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<PAGE> 8

SUMMARY

The following summary, does not purport to be complete, and is qualified in
its entirety by the detailed information appearing elsewhere in this Proxy
Statement or incorporated by reference herein.

INTRODUCTION

The respective boards of directors of Devon and Kerr-McGee have agreed upon
a plan whereby the Kerr-McGee Properties would be combined into Devon. The plan
is set forth in the Merger Agreement attached hereto as Addendum A.

This Proxy Statement relates to a special meeting of shareholders of Devon
to be held at on , 1996 (the "Devon Meeting"). At the
Devon Meeting, the shareholders of Devon will consider and vote upon the
Required Proposals. First, the shareholders will vote upon a proposal to approve
the issuance of 9,954,000 shares of Devon Common Stock to Kerr-McGee. Second,
the shareholders will vote upon a proposal to amend Devon's certificate of
incorporation to increase the number of authorized shares of Common Stock from
120 million to 400 million. Approval of each of these two Required Proposals
requires the favorable vote of not less than a majority of the shares of Common
Stock entitled to vote thereon. Approval of both of the Required Proposals is a
condition to consummating the Transaction. Thus, if either or both of the
Required Proposals are not approved, the Transaction will not occur. The
satisfaction of certain other conditions will also be required to consummate the
Transaction. See "Description of the Transaction -- Conditions to the
Transaction." Approval by the shareholders of Kerr-McGee is not required to
consummate the Transaction.

THE TRANSACTION

The Merger Agreement provides for the Kerr-McGee Properties to be
consolidated with those of Devon. This will be accomplished in two simultaneous
transactions. First, Kerr-McGee North American Onshore Corporation, a
wholly-owned Oklahoma subsidiary of Kerr-McGee ("KMUS"), will be merged with and
into Devon Energy Corporation (Nevada), a wholly-owned Nevada subsidiary of
Devon ("Devon Nevada"), in exchange for 7,554,880 shares of Devon Common Stock.
KMUS owns all of Kerr-McGee's U.S. onshore oil and gas exploration and
production business and properties. Second, Devon will acquire all of the
outstanding capital stock of Kerr-McGee Canada Onshore Ltd., a wholly-owned
subsidiary of Kerr-McGee organized under the laws of Alberta, Canada ("KMCA"),
in exchange for 2,399,120 shares of Devon Common Stock. KMCA owns all of
Kerr-McGee's Canadian oil and gas exploration and production business and
properties. As a result of the Transaction, the properties and assets of KMUS
will become part of the properties and assets of Devon Nevada and KMCA will
become a wholly-owned subsidiary of Devon and be renamed Devon Energy
Corporation Canada ("Devon Canada").

After the Transaction, Kerr-McGee will own 9,954,000 shares of Devon Common
Stock, or 31% of Devon's total outstanding Common Stock. It is expected that the
Transaction will be consummated on December 31, 1996.

Devon's property base will be significantly expanded by this Transaction.
Estimated proved reserves will be increased by approximately 37 MMBoe in the
United States and 16 MMBoe in Canada. These reserves are approximately 44% oil
and NGLs and 56% natural gas. In addition, Devon will receive an estimated
282,000 net undeveloped acres of leasehold and mineral interests in the U.S. and
88,000 acres in Canada.

The number of shares of Devon Common Stock to be issued to Kerr-McGee in
the Transaction will not be adjusted for any fluctuations in the market price of
Devon Common Stock prior to the closing of the Transaction.

PARTIES TO THE TRANSACTION

The parties to the Transaction are:

Devon. Devon is an independent energy company engaged primarily in oil and
gas exploration, development and production, and in the acquisition of oil and
gas properties. The principal and administrative

3
<PAGE> 9

offices of Devon are located at 20 North Broadway, Suite 1500, Oklahoma City, OK
73102 (telephone 405/235-3611).

Devon currently owns interests in 900 oil and gas properties in 10 states.
The majority of these properties are concentrated in five operating areas: the
Permian Basin in southeast New Mexico and west Texas; the San Juan Basin in
northwest New Mexico; the Rocky Mountain region in Wyoming; the Mid-Continent
region in Oklahoma and the Texas Panhandle; and the Gulf Coast region of
Louisiana. At December 31, 1995, Devon's estimated proved reserves were 114.6
MMBoe, which were balanced between oil and NGLs (47%) and natural gas (53%). The
present value of pre-tax future net revenues discounted at 10% per annum
assuming essentially unescalated prices ("10% Present Value") of such reserves
was $534.2 million. Devon ranks in the top 20% of public energy companies in the
United States, measured by oil and gas reserves.

Devon's primary objectives are to build production, cash flow and earnings
per share by: (1) acquiring oil and gas properties, (2) exploring for new oil
and gas reserves and (3) optimizing production from existing oil and gas
properties.

During 1988 Devon expanded its capital base with its first issuance of
common stock to the public and began a substantial expansion program. Devon has
used a two-pronged strategy of acquiring producing properties and drilling to
develop new reserves. During the eight years ended December 31, 1995, Devon
consummated 15 significant acquisitions and drilled 605 new wells, 581 of which
were producers, resulting in reserve additions of 159.1 MMBoe. Capital costs
incurred to complete these activities totaled $535.0 million, for a finding and
development cost of $3.36 per Boe. Reserve additions and adjustments, minus
production and property sales, resulted in reserves increasing by a factor of
fourteen during the eight-year period.

Devon's objective, however, is to increase value per share, not simply to
increase total assets. Reserves have grown from 1.31 Boe per share at year-end
1987 to 5.18 Boe per share at year-end 1995. During this same eight-year period,
net debt (long-term debt minus working capital) has remained relatively low,
never exceeding $1.33 per Boe, and only $1.17 per Boe at year-end 1995. In July,
1996, Devon Financing Trust, a Delaware business trust organized by Devon,
completed a $149.5 million offering of 6 1/2% trust convertible preferred
securities (the "TCP Securities"), the proceeds of which were used to repay all
of Devon's revolving bank debt. This repayment increased Devon's borrowing
capacity to $260 million, thus increasing its financial flexibility. See
"Description of Devon Capital Stock -- TCP Securities."

The oil and gas industry is characterized by highly volatile product
prices. Devon's management believes that by (a) keeping debt levels low, (b)
concentrating its properties in a few core areas to achieve economies of scale,
(c) acquiring and developing high profit margin properties and (d) continually
disposing of high-cost, marginal and non-strategic properties, Devon's
profitability will be maximized, even during periods of low oil and/or gas
prices. In addition, Devon remains financially flexible to take advantage of
opportunities for mergers, acquisitions, exploration or other growth
opportunities.

Devon Nevada. Devon Nevada, a wholly-owned operating subsidiary of Devon,
began operations in 1971. Devon Nevada holds title to approximately 80% of
Devon's oil and gas properties and effectively conducts all of Devon's oil and
gas development and production activities.

Kerr-McGee. Kerr-McGee is a $3.2 billion energy and chemical company based
in Oklahoma City, Oklahoma. Its principal offices are located at 123 Robert S.
Kerr Avenue, Oklahoma City, OK 73102. Kerr-McGee has three core businesses
consisting of oil and natural gas exploration and production and coal and
chemical production and marketing.

KMUS. KMUS is a wholly-owned subsidiary of Kerr-McGee which holds the
United States onshore oil and gas exploration and production business and
properties of Kerr-McGee. A significant portion of its properties are located in
the Permian Basin, the Rocky Mountains and in the Mid-Continent area -- regions
in which Devon owns significant interests. KMUS's total proved reserves are
estimated to be 37 MMBoe as of December 31, 1996. KMUS also owns approximately
282,000 acres of undeveloped leasehold and mineral interests. See "Business and
Properties -- Kerr-McGee's Significant Properties."

4
<PAGE> 10

KMCA. KMCA is a wholly-owned indirect subsidiary of Kerr-McGee which holds
the Canadian oil and gas exploration and production business and properties of
Kerr-McGee. Virtually all of KMCA's properties are located within the province
of Alberta. KMCA's proved reserves as of December 31, 1996, are estimated to be
16 MMBoe. KMCA also owns approximately 88,000 acres of undeveloped leasehold
interests. See "Business and Properties -- Kerr-McGee's Significant Properties."

THE DEVON MEETING

The Devon Meeting will be held on , 1996 at a.m., local
time, at , Oklahoma City, Oklahoma. The record date for
shareholders of Devon entitled to notice of and to vote at the Devon Meeting is
as of the close of business on , 1996 (the "Record Date"). Approval
of the Required Proposals requires the affirmative vote by holders of a majority
of the Devon Common Stock entitled to vote thereon. There were a total of
22,130,896 outstanding shares of Devon Common Stock on the Record Date, each of
which is entitled to one vote.

Devon's directors and officers have the right to vote a total of 1,433,527
shares of Devon Common Stock, or approximately 6.5% of the total number of votes
entitled to be cast. The officers and directors of Devon intend to cast all of
their votes in favor of the Required Proposals.

REASONS FOR THE TRANSACTION

Both Devon and Kerr-McGee have significant reasons to enter into the
proposed transaction.

Devon's Reasons for the Transaction:

Devon's primary business objective is to build production, cash flow and
earnings per share. Devon's management believes that the absolute growth in oil
and gas production as a result of acquiring the Kerr-McGee Properties, coupled
with the synergy of common ownership, will contribute to Devon's per share
growth.

This Transaction adds significant production and reserves to Devon's
property base in areas in which it already owns interests. The consolidation of
Kerr-McGee's Permian Basin, Rocky Mountain and Mid-Continent properties with
Devon's will enable Devon to achieve greater efficiencies in field operations
(i.e., fewer incremental field personnel, less equipment inventory, etc.) than
is possible under the current separate ownership. In addition, this
consolidation gives Devon more leverage in negotiating marketing arrangements
for future oil and gas production because Devon will have greater volumes of oil
and gas available to sell.

The increase in Devon's oil and gas reserve base and production capacity is
expected to make Devon a larger, more stable competitor in the oil and gas
industry. The industry is one in which there are many multi-billion dollar
competitors.

The addition of KMCA will allow Devon to expand its activities into a new
core area, with a Canadian office and experienced staff already in place.

The increase in Devon's reserve base as a result of this Transaction
combined with no incremental debt will result in significantly increased
liquidity. Devon currently has $255 million available on its bank line of
credit. Devon estimates that after the Transaction its borrowing capacity could
increase to approximately $400 million. This could be used for acquisitions,
drilling and other general corporate purposes. The larger size of the
post-Transaction company will further improve Devon's credit-worthiness, which
should have the long-term effect of keeping Devon's cost of capital relatively
low.

Kerr-McGee's Reasons for the Transaction:

By consolidating the Kerr-McGee Properties with those of Devon, Kerr-McGee
will maintain an investment in the North American onshore oil and gas
exploration and production business without incurring the overhead and direct
expenses of those activities. These assets will become a significant portion of
Devon's operations and will receive the attention and focus of Devon's
management and employees, allowing Kerr-

5
<PAGE> 11

McGee to more fully focus its resources on its offshore and foreign oil and gas
exploration and production activities.

Kerr-McGee's management believes Kerr-McGee's shareholders can recognize
more ultimate value by combining its North American onshore business and
properties with an independent oil and gas exploration and production company
such as Devon which specializes in North American onshore operations. Devon's
growth strategy over the last eight years has resulted in growth in per share
earnings, cash flow, reserves and per share price. If this growth trend
continues, Kerr-McGee will be able to realize appreciation in its investment
through the appreciation of its Devon Common Stock.

NEGOTIATION OF TRANSACTION TERMS BY DEVON

In the summer of 1996, the Chief Executive Officer of Devon, J. Larry
Nichols, initiated discussions with Luke R. Corbett, the Chief Operating Officer
of Kerr-McGee, to discuss the possibility of a joint venture or other business
combination to maximize the value of the Kerr-McGee Properties.

The two companies' executives first discussed their respective goals and
motivations as described in "-- Reasons for the Transaction" above in designing
a transaction. After discussing a number of possibilities, the executives
determined that a transaction in which Kerr-McGee would receive Devon Common
Stock in exchange for the Kerr-McGee Properties would meet both companies'
objectives. Based on preliminary calculations of the number of shares of Devon
Common Stock Kerr-McGee would receive, Devon's board of directors reviewed the
Transaction and gave preliminary approval at its regular meeting on September
17, 1996. Each company then conducted a thorough review of the oil and gas
reserves, assets and liabilities of the other company and, based on that
information, set the exact number of shares of Devon Common Stock to be issued
to Kerr-McGee in exchange for the Kerr-McGee Properties. The number of shares
was determined based on a number of measures, including the contribution the
Kerr-McGee Properties could make to Devon's cash flow and earnings per share,
reserves per share, net asset value and liquidity. On October 15, 1996, and
October 14, 1996, Kerr-McGee's board of directors and Devon's board of
directors, respectively, gave final approval to the Transaction. On October 17,
1996, the Merger Agreement was executed, subject to certain conditions including
the approval of the Devon shareholders.

SPECIAL CONSIDERATIONS IN CONNECTION WITH THE TRANSACTION

Completion of the Transaction will cause significant changes to Devon.
These changes should be considered carefully before you cast your vote
concerning the Required Proposals.

Operations in a Foreign Country. Prior to the Transaction, Devon's oil and
gas activities have all been conducted in the United States. As a result of the
Transaction, approximately 10% of Devon's proved reserves will be in
Canada -- an area in which Devon has no prior experience. While Devon believes
that the addition of Canadian assets will be advantageous, there are also risks
associated with conducting foreign activities. These risks include foreign
currency risk, political risk and potential extra taxation if Canadian profits
are transferred back to the United States. However, Devon is acquiring
Kerr-McGee's Canadian oil and gas business substantially intact. The existing
office and experienced Canadian staff are expected to minimize difficulties
attributable to Devon's inexperience in this area. Also, Devon has substantial
experience in the acquisition of businesses and properties in general. See
"Summary -- Reasons for the Transaction" and "Business and
Properties -- Strategy."

Large Shareholder. Currently, other than institutional investors, Devon
does not have any large block shareholders. The current officers and directors
of Devon as a group own 6.5% of the outstanding Common Stock. After the
consummation of the Transaction, Kerr-McGee will own 31% of the outstanding
Common Stock and will have three representatives on Devon's board of directors.
Accordingly, Kerr-McGee will be in a position to substantially influence the
management and policies of Devon. Devon has attempted to minimize any potential
adverse impact this may have on Devon and its shareholders by negotiating the
Stock Agreement (defined below). This agreement places substantial limits on
Kerr-McGee's ability to cause a change in control of Devon. See "Description of
the Transaction -- Future Relationships between Kerr-McGee and Devon -- Stock
Agreement." The large block of stock owned by Kerr-McGee, and the restrictions
on Kerr-

6
<PAGE> 12

McGee's ability to dispose of the stock to single purchasers, could be a
negative influence on anyone attempting to acquire control of Devon. The Stock
Agreement also contains provisions which allow Kerr-McGee to make competing
offers for control of Devon under certain circumstances.

In addition, the large number of shares owned by Kerr-McGee could have, if
offered or sold as a block, an adverse impact on the market price for Devon's
Common Stock. Although Kerr-McGee's shares are "restricted" stock which cannot
be sold publicly for two years without registration under the Securities Act of
1933, as amended (the "Securities Act"), Devon and Kerr-McGee have agreed to
execute the Registration Agreement (defined below) pursuant to which Kerr-McGee
may cause Devon to register the Kerr-McGee shares for resale. See "Description
of the Transaction -- Future Relationships between Kerr-McGee and
Devon -- Registration Rights Agreement" and "Description of Devon Capital
Stock -- TCP Securities."

Tax Structure of the Transaction. Because of the tax structure of the
Transaction, Devon will assume Kerr-McGee's tax basis in the Kerr-McGee
Properties. This tax basis is approximately $82 million less than the value
recorded for financial reporting purposes. This will cause Devon to report $82
million more of taxable income over the life of the Kerr-McGee Properties than
if the Kerr-McGee Properties had been purchased directly in a taxable
transaction. However, Devon will have a tax basis in the KMCA common stock equal
to the fair market value of the Devon Common Stock for which it was exchanged,
which is not deductible until Devon sells the KMCA common stock, if ever.

BOARD RECOMMENDATION

Devon's board of directors believes that the Transaction is in the best
interests of Devon and Devon's shareholders and has unanimously approved the
Transaction. Devon's board of directors has also unanimously approved the
Required Proposals. Devon's board of directors recommends that you vote in favor
of the Required Proposals.

FUTURE RELATIONSHIPS BETWEEN KERR-MCGEE AND DEVON

After consummation of the Transaction, Kerr-McGee will own 9,954,000 shares
of Devon Common Stock, or 31% (26% on a fully-diluted basis) of the outstanding
Devon Common Stock. Because of this relatively large ownership position,
Kerr-McGee has negotiated arrangements by which Kerr-McGee can (i) exercise
influence over the management of Devon in relationship to its ownership of
outstanding Common Stock and (ii) be assured of the cooperation of Devon
management if it wishes to sell or transfer its shares of Devon Common Stock.
Because these arrangements place Kerr-McGee in a position to cause or
substantially influence a change in control of Devon, or a liquidation or
disposition of Devon's assets, Devon has negotiated arrangements which limit
Kerr-McGee's ability to (i) acquire additional shares of Devon Common Stock;
(ii) dispose of a large portion of its Devon Common Stock to a third party; and
(iii) enter into transactions which would result in a change in control of
Devon. Finally, both Devon and Kerr-McGee have negotiated arrangements so that
Devon's existing anti-takeover defenses would remain in force for both third
parties and for certain further transactions with Kerr-McGee.

These arrangements between the parties are defined in the Stock Rights and
Restrictions Agreement (the "Stock Agreement"), the Registration Rights
Agreement (the "Registration Agreement") and the First Amendment to the Rights
Agreement (the "First Rights Plan Amendment") and the Second Amendment to the
Rights Agreement (the "Second Plan Amendment") (collectively, the "Rights Plan
Amendments"). See "Description of the Transaction -- Future Relationships
between Kerr-McGee and Devon."

EFFECTIVE DATE; CONDUCT OF PARTIES; CONDITIONS; TERMINATION

Devon expects that the Transaction will be consummated on December 31, 1996
(the "Effective Date"). Pending consummation, Devon and Kerr-McGee have each
agreed to give the other reasonable access to all information necessary to
evaluate the other's business. In addition, Kerr-McGee has agreed to conduct
operations of the Kerr-McGee Properties only in the ordinary course. The
Transaction is subject to a number of conditions, including approval of the
Required Proposals by the shareholders of Devon. If these conditions

7
<PAGE> 13

are not met, the Merger Agreement may be terminated. In addition, the Merger
Agreement may be terminated by mutual consent of the boards of directors of
Kerr-McGee and Devon at any time prior to consummation of the Transaction. See
"Description of the Transaction -- Conduct of Parties Prior to Transaction,"
"-- Conditions to the Transaction," "-- Amendment and Termination" and
"-- Effective Date."

ACCOUNTING TREATMENT

Devon will account for the Transaction in accordance with the purchase
method of accounting. Accordingly, results of operations from the Kerr-McGee
Properties will be included in Devon's consolidated financial statements
beginning upon consummation of the Transaction, which is expected to occur on
December 31, 1996. See "Pro Forma Financial Information."

SUMMARY INCOME TAX CONSEQUENCES

The Transaction will not be a taxable transaction in the United States or
Canada for either Devon or the Devon shareholders. See "Description of the
Transaction -- Material United States Income Tax Consequences" and "-- Material
Canadian Income Tax Consequences."

APPRAISAL RIGHTS

The holders of Devon Common Stock are not entitled to dissenters' or
appraisal rights in connection with the Transaction.

MARKET PRICES OF SECURITIES

The closing sales prices of the Devon Common Stock on the AMEX on October
16, 1996, the day preceding the first public announcement of the Transaction,
was $26 7/8. The closing price on October 17, 1996, the day the announcement was
made, was $30. See "Market Price and Dividends."

REGULATORY APPROVAL

Other than the filing of merger documents in Oklahoma and Nevada on the
Effective Date and complying with federal and state securities laws, there are
no federal or state regulatory requirements which must be complied with or the
approval of which must be obtained in connection with the Transaction.

8
<PAGE> 14

SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following tables set forth certain unaudited pro forma financial
information with respect to the Kerr-McGee Properties as if the Transaction had
been consummated at January 1, 1995 for the operations data, or June 30, 1996
for the balance sheet data. The tables also present the pro forma effects of the
acquisition of the Worland Properties (defined below) which was completed in
December 1995 and the TCP Securities offering (completed in July 1996) as if
both transactions had been consummated at January 1, 1995 for the operations
data, or, with regard to the TCP Securities offering, June 30, 1996 for the
balance sheet data. The pro forma information is derived from the pro forma
financial statements appearing elsewhere herein and should be read in
conjunction with those statements. The pro forma information is not necessarily
indicative of the results that would have been reported had the Transaction, the
acquisition of the Worland Properties and the TCP Securities offering taken
place as of the dates indicated, nor is it necessarily indicative of Devon's
future results.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------
PRO FORMA EFFECTS OF
---------------------------------------------
TCP
DEVON WORLAND SECURITIES KERR-MCGEE DEVON
ACTUAL PROPERTIES(1) OFFERING(1) PROPERTIES(1) PRO FORMA
-------- ------------- ----------- ------------- ---------
(THOUSANDS, EXCEPT PER SHARE DATA, PER UNIT DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA:
OPERATING RESULTS
Oil sales.............................. $ 55,290 $ 931 $ -- $56,651 $112,872
Gas sales.............................. 50,732 2,143 -- 44,222 97,097
NGL sales.............................. 6,404 2,275 -- 3,659 12,338
Other revenue.......................... 877 -- -- 3,747 4,624
-------- ------- ------- ------- ----
Total revenues.................... 113,303 5,349 -- 108,279 226,931
-------- ------- ------- ------- ----
Lease operating expenses............... 27,289 1,609 -- 26,265 55,163
Production taxes....................... 6,832 221 -- 6,658 13,711
Depreciation, depletion and
amortization......................... 38,090 2,284 166 45,182 85,722
General and administrative expenses.... 8,419 -- -- 5,000 13,419
Interest expense....................... 7,051 3,025 (9,501) -- 575
Distributions on preferred securities
of subsidiary trust.................. -- -- 9,718 -- 9,718
-------- ------- ------- ------- ----
Total costs and expenses.......... 87,681 7,139 383 83,105 178,308
-------- ------- ------- ------- ----
Earnings (loss) before income taxes.... 25,622 (1,790) (383) 25,174 48,623
Income tax expense (benefit):
Current.............................. 4,495 (358) (77) 4,511 8,571
Deferred............................. 6,625 (27) (69) 6,328 12,857
-------- ------- ------- ------- ----
Total income tax expense
(benefit)....................... 11,120 (385) (146) 10,839 21,428
-------- ------- ------- ------- ----
Net earnings (loss).................... 14,502 (1,405) (237) 14,335 27,195
======== ======= ======= ======= ====
Net earnings (loss) per share.......... 0.66 (0.07) (0.01) 0.27 0.85
Cash dividends per share(2)............ 0.12 -- -- -- 0.12
Weighted average common shares
outstanding.......................... 22,074 -- -- 9,954 32,028
CASH FLOW DATA
Net cash provided (used) by operating
activities........................... 61,276 852 (140) 65,845 127,833
EBITDA(3)(4)........................... 70,763 3,519 -- 70,356 144,638
Cash margin(4)(5)...................... 59,217 852 (140) 65,845 125,774
PRODUCTION, PRICE AND OTHER DATA
Production:
Oil (MBbls).......................... 3,300 64 -- 3,439 6,803
Gas (MMcf)........................... 36,886 2,111 -- 37,400 76,397
NGLs (MBbls)......................... 600 195 -- 309 1,104
MBoe(6).............................. 10,047 612 -- 9,981 20,640
Average prices:
Oil (Per Bbl)........................ 16.75 (0.04) -- (0.12) 16.59
Gas (Per Mcf)........................ 1.38 (0.02) -- (0.09) 1.27
NGLs (Per Bbl)....................... 10.68 0.24 -- 0.26 11.18
Per Boe(6)........................... 11.19 (0.14) -- (0.28) 10.77
Costs per Boe:
Operating costs...................... 3.40 (0.03) -- (0.03) 3.34
DD&A of oil and gas properties....... 3.65 -- -- 0.43 4.08
General and administrative
expenses.......................... 0.84 (0.05) -- (0.14) 0.65
Ratio of earnings to fixed
charges(7)........................... 4.54 (1.22) (0.12) 2.34 5.54
</TABLE>

9
<PAGE> 15

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
----------------------------------------------------
PRO FORMA EFFECTS OF
----------------------------
TCP
DEVON SECURITIES KERR-MCGEE DEVON
ACTUAL OFFERING(1) PROPERTIES(1) PRO FORMA
------- ----------- ------------- ---------
(THOUSANDS, EXCEPT PER SHARE DATA,
PER UNIT DATA AND RATIOS)
<S> <C> <C> <C> <C>
OPERATIONS DATA:
OPERATING RESULTS
Oil sales............................................ $35,652 $ -- $33,665 $69,317
Gas sales............................................ 28,834 -- 28,450 57,284
NGL sales............................................ 5,991 -- 2,122 8,113
Other revenue........................................ 869 -- 1,562 2,431
------- ------- ------- ----
Total revenues.................................. 71,346 -- 65,799 137,145
------- ------- ------- ----
Lease operating expenses............................. 15,173 -- 12,274 27,447
Production taxes..................................... 4,488 -- 4,255 8,743
Depreciation, depletion and amortization............. 20,588 83 23,084 43,755
General and administrative expenses.................. 4,525 -- 2,500 7,025
Interest expense..................................... 4,942 (4,494) -- 448
Distributions on preferred securities of subsidiary
trust.............................................. -- 4,859 -- 4,859
------- ------- ------- ----
Total costs and expenses........................ 49,716 448 42,113 92,277
------- ------- ------- ----
Earnings (loss) before income taxes.................. 21,630 (448) 23,686 44,868
Income tax expense (benefit):
Current............................................ 2,812 (90) 4,723 7,445
Deferred........................................... 6,489 (81) 4,760 11,168
------- ------- ------- ----
Total income tax expense (benefit).............. 9,301 (171) 9,483 18,613
------- ------- ------- ----
Net earnings (loss).................................. 12,329 (277) 14,203 26,255
======= ======= ======= ====
Net earnings (loss) per share........................ 0.56 (0.01) 0.27 0.82
Cash dividends per share(2).......................... 0.06 -- -- 0.06
Weighted average common shares outstanding........... 22,117 -- 9,954 32,071
CASH FLOW DATA
Net cash provided (used) by operating activities..... 35,079 (275) 42,047 76,851
EBITDA(3)(4)......................................... 47,160 -- 46,770 93,930
Cash margin(4)(5).................................... 39,406 (275) 42,047 81,178
PRODUCTION, PRICE AND OTHER DATA
Production:
Oil (MBbls)........................................ 1,831 -- 1,786 3,617
Gas (MMcf)......................................... 17,814 -- 18,602 36,416
NGLs (MBbls)....................................... 451 -- 182 633
MBoe(6)............................................ 5,251 -- 5,068 10,319
Average prices:
Oil (Per Bbl)...................................... 19.47 -- (0.31) 19.16
Gas (Per Mcf)...................................... 1.62 -- (0.26) 1.36
NGLs (Per Bbl)..................................... 13.30 -- (0.48) 12.82
Per Boe(6)......................................... 13.42 -- (0.37) 13.05
Costs per Boe:
Operating costs.................................... 3.74 -- (0.23) 3.51
DD&A of oil and gas properties..................... 3.76 -- 0.39 4.15
General and administrative expenses................ 0.86 -- (0.18) 0.68
Ratio of earnings to fixed charges(7)................ 5.29 (0.43) 4.27 9.13
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------------------------------------
PRO FORMA EFFECTS OF
----------------------------
TCP
DEVON SECURITIES KERR-MCGEE DEVON
ACTUAL OFFERING(1) PROPERTIES(1) PRO FORMA
-------- ----------- ------------- ---------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.......................................... $450,610 $ (5,000) $ 252,952 $698,562
Long-term debt........................................ 155,000 (155,000) -- --
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust...................... -- 149,500 -- 149,500
Stockholders' equity.................................. 230,202 -- 220,979 451,181
Book value per share.................................. 10.40 -- 3.66 14.06
</TABLE>

10
<PAGE> 16

- - - ---------------

(1) These columns contain the pro forma effects of the acquisition of the
Worland Properties, the TCP Securities offering and the acquisition of the
Kerr-McGee Properties. For a complete description of these pro forma
effects, see "Pro Forma Financial Information."

(2) Devon intends to continue paying dividends at the current rate of $0.03 per
share per quarter. Therefore, there is no change in the dividend rates shown
for actual and pro forma purposes.

(3) Earnings before interest, taxes, depreciation, depletion and amortization.

(4) EBITDA and cash margin are indicators which are commonly used in the oil and
gas industry. They should be used as supplements to, and not as substitutes
for, net earnings and net cash provided by operating activities determined
in accordance with generally accepted accounting principles in analyzing
Devon's results of operations and liquidity.

For the year ended December 31, 1995 and the six months ended June 30,
1996, Devon's net cash used in investing activities was $110.6 million and
$41.2 million, respectively. For these same periods, net cash provided by
financing activities was $49.8 million and $11.4 million, respectively.

(5) "Cash margin" equals total revenues less cash expenses. Cash expenses are
all expenses other than the non-cash expenses of depreciation, depletion and
amortization and deferred income tax expense. Cash margin measures the net
cash which is generated by a company's operations during a given period,
without regard to the period such cash is actually physically received or
spent by the company. This margin ignores the non-operational effect on a
company's "net cash provided by operating activities," as measured by
generally accepted accounting principles, from a company's activities as an
operator of oil and gas wells. Such activities produce net increases or
decreases in temporary cash funds held by the operator which have no effect
on net earnings of the company.

(6) Gas reserves are converted to Boe or MBoe at the rate of six Mcf of gas per
barrel of oil based upon the approximate relative energy content of each.
This conversion rate is not necessarily indicative of the relationship of
gas prices to oil prices. The respective prices of gas, NGLs and oil are
affected by market and other factors in addition to relative energy content.

(7) For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of earnings before income taxes and cumulative effect of
accounting change, plus fixed charges; and (ii) fixed charges consist of
interest expense incurred, distributions on preferred securities of
subsidiary trust, amortization of expenses relating to any indebtedness and
the preferred securities of subsidiary trust, and one-third of rental
expense estimated to be attributable to interest.

11
<PAGE> 17

SUMMARY OIL AND GAS INFORMATION

The following table sets forth the estimated proved reserves, future net
revenues therefrom and the 10% Present Value of such net revenues as of December
31, 1995, for Devon and the Kerr-McGee Properties, based on prices and costs in
effect at that date. The following table also sets forth such information on a
pro forma basis after giving effect to the Transaction as of December 31, 1995.
Future net revenues represent estimated future gross revenues from the
production and sale of proved reserves, net of estimated oil and gas production
costs, future development costs, and ad valorem, severance and other taxes
measured by production. No effect has been given to future income taxes, if any,
payable with respect to future net revenues. The data used in calculating the
estimated future net revenues attributable to proved reserves do not reflect
changes in either the market prices for oil and gas production subsequent to
December 31, 1995 or in costs, except as required by existing contractual
arrangements. See "Business and Properties -- Proved Reserves." There can be no
assurance that the estimated proved reserves will all be produced within the
periods assumed, that the prices used will actually be realized for such
production or that the assumed costs will be accurate.

<TABLE>
<CAPTION>
PROVED RESERVES AS OF DECEMBER 31, 1995(1)
----------------------------------------------------------------
PRE-TAX PRE-TAX
OIL AND NGLS GAS FUTURE NET 10% PRESENT
(MBBLS) (MMCF) MBOE(2) REVENUES(3) VALUE(3)
------------ ------- ------- ----------- -----------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Devon................................ 53,935 363,846 114,576 $ 927,812 $ 534,248
Kerr-McGee Properties(4)............. 26,758 204,080 60,771 511,377 329,183
------ ------- ------- ----------- ---------
Pro forma............................ 80,693 567,926 175,347 $ 1,439,189 $ 863,431
====== ======= ======= =========== =========
</TABLE>

- - - ---------------

(1) Proved Reserves are those quantities of oil, natural gas and NGLs which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in the future from known reservoirs under existing economic and
operating conditions. The process of estimating oil, gas and NGL reserves is
complex, requiring significant subjective decisions in the evaluation of
available geological, engineering and economic data for each reservoir. The
data 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.
Estimates of proved reserves are strictly technical judgments, and are not
knowingly influenced by attitudes of conservatism or optimism.

(2) Gas reserves are converted to MBoe at the rate of six MMcf per MBoe based
upon the approximate relative energy content of each. This conversion rate
is not necessarily indicative of the relationship of gas prices to oil
prices. The respective prices of gas, NGLs and oil are affected by market
and other factors in addition to relative energy content.

(3) Estimated future net revenue represents estimated future gross revenue to be
generated from the production of proved reserves, net of estimated
production and future development costs. The amounts shown do not give
effect to non-property related expenses such as general and administrative
expenses, debt service and future income tax expense or to depreciation,
depletion and amortization. These amounts were calculated using prices and
costs in effect as of December 31, 1995. These prices were not changed
except where different prices were fixed and determinable from applicable
contracts. These assumptions yield average prices over the life of Devon's
properties of $17.14 per Bbl of oil and NGLs and $1.35 per Mcf of natural
gas ($1.51 per Mcf including the effect of the San Juan Basin Transaction
described under "Business and Properties -- Devon's Significant
Properties -- San Juan Basin Properties-- San Juan Basin Transaction"). The
assumptions yield average prices over the life of the Kerr-McGee Properties
of $17.78 per Bbl of oil and NGLs and $1.48 per Mcf of natural gas. These
prices compare to the December 31, 1995 benchmark prices of $18.00 for West
Texas Intermediate crude oil and $2.10 for Texas Gulf Coast spot gas. The
prices used in calculating the estimated future net revenues attributable to
proved reserves do not necessarily reflect market prices for oil, NGLs and
gas production subsequent to December 31, 1995. 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.

(4) The amounts shown for the Kerr-McGee Properties have been adjusted from
those included in the statements of revenues and direct operating expenses
for the Kerr-McGee Properties, included elsewhere herein, due to differences
in accounting treatments between Devon and Kerr-McGee related to reservoir
pressure maintenance gas and a certain production payment.

12
<PAGE> 18

SUMMARY HISTORICAL FINANCIAL DATA

The following tables set forth certain historical financial data of Devon
and the Kerr-McGee Properties. See "Devon's Selected Financial Data,"
"Kerr-McGee Properties' Selected Financial Data," "Business and Properties,"
"Devon Management's Discussion and Analysis of Financial Condition and Results
of Operations," and "Kerr-McGee Management's Discussion and Analysis of Results
of Operations for the Kerr-McGee Properties." The data should be read in
conjunction with Devon's consolidated financial statements and the notes thereto
and the statements of revenues and direct operating expenses and notes thereto
for the Kerr-McGee Properties included elsewhere herein.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ ----------------------
1993 1994 1995 1995(1) 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT PER SHARE DATA, PER UNIT DATA AND RATIOS)
DEVON:
OPERATING RESULTS
Oil sales............................................ $ 38,395 $ 38,086 $ 55,290 $ 26,365 $ 35,652
Gas sales............................................ 54,876 56,372 50,732 19,453 28,834
NGL sales............................................ 4,544 4,908 6,404 3,034 5,991
Other revenue........................................ 942 1,407 877 561 869
-------- -------- -------- -------- --------
Total revenues................................. 98,757 100,773 113,303 49,413 71,346
Lease operating expenses............................. 26,401 24,521 27,289 13,319 15,173
Production taxes..................................... 6,924 6,899 6,832 3,233 4,488
Depreciation, depletion and amortization............. 28,409 34,132 38,090 19,059 20,588
General and administrative expenses.................. 7,640 8,425 8,419 4,390 4,525
Interest expense..................................... 3,422 5,439 7,051 3,527 4,942
Net earnings......................................... 20,486(2) 13,745 14,502 3,471 12,329
Net earnings per share............................... 0.98(2) 0.64 0.66 0.16 0.56
Cash dividends per common share...................... 0.09 0.12 0.12 0.06 0.06
Weighted average common shares outstanding........... 20,822 21,552 22,074 22,052 22,117
Ratio of earnings to fixed charges(3):
Actual............................................. 8.24 4.80 4.54 2.62 5.29
As adjusted(4)..................................... 3.09 1.77 5.07
BALANCE SHEET DATA
Total assets......................................... $285,553 $351,448 $421,564 $366,789 $450,610
Long-term debt....................................... 80,000 98,000 143,000 95,000 155,000
Stockholders' equity................................. 172,900 206,406 219,041 208,644 230,202
CASH FLOW DATA
Net cash provided by operating activities............ $ 63,957 $ 46,384 $ 61,276 $ 27,553 $ 35,079
EBITDA(5)(6)......................................... 57,792 60,928 70,763 28,470 47,161
Cash margin(6)(7).................................... 52,893 55,074 59,217 24,709 39,406
PRODUCTION, PRICE AND OTHER DATA
Production:
Oil (MBbls)........................................ 2,337 2,467 3,300 1,541 1,831
Gas (MMcf)......................................... 35,598 39,335 36,886 19,356 17,814
NGLs (MBbls)....................................... 411 501 600 272 451
MBoe(8)............................................ 8,681 9,524 10,047 5,039 5,251
Average prices:
Oil (Per Bbl)...................................... $ 16.43 $ 15.44 $ 16.75 $ 17.11 $ 19.47
Gas (Per Mcf)...................................... 1.54 1.43 1.38 1.01 1.62
NGLs (Per Bbl)..................................... 11.06 9.79 10.68 11.16 13.30
Per Boe(8)......................................... 11.27 10.43 11.19 9.69 13.42
Costs per Boe:
Operating costs.................................... 3.84 3.30 3.40 3.28 3.74
DD&A of oil and gas properties..................... 3.16 3.45 3.65 3.65 3.76
General and administrative expenses................ 0.88 0.89 0.84 0.87 0.86
</TABLE>

- - - ---------------

(1) The results presented for the six months ended June 30, 1995 do not include
the effect of the San Juan Basin Transaction (defined below). This
transaction was effective January 1, 1995, but recognition of the financial
effects of the transaction on Devon's operations was deferred until the
third quarter of 1995 when a significant contingency was favorably resolved.
The cumulative nine-month effect of the San Juan Basin Transaction was
recorded entirely in the third quarter of 1995. See "Devon Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and note 3 to the Devon consolidated financial statements included elsewhere
herein for certain pro forma financial information which assumes the
financial effects of the San Juan Basin Transaction were recorded effective
January 1, 1995.

(2) Net earnings for 1993 include the cumulative effect of a required change in
the method of accounting for income taxes in 1993 which provided earnings of
$1.3 million, or $0.06 per share.

13
<PAGE> 19

(4) The "as adjusted" ratios are calculated using adjusted amounts of earnings
and fixed charges under the assumption that the proceeds from the offering
of the TCP Securities were applied toward Devon's long-term debt outstanding
at the beginning of the periods shown. The adjusted amounts of fixed charges
are calculated using the annual distribution rate of 6 1/2% on the TCP
Securities.

(5) Earnings before interest, taxes, depreciation, depletion and amortization.

(6) EBITDA and cash margin are indicators which are commonly used in the oil and
gas industry. They should be used as supplements to, and not as substitutes
for, net earnings and net cash provided by operating activities determined
in accordance with generally accepted accounting principles in analyzing
Devon's results of operations and liquidity.

For the years ended December 31, 1993, 1994 and 1995, and the six months
ended June 30, 1995 and 1996, net cash used in investing activities was
$74.2 million, $73.4 million, $110.6 million, $22.8 million and $41.2
million, respectively. For these same periods, net cash provided (used) by
financing activities was $24.2 million, $15.8 million, $49.8 million, ($4.2)
million and $11.4 million, respectively.

(7) "Cash margin" equals total revenues less cash expenses. Cash expenses are
all expenses other than the non-cash expenses of depreciation, depletion and
amortization and deferred income tax expense. Cash margin measures the net
cash which is generated by a company's operations during a given period,
without regard to the period such cash is actually physically received or
spent by the company. This margin ignores the non-operational effect on a
company's "net cash provided by operating activities," as measured by
generally accepted accounting principles, from a company's activities as an
operator of oil and gas wells. Such activities produce net increases or
decreases in temporary cash funds held by the operator which have no effect
on net earnings of the company.

(8) Gas reserves are converted to Boe or MBoe at the rate of six Mcf of gas per
barrel of oil based upon the approximate relative energy content of each.
This conversion rate is not necessarily indicative of the relationship of
gas prices to oil prices. The respective prices of gas, NGLs and oil are
affected by market and other factors in addition to relative energy content.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------ -----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
(THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
KERR-MCGEE PROPERTIES:
OPERATING RESULTS
Oil sales................................... $ 67,852 $ 46,366 $ 56,651 $28,386 $33,665
Gas sales................................... 65,722 65,545 44,222 22,422 28,450
NGL sales................................... 4,266 3,493 3,659 1,979 2,122
Other revenue............................... 4,276 3,805 3,747 2,599 1,562
-------- -------- -------- ------- -------
Total revenue....................... 142,116 119,209 108,279 55,386 65,799
Lease operating expenses.................... 28,064 23,713 26,265 13,089 12,274
Production taxes............................ 9,829 8,021 6,658 2,885 4,255
Excess of revenues over direct operating
expenses................................. 104,223 87,475 75,356 39,412 49,270
PRODUCTION, PRICE AND OTHER DATA
Production:
Oil (MBbls).............................. 4,113 3,266 3,439 1,714 1,786
Gas (MMcf)............................... 39,100 38,000 37,400 19,449 18,602
NGLs (MBbls)............................. 381 330 309 182 182
MBoe..................................... 11,011 9,929 9,981 5,137 5,068
Average prices:
Oil (Per Bbl)............................ $ 16.50 $ 14.20 $ 16.47 $ 16.56 $ 18.85
Gas (Per Mcf)............................ 1.68 1.72 1.18 1.15 1.53
NGLs (Per Bbl)........................... 11.20 10.58 11.84 10.87 11.66
Per Boe.................................. 12.52 11.62 10.47 10.28 12.68
Operating costs per Boe..................... 3.44 3.20 3.30 3.11 3.26
</TABLE>

14
<PAGE> 20

GENERAL INFORMATION

This Proxy Statement is furnished in connection with the solicitation of
proxies by the board of directors of Devon for use in connection with the Devon
Meeting which is to be held on , 1996 at a.m. at
, Oklahoma City, Oklahoma, and any adjournment of the Devon
Meeting. At the Devon Meeting, the shareholders of Devon will consider and vote
upon the Required Proposals. The first is a proposal to authorize the issuance
of 9,954,000 shares of Devon Common Stock to Kerr-McGee in exchange for the
Kerr-McGee Properties. The second is a proposal to approve an amendment to
Devon's Certificate of Incorporation to increase the number of authorized shares
of Common Stock from 120 million to 400 million. The increase in authorized
shares will allow Devon to reserve a sufficient number of shares of Common Stock
for issuance (a) to Kerr-McGee in connection with this Transaction; (b) upon
exercise of rights which accompany the Common Stock; (c) upon any conversion of
the TCP Securities; (d) upon exercise of employee options; and (e) to enable
Devon to take advantage of future opportunities to obtain additional capital
and/or acquire assets and properties with Common Stock. Devon has no present
plans to issue additional shares of Common Stock beyond those contemplated in
the Transaction. The Merger Agreement is conditioned upon approval of these
Required Proposals. Thus, if either or both of the Required Proposals are not
approved, the Transaction will not occur. The satisfaction of certain other
conditions will also be required to consummate the Transaction. See "Description
of the Transaction -- Conditions to the Transaction."

The shareholders will also consider and vote upon such other business as
may properly come before the Devon Meeting or any adjournment thereof. A
preliminary Proxy Statement was first sent to shareholders of Devon on October
21, 1996. The definitive Proxy Statement and form of proxy are first being sent
to the shareholders of Devon on or about , 1996.

THE DEVON MEETING

THE ENCLOSED PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS OF DEVON

Except as otherwise indicated, all information contained in this Proxy
Statement with respect to Devon has been supplied by Devon, and all information
with respect to the Kerr-McGee Properties has been supplied by Kerr-McGee for
inclusion herein. Although neither Devon nor Kerr-McGee has any knowledge that
would indicate that any statements or information relating to the other company
contained herein are inaccurate or incomplete, neither Devon nor Kerr-McGee can
warrant the accuracy or completeness of such statements or information as they
relate to the other company.

THE REQUIRED PROPOSALS

In order to consummate the Transaction, the Merger Agreement is conditioned
on the approval of the following:

Issuance of 9,954,000 shares of Devon Common Stock to Kerr-McGee.
Devon Common Stock is traded on the AMEX. The AMEX requires shareholder
approval of certain issuances of common stock which would increase the
issued and outstanding common stock by 20% or more. The Transaction would
increase Devon's issued and outstanding Common Stock by 45%. Therefore, the
Merger Agreement requires that Devon's shareholders approve the issuance of
Common Stock to Kerr-McGee.

Amendment to Devon's Certificate of Incorporation to Increase the
Number of Authorized Shares of Common Stock from 120 Million to 400
Million. The current number of authorized shares is not sufficient to cover
both the issuance of Common Stock pursuant to the Transaction and the
issuance of Common Stock pursuant to the Rights Plan, if a distribution of
the rights were to be triggered. See "Description of Devon Capital
Stock -- Share Rights Plan." Furthermore, Devon would be left without
sufficient authorized Common Stock to enter into future transactions
utilizing Common Stock, including future property acquisitions. Therefore,
Devon and Kerr-McGee have determined that the increase in the authorized
Common Stock is a condition to consummating the Transaction. Devon has no
current plans to issue additional shares of Common Stock other than
pursuant to the Transaction.

15
<PAGE> 21

If either or both of the Required Proposals are not approved, then the
Transaction will not occur. The Transaction is discussed in detail below.

RECORD DATE, REQUIRED VOTE AND VOTING PROCEDURE

The Devon Meeting will be held on , 1996 at a.m.,
local time, at , Oklahoma City, Oklahoma. The record date for
shareholders of Devon entitled to notice of and to vote at the Devon Meeting is
as of the close of business on , 1996 (the "Record Date"). There
were a total of 22,130,896 shares of Devon Common Stock outstanding on the
Record Date. Voting rights for Devon are vested in the holders of Devon Common
Stock, with each share of Devon Common Stock entitled to one vote on each matter
coming before the shareholders. The favorable vote of a majority of the votes
entitled to be cast by the holders of the outstanding Devon Common Stock is
required for the approval of each of the Required Proposals. The directors and
officers of Devon have the right to vote a total of 1,433,527 shares of Devon
Common Stock, or approximately 6.5% of the outstanding Devon Common Stock
entitled to vote at the Devon Meeting.

Votes, whether in person or by proxy, will be counted and tabulated by
inspectors appointed by Devon. Abstentions and broker non-votes will not be
counted as votes either "for" or "against" any matters coming before the Devon
Meeting, nor will such abstentions and broker non-votes be counted toward
determining a quorum. In accordance with Oklahoma law and Devon's Certificate of
Incorporation and Bylaws, such abstentions and broker non-votes have the effect
of a "no" vote since the Required Proposals must be approved by the affirmative
vote of not less than a majority of the votes entitled to be voted at the
meeting. FAILURE TO RETURN THE ENCLOSED PROXY OR TO VOTE AT THE MEETING WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE REQUIRED PROPOSALS.

Proxies for use at the Devon Meeting will accompany the definitive Proxy
Statement. A shareholder may use a proxy whether or not he or she intends to
attend the Devon Meeting in person. The proxy may be revoked by the person
giving it at any time before it is exercised by written notice to the Secretary
of Devon, by submitting a later dated proxy, or by attending and voting in
person at the Devon Meeting. All proxies validly submitted and not revoked will
be voted in the manner specified therein. IF NO SPECIFICATION IS MADE, THE
PROXIES WILL BE VOTED IN FAVOR OF THE REQUIRED PROPOSALS.

PROXY SOLICITATION

Solicitations of proxies may be made in person or by mail, telephone,
telegram or telecopy by directors, officers and employees of Devon. Devon has
also retained Morrow & Co., Inc. to assist in solicitation of proxies for a fee
of $ plus reimbursement of certain expenses. Devon will request banking
institutions, brokerage firms, custodians, trustees, nominees, and fiduciaries
to forward solicitation material to the beneficial owners of capital stock held
of record by such persons, and Devon will reimburse reasonable forwarding
expenses upon the request of such record holders. See "Description of the
Transaction -- Fees and Expenses."

INDEPENDENT AUDITORS

Representatives of KPMG Peat Marwick LLP independent auditors for Devon,
and Arthur Andersen LLP, who provided the independent audit of financial results
for the Kerr-McGee Properties, are expected to be present at the Devon Meeting.
Such representatives will be given an opportunity to make a statement if they
wish to do so, and are expected to be available to respond to appropriate
questions.

DESCRIPTION OF THE TRANSACTION

The following description of the Transaction contains, among other
information, summaries of certain provisions of the Merger Agreement, a copy of
which is attached to this Proxy Statement as Addendum A and incorporated herein
by reference. The Merger Agreement sets forth the representations and warranties
of Devon and Kerr-McGee, the manner and basis for the acquisition of
Kerr-McGee's Properties and the

16
<PAGE> 22

conditions to consummation of the Transaction, including shareholder approval of
the Required Proposals. The information in this Proxy Statement with respect to
the Merger Agreement is qualified in its entirety by reference to the complete
text of the Merger Agreement.

THE TRANSACTION

The Merger Agreement provides for the Kerr-McGee Properties to be combined
with those of Devon. This will be accomplished by two simultaneous transactions.
First, KMUS will be merged with and into Devon Nevada in exchange for 7,554,880
shares of Devon Common Stock. Second, Devon will acquire all of the outstanding
capital stock of KMCA in exchange for 2,399,120 shares of Devon Common Stock. As
a result of this Transaction, the properties, assets and liabilities of KMUS
will become the properties, assets and liabilities of Devon Nevada and KMCA will
become a wholly-owned subsidiary of Devon and be renamed Devon Energy
Corporation Canada.

After the Transaction, Kerr-McGee will own 31% (26% on a fully-diluted
basis) of Devon's total outstanding Common Stock. Because Kerr-McGee will own a
relatively large block of Devon Common Stock, Devon and Kerr-McGee will enter
into two additional agreements which define and limit their respective rights
and obligations. In addition, Devon's board of directors has amended Devon's
Rights Agreement dated April 17, 1995 between Devon and The First National Bank
of Boston (the "Rights Plan") and will amend it further on the Effective Date.
The intent of these agreements is to (i) allow Kerr-McGee to be represented on
Devon's board of directors in proportion to its ownership of outstanding Devon
Common Stock; (ii) limit Kerr-McGee's ability to gain control of Devon; (iii)
provide Kerr-McGee the ability to sell all or a portion of its Devon Common
Stock, subject to certain restrictions designed to avoid a detrimental effect on
Devon; and (iv) maintain the anti-takeover defenses currently available to the
Devon shareholders. See "-- Future Relationships between Kerr-McGee and Devon"
for a detailed description of these arrangements.

Consummation of the Transaction is conditioned upon approval of the
Required Proposals by Devon's shareholders. See "-- Conditions to the
Transaction."

REASONS FOR THE TRANSACTION

Both Devon and Kerr-McGee have significant reasons to enter into the
Transaction.

Devon's Reasons for the Transaction:

The addition of KMCA will allow Devon to expand its activities into a new
core area, with a Canadian office and experienced staff already in place.

The increase in Devon's reserve base as a result of this Transaction,
combined with no incremental debt, will result in significantly increased
liquidity. Devon currently has $255 million available on its bank line of
credit. Devon estimates that after the Transaction its borrowing capacity could
increase to approximately

17
<PAGE> 23

$400 million. This could be used for acquisitions, drilling and other general
corporate purposes. The larger size of the post-Transaction company will further
improve Devon's credit-worthiness, which should have the long-term effect of
keeping Devon's cost of capital relatively low.

Kerr-McGee's Reasons for the Transaction:

NEGOTIATION OF TRANSACTION TERMS BY DEVON

RECOMMENDATIONS OF THE BOARD OF DIRECTORS

Devon's board of directors believes that the Transaction is in the best
interests of Devon and has unanimously approved the Transaction. Devon's board
of directors has also unanimously approved the Required Proposals and recommends
that you vote "FOR" such Required Proposals.

FUTURE RELATIONSHIPS BETWEEN KERR-MCGEE AND DEVON

After consummation of the Transaction, Kerr-McGee will own 9,954,000 shares
of Devon Common Stock (the "Kerr-McGee Shares"), or 31% (26% on a fully-diluted
basis) of the outstanding Devon Common Stock. Because of this relatively large
ownership position, Kerr-McGee has negotiated arrangements by which Kerr-McGee
can (i) exercise influence over the management of Devon in relationship to its
ownership of outstanding Common Stock and (ii) be assured of the cooperation of
Devon management if it wishes to sell or transfer its shares of Devon Common
Stock. Because these arrangements place Kerr-McGee in a position to cause or
substantially influence a change in control of Devon, or a liquidation or
disposition of Devon's assets,

18
<PAGE> 24

Devon has negotiated arrangements which limit Kerr-McGee's ability to (i)
acquire additional shares of Devon Common Stock; (ii) dispose of a large portion
of the Kerr-McGee Shares to a single third party; and (iii) enter into
transactions which would result in a change in control of Devon. Finally, both
Devon and Kerr-McGee have negotiated arrangements so that Devon's existing
anti-takeover defenses would remain in force with respect to both third parties
and future purchases of Devon Common Stock by Kerr-McGee which are not permitted
by the Stock Agreement.

These arrangements between the parties are set forth in the Stock
Agreement, the Registration Agreement and the Rights Plan Amendments. A
discussion of each of these documents follows:

STOCK AGREEMENT. On the Effective Date of the Transaction, Devon and
Kerr-McGee will execute the Stock Agreement, in the form of Exhibit F to the
Merger Agreement. The Stock Agreement generally (a) limits Kerr-McGee's right to
(i) enter into mergers and other business combinations with Devon; (ii) acquire
additional Devon Voting Shares (defined below), and (iii) transfer Devon Voting
Shares; (b) provides for the appointment or nomination of Kerr-McGee designees
as directors of Devon; and (c) requires Kerr-McGee to vote its Devon shares in
favor of the Devon nominees for election to the board of directors.

The following sections describe the provisions of the Stock Agreement in
more detail:

Kerr-McGee's Nominees to Devon's Board of Directors. Devon has agreed to
increase the number of directors constituting the full board of directors from
six to nine. The resulting three vacancies will be filled by persons designated
by Kerr-McGee (the "Kerr-McGee Designees"). Thereafter, Devon has agreed that
the Kerr-McGee Designees will be included in the slate of nominees recommended
by the board of directors at shareholders' meetings for the election of
directors. The number of Kerr-McGee Designees will be such that the total
percentage of Kerr-McGee Designees elected to the board of directors (assuming
the election of such designee(s)) shall approximately equal the percentage of
outstanding Devon "Voting Shares" owned by Kerr-McGee. "Voting Shares" is
defined as Common Stock and any other shares of capital stock of Devon entitled
to vote generally in the election of directors. Kerr-McGee Designees elected as
Directors of Devon will be apportioned as nearly as possible among Devon's three
classes of directors. Subsequent Board vacancies must be filled so that the
percentage of Kerr-McGee Designees on Devon's board of directors remains
proportionate with Kerr-McGee's percentage ownership of Devon Voting Shares.

Kerr-McGee Approval of Devon Nominees. Pursuant to the Stock Agreement,
Kerr-McGee will vote all of its Voting Shares for the directors nominated by the
Devon board of directors. However, if the board of directors has failed to
nominate the Kerr-McGee Designees as discussed above, Kerr-McGee will not be
obligated to vote its Voting Shares for those directors nominated by the Devon
board of directors.

Restrictions on Business Combinations. Kerr-McGee has agreed that until
termination of the Stock Agreement, it will not engage in a "Business
Combination Transaction" with Devon unless the transaction has been approved by
a majority of the "Continuing Directors." "Business Combination Transaction" is
defined as a transaction to which Devon is a party, such as a merger, in which
Voting Shares are exchanged for cash, securities or other property. Because they
do not threaten a change in control, the following Business Combination
Transactions are permitted in the Stock Agreement: (i) transactions in which the
ownership of capital stock of Devon or the surviving corporation after such
transaction is substantially the same as that of Devon prior to such
transaction, or (ii) mergers in which (a) Devon survives, (b) all Voting Shares
outstanding prior to the merger remain outstanding, (c) no person owns a
majority of Devon's fully diluted shares, and (d) the Continuing Directors
continue to represent a majority of the Devon board of directors. "Continuing
Directors" means members of Devon's board of directors immediately prior to
consummation of the Transaction, the successors recommended by such members, or
directors nominated or elected by such members to fill vacancies if the size of
the board is increased.

Restrictions on Transfer of Kerr-McGee's Voting Shares. Kerr-McGee will be
restricted from transferring, selling or otherwise conveying ownership of Devon
Voting Shares without the prior written consent of a majority of the Continuing
Directors, which consent cannot be unreasonably withheld, except in certain
limited circumstances. This restriction is intended to prevent Kerr-McGee from
transferring a significant

19
<PAGE> 25

percentage of its Voting Shares to a single third party. Some of the limited
circumstances in which Kerr-McGee may transfer its Voting Shares are:

(a) In accordance with Rule 144 under the Securities Act, which, after
a 2 year holding period and thereafter as long as Kerr-McGee continues to
be an "affiliate" of Devon, generally limits the number of shares which can
be sold during any three month period as set forth under "-- Registration
Rights Agreement";

(b) Pursuant to a registered public offering, Kerr-McGee may sell its
Devon Voting Shares in a broad distribution such that not more than 14.9%
of outstanding Voting Shares or 20% of such offering is sold to one person
(other than mutual or pension funds); and

(c) Upon the commencement of a tender offer (i) which Devon's
Continuing Directors do not oppose; (ii) with respect to which a majority
of the Continuing Directors have resolved to cause the Rights Plan not to
apply; or (iii) by certain offerors after a court has caused the Rights
Plan to be inapplicable and the person is permitted by law to accept
tendered shares.

Kerr-McGee's Right to Acquire Additional Shares. In most circumstances
Kerr-McGee is prohibited from purchasing additional Voting Shares without the
prior written consent of a majority of Devon's Continuing Directors. Kerr-McGee
will be permitted to purchase Voting Shares or rights to acquire Voting Shares
to prevent dilution of its initial percentage (26% of fully-diluted shares) of
stock ownership. In addition, after two years from the date of the Stock
Agreement, Kerr-McGee will be entitled to increase its percentage ownership in
Devon Voting Shares by a maximum of five percentage points, to a total of 31% of
the fully-diluted Voting Shares. However, subject to certain exceptions,
Kerr-McGee will not be entitled to purchase additional Devon Voting Shares if it
will have the effect of reducing the total shares of Devon Voting Shares held by
persons other than Devon, Kerr-McGee or either of their affiliates to less than
15 million shares. Kerr-McGee will be able to avoid all of these restrictions if
a third party makes a tender offer which meets certain conditions set forth
under (c) above. This is intended to permit Kerr-McGee the opportunity to make a
competitive offer for Devon.

Termination. The Stock Agreement may be terminated in several
circumstances, including: (i) by mutual agreement of Devon and Kerr-McGee; (ii)
by either party if Kerr-McGee's beneficial ownership drops below 5% of the total
outstanding Voting Shares; (iii) by Kerr-McGee if Devon materially breaches any
provisions of the Stock Agreement; (iv) by Kerr-McGee after approval by the
Continuing Directors of certain third party proposals for Business Combination
Transactions, or engagement of an investment banker to solicit indications of
interest with respect to a Business Combination Transaction; (v) by Kerr-McGee
if a third party accumulates 15% or more of Devon's outstanding Voting Shares,
or 20% or more when the Rights Plan is not in effect, and such person has not
agreed to restrictions similar to those in the Rights Plan; or (vi) by
Kerr-McGee if the Continuing Directors cease to be a majority of Devon's board
of directors. Once the Stock Agreement is terminated, all of the restrictions
set forth above will automatically terminate.

REGISTRATION RIGHTS AGREEMENT. The 9,954,000 shares of Devon Common Stock
to be issued to Kerr-McGee pursuant to the Transaction will be restricted stock
and will not be freely transferable and tradable. These restrictions exist for
three reasons. First, the Kerr-McGee Shares will not have been registered under
the Securities Act. As a result, Kerr-McGee must hold the stock for two years
before it is publicly transferable. Second, since Kerr-McGee will own 31% of
Devon's total outstanding Common Stock and will be represented on Devon's Board
of Directors, Kerr-McGee may be deemed to be an "affiliate" of Devon within the
meaning of the Securities Act. As a result of these two restrictions, after the
first two years and so long as Kerr-McGee is an affiliate of Devon, Kerr-McGee
can publicly sell during any three month period only a number of shares equal to
the greater of (a) the average of the preceding four weeks' trading volume or
(b) 1% of Devon's total shares of outstanding Common Stock. These restrictions
can only be removed if there is an effective registration statement on file with
the Securities and Exchange Commission ("SEC") registering the Kerr-McGee Shares
for sale. Third, on the Effective Date of the Transaction Devon and Kerr-McGee
will execute the Stock Agreement which, among other things, imposes contractual
limitations on the disposition of the Kerr-McGee Shares.

20
<PAGE> 26

On the Effective Date of the Transaction Devon and Kerr-McGee will enter
into the Registration Agreement, in substantially the form of Exhibit G to the
Merger Agreement. The Registration Agreement will facilitate the sale or
transfer of Kerr-McGee's Devon Voting Shares by providing for registration of
such shares for resale with the SEC. Under the Registration Agreement Kerr-McGee
can require Devon to file up to three registration statements with the SEC for
the resale of all or a portion of Kerr-McGee's Devon Voting Shares. The
registration statement must contain information about the number of shares
Kerr-McGee is selling, the method of distribution of such shares and all
current, material information about Devon. However, Devon is not required to
file a registration statement under certain circumstances, such as during
periods when Devon is negotiating a transaction, when full disclosure in a
registration statement of material, non-public information about such
transaction would be detrimental to the completion of the transaction. Devon is
required to pay all expenses of a registration statement filed on behalf of
Kerr-McGee, except SEC and state securities agency filing fees, printing
expenses, underwriting discounts and commissions attributable to the Kerr-McGee
shares and legal fees and expenses for Kerr-McGee.

The Registration Agreement also generally gives Kerr-McGee the right to
include Kerr-McGee shares in any registration statement Devon is filing on its
own behalf or on behalf of other holders of Devon Common Stock.

The Registration Agreement also gives Kerr-McGee the right to issue
Kerr-McGee securities which are convertible into, or exchangeable or exercisable
for, Kerr-McGee's Devon Voting Shares (the "Kerr-McGee Exchangeable
Securities"). However, the time period during which the Exchangeable Securities
can be converted to Kerr-McGee's Devon Voting Shares cannot exceed seven years
(the "Exchange Period"). Kerr-McGee can require Devon to maintain an effective
registration statement with the SEC registering the Devon Voting Shares into
which the Kerr-McGee Exchangeable Securities could be converted during the
Exchange Period, but Devon is required to keep the prospectus included in the
registration statement current only during a thirty day conversion period each
year.

All of Kerr-McGee's rights under the Registration Agreement are subject to
the terms of the Stock Agreement, the Securities Act, Devon's Certificate of
Incorporation, Bylaws and the laws of the State of Oklahoma.

RIGHTS PLAN AMENDMENTS. Each share of Devon Common Stock currently carries
one "right" as defined in the Rights Plan. Upon the occurrence of certain events
generally associated with unsolicited takeover attempts or certain transactions
involving a change of control, the rights become exercisable. The rights allow
all Devon shareholders, except the party attempting the takeover (the "Acquiring
Person"), the right to buy additional shares of Devon Common Stock (or a special
series of voting preferred stock) at a significant discount to the market price.
This causes substantial dilution to the Acquiring Person, which effectively
encourages the Acquiring Person to negotiate with Devon's board of directors.
Kerr-McGee's acquisition of more than 15% of the outstanding shares of Devon
Common Stock in the Transaction would cause Kerr-McGee to be deemed an Acquiring
Person under the Rights Plan, and would trigger the exercise of the rights.
However, since the Stock Agreement limits Kerr-McGee's ability to acquire
additional Voting Shares, Devon's board of directors has amended the Rights Plan
to prevent the execution of the Merger Agreement from triggering the exercise of
the rights. The Rights Plan will be further amended prior to consummation of the
Transaction to allow Kerr-McGee to acquire Common Stock upon consummation of the
Merger Agreement and to acquire additional Voting Shares in accordance with the
terms of the Stock Agreement. The Rights Plan Amendments will remain in effect
even upon the termination of the Stock Agreement in certain circumstances. See
Exhibits H-1 and H-2 to Addendum A.

ADJUSTMENTS

No adjustments will be made to the number of shares of Common Stock to be
received by Kerr-McGee. On the Effective Date, or as soon as possible
thereafter, Devon and Kerr-McGee will estimate the amount of cash and accounts
receivable less accounts payable ("Working Capital") for each of KMUS and KMCA
as of the Effective Date, and KMUS and KMCA will declare and pay a dividend to
Kerr-McGee equal to such estimated Working Capital. Within 90 days after the
Effective Date, Devon and Kerr-McGee will account to

21
<PAGE> 27

each other for the actual amount of Working Capital, and settle with each other
in cash to the extent the original estimate of Working Capital was greater or
less than the actual amount. No other adjustments will be made between Devon and
Kerr-McGee in connection with the Transaction.

CONDUCT OF PARTIES PRIOR TO TRANSACTION

Pending consummation of the Transaction:

(1) Devon and Kerr-McGee shall each give to the other reasonable
access to their respective premises, books and records and such financial
and operating data and other information necessary to evaluate each of
Devon's and Kerr-McGee's business, operations and condition, financial or
otherwise.

(2) Kerr-McGee shall furnish Devon with a list of Kerr-McGee
employees. Fifteen (15) days prior to the consummation of the Transaction,
Devon shall provide Kerr-McGee with a list of employees to whom employment
has or will be offered. Devon is under no obligation to hire any of the
Kerr-McGee employees. Devon has no obligation to pay severance to any of
the Kerr-McGee employees not hired by Devon.

(3) Kerr-McGee, with respect to the Kerr-McGee Properties, and Devon
shall conduct their businesses only in the ordinary course. Kerr-McGee
shall not, without the prior written consent of Devon, engage in certain
transactions or take certain corporate actions which affect the Kerr-McGee
Properties.

CONDITIONS TO THE TRANSACTION

In addition to the approval of the Required Proposals by the Devon
shareholders, consummation of the Transaction is conditioned upon, among other
things:

(1) the continued accuracy of the representations and warranties of
both Devon and Kerr-McGee contained in the Merger Agreement;

(2) no material adverse change in the financial condition, results of
operations or businesses of Devon or the Kerr-McGee Properties since
December 31, 1995;

(3) receipt of all required third party consents;

(4) the execution of the Registration Agreement and Stock Agreement by
Devon and Kerr-McGee; and

(5) approval of the shares of Devon Common Stock to be issued to
Kerr-McGee for listing on the AMEX or any other recognized stock exchange
on which Devon Common Stock has been authorized for trading.

All of the conditions for completion of the Transaction are set forth in
Sections 7 and 8 of the Merger Agreement attached hereto as Addendum A.

AMENDMENT AND TERMINATION

Prior to consummation of the Transaction, the Merger Agreement may be
amended at any time, whether before or after the Devon Meeting, by a written
instrument executed by Devon and Kerr-McGee with the approval of their
respective boards of directors. However, in no circumstance may the number of
shares of Devon Common Stock to be issued to Kerr-McGee in the Transaction be
changed after shareholder approval. The Merger Agreement may be terminated by
(i) the mutual consent of the boards of directors of Devon and Kerr-McGee; (ii)
by Devon, if any of the conditions to the Merger Agreement for the benefit of
Devon have not been met or waived; (iii) by Kerr-McGee, if any of the conditions
to the Merger Agreement for the benefit of Kerr-McGee have not been met or
waived; or (iv) by Devon or Kerr-McGee, if the Transaction has been enjoined by
a governmental body or if the shareholders fail to approve the Required
Proposals.

22
<PAGE> 28

EFFECTIVE DATE

The Transaction is expected to be consummated on December 31, 1996. Subject
to the satisfaction or waiver of the conditions set forth under " -- Conditions
to the Transaction."

ACCOUNTING TREATMENT

FEES AND EXPENSES

Devon and Kerr-McGee will each bear their own expenses incurred in
connection with the Transaction.

MATERIAL UNITED STATES INCOME TAX CONSEQUENCES

The material federal income tax consequences of the Transaction are
discussed in this section. This discussion is based upon the Code, Treasury
regulations issued thereunder and other tax law authorities as presently in
effect.

The United States part of the Transaction involving the merger of KMUS into
Devon Nevada (the "Merger") will be treated as a tax free plan of reorganization
under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code, known by tax
practitioners as a "forward triangular merger" or a "Statutory A Merger" type of
transaction. The result of the Merger will be that the KMUS stock owned by
Kerr-McGee will be automatically converted into Devon Common Stock tax free.
Kerr-McGee's tax basis in the Devon shares will be its tax basis in the KMUS
stock that was converted in the Merger plus transaction costs. Neither Devon nor
Devon Nevada will recognize gain or loss on the issuance of Devon Common Stock
to Kerr-McGee in the Merger. Since the Merger will be "tax free," Devon Nevada's
tax basis in the KMUS properties it acquires in the Merger will be the same as
KMUS's tax basis in those properties immediately prior to the Merger.

The Canadian part of the Transaction involving the acquisition by Devon of
all of the issued and outstanding stock of KMCA in exchange for shares of Devon
Common Stock (the "Share Exchange") will be treated as a taxable transaction by
the parties. Nevertheless, Devon will not recognize gain or loss on the issuance
of its shares to Kerr-McGee in exchange for KMCA stock. Devon's basis in the
KMCA stock acquired in the Share Exchange will be the same as the fair market
value of the Devon Common Stock, determined at the time of closing, issued
therefor.

The Transaction will not result in any incident of taxation to any Devon
shareholder.

MATERIAL CANADIAN INCOME TAX CONSEQUENCES

Devon's acquisition of KMCA stock in the Transaction will not result in any
incident of Canadian taxation to Devon. However, under the Merger Agreement
certain elections are required to be made which assure that KMCA, as a Devon
Canadian subsidiary after closing, will succeed to historic tax pools or tax
basis in KMCA properties. These tax pools are anticipated to be substantially
less than the fair market value of the Devon shares, determined at the time of
closing, issued to Kerr-McGee for the KMCA stock. After the closing of the
Transaction, KMCA will be subject to normal Canadian income taxes applicable to
non-Canadian controlled corporations and it may repatriate to Devon, its parent,
an amount equal to the

23
<PAGE> 29

acquisition cost of the shares of KMCA without additional Canadian withholding
taxes. Additional amounts may be repatriated by way of dividend subject to a 5%
Canadian withholding tax.

APPRAISAL RIGHTS

The holders of Devon Common Stock are not entitled to dissenters' or
appraisal rights in connection with the Transaction.

REGULATORY APPROVAL

Other than the filing of merger documents in Oklahoma and Nevada on the
Effective Date and complying with federal or state securities laws, there are no
federal or state regulatory requirements which must be complied with or the
approval of which must be obtained in connection with the Transaction.

MARKET PRICES AND DIVIDENDS

MARKET PRICE

Devon's Common Stock has been traded on the American Stock Exchange (the
"AMEX") since September 29, 1988. Prior to September 29, 1988, Devon's Common
Stock was privately held.

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

<TABLE>
<CAPTION>
AVERAGE DAILY
HIGH LOW VOLUME
---- --- -------------
<S> <C> <C> <C>
1994:
Quarter Ended March 31, 1994........................... 22 7/8 17 1/2 55,131
Quarter Ended June 30, 1994............................ 26 1/2 17 1/4 37,547
Quarter Ended September 30, 1994....................... 23 1/4 19 3/4 26,344
Quarter Ended December 31, 1994........................ 22 1/4 16 34,110

1995:
Quarter Ended March 31, 1995........................... 21 3/8 16 3/4 41,268
Quarter Ended June 30, 1995............................ 23 1/4 20 41,437
Quarter Ended September 30, 1995....................... 23 7/8 18 39,462
Quarter Ended December 31, 1995........................ 26 21 1/2 22,333

1996:
Quarter Ended March 31, 1996........................... 25 3/4 19 7/8 44,846
Quarter Ended June 30, 1996............................ 26 1/8 22 39,268
Quarter Ended September 30, 1996....................... 27 1/2 22 3/4 73,678
Quarter Ended December 31, 1996
(through October 18, 1996).......................... 30 25 1/4 74,471
</TABLE>

DIVIDENDS

Devon commenced the payment of regular quarterly cash dividends on its
Common Stock on June 30, 1993, in the amount of $0.03 per share. Total annual
dividends are currently $0.12 per share.

24
<PAGE> 30

PRO FORMA FINANCIAL INFORMATION

Set forth below is certain unaudited pro forma financial information with
respect to the Kerr-McGee Properties including an unaudited pro forma balance
sheet as of June 30, 1996, and unaudited pro forma statements of operations for
the year ended December 31, 1995, and the six months ended June 30, 1996. The
balance sheet has been prepared on the basis that the Transaction occurred on
June 30, 1996. The statements of operations have been prepared on the basis that
the Transaction occurred on January 1, 1995. The Transaction is being accounted
for under the purchase method of accounting. The unaudited pro forma financial
statements should be read in conjunction with the notes thereto immediately
following such pro forma financial statements, and the consolidated financial
statements and related notes of Devon and the statements of revenues and direct
operating expenses of the Kerr-McGee Properties and related notes, which are
included elsewhere herein. The pro forma results of operations are not
necessarily indicative of the future operations of Devon.

UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
PRO FORMA RELATED TO
EFFECTS OF THE KERR-MCGEE
DEVON TCP SECURITIES PROPERTIES DEVON
HISTORICAL OFFERING (NOTE 2) (NOTE 4) PRO FORMA
---------- ----------------- -------------- ---------
<S> <C> <C> <C> <C>
Assets:
Current assets........................ $ 33,413 $ (9,985) -- $ 23,428
Property and equipment, net........... 412,613 -- $220,979(a) 665,565
31,973(c)
Other assets, net..................... 4,584 4,985 -- 9,569
--------- --------- -------- ---------
Total assets.................. $ 450,610 $ (5,000) $252,952 $ 698,562
========= ========= ======== =========
Liabilities:
Current liabilities................... 13,992 500 -- 14,492
Revenues and royalties payable........ 1,047 -- -- 1,047
Other liabilities..................... 9,428 -- -- 9,428
Long-term debt........................ 155,000 (155,000) -- --
Deferred income taxes................. 40,941 -- 31,973(c) 72,914
Company-obligated mandatorily redeemable
convertible preferred securities of
Devon Financing Trust holding solely
6.5% convertible junior subordinated
debentures of Devon Energy
Corporation........................... -- 149,500 -- 149,500
Stockholders' equity:
Preferred stock....................... -- -- -- --
Common stock.......................... 2,213 -- 995(b) 3,208
Additional paid-in capital............ 167,588 -- 219,984(b) 387,572
Retained earnings..................... 60,401 -- -- 60,401
--------- --------- -------- ---------
Total stockholders' equity......... 230,202 -- 220,979 451,181
--------- --------- -------- ---------
Total liabilities and stockholders'
equity........................... $ 450,610 $ (5,000) $252,952 $ 698,562
========= ========= ======== =========
</TABLE>

See accompanying notes to pro forma financial statements.

25
<PAGE> 31

PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA EFFECTS OF ADJUSTMENTS
--------------------------------------- RELATED TO
TCP KERR-MCGEE THE KERR-MCGEE
DEVON WORLAND SECURITIES PROPERTIES PROPERTIES DEVON
HISTORICAL PROPERTIES (NOTE 2) OFFERING (NOTE 2) HISTORICAL (NOTE 4) PRO FORMA
---------- ------------------- ----------------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil sales................. $ 55,290 $ 931 $ -- $ 56,651 -- $112,872
Gas sales................. 50,732 2,143 -- 44,222 -- 97,097
Natural gas liquids
sales................... 6,404 2,275 -- 3,659 -- 12,338
Other..................... 877 -- -- 3,747 -- 4,624
-------- ------- ------- -------- -------- --------
Total revenues...... 113,303 5,349 -- 108,279 -- 226,931
-------- ------- ------- -------- -------- --------
Costs and expenses:
Lease operating
expenses................ 27,289 1,609 -- 26,265 -- 55,163
Production taxes.......... 6,832 221 -- 6,658 -- 13,711
Depreciation, depletion
and amortization........ 38,090 2,284 166 -- 45,182(d) 85,722
General and administrative
expenses................ 8,419 -- -- -- 5,000(e) 13,419
Interest expense.......... 7,051 3,025 (9,501) -- -- 575
Distributions on preferred
securities of subsidiary
trust................... -- -- 9,718 -- -- 9,718
-------- ------- ------- -------- -------- --------
Total costs and
expenses.......... 87,681 7,139 383 32,923 50,182 178,308
-------- ------- ------- -------- -------- --------
Earnings (loss) before
income taxes.............. 25,622 (1,790) (383) 75,356 (50,182) 48,623
Income tax expense
(benefit):
Current................... 4,495 (358) (77) -- 4,511(f) 8,571
Deferred.................. 6,625 (27) (69) -- 6,328(f) 12,857
-------- ------- ------- -------- -------- --------
Total income tax
expense
(benefit)......... 11,120 (385) (146) -- 10,839(f) 21,428
-------- ------- ------- -------- -------- --------
Net earnings (loss)......... $ 14,502 $(1,405) $ (237) $ 75,356 $(61,021) $ 27,195
======== ======= ======= ======== ======== ========
Net earnings (loss) per
average common share
outstanding............... $ 0.66 $ (0.07) $ (0.01) $ 0.85
======== ======= ======= ========
Weighted average common
shares outstanding........ 22,074 32,028
======== ========
</TABLE>

See accompanying notes to pro forma financial statements.

26
<PAGE> 32

PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS
EFFECTS OF RELATED TO
TCP KERR-MCGEE THE KERR-MCGEE
DEVON SECURITIES PROPERTIES PROPERTIES DEVON
HISTORICAL OFFERING (NOTE 2) HISTORICAL (NOTE 4) PRO FORMA
---------- ----------------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Oil sales.................................... $ 35,652 $ -- $ 33,665 $ -- $ 69,317
Gas sales.................................... 28,834 -- 28,450 -- 57,284
Natural gas liquids sales.................... 5,991 -- 2,122 -- 8,113
Other........................................ 869 -- 1,562 -- 2,431
-------- ------- -------- -------- --------
Total revenues......................... 71,346 -- 65,799 -- 137,145
-------- ------- -------- -------- --------
Costs and expenses:
Lease operating expenses..................... 15,173 -- 12,274 -- 27,447
Production taxes............................. 4,488 -- 4,255 -- 8,743
Depreciation, depletion and amortization..... 20,588 83 -- 23,084(d) 43,755
General and administrative expenses.......... 4,525 -- -- 2,500(e) 7,025
Interest expense............................. 4,942 (4,494) -- -- 448
Distributions on preferred securities of
subsidiary trust........................... -- 4,859 -- -- 4,859
-------- ------- -------- -------- --------
Total costs and expenses............... 49,716 448 16,529 25,584 92,277
-------- ------- -------- -------- --------
Earnings (loss) before income taxes............ 21,630 (448) 49,270 (25,584) 44,868
Income tax expense (benefit):
Current...................................... 2,812 (90) -- 4,723(f) 7,445
Deferred..................................... 6,489 (81) -- 4,760(f) 11,168
-------- ------- -------- -------- --------
Total income tax expense (benefit)..... 9,301 (171) -- 9,483(f) 18,613
-------- ------- -------- -------- --------
Net earnings (loss)............................ $ 12,329 $ (277) $ 49,270 $(35,067) $ 26,255
======== ======= ======== ======== ========
Net earnings (loss) per average common share
outstanding.................................. $ 0.56 $ (0.01) $ 0.82
======== ======= ========
Weighted average common shares outstanding..... 22,117 32,071
======== ========
</TABLE>

See accompanying notes to pro forma financial statements.

27
<PAGE> 33

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND JUNE 30, 1996

1. BASIS OF PRESENTATION

The accompanying unaudited pro forma financial information is presented to
reflect the consummation of the Transaction as described elsewhere herein. The
unaudited pro forma balance sheet is presented as if the Transaction occurred on
June 30, 1996. The unaudited pro forma statements of operations are presented as
if the Transaction occurred on January 1, 1995.

The accompanying unaudited pro forma financial information has been
prepared based on estimates and assumptions deemed by Devon to be appropriate
and does not purport to be indicative of the financial position or results of
operations which would actually have been attained if the Transaction had
occurred as presented in such statements or which may be obtained in the future.
In addition, future results may vary significantly from the results reflected in
such statements due to normal oil and natural gas production declines, changes
in prices received for oil, gas and NGLs, future acquisitions and other factors.

The pro forma financial information should be read in conjunction with the
historical consolidated financial statements of Devon and the statements of
revenues and direct operating expenses of the Kerr-McGee Properties which are
included elsewhere herein.

2. ADJUSTMENTS TO DEVON'S HISTORICAL BALANCE SHEET AND OPERATING RESULTS

The TCP Securities Offering. The historical Devon balance sheet as of June
30, 1996, and the historical Devon statements of operations for the year ended
December 31, 1995 and the six months ended June 30, 1996, have been adjusted for
the pro forma effects of the offering on July 10, 1996, of $149.5 million of
certain trust convertible preferred securities (the "TCP Securities"). The net
proceeds from the TCP Securities offering of $145 million, along with $10
million of excess cash on hand, were used on July 10, 1996, to retire all of
Devon's outstanding long-term debt. The balance sheet adjustments for the pro
forma effects of the TCP Securities offering assume that the TCP Securities were
issued on June 30, 1996. The balance sheet adjustments also include an
additional $5 million of other assets which represents the costs incurred in the
offering of the TCP Securities. The $0.5 million of additional current
liabilities included in the adjustments represents the portion of the offering
costs which were liabilities at the time of the offering.

The adjustments to the historical statements of operations for the TCP
Securities offering assume that the offering was completed on January 1, 1995,
and that the proceeds were used to retire long-term debt on that date.
Therefore, the applicable amount of interest expense has been reduced, and
replaced with the distributions required on the TCP Securities at the
distribution rate of 6.5% per year. The increase to depreciation, depletion and
amortization expense represents the amortization of the $5 million of offering
costs.

The TCP Securities offering is not related to Acquisition 173. However, it
is being adjusted for in the accompanying pro forma statements due to the
proximity of the offering date to the historical balance sheet date, and the
effect which the offering has on Devon's future capital resources by increasing
the unused portion of Devon's credit lines. See note 15 to Devon's consolidated
financial statements included elsewhere herein for a more complete description
of the TCP Securities.

The Worland Properties. The historical Devon statement of operations used
in preparing the pro forma statement of operations for the year ended December
31, 1995, has been adjusted for the pro forma effects of the acquisition by
Devon of certain properties located in Wyoming (the "Worland Properties"). The
acquisition of the Worland Properties closed on December 18, 1995. The pro forma
effects of the Worland Properties presented in the 1995 pro forma statement of
operations reflect the effects of the Worland Properties as if they had been
acquired on January 1, 1995. The pro forma effects of the Worland Properties
represent their historical operating results, adjusted for three factors. First,
an additional $2.3 million of depreciation, depletion and amortization expense
is included. This amount is based on the purchase price paid for the Worland
Properties, and the pro forma oil and gas reserves and production amounts.
Second, an

28
<PAGE> 34

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND JUNE 30, 1996 -- (CONTINUED)

additional $3.0 million of interest expense is included. This amount is based on
the amount of the purchase price financed through Devon's credit lines and
Devon's 1995 average interest rates. And third, income tax expense has been
reduced by $0.4 million. This amount is based on the pre-tax effects of the pro
forma assumptions and their pro forma effect on Devon's tax attributes.

The pro forma 1995 effects of the Worland Properties do not include the
expected impact from Devon's future drilling and development plans for such
properties. Therefore, such pro forma results are not indicative of the future
impact which the Worland Properties are expected to have on Devon's operations.

3. METHOD OF ACCOUNTING FOR THE TRANSACTION

Upon consummation of the Transaction, the assets acquired will be accounted
for at their estimated "fair values," as required by the purchase method of
accounting for business combinations.

4. PRO FORMA ADJUSTMENTS RELATED TO THE KERR-MCGEE PROPERTIES

The accompanying pro forma balance sheet includes the following
adjustments:

(a) To record the purchase of the Kerr-McGee Properties based on the
fair value of the Devon Common Stock issued as described in adjustment (b).
Included in the total value recorded for the Kerr-McGee Properties is $29
million for undeveloped leasehold.

(b) To increase Devon's common stock and additional paid-in capital
amounts for the issuance of 9,954,000 shares of Devon Common Stock.

(c) To increase the recorded value of the oil and gas properties
acquired by $32 million of deferred income taxes. This adjustment equals
the deferred income tax effect of the difference between the fair value
assigned to the oil and gas properties and their basis for income tax
purposes. Devon's basis for income tax purposes in the acquired properties
is the same as the Kerr-McGee Properties' tax basis.

The accompanying pro forma statements of operations include the following
adjustments:

(d) To adjust depreciation, depletion and amortization ("DD&A") for
the additional amounts associated with the oil and gas properties being
acquired.

(e) To adjust Devon's general and administrative expenses by an
expected annual increase of $5 million as a result of the Transaction. The
additional expenses to be incurred primarily include salaries and related
benefits for additional personnel, rent expense for additional office space
to be leased, increased professional fees and other office costs. The pro
forma adjustment is net of additional overhead reimbursements which Devon
will receive from working interest owners in certain of the acquired
properties for which Devon will serve as the operator.

(f) To adjust income tax expense for the effect of the preceding pro
forma adjustments.

29
<PAGE> 35

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND JUNE 30, 1996 -- (CONTINUED)

5. COMMON SHARES OUTSTANDING

Net earnings per average share outstanding have been calculated based upon
the pro forma weighted average number of shares outstanding during the year
ended December 31, 1995, and the six months ended June 30, 1996, as follows:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
Actual Devon average shares outstanding.................... 22,073,550 22,117,138
Shares issued to consummate the Transaction................ 9,954,000 9,954,000
---------- ----------
Pro Forma weighted average Devon shares outstanding........ 32,027,550 32,071,138
========== ==========
</TABLE>

Shares outstanding at June 30, 1996, assuming consummation of the
Transaction, are as follows:

<TABLE>
<CAPTION>
JUNE 30,
1996
----------
<S> <C>
Actual Devon shares outstanding.......................................... 22,130,896
Shares issued to consummate the Transaction.............................. 9,954,000
----------
Pro Forma Devon shares outstanding....................................... 32,084,896
==========
</TABLE>

6. DD&A RATE

Devon's DD&A rates per Boe before and after consummation of the Transaction
are as follows:

<TABLE>
<CAPTION>
SIX
YEAR ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
Rate prior to the Transaction............................. $ 3.65 3.76
Pro Forma rate after the Transaction...................... $ 4.08 4.15
</TABLE>

7. SUPPLEMENTAL PRO FORMA INFORMATION ON OIL AND GAS OPERATIONS

The following pro forma supplemental information regarding oil and gas
activities is presented pursuant to the disclosure requirements promulgated by
the Securities and Exchange Commission and Statement of Financial Accounting
Standards No. 69, "Disclosures About Oil and Gas Producing Activities."

Pro Forma Capitalized Costs

The following table sets forth the aggregate amount of pro forma
capitalized costs relating to oil and gas producing activities and the aggregate
amount of related accumulated DD&A assuming the Transaction was consummated as
of December 31, 1995:

<TABLE>
<S> <C>
Oil and gas properties:
Subject to amortization............................................. $ 828,180,000
Not subject to amortization......................................... 49,451,000
-------------
877,631,000
Accumulated DD&A...................................................... (237,386,000)
-------------
Net capitalized costs................................................. $ 640,245,000
=============
</TABLE>

30
<PAGE> 36

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND JUNE 30, 1996 -- (CONTINUED)

Pro Forma Results of Operations for Oil and Gas Producing Activities

The following table includes pro forma revenues and expenses associated
directly with oil and gas producing activities for the year ended December 31,
1995, assuming the Transaction was consummated as of January 1, 1995. It does
not include any allocation of pro forma interest costs or general corporate
overhead and, therefore, is not necessarily indicative of the contribution to
net earnings of oil and gas operations. Income tax expense has been calculated
by applying statutory income tax rates to oil and gas sales after deducting
costs, including DD&A, and after giving effect to permanent differences and tax
credits:

<TABLE>
<CAPTION>
TOTAL DOMESTIC CANADA
------------ ------------ -----------
<S> <C> <C> <C>
Oil, gas and NGL sales.................... $222,307,000 $187,477,000 $34,830,000
Production and operating expenses......... 68,874,000 61,666,000 7,208,000
DD&A...................................... 84,106,000 69,742,000 14,364,000
Income tax expense........................ 28,178,000 21,829,000 6,349,000
------------ ------------ -----------
Results of operations for oil and gas
producing activities.................... $ 41,149,000 $ 34,240,000 $ 6,909,000
============ ============ ===========
</TABLE>

Quantities of Oil and Gas Reserves

Set forth below is a pro forma summary of the changes in the net quantities
of crude oil, natural gas and NGL reserves for the year ended December 31, 1995,
as estimated by independent petroleum consultants and Devon's and Kerr-McGee's
in-house petroleum reservoir engineers and geologists, assuming the Transaction
was consummated as of January 1, 1995:

<TABLE>
<CAPTION>
TOTAL
--------------------------------------
OIL (BBLS) GAS (MCF) NGL (BBLS)
---------- ----------- -----------
<S> <C> <C> <C>
Actual Devon proved reserves as of December 31,
1994........................................... 42,165,000 347,560,000 5,442,000
Purchase of reserves through the Transaction... 29,088,000 238,981,000 1,391,000
Revisions of previous estimates................ 1,127,000 (7,431,000) 535,000
Extensions and discoveries..................... 2,959,000 9,645,000 472,000
Purchase of reserves........................... 1,916,000 61,695,000 3,860,000
Production..................................... (6,742,000) (73,897,000) (1,138,000)
Sale of reserves............................... (337,000) (8,627,000) (45,000)
---------- ----------- ----------
Pro forma proved reserves as of December 31,
1995........................................... 70,176,000 567,926,000 10,517,000
========== =========== ==========
</TABLE>

<TABLE>
<CAPTION>
DOMESTIC
--------------------------------------
OIL (BBLS) GAS (MCF) NGL (BBLS)
---------- ----------- -----------
<S> <C> <C> <C>
Actual Devon proved reserves as of December 31,
1994........................................... 42,165,000 347,560,000 5,442,000
Purchase of reserves through the Transaction... 18,804,000 176,694,000 655,000
Revisions of previous estimates................ 1,127,000 (7,431,000) 535,000
Extensions and discoveries..................... 2,959,000 9,645,000 472,000
Purchase of reserves........................... 1,916,000 61,695,000 3,860,000
Production..................................... (5,492,000) (61,297,000) (963,000)
Sale of reserves............................... (337,000) (8,627,000) (45,000)
---------- ----------- ---------
Pro forma proved reserves as of December 31,
1995........................................... 61,142,000 518,239,000 9,956,000
========== =========== =========
</TABLE>

31
<PAGE> 37

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND JUNE 30, 1996 -- (CONTINUED)

<TABLE>
<CAPTION>
CANADA
--------------------------------------
OIL (BBLS) GAS (MCF) NGL (BBLS)
---------- ----------- -----------
<S> <C> <C> <C>
Actual Devon proved reserves as of December 31,
1994........................................... -- -- --
Purchase of reserves through the Transaction... 10,284,000 62,287,000 736,000
Revisions of previous estimates................ -- -- --
Extensions and discoveries..................... -- -- --
Purchase of reserves........................... -- -- --
Production..................................... (1,250,000) (12,600,000) (175,000)
Sale of reserves............................... -- -- --
---------- ----------- --------
Pro forma proved reserves as of December 31,
1995........................................... 9,034,000 49,687,000 561,000
========== =========== ========
</TABLE>

Standardized Measure of Discounted Future Net Cash Flows

The accompanying table reflects the pro forma standardized measure of
discounted future net cash flows relating to Devon's interests in proved oil,
gas and NGL reserves as of December 31, 1995, assuming consummation of the
Transaction as of December 31, 1995:

<TABLE>
<CAPTION>
TOTAL DOMESTIC CANADA
-------------- -------------- ------------
<S> <C> <C> <C>
Future cash inflows..................... $2,254,397,000 $2,023,945,000 $230,452,000
Future costs:
Development........................... (85,632,000) (82,508,000) (3,124,000)
Production............................ (729,576,000) (662,914,000) (66,662,000)
Future income tax expense............... (294,758,000) (240,262,000) (54,496,000)
-------------- -------------- ------------
Future net cash flows................... 1,144,431,000 1,038,261,000 106,170,000
10% discount to reflect timing of cash
flows................................. (460,242,000) (421,832,000) (38,410,000)
-------------- -------------- ------------
Standardized measure of discounted
future net cash flows................. $ 684,189,000 $ 616,429,000 $ 67,760,000
============== ============== ============
Discounted future net cash flows before
income taxes.......................... $ 863,431,000 $ 760,890,000 $102,541,000
============== ============== ============
</TABLE>

Future cash inflows are computed by applying year-end prices (average
$18.08 per barrel of oil, adjusted for transportation and other charges, $1.40
per Mcf of gas and $12.63 per barrel of NGL) to the year-end pro forma
quantities of those reserves, except in those instances where fixed and
determinable oil, gas and NGL price adjustments are provided by contractual
arrangements in existence at year-end. In addition to the future gas revenues
calculated at $1.40 per Mcf, Devon's total future gas revenues also include the
future tax credit payments to be received and recorded as gas revenues pursuant
to the San Juan Basin Transaction described in note 3 to Devon's consolidated
financial statements for 1995 which are included elsewhere herein. Devon's
future cash inflows shown in the table above include $58.2 million related to
these tax credit payments from 1996 through 2002. This amount has been
calculated using the assumption that the year-end 1995 tax credit rate of $1.01
per MMBtu remains constant. Future development and production costs are computed
by estimating the expenditures to be incurred in developing and producing proved
oil and gas reserves at the end of the year, based on year-end costs and
assuming continuation of existing economic conditions.

32
<PAGE> 38

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND JUNE 30, 1996 -- (CONTINUED)

Changes Relating to the Standardized Measure of Discounted Future Net Cash
Flows

Principal changes in the pro forma standardized measure of discounted
future net cash flows attributable to pro forma reserves for the year ended
December 31, 1995 are as follows, assuming consummation of the Transaction as of
January 1, 1995:

<TABLE>
<S> <C>
Devon's actual beginning balance as of December 31, 1994.............. $ 358,206,000
Purchase of reserves through the Transaction.......................... 265,630,000
Sales of oil, gas and NGLs, net of production costs................... (153,433,000)
Net changes in prices and production costs............................ 60,498,000
Extensions, discoveries, and improved recovery, net of future
development costs................................................... 22,308,000
Purchase of reserves, net of future development costs................. 53,519,000
Development costs incurred during the period which reduced future
development costs................................................... 43,810,000
Revisions of quantity estimates....................................... 7,397,000
Sales of reserves in place............................................ (7,933,000)
Accretion of discount................................................. 66,384,000
Net change in income taxes............................................ (30,641,000)
Other, primarily changes in timing.................................... (1,556,000)
-------------
Pro Forma ending balance.............................................. $ 684,189,000
=============
</TABLE>

33
<PAGE> 39

DEVON'S SELECTED FINANCIAL DATA

The following selected financial information (not covered by the
independent auditors' report) should be read in conjunction with "Devon
Management's Discussion and Analysis of Financial Condition and Results of
Operations," and Devon's consolidated financial statements and the notes thereto
included elsewhere herein.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995(1) 1996
-------- -------- -------- -------- -------- -------- --------
(THOUSANDS, EXCEPT PER SHARE DATA, PER UNIT DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Oil sales............................... $ 9,436 $ 27,329 $ 38,395 $ 38,086 $ 55,290 $ 26,365 $ 35,652
Gas sales............................... 19,091 39,973 54,876 56,372 50,732 19,453 28,834
NGL sales............................... -- 1,370 4,544 4,908 6,404 3,034 5,991
Other revenue........................... 1,815 2,892 942 1,407 877 561 869
-------- -------- -------- -------- -------- -------- --------
Total revenues.................... 30,342 71,564 98,757 100,773 113,303 49,413 71,346
Lease operating expenses................ 8,689 18,430 26,401 24,521 27,289 13,319 15,173
Production taxes........................ 1,912 4,600 6,924 6,899 6,832 3,233 4,488
Depreciation, depletion and
amortization.......................... 7,844 19,894 28,409 34,132 38,090 19,059 20,588
General and administrative expenses..... 5,832 6,510 7,640 8,425 8,419 4,390 4,525
Interest expense........................ 2,209 2,644 3,422 5,439 7,051 3,527 4,942
Reduction of carrying value of oil and
gas properties........................ 25,000 -- -- -- -- -- --
Net earnings (loss)..................... (15,024) 14,615 20,486(2) 13,745 14,502 3,471 12,329
Net earnings (loss) per share:
Assuming no dilution.................. (1.99) 0.94 0.98(2) 0.64 0.66 0.16 0.56
Assuming full dilution................ (1.99) 0.90 0.98(2) 0.64 0.66 0.16 0.56
Cash dividends:
Per preferred share................... 1.94 1.46 -- -- -- -- --
Per common share...................... -- -- 0.09 0.12 0.12 0.06 0.06
Weighted average common shares
outstanding........................... 8,687 13,802 20,822 21,552 22,074 22,052 22,117
Ratio of earnings to fixed charges(3):
Actual................................ -- 7.97 8.24 4.80 4.54 2.62 5.29
As adjusted(4)........................ 3.09 1.77 5.07
BALANCE SHEET DATA
Total assets............................ $102,107 $225,972 $285,553 $351,448 $421,564 $366,789 $450,610
Long-term debt.......................... 32,000 54,450 80,000 98,000 143,000 95,000 155,000
Stockholders' equity.................... 53,015 153,267 172,900 206,406 219,041 208,644 230,202
CASH FLOW DATA
Net cash provided by operating
activities............................ $ 9,320 $ 30,499 $ 63,957 $ 46,384 $ 61,276 $ 27,553 $ 35,079
EBITDA(5)(6)............................ 13,908 42,024 57,792 60,928 70,763 28,470 47,161
Cash margin(6)(7)....................... 11,650 38,140 52,893 55,074 59,217 24,709 39,406
PRODUCTION, PRICE AND OTHER DATA
Production:
Oil (MBbls)........................... 484 1,446 2,337 2,467 3,300 1,541 1,831
Gas (MMcf)............................ 15,398 28,374 35,598 39,335 36,886 19,356 17,814
NGLs (MBbls).......................... -- 112 411 501 600 272 451
MBoe(8)............................... 3,050 6,287 8,681 9,524 10,047 5,039 5,251
Average prices:
Oil (Per Bbl)......................... $ 19.49 $ 18.89 $ 16.43 $ 15.44 $ 16.75 $ 17.11 $ 19.47
Gas (Per Mcf)......................... 1.24 1.41 1.54 1.43 1.38 1.01 1.62
NGLs (Per Bbl)........................ -- 12.28 11.06 9.79 10.68 11.16 13.30
Per Boe(8)............................ 9.35 10.92 11.27 10.43 11.19 9.69 13.42
Costs per Boe:
Operating costs....................... 3.48 3.66 3.84 3.30 3.40 3.28 3.74
DD&A of oil and gas properties........ 2.41 3.08 3.16 3.45 3.65 3.65 3.76
General and administrative expenses... 1.91 1.04 0.88 0.89 0.84 0.87 0.86
</TABLE>

- - - ---------------

(1) The results presented for the six months ended June 30, 1995 do not include
the effect of the San Juan Basin Transaction. This transaction was effective
January 1, 1995, but recognition of the financial effects of the transaction
on Devon's operations was deferred until the third quarter of 1995 when a
significant contingency was favorably resolved. The cumulative nine-month
effect of the San Juan Basin Transaction was recorded entirely in the third
quarter of 1995. See "Devon Management's Discussion and Analysis of
Financial Condition and Results of Operations" and note 3 to Devon's
consolidated financial statements included elsewhere herein for certain pro
forma financial information which assumes the financial effects of the San
Juan Basin Transaction were recorded effective January 1, 1995.

(2) Net earnings for 1993 include the cumulative effect of a required change in
the method of accounting for income taxes in 1993 which provided earnings of
$1.3 million, or $0.06 per share.

34
<PAGE> 40

(3) For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of earnings before income taxes and cumulative effect of
accounting change, plus fixed charges; and (ii) fixed charges consist of
interest expense incurred, amortization of debt expense relating to any
indebtedness, and one-third of rental expense estimated to be attributable
to interest. Fixed charges were in excess of earnings in 1991 in the amount
of $21.1 million. This was caused by the $25 million non-cash reduction in
the carrying value of oil and gas properties in 1991.

(4) The "as adjusted" ratios are calculated using adjusted amounts of earnings
and fixed charges under the assumption that the proceeds from the offering
of the Convertible Preferred Securities were applied toward Devon's
long-term debt outstanding at the beginning of the periods shown. The
adjusted amounts of fixed charges are calculated using the annual
distribution rate of 6 1/2% on the Convertible Preferred Securities.

(5) Earnings before interest, taxes, depreciation, depletion and amortization.

For the years ended December 31, 1991, 1992, 1993, 1994 and 1995, and the
six months ended June 30, 1995 and 1996, net cash used in investing
activities was $10.2 million, $140.6 million, $74.2 million, $73.4 million,
$110.6 million, $22.8 million and $41.2 million, respectively. For these
same periods, net cash provided (used) by financing activities was $1.3
million, $107.9 million, $24.2 million, $15.8 million, $49.8 million, ($4.2)
million and $11.4 million, respectively.

(7) "Cash margin" equals total revenues less cash expenses. Cash expenses are
all expenses other than the non-cash expenses of depreciation, depletion and
amortization and deferred income tax expense. Cash margin measures the net
cash which is generated by a company's operations during a given period,
without regard to the period such cash is actually physically received or
spent by the company. This margin ignores the non-operational effect on a
company's "net cash provided by operating activities", as measured by
generally accepted accounting principles, from a company's activities as an
operator of oil and gas wells. Such activities produce net increases or
decreases in temporary cash funds held by the operator which have no effect
on net earnings of the company.

KERR-MCGEE PROPERTIES' SELECTED FINANCIAL DATA

The following selected financial information (not covered by the report of
independent public accountants) should be read in conjunction with "Kerr-McGee
Management's Discussion and Analysis of Results of Operations" and the
statements of revenues and direct operating expenses and the notes thereto for
the Kerr-McGee Properties included elsewhere herein.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------ -----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT PER UNIT DATA)
OPERATING RESULTS
Oil sales........................... $ 67,852 $ 46,366 $ 56,651 $28,386 $33,665
Gas sales........................... 65,722 65,545 44,222 22,422 28,450
NGL sales........................... 4,266 3,493 3,659 1,979 2,122
Other revenue....................... 4,276 3,805 3,747 2,599 1,562
-------- -------- -------- ------- -------
Total revenue............... 142,116 119,209 108,279 55,386 65,799
Lease operating expenses............ 28,064 23,713 26,265 13,089 12,274
Production taxes.................... 9,829 8,021 6,658 2,885 4,255
Excess of revenues over direct
operating expenses............... 104,223 87,475 75,356 39,412 49,270
PRODUCTION, PRICE AND OTHER DATA
Production:
Oil (MBbls)...................... 4,113 3,266 3,439 1,714 1,786
Gas (MMcf)....................... 39,100 38,000 37,400 19,449 18,602
NGLs (MBbls)..................... 381 330 309 182 182
MBoe............................. 11,011 9,929 9,981 5,137 5,068
Average prices:
Oil (Per Bbl).................... $ 16.50 $ 14.20 $ 16.47 $ 16.56 $ 18.85
Gas (Per Mcf).................... 1.68 1.72 1.18 1.15 1.53
NGLs (Per Bbl)................... 11.20 10.58 11.84 10.87 11.66
Per Boe.......................... 12.52 11.62 10.47 10.28 12.68
Operating costs per Boe............. 3.44 3.20 3.30 3.11 3.26
</TABLE>

35
<PAGE> 41

DEVON MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis addresses changes in Devon's
financial condition and results of operations during the three year period of
1993 through 1995 and the six month periods ended June 30, 1995 and 1996.
Reference is made to "Selected Financial Data" and the consolidated financial
statements included elsewhere herein.

OVERVIEW

Many of the major trends for Devon have been positive in recent history.
During the three year period ended December 31, 1995:

- Devon's major assets, oil and gas reserves, have grown 87% to 115 MMBoe,

- annual oil and gas production has risen 60% (from that of 1992) to 10
MMBoe,

- total revenues for 1995 were 58% higher than those of 1992, and

- cash margins(1) have expanded to the $50 million to $60 million range.

However, non-cash expenses, such as higher depreciation, depletion and
amortization and volatile oil and gas prices, have produced more variable
results in net earnings. Net earnings were down in 1994 compared to 1993, but up
in 1995. Even so, the net earnings of $14.6 million (1992), $20.5 million
(1993), $13.7 million (1994) and $14.5 million (1995) were all substantially
above the previous best year in Devon's history of $4.4 million in 1981.

Devon's liquidity and financial condition also have been strong during the
last three years compared to historical levels. After the February 1996 annual
review by its banks, Devon's credit lines have increased 117% since 1992 to $260
million. Of this, $105 million was unused as of June 30, 1996. (Proceeds from
the offering of the TCP Securities in July, 1996, were used to repay borrowings
made under the credit lines, increasing the unused portion to $260 million). Net
cash provided by operating activities has been $64.0 million, $46.4 million and
$61.3 million for 1993, 1994 and 1995, respectively, compared to an average of
$14 million for the years 1988 through 1992.

Devon has taken several actions in recent years to achieve its growth in
operations and financial condition:

- Devon acquired a substantial suite of properties primarily located in the
Permian Basin in July, 1992. This $130 million acquisition caused
significant improvement in both oil and gas production and in revenues
from the second half of 1992 onward.

- Devon acquired $54 million of coal seam gas properties in the San Juan
Basin in June, 1993. These properties added to Devon's already
significant coal seam gas properties and production in the San Juan
Basin.

- - - ---------------

(1) "Cash margin" equals Devon's total revenues less cash expenses. Cash
expenses are all expenses other than the non-cash expenses of depreciation,
depletion and amortization and deferred income tax expense. Cash margin is
an indicator which is commonly used in the oil and gas industry. This margin
measures the net cash which is generated by a company's operations during a
given period, without regard to the period such cash is actually physically
received or spent by the company. This margin ignores the non-operational
effects on a company's "net cash provided by operating activities," as
measured by generally accepted accounting principles, from a company's
activities as an operator of oil and gas wells. Such activities produce net
increases or decreases in temporary cash funds held by the operator which
have no effect on net earnings of the company. Cash margin should be used as
a supplement to, and not as a substitute for, net earnings and net cash
provided by operating activities (as disclosed in the consolidated financial
statements) in analyzing Devon's results of operations and liquidity.

36
<PAGE> 42

- Devon acquired the properties of Alta Energy Corporation through a $72
million merger in May, 1994 (the "1994 Merger"). The oil and gas
properties acquired through the merger (the "Alta Properties") have added
substantial oil and gas reserves, production and revenues to Devon's
Permian Basin position.

- In 1995, Devon entered into a transaction covering substantially all of
its San Juan Basin coal seam gas properties (the "San Juan Basin
Transaction"). In the year 1995 and the first three months of 1996, this
transaction boosted Devon's revenues by $11.4 million and $2.9 million,
respectively. This transaction also added $44 million to Devon's pre-tax
10% Present Value of year-end 1995 oil and gas reserves.

- Devon acquired certain Wyoming oil and natural gas properties and a gas
processing plant (the "Worland Properties") for approximately $50 million
in December, 1995. Additional interests in the Worland Properties were
acquired in the first quarter of 1996 for $4.3 million. The Worland
Properties added approximately 160,000 Boe to Devon's production totals
in the first three months of 1996.

- Devon has been successful during the last three years in its drilling
efforts. Devon has spent almost $125 million to drill and complete 384
wells, of which 368 were completed as producers. Most of these efforts
have been centered around the 1992 Permian Basin acquisition and the 1994
Merger. These properties, along with the Worland Properties, are expected
to account for some 60% of Devon's 1996 drilling and development budget
of $70 million to $80 million.

- Devon's acquisition and drilling efforts during the last three years have
added 74.5 MMBoe of proved reserves to its asset base. Combined with 13.7
MMBoe of upward revisions to its reserve estimates, Devon's total reserve
additions of 88.2 MMBoe during the past three years were 312% of its
production of 28.3 MMBoe.

- Devon has sought to control its well operating expenses in part by
selling marginal and non-strategic properties. Though the absolute dollar
amount of well operating expenses increased by almost 50% since 1992 as
Devon expanded its production and operations, Devon's sales of
approximately 2,900 wells during the period helped to lower the expenses
per unit of production by 7%. The combination of expanding its
significant properties and selling the minor ones has increased Devon's
economies of scale and overall efficiency.

- Devon's reserve additions over the past three years have also increased
capital resources via increases in Devon's lines of credit. Since the end
of 1992, Devon's credit lines have increased by $140 million to a total
of $260 million as of June 30, 1996. Upon completion of the offering of
the TCP Securities in July, 1996, the unused portion of Devon's credit
lines rose to $260 million.

37
<PAGE> 43

RESULTS OF OPERATIONS -- INTERIM PERIODS

Oil, gas and NGL revenues were up 44% for the six months ended June 30,
1996, compared to the 1995 corresponding period. Had the 1995 period included
the effect of the San Juan Basin Transaction (see note 2 to the consolidated
financial statements included elsewhere herein), then oil, gas and NGL revenues
would have been up 29% for the six months ended June 30, 1996. The relative
contributions of production and price changes to the quarterly comparisons, both
with and without the effect of the San Juan Basin Transaction on 1995's first
six months, are shown in the tables below.

AVERAGE PRICES
Oil (Per Bbl)....................... $ 17.11 $ 19.47 +14% $ 17.11 $ 19.47 +14%
Gas (Per Mcf)....................... 1.01 1.62 +60% 1.35 1.62 +20%
NGL (Per Bbl)....................... 11.16 13.30 +19% 11.16 13.30 +19%
Oil, Gas and NGLs (Per Boe)......... 9.69 13.42 +38% 11.10 13.42 +21%

REVENUES
Oil................................. $26,365 $35,652 +35% $26,365 $35,652 +35%
Gas................................. 19,453 28,835 +48% 25,373 28,835 +14%
NGLs................................ 3,034 5,991 +97% 3,034 5,991 +97%
------- ------- ------- -------
Combined............................ $48,852 $70,478 +44% $54,772 $70,478 +29%
======= ======= ======= =======
</TABLE>

- - - ---------------

(1) The 1995 column in this table reflects the results actually reported in the
first half of 1995. These figures do not include the first half's effect of
the San Juan Basin Transaction. This transaction was effective January 1,
1995, but recognition of the financial effects of the transaction on Devon's
operations was deferred until the third quarter of 1995 when a significant
contingency was favorably resolved. The cumulative nine-month effect of the
San Juan Basin Transaction was recorded entirely in the third quarter of
1995.

(2) The 1995 column in this table presents the results of the first half of 1995
which would have been reported if there had been no contingency at the time
the San Juan Basin Transaction was executed.

OIL REVENUES. Oil revenues increased by $9.3 million, or 35%, in the first
half of 1996. Production gains of 290,000 barrels, or 19%, added $5.0 million of
oil revenues in the 1996 period. An increase of $2.36 per barrel, or 14%, in the
average oil price added the remaining $4.3 million of increased oil revenues.

Approximately 88% of the production gains were from the Grayburg-Jackson
Field acquired in May 1994. As Devon's development of this field has progressed,
more wells have come on line and the initial stage of a waterflood has begun
since the first quarter of 1995. The Grayburg-Jackson Field produced
approximately 576,000 barrels in the first half of 1996. This is an increase of
255,000 barrels, or 79%, compared to the 321,000 barrels produced in the first
six months of 1995.

GAS REVENUES. Gas revenues increased by $9.4 million, or 48%, in the first
half of 1996. An increase in the average gas price of $0.61 per Mcf, or 60%,
added $10.9 million to gas sales in the first half of 1996. This was partially
offset by a $1.5 million reduction from a drop in gas production of 1.5 Bcf, or
8%. The San Juan Basin Transaction added $5.4 million to 1996's first half gas
sales, which resulted in an increase of $0.30 per Mcf in Devon's total gas
price. As discussed previously, the effects of this transaction on 1995's
results were not recorded until the third quarter of that year. Therefore,
1995's first half results as reported in the consolidated

38
<PAGE> 44

financial statements do not include any effect of the San Juan Basin
Transaction. As shown in the above tables, if this transaction had been recorded
in the first half of 1995, gas sales for the first six months of 1996 would have
exceeded gas sales for the first six months of 1995 by $3.5 million.

Coal seam gas averaged $1.36 per Mcf in the first half of 1996 compared to
$0.73 per Mcf in 1995's first half. The San Juan Basin Transaction added $0.60
per Mcf to the 1996 average price. The average price for conventional gas
production in the first half of 1996 was $1.88 per Mcf. This compares to 1995's
first half average for conventional gas production of $1.40 per Mcf.

Coal seam gas production in 1996's first half was 9.0 Bcf, which was down
by 2.4 Bcf from the 11.4 Bcf produced in the first half of 1995. Approximately
0.6 Bcf of such decrease was due to the fact that a small portion of Devon's
coal seam gas interest was sold as part of the San Juan Basin Transaction. The
effect of this sold interest is reflected in 1996's production quantities, but
the effect on the first half of 1995 was not recorded until the third quarter as
previously discussed.

Conventional gas production increased by 0.8 Bcf from 8.0 Bcf in 1995's
first half to 8.8 Bcf in the first half of 1996. The additional interests in the
Worland Properties which were acquired in December 1995 and the first half of
1996 added 1.1 Bcf to 1996's conventional production.

NGL REVENUES. NGL revenues increased by $3.0 million, or 97%, in the first
half of 1996. An increase in production of 179,000 barrels, or 66%, added $2.0
million to 1996 revenues. The additional interests in the Worland Properties
accounted for 110,000 barrels of the increased production. The remaining $1.0
million increase in NGL revenues was caused by a price increase of $2.14 per
barrel, or 19%.

PRODUCTION AND OPERATING EXPENSES. Production and operating expenses in the
first half of 1996 varied compared to the first half of 1995 as shown in the
tables below.

<TABLE>
<CAPTION>
ACTUAL REPORTED RESULTS(1) ADJUSTED RESULTS(2)
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1995 1996 CHANGE 1995 1996 CHANGE
------- ------- ------ ------- ------- ------
(ABSOLUTE AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ABSOLUTE
Recurring operations and maintenance
expenses......................... $11,169 $13,380 +20% $11,143 $13,380 +20%
Well workover expenses.............. 2,150 1,793 -17% 2,150 1,793 -17%
Production taxes.................... 3,233 4,488 +39% 3,197 4,488 +40%
------- ------- ------- -------
Total production and
operating expenses........ $16,552 $19,661 +19% $16,490 $19,661 +19%
======= ======= ======= =======
PER BOE
Recurring operations and maintenance
expenses......................... $ 2.21 $ 2.55 +15% $ 2.26 $ 2.55 +13%
Well workover expenses.............. 0.43 0.34 -21% 0.43 0.34 -21%
Production taxes.................... 0.64 0.85 +33% 0.65 0.85 +31%
------- ------- ------- -------
Total production and
operating expenses........ $ 3.28 $ 3.74 +14% $ 3.34 $ 3.74 +12%
======= ======= ======= =======
</TABLE>

- - - ---------------

(1) The 1995 column in this table reflects the results actually reported in the
first half of 1995. These figures do not include the first half's effect of
the San Juan Basin Transaction. This transaction was effective January 1,
1995, but recognition of the financial effects of the transaction on
Devon's operations was deferred until the third quarter of 1995 when a
significant contingency was favorably resolved. The cumulative nine-month
effect of the San Juan Basin Transaction was recorded entirely in the third
quarter of 1995.

39
<PAGE> 45

Recurring operations and maintenance expenses increased by $2.2 million, or
20%, in the first half of 1996. The additional interests in the Worland
Properties which were acquired in the fourth quarter of 1995 and the first half
of 1996 accounted for approximately $1.2 million of the increase. Also, as Devon
has continued development of the properties acquired in the 1994 Merger, most
notably in the Grayburg-Jackson Field, more wells have come on line during the
twelve months ended June 30, 1996. Therefore, the recurring expenses incurred on
these properties increased by $0.5 million in the first half of 1996 compared to
the same period in 1995.

Production taxes increased by $1.3 million, or 39%, in the 1996 period.
This increase was due to the increase in combined oil, gas and NGL revenues.
Excluding the revenues generated by the San Juan Basin Transaction which are not
subject to production taxes, revenues in the first half of 1996 were up by 33%
compared to the first half of 1995.

On a per unit of production basis, the recurring expenses per Boe were up
by $0.34 per Boe, or 15%, in the first half of 1996. This is primarily due to
the increase in Devon's mix of oil/gas production toward more oil production. Of
Devon's total Boe production in the first half of 1996, 35% was oil production
compared to 31% in the first half of 1995. Oil wells are generally more
expensive to operate on a per unit of production basis. However, oil wells also
produce more revenues per unit of production than gas wells.

Production taxes per unit of production increased by $0.21 per Boe, or 33%,
in the first half of 1996. This is consistent with the increase in the average
price per Boe received in the 1996 period. Excluding the effect on the 1996
average price from the San Juan Basin Transaction, Devon's total revenues per
Boe increased by 28% in the first half of 1996.

DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSES ("DD&A"). Oil and gas
property related DD&A increased $1.3 million, or 7%, from $18.4 million in the
first half of 1995 to $19.7 million in the first half of 1996. The increase in
total oil, gas and NGL production of 212,000 Boe, or 4%, accounted for $0.8
million of the increased DD&A. The remaining $0.5 million of increase was caused
by a 3% increase in the DD&A rate from $3.65 per Boe in 1995 to $3.76 per Boe in
1996.

GENERAL AND ADMINISTRATIVE EXPENSES ("G&A"). G&A increased $0.1 million, or
3%, in the first half of 1996. The primary reason for the increase was a change
in the second quarter of 1995 in the method used to calculate overhead
reimbursements on certain properties operated by Devon. This change, which was
retroactive to the prior two years, reduced G&A in the first half of 1995 by
$0.2 million. Excluding the effect of this change, G&A for the first half of
1996 was $0.1 million lower than the first half of 1995.

INTEREST EXPENSE. Interest expense increased $1.4 million, or 40%, in the
first half of 1996. The average debt balance outstanding rose from $94.3 million
in the first half of 1995 to $151.1 million in the first half of 1996. This
increase in average debt outstanding, which was primarily due to the funds
borrowed to acquire the Worland Properties, caused interest expense in 1996 to
increase by $2.1 million. This increase was partially offset by a $0.7 million
decrease due to lower interest rates in 1996. The annualized interest rate on
the debt outstanding in 1996 was 6.2%, compared to 6.8% in the first half of
1995. The overall average interest rate (including the effect of various fees
paid to the banks and the amortization of certain loan costs) during 1996's
first six months was 6.6%, compared to an overall rate in the first half of 1995
of 7.5%.

Devon entered into an interest rate swap agreement in the second quarter of
1995, and terminated the agreement on July 1, 1996, for a gain of $0.8 million.
This gain will be recognized ratably in Devon's operating results as a reduction
to interest expense during the period from July 1, 1996, to June 18, 1998 (the
original expiration date of the swap agreement).

INCOME TAXES. During interim periods, income tax expense is based on the
estimated effective tax rate which is expected for the entire fiscal year. The
estimated effective tax rate in the first half of 1996 was 43%, compared to 41%
in the first half of 1995. The increase in the 1996 rate was due to the San Juan
Basin Transaction. The 41% rate estimated in 1995 was without the effect of such
transaction, which was not recorded until the third quarter of 1995. After this
transaction was recorded, the 1995 effective financial income tax rate was 43%,
the same as the rate currently estimated for 1996.

40
<PAGE> 46

RESULTS OF OPERATIONS -- FISCAL YEARS

Changes in oil, gas and NGL production, prices and revenues from 1993 to
1995 are shown in the table below.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 1995
1993 VS 1993 1994 VS 1994 1995
------- ------- ------- ------- --------
($ THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
PRODUCTION
Oil (MBbls).................................. 2,337 +6% 2,467 +34% 3,300
Gas (MMcf)................................... 35,598 +10% 39,335 -6% 36,886
NGLs (MBbls)................................. 411 +22% 501 +20% 600
Oil, Gas and NGLs (MBoe)..................... 8,681 +10% 9,524 +5% 10,047

AVERAGE PRICES
Oil (per Bbl)................................ $ 16.43 -6% $ 15.44 +8% $ 16.75
Gas (per Mcf)................................ 1.54 -7% 1.43 -3% 1.38
NGLs (per Bbl)............................... 11.06 -11% 9.79 +9% 10.68
Oil, Gas and NGLs (per Boe).................. 11.27 -7% 10.43 +7% 11.19

REVENUES
Oil.......................................... $38,395 -1% $38,086 +45% $ 55,290
Gas.......................................... 54,876 +3% 56,372 -10% 50,732
NGLs......................................... 4,544 +8% 4,908 +30% 6,404
------- ------- --------
Combined..................................... $97,815 +2% $99,366 +13% $112,426
======= ======= ========
</TABLE>

OIL REVENUES 1995 vs. 1994. Oil revenues rose $17.2 million in 1995.
Substantial gains in production added $12.9 million to revenues in 1995, while
higher average prices added the remaining $4.3 million.

The Alta Properties produced 843,000 barrels in 1995, a 239% increase from
the 249,000 barrels which were produced during Devon's ownership for the last
seven months of 1994. Production from Devon's other oil properties increased 11%
in 1995, from 2,218,000 barrels in 1994 to 2,457,000 barrels in 1995.

1994 vs. 1993. Oil revenues were essentially unchanged from 1993 to 1994. A
130,000 barrel boost in production added $2.1 million to oil revenues.
Unfortunately, a decrease in oil prices subtracted $2.4 million.

The Alta Properties added 249,000 barrels of additional production during
the last seven months of 1994, while Devon's other properties accounted for a
net decrease of approximately 119,000 barrels in 1994 due to the effect of
property sales in 1993. Devon sold various minor, marginally profitable or
non-strategic properties throughout 1993. These properties produced
approximately 173,000 barrels of oil in 1993.

GAS REVENUES 1995 vs. 1994. Gas revenues decreased $5.6 million, or 10%, in
1995, due to a combination of lower production and prices. Lower production
accounted for $3.5 million of the revenue decrease, while lower gas prices
accounted for the remaining $2.1 million.

Gas revenues in 1995 were down despite the positive effect of the 1995 San
Juan Basin Transaction. Such transaction boosted 1995's gas revenues by $11.4
million, and raised the average prices for 1995 coal seam gas and total gas
production by $0.61 and $0.35 per Mcf, respectively. See note 3 to the
consolidated financial statements included elsewhere in this Proxy Statement for
a detailed discussion of the San Juan Basin Transaction.

Coal seam gas production declined by 5%, from 22.0 Bcf in 1994 to 20.8 Bcf
in 1995. This decline of 1.2 Bcf was due to the San Juan Basin Transaction
which, among other things, included the sale of a small portion of Devon's coal
seam gas properties.

The average realized coal seam gas price rose by 13%, from $1.17 per Mcf in
1994 to $1.32 per Mcf in 1995. The $0.61 per Mcf increase from the San Juan
Basin Transaction more than offset a $0.46 per Mcf price drop at the wellhead.
Total coal seam gas revenues were $27.5 million in 1995 versus $25.7 million in
1994.

41
<PAGE> 47

Coal seam gas revenues in 1995 included $14.7 million of wellhead sales and
$12.8 million of revenues attributable to the San Juan Basin Transaction. The
sale of the small portion of Devon's coal seam gas properties which was part of
the San Juan Basin Transaction had the effect of reducing 1995's coal seam gas
revenues by $1.4 million as compared to 1994's revenues. The $12.8 million of
additional gas sales received pursuant to the terms of the San Juan Basin
Transaction, less the $1.4 million of wellhead sales reduction as a result of
the small sale, nets to the $11.4 million increase in coal seam gas sales from
the San Juan Basin Transaction referred to in the second paragraph above.

Total conventional gas production and revenues for 1995 were 16.1 Bcf and
$23.2 million, respectively, versus 17.4 Bcf and $30.7 million in 1994. Prices
for conventional gas averaged $1.44 per Mcf in 1995 compared to 1994's average
of $1.76 per Mcf.

Production for a full year from the Alta Properties contributed a 0.6 Bcf
increase in gas production in 1995. However, this increase and others from wells
drilled in 1994 and 1995 were more than offset by reduced production from other
conventional gas wells. The primary areas where conventional production declined
in 1995 were the Ozona field and NEBU. High pipeline pressure and down time for
repairs contributed to a 0.6 Bcf reduction in Ozona production in 1995. Although
Devon does not have a significant interest in conventional gas production in
NEBU, it had been receiving more than its normal share of production through gas
balancing and also received nonrecurring payments for inventory gas in 1994. In
1995, the amounts of imbalance makeup and inventory sales declined, thus leading
to a 0.5 Bcf reduction in conventional NEBU production compared to 1994. Also,
various marginal wells sold during 1994 and 1995 accounted for a 0.6 Bcf
reduction in conventional production in 1995.

1994 vs. 1993. Gas revenues increased $1.5 million, or 3%, in 1994, as a 7%
drop in prices dampened the effect of a 10% increase in production. Gas
production increases boosted gas revenues by $5.8 million. Lower gas prices
reduced gas revenues by $4.3 million.

Approximately 2.2 Bcf of the production increase was attributable to coal
seam gas production from NEBU and the 32-9 Unit properties. NEBU production
increased from 18.2 Bcf in 1993 to 18.7 Bcf in 1994. Production from the 32-9
Unit properties increased from 1.6 Bcf in 1993 to 3.3 Bcf in 1994 due to the
fact that such properties were acquired by Devon in the middle of 1993, and
therefore contributed only six months of production to Devon's 1993 totals.

Total coal seam gas production and revenues for 1994 were 21.9 Bcf and
$25.7 million, respectively, versus 19.8 Bcf and $27.7 million for 1993. Prices
for coal seam gas averaged $1.17 for 1994 versus $1.40 in 1993. The price per
Mcf for coal seam gas is less than Devon's conventional gas (i.e., gas produced
from other than coal formations) primarily due to the former's low Btu content
and the costs of transportation and removing carbon dioxide. These adjustments
have been taken into account in calculating the coal seam sales prices referred
to in this discussion. Beginning in 1995, as discussed above, the San Juan Basin
Transaction increased the coal seam price to a level much closer to Devon's
conventional gas prices.

Total conventional gas production and revenues for 1994 were 17.4 Bcf and
$30.7 million, respectively, versus 15.8 Bcf and $29.2 million in 1993. Prices
for conventional gas averaged $1.76 per Mcf compared to $1.84 per Mcf in 1993.

Approximately 0.6 Bcf of conventional gas production was added during 1994
from the Alta Properties. Also, approximately 1.5 Bcf of additional 1994
production was contributed by the Ozona field and related properties in the
Permian Basin. The Ozona properties were part of the Permian Basin properties
acquired in July 1992. However, prior to September 1993, substantially all of
the gas produced from such properties was used to satisfy a recoupment
obligation created by the prior owner of the properties. Therefore, Devon only
began recognizing production and gas revenues from these properties in September
1993. More importantly, production from the Ozona properties more than doubled
due to Devon's drilling efforts in this field.

Approximately 0.9 Bcf of gas was produced in 1993 from properties which
were sold during 1993. Therefore, these properties contributed no production in
1994. Also, gas production declined 0.2 Bcf in 1994 due to properties which were
sold in 1994 and therefore did not produce for the full year as they did in
1993.

42
<PAGE> 48

NGL REVENUES 1995 vs. 1994. NGL revenues increased by $1.5 million in 1995.
Higher production contributed $1.0 million of the increase, while the remaining
$0.5 million of increased revenues was attributable to higher average prices.

The Alta Properties accounted for 52,000 Boe of the increased production.
Such properties produced 84,000 Boe in 1995, compared to 32,000 Boe during the
seven months Devon owned them in 1994.

1994 vs. 1993. A 90,000 Boe increase in NGL production raised revenues by
$1.0 million. A decrease in prices subtracted $0.6 million.

Approximately 32,000 Boe of production was added during 1994 from the Alta
Properties. The remaining increase was primarily attributable to Devon's
drilling efforts in 1993 and 1994.

EXPENSES. The details of the changes in pre-tax expenses between 1993 and
1995 are shown in the table below.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1995
1993 VS 1993 1994 VS 1994 1995
------- ------- ------- ------- -------
(ABSOLUTE AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ABSOLUTE(1)
Production and operating expenses:
Lease operating expenses....................... $26,401 -7% $24,521 +11% $27,289
Production taxes............................... 6,924 -- 6,899 -1% 6,832
Depreciation, depletion and amortization
attributable to:
Oil and gas production......................... 27,420 +20% 32,861 +11% 36,640
Non-oil and gas properties..................... 989 +29% 1,271 +14% 1,450
General and administrative expenses............... 7,640 +10% 8,425 -- 8,419
Interest expense.................................. 3,422 +59% 5,439 +30% 7,051
------- ------- -------
Total..................................... $72,796 +9% $79,416 +10% $87,681
======= ======= =======
PER BOE(1)
Production and operations expenses:
Lease operating expenses....................... $ 3.04 -15% $ 2.57 +6% $ 2.72
Production taxes............................... 0.80 -9% 0.73 -7% 0.68
Depreciation, depletion and amortization
attributable to:
Oil and gas production......................... 3.16 +9% 3.45 +6% 3.65
Non-oil and gas properties..................... 0.11 +18% 0.13 +8% 0.14
General and administrative expenses............... 0.88 +1% 0.89 -6% 0.84
Interest expense.................................. 0.40 +43% 0.57 +23% 0.70
------- ------- -------
Total..................................... $ 8.39 -1% $ 8.34 +5% $ 8.73
======= ======= =======
</TABLE>

- - - ---------------------

(1) Though per unit general and administrative expenses, interest expense and
non-oil and gas property depreciation may be helpful for profitability trend
analysis, these expenses are not directly attributable to production
volumes. Rather they are an artifact of corporate structure, capitalization
and financing, and non-oil and gas property fixed assets, respectively.

43
<PAGE> 49

PRODUCTION AND OPERATING EXPENSES. The details of the changes in production
and operating expenses between 1993 and 1995 are shown in the table below.

1995 vs. 1994. Recurring lease operating expenses increased by $2.2
million, or 10%, in 1995. Approximately $1.6 million of the increase was related
to the Alta Properties, whose costs increased from $1.9 million in 1994 (for the
last seven months of the year during which they were owned by Devon) to $3.5
million in 1995. However, on a cost per unit of production basis, the Alta
Properties' recurring lease operating expenses dropped from $4.96 per Boe in
1994 to $3.16 per Boe in 1995. These per unit costs compare to the averages for
Devon's other properties of $2.15 per Boe in 1994 and $2.28 per Boe in 1995.

1994 vs. 1993. Recurring lease operating expenses dropped by $0.7 million,
or 3%, in 1994. The positive effect from the sale of over 2,000 wells in 1993
was partially offset by additional expenses related to the Alta Properties. The
Alta Properties are primarily oil producing properties, which are traditionally
more expensive to operate than gas producing properties. For the year 1994, the
Alta Properties incurred $1.9 million of recurring lease operating expenses, or
$4.96 per Boe, compared to $19.7 million of such costs, or $2.15 per Boe,
incurred on Devon's other properties.

Workover expenses dropped by $1.1 million, or 28%, in 1994. Most of the
reduction occurred in certain Permian Basin properties acquired in 1992. A
substantial number of workover projects were completed on such properties in
1993 as Devon became more familiar with these properties following the
acquisition. The need for workovers on these properties declined in 1994.

DEPRECIATION, DEPLETION AND AMORTIZATION. Devon's largest non-cash expense
is depreciation, depletion and amortization ("DD&A"). DD&A of oil and gas
properties is calculated as the percentage of total proved reserve volumes
produced during the year, multiplied by the net capitalized investment in those
reserves including estimated future development costs (the "depletable base").
Generally, if reserve volumes are revised up or down, then the DD&A rate per
unit of production will change inversely. However, if capitalized costs change,
then the DD&A rate moves in the same direction. The per unit DD&A rate is not
affected by production volumes. Absolute or total DD&A, as opposed to the rate
per unit of production, generally moves in the same direction as production
volumes.

1995 vs. 1994. Oil and gas property related DD&A increased by $3.8 million,
or 11%, in 1995. Approximately $2.0 million of this increase was caused by an
increase in the DD&A rate from $3.45 per Boe in 1994 to $3.65 per Boe in 1995.
The increased DD&A rate was primarily caused by the inclusion of the Alta
Properties for a full year in 1995, compared to only seven months in 1994. The
remaining $1.8 million of the increase in oil and gas property related DD&A was
caused by the increase in total production in 1995.

1994 vs. 1993. Oil and gas property related DD&A increased $5.4 million, or
20%, in 1994. Approximately 50% of this increase was related to the increase in
combined oil, gas and NGL production in 1994. The other half of the increased
expense was due to an increase in the DD&A rate from $3.16 per Boe in 1993 to
$3.45 per Boe in 1994. The addition of the Alta Properties in 1994 was the
primary cause for the increased

44
<PAGE> 50

DD&A rate. The DD&A rate for the seven months following the addition of the Alta
Properties was $3.60 per Boe.

GENERAL AND ADMINISTRATIVE EXPENSES ("G&A") 1995 vs. 1994. G&A was constant
between 1995 and 1994. Employee salaries and related overhead burdens such as
health insurance, payroll taxes and pension expenses increased by $0.3 million,
legal fees increased by $0.3 million and abandoned acquisition costs rose by
$0.1 million. These increases were offset by a $0.6 million increase in G&A
reimbursements received from joint interest owners in Devon-operated properties
and a $0.1 million reduction in franchise taxes. Approximately $0.2 million of
the increase in G&A reimbursements related to a change in the method used to
calculate the reimbursements on certain properties, and such change was
retroactive to the prior two years. The reduction in franchise taxes resulted
from Devon's reincorporation from Delaware to Oklahoma in June 1995.

1994 vs. 1993. G&A increased approximately $0.8 million, or 10%, in 1994.
Employee salaries and related overhead burdens rose by $1.4 million, or 16%.
These increases were partially offset by a $0.3 million reduction in abandoned
acquisition costs and a $0.3 million increase in overhead reimbursements
received from joint interest owners in Devon-operated properties.

INTEREST EXPENSE 1995 vs. 1994. Interest expense increased by $1.6 million,
or 30%, in 1995. This increase was due almost exclusively to higher rates in
1995, which accounted for $1.3 million of the increased interest expense. The
interest rate on the debt outstanding during 1995 was 6.5%, compared to 1994's
rate of 5.2%. The overall interest rate (including the effect of various fees
paid to the banks and the amortization of certain loan costs) averaged 7.3% in
1995, compared to the 1994 overall rate of 5.9%.

The remaining $0.3 million of interest expense increase in 1995 was caused
by a higher average balance outstanding. The average debt balance during 1995
was $97.1 million, compared to 1994's average balance of $92.5 million.

1994 vs. 1993. Interest expense increased $2.0 million, or 59%, in 1994.
The average long-term debt balance outstanding rose from $66.6 million during
1993 to $92.5 million during 1994. The borrowings used to fund a portion of the
cash used in the Merger, along with the effect of borrowing $50.0 million at
mid-year 1993 to acquire the 32-9 Unit Properties, accounted for the increased
average debt during 1994. The interest rate on the debt outstanding increased
from 4.2% in 1993 to 5.2% in 1994. The overall interest rate rose from 5.1% in
1993 to 5.9% in 1994.

INCOME TAXES 1995 vs 1994. Devon's effective financial tax rate in 1995 was
43%, compared to the statutory federal rate of 35%. State income taxes and
certain tax aspects of the San Juan Basin Transaction were the primary factors
which increased Devon's financial tax rate. The San Juan Basin Transaction also
had a significant effect on the portion of income taxes which are current versus
deferred.

1994 vs. 1993. Devon's effective financial tax rate in 1994 was 36%
compared to the statutory federal rate of 35%. The effective financial rate rose
above the federal statutory rate primarily due to the effect of state income
taxes.

CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY

The following discussion of capital expenditures, capital resources and
liquidity should be read in conjunction with the consolidated statements of cash
flows included in the consolidated financial statements included elsewhere
herein.

CAPITAL EXPENDITURES -- INTERIM PERIODS. Cash used for capital expenditures
increased 28% from $33.4 million in the first half of 1995 to $42.6 million in
the first half of 1996. Approximately $42.2 million was spent in 1996 on
acquisitions, exploration and development costs, compared to $32.6 million spent
in the 1995 period. Drilling and development costs on the Grayburg-Jackson Field
totaled $12.6 million in the first half of 1996 compared to $16.0 million in the
first half of 1995. The 1996 capital expenditures also included $7.1 million to
acquire additional interests in the Worland Properties.

45
<PAGE> 51

CAPITAL EXPENDITURES -- FISCAL YEARS. Approximately $117.6 million of cash
was spent in 1995 for capital expenditures, of which $114.9 million was related
to the acquisition, drilling or development of oil and gas properties. Included
in this total is $50.4 million spent in December to acquire the Worland
Properties, including $0.1 million of third party costs which were capitalized
as part of the transaction. Most of the drilling and development efforts in 1995
centered in the Permian Basin, which included 183 of the 199 wells which Devon
drilled during 1995. Included in the Permian Basin activity was approximately
$30.1 million spent in the Grayburg-Jackson Field acquired in the 1994 Merger.
Devon completed 88 infill wells in the Grayburg-Jackson Field, and an additional
9 such wells were in various stages of drilling or completion as of year-end
1995. Devon also began the initial stages of a waterflood program on this field,
which the Company expects to complete in 1996. Also in 1996 the Company
commenced an additional 40-well infill drilling program in this field.

OTHER CASH USES. A $0.03 per common share dividend has been paid in each
quarter since Devon paid its initial common stock dividend in the second quarter
of 1993. This quarterly rate translates to a cash demand of $2.7 million
annually. Management expects the policy of paying a quarterly dividend to
continue. However, if distributions on the TCP Securities are suspended, no
dividends will be payable on Devon Common Stock.

CAPITAL RESOURCES AND LIQUIDITY -- INTERIM PERIODS. Net cash provided by
operating activities ("operating cash flow") was a primary source of capital and
liquidity in the first half of 1996. Operating cash flow was $35.1 million in
the 1996 period, compared to $27.6 million in the first half of 1995.

Devon's credit lines were also a source of capital and liquidity in the
first half of 1996. The total debt outstanding at the end of the second quarter
of 1996 was $155 million, up from $143 million at the beginning of 1996. In
early July 1996, the $155 million of debt outstanding under the credit lines was
eliminated. This was done primarily with the proceeds of the issuance of the TCP
Securities as discussed in note 4 to the consolidated financial statements
included elsewhere herein. Devon's credit lines allow for total borrowings of up
to $260 million. After the July 1996 payments, all $260 million was available
for future borrowings. The TCP Securities are subordinate to any balances
outstanding under Devon's credit lines. Therefore, the securities offering and
related debt repayment increase Devon's credit lines available for future
investment. The offering also effectively fixes the rate on $149.5 million of
capital, reducing the Company's exposure to future changes in interest rates.

CAPITAL RESOURCES AND LIQUIDITY -- FISCAL YEARS. Operating cash flow was
also the primary source of capital and short-term liquidity in 1995. Operating
cash flow in 1995 totaled $61.3 million, a 32% increase compared to the $46.4
million of operating cash flow generated in 1994.

In addition to operating cash flow, Devon's credit lines have been an
important source of capital and liquidity. At year-end 1995, these credit lines
totaled $205 million. Devon's 1995 borrowings from these credit lines were $143
million, leaving $62 million of credit available for future use.

Devon's San Juan Basin coal seam gas production is subject to uncertainties
regarding additional royalties and taxes. If such uncertainties are resolved in
1996, they are likely to require the use of some operating cash flow, but Devon
does not expect such amount to be material to its overall liquidity, capital
resources or net earnings. For a complete discussion of these matters, see note
11 to the consolidated financial statements contained elsewhere herein.

1996 ESTIMATES

The forward-looking statements provided in this discussion are based on
management's examination of historical operating trends, the December 31, 1995
reserve report of LaRoche & Associates independent petroleum engineers
("LaRoche"), actual operating results through June 30, 1996, data in Devon's
files and other data available from third parties. The forward-looking
statements were prepared assuming demand, curtailment, producibility and general
market conditions for Devon's oil, natural gas and NGLs for the second half of
1996 will be substantially similar to those of 1995 and the first half of 1996,
unless otherwise noted. Devon cautions that its future oil and gas production
and expenses are subject to all of the risks and uncertainties normally incident
to the exploration for and development and production of oil and gas. These

46
<PAGE> 52

risks include, but are not limited to, environmental risks, drilling risks and
the uncertainty inherent in estimating future oil and gas production or
reserves.

The acquisition of the Kerr-McGee Properties is not expected to be
consummated prior to December 31, 1996. Since the Transaction will be accounted
for using the purchase method of accounting, the Transaction will not affect
Devon's financial results until 1997. Therefore, the financial discussion of
forward-looking statements for the year 1996 does not include any effects from
the acquisition of the Kerr-McGee Properties.

Given the limitations expressed above, Devon's forward-looking statements
for 1996 are set forth below.

OIL REVENUES. Devon expects its oil production in 1996 to total between 3.5
million barrels and 3.9 million barrels. Devon expects its net oil prices will
average from between $0.25 and $0.45 above West Texas Intermediate posted prices
in 1996.

GAS REVENUES. Devon expects its total gas production in 1996 will be
between 34.6 and 38.5 Bcf. It is expected that coal seam gas production will be
17.1 Bcf to 19.4 Bcf in 1996. Devon expects production from its conventional gas
properties to total between 17.5 Bcf and 19.1 Bcf in 1996.

The incremental $0.61 per Mcf added to coal seam gas prices by the San Juan
Basin Transaction should offset a substantial portion of the negative price
effect from the low BTU content and the transportation and carbon dioxide
removal costs previously discussed. Therefore, Devon expects its 1996 coal seam
average price will be between $0.15 and $0.65 less than Texas Gulf Coast spot
averages. Devon's conventional gas is expected to average $0.15 to $0.25 per Mcf
less than Texas Gulf Coast spot prices during 1996.

NGL REVENUES. Devon expects its production of NGLs in 1996 to total between
800,000 Boe and 950,000 Boe. Included in these estimates are 240,000 Boe to
280,000 Boe estimated to be produced in 1996 from the Worland Properties.

PRODUCTION AND OPERATING EXPENSES. The addition of the Worland Properties
and the higher number of wells producing at the Grayburg-Jackson Field should be
the primary contributors to an expected increase in recurring lease operating
expenses in 1996, and the resulting higher revenues should cause gross
production taxes to also rise. Also, well workover expenses are anticipated to
increase in 1996. Future oil, gas and NGL prices have a direct effect on gross
production taxes to be incurred in 1996. Future prices could also have an effect
on whether proposed workover projects are economically feasible. These factors
contribute to the margin of error inherent in estimating future production and
operating costs. Given these uncertainties, Devon estimates that 1996's total
production and operating costs will be between $39 million and $45 million, or
between $3.50 and $4.00 per Boe.

DEPRECIATION, DEPLETION AND AMORTIZATION. The 1996 DD&A rate will depend on
numerous factors which cannot be reasonably predicted at this time. Most notable
among such factors are the amount of proved reserves which will be added from
drilling efforts in 1996 compared to the costs incurred for such efforts, and
the revisions to Devon's year-end 1995 reserve estimates which will be made
during 1996. Assuming a 1996 rate constant with 1995's rate of $3.65 per Boe,
and the estimated range from a 3% to 19% increase in total oil, gas and NGL
production discussed earlier in this section, 1996 DD&A expense (including
non-oil and gas property related DD&A) is expected to increase to approximately
$39 million to $45 million.

GENERAL AND ADMINISTRATIVE EXPENSES. G&A is expected to be between $8.8
million and $9.4 million in 1996.

INTEREST EXPENSE/DISTRIBUTIONS ON TCP SECURITIES. Devon's long-term debt
was totally retired in early July 1996 with the proceeds from the offering of
the TCP Securities and with operating cash flow. Based on Devon's estimate of
operating cash flow for the last half of the year, and assuming that no
significant acquisitions occur during this period, no significant borrowings
from Devon's credit lines are expected during the last six months of the year.
Therefore, interest expense for the last half of the year should substantially
consist of only that for the first ten days of July when debt was outstanding,
plus commitment/facility fees paid to the banks on the Company's credit lines.
The recognition of the gain from terminating the interest rate swap agreement
will partially offset the commitment/facility fees. This is expected to result
in total interest expense for the year 1996 of approximately $5.2 million.

47
<PAGE> 53

However, the TCP Securities will require $4.8 million of distributions
during the last half of the year. These distributions will be recorded as a
charge to earnings. Since these distributions are tax deductible, the net effect
of these distributions on earnings and cash flow will be similar to bank
interest expense. The $5.2 million in interest paid previously and the $4.8
million for TCP Securities distributions will produce total financing costs of
approximately $10 million for 1996.

INCOME TAXES. Devon expects its financial income tax rate in 1996 to be
between 41% and 46%. Regardless of the level of pre-tax earnings reported for
financial purposes, approximately $2 million of Devon's financial income tax
expense is "fixed" due to various aspects of the 1994 Merger and the San Juan
Basin Transaction. Therefore, if the actual amount of 1996 pre-tax earnings
differs materially from what Devon currently expects such amount to be, the
actual financial income tax rate for 1996 could fall outside of the expected
range of 41% to 46%. Also, based on Devon's current expectations of 1996 taxable
income, which are largely dependent on 1996 oil and gas prices, Devon
anticipates its current portion of 1996 income taxes will be between $3 million
and $5 million.

CAPITAL EXPENDITURES. Devon expects its 1996 capital expenditures for
drilling and development efforts will total between $70 million and $80 million,
including development projects of approximately $21 million for the
Grayburg-Jackson Field activities described above, and approximately $9 to $15
million on the Worland Properties. Devon also plans to spend $20 million to $25
million on exploration projects in the Gulf Coast and Permian Basin areas. Devon
has not given effect to any possible success associated with this $20 million to
$25 million in its oil and gas reserve or production estimates.

In addition to these 1996 capital estimates, Devon also expects to invest
an additional $6 million to $9 million in 1997 on certain of its proved
undeveloped properties, with approximately half of such amount attributable to
the Worland Properties.

Though Devon has completed at least one major acquisition in each of the
last several years, these transactions are opportunity driven. Thus, Devon does
not "budget," nor can it reasonably predict, the timing or size of such possible
acquisitions, if any.

The estimated future drilling and development activities are expected to be
funded through a combination of working capital, cash flow from operations and
borrowings from its credit lines. Devon considers these capital resources, which
are discussed in detail earlier in this section, to be more than adequate to
fund these anticipated costs.

The above estimates of future capital expenditures could be significantly
affected by dramatic swings in oil and gas prices, unanticipated delays in the
initiation or completion of the projects, changes in governmental regulations
which may affect permissible development, and possible acquisitions or mergers.

CAPITAL RESOURCES AND LIQUIDITY. The above forward-looking statements
generally estimate increases in 1996 for combined oil, gas and NGL production,
and in those expenses which affect operating cash flow. However, the amount of
net cash to be provided by operating activities in 1996 is uncertain due to the
significant effect of future oil and gas prices. It is known, however, that such
cash flow will continue to be the primary source of capital and liquidity in
1996. Operating cash flow, along with working capital and available credit, are
more than adequate to meet known capital requirements for 1996.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS. In 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation." Both of these statements were
adopted in 1996. With regard to oil and gas companies, Statement No. 121 will
have a more significant impact on those companies following the successful
efforts method of accounting, as Statement No. 121 revises the "ceiling test"
for such companies. Statement No. 121 does not affect the ceiling test for
companies such as Devon who follow the full cost method of accounting.
Therefore, such statement will not have a material impact on Devon's future
operations.

48
<PAGE> 54

With regard to Devon's stock options granted, no accounting is made until
such time as the options are exercised. At that time, the proceeds are added to
stockholders' equity, and no expense is recognized. Statement No. 123 provides
companies with the option of expensing the "fair value" of stock options
granted. Devon will not change its current accounting method regarding stock
options, and therefore Statement No. 123 will not impact Devon's future
operating results.

49
<PAGE> 55

KERR-MCGEE MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS FOR THE KERR-MCGEE PROPERTIES

SIX MONTHS ENDED JUNE 30, 1995 VS SIX MONTHS ENDED JUNE 30, 1996

Total revenues increased 19% for the 1996 interim period compared to the
1995 period. The relative contributions of production and price changes for the
two six-month periods are shown in the table below:

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1995 1996 CHANGE
------- ------- ------
<S> <C> <C> <C>
PRODUCTION
Oil (MBbls)................................................... 1,714 1,786 +4%
Gas (MMcf).................................................... 19,449 18,602 -4%
NGLs (MBbls).................................................. 182 182 --
Oil, Gas and NGLs (MBoe)...................................... 5,137 5,068 -1%

AVERAGE PRICES
Oil (Per Bbl)................................................. $ 16.56 $ 18.85 +14%
Gas (Per Mcf)................................................. 1.15 1.53 +33%
NGLs (Per Bbl)................................................ 10.87 11.66 +7%
Oil, Gas and NGLs (Per Boe)................................... 10.28 12.68 +23%

REVENUES
Oil........................................................... $28,386 $33,665 +19%
Gas........................................................... 22,422 28,450 +27%
NGLs.......................................................... 1,979 2,122 +7%
Other......................................................... 2,599 1,562 -40%
------- -------
Total................................................. $55,386 $65,799 +19%
======= =======
</TABLE>

OIL REVENUES:

Oil revenues increased $5.3 million, or 19%, in the first half of 1996. The
average price increase of $2.29 per barrel, or 14%, accounted for a $4.1 million
increase and volume increases of 72,300 barrels, or 4%, contributed $1.2 million
of the increase. Oil volumes increased primarily due to higher production from
the Fullerton and House Creek fields as a result of response to successful
waterflood projects. This was offset partially by lower production from various
fields, none of which is individually significant.

GAS REVENUES:

Gas revenues increased by $6.0 million, or 27%, in the first half of 1996.
An increase in the average gas price of $0.38 per Mcf, or 33%, added $7.0
million to gas sales in the first half of 1996. This was partially offset by a
production decline of 847 MMcf or 4%, which contributed a $1.0 million decrease.
Production from certain mature fields, such as Pouce Coupe in Alberta, Canada,
experienced normal production declines. These declines were partially offset by
a successful development drilling program at Ozona with 30 new wells
contributing to higher production. Also in April 1995, after the recovery of
injected outside substance gas, production of reservoir gas began at the Powell
Gas Unit, a miscible gas injection project, and resulted in higher production.

50
<PAGE> 56

PRODUCTION AND OPERATING EXPENSES:

Production and operating expenses in the first half of 1996 varied compared
to the first half of 1995 as shown in the table below.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1995 1996 CHANGE
------- ------- ------
<S> <C> <C> <C>
PRODUCTION AND OPERATING EXPENSES
Recurring operations and maintenance expenses................. $12,684 $12,013 -5%
Well workover expenses........................................ 405 261 -36%
Production taxes.............................................. 2,885 4,255 +47%
------- -------
Total production and operating expenses............... $15,974 $16,529 +3%
======= =======
PRODUCTION AND OPERATING EXPENSES PER BOE
Recurring operations and maintenance expenses................. $ 2.47 $ 2.37 -4%
Well workover expenses........................................ 0.08 0.05 -38%
Production taxes.............................................. 0.56 0.84 +50%
------- -------
Total production and operating expenses............... $ 3.11 $ 3.26 +5%
======= =======
</TABLE>

Total production and operating costs increased $0.6 million for the first
half of 1996. This increase was composed of insignificant increases from a
variety of fields.

YEAR ENDED DECEMBER 31, 1995 VS YEAR ENDED DECEMBER 31, 1994

Total revenues decreased 9% for the 1995 period compared to the 1994
period. The relative contributions of production and price changes for the two
periods are shown in the table below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 CHANGE
-------- -------- ------
<S> <C> <C> <C>
PRODUCTION
Oil (MBbls)................................................. 3,266 3,439 +5%
Gas (MMcf).................................................. 38,000 37,400 -2%
NGLs (MBbls)................................................ 330 309 -6%
Oil, Gas and NGLs (MBoe).................................... 9,929 9,981 +1%

AVERAGE PRICES
Oil (Per Bbl)............................................... $ 14.20 $ 16.47 +16%
Gas (Per Mcf)............................................... 1.72 1.18 -31%
NGLs (Per Bbl).............................................. 10.58 11.84 +12%
Oil, Gas and NGLs (Per Boe)................................. 11.62 10.47 -10%

REVENUES
Oil......................................................... $ 46,366 $ 56,651 +22%
Gas......................................................... 65,545 44,222 -33%
NGLs........................................................ 3,493 3,659 +5%
Other....................................................... 3,805 3,747 -2%
-------- --------
Total............................................... $119,209 $108,279 -9%
======== ========
</TABLE>

OIL REVENUES:

Oil revenues increased $10.3 million, or 22%, in 1995. An average price
increase of $2.27 per barrel, or 16%, accounted for a $7.8 million increase and
volume increases of 173,000 barrels, or 5%, contributed $2.5 million of the
increase in oil sales. Oil volumes increased primarily due to higher production
from the Fullerton and Gift fields. Production from the Fullerton waterflood
project began in September 1995. Gift's increase is attributable to the
successful drilling of two wells in late 1994 and six wells in 1995.

51
<PAGE> 57

GAS REVENUES:

Gas revenues decreased by $21.3 million, or 33%, in 1995. The average price
decrease of $0.54 per Mcf, or 31%, accounted for a $20.3 million decrease and
volume decreases of 600 MMcf, or 2%, further reduced gas sales $1.0 million in
1995. The decrease in gas sales volumes is due to normal production decline from
Pouce Coupe and other mature fields. This was offset partially by production
from the two discovery wells in the Westpark area, Holmes 1-17 and Eden 11-1.

PRODUCTION AND OPERATING EXPENSES:

Production and operating expenses in 1995 varied compared to 1994 as shown
in the table below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 CHANGE
------- ------- ------
<S> <C> <C> <C>
PRODUCTION AND OPERATING EXPENSES
Recurring operations and maintenance expenses................. $23,267 $25,261 +9%
Well workover expenses........................................ 446 1,004 +125%
Production taxes.............................................. 8,021 6,658 -17%
------- -------
Total production and operating expenses............... $31,734 $32,923 +4%
======= =======
PRODUCTION AND OPERATING EXPENSES PER BOE
Recurring operations and maintenance expenses................. $ 2.34 $ 2.53 +8%
Well workover expenses........................................ 0.05 0.10 +100%
Production taxes.............................................. 0.81 0.67 -17%
------- -------
Total production and operating expenses............... $ 3.20 $ 3.30 +3%
======= =======
</TABLE>

Total production and operating costs increased $1.2 million in 1995 due to
higher expenses at Fullerton, Gift and North Buck Draw resulting from increased
well counts and costs associated with the miscible and waterflood projects.

YEAR ENDED DECEMBER 31, 1994 VS YEAR ENDED DECEMBER 31, 1993

Total revenues decreased 16% for the 1994 period compared to the 1993
period. The relative contributions of production and price changes for the
periods are shown in the table below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 CHANGE
-------- -------- ------
<S> <C> <C> <C>
PRODUCTION
Oil (MBbls)......................................... 4,113 3,266 -21%
Gas (MMcf).......................................... 39,100 38,000 -3%
NGLs (MBbls)........................................ 381 330 -13%
Oil, Gas and NGLs (MBoe)............................ 11,011 9,929 -10%

AVERAGE PRICES
Oil (Per Bbl)....................................... $ 16.50 $ 14.20 -14%
Gas (Per Mcf)....................................... 1.68 1.72 +2%
NGLs (Per Bbl)...................................... 11.20 10.58 -6%
Oil, Gas and NGLs (Per Boe)......................... 12.52 11.62 -7%

REVENUES
Oil................................................. $ 67,852 $ 46,366 -32%
Gas................................................. 65,722 65,545 --
NGLs................................................ 4,266 3,493 -18%
Other............................................... 4,276 3,805 -11%
-------- --------
Total....................................... $142,116 $119,209 -16%
======== ========
</TABLE>

52
<PAGE> 58

OIL REVENUES:

Oil revenues decreased $21.5 million, or 32%, in 1994. The average price
decrease of $2.30 per barrel, or 14%, accounted for a $7.5 million decrease and
volume decreases of 847,000 barrels, or 21%, contributed an additional $14.0
million reduction to oil revenues in 1994. Oil volumes decreased due to normal
field declines at the Sand Dunes (Muddy) Unit and North Buck Draw Unit miscible
gas injection projects located in Wyoming.

GAS REVENUES:

Gas revenues decreased by $0.2 million in 1994. The average gas price
increase of $0.04 per Mcf, or 2%, accounted for a $1.5 million increase offset
by sales volumes decreases of 1,100 MMcf which resulted in a $1.7 million
reduction in 1994. The decrease in gas sales is due to normal production
declines from Pouce Coupe, Lipscomb and other mature fields.

PRODUCTION AND OPERATING EXPENSES:

Production and operating expenses in 1994 varied compared to 1993 as shown
in the table below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1993 1994 CHANGE
------- ------- ------
<S> <C> <C> <C>
PRODUCTION AND OPERATING EXPENSES
Recurring operations and maintenance expenses......... $27,224 $23,267 -15%
Well workover expenses................................ 840 446 -47%
Production taxes...................................... 9,829 8,021 -18%
------- -------
Total production and operating expenses....... $37,893 $31,734 -16%
======= =======
PRODUCTION AND OPERATING EXPENSES PER BOE
Recurring operations and maintenance expenses......... $ 2.47 $ 2.34 -5%
Well workover expenses................................ 0.08 0.05 -38%
Production taxes...................................... 0.89 0.81 -9%
------- -------
Total production and operating expenses....... $ 3.44 $ 3.20 -7%
======= =======
</TABLE>

Total production and operating costs decreased $6.2 million during 1994 due
to lower revenue-based Wyoming production taxes at Sand Dunes and North Buck
Draw and lower emulsion and water disposal fees at Seal. Various other fields
also contributed to the decrease in operating expenses.

53
<PAGE> 59

BUSINESS AND PROPERTIES

GENERAL

Devon is an independent energy company engaged primarily in oil and gas
exploration, development and production, and in the acquisition of oil and gas
producing properties. Through its predecessors, Devon began operations in 1971.
In 1988 Devon's Common Stock began trading publicly on the AMEX under the symbol
DVN.

Devon's oil and gas properties are its primary assets and the source of its
cash flow and earnings. Devon currently owns interests in 900 producing oil and
gas properties in ten states. The majority of these properties are highly
concentrated in five operating areas: the Permian Basin in southeast New Mexico
and west Texas; the San Juan Basin in northwest New Mexico; the Rocky Mountain
region in Wyoming; the Mid-Continent region in Oklahoma and the Texas Panhandle;
and the Gulf Coast region of Louisiana. At December 31, 1995, Devon's estimated
proved reserves were 364 Bcf of natural gas and 54 MMBbls of oil and NGLs, or
115 MMBoe in total. The 10% Present Value of such reserves was $534 million.
Devon ranks in the top 20% of public energy companies in the United States,
measured by oil and gas reserves. With the addition of the Kerr-McGee
Properties, Devon's pro forma estimated proved reserves as of December 31, 1995
are 568 Bcf of natural gas and 81 MMBbls of oil and NGLs, or 175 MMBoe in total.
The pro forma 10% Present Value of such reserves is $863 million.

STRATEGY

Devon's primary objectives are to build production, cash flow and earnings
per share by: (1) acquiring producing oil and gas properties, (2) exploring for
new oil and gas reserves and (3) optimizing production from existing oil and gas
properties.

During 1988, Devon expanded its capital base with its first issuance of
common stock to the public and began a substantial expansion program. Devon uses
a two-pronged strategy of acquiring oil and gas producing properties and
drilling to develop new reserves. During the eight years ended December 31,
1995, Devon consummated 15 significant acquisitions and drilled 605 new wells,
581 of which were producers. Capital costs incurred to complete these activities
totalled $535 million, for a finding and development cost of $3.36 per Boe.
Reserve additions were 538.1 Bcf of gas and 69.4 MMBbls of oil and NGLs. These
additions, minus production and property sales, resulted in reserves increasing
by a factor of fourteen during the eight-year period.

The oil and gas industry is characterized by highly volatile product
prices. Devon's management believes that by (a) keeping debt levels low, (b)
concentrating its properties in a few core areas to achieve economies of scale,
(c) acquiring and developing high profit margin properties and (d) continually
disposing of high-cost, marginal and non-strategic properties, Devon can
maintain profitability, even during periods of low oil and/or gas prices. In
addition, Devon remains financially flexible to take advantage of opportunities
for mergers, acquisitions and exploration or other growth opportunities.

Devon expects to spend between $70 and $80 million for drilling and
development projects during 1996. This includes projects of $40 to $50 million
to develop existing reserves and another $30 million to find new reserves.
Devon's drilling and development activities are currently focused in (i) the
Gulf of Mexico and the Gulf Coast region, (ii) the Permian Basin and (iii) the
Worland Properties.

54
<PAGE> 60

PROVED RESERVES

The following table sets forth estimated proved reserves, estimated future
net revenues and the 10% Present Value as of December 31, 1995 for Devon, the
Kerr-McGee Properties and pro forma for the Transaction. Approximately 92% of
Devon's proved reserves were estimated by LaRoche. The remaining Devon reserves
were estimated by Devon's internal staff of engineers. All of the Kerr-McGee
Properties' proved reserves were estimated by Kerr-McGee's internal staff of
engineers. In preparing their estimates, LaRoche, Devon's staff and Kerr-McGee's
staff used standard geological and engineering methods generally accepted by the
petroleum industry and in accordance with SEC guidelines (as described in the
notes below). These estimates correspond with the method used in presenting the
supplemental information on oil and gas operations in note 13 to Devon's
consolidated financial statements and note 4 to the statements of revenues and
direct operating expenses for the Kerr-McGee Properties, except that federal
income taxes otherwise attributable to such future net revenues have been
disregarded in the presentation below.

<TABLE>
<CAPTION>
BASED UPON ESTIMATES AS OF DECEMBER 31,
1995
-------------------------------------------
TOTAL PROVED PROVED
PROVED DEVELOPED UNDEVELOPED
RESERVES(1) RESERVES(2) RESERVES(3)
----------- ----------- -----------
<S> <C> <C> <C>
Devon
Oil and NGLs (MBBls)......................... 53,935 34,852 19,083
Gas (MMcf)................................... 363,846 311,664 52,182
MBoe(4)...................................... 114,576 86,797 27,779
Pre-tax Future Net Revenue (thousands)(5).... $ 927,812 $ 667,994 $ 259,818
Pre-tax 10% Present Value (thousands)(5)..... 534,248 411,400 122,848

Kerr-McGee Properties(6)
Oil and NGLs (MBBls)......................... 26,758 23,673 3,085
Gas (MMcf)................................... 204,080 202,457 1,623
MBoe(4)...................................... 60,771 57,416 3,355
Pre-tax Future Net Revenue (thousands)(5).... $ 511,377 $ 464,889 $ 46,488
Pre-tax 10% Present Value (thousands)(5)..... 329,183 322,060 7,123

Pro Forma
Oil and NGLs (MBBls)......................... 80,693 58,525 22,168
Gas (MMcf)................................... 567,926 514,121 53,805
MBoe(4)...................................... 175,347 144,213 31,134
Pre-tax Future Net Revenue (thousands)(5).... 1,439,189 $ 1,132,883 $ 306,306
Pre-tax 10% Present Value (thousands)(5)..... 863,431 733,460 129,971
</TABLE>

- - - ---------------

(2) Proved developed reserves are proved reserves that are expected to be
recovered from existing wells with existing equipment and operating methods.

(3) Proved undeveloped reserves are proved reserves to be recovered from new
wells on undrilled acreage or from existing wells where a relatively major
expenditure is required for recompletion, deepening or new fluid injection
facilities.

(4) Gas reserves are converted to MBoe at the rate of six MMcf per MBoe based
upon the approximate relative energy content of each. This conversion rate
is not necessarily indicative of the relationship of gas prices to oil
prices. The respective prices of gas, NGLs and oil are affected by market
and other factors in addition to relative energy content.

(5) Estimated future net revenue represents estimated future gross revenue to be
generated from the production of proved reserves, net of estimated
production and future development costs. The amounts shown do not give
effect to non-property related expenses such as general and administrative
expenses, debt service and future income tax expense or to depreciation,
depletion and amortization. These amounts were calculated using prices and
costs in effect as of December 31, 1995. These prices were not changed
except where different prices were fixed and determinable from applicable
contracts. These assumptions yield average prices over the life of Devon's
properties of $17.14 per Bbl of oil and NGLs and $1.35 per Mcf of natural
gas ($1.51 per Mcf including the effect of the San Juan Basin Transaction
described under "Devon's Significant Properties -- San Juan Basin
Properties -- San Juan Basin Transaction" below). The assumptions yield
average prices over the life of the Kerr-McGee Properties of $17.78 per Bbl
of oil and NGLs and $1.48 per Mcf of natural gas. These prices compare to
the December 31, 1995 benchmark prices of $18.00 for West Texas Intermediate
crude oil and $2.10 for Texas Gulf Coast spot gas. The prices used in
calculating the estimated future net revenues attributable to proved
reserves do not necessarily reflect market prices for oil, NGLs and gas
production subsequent to December 31, 1995. 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.

(6) The amounts shown for the Kerr-McGee Properties have been adjusted from
those included in the statements of revenues and direct operating expenses
for the Kerr-McGee Properties, included elsewhere herein, due to differences
in accounting treatments between Devon and Kerr-McGee related to reservoir
pressure maintenance gas and a certain production payment.

55
<PAGE> 61

SIGNIFICANT PROPERTIES -- GENERAL

A large portion of the Kerr-McGee Properties Devon will acquire are
concentrated in three core areas in which Devon already owns significant proved
reserves: the Permian Basin, the Rocky Mountains and the Mid-Continent region of
the United States. In addition, Devon will acquire significant proved reserves
in a new core area in Canada. The following table sets forth information on
these significant core areas as of December 31, 1995.

<TABLE>
<CAPTION>
ESTIMATED PROVED RESERVES AS OF DECEMBER
31, 1995
-------------------------------------------
OIL AND
NGLS GAS
(MBBLS) (MMCF) MBOE(1) MBOE%(2)
------- ------- -------- ---------
<S> <C> <C> <C> <C>
BASIN: LOCATION
Permian Basin: West Texas and Southeast New
Mexico
Devon...................................... 44,433 83,513 58,352 51%
Kerr-McGee Properties...................... 6,533 36,098 12,549 21%
Pro Forma(3)............................... 50,966 119,611 70,901 40%
Rocky Mountains: Wyoming and North Dakota
Devon...................................... 7,330 65,841 18,304 16%
Kerr-McGee Properties...................... 7,463 45,729 15,085 25%
Pro Forma(3)............................... 14,793 111,570 33,389 19%
San Juan Basin: Northwest New Mexico
Devon...................................... 35 176,068 29,380 26%
Kerr-McGee Properties...................... -- -- -- --
Pro Forma(3)............................... 35 176,068 29,380 17%
Mid-Continent: Oklahoma and Texas Panhandle
Devon...................................... 1,489 30,479 6,568 6%
Kerr-McGee Properties...................... 1,036 55,639 10,309 17%
Pro Forma(3)............................... 2,525 86,118 16,877 10%
Other Areas of the U.S.
Devon...................................... 648 7,945 1,972 1%
Kerr-McGee Properties...................... 2,131 16,927 4,952 8%
Pro Forma(3)............................... 2,779 24,872 6,924 4%
Western Canada Sedimentary Basin:
Alberta, Canada
Devon...................................... -- -- -- --
Kerr-McGee Properties...................... 9,595 49,687 17,876 29%
Pro Forma(3)............................... 9,595 49,687 17,876 10%
Grand Total
Devon...................................... 53,935 363,846 114,576 100%
Kerr-McGee Properties...................... 26,758 204,080 60,771 100%
Pro Forma(3)............................... 80,693 567,926 175,347 100%
</TABLE>

- - - ---------------

(1) Gas reserves are converted to Boe at the rate of six Mcf per Boe.

(2) Percentage which MBoe for the basin or region bears to total MBoe for all
Proved Reserves.

(3) Assuming the Transaction is effective as of December 31, 1995.

56
<PAGE> 62

DEVON'S SIGNIFICANT PROPERTIES

<TABLE>
<CAPTION>
DEVON'S TOTAL PROVED RESERVES AS OF DECEMBER
31, 1995
---------------------------------------------
OIL AND NGLS
(MBBLS) GAS (MMCF) MBOE %
------------ ---------- ------- ----
<S> <C> <C> <C> <C>
Permian Basin:
Grayburg-Jackson Field.................... 25,103 7,916 26,422 23%
Rocky Mountains:
Worland Unit.............................. 5,620 62,563 16,047 14%
San Juan Basin:
Northeast Blanco Unit..................... 30 119,035 19,869 18%
32-9 Unit................................. 0 56,741 9,457 8%
Other Properties............................ 23,182 117,591 42,781 37%
------ ------- ------- ---
Total Devon Properties............ 53,935 363,846 114,576 100%
====== ======= ======= ===
</TABLE>

PERMIAN BASIN PROPERTIES. The Permian Basin is a prolific oil and gas
producing province located in western Texas and southeastern New Mexico. The
area encompasses approximately 66,000 square miles and contains more than 500
major oil and gas fields. Oil and gas leases within the Permian Basin are
difficult to obtain as much of the most prospective acreage is "held by
production" from existing wells or tied to large dedicated federal exploration
units. Since 1987, Devon has made four separate acquisitions of properties in
the Permian Basin. These acquisitions, especially the July, 1992, acquisition,
enabled Devon to obtain prospective acreage in areas in which leasehold
positions could not otherwise be established. This large and well situated
leasehold position continues to provide Devon with numerous exploration and
development opportunities. Devon has also initiated enhanced oil recovery
projects to further expand reserves.

Grayburg-Jackson Field. Devon acquired the Grayburg-Jackson Field in the
1994 Merger. The property consists of approximately 8,000 acres located in the
southeastern New Mexico portion of the Permian Basin. The field produces from an
800-foot thick interval of dolomites and sandstone of the Grayburg and San
Andres Formations at depths of 4,000 feet. The Grayburg-Jackson Field contains
50% of Devon's proved oil reserves and is Devon's largest Permian Basin
property.

Production in this field was established in the 1930's, with most of the
current producing wells drilled since the 1970's. At the time of the 1994
Merger, drilling by previous owners had developed the property on an average
spacing of over 40 acres per well. Similar properties in the immediate vicinity
had recovered additional reserves by infill drilling to 20-acre per well spacing
and subsequent waterflooding. Based upon analogy to these properties, Devon
initiated a $65 million capital development project in 1994. The project
includes drilling approximately 150 infill wells, converting selected producing
wells to water injection wells and optimizing the existing waterflood. Devon
completed the infill drilling phase of the project in July, 1996. The majority
of the field should be in the initial phases of full water injection by
mid-1997. Completion of the waterflood facilities over the remainder of the
field will require the conversion of more than 100 producing wells to injection
wells, construction of a water injection plant and installation of about 40
miles of injection pipeline.

From May through year-end 1994, the first seven months Devon operated the
field, Devon's share of production from the property was 235 MBoe, or 1,097 Boe
per day. In 1995, Devon's production from the field increased to 921 MBoe, or
2,522 Boe per day as Devon drilled additional wells. Production in 1996
continued to increase, averaging 3,640 Boe per day for the first six months of
1996. In August of 1996, following the completion of the drilling phase, Devon's
share of production averaged 3,375 Boe per day. Devon anticipates that continued
water injection of this property and completion of the waterflood facilities
will further improve oil and gas recoveries.

ROCKY MOUNTAIN PROPERTY

Worland Property. In December, 1995, Devon completed the acquisition of an
interest in this property from a major oil company for $50.3 million. The
property lies on a 25,000-acre federal unit in Big Horn and

57
<PAGE> 63

Washakie Counties, Wyoming. Of the $50.3 million purchase price, $46.3 million
was allocated to 38 producing wells, 16 proved undeveloped locations and a
natural gas processing plant. These acquired assets, combined with the small
interest Devon previously owned, had total estimated proved reserves of 16.0
MMBoe as of year-end 1995. The remaining $4 million of purchase price was
allocated to undeveloped leasehold on the unit, which constitutes about 13,000
acres, or 52%, of the total acquired acreage.

In early 1996, Devon increased its working interest in the developed leases
to 98% through several small acquisitions totaling approximately $7 million.
These acquisitions also increased Devon's interest in the gas processing plant
to 100% and undeveloped leases to approximately 99%.

The Worland property is located in the Bighorn Basin, and contains three
separate fields situated along a major geologic feature referred to as a draped
anticline. Six separate horizons have proven productive on the property. The
Muddy Formation and the Second, Third and Fourth Members of the Frontier
Formation produce sweet gas from sandstone reservoirs at depths ranging from
7,100 to 9,000 feet. The underlying Phosphoria Formation produces oil and sour
gas from dolomite reservoirs encountered at a depth of approximately 10,000
feet. The Tensleep Formation, the deepest proven reservoir, produces oil from
sandstone at a depth of approximately 10,500 feet.

Initial oil and sour gas production was established at Worland in the
1940's from the Phosphoria Formation. Sweet gas production from the overlying
Frontier and Muddy reservoirs was established in the 1960's. Tensleep oil
production was developed in the 1970's. Because the gas was committed to a
low-priced contract and the difficulties presented by the sour nature of the gas
associated with the Phosphoria Formation, full development of all the reservoirs
was not economically feasible at that time. The original gas contract is no
longer in force, permitting gas to now be sold at the substantially higher
market price for the area.

Devon believes that the property contains significant exploitation
opportunities for all the proven reservoirs. Consequently, a drilling program
has been initiated to fully develop the established reservoirs, and to extend
and define their productive limits. Devon also has begun a program to apply
modern completion and stimulation techniques to selected existing wells,
investigate modern technology to handle the sour gas associated with the
Phosphoria Formation, and to evaluate both the Tensleep and Phosphoria
Formations as possible horizontal drilling candidates. Additionally, Devon has
initiated the upgrade of the existing gas processing plant from 15 MMcf of gas
per day to 20 MMcf per day. Devon is evaluating the potential to increase the
gas processing plant's capacity by another 10 MMcf per day. Devon has also
completed the design of a 3-D seismic survey to be initiated this winter.

To date, Devon has successfully drilled and completed one Tensleep well and
deepened a second well to the Tensleep formation. Devon has drilled and
completed one well in the Muddy formation, re-stimulated two Phosphoria wells
with modern acid-fracturing techniques and re-stimulated and commingled various
members of the Frontier formation in two wells. These activities increased daily
production by approximately 400 barrels of oil and 4.0 MMcf of gas.

Additional Devon-drilled wells have recently been completed and are
currently being tested: one in the Tensleep and one in the Frontier formation.
The most recently drilled well is waiting to be completed in the Tensleep
formation.

SAN JUAN BASIN PROPERTIES. Devon's single largest reserve position relates
to its interests in two federal units in the northwest New Mexico portion of the
San Juan Basin: the 33,000 acre Northeast Blanco Unit ("NEBU"), located in Rio
Arriba and San Juan Counties, and the 22,400 acre 32-9 Unit in San Juan County.
The San Juan Basin, a densely drilled area covering 3,700 square miles in
northwestern New Mexico and portions of southwest Colorado, has historically
been considered the second largest gas producing basin in the United States.
Prior to 1990, the Basin's gas production primarily came from conventional
sandstone formations at a depth of about 5,500 feet. However, in the early
1980's, development of the shallower Fruitland coal formation began. Coal seam
gas production has increased total production so significantly that the San Juan
Basin can now arguably be considered the largest gas producing basin in the U.S.
Coal seam gas constitutes almost all of Devon's reserves in these two units.

58
<PAGE> 64

Substantially all of Devon's interests in both of these units are a part of
the San Juan Basin Transaction. See "-- San Juan Basin Transaction" below.

Northeast Blanco Unit. About 96% of Devon's proved reserves at NEBU are
associated with the Fruitland coal seam formation. The potential for coal seam
gas production varies depending upon the thickness of the coal formation, the
type of coal in place, the depth at which it is found and other factors. NEBU is
located in the central part of the San Juan Basin where each of the factors is
at or near its optimum. NEBU is operated by Devon. Devon initially began
developing NEBU coal seam reserves during 1988. Devon eventually drilled 102
wells here, the maximum permitted under existing 320-acre spacing on NEBU's
33,000 acres.

The current reserve estimates at NEBU assume that 55% to 65% of the coal
seam gas in place can be economically recovered through existing wells. In the
near term, additional production and recoverable reserves might be realized by
continued reduction in operating pressure through compression and pipeline
optimization, and by use of subsurface pumping equipment to remove water from
the wells. Devon and other owners have approved plans to test these options in a
portion of the field. This work is currently underway.

A 15 mile portion of the Middle Mesa gathering system of NEBU has been
supplemented recently with a larger, parallel gathering system, initially
increasing production by eight to 12 MMcf per day. This represents an increase
of almost 20% to 30% for that portion of the system. An 11 mile section of
gathering system in the Sims Mesa is being expanded with completion scheduled
for late 1996. Should the impact of these gathering system expansions meet or
exceed Devon's expectations, the gathering system over most of the remainder of
NEBU will be similarly improved. This would result in significant additional
capital expenditures and is expected to result in additional gas reserves.

Ten subsurface pumping units have been recently installed. As preliminary
results are mixed, these will require additional adjustment and testing to
determine if this method of enhancing production is economically feasible.
Should the results prove favorable, Devon will likely install subsurface pumping
units on additional NEBU wells in the future.

In the San Juan Basin Transaction, Devon retained 75% of any reserves in
excess of those estimated to be in place at the time of the transaction. The
third party will pay 100% of the capital necessary to develop any such
incremental reserves (excluding costs of drilling infill wells). See "-- San
Juan Basin Transaction" below.

Over the longer-term, drilling infill wells on denser spacing or utilizing
enhanced recovery techniques such as injecting carbon dioxide or nitrogen into
the coal formation to force additional gas to the producing well bores, may
result in further NEBU reserve and production increases. Devon and other owners
in the San Juan Basin have studied and experimented with these various options
to determine if additional recoveries are economically feasible. Such
development projects, if undertaken, would likely result in significant
additional capital expenditures; however, the timing of any such projects is
presently unknown.

32-9 Unit. The 32-9 Unit, operated by Burlington Resources Oil and Gas Co.,
is located approximately eight miles northwest of NEBU. Geologically and
operationally this property is very similar to NEBU: the coal seams at the 32-9
Unit are about the same thickness as at NEBU, the type of coal and the depth at
which it is found are similar and the gas content of the coal is estimated to be
approximately the same. However, the 32-9 Unit is located in an area where the
coal does not appear to be as permeable as it is at NEBU. The current reserve
estimates assume that 20% to 30% of the coal seam gas in place can be
economically recovered through the existing wells. Thus, the 32-9 Unit wells
tend to produce at lower rates but should produce for a longer period of time
than the NEBU wells. There is the possibility that some infill wells may be
drilled to accelerate production and possibly increase reserves; however, the
timing of such drilling, if it occurs, is unknown. This unit is also being
evaluated for possible enhanced recovery projects similar to those being studied
at NEBU.

San Juan Basin Transaction. Effective January 1, 1995, Devon and an
unrelated company entered into a transaction covering substantially all of
Devon's San Juan Basin coal seam properties. The effect of the transaction is
that the price Devon receives for its coal seam gas production will be $0.61 per
Mcf (subject to adjustment for inflation) higher than the price Devon would
otherwise receive from January 1, 1995 through

59
<PAGE> 65

the year 2002. For a detailed discussion of this transaction, see note 3 to
Devon's consolidated financial statements.

KERR-MCGEE'S SIGNIFICANT PROPERTIES

<TABLE>
<CAPTION>
KERR-MCGEE PROPERTIES TOTAL PROVED RESERVES
AS OF DECEMBER 31, 1995
--------------------------------------------
OIL AND NGLS
(MBBLS) GAS (MMCF) MBOE %
------------ ---------- ------ ----
<S> <C> <C> <C> <C>
Permian Basin:
Fullerton Field................................... 4,136 1,046 4,310 7%
Ozona and Davidson Ranch Fields................... 785 32,263 6,162 10%
Rocky Mountains:
North Buck Draw Unit.............................. 641 17,721 3,594 6%
Sand Dunes (Muddy) Unit........................... 1,791 11,962 3,785 6%
House Creek Unit.................................. 3,500 584 3,597 6%
Other U.S. Properties............................... 6,310 90,811 21,445 35%
Canada:
Gift Field........................................ 4,799 -- 4,799 8%
Garrington Field.................................. 657 9,040 2,164 4%
Pouce Coupe Field................................. 81 9,820 1,718 3%
Sylvan Lake Area.................................. 761 5,319 1,648 3%
Other Canadian Properties........................... 3,297 25,514 7,549 12%
------ ------- ------ ---
Total Kerr-McGee Properties............... 26,758 204,080 60,771 100%
====== ======= ====== ===
</TABLE>

PERMIAN BASIN PROPERTIES.

Fullerton Field. The Fullerton Field is located in Andrews County, Texas.
This field produces oil from dolomite reservoirs of the San Andres Formation at
depths of 5,600 feet. The property is the subject of a waterflood under which
injection was initiated in 1994. Currently, Kerr-McGee's share of production
from this field is approximately 900 barrels of oil per day.

Ozona and Davidson Ranch Fields. The Ozona and Davidson Ranch Fields are
located in Crockett County, Texas. Devon also owns an interest in the Ozona
Field in the same general area as the Kerr-McGee Properties. The fields produce
natural gas primarily from stratigraphically trapped sandstones of the Canyon
and Pennsylvanian Sands at depths of 6,000 to 8,000 feet. The underlying Strawn
Formation also contributes to the fields production. Kerr-McGee also owns
interest in the field's gathering system and processing facility. Currently,
Kerr-McGee's share of production from this field is approximately 11.1 MMcf of
gas and 450 barrels of oil per day. Devon's share of the production from the
Ozona Field currently totals approximately 220 Bbls and 7.3 MMcf per day.

ROCKY MOUNTAIN PROPERTIES. A significant portion of Kerr-McGee's Rocky
Mountain Properties are located in the Powder River Basin. The Powder River
Basin is a prolific hydrocarbon producing province located in northwestern
Wyoming and southwestern Montana. The basin encompasses approximately 14,000
square miles and contains numerous oil and gas fields producing primarily from
sandstone reservoirs of Cretaceous through Ordovician age. A significant portion
of the basin is owned by the federal government, thereby allowing for favorable
lease terms.

North Buck Draw Unit. The North Buck Draw Unit is an enhanced recovery
project encompassing 8,840 acres located in Campbell County, Wyoming. The unit
produces stratigraphically trapped oil from Cretaceous age sandstones of the
Dakota Formation at depths of 12,500 feet. Since 1988, Kerr-McGee has operated a
pressure maintenance project on the unit. Both natural gas and water have been
injected into the reservoir to maintain pressure and thereby allow for recovery
of additional oil reserves. In addition horizontal drilling technology has been
applied to the unit to increase productive capacity. At the economic limit of
the oil production, the unit will be allowed to "blowdown" and the injected
natural gas will be produced and sold. Currently, Kerr-McGee's share of
production from this field is approximately 1,000 barrels of oil per day.

60
<PAGE> 66

Sand Dunes (Muddy) Unit. The Sand Dunes (Muddy) Unit is an enhanced oil
recovery project located in Converse County, Wyoming. The unit produces from
stratigraphically trapped Cretaceous age sandstones of the Muddy Formation at
depths of 12,400 feet. This unit encompasses 12,080 acres and has been under a
natural gas pressure maintenance program since 1990. This project is less mature
than the similar enhancement project at the North Buck Draw Unit. Likewise,
Sands Dunes will be allowed to "blowdown" to recover the natural gas when oil
production reaches the economic limit. Currently, Kerr-McGee's share of
production from this field is approximately 1,200 barrels of oil per day.

House Creek Unit. The House Creek Unit is an enhanced oil recovery project
over approximately 24,150 acres, located in Campbell County, Wyoming. Production
is from the stratigraphically trapped Sussex sandstone of Cretaceous age at
depths of 8,200 feet. Water injection was initiated in 1991 and the reservoir is
now in the "fillup" phase. Currently, Kerr-McGee's share of production from this
field is approximately 600 barrels of oil per day.

CANADIAN PROPERTIES. All of Kerr-McGee's Canadian Properties are located in
the Western Canada Sedimentary Basin. The Western Canada Sedimentary Basin is a
large geologic feature encompassing portions of British Columbia, Alberta,
Saskatchewan and Manitoba. The basin feature forms a wedge shaped depression
which has been filled with sedimentary rocks. This sedimentary wedge tapers from
a maximum thickness of 17,000 feet in the basin's western and southern margins
to a zero edge along the basin's northeastern flank. The western and southern
margins form two troughs, defined respectively as the Alberta and Williston
Basins. The majority of Canada's oil and gas reserves are contained within these
two basins. All of Kerr-McGee's Canadian properties are located in the Alberta
Basin.

Gift Field. This oil property is located in Northwestern Alberta
approximately 200 miles northwest of the city of Edmonton. The field produces
from both reef and reef debris features of the Slave Point limestones of Middle
Devonian age, at depths of approximately 6,000 feet. The underlying Gelwood
sandstones are also productive on the field margins. The field consists of two
units both operated by Kerr-McGee. Both units are under waterflood. Horizontal
drilling has been used in the less permeable portions of the Slave Point
reservoir. Currently, Kerr-McGee's share of production from this field is
approximately 1,200 barrels of oil per day.

Garrington Field. The Garrington Field is located in Central Alberta
approximately 85 miles northwest of the city of Calgary. The field produces from
stratigraphic traps associated with the wedging nature of the Western Canada
Sedimentary Basin. Both oil and gas are produced from the Elkhart, Ostracod,
Viking, Glauconite and Cardium Formations at depths of approximately 9,000 feet.
Currently, Kerr-McGee's share of production from this field is approximately 275
barrels of oil and 3.3 MMcf of gas per day.

Pouce Coupe Field. This gas property is located in Northwestern Alberta
approximately 300 miles northwest of the city of Edmonton. The field produces
from stratigraphically trapped sandstones associated with river channels and
offshore sand bars. Production is largely from the Mississippian age, Lower
Kiskatinaw Formation, with additional production from the overlying Halfway
Formation at depths of 5,000 feet. The majority of the producing wells and one
of the two gas plants are operated by Kerr-McGee. Currently, Kerr-McGee's share
of production from this field is approximately 7.4 MMcf of gas per day.

Sylvan Lake Field. Sylvan Lake Field is located in Central Alberta
approximately 95 miles north of the city of Calgary. The primary reservoirs
produce both oil and gas from Mississippian age sandstones at depths of
approximately 8,000 feet. Both the overlying Cretaceous and underlying Devonian
reservoirs also contribute to the field's production. Production from all zones
is from stratigraphic traps associated with the wedging nature of the Western
Canada Sedimentary Basin. Currently, Kerr-McGee's share of production from this
field, is approximately 460 barrels of oil and 3.4 MMcf of gas per day.

OIL AND GAS MARKETING

Natural Gas Marketing. Virtually all of Devon's natural gas production is
sold at variable, or "market-sensitive" prices. Though exact percentages vary
daily, approximately 9% of such natural gas is sold under short-term contracts.
The remaining 91% of Devon's natural gas is marketed under various long-term

61
<PAGE> 67

contracts (one year or more) which dedicate the natural gas to a purchaser for
an extended period of time, but which still involve variable and
market-sensitive pricing.

Under both long-term and short-term contracts typically either the entire
contract (in the case of short-term contracts) or the price provisions within
the contract (in the case of long-term contracts) are renegotiated from daily
intervals up to 180-day intervals. These market-sensitive sales are referred to
as "spot market" sales. The spot market has become progressively more
competitive in recent years. As a result, prices on the spot market have been
volatile. From time to time, Devon has withheld gas from the market due to low
prices.

Over 80% of Kerr-McGee's gas production is sold under contracts in which
the price is market sensitive. These contracts are generally short-term and can
be terminated with thirty days notice.

Oil Marketing. Devon's oil production is sold under both long- and
short-term agreements at prices in the range of field prices as posted by
certain crude purchasers. Approximately 2% of Devon's 1995 oil production was
purchased by its wholly-owned subsidiary, Devon Marketing Corporation, which
also purchases oil from third parties and resells the purchased oil under
contracts to refiners and others.

Oil production from the Kerr-McGee Properties is sold under contracts which
reflect the market price in the area for the type of crude produced. Most of
such contracts are short-term contracts which can be terminated within six
months.

CUSTOMERS

For the year ended December 31, 1995, two significant purchasers, Aquila
Energy Marketing Corporation ("Aquila") and Enron Gas Marketing, Inc. ("Enron"),
accounted for 31% and 16%, respectively, of Devon's gas sales. For the year
ended December 31, 1994, Aquila, Enron and Meridian Oil Trading, Inc. ("MOTI")
accounted for 21%, 19% and 18%, respectively, of Devon's gas sales. For the year
ended December 31, 1993, there was one significant purchaser, MOTI, which
accounted for approximately 39% of Devon's gas sales. Until September, 1995,
MOTI was a significant purchaser of Devon's NEBU coal seam gas production at a
market-sensitive price under the terms of a five-year contract entered into in
May, 1990. Aquila and Enron purchase gas from numerous Devon properties,
including NEBU and the 32-9 Unit. These purchases are primarily made at variable
and market-sensitive prices.

Devon does not consider itself dependent upon any one of these purchasers,
since other purchasers are willing to purchase this same gas production at
competitive prices.

Devon sells its remaining 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 barged to storage, refining or pipeline
facilities.

For the year ended December 31, 1995, one oil purchaser, Texcon
Corporation, accounted for 15% of total oil sales for the Kerr-McGee Properties.

WELL STATISTICS

As of December 31, 1995, Devon had an interest in 4,024 producing wells, of
which 2,903 gross (793 net) were oil wells and 1,121 gross (430 net) were
natural gas wells. Devon also held numerous overriding royalty interests in oil
and gas wells, a portion of which are convertible to working interests after
recovery of certain costs by third parties. If Devon elects to convert these
overriding royalty interests to working interests, such interests will be
included in Devon's gross and net well count.

As of December 31, 1995, the Kerr-McGee Properties consisted of 8,805
producing wells, of which 7,276 gross (339 net) were oil wells and 1,529 gross
(332 net) were natural gas wells. Certain of the overriding

62
<PAGE> 68

royalty interests are convertible into working interests and could eventually be
included in the gross and net well counts.

LEASEHOLD

The following table set forth Devon's and the Kerr-McGee Properties'
developed and undeveloped oil and gas lease acreage as of December 31, 1995, and
pro forma acreage assuming the Transaction had been completed on December 31,
1995.

<TABLE>
<CAPTION>
DEVELOPED ACREAGE
------------------------------------------------------------------------
DEVON KERR-MCGEE PROPERTIES PRO FORMA(1)
-------------------- --------------------- ---------------------
GROSS(2) NET(3) GROSS(2) NET(3) GROSS(2) NET(3)
-------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Alabama..................... -- -- 6,166 2,608 6,166 2,608
Arkansas.................... 40 40 9,074 1,794 9,114 1,834
Colorado.................... 1,279 121 5,787 2,965 7,066 3,086
Kansas...................... 1,665 941 19,011 7,970 20,676 8,911
Louisiana................... 10,214 4,537 7,251 804 17,465 5,341
Mississippi................. -- -- 13,136 4,487 13,136 4,487
Montana..................... -- -- 16,486 445 16,486 445
Nebraska.................... -- -- 160 80 160 80
New Mexico.................. 90,293 50,154 66,452 18,300 156,745 68,454
North Dakota................ -- -- 21,080 6,493 21,080 6,493
Oklahoma.................... 68,789 32,271 232,169 62,141 300,958 94,412
South Dakota................ -- -- 5,771 152 5,771 152
Texas....................... 145,582 76,274 709,605 155,713 855,187 231,987
Utah........................ 277 134 5,068 732 5,345 866
West Virginia............... 4,991 3,737 -- -- 4,991 3,737
Wyoming..................... 43,437 36,392 215,123 73,418 258,560 109,810
------- ------- --------- ------- --------- -------
Total U.S. ................. 366,567 204,601 1,332,339 338,102 1,698,906 542,703
Canada...................... -- -- 187,435 75,925 187,435 75,925
------- ------- --------- ------- --------- -------
Grand Total................. 366,567 204,601 1,519,774 414,027 1,886,341 618,628
======= ======= ========= ======= ========= =======
</TABLE>

63
<PAGE> 69

<TABLE>
<CAPTION>
UNDEVELOPED ACREAGE
------------------------------------------------------------------------
DEVON KERR-MCGEE PROPERTIES PRO FORMA(1)
-------------------- --------------------- ---------------------
GROSS(2) NET(3) GROSS(2) NET(3) GROSS(2) NET(3)
-------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Alabama..................... -- -- 400 77 400 77
Arkansas.................... -- -- 11,715 3,012 11,715 3,012
California.................. 5,098 199 -- -- 5,098 199
Colorado.................... 8,382 5,725 14,506 4,162 22,888 9,887
Kansas...................... 160 7 6,091 665 6,251 672
Louisiana................... 18,059 8,952 1,455 1,095 19,514 10,047
Mississippi................. -- -- 2,894 1,862 2,894 1,862
Montana..................... 3,828 1,312 10,505 675 14,333 1,987
Nebraska.................... -- -- 6,517 1,377 6,517 1,377
New Mexico.................. 56,532 39,400 161,935 29,513 218,467 68,913
North Dakota................ 2,715 817 6,837 690 9,552 1,507
Oklahoma.................... 24,992 11,176 173,913 30,546 198,905 41,722
South Dakota................ -- -- 322 238 322 238
Texas....................... 111,014 70,369 524,740 115,615 635,754 185,984
Utah........................ 680 453 -- -- 680 453
West Virginia............... 609 144 -- -- 609 144
Wyoming..................... 33,855 23,530 135,262 92,773 169,117 116,303
------- ------- --------- ------- --------- -------
Total U.S. ................. 265,924 162,084 1,057,092 282,300 1,323,016 444,384
Canada...................... -- -- 134,667 88,573 134,667 88,573
------- ------- --------- ------- --------- -------
Grand Total................. 265,924 162,084 1,191,759 370,873 1,457,683 532,957
======= ======= ========= ======= ========= =======
</TABLE>

- - - ---------------

(1) Assuming the Transaction as of December 31, 1995.

(2) Gross acres are the total number of acres in which a working interest is
owned.

(3) Net acres refers to gross acres multiplied by the fractional working
interest therein.

OPERATION OF PROPERTIES

The day-to-day operations of oil and gas properties is 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. The charges under operating agreements customarily
vary with the depth and location of the well being operated.

Devon is the operator of 1,372 of its 4,024 gross wells. As operator, Devon
receives reimbursement of 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 to or by unaffiliated third parties.
Kerr-McGee is operator of 596 of the 8,805 gross wells subject to the
Transaction. Upon completion of the Transaction, Devon will assume operations of
the properties for which Kerr-McGee is the operator.

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<PAGE> 70

MANAGEMENT AND DIRECTORS OF DEVON

<TABLE>
<CAPTION>
OFFICER OR
NAME AGE(1) DIRECTOR SINCE POSITION
- - - ----- ------ -------------- --------
<S> <C> <C> <C>
John W. Nichols................... 81 1971 Chairman of the Board of Directors

J. Larry Nichols(2)............... 53 1971 President, Chief Executive Officer
and Director

H.R. Sanders, Jr.................. 63 1980 Executive Vice President and
Director

Luke R. Corbett................... 48 (3) Director

Thomas F. Ferguson................ 59 1982 Director

David M. Gavrin................... 61 1979 Director

Michael E. Gellert................ 64 1969 Director

Tom J. McDaniel................... 57 (3) Director

Lawrence H. Towell................ 52 (3) Director

J. Michael Lacey.................. 50 1989 Vice President

Darryl G. Smette.................. 48 1989 Vice President

H. Allen Turner................... 43 1982 Vice President

William T. Vaughn................. 48 1983 Vice President

Danny J. Heatly................... 40 1989 Controller

Gary L. McGee..................... 46 1981 Treasurer

Marian J. Moon.................... 45 1994 Secretary
</TABLE>

- - - ---------------

(1) At December 31, 1995.

(2) Son of John W. Nichols.

(3) Kerr-McGee Designee to be appointed to Devon's board of directors as of the
Effective Date of the Transaction.

JOHN W. NICHOLS is the co-founder of Devon and has been Chair of the board
of directors since Devon began operations in 1971. He is a Founding Partner and
Oversight General Partner of Blackwood & Nichols Co. which continues to own a
significant interest in approximately 250 wells in the prolific Northeast Blanco
Unit of the San Juan Basin in New Mexico. John Nichols is a non-practicing
Certified Public Accountant.

J. LARRY NICHOLS co-founded Devon with his father. He has been a director
since 1971, President since 1976 and Chief Executive Officer since 1980. He is
also an Oversight General Partner of Blackwood & Nichols Co. He serves as a
director of the Independent Petroleum Association of America and chairs its
Public Lands Committee. He is president of the Domestic Petroleum Council and is
also a director of the Independent Petroleum Association of New Mexico, the
Oklahoma Independent Petroleum Association and the National Petroleum Council.
He also serves as a director of the National Association of Manufacturers and of
the Oklahoma Nature Conservancy. Mr. Nichols holds a geology degree from
Princeton University and a law degree from the University of Michigan. He served
as a law clerk to Mr. Chief Justice Earl Warren and Mr. Justice Tom Clark of the
U.S. Supreme Court. Mr. Nichols is a member of the Oklahoma Bar Association.

H. R. SANDERS, JR. has been a Director and Executive Vice President of
Devon since 1981. Prior to joining Devon, Mr. Sanders was associated with
RepublicBank Dallas, N.A., serving from 1970 to 1981 as its Senior Vice
President with direct responsibility for independent oil and gas producer and
mining loans. Mr. Sanders is a member of the Independent Petroleum Association
of America, Texas Independent Producers and Royalty Owners Association, Oklahoma
Independent Petroleum Association and a past director of Triton Energy
Corporation.

LUKE R. CORBETT was elected President and Chief Operating Officer of
Kerr-McGee in 1995. He joined Kerr-McGee in 1985 as vice president of
geophysics, was named senior vice president of exploration for the Exploration
and Production Division in 1987 and senior vice president of Kerr-McGee in 1991.
Prior to joining

65
<PAGE> 71

Kerr-McGee, Mr. Corbett was employed by Amoco Production Company as a
geophysicist. He later joined Aminoil, Inc. where he most recently held the
position of vice president of domestic exploration. Mr. Corbett is a director of
Kerr-McGee and Boatmen's Bank of Oklahoma City, N.A. He is a member of the
American Association of Petroleum Geologists, Society of Exploration
Geophysicists and is on the board of the American Petroleum Institute. He is a
member of the Domestic Petroleum Council and a trustee for the American
Geological Institute Foundation and is chairman of the advisory board of the
Energy & Geoscience Institute at the University of Utah. Mr. Corbett obtained
his bachelor's degree in mathematics from the University of Georgia.

THOMAS F. FERGUSON has been a director of Devon since 1982, and is the
chair of the Audit Committee. He is Managing Director of Englewood, N.V., a
wholly-owned subsidiary of Kuwaiti-based Al-Futtooh Investments WLL. His 20 year
association with the principals of Al-Futtooh has allowed him to represent them
on the board of directors of Devon and other companies in which they invest.
Those interests include investments in hotels, pharmaceuticals, an investment
banking company and a venture capital fund. Mr. Ferguson is a Canadian qualified
Certified General Accountant and was formerly employed by the Economist
Intelligence Unit of London as a financial consultant.

DAVID M. GAVRIN has been a director of Devon since 1979, serves as the
chair of the Compensation and Stock Option Committee. In addition to managing
his personal investments, he serves as a director of several other companies as
well as Devon. The companies for which Mr. Gavrin serves as a director include
Heidemij, N.V., a worldwide environmental services company; New York Federal
Savings Bank; United American Energy Corp., an independent power producer; and,
Lectorum Publishing, Inc., a publisher and distributor of Spanish language
books. In addition, Mr. Gavrin was associated with Drexel Burnham Lambert
Incorporated for 14 years as First Vice President and was a General Partner of
Windcrest Partners, an investment partnership, for 10 years.

MICHAEL E. GELLERT has been a director of Devon since 1969 and is a member
of the Compensation and Stock Option Committee. In addition to managing his
personal investments and serving as a director of Devon, Mr. Gellert serves on
the board of several other companies. These include Humana Inc., owners of
managed health care facilities; Premier Parks, Inc., amusement parks operator;
Seacor Holdings, Inc., owners and operators of marine equipment; and Regal
Cinemas, Inc., owners and operators of multiplex motion picture theatres. Mr.
Gellert is also a member of the Putnam Trust Company Advisory Board to The Bank
of New York. He was associated with the Drexel Burnham Lambert Group and its
predecessors for 31 years, including 13 years as a director, and served in
various executive capacities for its wholly-owned subsidiary, Drexel Burnham
Lambert Incorporated.

TOM J. MCDANIEL has been Senior Vice President and Corporate Secretary of
Kerr-McGee since 1989. He joined Kerr-McGee as associate general counsel in 1984
and became senior vice president in 1986. Prior to joining Kerr-McGee, Mr.
McDaniel was engaged in the private practice of law for 18 years. In 1981 he was
appointed Administrative Director of State Courts by the Oklahoma Supreme Court.
Mr. McDaniel serves on the board of directors of the National Association of
Manufacturers. A member of the Oklahoma and American Bar Associations, Mr.
McDaniel holds an undergraduate degree in business from Northwestern Oklahoma
State University and a law degree from the University of Oklahoma.

LAWRENCE H. TOWELL has been Vice President of Acquisitions -- Exploration
and Production Division for Kerr-McGee since 1984. Prior to his current position
he served Kerr-McGee in various positions since 1975, including Vice President
of Engineering and Vice President of Natural Gas Sales. Prior to his employment
with Kerr-McGee, Mr. Towell worked for Shell Oil Co. for eight years serving in
various engineering capacities in various domestic locations. Subsequent to his
employment at Shell, he was manager of HK Properties for Howell-Kerr Enterprises
in Oklahoma City. Mr. Towell received his bachelor's degree in mechanical
engineering from Yale University. He is a member of the Society of Petroleum
Engineers, the Independent Petroleum Association of America and the Yale
University Science and Engineering Association.

J. MICHAEL LACEY joined Devon as Vice President -- Operations and
Exploration in 1989. Prior to his employment with Devon, Mr. Lacey served as
General Manager in Tenneco Oil Company's Mid-Continent

66
<PAGE> 72

and Rocky Mountain Divisions. He holds both undergraduate and graduate degrees
in Petroleum Engineering from the Colorado School of Mines, is a Registered
Professional Engineer and a member of the Society of Petroleum Engineers and the
American Association of Petroleum Geologists.

DARRYL G. SMETTE, Vice President of Marketing and Administrative Planning
since 1989, joined Devon in 1986 as Manager of Gas Marketing. Mr. Smette's
educational background includes an undergraduate degree from Minot State College
and a masters degree from Wichita State University. His marketing background
includes 15 years with Energy Reserves Group, Inc./BHP Petroleum (Americas),
Inc., the last position being Director of Marketing. He is also an oil and gas
industry instructor approved by the University of Texas' Department of
Continuing Education. Mr. Smette is a member of the Oklahoma Independent
Producers Association, Natural Gas Association of Oklahoma and the American Gas
Association.

H. ALLEN TURNER has been responsible for Devon's investment banking
activities and investor communications as Vice President of Corporate
Development since 1982. In 1981 he served as Executive Vice President of Palo
Pinto/Harken Drilling Programs. For the six prior years he was associated with
Merrill Lynch with various responsibilities including Regional Tax Investments
Manager. He is a member of the Petroleum Investor Relations Association, and
serves on the Independent Petroleum Association of America ("IPAA") Capital
Markets Committee. He is the current chairman of the IPAA Oil and Gas Investors
Symposium. Mr. Turner received his bachelor's degree from Duke University.

WILLIAM T. VAUGHN is Devon's Vice President of Finance in charge of
commercial banking functions, accounting, tax and information services. Mr.
Vaughn was elected in 1987 to his present position. Prior to that he was
Controller of Devon from 1983 to 1987. Mr. Vaughn's prior experience includes
serving as Controller with Marion Corporation for two years and employment with
Arthur Young & Co. for seven years with various duties including audit manager.
He is a Certified Public Accountant and a member of the American Institute of
Certified Public Accountants and the Oklahoma Society of Certified Public
Accountants. He is a graduate of the University of Arkansas with a Bachelor of
Science degree.

DANNY J. HEATLY has been Devon's Controller since 1989. Prior to joining
Devon, Mr. Heatly was associated with Peat Marwick Main & Co. in Oklahoma City
for ten years with various duties including senior audit manager. He is a
Certified Public Accountant and a member of the American Institute of Certified
Public Accountants and the Oklahoma Society of Certified Public Accountants. He
graduated with a Bachelor of Accountancy degree from the University of Oklahoma.

GARY L. MCGEE was elected Treasurer in 1983, having first served as Devon's
Controller. Mr. McGee is a member of the Petroleum Accounting Society of
Oklahoma City and has been active in varied accounting functions with several
companies in the industry. He served as Vice President of Finance with KSA
Industries, Inc., a private holding company with various interests including oil
and gas production. Mr. McGee also held various accounting positions with Adams
Resources and Energy Co. and Mesa Petroleum Company. He received his accounting
degree from the University of Oklahoma.

MARIAN J. MOON was elected Corporate Secretary in 1994. Ms. Moon has served
Devon in various capacities since 1984, and currently also serves as Manager of
Special Projects. She has also served as Assistant Secretary with
responsibilities including compliance with SEC and stock exchange regulations.
Prior to joining Devon, Ms. Moon was employed for eleven years by Amarex, Inc.,
an Oklahoma City based oil and natural gas production and exploration firm,
where she served most recently as Treasurer. Ms. Moon is a member of the
Petroleum Investor Relations Association and the American Society of Corporate
Secretaries. She is a graduate of Valparaiso University.

67
<PAGE> 73

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the shares of Devon Common Stock owned by 5%
shareholders, the five highest paid officers and directors of Devon as of
September 30, 1996, and pro forma as if the Transaction was effective as of
September 30, 1996:

<TABLE>
<CAPTION>
PRE-TRANSACTION BENEFICIAL PRO FORMA BENEFICIAL
OWNERSHIP OF DEVON COMMON OWNERSHIP OF DEVON COMMON
STOCK STOCK
-------------------------- --------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
SHARES CLASS SHARES CLASS
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Kerr-McGee................................................ -- -- 9,954,000 31.02%
123 Robert S. Kerr Avenue
Oklahoma City, OK 73102

Merrill Lynch & Co., Inc.................................. 3,839,000 (1)(2) 14.20% 3,839,000 (1)(2) 10.38%
World Financial Center, North Tower
250 Vesey Street
New York, NY 10281

Strong Capital Management, Inc............................ 2,178,000 (3) 9.84% 2,178,000 (3) 6.79%
100 Heritage Reserve
Menomonee Falls, WI 53051

J. Larry Nichols*......................................... 653,571 (4) 2.93% 653,571 (4) 2.03%

Thomas F. Ferguson*....................................... 450,100 (5) 2.03% 450,100 (5) 1.40%

Michael E. Gellert*....................................... 311,720 (6) 1.41% 311,720 (6) 0.97%

H.R. Sanders, Jr.*........................................ 130,026 (7) 0.58% 130,026 (7) 0.40%

John W. Nichols*.......................................... 101,204 0.46% 101,204 0.32%

H. Allen Turner........................................... 75,485 (8) 0.34% 75,485 (8) 0.23%

Darryl G. Smette.......................................... 80,600 (9) 0.36% 80,600 (9) 0.25%

David M. Gavrin*.......................................... 73,251 (10) 0.33% 73,251 (10) 0.23%

J. Michael Lacey.......................................... 71,165 (11) 0.32% 71,165 (11) 0.22%

Luke R. Corbett**......................................... -- -- -- --

Tom J. McDaniel**......................................... -- -- -- --

Lawrence H. Towell**...................................... -- -- -- --

All directors and officers as a group (13 persons
pre-Transaction; 16 persons Pro Forma for the
Transaction)............................................ 2,065,827 (12) 9.08% 2,065,827 (12) 6.31%
</TABLE>

- - - ---------------

* Current Devon director. The business address of each director is 20 North
Broadway, Suite 1500, Oklahoma City, Oklahoma 73102-8260.

** Kerr-McGee Designee to be appointed to Devon's board of directors as of the
Effective Date of the Transaction.

(1) Merrill Lynch & Co., Inc. ("ML&Co.") has reported ownership of 2,200,000
shares of Devon Common Stock as of June 30, 1996. ML&Co., Merrill Lynch
Group, Inc. ("ML Group") and Princeton Services, Inc. ("PSI") are parent
holding companies. Merrill Lynch Asset Management, L.P. ("MLAM") is an
investment adviser to Merrill Lynch Growth Fund for Investment and
Retirement (the "Fund"), the beneficial owner of such shares. ML&Co., ML
Group, PSI, MLAM and the Fund disclaim beneficial ownership of such shares.

(2) Includes 1,639,300 shares of Devon Common Stock which MLAM has the right to
acquire upon the conversion of the TCP Securities.

(3) Strong Capital Management, Inc. ("SCM") has reported ownership of these
shares as of June 30, 1996. SCM is an investment advisor registered under
Section 203 of the Investment Advisers Act of 1940. Mr. Richard Strong is
Chairman of the Board of SCM and beneficially owns substantially all of its
outstanding voting securities. SCM has been granted discretionary
dispositive power over its clients' securities and in some instances has
voting power over such securities. Any and all discretionary authority
which has been delegated to SCM may be revoked in whole or in part at any
time.

(4) Includes 42,965 shares owned of record by Mr. Nichols as Trustee of a
family trust, 78,624 shares owned by Mr. Nichols' wife, 12,570 shares owned
by Mr. Nichols as trustee of his children's trusts as to which he exercises
sole voting and investment power, 6,200 shares owned by Mr. Nichols' son,
6,000

68
<PAGE> 74

shares owned by Mr. Nichols' daughter and 173,600 shares which are deemed
beneficially owned pursuant to stock options held by Mr. Nichols.

(5) Includes 450,100 shares owned by Englewood, N.V. The ultimate parent of
Englewood, N.V., Al-Futtooh Investments WLL, is owned equally by Sheikh
Nasser Al-Sabah, Sheikha Salwa Al-Sabah and Sheikh Hamad Al-Sabah, who each
share voting and investment power. Thomas F. Ferguson is Managing Director
of Englewood N.V. and disclaims beneficial ownership of the shares
attributable to Englewood N.V.

(6) Includes 309,149 shares owned by Windcrest Partners, a limited partnership,
in which Mr. Gellert shares investment and voting power.

(7) Includes 126,800 shares which are deemed beneficially owned pursuant to
stock options held by Mr. Sanders.

(8) Includes 72,000 shares which are deemed beneficially owned pursuant to
stock options held by Mr. Turner.

(9) Includes 78,300 shares which are deemed beneficially owned pursuant to
stock options held by Mr. Smette.

(10) Includes 2,141 shares owned by Mr. Gavrin as co-trustee of the Mark Sandler
1987 Trust and 9,249 shares owned by Mr. Gavrin's wife.

(11) Includes 66,000 shares which are deemed beneficially owned pursuant to
stock options held by Mr. Lacey.

(12) Includes 632,300 shares which are deemed beneficially owned pursuant to
stock options held by officers.

DESCRIPTION OF DEVON CAPITAL STOCK

GENERAL

The authorized capital stock of Devon currently consists of 120,000,000
shares of Common Stock, par value $.10 per share, and 3,000,000 shares of
preferred stock, par value $1.00 per share. If the Required Proposals are
approved at the Devon Meeting, the authorized capital stock of Devon will
consist of 400,000,000 shares of Common Stock, par value $.10 per share and
3,000,000 shares of preferred stock, par value $1.00 per share.

COMMON STOCK

As of October 18, 1996, there were 22,130,896 shares of Common Stock
outstanding, held of record by approximately 1,000 shareholders. Holders of
Common Stock are entitled to receive dividends out of funds legally available
therefor when and if declared by the board of directors. Subject to the rights
of the holders of any outstanding shares of preferred stock, holders of Common
Stock are entitled to cast one vote for each share held of record on all matters
submitted to a vote of stockholders. They are not entitled to cumulative voting
rights for the election of directors. Except pursuant to the Rights Plan, the
Common Stock has no preemptive, conversion or other rights to subscribe for or
purchase any securities of Devon. The Common Stock has no redemption or sinking
fund provisions. Upon liquidation or dissolution of Devon, the holders of Common
Stock are entitled to share ratably in any of Devon's assets that remain after
payment or provision for payment to creditors and holders of preferred stock.
All outstanding shares of Common Stock are fully paid and non-assessable, and
the shares of Common Stock issued upon conversion of the TCP Securities will be
fully paid and nonassessable.

TCP SECURITIES

On July 3, 1996, Devon Financing Trust, a Delaware business trust sponsored
by Devon, issued 2,990,000 TCP Securities. The TCP Securities are convertible
into Devon Common Stock at the rate of 1.6393 shares of Devon Common Stock per
TCP Security, or an aggregate of 4,901,507 shares of Devon Common Stock. The

69
<PAGE> 75

conversion of the TCP Securities may have a dilutive effect on the current
shareholders of Devon and may effect market price of the Devon Common Stock.

PREFERRED STOCK

The preferred stock may be issued in one or more series. Devon's board of
directors is authorized to establish attributes of such series which may
include, but are not limited to, the designation and number of shares
constituting each series, dividend rates payable (cumulative or non-cumulative),
voting rights, redemptions, conversion or preference rights, and any other
rights and qualifications, preferences and limitations or restrictions on shares
of such series. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of Devon without any further vote or
action by the stockholders and may adversely affect the voting and other rights
of the holders of Common Stock. The specific terms of a particular series of
preferred stock will be described in a certificate of designation relating to
that series. No shares of preferred stock are outstanding and at present Devon
has no plans to issue any of the preferred stock. The board of directors has
designated 300,000 shares of preferred stock as Series A Junior Participating
Preferred Stock (the "Series A Preferred Stock") in connection with the Rights
Plan.

SHARE RIGHTS PLAN

Under the Rights Plan, holders of Devon Common Stock have one right with
respect to each share of Common Stock held. The certificates representing
outstanding shares of Common Stock also evidence one right for each share.
Currently, the rights trade with the shares of Common Stock. Upon the occurrence
of certain events generally associated with an unsolicited takeover attempt of
Devon or certain transactions involving a change of control, the rights will be
distributed, will become exercisable and will be tradable separately from the
Common Stock.

The rights have certain anti-takeover effects. They will cause substantial
dilution to a person or group that attempts to acquire Devon in a manner which
causes the rights to become exercisable. Devon believes, however, that the
rights should neither affect any prospective offeror willing to negotiate with
the board of directors of Devon nor interfere with any merger or other business
combination approved by the board of directors of Devon. The rights may be
redeemed by the board of directors for $0.01 per right. The terms of the Rights
Plan may be amended by the board of directors of Devon without the consent of
the holders of the Common Stock or the rights.

The Rights Plan was amended to prevent the execution of the Merger
Agreement from triggering distribution of the rights and will be amended on the
Effective Date to prevent the consummation of the Transaction from triggering
distribution of the rights. See "Description of the Transaction -- Future
Relationships between Kerr-McGee and Devon -- Rights Plan Amendment."

BUSINESS COMBINATION PROVISIONS

The Oklahoma General Corporation Act and Devon's Certificate of
Incorporation have provisions placing limitations on business combinations with
a shareholder who is the beneficial owner of 15% or more of the Common Stock or
any affiliate of such beneficial owner (an "interested shareholder") for a
period of three years from the date a person becomes an interested shareholder.
The effect of these provisions is to limit unsolicited takeover attempts or
certain transactions involving a change of control. Such business combinations
are permitted, however, under certain circumstances, including super-majority
shareholder approval.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for Devon Common Stock is Boston
EquiServe.

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<PAGE> 76

WRITTEN CONSENT BY STOCKHOLDERS PROHIBITED

Devon's Certificate of Incorporation contains a prohibition against the
taking of any action by stockholders pursuant to written consent. This provision
cannot be amended without the affirmative vote of the holders of at least 80% of
the outstanding shares of Devon entitled to vote.

DIRECTORS' LIABILITY

The Certificate of Incorporation of Devon also provides for the elimination
of directors' liability for monetary damages for a breach of certain fiduciary
duties and for indemnification of directors, officers, employees or agents of
Devon as permitted by the Oklahoma Act. These provisions cannot be amended
without the affirmative vote of the holders of at least 80% of the outstanding
shares entitled to vote. Under Devon's Certificate of Incorporation, even though
Devon's directors stand in a fiduciary relation to Devon, they are not liable to
stockholders of Devon for damages for breach of any such fiduciary duty, except
that a director will be personally liable for (i) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(ii) the payment of dividends or redemption or purchase of stock in violation of
the Oklahoma Act, (iii) any breach of the duty of loyalty to Devon or its
stockholders or (iv) any transaction from which the director derived an improper
personal benefit.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following Devon documents have been filed with the SEC and are
incorporated herein by reference:

(a) Annual Report on Form 10-K for the fiscal year ended December 31, 1995;

(b) Quarterly Report on Form 10-Q for the quarter ended March 31, 1996;

(d) Current Report on Form 8-K dated December 18, 1995.

All documents filed by Devon pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Proxy Statement and prior to the date
of the Devon Meeting shall be deemed to be incorporated by reference in this
Proxy Statement and to be a part hereof from the date of the filing of such
documents. Any statement contained in a document incorporated or deemed
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement.

Devon will provide, without charge, to each person to whom a copy of this
Proxy Statement is delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated by reference in this Proxy
Statement, other than exhibits and schedules to such documents, (unless such
exhibits or schedules are specifically incorporated by reference into the
information that this Proxy Statement incorporates). Written or telephonic
requests for such copies should be directed to Devon's principal office: Devon
Energy Corporation, 20 North Broadway, Suite 1500, Oklahoma City, Oklahoma
73102, Attention: Marian J. Moon (telephone: 405/235-3611).

EXPERTS

The consolidated financial statements of Devon as of and for each of the
years in the three-year period ended December 31, 1995, included herein have
been included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.

71
<PAGE> 77

The statements of revenues and direct operating expenses of the Worland
Properties for the year ended December 31, 1994, incorporated herein by
reference, have been incorporated herein in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated herein
by reference, and upon the authority of said firm as experts in accounting and
auditing.

The statements of revenues and direct operating expenses of oil and gas
properties included in the Agreement and Plan of Merger Among Devon Energy
Corporation, Devon Energy Corporation (Nevada), Kerr-McGee Corporation,
Kerr-McGee North American Onshore Corporation and Kerr-McGee Canada Onshore Ltd.
for the three years in the period ended December 31, 1995, included in this
Proxy Statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.

SUBMISSION OF STOCKHOLDER PROPOSALS

Any stockholder desiring to present a proposal for action at the 1997
Annual Meeting of Stockholders of the Company must present the proposal to the
Secretary of the Company not later than December 19, 1996. Only those proposals
that comply with the requirements of Rule 14a-8 promulgated under the Securities
Exchange Act of 1934 will be included in the Company's proxy statement for the
1997 Annual Meeting.

THE DEVON MEETING WILL BE HELD ON , 1996.

72
<PAGE> 78

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
DEVON ENERGY CORPORATION AND SUBSIDIARIES:

Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets......................................................... F-3
Consolidated Statements of Operations............................................... F-4
Consolidated Statements of Stockholders' Equity..................................... F-5
Consolidated Statements of Cash Flows............................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7

OIL AND GAS PROPERTIES INCLUDED IN THE AGREEMENT AND PLAN OF MERGER AMONG DEVON ENERGY
CORPORATION, DEVON ENERGY CORPORATION (NEVADA), KERR-McGEE CORPORATION, KERR-McGEE
NORTH AMERICAN ONSHORE CORPORATION, AND KERR-McGEE CANADA ONSHORE LTD.:

Report of Independent Public Accountants............................................ F-29
Statements of Revenues and Direct Operating Expenses................................ F-30
Notes to Statements of Revenues and Direct Operating Expenses....................... F-31
</TABLE>

F-1
<PAGE> 79

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Devon Energy Corporation:

We have audited the consolidated balance sheets of Devon Energy Corporation
and subsidiaries as of December 31, 1993, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Devon Energy
Corporation and subsidiaries as of December 31, 1993, 1994 and 1995, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.

As discussed in notes 1 and 8 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."

KPMG Peat Marwick LLP

Oklahoma City, Oklahoma
February 12, 1996

F-2
<PAGE> 80

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30, 1996
DECEMBER 31, ----------------------------
-------------------------------------------- PRO FORMA
1993 1994 1995 ACTUAL (NOTE 15)
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 19,550,288 $ 8,336,371 $ 8,897,891 $ 14,133,116 $ 4,148,116
Accounts receivable (note 5)... 15,356,653 15,626,799 14,400,295 16,817,937 16,817,937
Inventories.................... 715,801 534,326 605,263 710,877 710,877
Prepaid expenses............... 543,166 564,371 222,135 1,002,257 1,002,257
Deferred income taxes (note
8)........................... 262,000 262,000 749,000 749,000 749,000
------------ ------------ ------------ ------------ ------------
Total current assets.... 36,427,908 25,323,867 24,874,584 33,413,187 23,428,187
------------ ------------ ------------ ------------ ------------
Property and equipment, at cost,
based on the full cost method
of accounting for oil and gas
properties (note 6)............ 414,073,372 523,941,141 631,437,904 672,429,250 672,429,250
Less accumulated depreciation,
depletion and amortization... 169,384,351 202,634,961 239,619,167 259,816,341 259,816,341
------------ ------------ ------------ ------------ ------------
244,689,021 321,306,180 391,818,737 412,612,909 412,612,909
Other assets..................... 4,435,916 4,817,489 4,870,796 4,584,200 9,569,200
------------ ------------ ------------ ------------ ------------
Total assets............ $285,552,845 $351,447,536 $421,564,117 $450,610,296 $445,610,296
============ ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable:
Trade........................ $ 3,883,775 $ 6,394,897 $ 3,868,458 $ 3,796,782 $ 4,296,782
Revenues and royalties due to
others..................... 14,679,455 7,398,199 7,322,418 5,730,893 5,730,893
Income taxes payable........... 467,962 -- 1,364,070 1,823,503 1,823,503
Accrued expenses............... 2,256,583 3,225,493 3,003,943 2,641,020 2,641,020
------------ ------------ ------------ ------------ ------------
Total current
liabilities........... 21,287,775 17,018,589 15,558,889 13,992,198 14,492,198
------------ ------------ ------------ ------------ ------------
Revenues and royalties due to
others......................... 1,445,883 1,383,135 816,412 1,046,668 1,046,668
Other liabilities (notes 3 and
10)............................ -- -- 8,623,057 9,388,334 9,388,334
Long-term debt (note 7).......... 80,000,000 98,000,000 143,000,000 155,000,000 --
Deferred revenue................. 1,276,640 1,299,947 72,761 40,002 40,002
Deferred income taxes (note 8)... 8,643,000 27,340,000 34,452,000 40,941,000 40,941,000
Company-obligated mandatorily
redeemable convertible
preferred securities of Devon
Financing Trust holding solely
6.5% convertible junior
subordinated debentures of
Devon Energy Corporation
(note 15)...................... -- -- -- -- 149,500,000
Stockholders' equity (note 9):
Preferred stock of $1.00 par
value. Authorized 3,000,000
shares; none issued.......... -- -- -- -- --
Common stock of $.10 par value.
Authorized 120,000,000
shares; issued 20,842,318 in
1993, 22,050,996 in 1994,
22,111,896 in 1995 and
22,130,896 in 1996........... 2,084,232 2,205,100 2,211,190 2,213,090 2,213,090
Additional paid-in capital..... 144,403,743 166,654,305 167,430,347 167,587,572 167,587,572
Retained earnings.............. 26,411,572 37,546,460 49,399,461 60,401,432 60,401,432
------------ ------------ ------------ ------------ ------------
Total stockholders'
equity................ 172,899,547 206,405,865 219,040,998 230,202,094 230,202,094
------------ ------------ ------------ ------------ ------------
Commitments and contingencies
(notes 10 and 11)
Total liabilities and
stockholders'
equity................ $285,552,845 $351,447,536 $421,564,117 $450,610,296 $445,610,296
============ ============ ============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 81

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Oil sales......................... $38,395,305 $ 38,086,076 $ 55,289,819 $26,365,389 $35,652,252
Gas sales......................... 54,875,796 56,371,452 50,732,158 19,452,697 28,834,328
Natural gas liquids sales......... 4,543,625 4,908,126 6,403,663 3,033,448 5,990,870
Other............................. 942,195 1,407,305 877,185 561,127 869,223
----------- ------------ ------------ ----------- -----------
Total revenues............. 98,756,921 100,772,959 113,302,825 49,412,661 71,346,673
----------- ------------ ------------ ----------- -----------
COSTS AND EXPENSES
Lease operating expenses.......... 26,401,597 24,520,757 27,288,755 13,318,684 15,173,253
Production taxes.................. 6,923,535 6,899,743 6,832,507 3,233,678 4,487,913
Depreciation, depletion and
amortization (note 6)........... 28,409,065 34,132,150 38,089,783 19,059,444 20,588,163
General and administrative
expenses........................ 7,640,210 8,424,687 8,418,739 4,389,814 4,524,950
Interest expense.................. 3,421,742 5,438,911 7,051,142 3,526,817 4,942,080
----------- ------------ ------------ ----------- -----------
Total costs and expenses... 72,796,149 79,416,248 87,680,926 43,528,437 49,716,359
----------- ------------ ------------ ----------- -----------
Earnings before income taxes and
cumulative effect of change in
accounting principle.............. 25,960,772 21,356,711 25,621,899 5,884,224 21,630,314
INCOME TAX EXPENSE (NOTE 8)
Current........................... 1,477,000 415,000 4,495,000 235,000 2,812,000
Deferred.......................... 5,298,000 7,197,000 6,625,000 2,178,000 6,489,000
----------- ------------ ------------ ----------- -----------
Total income tax expense... 6,775,000 7,612,000 11,120,000 2,413,000 9,301,000
----------- ------------ ------------ ----------- -----------
Earnings before cumulative effect of
change in accounting principle.... 19,185,772 13,744,711 14,501,899 3,471,224 12,329,314
Cumulative effect of change in
accounting principle (note 8)..... 1,300,000 -- -- -- --
----------- ------------ ------------ ----------- -----------
Net earnings........................ $20,485,772 $ 13,744,711 $ 14,501,899 $ 3,471,224 12,329,314
=========== ============ ============ =========== ===========
Net earnings per average common
share outstanding (note 1):
Before cumulative effect of change
in accounting principle......... $ 0.92 $ 0.64 $ 0.66 $ 0.16 0.56
Cumulative effect of change in
accounting principle............ 0.06 -- -- -- --
----------- ------------ ------------ ----------- -----------
Net earnings...................... $ 0.98 $ 0.64 $ 0.66 $ 0.16 $ 0.56
=========== ============ ============ =========== ===========
Weighted average common shares
outstanding....................... 20,822,029 21,551,581 22,073,550 22,051,576 22,117,138
=========== ============ ============ =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 82

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 83

DEVON ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings.............................. $ 20,485,772 $ 13,744,711 $ 14,501,899 $ 3,471,224 $ 12,329,314
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation, depletion and
amortization.......................... 28,409,065 34,132,150 38,089,783 19,059,444 20,588,163
(Gain) loss on sale of assets........... 34,832 (27,086) 273,238 (26,763) (39,011)
Deferred income taxes................... 5,298,000 7,197,000 6,625,000 2,178,000 6,489,000
Cumulative effect of change in
accounting principle.................. (1,300,000) -- -- -- --
Changes in assets and liabilities net of
effects of acquisitions of businesses
(note 2):
(Increase) decrease in:
Accounts receivable................. 2,102,329 123,388 1,213,877 (1,774,987) (2,417,642)
Inventories......................... (194,151) 181,475 (70,937) (15,169) 20,679
Prepaid expenses.................... (127,430) 712 342,236 (766,532) (780,122)
Other assets........................ (1,136,282) (489,648) 677,238 624,327 212,027
Increase (decrease) in:
Accounts payable.................... 9,816,309 (8,896,674) (430,736) (1,324,500) (1,850,332)
Income taxes payable................ (718,038) (467,962) 1,364,070 -- 459,433
Accrued expenses.................... 1,201,933 997,645 (221,550) (168,555) (362,923)
Revenues and royalties due to
others............................ (69,763) (62,748) (566,723) -- 230,256
Long-term other liabilities......... -- -- 705,636 -- 232,507
Deferred revenue.................... 154,234 (49,127) (1,227,186) 6,296,937 (32,759)
------------ ------------ ------------- ------------ ------------
Net cash provided by operating
activities........................ 63,956,810 46,383,836 61,275,845 27,553,426 35,078,590
------------ ------------ ------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and
equipment............................... 11,350,912 4,649,257 9,427,401 1,460,712 1,435,378
Increase in deposits...................... -- -- -- 11,521,923 --
Capital expenditures...................... (85,565,098) (35,619,968) (117,593,897) (33,440,872) (42,643,295)
Payments made for acquisition of business
(note 2)................................ -- (42,397,463) (2,391,484) (2,391,484) --
------------ ------------ ------------- ------------ ------------
Net cash used in investing
activities........................ (74,214,186) (73,368,174) (110,557,980) (22,849,721) (41,207,917)
------------ ------------ ------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings on revolving line
of credit............................... 60,000,000 32,500,000 52,000,000 4,000,000 16,000,000
Principal payments on revolving line of
credit.................................. (34,900,000) (14,500,000) (7,000,000) (7,000,000) (4,000,000)
Issuance of common stock, net of issuance
costs................................... 1,022,157 380,244 782,132 90,032 159,125
Dividends paid on common stock............ (1,875,389) (2,609,823) (2,648,898) (1,323,084) (1,327,343)
Increase in long-term other liabilities
(note 3)................................ -- -- 6,710,421 -- 532,770
------------ ------------ ------------- ------------ ------------
Net cash provided (used) by
financing activities.............. 24,246,768 15,770,421 49,843,655 (4,233,052) 11,364,552
------------ ------------ ------------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents............................... 13,989,392 (11,213,917) 561,520 470,653 5,235,225
Cash and cash equivalents at beginning of
period.................................... 5,560,896 19,550,288 8,336,371 8,336,371 8,897,891
------------ ------------ ------------- ------------ ------------
Cash and cash equivalents at end of
period.................................... $ 19,550,288 $ 8,336,371 $ 8,897,891 $ 8,807,024 $ 14,133,116
============ ============ ============= ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 84

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1995 AND 1996

(INSOFAR AS THESE NOTES RELATE TO JUNE 30, 1995 AND 1996, THE INFORMATION IS
UNAUDITED.)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting policies used by Devon Energy Corporation and subsidiaries
("Devon") reflect industry practices and conform to generally accepted
accounting principles. The more significant of such policies are briefly
discussed below.

Basis of Presentation and Principles of Consolidation

Devon was formed in 1988 as a successor to Devon Energy Corporation
(Nevada) ("Devon Nevada") to consolidate the businesses, assets and operations
with those of two partnerships for which Devon Nevada served as general partner.
This consolidation was consummated on September 29, 1988. On that date, Devon
common stock began trading on the American Stock Exchange under the symbol
"DVN." Devon is engaged primarily in oil and gas exploration, development and
production, and the acquisition of producing properties. Such activities are
primarily in the states of New Mexico, Texas, Oklahoma, Wyoming and Louisiana.

Devon's share of the assets, liabilities, revenues and expenses of
affiliated partnerships and the accounts of its wholly-owned subsidiaries are
included in the accompanying consolidated financial statements. All significant
intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.

Inventories

Inventories, which consist primarily of tubular goods, parts and supplies,
are stated at cost, determined principally by the average cost method, which is
not in excess of net realizable value.

Property and Equipment

Devon follows the full cost method of accounting for its oil and gas
properties. Accordingly, all costs incidental to the acquisition, exploration
and development of oil and gas properties, including costs of undeveloped
leasehold, dry holes and leasehold equipment, are capitalized. Net capitalized
costs are limited to the estimated future net revenues, discounted at 10% per
annum, from proved oil, natural gas and natural gas liquids reserves. Such
capitalized costs are depleted by an equivalent unit-of-production method,
converting gas to oil at the ratio of one barrel ("Bbl") of oil to six thousand
cubic feet ("Mcf") of natural gas. No gain or loss is recognized upon disposal
of oil and gas properties unless such disposal significantly alters the
relationship between capitalized costs and proved reserves.

Depreciation and amortization of other property and equipment, including
leasehold improvements, is provided using the straight-line method based on
estimated useful lives from 3 to 20 years.

Deferred Revenue

Deferred revenue includes funds received under take-or-pay provisions of
certain gas contracts, which provide for recovery by the paying party of certain
volumes of gas.

F-7
<PAGE> 85

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Gas Balancing

During the course of normal operations, Devon and other joint interest
owners of natural gas reservoirs will take more or less than their respective
ownership share of the natural gas volumes produced. These volumetric imbalances
are monitored over the lives of the wells' production capability. If an
imbalance exists at the time the wells' reserves are depleted, cash settlements
are made among the joint interest owners under a variety of arrangements.

Devon follows the sales method of accounting for gas imbalances. A
liability is recorded only if Devon's excess takes of natural gas volumes exceed
its estimated remaining recoverable reserves. No receivables are recorded for
those wells where Devon has taken less than its ownership share of gas
production.

Stock Options

No accounting is made with respect to incentive stock options until such
time as they are exercised, at which time the proceeds are added to
stockholders' equity.

Major Purchasers

During 1993, Meridian Oil Trading, Inc. ("MOTI") accounted for 39% of
Devon's gas sales. During 1994, there were three purchasers who accounted for
over 10% of Devon's gas sales. These three purchasers and their respective share
of gas sales were: Aquila Energy Marketing Corporation ("Aquila") -- 21%; Enron
Gas Marketing, Inc. ("Enron") -- 19%; and MOTI -- 18%. During 1995, there were
two purchasers who accounted for over 10% of Devon's gas sales. These two
purchasers and their respective share of gas sales were: Aquila -- 31%; and
Enron -- 16%.

Income Taxes

Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("Statement 109") was issued in February 1992. Under Statement 109's
asset and liability method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases, as well as the future tax consequences attributable to the
future utilization of existing net operating loss and other types of
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences and carryforwards are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

Devon adopted Statement 109 effective January 1, 1993, and has reported a
benefit of $1.3 million in 1993 as a cumulative effect of a change in accounting
principle.

General and Administrative Expenses

General and administrative expenses are reported net of amounts allocated
to working interest owners of the oil and gas properties operated by Devon, net
of amounts charged to affiliated partnerships for administrative and overhead
costs, and net of amounts capitalized pursuant to the full cost method of
accounting.

Net Earnings Per Common Share

Net earnings per common share are based upon the weighted average number of
shares of common stock outstanding during the year. Stock options have been
excluded since they would not have had a significant dilutive effect.

F-8
<PAGE> 86

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Dividends

Beginning with the second quarter of 1993, dividends on common stock were
paid in 1993, 1994 and 1995 and through June 30, 1996, at a per share rate of
$0.03 per quarter.

Fair Value of Financial Instruments

Devon's only financial instrument for which the fair value differs
materially from the carrying value is the interest rate swap discussed in note
7. The fair value and the carrying value for all other financial instruments
(cash and equivalents, accounts receivable, accounts payable and long-term debt)
are approximately equal due to the short-term nature of the current assets and
liabilities and the fact that the interest rates paid on Devon's long-term debt
are set for periods of three months or less.

Statements of Cash Flows

For purposes of the consolidated statements of cash flows, Devon considers
all highly liquid investments with original maturities of three months or less
to be cash equivalents.

Unaudited Interim Periods

In the opinion of Devon's management, all adjustments (all of which are
normal and recurring) have been made which are necessary to fairly state the
consolidated financial position of Devon and its subsidiaries as of June 30,
1996, and the results of their operations and their cash flows for the six month
periods ended June 30, 1995 and 1996.

2. ACQUISITIONS AND PRO FORMA INFORMATION

On December 18, 1995, Devon acquired certain Wyoming oil and natural gas
properties and a gas processing plant (the "Worland Properties") for
approximately $50.3 million. The acquisition was primarily funded with $46.0
million of borrowings from Devon's credit lines. Approximately $46.3 million of
the purchase price was allocated to proved oil, gas and natural gas liquids
reserves and the plant. The estimated reserve quantities acquired were 1.8
million barrels of oil, 59 billion cubic feet of natural gas and 3.7 million
barrels of oil equivalent of natural gas liquids. Included in these reserves are
certain proved undeveloped reserves, for which Devon expects to incur
approximately $11.8 million of future capital costs. Approximately $4.0 million
of the purchase price was allocated to undeveloped leasehold. (The quantities of
proved reserves and the estimated future development costs stated in this
paragraph are unaudited.)

On February 18, 1994, Devon and Alta Energy Corporation ("Alta") entered
into an Agreement and Plan of Merger, as amended on April 13, 1994, whereby Alta
was merged into a wholly-owned subsidiary of Devon (the "Merger"). The Merger
was consummated on May 18, 1994, at which date the separate existence of Alta
ceased. Alta's common stockholders received approximately 1,168,000 shares of
Devon common stock and $1.5 million in cash upon consummation of the Merger.
Subsequently, in February 1995, former Alta stockholders received an additional
cash payment of $2.4 million based upon the evaluation of the Camille Adams #1
well in Louisiana which Alta completed during the first half of 1994. Devon also
incurred $41.4 million of other costs related to the Merger. This included $31.7
million to acquire Alta's debt from its creditors; $3.0 million to acquire
shares of Alta preferred and common stock; $3.8 million loaned to Alta for
operating funds; $1.5 million to acquire certain net profits interests from Alta
creditors; and $1.4 million for third party costs related to the Merger.

Devon recorded additional deferred tax liabilities of $11.5 million due to
the substantially tax-free nature of the Merger to the former Alta stockholders.
Excluding the $11.5 million of additional deferred tax liabilities,
approximately $69.4 million of the total consideration involved in the Merger
was allocated to

F-9
<PAGE> 87

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

proved oil and gas reserves. Including the deferred tax liabilities, $80.9
million was allocated to proved oil and gas reserves.

On June 28, 1993, Devon acquired certain coal seam natural gas properties
in the San Juan Basin of New Mexico ("the Acquired San Juan Basin Properties")
for approximately $53.3 million. Approximately $48.3 million of the purchase
price was attributable to proved coal seam natural gas reserves. The remaining
$5 million of the purchase price was allocated to unproved reserves associated
with infill drilling and development rights. The acquisition was primarily
funded with $50 million of borrowings from Devon's credit lines. The acquisition
was accounted for by the purchase method of accounting for business
combinations. Accordingly, the accompanying 1993 consolidated statement of
operations does not include any revenues or expenses associated with the
Acquired San Juan Basin Properties prior to July 1, 1993.

Pro Forma Information (Unaudited)

The 1994 Merger and the 1995 acquisition of the Worland Properties
described above were accounted for by the purchase method of accounting for
business combinations. Accordingly, the accompanying consolidated statements of
operations do not include any revenues or expenses related to Alta prior to the
closing date of May 18, 1994, nor do they include any revenues or expenses
related to the Worland Properties prior to the December 18, 1995 closing date.
Following are Devon's pro forma 1994 results assuming the Merger and the
acquisition of the Worland Properties both occurred on January 1, 1994:

<TABLE>
<CAPTION>
1994
--------------------------------------------------------
PRO FORMA EFFECT OF
------------------------
DEVON WORLAND DEVON
HISTORICAL MERGER PROPERTIES PRO FORMA
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Total revenues................... $100,773,000 $4,329,000 $6,297,000 $111,399,000
Net earnings..................... $ 13,745,000 $ (329,000) $ (387,000) $ 13,029,000
Net earnings per share........... $ 0.64 $ (0.03) $ (.02) $ 0.59
</TABLE>

The accompanying 1995 consolidated statement of operations does not include
any revenues or expenses associated with the Worland Properties prior to the
closing date of December 18, 1995. Following are Devon's pro forma results for
1995 assuming the acquisition of the Worland Properties occurred at the
beginning of 1995:

<TABLE>
<CAPTION>
1995
------------
<S> <C>
Total revenues....................................... $118,652,000
Net earnings......................................... $ 13,097,000
Net earnings per share............................... $ 0.59
</TABLE>

3. SAN JUAN BASIN TRANSACTION

Effective January 1, 1995, Devon and an unrelated company entered into a
transaction covering substantially all of Devon's San Juan Basin coal seam gas
properties (the "San Juan Basin Transaction"). These coal seam gas properties
represented Devon's largest oil and gas reserve position as of December 31,
1994. The properties' estimated reserves as of year-end 1994 were 199.2 billion
cubic feet ("Bcf") of natural gas, or 31% of Devon's 633.2 equivalent Bcf of
combined oil and natural gas reserves. In addition to the cash flow and earnings
impact normally associated with oil and gas production, these properties also
qualify as a "nonconventional fuel source" under the Internal Revenue Code.
Consequently, gas produced from these properties through the year 2002 qualifies
for Section 29 tax credits, which as of year-end 1995 were equal to
approximately $1.01 per million Btu ("MMBtu").

F-10
<PAGE> 88

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The San Juan Basin Transaction involves approximately 186.2 Bcf, or 93%, of
the year-end 1994 coal seam gas reserves, and has four major parts associated
with it. First, Devon conveyed to the unrelated party 179 Bcf of the properties'
reserves. However, for financial reporting purposes, Devon retained all of such
reserves and their future production and cash flow through a volumetric
production payment and a repurchase option. Second, Devon conveyed outright to
the unrelated party 7.2 Bcf of reserves for a sales price of $5.2 million. The
reserves and future cash flow associated with this conveyance were not retained
by Devon. Third, and the source of the most significant impact of the
transaction, Devon receives payments equal to 75% of the Section 29 tax credits
generated by the properties. And fourth, Devon retained a 75% reversionary
interest in any reserves in excess of the 186.2 Bcf estimated to exist as of
December 31, 1994. Each of these parts of the San Juan Basin Transaction, and
their effects on Devon's operations, are described in more detail in the
following paragraphs.

The production payment retained by Devon is equal to 94.05% of the first
143.4 Bcf of gas produced from the properties, or 134.9 Bcf. As such, Devon will
continue to record gas sales and associated production and operating expenses
and reserves associated with the production payment. Production from the
retained production payment is currently estimated to occur over a period of 12
years.

The conveyance of the properties which are not subject to the retained
production payment or the repurchase option was accounted for as a sale of oil
and gas properties. Accordingly, 7.2 Bcf of gas reserves were removed from total
proved reserves, and the $5.2 million of proceeds reduced the book value of oil
and gas properties. The conveyance to the third party is limited exclusively to
the existing wells drilled as of January 1, 1995. Wells to be drilled in the
future, if any, are not included in this transaction.

In addition to receiving 94.05% of the properties' net cash flow through
the retained production payment, Devon receives quarterly payments from the
third party equal to 75% of the value of the Section 29 tax credits which are
generated by production from such properties until the earlier of December 31,
2002, or until the option to repurchase is exercised. For the year ended
December 31, 1995 and the three months ended March 31, 1996, Devon received
$13.9 million and $3.1 million, respectively, related to the credits. Of these
amounts, $12.8 million in the year 1995 and $2.8 million in the 1996 quarter
were recorded as additional gas sales, and $1.1 million in the year 1995 and
$0.3 million in the 1996 quarter were recorded as additions to liabilities as
discussed in the following paragraph. Based on the reserves estimated at
December 31, 1995, and an assumed annual inflation factor of 2%, Devon estimates
it will receive total tax credit payments of approximately $68 million from 1996
through 2002.

Devon has an option to repurchase the properties at any time. The purchase
price of such option is equal to the fair market value of the properties at the
time the option is exercised, as defined in the transaction agreement, less the
production payment balance. At closing, Devon received $5.6 million associated
with reserves to be produced subsequent to the term of the production payment.
Such amount is included in long-term "other liabilities" on the accompanying
balance sheet. Since Devon expects to eventually exercise its option to
repurchase the properties, the liability will be increased over time to reflect
the option purchase price. As the purchase price increases, a portion of the tax
credit payments received by Devon will be added to the liability. As stated
above, for the year ended December 31, 1995 and the three months ended March 31,
1996, $1.1 million and $0.3 million, respectively, of the total amount received
for tax credit payments were added to the liability. The liability balance as of
December 31, 1995 and March 31, 1996 was $6.7 million and $7.0 million,
respectively.

Devon has retained a 75% reversionary interest in the properties' reserves
in excess, if any, of the 186.2 Bcf of reserves estimated to exist at December
31, 1994. The terms of the transaction provide that the third party will pay
100% of the capital necessary to develop any such incremental reserves for its
25% interest in such reserves. Devon's repurchase option also includes the right
to purchase this incremental 25%. However, the $6.7 million of other liabilities
recorded as of year-end 1995, does not include any amount related to such
reserves.

F-11
<PAGE> 89

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Devon received $6.9 million related to the credits in the six months ended
June 30, 1995. However, the San Juan Basin Transaction was initially subject to
a material contingency. Therefore, the transaction's impact on Devon's operating
statement was deferred pending the contingency's resolution. In October 1995,
the contingency was favorably resolved, and therefore the transaction's
cumulative effect for the first nine months of 1995 was recorded in the third
quarter of 1995. Had the contingency not been in effect, and had the results of
the transaction not been deferred, the following results would have been
reported for the six months ended June 30, 1995.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1995
------------------
(UNAUDITED)
<S> <C>
Revenues:
Oil sales...................................................... $ 26,365,389
Gas sales...................................................... 25,373,648
Natural gas liquids sales...................................... 3,033,448
Other.......................................................... 636,177
------------
Total revenues......................................... 55,408,662
------------
Costs and expenses:
Lease operating expenses....................................... 13,292,588
Production taxes............................................... 3,197,148
Depreciation, depletion and amortization....................... 18,640,637
General and administrative expenses............................ 4,389,814
Interest expense............................................... 3,526,817
------------
Total costs and expenses............................... 43,047,004
------------
Earnings before income taxes..................................... 12,361,658
Income tax expense:
Current........................................................ 2,596,000
Deferred....................................................... 2,720,000
------------
Total income tax expense....................................... 5,316,000
------------
Net earnings..................................................... $ 7,045,658
============
Net earning per average common share outstanding................. $ .32
============
</TABLE>

4. SUPPLEMENTAL CASH FLOW INFORMATION

Cash payments for interest in 1993, 1994, and 1995 were approximately $3.3
million, $5.1 million and $6.7 million, respectively. Cash payments for interest
in the six month periods ended June 30, 1995 and 1996 were $3.3 million and $4.9
million, respectively. Cash payments for federal and state income taxes in 1993,
1994, and 1995 were approximately $2.3 million, $1.8 million and $2.2 million,
respectively. Cash payments for federal and state income taxes in the six month
periods ended June 30, 1995 and 1996 were $3.4 million and $2.4 million,
respectively.

The Merger with Alta in 1994 involved cash and non-cash consideration as
presented below:

<TABLE>
<CAPTION>
1994
-----------
<S> <C>
Cash payments made.................................... $42,915,845
Value of common stock issued.......................... 21,991,084
Liabilities assumed................................... 7,192,671
Deferred tax liability created........................ 11,500,000
-----------
Fair value of assets acquired......................... $83,599,600
===========
</TABLE>

F-12
<PAGE> 90

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The above cash payments of $42.9 million include approximately $1.4 million
of direct costs paid to third parties which were capitalized and allocated to
producing oil and gas properties. The cash payments made are reduced in the
accompanying 1994 consolidated statement of cash flows by $518,382 of cash
acquired in the Merger.

5. ACCOUNTS RECEIVABLE

The components of accounts receivable included the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------- JUNE 30,
1993 1994 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Oil, gas and natural gas liquids
revenue accruals............... $11,981,969 $10,973,589 $11,169,313 $11,469,546
Joint interest billings.......... 2,995,440 3,367,493 2,962,037 3,796,149
Income tax refunds due........... -- 959,085 -- --
Other............................ 629,244 551,632 493,945 1,777,242
----------- ----------- ----------- -----------
15,606,653 15,851,799 14,625,295 17,042,937
Allowance for doubtful
accounts....................... (250,000) (225,000) (225,000) (225,000)
----------- ----------- ----------- -----------
Net accounts receivable.......... $15,356,653 $15,626,799 $14,400,295 $16,817,937
=========== =========== =========== ===========
</TABLE>

F-13
<PAGE> 91

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. PROPERTY AND EQUIPMENT

Property and equipment included the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------- JUNE 30,
1993 1994 1995 1996
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Oil and gas properties:
Subject to amortization........ $ 394,845,195 $ 503,174,488 $ 604,227,702 $ 644,284,713
Not subject to amortization:
Acquired in 1996............ -- -- -- 913,436
Acquired in 1995............ -- -- 5,635,170 5,635,170
Acquired in 1994............ -- 1,451,109 1,001,427 1,001,427
Acquired in 1993............ 5,993,090 5,556,977 5,556,977 5,458,365
Acquired in 1992............ 8,650,308 8,561,031 8,257,985 8,249,492
Accumulated depreciation,
depletion and
amortization................ (167,884,858) (200,746,032) (237,385,785) (257,123,298)
------------- ------------- ------------- -------------
Net oil and gas
properties........... 241,603,735 317,997,573 387,293,476 408,419,305
------------- ------------- ------------- -------------
Other property and equipment:
Computers, office equipment,
furniture and leasehold
improvements................ 3,645,091 4,047,183 5,168,817 5,461,354
Automotive equipment........... 646,247 786,338 1,201,084 1,226,284
Other.......................... 293,441 364,015 388,742 199,009
Accumulated depreciation and
amortization................ (1,499,493) (1,888,929) (2,233,382) (2,693,043)
------------- ------------- ------------- -------------
Net other property and
equipment............ 3,085,286 3,308,607 4,525,261 4,193,604
------------- ------------- ------------- -------------
Property and equipment, net of
accumulated depreciation,
depletion and amortization..... $ 244,689,021 $ 321,306,180 $ 391,818,737 $ 412,612,909
============= ============= ============= =============
</TABLE>

Depreciation, depletion and amortization expense consisted of the following
components:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Depreciation, depletion and
amortization of oil and
gas properties............ $27,419,640 $32,861,174 $36,639,753 $18,410,973 $19,737,513
Depreciation and
amortization
of other property and
equipment................. 808,770 865,092 1,045,978 446,446 648,625
Amortization of other
assets.................... 180,655 405,884 404,052 202,025 202,025
----------- ----------- ----------- ----------- -----------
Total expense..... $28,409,065 $34,132,150 $38,089,783 $19,059,444 $20,588,163
=========== =========== =========== =========== ===========
</TABLE>

7. LONG-TERM DEBT

Devon has lines of credit pursuant to which it can borrow up to an amount
determined by the banks based on their evaluation of the assets and cash flow
(the "Borrowing Base") of Devon. The established Borrowing Base at December 31,
1995, was $205 million. As of June 30, 1996, the banks had revised the Borrowing
Base

F-14
<PAGE> 92

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

upward to $260 million. Amounts borrowed under the credit lines bear interest at
various fixed rate options which Devon may elect for periods up to 90 days. Such
rates are generally less than the prime rate. Devon may also elect to borrow at
the prime rate plus up to .50% depending on the percentage of the Borrowing Base
that is borrowed. The average interest rates on the outstanding debt at December
31, 1993, 1994 and 1995, and June 30, 1996, were 4.16%, 6.83%, 6.64% and 5.98%,
respectively. The loan agreements also provide for a quarterly commitment fee
equal to .375% per annum.

Debt borrowed under the credit lines is unsecured. No principal payments
are required until maturity unless the unpaid balance exceeds the Borrowing
Base. As of June 30, 1996, the $155 million outstanding balance matures on March
31, 1999. The loan agreements contain certain covenants and restrictions, among
which are limitations on additional borrowings and sales of properties valued at
more than $10 million, working capital and net worth maintenance requirements
and a minimum debt to net worth ratio. At December 31, 1995 and June 30, 1996,
Devon was in compliance with such covenants and restrictions.

Devon entered into an interest rate swap agreement in June, 1995, to hedge
the impact of interest rate changes on a portion of its long-term debt. As
described further below, the agreement was terminated by Devon on July 1, 1996.
The principal amount of the swap agreement was $75 million, and the other party
to the agreement was one of the lenders of Devon's credit lines (the "Lender").

The agreement was originally scheduled to terminate on June 16, 1998,
subject to the Lender's right to extend the termination date to June 16, 2000.
The terms of the agreement provided for quarterly payments either to or from
Devon, determined by whether the three month London Interbank Offered Rate
("LIBOR") in effect at the beginning of each quarterly calculation period was
greater or less than 5.6%. The calculation periods began on the sixteenth day of
each March, June, September and December during the term of the agreement. If,
on the date of the beginning of the quarterly calculation period, the three
month LIBOR exceeded 5.6%, the Lender owed Devon the quarterly amount of the
excess rate applied to the $75 million principal. Alternately, if the three
month LIBOR on the applicable quarterly date was less than 5.6%, Devon owed the
Lender.

The swap agreement was accounted for as a hedge, with the amount which was
either due to or from Devon recorded as a reduction or increase in interest
expense. Devon recognized reductions to interest expense of $0.1 million in the
year 1995 and $1,000 in the first half of 1996. The fair value of the interest
rate swap as of December 31, 1995 was a liability of approximately $1.4 million.
The fair value as of June 30, 1996 was an asset of $802,000. The interest rate
swap has no carrying value in the accompanying consolidated financial
statements.

The swap agreement did not alter or affect any terms or conditions of
Devon's credit lines.

On July 1, 1996, Devon terminated the interest rate swap agreement for a
gain of $802,000. This gain will be recognized ratably as a reduction to
interest expense for the period from July 1, 1996, to June 16, 1998.

8. INCOME TAXES

At December 31, 1995, Devon had the following carryforwards available to
reduce future federal and state income taxes:

<TABLE>
<CAPTION>
YEARS OF CARRYFORWARD
TYPES OF CARRYFORWARD EXPIRATION AMOUNTS
------------------------ ---------- ------------
<S> <C> <C>
Net operating loss -- federal.............................. 1996-2008 $ 15,400,000
Net operating loss -- various states....................... 1996-2010 18,100,000
Statutory depletion........................................ N/A 6,500,000
Minimum tax credit......................................... N/A 5,600,000
Investment tax credit...................................... 1996-1999 100,000
</TABLE>

F-15
<PAGE> 93

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

All of the carryforward amounts shown above have been utilized for
financial purposes to reduce deferred taxes. Substantially all of the federal
net operating loss carryforwards shown above were acquired in the 1994 Merger.

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

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate...................................... 35% 35% 35%
Nonconventional fuel source credits............................. (6) -- (1)
Alternative minimum tax (credit)................................ (2) -- --
State income taxes.............................................. 1 3 4
Effect of San Juan Basin Transaction............................ -- -- 4
Other........................................................... (2) (2) 1
-- -- --
Effective income tax rate....................................... 26% 36% 43%
== == ==
</TABLE>

The effective income tax rates for the three month periods ended March 31,
1995 and 1996 were 41% and 43%, respectively.

As discussed in note 1, Devon adopted Statement 109 as of January 1, 1993.
The $1.3 million cumulative benefit of this change is reported separately in the
1993 consolidated statement of operations.

The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and liabilities at December 31, 1993, 1994
and 1995, as provided for under Statement 109, are presented below:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......... $ 1,609,000 $ 6,127,000 $ 6,082,000
Statutory depletion carryforwards........ 2,606,000 3,087,000 2,287,000
Investment tax credit carryforwards...... 894,000 813,000 85,000
Minimum tax credit carryforwards......... 1,860,000 2,195,000 5,576,000
Production payments...................... -- -- 24,770,000
Other.................................... 629,000 897,000 1,966,000
------------ ------------ ------------
Total gross deferred tax
assets......................... 7,598,000 13,119,000 40,766,000
Less valuation allowance......... -- 100,000 100,000
------------ ------------ ------------
Net deferred tax assets.......... 7,598,000 13,019,000 40,666,000
Deferred tax liabilities:
Property and equipment, principally due
to differences in depreciation, and
the expensing of intangible drilling
costs for tax purposes................ (15,979,000) (40,097,000) (74,369,000)
------------ ------------ ------------
Net deferred tax liability....... $ (8,381,000) $(27,078,000) $(33,703,000)
============ ============ ============
</TABLE>

As shown in the above schedule, Devon has recognized $40.7 million of net
deferred tax assets as of December 31, 1995. Such amount consists almost
entirely of $14 million of various carryforwards available to offset future
income taxes, and $24.8 million of net tax basis in production payments. The
carryforwards include federal net operating loss carryforwards, the majority of
which do not begin to expire until 2006, state

F-16
<PAGE> 94

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

net operating loss carryforwards which expire primarily between 1999 and 2003,
investment tax credit carryforwards which expire between 1996 and 1999, and the
statutory depletion and minimum tax credit carryforwards which have no
expiration dates. Statement 109 requires that the tax benefit of carryforwards
be recorded as an asset to the extent that management assesses the utilization
of such carryforwards to be "more likely than not." When the future utilization
of some portion of the carryforwards is determined not to be "more likely than
not", Statement 109 requires that a valuation allowance be provided to reduce
the recorded tax benefits from such assets.

Devon expects the tax benefits from the net operating loss carryforwards to
be utilized between 1996 and 2002. Such expectation is based upon current
estimates of taxable income during this period, considering limitations on the
annual utilization of these benefits as set forth by federal tax regulations.
Significant changes in such estimates caused by variables such as future oil and
gas prices or capital expenditures could alter the timing of the eventual
utilization of such carryforwards. There can be no assurance that Devon will
generate any specific level of continuing taxable earnings. However, management
believes that Devon's future taxable income will more likely than not be
sufficient to utilize substantially all its tax carryforwards prior to their
expiration. A $100,000 valuation allowance has been recorded at December 31,
1995, related to depletion carryforwards acquired in the Merger.

The $24.8 million of deferred tax assets related to production payments is
offset by a portion of the deferred tax liability related to the excess
financial basis of property and equipment. The income tax accounting for the San
Juan Basin Transaction described in note 3 differs from the financial accounting
treatment which is described in such note. For income tax purposes, a gain from
the conveyance of the properties was recognized, and the present value of the
production payments to be received was recorded as a note receivable. For
presentation purposes, the $24.8 million represents the tax effect of the
difference in accounting for the production payment, less the effect of the
taxable gain from the transaction which is being deferred and recognized on the
installment basis for income tax purposes.

9. STOCKHOLDERS' EQUITY

The authorized capital stock of Devon consists of 120 million shares of
common stock, par value $.10 per share (the "Common Stock"), and three million
shares of preferred stock, par value $1.00 per share (the "Preferred Stock").
The Preferred Stock may be issued in one or more series, and the terms and
rights of such stock will be determined by the Board of Directors.

Devon's Board of Directors has designated 150,000 shares of the Preferred
Stock as Series A Junior Participating Preferred Stock (the "Series A Preferred
Stock") in connection with the adoption of the share rights plan described later
in this note. At December 31, 1995, there were no shares of Series A Preferred
Stock issued or outstanding. The Series A Preferred Stock is entitled to receive
cumulative quarterly dividends per share equal to the greater of $10 or 100
times the aggregate per share amount of all dividends (other than stock
dividends) declared on Common Stock since the immediately preceding quarterly
dividend payment date or, with respect to the first payment date, since the
first issuance of Series A Preferred Stock. Holders of the Series A Preferred
Stock are entitled to 100 votes per share (subject to adjustment to prevent
dilution) on all matters submitted to a vote of the stockholders. The Series A
Preferred Stock is neither redeemable nor convertible. The Series A Preferred
Stock ranks prior to the Common Stock but junior to all other classes of
Preferred Stock.

Stock Option Plans

Prior to 1993, Devon had outstanding stock options issued to certain of its
employees under two stock option plans adopted in 1987 and 1988 ("the 1987 Plan"
and "the 1988 Plan"). During 1993, all remaining options outstanding under the
1987 Plan were exercised. Also during 1993, the 1988 Plan was cancelled. Options
granted under the 1988 Plan remain exercisable by the employees owning such
options, but no new

F-17
<PAGE> 95

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

options will be granted under the 1988 Plan. At December 31, 1995, 14
participants held the 368,600 options outstanding under the 1988 Plan.

Effective June 7, 1993, Devon adopted the Devon Energy Corporation 1993
Stock Option Plan ("the 1993 Plan") and reserved one million shares of Common
Stock for issuance thereunder to key management and professional employees.
Eighteen such employees were eligible to participate in the 1993 Plan at
year-end 1995.

The exercise price of incentive stock options granted under the 1993 Plan
may not be less than the estimated fair market value of the stock at the date of
grant, plus 10% if the grantee owns or controls more than 10% of the total
voting stock of Devon prior to the grant. The exercise price of nonqualified
options granted under the 1993 Plan may not be less than 75% of the fair market
value of the stock on the date of grant. Options granted are exercisable during
a period established for each grant, which period may not exceed 10 years from
the date of grant. Under the 1993 Plan, the grantee must pay the exercise price
in cash or in Common Stock, or a combination thereof, at the time that the
option is exercised. The 1993 Plan is administered by a committee comprised of
non-management members of the Board of Directors. The 1993 Plan expires on April
25, 2003. As of December 31, 1995, 18 participants held the 660,300 options
outstanding under the 1993 Plan. There were 337,200 options available for future
grants as of December 31, 1995.

A summary of the status of Devon's stock option plans as of December 31,
1993, 1994 and 1995, and June 30, 1996, and changes during each of the periods
then ended, is presented below:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OUTSTANDING PRICE EXERCISABLE PRICE
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1992.................. 377,537 $10.146
Options granted............................. 214,500 $24.087
Options exercised........................... (109,337) $ 9.349
---------
Balance at December 31, 1993.................. 482,700 $16.521 300,000 $14.848
======= =======
Options granted............................. 436,000 $20.736
Options exercised........................... (40,800) $ 9.355
---------
Balance at December 31, 1994.................. 877,900 $18.947 485,000 $17.423
======= =======
Options granted............................. 219,000 $23.875
Options exercised........................... (60,900) $12.843
Options forfeited........................... (7,100) $20.105
---------
Balance at December 31, 1995.................. 1,028,900 $20.349 688,800 $19.744
======= =======
Options exercised........................... (19,000) $ 8.375
---------
Balance at June 30, 1996 (unaudited).......... 1,009,900 $20.575 736,000 $20.387
========= ======= ======= =======
</TABLE>

F-18
<PAGE> 96

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about Devon's stock options
which were outstanding, and those which were exercisable, as of December 31,
1995:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- - - ------------------------- ----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 8 to $14............... 168,600 5.3 years $10.001 154,600 $10.148
$18 to $21............... 210,800 8.9 years $18.088 121,600 $18.089
$23 to $25............... 649,500 8.7 years $23.770 412,600 $23.827
--------- -------
$ 8 to $25............... 1,028,900 8.2 years $20.349 688,800 $19.744
========= =======
</TABLE>

Share Rights Plan

Under Devon's share rights plan, stockholders have one right for each share
of Common Stock held. The rights become exercisable and separately transferable
ten business days after a) an announcement that a person has acquired, or
obtained the right to acquire, 15% or more of the voting shares outstanding, or
b) commencement of a tender or exchange offer that could result in a person
owning 15% or more of the voting shares outstanding.

Each right entitles its holder (except a holder who is the acquiring
person) to purchase either a) 1/100 of a share of Series A Preferred Stock for
$75.00, subject to adjustment or b) Devon Common Stock with a value equal to
twice the exercise price of the right, subject to adjustment to prevent
dilution. In the event of certain merger or asset sale transactions with another
party or transactions which would increase the equity ownership of a shareholder
who then owned 15% or more of Devon, each Devon right will entitle its holder to
purchase securities of the merging or acquiring party with a value equal to
twice the exercise price of the right.

The rights, which have no voting power, expire on April 16, 2005. The
rights may be redeemed by Devon for $.01 per right until the rights become
exercisable.

10. RETIREMENT PLANS

Devon has a defined benefit retirement plan (the "Basic Plan") which is
non-contributory and includes substantially all employees meeting certain age
and service requirements. The benefits are based on the employee's years of
service and compensation. Devon's funding policy is to contribute annually the
maximum amount that can be deducted for federal income tax purposes. Rights to
amend or terminate the Basic Plan are retained by Devon.

Effective January 1, 1995, Devon has a separate defined benefit retirement
plan (the "Supplementary Plan") which is non-contributory and includes only
certain employees whose benefits under the Basic Plan are limited by federal
income tax regulations. The Supplementary Plan's benefits are based on the
employee's years of service and compensation. Devon's funding policy for the
Supplementary Plan is to fund the benefits as they become payable. Rights to
amend or terminate the Supplementary Plan are retained by Devon.

F-19
<PAGE> 97

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the aggregate funded status of the Basic
Plan and related amounts recognized in Devon's balance sheets:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation:
Vested................................... $(2,737,000) $(2,648,000) $(3,500,000)
Nonvested................................ (394,000) (282,000) (654,000)
----------- ----------- -----------
Total............................... $(3,131,000) $(2,930,000) $(4,154,000)
=========== =========== ===========
Projected benefit obligation for service
rendered
to date.................................. (3,624,000) (3,378,000) (4,782,000)
Plan assets at fair value, primarily
investments in corporate obligation and
equity mutual funds......................... 2,917,000 3,252,000 4,227,000
----------- ----------- -----------
Plan assets less than projected benefit
obligation.................................. (707,000) (126,000) (555,000)
Unrecognized prior service cost (benefit)..... (123,000) (176,000) (154,000)
Unrecognized net loss from past experience
different from that assumed, and effects of
changes in assumptions...................... 683,000 225,000 921,000
Unrecognized net transitional asset........... (35,000) -- --
----------- ----------- -----------
Prepaid (accrued) pension expense............. $ (182,000) $ (77,000) $ 212,000
=========== =========== ===========
</TABLE>

The following table sets forth the aggregate funded status of the
Supplementary Plan and related amounts recognized in Devon's balance sheet as of
December 31, 1995:

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested........................................................... $ (1,658,000)
Nonvested........................................................ (255,000)
------------
Total....................................................... $ (1,913,000)
============
Projected benefit obligation for service rendered to date........... (2,245,000)
Plan assets at fair value............................................. --
------------
Projected benefit obligation in excess of plan assets................. (2,245,000)
Unrecognized prior service cost....................................... 1,354,000
Unrecognized net loss from past experience different from that
assumed, and effects of changes in assumptions...................... 185,000
------------
Accrued pension expense............................................... (706,000)
Additional minimum liability.......................................... (1,207,000)
------------
Total pension liability............................................... $ (1,913,000)
============
</TABLE>

The $1.9 million total pension liability of the Supplementary Plan is
included in long-term other liabilities on the accompanying December 31, 1995
consolidated balance sheet. The $1.2 million additional minimum liability is
offset by a $1.2 million intangible asset included in other assets on the
balance sheet.

F-20
<PAGE> 98

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net pension expense for Devon's two defined benefit plans included the
following components:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the
period.......................................... $ 183,000 $ 277,000 $ 362,000
Interest cost on projected benefit obligation..... 247,000 284,000 446,000
Actual return on plan assets...................... (254,000) (20,000) (536,000)
Net amortization and deferral..................... 101,000 (231,000) 345,000
--------- --------- ---------
Net periodic pension expense...................... $ 277,000 $ 310,000 $ 617,000
========= ========= =========
</TABLE>

The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation in 1993, 1994 and 1995 was
7.25%, 8.5% and 7.25%, respectively. The rate of increase in future compensation
levels was 5% for all three years. The expected long-term rate of return on
assets was 8% in 1993 and 1994 and 8.5% in 1995.

Devon has a 401(k) Incentive Savings Plan which covers all employees. At
its discretion, Devon may match a certain percentage of the employees'
contributions to the plan. The matching percentage is determined annually by the
Board of Directors. Devon's matching contributions to the plan were $147,000,
$158,000 and $170,000 for the years ended December 31, 1993, 1994 and 1995,
respectively, and $38,000 and $41,000 for the three month periods ended March
31, 1995 and 1996, respectively.

11. COMMITMENTS AND CONTINGENCIES

Devon is party to various legal actions arising in the normal course of
business. Matters that are probable of unfavorable outcome to Devon and which
can be reasonably estimated are accrued. Such accruals are based on information
known about the matters, Devon's estimates of the outcomes of such matters and
its experience in contesting, litigating and settling similar matters. None of
the actions are believed by management to involve future amounts that would be
material after consideration of recorded accruals.

The majority of Devon's sales of nonconventional gas from the San Juan
Basin are subject to federal royalties administered and collected by the
Minerals Management Service ("MMS"). In determining royalties payable to the
MMS, Devon has followed the industry practice of reducing the gas sales price
for certain permitted costs related to the transportation of gas produced and
CO(2) removal. In 1995, the MMS issued new policies which would increase Devon's
share of federal royalties for nonconventional gas produced and sold in the San
Juan Basin for the years 1990 through 1995, and for future years as well. While
the MMS has not asserted a claim for additional royalties, and while Devon
intends to vigorously contest any claim for excessive additional federal
royalties through available administrative and judicial processes, Devon has
accrued an estimate of additional federal royalties related to its share of gas
produced from 1990 through June 30, 1996. Devon's management, in consultation
with legal counsel, believes adequate provision has been made for any additional
federal royalties due and related interest. The amount accrued represents
Devon's best estimate of the amount likely to be assessed by the MMS based on
Devon's interpretation of the new policies issued and all other related
information available to Devon. It is possible that a different interpretation
of the policies and related facts could result in an assessment higher than what
Devon has accrued. However, Devon's management does not believe that the amount
of possible assessments above that already accrued would be material.

In a matter unrelated to the MMS issue discussed above, the State of New
Mexico on December 29, 1995, assessed Devon and other producers of gas from the
San Juan Basin a "natural gas processors tax." Devon's tax assessment for the
years 1990 through 1995 was approximately $0.6 million, and the state also
assessed another $0.3 million of penalties and interest. All of the assessment
relates to nonconventional gas. Devon paid the assessment in January 1996 so
that it could begin the necessary procedures of applying for a

F-21
<PAGE> 99

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

refund. This tax historically was paid by the owners of natural gas processing
plants, not the gas producers, and was assessed for the privilege of processing
natural gas. While Devon's nonconventional gas is purified through a plant prior
to the actual sales point, such purification is only for the purpose of removing
CO(2). Also, Devon does not own an interest in such plant. For these and other
reasons, Devon does not believe the assessment of the additional tax and the
related penalties and interest is valid. If the amount paid is not refunded
through the normal administrative processes available, Devon intends to file a
suit asking that the assessments be reversed. At this time, it is not possible
to determine the eventual outcome of this matter. However, Devon's management
and legal counsel believe that it is reasonably possible that the amount paid to
the State of New Mexico will be refunded. Pending further developments on this
matter, Devon has not expensed in its financial statements the taxes, penalties
and interest paid, but rather has recorded such amounts as receivables.

The following is a schedule by year of future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 31, 1995:

YEAR ENDING DECEMBER 31,

<TABLE>
<S> <C>
1996.............................................. $543,000
1997.............................................. 136,000
1998.............................................. 83,000
1999.............................................. 39,000
2000.............................................. 26,000
--------
Total minimum lease payments required... $827,000
========
</TABLE>

Total rental expense for all operating leases is as follows for the years
ended December 31:

Rental expense for the six month periods ended June 30, 1995 and 1996 was
$321,909 and $337,256, respectively.

12. OIL AND GAS OPERATIONS

Costs Incurred

The following table reflects the costs incurred in oil and gas property
acquisition, exploration, and development activities:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Property acquisition costs:
Proved, excluding deferred income taxes... $49,790,000 $70,376,000 $47,316,000
Deferred income taxes..................... -- 11,500,000 --
----------- ----------- -----------
Total proved, including deferred income
taxes.................................. $49,790,000 $81,876,000 $47,316,000
=========== =========== ===========
Unproved.................................. $ 6,444,000 $ 1,797,000 $ 4,529,000
Exploration costs........................... $ 4,115,000 $ 5,194,000 $ 7,174,000
Development costs........................... $25,748,000 $26,268,000 $56,253,000
</TABLE>

F-22
<PAGE> 100

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pursuant to the full cost method of accounting, Devon capitalizes certain
of its general and administrative expenses which are related to property
acquisition, exploration and development activities. Such capitalized expenses,
which are included in the costs shown in the above table, were $2.2 million,
$2.3 million and $2.7 million in the years 1993, 1994 and 1995, respectively.
General and administrative expenses capitalized in the three month periods ended
March 31, 1995 and 1996 were $0.6 million and $0.7 million, respectively.

Due to the substantially tax-free nature of the 1994 Merger to the former
Alta stockholders, Devon recorded additional deferred tax liabilities of $11.5
million as of the effective date of the Merger. The deferred tax liabilities
caused an additional $11.5 million to be allocated to proved oil and gas
reserves in 1994 as shown in the above schedule.

Results of Operations for Oil and Gas Producing Activities

The following table includes revenues and expenses associated directly with
Devon's oil and gas producing activities. It does not include any allocation of
Devon's interest costs or general corporate overhead and, therefore, is not
necessarily indicative of the contribution to net earnings of Devon's oil and
gas operations. Income tax expense has been calculated by applying statutory
income tax rates to oil and gas sales after deducting costs, including
depreciation, depletion and amortization and after giving effect to permanent
differences.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Oil, gas and natural gas liquids sales..... $ 97,815,000 $ 99,366,000 $112,425,000
Production and operating expenses.......... (33,325,000) (31,421,000) (34,121,000)
Depreciation, depletion and amortization... (27,420,000) (32,861,000) (36,640,000)
Income tax expense......................... (12,844,000) (12,411,000) (15,536,000)
------------ ------------ ------------
Results of operations for oil and gas
producing activities..................... $ 24,226,000 $ 22,673,000 $ 26,128,000
============ ============ ============
Depreciation, depletion and amortization
per equivalent barrel of production...... $ 3.16 $ 3.45 $ 3.65
============ ============ ============
</TABLE>

13. SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS (UNAUDITED)

The following supplemental unaudited information regarding the oil and gas
activities of Devon is presented pursuant to the disclosure requirements
promulgated by the Securities and Exchange Commission and Statement of Financial
Accounting Standards No. 69, "Disclosures About Oil and Gas Producing
Activities."

F-23
<PAGE> 101

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Quantities of Oil and Gas Reserves

Set forth below is a summary of the changes in the net quantities of crude
oil, natural gas and natural gas liquids reserves for each of the three years
ended December 31, 1995, as estimated by Devon's independent petroleum
consultants LaRoche & Associates, and Devon's own petroleum engineers.
Approximately 95%, 91%, and 92% of the respective year-end 1993, 1994 and 1995
proved reserves were estimated by LaRoche & Associates. The remaining percentage
of reserves are based on Devon's own estimates. All of Devon's reserves are
located within the United States.

<TABLE>
<CAPTION>
NATURAL
NATURAL GAS
OIL GAS LIQUIDS
(BBLS) (MCF) (BBLS)
---------- ----------- ---------
<S> <C> <C> <C>
Proved reserves as of December 31, 1992...... 16,349,000 263,598,000 1,011,000
Revisions of estimates..................... (995,000) 54,536,000 1,227,000
Extensions and discoveries................. 3,543,000 20,759,000 80,000
Purchase of reserves....................... 363,000 75,168,000 20,000
Production................................. (2,337,000) (35,598,000) (411,000)
Sale of reserves........................... (2,026,000) (9,209,000) (73,000)
---------- ----------- ---------
Proved reserves as of December 31, 1993...... 14,897,000 369,254,000 1,854,000
Revisions of estimates..................... 3,157,000 (5,540,000) 1,733,000
Extensions and discoveries................. 2,008,000 13,206,000 183,000
Purchase of reserves....................... 25,201,000 13,492,000 2,181,000
Production................................. (2,467,000) (39,335,000) (501,000)
Sale of reserves........................... (631,000) (3,517,000) (8,000)
---------- ----------- ---------
Proved reserves as of December 31, 1994...... 42,165,000 347,560,000 5,442,000
Revisions of estimates..................... 1,127,000 (7,431,000) 535,000
Extensions and discoveries................. 2,959,000 9,645,000 472,000
Purchase of reserves....................... 1,852,000 59,585,000 3,665,000
Production................................. (3,300,000) (36,886,000) (600,000)
Sale of reserves........................... (337,000) (8,627,000) (45,000)
---------- ----------- ---------
Proved reserves as of December 31, 1995...... 44,466,000 363,846,000 9,469,000
========== =========== =========
Proved developed reserves as of:
December 31, 1992.......................... 13,823,000 249,154,000 797,000
December 31, 1993.......................... 11,548,000 355,536,000 1,751,000
December 31, 1994.......................... 18,718,000 324,302,000 3,123,000
December 31, 1995.......................... 28,703,000 311,664,000 6,149,000
</TABLE>

F-24
<PAGE> 102

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Standardized Measure of Discounted Future Net Cash Flows

The accompanying table reflects the standardized measure of discounted
future net cash flows relating to Devon's interest in proved reserves:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1993 1994 1995
------------- -------------- --------------
<S> <C> <C> <C>
Future cash inflows.................. $ 913,931,000 $1,186,845,000 $1,476,418,000
Future costs:
Development........................ (23,713,000) (75,115,000) (52,327,000)
Production......................... (256,658,000) (400,676,000) (496,279,000)
Future income tax expense............ (61,480,000) (71,427,000) (153,431,000)
------------- -------------- --------------
Future net cash flows................ 572,080,000 639,627,000 774,381,000
10% discount to reflect timing of
cash flows......................... (228,530,000) (281,421,000) (328,481,000)
------------- -------------- --------------
Standardized measure of discounted
future net cash flows.............. $ 343,550,000 $ 358,206,000 $ 445,900,000
============= ============== ==============
Discounted future net cash flows
before income taxes................ $ 380,471,000 $ 398,206,000 $ 534,248,000
============= ============== ==============
</TABLE>

Future cash inflows are computed by applying year-end prices (averaging
$18.11 per barrel of oil, adjusted for transportation and other charges, $1.35
per Mcf of gas and $12.73 per Bbl of natural gas liquids at December 31, 1995)
to the year-end quantities of proved reserves, except in those instances where
fixed and determinable price changes are provided by contractual arrangements in
existence at year-end. In addition to the future gas revenues calculated at
$1.35 per Mcf, Devon's total future gas revenues also include the future tax
credit payments to be received and recorded as gas revenues pursuant to the San
Juan Basin Transaction described in note 3. Devon's future cash inflows shown in
the table above include $58.2 million related to these tax credit payments from
1996 through 2002. This amount has been calculated using the assumption that the
year-end 1995 tax credit rate of $1.01 per MMBtu remains constant. Future
development and production costs are computed by estimating the expenditures to
be incurred in developing and producing proved oil and gas reserves at the end
of the year, based on year-end costs and assuming continuation of existing
economic conditions.

Future income tax expenses are computed by applying the appropriate
statutory tax rates to the future pretax net cash flows relating to proved
reserves, net of the tax basis of the properties involved. The future income tax
expenses give effect to permanent differences and tax credits, but do not
reflect the impact of future operations. Prior to the San Juan Basin Transaction
as described in note 3, the future income tax expenses estimated at December 31,
1994 and 1993 were reduced by the estimated future Section 29 tax credits to be
generated by the San Juan Basin coal seam gas properties. It was estimated at
year-end 1993 and 1994 that undiscounted amounts of approximately $137 million
and $113 million, respectively, of Section 29 tax credits could be generated in
future years to Devon's interest. However, because of limitations on the amount
of Section 29 tax credits which can actually be utilized for income tax
purposes, the undiscounted amounts included as reductions to future income tax
expense for purposes of calculating the standardized measure of discounted
future net cash flows were only $39 million and $41 million at year-end 1993 and
1994, respectively. As a result of the San Juan Basin Transaction, substantially
all of the value of the Section 29 tax credits at year-end 1995 is now included
in "future cash inflows," instead of a reduction to income tax expense, in
Devon's standardized measure of discounted future net cash flows.

F-25
<PAGE> 103

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Changes Relating to the Standardized Measure of Discounted Future Net Cash
Flows

Principal changes in the standardized measure of discounted future net cash
flows attributable to Devon's proved reserves are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1993 1994 1995
------------ ------------- ------------
<S> <C> <C> <C>
Beginning balance......................... $286,693,000 $ 343,550,000 $358,206,000
Sales of oil, gas and natural gas liquids,
net of production costs................. (64,490,000) (67,945,000) (78,304,000)
Net changes in prices and production
costs................................... 1,479,000 (107,210,000) 60,498,000
Extensions, discoveries, and improved
recovery, net of future development
costs................................... 26,999,000 14,629,000 22,308,000
Purchase of reserves, net of future
development costs....................... 59,594,000 133,103,000 50,000,000
Development costs incurred during the
period which reduced future development
costs................................... 11,580,000 16,519,000 43,810,000
Revisions of quantity estimates........... 47,798,000 26,167,000 7,397,000
Sales of reserves in place................ (18,170,000) (5,281,000) (7,933,000)
Accretion of discount..................... 31,457,000 38,047,000 39,821,000
Net change in income taxes................ (9,048,000) (3,080,000) (48,347,000)
Other, primarily changes in timing........ (30,342,000) (30,293,000) (1,556,000)
------------ ------------- ------------
Ending balance............................ $343,550,000 $ 358,206,000 $445,900,000
============ ============= ============
</TABLE>

14. SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Following is a summary of the unaudited interim results of operations for
the years ended December 31, 1994 and 1995:

<TABLE>
<CAPTION>
1994
------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Oil, gas and natural gas
liquids sales............ $25,778,304 $24,953,045 $25,054,238 $23,580,067 $ 99,365,654
Total revenues............. $26,144,281 $25,519,353 $25,298,970 $23,810,355 $100,772,959
Net earnings............... $ 4,876,974 $ 4,053,853 $ 3,055,972 $ 1,757,912 $ 13,744,711
Net earnings per share..... $ 0.23 $ 0.19 $ 0.14 $ 0.08 $ 0.64
</TABLE>

<TABLE>
<CAPTION>
1995 -- ACTUAL REPORTED RESULTS(A)
------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Oil, gas and natural gas
liquids sales............ $23,519,568 $25,331,966 $33,589,019 $29,985,087 $112,425,640
Total revenues............. $23,762,327 $25,650,334 $33,770,864 $30,119,300 $113,302,825
Net earnings............... $ 1,026,802 $ 2,444,422 $ 6,645,531 $ 4,385,144 $ 14,501,899
Net earnings per share..... $ 0.05 $ 0.11 $ 0.30 $ 0.20 $ 0.66
</TABLE>

<TABLE>
<CAPTION>
1995 -- ADJUSTED RESULTS(A)
------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Oil, gas and natural gas
liquids sales............ $26,478,770 $28,293,715 $27,668,068 $29,985,087 $112,425,640
Total revenues............. $26,796,579 $28,612,083 $27,774,863 $30,119,300 $113,302,825
Net earnings............... $ 2,864,127 $ 4,181,531 $ 3,071,097 $ 4,385,114 $ 14,501,899
Net earnings per share..... $ 0.13 $ 0.19 $ 0.14 $ 0.20 $ 0.66
</TABLE>

F-26
<PAGE> 104

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- - - ---------------

(a) The San Juan Basin Transaction described in note 3 was effective January 1,
1995. However, it was initially subject to a material contingency, and thus
the transaction's impact on Devon's statement of operations was deferred
pending the contingency's resolution. When the contingency was favorably
resolved, the cumulative nine-month effect of the transaction was recorded
in the third quarter. The first table above includes the 1995 quarterly
results as reported, including the six-month out-of-period effect on the
third quarter. The second table above presents the quarterly results as they
would have been reported had the contingency not existed and had the San
Juan Basin Transaction's effect on earnings been reported from the inception
of the transaction on January 1, 1995.

15. SUBSEQUENT EVENT -- ISSUANCE OF TRUST CONVERTIBLE PREFERRED SECURITIES
(UNAUDITED)

On July 10, 1996, Devon, through its newly-formed affiliate Devon Financing
Trust, completed the issuance of $149.5 million of 6.5% trust convertible
preferred securities (the "TCP Securities") in a private placement. Devon
Financing Trust issued 2,990,000 shares of the TCP Securities at $50 per share.
Each TCP Security is convertible at the holder's option into 1.6393 shares of
Devon common stock, which equates to a conversion price of $30.50 per share of
Devon common stock.

Devon Financing Trust invested the $149.5 million of proceeds in 6.5%
convertible junior subordinated debentures of Devon (the "Convertible
Debentures"). In turn, Devon used the net proceeds from the issuance of the
Convertible Debentures to retire debt outstanding under its credit lines.

The sole assets of Devon Financing Trust are the Convertible Debentures,
which mature on June 15, 2026. Devon may redeem the Convertible Debentures, in
whole or in part, on or after June 18, 1999. For the first twelve months
thereafter, redemptions may be made at 104.55% of the principal amount. This
premium declines proportionally every twelve months until June 15, 2006, when
the redemption price becomes fixed at 100% of the principal amount. If Devon
redeems any Convertible Debentures prior to the scheduled maturity date, Devon
Financing Trust must redeem TCP Securities having an aggregate liquidation
amount equal to the aggregate principal amount of Convertible Debentures so
redeemed. The outstanding TCP Securities will be redeemed when the Convertible
Debentures mature on June 15, 2026.

Devon has guaranteed the payments of distributions and other payments on
the TCP Securities only if and to the extent that Devon Financing Trust has
funds available therefor. Such guarantee, when taken together with Devon's
obligations under the Convertible Debentures and related indenture and
declaration of trust, provide a full and unconditional guarantee of amounts due
on the TCP Securities.

Devon owns all the common securities of Devon Financing Trust. As such, the
accounts of Devon Financing Trust will be included in Devon's consolidated
financial statements after appropriate eliminations of intercompany balances.
The TCP Securities will be presented as a separate line item in Devon's
consolidated balance sheet, and the distributions on the TCP Securities will be
recorded as a charge to earnings on Devon's consolidated statements of
operations. The distributions are deductible for income tax purposes.

Included with the accompanying consolidated balance sheets is a pro forma
balance sheet as of June 30, 1996, presented as if the TCP Securities had been
issued on such date. The pro forma balance sheet includes an additional $5
million of other assets which represents the costs incurred in the TCP
Securities offering. These costs will be charged to expense over the life of the
TCP Securities. The pro forma balance sheet also reflects the additional
retirement of $10.0 million of long-term debt during July 1996. The cash used
for this debt payment was provided by operating activities.

16. AGREEMENT TO ACQUIRE PROPERTIES IN 1996 (UNAUDITED)

On October 17, 1996, Devon and Kerr-McGee Corporation ("Kerr-McGee")
entered into an agreement which provides for Devon to acquire the United States
onshore and the Canadian oil and gas exploration and

F-27
<PAGE> 105

DEVON ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

production properties of Kerr-McGee. In exchange for such properties, Devon will
issue 9,954,000 shares of its common stock to Kerr-McGee. The transaction is
subject to various conditions, including approval of Devon's shareholders. If
approved, the transaction is expected to be consummated on December 31, 1996.
Devon will account for the transaction in accordance with the purchase method of
accounting for business combinations. Therefore, the transaction will not affect
Devon's financial results until 1997.

The properties to be acquired in the transaction had proved oil and gas
reserves as of December 31, 1995, of approximately 60.8 million barrels of oil
equivalents. The properties' future net cash flows, discounted at 10% per year,
were approximately $329 million as of December 31, 1995.

F-28
<PAGE> 106

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Kerr-McGee Corporation:

We have audited the accompanying statements of revenues and direct
operating expenses of oil and gas properties included in the Agreement and Plan
of Merger among Devon Energy Corporation, Devon Energy Corporation (Nevada),
Kerr-McGee Corporation, Kerr-McGee North American Onshore Corporation, and
Kerr-McGee Canada Onshore Ltd. (the "Properties") for the three years in the
period ended December 31, 1995. These statements are the responsibility of
Kerr-McGee Corporation's management. Our responsibility is to express an opinion
on these statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of revenues and direct
operating expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of revenues and direct operating expenses. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

The accompanying statements of revenues and direct operating expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and, as described in Note 1, exclude general
and administrative expenses, depreciation, depletion and amortization, interest,
income tax expenses, and other items as these expenses would not be comparable
to those resulting from the proposed future operations of the Properties.

In our opinion, the statements of revenues and direct operating expenses
referred to above present fairly, in all material respects, the revenues and
direct operating expenses of the Properties for the three years in the period
ended December 31, 1995.

ARTHUR ANDERSEN LLP

Oklahoma City, Oklahoma
October 18, 1996

F-29
<PAGE> 107

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES OF
OIL AND GAS PROPERTIES INCLUDED IN THE AGREEMENT
AND PLAN OF MERGER AMONG DEVON ENERGY
CORPORATION, DEVON ENERGY CORPORATION (NEVADA),
KERR-MCGEE CORPORATION, KERR-MCGEE NORTH AMERICAN
ONSHORE CORPORATION, AND KERR-MCGEE CANADA ONSHORE LTD.

<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------ -------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Oil sales................... $ 67,852,490 $ 46,365,811 $ 56,651,121 $28,385,843 $33,664,354
Gas sales................... 65,721,983 65,544,740 44,221,516 22,422,108 28,449,949
Natural gas liquids sales... 4,265,824 3,493,232 3,659,412 1,978,711 2,122,311
Gas Processing and other.... 4,275,871 3,805,029 3,746,813 2,599,089 1,562,334
------------ ------------ ------------ ----------- -----------
Total revenues...... 142,116,168 119,208,812 108,278,862 55,385,751 65,798,948
------------ ------------ ------------ ----------- -----------
DIRECT OPERATING EXPENSES:
Production and operating
expenses................. 37,893,561 31,733,902 32,922,740 15,974,211 16,529,368
------------ ------------ ------------ ----------- -----------
REVENUES IN EXCESS OF DIRECT
OPERATING EXPENSES.......... $104,222,607 $ 87,474,910 $ 75,356,122 $39,411,540 $49,269,580
============ ============ ============ =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-30
<PAGE> 108

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES OF
OIL AND GAS PROPERTIES INCLUDED IN THE AGREEMENT
AND PLAN OF MERGER AMONG DEVON ENERGY
CORPORATION, DEVON ENERGY CORPORATION (NEVADA),
KERR-MCGEE CORPORATION, KERR-MCGEE NORTH AMERICAN
ONSHORE CORPORATION, AND KERR-MCGEE CANADA ONSHORE LTD.

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

The accompanying statements present revenues and direct operating expenses
of working and royalty interests in oil, gas and natural gas liquids properties
located in the United States and Canada and three gas processing plants included
in the Agreement and Plan of Merger among Devon Energy Corporation ("Devon"),
Devon Energy Corporation (Nevada), Kerr-McGee Corporation, Kerr-McGee North
American Onshore Corporation, and Kerr-McGee Canada Onshore Ltd. (the
"Properties").

The accompanying statements of revenues and direct operating expenses were
prepared on the accrual basis of accounting and relate only to the Properties
described above. These historical results may not be indicative of future
operations. The statements do not include general and administrative expenses,
interest, depreciation, depletion and amortization, Federal and state income
taxes and other items because such amounts would not be indicative of those
expenses which will be incurred by Devon.

The unaudited statements of revenues and direct operating expenses for the
six-month periods ended June 30, 1995 and 1996, in the opinion of management,
were prepared on a basis consistent with the audited statements of revenues and
direct operating expenses of the Properties for the three years in the period
ended December 31, 1995, and include all adjustments, consisting only of normal
recurring accruals, necessary to present fairly the revenues and direct
operating expenses for the indicated periods.

Gas Balancing Arrangements

Gas balancing arrangements with partners in gas wells are accounted for by
the entitlements method.

Cost of Injected Gas

The cost of injected gas is deferred until sold at completion of miscible
gas flood projects.

Foreign Currency

The U.S. dollar is the functional currency for the Properties located in
Canada. Revenues and direct operating expenses incurred in Canadian dollars have
been remeasured to U.S. dollars using monthly average exchange rates. Foreign
currency transaction gains and losses have not been included in the accompanying
statements because such amounts would not be indicative of those expenses which
will be incurred by Devon.

Use of Estimates

The preparation of the statements of revenues and direct operating expenses
in conformity with generally accepted accounting principles requires Kerr-McGee
Corporation to make estimates and assumptions that affect the reported amounts
of revenues and direct operating expenses during the reporting periods. Actual
results could differ from those estimates as additional information becomes
available.

2. RELATED PARTY TRANSACTIONS:

Gas Sales

Beginning in March 1994, Kerr-McGee Corporation sold a portion of its share
of gas produced from the domestic Properties to a gas marketing affiliate. The
terms agreed to by these two related entities provided for a price which was
equal to that published in an independent index of monthly prices for gas
produced in

F-31
<PAGE> 109

specific regions. These gas sales represented 18% and 32% of total gas revenues
for the years ended December 31, 1994 and 1995, respectively. Kerr-McGee
Corporation believes these sales were made at prices which approximate the
prices which would have been paid by an unrelated party.

Oil Sales

Kerr-McGee Corporation sold a portion of its share of oil produced from the
domestic Properties to a crude oil refining affiliate until August 1995. These
oil sales represented 51%, 43% and 27% of total oil revenues for the years ended
December 31, 1993, 1994 and 1995, respectively. Kerr-McGee Corporation believes
these sales were made at prices which approximate the prices which would have
been paid by an unrelated party.

Overhead Charges

Charges from an affiliate for monthly overhead allowed under joint
operating agreements for operated properties totaling $3,053,444, $3,086,334 and
$3,450,114 for the years ended December 31, 1993, 1994 and 1995, respectively,
are included in the accompanying statements as direct operating expenses.

3. RESULTS OF OPERATIONS FROM CRUDE OIL AND NATURAL GAS ACTIVITIES:

The results of operations from crude oil and natural gas activities of the
Properties for the three years ended December 31, 1995, consisted of the
following:

<TABLE>
<CAPTION>
REVENUES
-------------------------------------- REVENUES IN
SALES TO SALES TO DIRECT EXCESS OF DIRECT
UNAFFILIATED AFFILIATED OPERATING OPERATING
ENTITIES ENTITIES TOTAL EXPENSES EXPENSES
------------ ---------- -------- --------- ----------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
1993 --
Domestic............................ $ 62,976 $ 34,581 $ 97,557 $28,724 $ 68,833
Canada.............................. 40,283 -- 40,283 8,154 32,129
-------- --------- -------- ------- --------
Total crude oil and natural gas
activities..................... 103,259 34,581 137,840 36,878 100,962
Other(1)............................ 4,276 -- 4,276 1,015 3,261
-------- --------- -------- ------- --------
Total....................... $107,535 $ 34,581 $142,116 $37,893 $104,223
======== ========= ======== ======= ========
1994 --
Domestic............................ $ 41,069 $ 32,144 $ 73,213 $24,280 $ 48,933
Canada.............................. 42,191 -- 42,191 6,093 36,098
-------- --------- -------- ------- --------
Total crude oil and natural gas
activities..................... 83,260 32,144 115,404 30,373 85,031
Other(1)............................ 3,805 -- 3,805 1,361 2,444
-------- --------- -------- ------- --------
Total....................... $ 87,065 $ 32,144 $119,209 $31,734 $ 87,475
======== ========= ======== ======= ========
1995 --
Domestic............................ $ 40,282 $ 29,420 $ 69,702 $24,543 $ 45,159
Canada.............................. 34,830 -- 34,830 7,208 27,622
-------- --------- -------- ------- --------
Total crude oil and natural gas
activities..................... 75,112 29,420 104,532 31,751 72,781
Other(1)............................ 3,747 -- 3,747 1,172 2,575
-------- --------- -------- ------- --------
Total....................... $ 78,859 $ 29,420 $108,279 $32,923 $ 75,356
======== ========= ======== ======= ========
</TABLE>

- - - ---------------

(1) Includes gas processing plant revenues, Canadian tax credits, and other
items that do not fit the definition of crude oil and natural gas activities
but have been included above to reconcile to the Statements of Revenues and
Direct Operating Expenses.

F-32
<PAGE> 110

4. SUPPLEMENTAL INFORMATION ON OIL AND GAS RESERVES (UNAUDITED):

Crude Oil, Condensate and Natural Gas Net Reserves

The estimates of proved reserves have been prepared by Kerr-McGee
Corporation's geologists and engineers. Such estimates include reserves on
certain properties that are partially undeveloped and reserves that may be
obtained in the future by secondary recovery operations now in operation or for
which successful testing has been demonstrated. The following table summarizes
the changes in the estimated quantities of the Properties' crude oil, natural
gas liquids and natural gas reserves for the three years ended December 31,
1995:

<TABLE>
<CAPTION>
CRUDE OIL NATURAL GAS LIQUIDS NATURAL GAS
(IN THOUSANDS OF BARRELS) (IN THOUSANDS OF BARRELS) (IN MILLIONS OF CUBIC FEET)
-------------------------- ------------------------- ----------------------------
DOMESTIC CANADA TOTAL DOMESTIC CANADA TOTAL DOMESTIC CANADA TOTAL
-------- ------ ------ -------- ------ ----- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Proved developed and undeveloped
reserves --
Balance December 31, 1992......... 19,008 9,210 28,218 1,087 852 1,939 183,300 81,300 264,600
Revisions of previous estimates,
extensions, discoveries and
other additions............... 1,164 1,119 2,283 (118) 241 123 (3,800) 10,135 6,335
Production...................... (2,886) (1,227) (4,113) (166) (215) (381) (25,500) (13,600) (39,100)
------ ----- ------ ----- ---- ----- ------- ------- -------
Balance December 31, 1993......... 17,286 9,102 26,388 803 878 1,681 154,000 77,835 231,835
Revisions of previous estimates,
extensions, discoveries and
other additions............... 772 1,060 1,832 (25) 50 25 19,400 (918) 18,482
Production...................... (2,120) (1,146) (3,266) (138) (192) (330) (24,300) (13,700) (38,000)
------ ----- ------ ----- ---- ----- ------- ------- -------
Balance December 31, 1994......... 15,938 9,016 24,954 640 736 1,376 149,100 63,217 212,317
Revisions of previous estimates,
extensions, discoveries and
other additions............... 3,618 1,268 4,886 (19) -- (19) 14,723 (930) 13,793
Production...................... (2,189) (1,250) (3,439) (134) (175) (309) (24,800) (12,600) (37,400)
------ ----- ------ ----- ---- ----- ------- ------- -------
Balance December 31, 1995......... 17,367 9,034 26,401 487 561 1,048 139,023 49,687 188,710
====== ===== ====== ===== ==== ===== ======= ======= =======
Proved developed reserves --
December 31, 1992................. 10,987 9,207 20,194 977 852 1,829 155,200 80,600 235,800
December 31, 1993................. 14,123 9,099 23,222 798 878 1,676 152,200 77,135 229,335
December 31, 1994................. 13,500 9,013 22,513 635 736 1,371 147,600 62,517 210,117
December 31, 1995................. 14,286 9,031 23,317 486 561 1,047 138,100 48,987 187,087
</TABLE>

F-33
<PAGE> 111

Standardized Measure of and Reconciliation of Changes in Discounted Future Net
Cash Flows (Unaudited)

The standardized measure of future net cash flows presented in the
following table was computed using the year-end prices and costs and a 10%
discount factor. No future income tax expense was computed as taxable income
arising from the operations of the Properties accrues to the owner. Kerr-McGee
Corporation cautions that actual future net cash flows may vary considerably
from these estimates. Although the estimates of total reserves, development
costs, and production rates for the Properties were based upon the best
information available, the development and production of the oil and gas
reserves may not occur in the periods assumed. Actual prices realized and costs
incurred may vary significantly from those used. Therefore, such estimated
future net cash flow computations should not be considered to represent
Kerr-McGee Corporation's estimate of the expected revenues or the current value
of existing proved reserves of the Properties.

<TABLE>
<CAPTION>
FUTURE STANDARDIZED
FUTURE DEVELOPMENT MEASURE OF
CASH AND PRODUCTION FUTURE NET 10% ANNUAL DISCOUNTED FUTURE
INFLOWS COSTS CASH FLOWS DISCOUNT NET CASH FLOWS
-------- -------------- ---------- ---------- -----------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
1993 --
Domestic.......................... $535,324 $312,250 $223,074 $ 82,474 $ 140,600
Canada............................ 246,370 56,666 189,704 69,904 119,800
-------- -------- -------- -------- ---------
Total..................... $781,694 $368,916 $412,778 $152,378 $ 260,400
======== ======== ======== ======== =========
1994 --
Domestic.......................... $490,704 $256,839 $233,865 $ 90,765 $ 143,100
Canada............................ 218,045 47,514 170,531 69,031 101,500
-------- -------- -------- -------- ---------
Total..................... $708,749 $304,353 $404,396 $159,796 $ 244,600
======== ======== ======== ======== =========
1995 --
Domestic.......................... $535,547 $200,509 $335,038 $149,834 $ 185,204
Canada............................ 230,454 69,787 160,667 58,367 102,300
-------- -------- -------- -------- ---------
Total..................... $766,001 $270,296 $495,705 $208,201 $ 287,504
======== ======== ======== ======== =========
</TABLE>

The changes in the standardized measure of future net cash flows are
presented below for each of the three years in the period ended December 31,
1995:

<TABLE>
<CAPTION>
1993 1994 1995
--------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net change in sales, transfer prices, and production
costs.................................................... $ (55,091) $ 970 $ 28,524
Changes in estimated future development costs.............. (290) (7,435) (17,761)
Sales and transfers less production costs.................. (102,499) (86,650) (73,860)
Changes due to extensions, discoveries, revisions of
quantity estimates, etc. ................................ 28,289 36,182 67,772
Current period development costs........................... 22,870 20,648 23,546
Accretion of discount...................................... 33,900 26,040 24,470
Timing and other........................................... (5,779) (5,555) (9,787)
--------- -------- --------
Net change............................................... (78,600) (15,800) 42,904
Total at beginning of year................................. 339,000 260,400 244,600
--------- -------- --------
Total at end of year....................................... $ 260,400 $244,600 $287,504
========= ======== ========
</TABLE>

F-34
<PAGE> 112

ADDENDUM A

AGREEMENT AND PLAN OF MERGER
AMONG
DEVON ENERGY CORPORATION,
DEVON ENERGY CORPORATION (NEVADA),
KERR-MCGEE CORPORATION,
KERR-MCGEE NORTH AMERICAN ONSHORE CORPORATION,
AND
KERR-MCGEE CANADA ONSHORE LTD.

October 17, 1996
<PAGE> 113

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. The Merger of Kerr-McGee Oklahoma
Section 1.01 The Exchange Ratio.................................................. A-1
Section 1.02 The Merger.......................................................... A-1
Section 1.03 Effect of the Merger................................................ A-2
Section 1.04 Exchange of Certificates............................................ A-2
Section 1.05 Taking Necessary Action; Further Action............................. A-2
Section 1.06 Stockholders Meeting and Proxy Statement............................ A-2

Section 2. The Acquisition of Kerr-McGee Sub
Section 2.01 Exchange of Shares.................................................. A-3
Section 2.02 Stock Certificates.................................................. A-3

Section 3. Closing................................................................... A-3

Section 4. Representations and Warranties of Kerr-McGee
Section 4.01 Organization, Good Standing, Etc.................................... A-3
Section 4.02 Capital Stock of Kerr-McGee Oklahoma and Kerr-McGee Sub............. A-3
Section 4.03 The Interests....................................................... A-4
Section 4.04 No Breach of Statute or Contract; Governmental Authorizations....... A-5
Section 4.05 Authorization of Agreement.......................................... A-5
Section 4.06 Disclosure in Proxy Statement....................................... A-5
Section 4.07 Broker's or Finder's Fees........................................... A-5
Section 4.08 Permits............................................................. A-6
Section 4.09 Prior Obligations................................................... A-6
Section 4.10 Title to the Interests.............................................. A-6
Section 4.11 Compliance with Laws................................................ A-6
Section 4.12 Oil and Gas Leases in Good Standing................................. A-6
Section 4.13 Taxes............................................................... A-6
Section 4.14 Claims or Litigation................................................ A-6
Section 4.15 Contracts, Consents and Preferential Rights......................... A-6
Section 4.16 Tax Partnerships.................................................... A-7
Section 4.17 Financial Statements................................................ A-7
Section 4.18 Tax Matters......................................................... A-7
Section 4.19 Employees, Labor and Benefits....................................... A-8
Section 4.20 Insurance........................................................... A-8
Section 4.21 Planned Future Commitments.......................................... A-8
Section 4.22 Environmental and Safety Matters.................................... A-8
Section 4.23 Investment Intent................................................... A-8

Section 5. Representations and Warranties of Devon
Section 5.01 Organization, Good Standing, Etc.................................... A-8
Section 5.02 Capital Stock of Devon and Subsidiaries............................. A-9
Section 5.03 SEC Documents....................................................... A-9
Section 5.04 No Breach of Statute or Contract; Governmental Authorizations....... A-9
Section 5.05 Authorization of Agreement.......................................... A-10
Section 5.06 Broker's or Finder's Fees........................................... A-10
Section 5.07 Article Eleventh of Devon Certificate of Incorporation and Sections
1145 through 1155, and Section 1090.3, of the-Oklahoma Act.......... A-10
Section 5.08 Proxy Statement Information......................................... A-10
Section 5.09 Rights Plan......................................................... A-10
Section 5.10 Board Recommendation................................................ A-11
Section 5.11 Required Vote....................................................... A-11
Section 5.12 Environmental and Safety Matters.................................... A-11
</TABLE>

A-i
<PAGE> 114

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 6. Conduct and Transactions Prior to Effective Time
Section 6.01 Investigation by Kerr-McGee/Operation of Business of Devon.......... A-11
Section 6.02 Investigation by Devon/Operation of Business of the Kerr-McGee
Group............................................................... A-12
Section 6.03 Employees........................................................... A-14
Section 6.04 Consents............................................................ A-16

Section 7. Conditions to obligations of Devon....................................... A-16
Section 7.01 Resolutions of Board of Directors................................... A-16
Section 7.02 Representations and Warranties of Kerr-McGee to be True............. A-16
Section 7.03 Third Party Consents................................................ A-17
Section 7.04 Devon Shareholder Approval.......................................... A-17
Section 7.05 No Material Adverse Change.......................................... A-17
Section 7.06 Statutory Requirements.............................................. A-17
Section 7.07 Opinion of Counsel of Kerr-McGee.................................... A-17
Section 7.08 Transfer of the Interests........................................... A-18
Section 7.09 Other Agreements.................................................... A-18
Section 7.10 Stock Exchange Listing.............................................. A-18

Section 8. Conditions to obligations of Kerr-McGee
Section 8.01 Resolutions of Board of Directors................................... A-18
Section 8.02 Representations and Warranties of Devon to be True.................. A-18
Section 8.03 Third Party Consents................................................ A-18
Section 8.04 Devon Shareholder Approval.......................................... A-18
Section 8.05 No Material Adverse Change.......................................... A-18
Section 8.06 Statutory Requirements.............................................. A-19
Section 8.07 opinion of Counsel of Devon......................................... A-19
Section 8.08 Other Agreements.................................................... A-19
Section 8.09 Stock Exchange Listing.............................................. A-19

Section 9. Termination of Agreement and Abandonment of Transaction.................. A-20

Section 10. Additional Agreement of the Parties
Section 10.01 Closing/Post Closing Working Capital Adjustments.................... A-20
Section 10.02 House Creek (Sussex) Unit........................................... A-21
Section 10.03 Royalty and Working Interest Liabilities............................ A-21
Section 10.04 Kerr-McGee Intercompany Payables.................................... A-22
Section 10.05 Schedule Disclosures................................................ A-22
Section 10.06 Tax Return and Reorganization Information........................... A-22
Section 10.07 Preservation of Books and Records................................... A-22

Section 11. General Provisions
Section 11.01 Amendments.......................................................... A-22
Section 11.02 Survival of Covenants, Representations and Warranties............... A-22
Section 11.03 Certain Definitions................................................. A-22
Section 11.04 Governing law....................................................... A-23
Section 11.05 Notices............................................................. A-23
Section 11.06 No Assignment....................................................... A-23
Section 11.07 Fees and Expenses................................................... A-23
Section 11.08 Headings............................................................ A-24
Section 11.09 Counterparts........................................................ A-24
Section 11.10 Entire Agreement.................................................... A-24
Section 11.11 Publicity........................................................... A-24
Section 11.12 No Third Party Beneficiaries........................................ A-24
Section 11.13 Specific Performance................................................ A-24
Section 11.14 Partial Illegality or Unenforceability.............................. A-24
</TABLE>

A-ii
<PAGE> 115

EXHIBITS AND SCHEDULES

EXHIBITS

<TABLE>
<S> <C>
EXHIBIT A -- Certificate of Merger/Oklahoma
EXHIBIT B -- Articles of Merger/Nevada
EXHIBIT C -- Devon Amendment to Certificate of Incorporation
EXHIBIT D -- United States Excluded Properties
EXHIBIT E -- Canadian Excluded Properties
EXHIBIT F -- Stock Rights and Restrictions Agreement
EXHIBIT G -- Registration Rights Agreement
EXHIBIT H-1 -- First Amendment to Rights Agreement
EXHIBIT H-2 -- Second Amendment to Rights Agreement

SCHEDULES

Schedule 4.09 -- Prior obligations for Property Dispositions
Schedule 4.10 -- Exceptions to Title
Schedule 4.11 -- Compliance with Laws
Schedule 4.12 -- oil and Gas Lease Exceptions
Schedule 4.14 -- Claims or Litigation
Schedule 4.15 -- Contracts, Consents and Preferential Rights
Schedule 4.16 -- Tax Partnerships
Schedule 4.21 -- Future Capital Commitments
Schedule 4.22 -- Environmental
Schedule 5.12 -- Environmental
</TABLE>

A-iii
<PAGE> 116

DEFINED TERMS

<TABLE>
<CAPTION>
TERM DEFINED LOCATION
------------ --------
<S> <C>
Active Employees............................................... Section 6.03(a)
Acquiring Person............................................... Section 5.09
Agreement...................................................... Recitals
Alberta Act.................................................... Section 4.18(b)(3)
Amendment...................................................... Section 1.06
Canada Tax Act................................................. Section 4.18(b)(2)
Canadian Onshore Oil and Gas Business.......................... Recital A
Certificates of Merger......................................... Section 1.02
COBRA.......................................................... Section 6.03(d)(i)
Code........................................................... Recital E
Conclusive Worksheet........................................... Section 10.01(d)
Closing........................................................ Section 3
Closing Date................................................... Section 3
Devon.......................................................... Recitals
Devon Common Stock............................................. Recital D
Devon Confidential Materials................................... Section 6.01(a)
Devon Group.................................................... Recital B
Devon Nevada................................................... Recitals
Devon Reports.................................................. Section 5.03
Devon Representatives.......................................... Section 6.02(a)
Devon Savings Plan............................................. Section 6.03(d)(v)(2)
Distribution Date.............................................. Section 5.09
Effective Time................................................. Section 1.02
Employee Plans................................................. Section 6.03(c)
ERISA.......................................................... Section 6.03(c)
Excluded Assets................................................ Section 4.03
GST............................................................ Section 4.18(b)(3)
House Creek Production Payment................................. Section 10.02
Interests...................................................... Section 4.03
Kerr-McGee..................................................... Recitals
Kerr-McGee Canada.............................................. Section Section 4.02
Kerr-McGee Confidential Material............................... Section 6.02(a)
Kerr-McGee Designees........................................... Section 8.08(d)
Kerr-McGee Group............................................... Recital A
Kerr-McGee Oklahoma............................................ Recitals
Kerr-McGee Oklahoma Common Stock............................... Section 4.02
Kerr-McGee Representatives..................................... Section 6.01(a)
Kerr-McGee Sub................................................. Recitals
Kerr-McGee Sub Common Stock.................................... Section 4.02
Material Adverse Effect........................................ Section 11.03
Merger......................................................... Section 1.01
Net Cash....................................................... Section 10.01(c)
Net Working Capital............................................ Section 10.01(b)
Neutral Auditors............................................... Section 10.01(d)
Nevada Act..................................................... Recital C
Newly Hired Employee........................................... Section 6.03(b)
Oklahoma Act................................................... Recital C
Permits........................................................ Section 4.08
Production Payment............................................. Section 10.02
</TABLE>

A-iv
<PAGE> 117

<TABLE>
<CAPTION>
TERM DEFINED LOCATION
------------ --------
<S> <C>
Production Payment Owner....................................... Section 10.02
Proxy Statement................................................ Section 1.06
Real Property Interests........................................ Section 4.03(c)(i)
Records........................................................ Section 10.07
Rights Agent................................................... Section 5.09
Rights Agreement............................................... Section 5.09
SEC............................................................ Section 1.06
Stockholders Meeting........................................... Section 1.06
Sub Shares..................................................... Recital D
Subject Interests.............................................. Section 10.02
Substantially True............................................. Section 11.03
Surviving Corporation.......................................... Section 1.02
Tax Pools...................................................... Section 4.18(b)
33 Act......................................................... Section 4.23
34 Act......................................................... Section 5.03
U.S. Onshore Oil & Gas Business................................ Recital A
WARN........................................................... Section 6.03(g)
</TABLE>

A-v
<PAGE> 118

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), has been entered into
this 17th day of October, 1996, among DEVON ENERGY CORPORATION. ("Devon"), an
Oklahoma corporation, DEVON ENERGY CORPORATION (NEVADA) ("Devon Nevada"), a
Nevada corporation, KERR-MCGEE CORPORATION ("Kerr-McGee"), a Delaware
corporation, KERR NORTH AMERICAN ONSHORE CORPORATION ("Kerr-McGee Oklahoma"), an
Oklahoma corporation, and KERR-MCGEE CANADA ONSHORE LTD. ("Kerr-McGee Sub"), a
corporation organized under the laws of Alberta, Canada, with reference to the
following circumstances:

A. Kerr-McGee Oklahoma is a wholly owned subsidiary of Kerr-McGee, and as
of the Closing Date (hereafter defined) Kerr-McGee Sub will be a wholly owned
subsidiary of Kerr-McGee. As of the Closing Date, (i) Kerr-McGee Oklahoma will
own and conduct as an ongoing concern all of the onshore exploration and
production of oil and gas business of Kerr-McGee and its subsidiaries located in
the continental U.S. (the "U.S. Onshore Oil and Gas Business"), which includes
all of the U.S. onshore producing and non-producing Interests (hereinafter
defined) of Kerr-McGee and its subsidiaries, as set forth in Section 4.03
hereof; and (ii) Kerr-McGee Sub will own and conduct as an ongoing concern all
of the onshore exploration and production of oil and gas business of Kerr-McGee
and its subsidiaries located in continental Canada (the "Canadian Onshore Oil
and Gas Business"), which includes all of the Canadian onshore producing and
non-producing interests of Kerr-McGee and its subsidiaries, as set forth in
Section 4.03 hereof. Kerr-McGee, Kerr-McGee Oklahoma and Kerr-McGee Sub are
referred to collectively herein as the "Kerr-McGee Group."

B. Devon Nevada is a wholly owned subsidiary of Devon. Devon and Devon
Nevada are referred to collectively herein as the "Devon Group."

C. The boards of directors of Devon, Devon Nevada, Kerr-McGee and
Kerr-McGee Oklahoma deem it advisable and in the best interests of their
respective shareholders that (i) Kerr-McGee Oklahoma be merged with and into
Devon Nevada, pursuant to this Agreement and the applicable provisions of the
Oklahoma General Corporation Act (the "Oklahoma Act") and the General
Corporation Law of Nevada (the "Nevada Act") and (ii) Devon acquire all of the
issued and outstanding capital stock of Kerr-McGee Sub, pursuant to this
Agreement.

D. This Agreement provides for, among other things, (i) the merger of
Kerr-McGee Oklahoma with and into Devon Nevada, (ii) the automatic conversion of
all the issued and outstanding shares of Kerr-McGee Oklahoma at the Effective
Time (hereafter defined) into 7,554,880 fully paid and nonassessable shares of
Devon common stock, par value $.10 share (the "Devon Common Stock") and (iii)
the acquisition by Devon of all of the issued and outstanding capital stock of
Kerr-McGee Sub (the "Sub Shares")in exchange for 2,399,120 shares of Devon
Common Stock.

E. The boards of directors of Devon, Devon Nevada, Kerr-McGee and
Kerr-McGee Oklahoma, respectively, have approved and adopted this Agreement and,
with respect to the merger of Kerr-McGee Oklahoma into Devon Nevada, as a plan
of reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(D)
of the Internal Revenue Code of 1986, as amended (the "Code").

ACCORDINGLY, premises considered and for the purpose of prescribing the
terms and conditions for the acquisition by Devon of the Sub Shares and of
Kerr-McGee Oklahoma by means of merger with and into Devon Nevada, the parties
have entered into this Agreement.

1. The Merger of Kerr-McGee Oklahoma.

1.01 The Exchange Ratio. Devon shall acquire Kerr-McGee Oklahoma through
the merger of Kerr-McGee Oklahoma with and into Devon's wholly owned subsidiary,
Devon Nevada, under the terms of which all of the issued and outstanding shares
of Kerr-McGee Oklahoma at the Effective Time will be converted automatically
into 7,554,880 shares of Devon Common Stock (the "Merger").

1.02 The Merger. Subject to the terms and conditions of this Agreement, a
Certificate of Merger and Articles of Merger substantially in the forms attached
hereto as Exhibits A and B, respectively, (the

A-1
<PAGE> 119

"Certificates of Merger") shall be executed by Kerr-McGee Oklahoma and Devon
Nevada and delivered to the Secretaries of State of Oklahoma and Nevada for
filing on the Closing Date (hereafter defined). The latest time of filing by a
Secretary of State of Oklahoma or Nevada is herein referred to as the "Effective
Time." At the Effective Time, the separate existence of Kerr-McGee Oklahoma
shall cease and Kerr-McGee Oklahoma shall be merged with and into Devon Nevada
(sometimes referred to herein as the "Surviving Corporation") At the Effective
Time, the certificates evidencing the issued and outstanding Kerr-McGee Oklahoma
capital stock shall be deemed to evidence the number of shares of Devon Common
Stock into which the shares of Kerr-McGee Oklahoma have been converted.

1.03 Effect of the Merger. At and after the Effective Time, the status,
rights, liabilities and other matters affecting the Merger of Kerr-McGee
Oklahoma and Devon Nevada shall be as provided by Section 1088 of the Oklahoma
Act and Section 92A.250 of the Nevada Act, respectively.

1.04 Exchange of Certificates. At the Closing (hereafter defined),
Kerr-McGee shall surrender the certificates which prior to the Merger
represented shares of stock of Kerr-McGee Oklahoma to Devon. Kerr-McGee, as the
holder of Kerr-McGee Oklahoma Common Stock (hereafter defined), shall thereupon
be entitled to receive in exchange therefor a certificate evidencing the shares
of Devon Common Stock into which the shares of Kerr-McGee Oklahoma shall have
been converted at the Effective Time as provided in this Agreement.

1.05 Taking Necessary Action; Further Action. Devon, Devon Nevada,
Kerr-McGee and Kerr-McGee Oklahoma, respectively, shall use all reasonable
efforts to take all such action as may be necessary or appropriate in order to
effectuate the Merger as promptly as practicable. if, at any time after the
Effective Time of the Merger, any further action is necessary or desirable to
carry out the purposes of this Agreement, or to vest Devon Nevada with full
right and title to and possession of all assets, property, rights, privileges,
powers and franchises of either or both of Devon Nevada and Kerr-McGee Oklahoma,
the officers and directors of Devon Nevada are fully authorized in the name of
Kerr-McGee Oklahoma or otherwise to take, and shall take, all such action.

1.06 Stockholders Meeting and Proxy Statement.

(a) In order to consummate the Merger, Devon, acting through its board of
directors, shall, in accordance with applicable law and its certificate of
incorporation and by-laws, (i) duly call, give notice of, convene and hold a
special meeting of its stockholders as soon as practicable after the date of
this Agreement for the purpose of considering and taking action on the issuance
of the shares of Devon Common Stock to be issued to Kerr-McGee in the Merger and
the amendment to Devon's certificate of incorporation (the "Amendment") in the
form attached as Exhibit C hereto (the "Stockholders Meeting") and (ii) include
in the proxy statement to be sent to the stockholders of the Company (the
definitive proxy statement filed with the Securities and Exchange Commission
("SEC"), as amended or supplemented, is herein referred to as the "Proxy
Statement") the recommendation of its board of directors that the stockholders
of the Company vote in favor of and approve the issuance of the shares of Devon
Common Stock to be issued to Kerr-McGee in the Merger and the Amendment.

(b) As soon as practicable following the date of the Agreement, Devon shall
prepare and file with the SEC preliminary proxy materials and shall use all
reasonable efforts to have the Proxy Statement cleared by the SEC as promptly as
practicable. Kerr-McGee shall cooperate with Devon in the preparation of the
Proxy Statement and shall furnish to Devon such data and information relating to
Kerr-McGee, the Interests, Kerr-McGee Oklahoma and Kerr-McGee Sub as Devon may
reasonably request for the purpose of including the data and information in the
Proxy Statement. Devon shall give Kerr-McGee and its counsel the opportunity to
review any preliminary proxy materials and the Proxy Statement prior to their
being filed with the SEC and shall give Kerr-McGee and its counsel the
opportunity to review all amendments and supplements thereto and all responses
to requests for additional information and replies to comments prior to their
being filed with, or sent to, the SEC. Devon will provide promptly to Kerr-McGee
copies of all correspondence between Devon or any of its representatives and the
SEC. Devon will advise Kerr-McGee promptly when any supplement to or amendment
of the Proxy Statement has been filed, or the issuance of any stop order, or of
any request by the SEC or the American Stock Exchange for amendment of the Proxy
Statement.

A-2
<PAGE> 120

2. The Acquisition of Kerr-McGee Sub.

2.01 Exchange of Shares. Subject to the terms and conditions of this
Agreement, at the Effective Time, Kerr-McGee will assign, transfer and deliver
to Devon the Sub Shares and Devon will issue to Kerr-McGee 2,399,120 shares of
Devon Common Stock.

2.02 Stock Certificates. At the Effective Time, Kerr-McGee will duly
endorse for transfer all certificates evidencing the Sub Shares and deliver them
to Devon and Devon will register in Kerr-McGee's name and issue one or more
certificates, as reasonably requested by Kerr-McGee, evidencing 2,399,120 shares
of Devon Common Stock and deliver it or them to Kerr-McGee.

3. Closing. Subject to the terms and provisions hereof, the closing of the
transactions provided for herein (the "Closing") shall occur at 10:00 a.m. at
the offices of McAfee & Taft A Professional Corporation, Tenth Floor, Two
Leadership Square, Oklahoma City, Oklahoma on December 31, 1996 (the "Closing
Date,,) and immediately thereafter the Certificates of Merger shall be filed
with the Secretaries of State of Oklahoma and Nevada unless another date, time
or place is agreed to in writing by the parties hereto.

4. Representations and Warranties of Kerr-McGee. Kerr-McGee represents and
warrants to Devon as follows:

4.01 Organization, Good Standing, Etc. Kerr-McGee Oklahoma and Kerr-McGee
Sub are corporations duly organized, validly existing and in good standing under
the laws of the State of Oklahoma and the province of Alberta, Canada,
respectively. Kerr-McGee Oklahoma and Kerr-McGee Sub have the corporate power to
own their property and to carry on their business as now being conducted.
Kerr-McGee, Kerr-McGee Oklahoma and Kerr-McGee Sub have the corporate power to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby and Kerr-McGee Oklahoma has the corporate power to execute
and deliver the Certificates of Merger herein required. At the Effective Time,
Kerr-McGee Oklahoma and Kerr-McGee Sub will be duly qualified and/or licensed,
as may be required, and in good standing in each of the jurisdictions in which
the nature of the business conducted by them or the character of the property
owned, leased or used by them makes such qualification and/or licensing
necessary, except where the failure to be so qualified and/or licensed, and in
good standing would not singly or in the aggregate have a material adverse
effect on Kerr-McGee Oklahoma and Kerr-McGee Sub. Kerr-McGee has made available
to Devon copies of the certificate of incorporation, bylaws and the records of
meetings of the shareholders and boards of directors of Kerr-McGee Oklahoma and
Kerr-McGee Sub which are complete and correct in all respects. All material
corporate actions taken by Kerr-McGee Oklahoma and Kerr-McGee Sub since their
organization and incorporation through the date hereof have been duly authorized
or subsequently ratified as necessary. Neither Kerr-McGee Oklahoma nor
Kerr-McGee Sub is in default under or in violation of any provision of their
respective certificate of incorporation or bylaws.

4.02 Capital Stock of Kerr-McGee Oklahoma and Kerr-McGee Sub. The
authorized capital stock of Kerr-McGee Oklahoma consists of 1,000 shares of
common stock, par value $1.00 per share ("Kerr-McGee Oklahoma Common Stock"), of
which 1,000 shares are issued and outstanding and all of which are owned by
Kerr-McGee. The authorized capital stock of Kerr-McGee Sub consists of 1,000
shares of common stock, no par value ("Kerr-McGee Sub Common Stock"), of which
1,000 shares are issued and outstanding and all of which are presently owned by
Kerr-McGee Canada Ltd. ("Kerr-McGee Canada"), but at the Closing, will be owned
by Kerr-McGee, free and clear of all security interests, liens and encumbrances.
There are no treasury shares held by Kerr-McGee Oklahoma or Kerr-McGee Sub. The
issued Kerr-McGee Oklahoma Common Stock and Kerr-McGee Sub Common Stock are
validly authorized and issued and fully paid and nonassessable. Neither
Kerr-McGee Oklahoma nor Kerr-McGee Sub have ever declared or paid any dividend,
or declared or made any distribution on, or authorized the creation or issuance
of, or issued, or authorized or effected any split-up or any other
recapitalization of, any of its capital stock, or directly or indirectly
redeemed, purchased or otherwise acquired any of its outstanding capital stock
and, except as permitted by this Agreement, will not do so between the date of
this Agreement and the Effective Time of the Merger. There are no contractual
obligations of Kerr-McGee Oklahoma or Kerr-McGee Sub to repurchase, redeem or
otherwise acquire any outstanding shares of their capital stock. Further, there
are no options, warrants or other rights to acquire any additional shares of
capital stock of Kerr-McGee Oklahoma or Kerr-McGee Sub.

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4.03 The Interests.

(a) Kerr-McGee Oklahoma is a wholly-owned subsidiary of Kerr-McGee and as
of the Closing Date, Kerr-McGee Sub will be a wholly owned subsidiary of
Kerr-McGee. As of the Closing Date, (i) Kerr-McGee Oklahoma will own and conduct
as an ongoing concern all of Kerr-McGee and its affiliates' U.S. Onshore Oil and
Gas Business and (ii) Kerr-McGee Sub will own and conduct as an ongoing concern
all of Kerr-McGee and its affiliates' Canadian Onshore Oil and Gas Business.

(b) Kerr-McGee Oklahoma has not ever engaged in an activity unrelated to
the U.S. Onshore Oil & Gas Business and Kerr-McGee Sub has not ever engaged in
an activity unrelated to the Canadian Onshore Oil & Gas Business.

(i) Oil, gas and mineral leases and the operating rights, mineral
interests, royalty interests, overriding royalty interests, payments out of
production and interests in or under unit or pooling agreements covering
lands located onshore in the continental United States and Canada (the
"Real Property Interests");

(ii) All other contracts, agreements, leases, licenses, permits,
rights (including without limitation rights in warranty and other choses in
action), easements and orders relating to the Real Property Interests (or
the lands covered thereby or pooled, unitized, or directly used or held for
use in connection therewith), the operations conducted or to be conducted
thereon, or the production, treatment, sale or disposal of hydrocarbons or
water produced therefrom or attributable thereto;

(iii) All wells (including, without limitation, disposal, supply or
injection wells), personal property, fixtures (including, without
limitation, plants, gathering systems, pipelines, compressors and
dehydration and other treatment facilities), equipment (including, without
limitation, inventory, field trucks and vehicles and supplies) and
improvements located on the Real Property Interests, or upon lands pooled,
unitized, or directly used or held for use in connection therewith or with
the operation or maintenance thereof, or with the production, treatment,
sale or disposal of hydrocarbons or water produced therefrom or
attributable thereto, and all original books, files, seismic records and
tapes (to the extent the Kerr-McGee Group may convey ownership or rights
concerning the use of same), other records and information of the
Kerr-McGee Group (including without limitation all land, geological,
geophysical and accounting files and records) pertaining to the Real
Property Interests and the U.S. Onshore Oil and Gas Business or Canadian
Onshore Oil and Gas Business; and

(iv) All other rights and interests in, to or under or derived from
the Real Property Interests, the lands covered thereby or pooled, unitized
or directly used or held for use in connection therewith.

As used herein, the term "Interests" means the aggregate of all rights,
titles and interests owned by Kerr-McGee and or any of its affiliates, or
any of them, insofar as they relate to the U.S. Onshore Oil and Gas
Business and the Canadian Onshore Oil and Gas Business.

(d) The Interests, as owned and operated by Kerr-McGee Oklahoma and
Kerr-McGee Sub, shall not include:

(i) all lands, mineral interests and properties (whether real,
tangible or intangible) owned by Kerr-McGee and used or associated with
Kerr-McGee's oil and gas exploration and production business covering lands
located in, on or under the Outer Continental Shelf of the United States of
America, the off-shore territorial waters of any state thereof or the
States of Alaska and Hawaii and the territorial waters thereof;

(ii) all lands, mineral interests, and properties (whether real,
tangible or intangible), acquired, used or held for use by Kerr-McGee
solely or primarily for purposes other than its U.S. Onshore Oil & Gas
Business or its Canadian Onshore Oil & Gas Business;

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(iii) all of the U.S. oil and gas wells and properties described on
Exhibit D attached hereto, including all oil and gas leases, leasehold
interests and properties associated therewith (whether real, tangible or
intangible); and

(iv) all of the non-U.S. oil and gas wells and properties described on
Exhibit E attached hereto, including all oil and gas leases, leasehold
interests and properties associated therewith (whether real, tangible or
intangible), none of which are located in the province of Alberta, Canada.

The excluded properties are herein referred to collectively as the "Excluded
Assets."

(e) The provisions of this Section 4.03 shall survive the Closing.

4.04 No Breach of Statute or Contract; Governmental
Authorizations. Neither the execution and delivery of this Agreement nor
compliance with the terms and provisions of this Agreement by the Kerr-McGee
Group will violate any law, statute, rule or regulation of any governmental
authority, or will on the Closing Date conflict with or result in a breach of
any of the terms, conditions or provisions of any judgment, order, injunction,
decree or ruling of any court or governmental agency, authority to which
Kerr-McGee or its subsidiaries is subject or, except as set forth in Schedule
4.15, of any agreement or instrument to which Kerr-McGee or its subsidiaries is
a party or by which any of them is bound, or constitute a material default
thereunder, or result in the creation of any material lien, charge or
encumbrance upon any of the Interests or cause any acceleration of maturity of
any material obligation or loan, or give to others any material interest or
rights, including rights of termination or cancellation, in or with respect to
any of the Interests.

4.05 Authorization of Agreement. The execution, delivery and performance
of this Agreement by the members of the Kerr-McGee Group have been duly and
validly authorized by all requisite corporate action on the part of each member
of the Kerr-McGee Group. The execution, delivery and performance by the Kerr-
McGee Group of all other agreements and transactions contemplated hereby have
been, or prior to Closing will be, duly authorized and approved by all requisite
corporate action on the part of the Kerr-McGee Group. This Agreement has been,
and the other agreements and instruments contemplated hereby, when executed and
delivered, will be, duly executed and delivered by each member of the Kerr-McGee
Group as required and, assuming the due authorization, execution and delivery
hereof and thereof by the other parties hereto or thereto, this Agreement
constitutes and, when executed, each of the other agreements contemplated hereby
will constitute, a valid and binding obligation of each member of the Kerr-McGee
Group that is a party hereto or thereto, as the case may be, enforceable against
each of them in accordance with its terms, subject to applicable bankruptcy,
reorganization, insolvency, moratorium, fraudulent conveyance and similar laws
affecting creditors' rights generally from time to time and to general
principles of equity, and in the case of the Registration Rights Agreement (as
hereinafter defined), considerations of public policy.

4.06 Disclosure in Proxy Statement.

(a) None of the information, including the oil and gas reserve, well and
acreage data, which has been or will be supplied by Kerr-McGee to Devon in
writing for inclusion in the Proxy Statement (or any amendment thereof or
supplement thereto) will contain any statement which, at the time and in light
of the circumstances under which it is made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter which has become false or
misleading.

(b) Kerr-McGee has furnished, or will furnish, Devon with all information
required with respect to the Interests necessary for Devon to prepare financial
statements with respect thereto for inclusion in the Proxy Statement in
accordance with applicable rules of the SEC, including Regulation S-X.

4.07 Broker's or Finder's Fees. None of Kerr-McGee or any of its
subsidiaries has incurred any liability, contingent or otherwise, for brokers'
or finders' fees in respect of this Agreement for which any member of the Devon
Group shall have any responsibility whatsoever.

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4.08 Permits. At the Effective Time, Kerr-McGee Oklahoma and Kerr-McGee
Sub will have all approvals, authorizations, consents, licenses, orders,
franchises, rights, registrations and permits of all governmental agencies,
whether federal, state or local, United States or foreign, required to permit
the operation of their businesses as presently conducted (the "Permits") and
each will be in full force and effect and will have been duly and validly
issued, except where the absence of which, singly or in the aggregate, would not
have a material adverse effect on Kerr-McGee Oklahoma and Kerr-McGee Sub. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in any revocation,
cancellation, suspension or modification of any such Permit except where such
revocation, cancellation, suspension or modification would not have a material
adverse effect on Kerr-McGee Oklahoma and Kerr-McGee Sub. At the Effective Time,
there will be no outstanding violation of any of the Permits singly or in the
aggregate that would have a material adverse effect on Kerr-McGee Oklahoma and
Kerr-McGee Sub.

4.09 Prior Obligations. None of Kerr-McGee or its subsidiaries have any
contractual obligation relating to the disposition, by merger or otherwise, of
all or any of the equity securities of Kerr-McGee Oklahoma or Kerr-McGee Sub or
of all or any significant portion of the Real Property Interests except as
contained in this Agreement, except for obligations arising in the ordinary
course of business of Kerr-McGee Oklahoma or Kerr-McGee Sub and except as
disclosed in Schedule 4.09.

4.10 Title to the Interests. Except as set forth in Schedule 4.10, each of
Kerr-McGee Oklahoma and Kerr-McGee Sub will have on the Closing Date good and
defensible title of record to their respective properties comprising the
Interests free and clear of all liens, pledges, claims, charges, security
interests, production payments or other encumbrances except (i) liens for
current taxes and assessments not yet due, or being contested in good faith by
appropriate proceedings and (ii) such imperfections of title and encumbrances,
if any, which do not have singly or in the aggregate a material adverse effect
on Kerr-McGee Oklahoma and Kerr-McGee Sub.

4.11 Compliance with Laws. Except as disclosed in Schedule 4.11 and
excluding matters covered by Section 4.22, neither Kerr-McGee nor any of its
subsidiaries is in violation of any applicable law, ordinance, regulation, writ,
judgment, decree or order of any court or government or governmental unit in
connection with the Interests, the consequences of which singly or in the
aggregate would have a material adverse effect on Kerr-McGee Oklahoma and
Kerr-McGee Sub.

4.12 Oil and Gas Leases in Good Standing. Except as disclosed in Schedule
4.12, all oil and gas leases which are material singly or in the aggregate to
Kerr-McGee Oklahoma and Kerr-McGee Sub are in full force and effect, and neither
Kerr-McGee Oklahoma nor Kerr-McGee Sub is in default thereunder.

4.13 Taxes. All ad valorem, property, production, severance and similar
taxes and assessments based on or measured by the ownership of property
comprising the Interests or the production or removal of hydrocarbons or the
receipt of proceeds therefrom have been timely paid, except such things as are
being contested in good faith by appropriate proceedings.

4.14 Claims or Litigation. Except as disclosed in Schedule 4.14, there is
no material suit, action or other proceeding pending before any court or
governmental agency and, to the knowledge of Kerr-McGee, there is no material
claim, dispute, suit, action or other proceeding threatened, against Kerr-McGee
Oklahoma, Kerr-McGee Sub or any of the Real Property Interests.

4.15 Contracts, Consents and Preferential Rights. Kerr-McGee has described
in Schedule 4.15 (i) all partnership, joint venture, farmin/farmout, dry hole,
bottom hole, acreage contribution, area of mutual interest, purchase and/or
acquisition agreements of which any terms remain executory which materially
affect the Real Property Interests, (ii) all other executory contracts to which
Kerr-McGee Oklahoma or Kerr-McGee Sub is a party which materially affect any
item of the Real Property Interests, (iii) all U.S. and Canadian governmental or
court approvals and third party contractual consents required in order to
consummate the transactions contemplated by this Agreement, other than routine
consents required in connection with transfers of U.S. federal, state, Canadian,
province and Indian leases, (iv) all agreements pursuant to which third parties
have preferential rights or similar rights to acquire any portion of the Real

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Property Interests upon the Merger contemplated by this Agreement, and (v) all
other contracts and agreements which are in any single case of material
importance to the business of Kerr-McGee Oklahoma or Kerr-McGee Sub.

4.16 Tax Partnerships. No item of the Real Property Interests nor any oil
and gas property owned by Kerr-McGee Oklahoma or Kerr-McGee Sub is treated for
income tax purposes as being owned by a partnership except as disclosed in
Schedule 4.16.

4.17 Financial Statements. Kerr-McGee has furnished Devon with statements
of revenues and direct operating expenses for the three years ended December 31,
1993, 1994 and 1995, which shall have been audited by Arthur Andersen & Co.
prior to the filing of the Proxy Statement, and for the six months ended June
30, 1995 and 1996, which are unaudited.

4.18 Tax Matters.

(a) Generally. Neither Kerr-McGee Oklahoma nor Kerr-McGee Sub have ever
filed a tax return or report of any kind with any taxing jurisdiction, including
the United States and Canada, except an initial franchise tax return in Oklahoma
will be filed prior to Closing.

(b) Canada.

(1) Kerr-McGee Sub had, to its best estimate, the following tax
accounts as at September 24, 1996 (the "Tax Pool Date") (terms have the
meaning given thereto for the purposes of the Income Tax Act (Canada) (the
"Canada Tax Act")) of approximately:

<TABLE>
<CAPTION>
CANADIAN DOLLARS
----------------
<S> <C>
Canadian exploration expense.......................................... $ -0-
Canadian development expense.......................................... $ 21,000,000
Canadian oil & gas property expense................................... $ 10,600,000
Undepreciated capital Cost............................................ $ 12,900,000
Class 41............................................................ $ 11,300,000
Other Classes....................................................... $ 1,600,000
</TABLE>

The above classes of tax accounts are hereinafter referred to as "Tax Pools."

Neither Kerr-McGee Canada nor Kerr-McGee Sub will have disposed of more
than $200,000 (Canadian dollars) of Canadian based assets (other than the sale
to Kerr-McGee Sub) since the Tax Pool Date (or prior thereto but without the
disposition having been reflected in the Tax Pools at September 24, 1996). Kerr-
McGee Canada will claim no deduction in respect of the Tax Pools for its
taxation year including the Tax Pool Date. Kerr-McGee Canada and Kerr-McGee Sub
will make such elections as are necessary to transfer all of Kerr-McGee Canada's
Tax Pools (as at the date of the transfer of the Canadian assets to Kerr-McGee
Sub) to Kerr-McGee Sub in such configuration as Devon shall direct; provided,
however, that (i) such elections shall not result in taxable income to
Kerr-McGee Canada and (ii) Kerr-McGee Canada may direct that up to $1,600,000
(Canadian dollars) of the Tax Pools transferred to Kerr-McGee Sub be used
against the Canadian taxable income of Kerr-McGee Sub for its taxable year
ending on the Closing Date, using the various Tax Pools in the order of lowest
percent of available use to the highest percent of available use. For example,
the Canadian oil and gas property expense pool would be used first.

(2) Kerr-McGee Sub will be registered for the purposes of the Part IX of
the Excise Tax Act (the "GST") and the Kerr-McGee Canada and Kerr-McGee Sub will
elect to ensure no GST will arise on the transfer of the Canadian On Shore Oil
and Gas Business to Kerr-McGee Sub.

(3) None of the oil and gas properties included in the Canadian On Shore
Oil and Gas Business are "restricted resource properties for the purposes of the
Alberta Corporate Income Tax Act (the "Alberta Act"). Neither Kerr-McGee nor any
company associated with Kerr-McGee, for the purposes of the Alberta Royalty Tax
Credit under the Alberta Act, own or have any interest in any oil and gas
properties in Alberta

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other than the properties which are owned by Kerr-McGee Sub nor do any of them
have a present intention to acquire any interest in oil and gas properties in
Alberta.

(4) At the Closing, Kerr-McGee shall provide a certificate pursuant to
Section 116 of the Canada Tax Act with respect to the disposition of the Sub
Shares with a certificate limit not less than the fair market value of the Devon
Common Stock to be issued for the Sub Shares.

4.19 Employees, Labor and Benefits. Kerr-McGee Oklahoma and Kerr-McGee Sub
have never had any employees.

4.20 Insurance. At the Effective Time, neither Kerr-McGee Oklahoma nor
Kerr-McGee Sub will have any insurance which provides coverage after the
Effective Time.

4.21 Planned Future Commitments. Neither Kerr-McGee Oklahoma nor Kerr-McGee
Sub have planned or budgeted future expenditure commitments relating to the Real
Property Interests (drilling of wells, workovers, contract settlements, pipeline
projects, production facilities, etc.) in excess of $500,000 in the aggregate
which are not disclosed in Schedule 4.21.

4.22 Environmental and Safety Matters. Except as set forth in Schedule
4.22 and insofar as it pertains to the Interests and to the best of Kerr-McGee's
information and belief:

(a) Kerr-McGee is not aware, and has not received notice from any person,
entity or governmental body, agency or commission, of any release, disposal,
event, condition, circumstance, activity, practice or incident concerning any
land, facility, asset or property that (i) interferes with or prevents
compliance or continued compliance by Kerr-McGee (or by any member of the Devon
Group after the Effective Time) with any United States, Canadian, state or local
law, regulation, code or ordinance or the terms of any license or permit issued
pursuant thereto, or (ii) gives rise to or results in any common law or other
liability of Kerr-McGee Oklahoma or Kerr-McGee Sub to any person, entity or
governmental body, agency or commission for damage or injury to natural
resources, wildlife, human health or the environment which would have a material
adverse effect on Kerr-McGee Oklahoma and Kerr-McGee Sub.

(b) There is no civil, criminal or administrative action, lawsuit, demand,
litigation, claim, hearing, notice of violation, investigation or proceeding,
pending or threatened, against Kerr-McGee Oklahoma or Kerr-McGee Sub or any
present or former owner of any interest in, or operator of, any of the lands,
facilities, assets and properties owned or formerly owned, operated, leased or
used by Kerr-McGee as a result of the violation or breach of any federal, state,
or local law, regulation, code or ordinance or any duty arising at common law to
any person, entity or governmental body, singly or in the aggregate, which if
determined adversely to Kerr-McGee Oklahoma or Kerr-McGee Sub would have a
material adverse effect on Kerr-McGee Oklahoma and Kerr-McGee Sub.

4.23 Investment Intent. Neither Kerr-McGee nor any of its subsidiaries
presently own nor will they own prior to the Effective Time any Devon Common
Stock. On the date first above written and the Closing Date, Kerr-McGee has and
will have no present intention to sell or otherwise dispose of any Devon Common
Stock to be issued to it pursuant to this Agreement and the Merger. On the
Closing Date, Kerr-McGee is acquiring the Devon Common Stock for investment
purposes and not with a view to or in connection with a distribution within the
meaning of the Securities Act of 1933, as amended (the "33 Act"). Kerr-McGee
understands and agrees that the certificates representing the Devon Common Stock
will have a legend imprinted thereon to the effect set forth in Section 3 of the
Share Rights and Restrictions Agreement attached as Exhibit F hereto. The
provisions of this Section shall survive Closing.

5. Representations and Warranties of Devon. Devon represents and warrants
to Kerr-McGee as follows:

5.01 Organization, Good Standing, Etc. Devon and Devon Nevada are
corporations duly organized, validly existing and in good standing under the
laws of the States of Oklahoma and Nevada, respectively. Devon and Devon Nevada
have the corporate power to own their property and to carry on their business as
now being conducted. Devon and Devon Nevada have the corporate power to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby and Devon Nevada has the corporate power to execute the Certificates of
Merger herein required. At the Effective Time, Devon and Devon Nevada

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will be duly qualified and/or licensed and in good standing in each of the
jurisdictions in which the nature of the business conducted by them or the
character of the property owned, leased or used by any of them makes such
qualification and/or licensing necessary, except in such jurisdictions where the
failure to be so qualified or licensed would not have a material adverse effect
on Devon and its consolidated subsidiaries considered as one enterprise. Devon
Nevada is a wholly owned subsidiary of Devon. Neither Devon nor Devon Nevada is
in default under or in violation of any provision of their respective
certificate of incorporation or bylaws.

5.02 Capital Stock of Devon and Subsidiaries. The authorized capital stock
of Devon consists of 120,000,000 shares of Devon Common Stock and 3,000,000
shares of preferred stock of which 22,130,896 shares of Devon Common Stock and
no shares of preferred stock were issued and outstanding as of the date first
above written. No shares were held in the treasury as of such date. As of the
date of this Agreement, there are no outstanding options, warrants or other
rights to subscribe for or purchase from Devon or any of its subsidiaries any
capital stock of Devon, or securities convertible into capital stock of Devon
except for the convertible securities of Devon presently outstanding, and other
than 1,347,100 shares of Devon Common Stock reserved for issuance or issuable
pursuant to those employee benefit plans which have been publicly disclosed. As
of the date first above written, Devon employee stock options were outstanding
that provide for the purchase of 1,014,900 shares of Devon Common Stock, subject
to certain vesting conditions. As of the Closing Date, Devon employee stock
options providing for the purchase of no more than 1,347,100 shares of Devon
Common Stock will be outstanding. As of the date first above written, no more
than 4,901,507 shares of Devon Common Stock will be reserved for issuance or
issuable upon conversion of Devon's presently outstanding convertible preferred
securities. All of the capital stock of Devon's subsidiaries has been validly
authorized and issued, is fully paid and nonassessable and is owned directly by
Devon free and clear of any lien, charge or encumbrance. Each share of Devon
Common Stock to be issued pursuant to this Agreement will have attached to it a
Right as defined in the Rights Agreement.

5.03 SEC Documents. Devon has delivered or made available to Kerr-McGee
each registration statement, report, definitive proxy statement or definitive
information statement and all exhibits thereto filed since December 31, 1995,
each in the form (including exhibits and any amendments thereto) filed with the
SEC (collectively, the "Devon Reports"). The Devon Reports, which were filed
with the SEC in a timely manner, constitute all forms, reports and documents
required to be filed by Devon under the 33 Act, the Securities Exchange Act of
1934, as amended (the "34 Act") and the rules and regulations promulgated
thereunder. As of their respective dates, the Devon Reports (i) complied as to
form in all material respects with the applicable requirements of the 33 Act and
the 34 Act and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading. Each of the balance sheets of Devon included in or
incorporated by reference into the Devon Reports (including the related notes
and schedules) fairly presents the financial position of Devon as of its date
and each of the statements of income, retained earnings and cash flows of Devon
included in or incorporated by reference into the Devon Reports (including any
related notes and schedules) fairly presents the results of operations, retained
earnings or cash flows, as the case may be, of Devon for the periods set forth
therein (subject, in the case of unaudited statements, to normal year-end audit
adjustments which would not be material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein and except, in the
case of any unaudited statements, as permitted by Form 10-Q promulgated under
the 34 Act.

5.04 No Breach of Statute or Contract; Governmental
Authorizations. Neither the execution and delivery of this Agreement nor
compliance with the terms and provisions of this Agreement by the Devon Group
will violate any law, statute, rule or regulation of any governmental authority,
or will on the Closing Date conflict with or result in a breach of any of the
terms, conditions or provisions of any judgment, order, injunction, decree or
ruling of any court or governmental agency, authority to which Devon or its
subsidiaries is subject or of any agreement or instrument to which Devon or its
subsidiaries is a party or by which any of them is bound, or constitute a
material default thereunder, or result in the creation of any material lien,
charge or encumbrance upon any property or assets of Devon or its subsidiaries
or cause any acceleration of maturity of any material obligation or loan, or
give to others any material interest or rights, including rights of

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termination or cancellation, in or with respect to any of the properties,
assets, agreements, contracts or business of Devon or its subsidiaries.

5.05 Authorization of Agreement. The execution, delivery and performance
of this Agreement by the members of the Devon Group have been duly and validly
authorized and approved by all requisite corporate action on the part of each
member of the Devon Group. The execution, delivery and performance by each
member of the Devon Group of all other agreements and transactions contemplated
hereby have been or prior to Closing will be, duly authorized and approved by
all requisite corporate action on the part of each member of the Devon Group.
This Agreement has been, and the other agreements contemplated hereby, when
executed and delivered, will be, duly executed and delivered by each member of
the Devon Group as required and, assuming the due authorization, execution and
delivery hereof and thereof by the other parties hereto or thereto, this
Agreement constitutes and, when executed, each of the other agreements
contemplated hereby will constitute, a valid and binding obligation of each
member of the Devon Group that is a party hereto or thereto, as the case may be,
enforceable against each of them in accordance with its terms subject to
applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent
conveyance and similar laws affecting creditors' rights generally from time to
time and to general principles of equity, and in the case of the Registration
Rights Agreement (hereafter defined), considerations of public policy.

5.06 Broker's or Finder's Fees. No member of the Devon Group has incurred
any liability, contingent or otherwise, for brokers' or finders' fees in respect
of this Agreement for which any member of the Kerr-McGee Group shall have any
responsibility whatsoever.

5.07 Article Eleventh of Devon Certificate of Incorporation and Sections
1145 through 1155, and Section 1090.3, of the Oklahoma Act. (a) Section 1090.3
of the Oklahoma Act does not prohibit or restrict the Merger or the issuance of
shares of Devon Common Stock to Kerr-McGee pursuant thereto or Section 2 hereof,
or the other transactions contemplated hereby. The board of directors of Devon
has, prior to the date hereof, approved this Agreement and the transactions
contemplated hereby, including the Merger, the issuance of the shares of Devon
Common Stock to be issued to Kerr-McGee pursuant thereto and the issuance of the
shares of Devon Common Stock to be issued pursuant to Section 2 hereof, for
purposes of Article Eleventh of Devon's certificate of incorporation such that
no limitation on Devon engaging in any business combination (as defined in such
Article Eleventh) with Kerr-McGee following the date hereof will be applicable
as a result of Article Eleventh, subject however, to the provisions of the Stock
Rights and Restrictions Agreement to be executed by the parties hereto at
Closing.

(b) The Control Share Acquisition Act as set forth in Sections 1145 through
1155 of the Oklahoma Act is not applicable to Devon and will not be applicable
to this Agreement, the Merger and the issuance of the shares of Devon Common
Stock to be issued to Kerr-McGee pursuant thereto or Section 2 hereof, and the
other transactions contemplated hereby.

5.08 Proxy Statement Information. Assuming that the representations of
Kerr-McGee set forth in Section 4.06 hereof are true and correct, neither the
Proxy Statement nor any amendment thereof or supplement thereto will contain any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of a proxy for the same meeting or subject
matter which has become false or misleading.

5.09 Rights Plan. On or prior to the date of this Agreement, the Rights
Agreement (hereafter defined) has been amended pursuant to an amendment thereto
duly executed and delivered by Devon and the Rights Agent (as defined in the
Rights Agreement) in the form of Exhibit H-1 hereto so that the execution and
delivery by the Kerr-McGee Group of this Agreement, and the consummation of the
Merger, including the issuance of the shares of Devon Common Stock to be issued
to Kerr-McGee pursuant to the Merger and Section 2 hereof, will not result in
any member of the Kerr-McGee Group or any other affiliate of Kerr-McGee becoming
an "Acquiring Person" (as defined in the Rights Agreement dated as of April 17,
1995 (as amended, the "Rights Agreement") between Devon and the First National
Bank of Boston, as rights agent) or result in a "Distribution Date" (as defined
in the Rights Agreement). Prior to the Effective Time, the

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Rights Agreement will have been amended pursuant to an amendment thereto duly
executed by Devon and the Rights Agent in the form of Exhibit H-2 hereto, and
will not otherwise have been further amended.

5.10 Board Recommendation. The board of directors of Devon, at a meeting
duly called and held, has by unanimous vote, (i) determined that this Agreement
and the transactions contemplated hereby, including the Merger, the Amendment
and the issuance of the shares of Devon Common Stock to be issued to Kerr-McGee
in the Merger and pursuant to Section 2 hereof are fair to and in the best
interests of the stockholders of Devon, and (ii) resolved to recommend that the
holders of the shares of Devon Common Stock approve the Amendment and the
issuance of the shares of Devon Common Stock to be issued to Kerr-McGee in the
Merger and pursuant to Section 2 hereof.

5.11 Required Vote. The affirmative vote of a majority of the issued and
outstanding shares of Devon Common Stock is the only vote of the holders of any
class or series of securities of Devon necessary to approve the Amendment and
the issuance of the shares of Devon Common Stock to be issued to Kerr-McGee
pursuant to the Merger and Section 2 hereof. Except for such vote, there is no
vote of the holders of any class or series of securities necessary to approve
this Agreement, the Merger, the Stock Rights and Restrictions Agreement or any
other transaction contemplated hereby or thereby.

5.12 Environmental and Safety Matters. Except as set forth in Schedule
5.12 and to the best of Devon's information and belief:

(a) Devon is not aware, and has not received notice from any person, entity
or governmental body, agency or commission, of any release, disposal, event,
condition, circumstance, activity, practice or incident concerning any land,
facility, asset or property that (i) interferes with or prevents compliance or
continued compliance by Devon (or by any member of the Devon Group after the
Closing) with any United States, Canadian, state or local law, regulation, code
or ordinance or the terms of any license or permit issued pursuant thereto, or
(ii) gives rise to or results in any common law or other liability of Devon or
Devon Nevada to any person, entity or governmental body, agency or commission
for damage or injury to natural resources, wildlife, human health or the
environment which would have a material adverse effect on Devon and Devon
Nevada.

(b) There is no civil, criminal or administrative action, lawsuit, demand,
litigation, claim, hearing, notice of violation, investigation or proceeding,
pending or threatened, against Devon or Devon Nevada or any present or former
owner of any interest in, or operator of, any of the lands, facilities, assets
and properties owned or formerly owned, operated, leased or used by Devon or
Devon Nevada as a result of the violation or breach of any federal, state, or
local law, regulation, code or ordinance or any duty arising at common law to
any person, entity or governmental body, singly or in the aggregate, which if
determined adversely to Devon or Devon Nevada would have a material adverse
effect on Devon and Devon Nevada.

6. Conduct and Transactions Prior to Effective Time.

6.01 Investigation by Kerr-McGee/Operation of Business of Devon. Between
the date of this Agreement and the Closing:

(a) Devon shall give Kerr-McGee, its agents and representatives, reasonable
access to all of the premises and books and records of Devon and its
subsidiaries and agrees to cause their respective officers to furnish
Kerr-McGee, its agents and representatives with such financial and operating
data and other information with respect to the respective businesses and
properties of Devon as Kerr-McGee, its agents and representatives shall from
time to time reasonably request, provided, however, that any such investigation
shall not affect any of the representations and warranties of Devon hereunder,
and provided further, that any such investigation shall be conducted in such
manner as not to interfere unreasonably with the operation of the respective
businesses of Devon. In the event of termination of this Agreement, except as
prevented by law, Kerr-McGee will, and shall cause its agents and
representatives to, return to Devon all documents, work papers and other
materials obtained from Devon, in connection with the transactions contemplated
hereby, and all copies, extracts or other reproductions thereof in whole or in
part (the "Devon Confidential Material"). The term Devon Confidential Material
does not include information which (i) is or becomes public information without
violation of this Agreement, (ii) was already known to Kerr-McGee, (iii) is
developed by Kerr-McGee

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independently from the information supplied to Kerr-McGee pursuant to this
Agreement, or (iv) is furnished to Kerr-McGee by a third party who is not an
employee, agent, representative, or advisor of Devon or its subsidiaries or any
entity in which Devon has an interest independently from Kerr-McGee's
investigation pursuant to the transactions contemplated by this Agreement.
Kerr-McGee agrees, and shall cause its affiliates and their respective officers,
directors, employees, financial advisors and agents (collectively, "Kerr-McGee
Representatives"), to keep confidential in accordance with this Section 6.01 any
Devon Confidential Material obtained pursuant to this Agreement. If this
Agreement is terminated, Kerr-McGee shall not use, and shall cause each
Kerr-McGee Representative not to use, any of the Devon Confidential Material to
Kerr-McGee's or any other person's financial advantage or to the detriment of
Devon. The confidentiality provisions of this Section 6.01 shall survive the
termination of this Agreement.

(b) Subject to Subsection 6.01(c) below or except as required by law, the
Devon Confidential Material will be kept confidential and will not, without the
prior written consent of Devon, be disclosed by Kerr-McGee or the Kerr-McGee
Representatives, in whole or in part, and will not be used by Kerr-McGee or the
Kerr-McGee Representatives, directly or indirectly, for any purpose other than
in connection with this Agreement, the other transactions contemplated by this
Agreement or evaluating, negotiating or advising Kerr-McGee with respect to the
transactions contemplated herein. Moreover, Kerr-McGee agrees to transmit the
Devon Confidential Material to the Kerr-McGee Representatives only if and to the
extent that the Kerr-McGee Representatives need to know the Devon Confidential
Material for purposes of such transaction and are informed by Kerr-McGee of the
confidential nature of the Devon Confidential Material and of the terms of this
Section. In any event, Kerr-McGee will be responsible for any actions by the
Kerr-McGee Representatives which are not in accordance with the provisions
hereof.

(c) In the event that Kerr-McGee, the Kerr-McGee Representatives or anyone
to whom Kerr-McGee or the Kerr-McGee Representatives supply the Devon
Confidential Material are requested or required (by oral questions,
interrogatories, requests for information or documents, subpoena, civil
investigative demand, any informal or formal investigation by any governmental
body or otherwise in connection with legal processes) to disclose any of the
Devon Confidential Material, Kerr-McGee agrees (i) to immediately notify Devon
of the existence, terms and circumstances of such a request, (ii) to consult
with Devon on the advisability of taking legally available steps to resist-or
narrow such request and (iii) if disclosure of such information is required, to
furnish only that portion of the Devon Confidential Material which, in the
opinion of Kerr-McGee's counsel, Kerr-McGee is legally compelled to disclose and
to cooperate with any action by Devon to obtain an appropriate protective order
or other reliable assurance that confidential treatment will be accorded the
Devon Confidential Material (it being agreed that Devon shall reimburse
Kerr-McGee for all reasonable out-of-pocket expenses incurred by Kerr-McGee in
connection with such cooperation).

(d) Devon will conduct its business only in the ordinary course and, by way
of amplification and not limitation, will not, without the prior written consent
of Kerr-McGee (i) issue shares of its capital stock except pursuant to existing
contractual commitments or in connection with a direct or indirect (stock,
partnership interests, etc.) acquisition of oil and gas properties, (ii) amend
its Certificate of Incorporation or bylaws, except as contemplated by this
Agreement, (iii) waive any rights of substantial value, (iv) enter into any
agreement not in the ordinary course of its business, (v) except for the regular
quarterly cash dividend in an amount equal to $.03 per share on Devon Common
Stock, declare or pay any dividend, or declare or make any distribution on, or
authorize the creation or issuance of, or issue, or authorize or effect any
split-up or any other recapitalization of, any capital stock of Devon, or
directly or indirectly redeem, purchase or otherwise acquire any of the
outstanding capital stock of Devon, or (vi) take any action or omit to take any
action which would result in any of its representations or warranties set forth
in this Agreement becoming untrue.

6.02 Investigation by Devon/Operation of Business of the Kerr-McGee
Group. Between the date of this Agreement and the Effective Time of the Closing:

(a) Insofar as related to the Interests, Kerr-McGee Oklahoma or Kerr-McGee
Sub, Kerr-McGee shall give Devon, its agents and representatives, reasonable
access to all of the books and records of Kerr-McGee and the properties of
Kerr-McGee Oklahoma and Kerr-McGee Sub, and agrees to cause their respective
officers to furnish Devon, its agents and representatives with such financial
and operating data and other

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information with respect to the respective businesses and properties of
Kerr-McGee (to the extent relevant to the Agreement), as Devon, its agents and
representatives shall from time to time reasonably request; provided, however,
that any such investigation shall not affect any of the representations and
warranties of Kerr-McGee hereunder, and provided further, that any such
investigation shall be conducted in such manner as not to interfere unreasonably
with the operation of the respective businesses of Kerr-McGee. In the event of
termination of this Agreement, except as prevented by law, Devon will, and shall
cause its agents and representatives to, return to Kerr-McGee all documents,
work papers and other materials obtained from Kerr-McGee, in connection with the
transactions contemplated hereby, and all copies, extracts or other
reproductions thereof in whole or in part (the "Kerr-McGee Confidential
Material"). The Kerr-McGee Confidential Material does not include information
which (i) is or becomes public information without violation of this Agreement,
(ii) was already known to Devon, (iii) is developed by Devon independently from
the information supplied to Devon pursuant to this Agreement, or (iv) is
furnished to Devon by a third party who is not an employee, agent,
representative, or advisor of Kerr-McGee or any entity in which Kerr-McGee has
an interest independently from Devon's investigation pursuant to the
transactions contemplated by this Agreement. Devon agrees, and shall cause its
affiliates and officers, directors, employees, financial advisors and agents
(collectively, "Devon Representatives"), to keep confidential in accordance with
this Section 6.02 any Kerr-McGee Confidential Material obtained pursuant to this
Agreement. If this Agreement is terminated, Devon shall not, and it shall cause
each Devon Representative not to use, any of the Kerr-McGee Confidential
Material to the financial advantage of Devon or any other person or to the
detriment of Kerr-McGee. The confidentiality provisions of this Section 6.02
shall survive the termination of this Agreement.

(b) Subject to Subsection 6.02(c) below or except as required by law, the
Kerr-McGee Confidential Material will be kept confidential and will not, without
the prior written consent of Kerr-McGee, be disclosed by Devon or the Devon
Representatives, in whole or in part, and will not be used by Devon or the Devon
Representatives, directly or indirectly, for any purpose other than in
connection with this Agreement, the other transactions contemplated by this
Agreement or evaluating, negotiating or advising Devon with respect to the
transactions contemplated herein. Moreover, Devon agrees to transmit the
Kerr-McGee Confidential Material to the Devon Representatives only if and to the
extent that the Devon Representatives need to know the Kerr-McGee Confidential
Material for purposes of such transaction and are informed by Devon of the
confidential nature of the Kerr-McGee Confidential Material and of the terms of
this Section. In any event, Devon will be responsible for any actions by the
Devon Representatives which are not in accordance with the provisions hereof.

(c) In the event that Devon, the Devon Representatives or anyone to whom
Devon or the Devon Representa tives supply the Kerr-McGee Confidential Material
are requested or required (by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigative demand, any informal or
formal investigation by any governmental body or otherwise in connection with
legal processes) to disclose any of the Kerr-McGee Confidential Material, Devon
agrees (i) to immediately notify Kerr-McGee of the existence, terms and
circumstances of such a request, (ii) to consult with Kerr-McGee on the
advisability of taking legally available steps to resist or narrow such request
and (iii) if disclosure of such information is required, to furnish only that
portion of the Kerr-McGee Confidential Material which, in the opinion of Devon's
counsel, Devon is legally compelled to disclose and to cooperate with any action
by Kerr-McGee to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the Kerr-McGee
Confidential Material (it being agreed that Kerr-McGee shall reimburse Devon for
all reasonable out-of-pocket expenses incurred by Devon in connection with such
cooperation).

(d) Kerr-McGee will, to the extent required for continued operation of the
Interests without impairment, use its reasonable efforts to preserve
substantially intact the books and records relative thereto, and to preserve the
present relationships of the Kerr-McGee Group to the extent related to the
Interests with persons having significant business relations therewith such as
suppliers, customers, brokers, agents or otherwise and to promptly notify Devon
of an emergency or other change which would have a significant adverse effect on
Kerr-McGee Oklahoma and Kerr-McGee Sub.

(e) Kerr-McGee Oklahoma and Kerr-McGee Sub will conduct their business only
in the ordinary course and, by way of amplification and not limitation, they
will not, without the prior written consent of

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Devon (i) issue, sell or otherwise dispose of shares of its capital stock, or
(ii) grant any other options or warrants or other rights to purchase or
otherwise acquire any shares of capital stock or issue any securities
convertible into shares of capital stock, of any member of Kerr-McGee Oklahoma
or Kerr-McGee Sub or (iii) adopt any Employee Plans (hereafter defined) or (iv)
declare, set aside, or pay any dividend or distribution with respect to the
capital stock of Kerr-McGee Oklahoma or Kerr-McGee Sub other than as permitted
with respect to the working capital adjustments as set forth in Section 10.01
hereof, or (v) directly or indirectly redeem, purchase or otherwise acquire any
capital stock of Kerr-McGee Oklahoma or Kerr-McGee Sub, or (vi) effect a split
or reclassification of any capital stock of Kerr-McGee Oklahoma or Kerr-McGee
Sub or a recapitalization of Kerr-McGee Oklahoma or Kerr-McGee Sub, or (vii)
change the charter or bylaws of Kerr-McGee Oklahoma or Kerr-McGee Sub, or (viii)
permit Kerr-McGee or Kerr-McGee Canada to grant any increase in the compensation
payable or to become payable to their Active Employees (hereafter defined) other
than regularly scheduled merit increases, or (ix) borrow, except for working
capital purposes and except in the ordinary course of business, or agree to
borrow any funds, or guarantee or agree to guarantee the obligations of others,
or (x) waive any rights of substantial value, or (xi) except in the ordinary
course of business enter into an agreement, contract or commitment which, if
entered into prior to the date of this Agreement, would be required to be listed
in a Schedule attached to this Agreement, or materially amend or change the
terms of any such agreement, contract or commitment, or (xii) take any action or
omit to take any action which would result in any of its representations or
warranties set forth in this Agreement becoming untrue.

(f) Kerr-McGee Oklahoma and Kerr-McGee Sub will maintain their books of
account in the usual, regular and ordinary manner.

6.03 Employees.

(a) Status of Active Employees with Kerr-McGee or Kerr-McGee Canada. For
the purpose of this Agreement, the term "Active Employees" shall mean the
full-time employees employed by Kerr-McGee or Kerr-McGee Canada in the conduct
of the U.S. onshore oil and Gas Business and Canadian Onshore Oil and Gas
Business, respectively, inclusive of any such employees on temporary leave of
absence (including military leave, temporary disability or sick leave). Within
15 days after execution of this Agreement, Kerr-McGee will provide Devon with a
list of Active Employees, stating job title, date of hire and salary as of the
date thereof. Kerr-McGee will update such list from time to time to reflect
changes in the work force, and the current list of Active Employees. Kerr-McGee
Oklahoma and Kerr-McGee Sub do not currently have nor have either of them ever
had employees.

(b) Status of Active Employees with Devon. Devon is under no obligation to
retain or hire any Active Employee. At least 15 days before the Effective Time,
Devon will provide to Kerr-McGee a list of those Active Employees to whom an
offer of employment has been or will be made to be effective at the Effective
Time. Upon reasonable prior notice during normal business hours, Devon will be
given reasonable access to the facilities and to personnel, safety and other
relevant records of Kerr-McGee (to the extent access to such records does not
violate any law or the legitimate privacy rights of the Active Employee
concerned) for the purpose of preparing for and conducting employment interviews
with any Active Employees. Interviews will be conducted during normal business
hours. At the Effective Time, Kerr-McGee will terminate the employment of the
Active Employees who have received and accepted an offer of employment from
Devon or any of its affiliates (the "Newly Hired Employees"). On or before the
Effective Time, Kerr-McGee will provide other employment for or terminate the
employment of all Active Employees who are not Newly Hired Employees. As used in
this Section 6.03, the term "affiliates" of Devon or any member of the Devon
Group shall not include Kerr-McGee, Kerr-McGee Oklahoma, Kerr-McGee Sub or their
subsidiaries.

(c) No Employee Benefit Plans. Neither Kerr-McGee Oklahoma nor Kerr-McGee
Sub (or their subsidiaries) have ever sponsored or participated in any Employee
Plans up to the Effective Time. As used herein "Employee Plans" shall mean any
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, employment, consulting, severance or termination pay, hospitalization or
other medical, life or other insurance, supplemental unemployment benefit,
profit sharing, pension or retirement plan, program, agreement or arrangement,
or any other benefit plan of any kind whatsoever that is provided to

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employees or former employees of Kerr-McGee Oklahoma or Kerr-McGee Sub, or their
beneficiaries, and each other "employee benefit plan" as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether formal or informal, written or oral, and whether contributed to, or
required to be contributed to, by Kerr-McGee Oklahoma or Kerr-McGee Sub. If any
claims, demands or liabilities of any kind whatsoever ever arise due to the
existence of any Employee Plan up to the Effective Time, Kerr-McGee shall be
solely responsible for such claims, demands, liabilities or obligations.

(d) Salaries and Benefits.

(i) Kerr-McGee's Obligations. Kerr-McGee shall be solely responsible for
(1) the payment of all wages, remuneration or other obligations of any kind
whatsoever (including obligations under any Employee Plans sponsored by
Kerr-McGee or Kerr-McGee Canada) due to Active Employees with respect to their
services as employees of Kerr-McGee, Kerr-McGee Canada, Kerr-McGee Oklahoma or
Kerr-McGee Sub up to the Effective Time, (2) notices of termination or pay in
lieu thereof or the payment of any termination or severance payments, if any,
and (3) the obligation of health plan continuation coverage in accordance with
the Consolidated Budget Reconciliation Act of 1984 ("COBRA") and Sections 601
through 608 of ERISA and with respect to Active Employees of Kerr-McGee Canada,
compliance with any such similar law which requires health care continuation
after termination of employment.

(ii) Devon's Obligations. After the Effective Time and arising solely from
the employment relationship of the Newly Hired Employees with the Devon Group or
its affiliates, Devon shall be solely responsible for (1) the payment of all
wages, remuneration or other obligations of any kind whatsoever (including
obligations under any employee benefit plans sponsored by Devon due to the Newly
Hired Employees, (2) notices of termination or pay in lieu thereof or the
payment of any termination or severance payments, if any, under severance plans
sponsored by Devon, and (3) the obligation to pay medical benefits under Devon's
medical plan. Provided, with respect to obligations for medical benefits
provided to Newly Hired Employees, Devon will be responsible for charges
incurred by the Newly Hired Employees after the Effective Time. A charge will be
deemed incurred, in the case of medical (other than hospitalization) or dental
benefits, when the services that are the subject to the charge are performed. In
the case of hospitalization benefits, a charge will be deemed incurred by the
Newly Hired Employees on the date that hospitalization begins, and charges for
hospitalization which began before the Effective Time will be the responsibility
of Kerr-McGee even if such hospitalization continues after the Effective Time.

(iii) Newly Hired Employees under Devon's Employee Benefit Programs. Under
the employee benefit programs of the Devon Group, subject to approval by the
Internal Revenue Service, and subject to approval by Devon with respect to any
Newly Hired Employees who formerly were employees of Kerr-McGee Canada, Newly
Hired Employees shall be credited with employment service with Kerr-McGee and
Kerr-McGee Canada:

(1) For purposes of determining any period of eligibility to
participate or to vest in benefits provided under Devon's 401(k) incentive
savings, defined benefit, medical, disability and life insurance plans, but
not for purposes of determining the amount or accrual of benefits under
Devon's defined benefit plan; and

(2) For purposes of calculating vacation benefits pursuant to Devon's
vacation policies. It is understood that the Newly Hired Employees will not
have any carryover vacation from Kerr-McGee or Kerr-McGee Canada but will
be entitled to earn days of vacation according to Devon's vacation policies
by taking into account their prior employment service.

(iv) Preexisting Conditions. For each Newly Hired Employee (and his or her
eligible dependents) who become covered under Devon's medical plan at the
Effective Time and who were covered by Kerr-McGee's or Kerr-McGee Canada's
medical plan at the Effective Time, Devon's medical plan will waive any
preexisting conditions, exclusion or limitations if permitted under applicable
laws and regulations and if approved by the insurance carrier which provides
medical insurance to Devon's employees on either an indemnity or "stop loss"
basis. Provided, with respect to Newly Hired Employees who were formerly
employees of Kerr-McGee Canada, participation in Devon's medical plan will be
subject to the approval of Devon.

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(v) Kerr-McGee's Retirement and Savings Plans.

(1) Retirement Plans. Prior to but to be effective as of the Effective
Time, Kerr-McGee will cause the Kerr-McGee defined benefit retirement plan to be
amended to provide that all Newly Hired Employees who are participants in such
retirement plan will cease to accrue future benefits and Kerr-McGee shall retain
sole liability for the payment of such benefits as and when the Newly Hired
Employees become eligible therefor under such retirement plan.

(2) Savings Plans. Prior to but to be effective as of the Effective Time,
Kerr-McGee will cause the Kerr-McGee savings investment plan and employee stock
ownership plan to be amended in order to provide that Newly Hired Employees
shall be 100% vested in their accounts under such plans. As of the Effective
Time, all employee contributions by Newly Hired Employees and all obligations of
Kerr-McGee or Kerr-McGee Canada to make employer contributions in respect to
such employees under any defined contribution, registered retirement savings,
money purchase pension or stock purchase plans shall cease unless otherwise
required by applicable law or regulation. The individual accounts of the Newly
Hired Employees in Kerr-McGee's savings plan shall either (i) continue to be
maintained in and administered under Kerr-McGee's savings plan, (ii) be
distributed and/or rolled over from Kerr-McGee's savings plan to a savings plan
established or currently maintained by Devon or its affiliates (the "Devon
Savings Plan") or (iii) be transferred directly from Kerr-McGee's savings plan
to the Devon Savings Plan, subject to the prior approval of Devon and Kerr-McGee
and, if deemed by any party to be necessary, the Internal Revenue Service.

(e) Devon's Obligation for Severance Compensation. Should Devon or its
affiliates terminate the employment of any Newly Hired Employee, Devon shall be
solely responsible for any and all notices of termination or pay in lieu
thereof, termination or severance payments, benefits or settlements to the
extent that such amounts are payable under Devon's or its affiliates' employment
policies.

(f) WARN Act. Kerr-McGee shall, if required under the Worker Adjustment and
Retraining Notification Act ("WARN"), provide timely and effective notice to the
Active Employees with respect to any employment loss suffered by such Active
Employees as the result of the termination of their employment with Kerr-McGee,
Kerr-McGee Oklahoma or Kerr-McGee Sub, and with respect to any Active Employees
of Kerr-McGee Canada, comply with any such similar law which requires prior
notification or payment of wages or benefits upon termination of employment. In
the event that WARN (or any similar law with respect to the Active Employees of
Kerr-McGee Canada) requires notice to such employees and Kerr-McGee, Kerr-McGee
Canada, Kerr-McGee Oklahoma or Kerr-McGee Sub fail to provide timely and
effective notice under WARN or such similar law of Canada, Kerr-McGee shall
indemnify and hold Devon and its affiliates harmless from and against any
liability to such employees or any unit of local government that may result to
the Devon Group or its affiliates from such failure including but not limited to
fines, back pay and reasonable attorney's fees. Devon will indemnify and hold
Kerr-McGee and its affiliates harmless from any liabilities Kerr-McGee or its
affiliates would not otherwise have incurred due to terminations after the
Effective Time of Newly Hired Employees with respect to, arising under or
relating to WARN or similar law of Canada.

6.04 Consents. Prior to Closing, Kerr-McGee and Devon shall each use its
respective reasonable efforts to obtain the consent or approval of each person
whose consent or approval shall be required in order to permit the closing of
the transactions contemplated by this Agreement.

7. Conditions to obligations of Devon. The obligations of the Devon Group
to effect the transactions contemplated by this Agreement shall be subject to
the following conditions:

7.01 Resolutions of Board of Directors. Kerr-McGee shall have furnished
Devon with certified copies of resolutions duly adopted by the boards of
directors of the Kerr-McGee Group authorizing all necessary and proper corporate
action to enable the Kerr-McGee Group to comply with the terms of this Agreement
and approving the execution and delivery to Devon of this Agreement.

7.02 Representations and Warranties of Kerr-McGee to be True. Except to
the extent waived in writing by Devon, (i) the representations and warranties of
Kerr-McGee herein contained shall be Substantially True (hereinafter defined) at
the Closing with the same effect as though made at such time (except if a

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representation and warranty speaks as of a different date, in which case it
shall be Substantially True as of such date); and Kerr-McGee shall have
performed all material obligations and complied with all material covenants
required by this Agreement to be performed or complied with by it at or prior to
the Closing. Kerr-McGee shall have also delivered to Devon a certificate of
Kerr-McGee, dated the Closing Date and signed by two of its officers, to both of
the aforementioned effects.

7.03 Third Party Consents. Kerr-McGee shall have obtained and delivered to
Devon consents to the transactions contemplated by this Agreement from the
parties whose consent is required by contract or otherwise.

7.04 Devon Shareholder Approval. The holders of a majority of the issued
and outstanding Devon Common Stock shall have approved the Amendment and the
issuance of the Shares of Devon Common Stock contemplated by this Agreement.

7.05 No Material Adverse Change. There shall not have occurred since
December 31, 1995, (i) any material adverse change in the financial condition,
results of operations or business of Kerr-McGee Oklahoma and Kerr-McGee Sub
excluding any change or effect resulting from general economic conditions, any
occurrence or condition affecting the oil and gas industry generally and any
occurrence or condition arising out of the transactions contemplated by this
Agreement or the public announcement thereof, or (ii) any loss or damage to any
of the properties or assets (whether or not covered by insurance) of Kerr-McGee
Oklahoma, Kerr-McGee Sub or the Interests, which, in any case, would have a
Material Adverse Effect on Kerr-McGee Oklahoma and Kerr-McGee Sub.

7.06 Statutory Requirements. All statutory requirements for the valid
consummation by Kerr-McGee of the transactions contemplated by this Agreement
shall have been fulfilled and all authorizations, consents and approvals of all
governmental bodies required to be obtained in order to permit consummation by
Kerr-McGee of the transactions contemplated by this Agreement shall have been
obtained. Between the date of this Agreement and the Closing, no action or
proceeding shall have been instituted or, to the knowledge of Kerr-McGee, shall
have been threatened by any party (public or private) before a court or other
governmental body to restrain or prohibit the transactions contemplated by this
Agreement or to obtain damages in respect thereof.

7.07 Opinion of Counsel of Kerr-McGee. Devon shall have received from the
General Counsel of Kerr-McGee, an opinion dated the Closing Date, in form and
substance satisfactory to Devon's counsel, McAfee & Taft A Professional
Corporation, to the effect that (i) each of Kerr-McGee Oklahoma and Kerr-McGee
Sub is a corporation duly incorporated and validly existing and in good standing
under the laws of its respective jurisdiction of incorporation; (ii) each of
Kerr-McGee Oklahoma and Kerr-McGee Sub has the corporate power to carry on its
business as now being conducted; (iii) the authorized capital stock of
Kerr-McGee Oklahoma and Kerr-McGee Sub and the number of shares of capital stock
outstanding are as set forth in Section 4.02 of this Agreement, and that such
issued shares have been duly authorized, are validly issued and outstanding, and
are fully paid and nonassessable; (iv) Kerr-McGee, Kerr-McGee Oklahoma and
Kerr-McGee Sub each has the requisite corporate power and authority and has
taken all requisite corporate action necessary to enable Kerr-McGee, Kerr-McGee
Oklahoma and Kerr-McGee Sub to execute and deliver this Agreement and to
consummate the transactions contemplated thereby; and (v) this Agreement has
been duly and validly executed and delivered by Kerr-McGee, Kerr-McGee Oklahoma
and Kerr-McGee Sub.

Such opinion shall also cover such other matters incidental to the matters
herein contemplated as Devon and its counsel may reasonably request. In
rendering such opinion, counsel may rely, to the extent counsel determines such
reliance necessary or appropriate, upon opinions of local counsel as to matters
of law other than that of the United States and Oklahoma and, as to matters of
fact, upon certificates of state officials or of any officer or officers of
Kerr-McGee provided the extent of such reliance is stated in the opinion.

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7.08 Transfer of the Interests.

(a) Kerr-McGee and its subsidiaries shall have sold, assigned, transferred
or otherwise conveyed any and all of the U.S. Onshore Oil and Gas Business owned
by them to Kerr-McGee Oklahoma, other than the Excluded Assets.

(b) Kerr-McGee shall be the owner and holder of all of the issued and
outstanding capital stock of Kerr-McGee Sub.

(c) Kerr-McGee and its subsidiaries shall have sold, assigned, transferred,
or otherwise conveyed any and all of the Canadian Onshore Oil and Gas Business
owned by them to Kerr-McGee Sub, other than the Excluded Assets.

7.09 Other Agreements.

(a) Kerr-McGee shall have executed and delivered to Devon a Registration
Rights Agreement in the form of Exhibit G.

(b) Kerr-McGee shall have executed and delivered to Devon a Stock Rights
and Restrictions Agreement in the form attached as Exhibit F hereto.

(c) At the Effective Time, the directors and officers of Kerr-McGee Sub
shall have submitted written resignations from office to Devon.

7.10 Stock Exchange Listing. The shares of Devon Common Stock to be issued
to Kerr-McGee in the Merger shall have been approved for listing on the American
Stock Exchange or any other recognized stock exchange on which Devon Common
Stock has been authorized for trading, subject to official notice of issuance.

8. Conditions to Obligations of Kerr-McGee. The obligations of the
Kerr-McGee Group to effect the transactions contemplated by this Agreement shall
be subject to the following conditions:

8.01 Resolutions of Boards of Directors. Devon shall have furnished
Kerr-McGee with certified copies of resolutions duly adopted by the boards of
directors of the Devon Group and Devon, as the sole shareholder of Devon Nevada,
authorizing all necessary and proper corporate action to enable the Devon Group
to comply with the terms of this Agreement and approving the execution and
delivery to Kerr-McGee of this Agreement.

8.02 Representations and Warranties of Devon to be True. Except to the
extent waived in writing by Kerr-McGee hereunder, (i) the representations and
warranties of Devon herein contained shall be Substantially True at the Closing
with the same effect as though made at such time (except if a representation and
warranty speaks as of a different date, in which case it shall be Substantially
True as of such date); and (ii) Devon shall have performed all material
obligations and complied with all material covenants required by this Agreement
to be performed or complied with by it at or prior to the Closing. Devon shall
have also delivered to Kerr-McGee a certificate of Devon, dated the Closing Date
and signed by two of its officers, to both of the aforementioned effects.

8.03 Third Party Consents. Devon shall have obtained and delivered to
Kerr-McGee consents to the transactions contemplated by this Agreement from the
parties to all material contracts which require such consent.

8.04 Devon Shareholder Approval. The holders of a majority of the issued
and outstanding Devon Common Stock shall have approved the Amendment and the
issuance of the shares of Devon Common Stock contemplated by this Agreement and
Devon shall have furnished to Kerr-McGee certified copies of resolutions to this
effect.

8.05 No Material Adverse Change. There shall not have occurred since
December 31, 1995 (i) any material adverse change in the business, properties,
results of operations or financial condition of Devon and its consolidated
subsidiaries, considered as one enterprise, or (ii) any loss or damage to any of
the properties or assets (whether or not covered by insurance) of Devon or any
of its consolidated subsidiaries which, in either case, would have a Material
Adverse Effect on Devon.

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8.06 Statutory Requirements. All statutory requirements for the valid
consummation by Devon of the transactions contemplated by this Agreement shall
have been fulfilled and all authorizations, consents and approvals of all
governmental bodies required to be obtained in order to permit consummation by
Devon of the transactions contemplated by this Agreement shall have been
obtained. Between the date of this Agreement and the Closing, no action or
proceeding shall have been instituted or, to the knowledge of Devon, shall have
been threatened by any party (public or private) before a court or other
governmental body to restrain or prohibit the transactions contemplated by this
Agreement or to obtain damages in respect thereof.

8.07 Opinion of Counsel of Devon. Kerr-McGee shall have received from
McAfee & Taft A Professional Corporation, counsel to Devon, an opinion, dated
the Closing Date, in form and substance satisfactory to Kerr-McGee's General
Counsel, to the effect that (i) Devon is a corporation duly incorporated and
validly existing and in good standing under the laws of the State of Oklahoma;
(ii) Devon has the corporate power to carry on its business as now being
conducted; (iii) the authorized capital stock of Devon and the number of shares
of capital stock outstanding are as set forth in the Amendment and that the
issued shares, as set forth in Section 5.02 of this Agreement, have been duly
authorized, are validly issued and outstanding, and are fully paid and
nonassessable; (iv) the shares of Devon Common Stock into which the shares of
Kerr-McGee Oklahoma Common Stock are to be converted pursuant to this Agreement
and the Devon Common Stock to be issued in exchange for Kerr-McGee Sub Common
Stock have been duly authorized and, immediately after the Effective Time of the
Merger, will be duly and validly issued and will be fully paid and
nonassessable; (v) Devon has the requisite corporate power and authority and has
taken all requisite corporate action necessary to enable it to execute and
deliver this Agreement and to consummate the transactions contemplated thereby;
and (vi) this Agreement has been duly and validly executed and delivered by
Devon.

Such opinion shall also cover such other matters incidental to the matters
herein contemplated as Kerr-McGee and its counsel may reasonably request. In
rendering such opinion, counsel may rely, to the extent counsel determines such
reliance necessary or appropriate, upon opinions of local counsel as to matters
of law other than that of the United States and Oklahoma and, as to matters of
fact, upon certificates of state officials and of any officer or officers of
Devon provided the extent of such reliance is specified in this opinion.

8.08 Other Agreements.

(a) The Amendment shall be contained in a Certificate of Amendment to
Devon's Certificate of Incorporation in the form attached hereto as Exhibit C,
and such Certificate of Amendment shall have been duly filed with the Secretary
of State of the State of Oklahoma in accordance with the Oklahoma Act and shall
be in full force and effect.

(b) Devon shall have executed and delivered to Kerr-McGee a Registration
Rights Agreement in the form of Exhibit G.

(c) Devon shall have executed and delivered to Kerr-McGee a Stock Rights
and Restrictions Agreement in the form attached as Exhibit F hereto.

(d) At the Effective Time, Kerr-McGee shall have designated the Kerr-McGee
Designees (as defined in the Stock Rights and Restriction Agreement) and they
shall have been made directors of Devon.

(e) Kerr-McGee shall have received copies of duly executed amendments to
the Rights Agreement in the forms attached as Exhibits H-1 and H-2 hereto.

8.09 Stock Exchange Listing. The shares of Devon Common Stock to be issued
to Kerr-McGee in the Merger and pursuant to Section 2 hereof shall have been
approved for listing on the American Stock Exchange or any other recognized
stock exchange on which Devon Common Stock has been authorized for trading,
subject to official notice of issuance.

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9. Termination of Agreement and Abandonment of Transaction. Anything
herein to the contrary notwithstanding, this Agreement and the transaction
contemplated hereby may be terminated at any time before the Closing, whether
before or after approval of this Agreement by the shareholders of Devon, as
follows, and in no other manner:

(a) Mutual Consent. By mutual consent of the Boards of Directors of Devon
and Kerr-McGee;

(b) By Devon. By the board of directors of Devon if, by the Closing Date,
the conditions set forth in Section 7 shall not have been met (or waived as
provided in this Agreement); and

(c) By Kerr-McGee. By the board of directors of Kerr-McGee if, by the
Closing Date, the conditions set forth in Section 8 shall not have been met (or
waived as provided in this Agreement).

(d) By Either Devon or Kerr-McGee. By the board of directors of Devon or of
Kerr-McGee if (i) any governmental body shall have issued an order, decree or
ruling, or taken any other action, permanently enjoining, restraining or
otherwise prohibiting the Merger or the other transactions contemplated hereby
and such order, decree, ruling or other action shall have become final and
non-appealable; or (ii) at the meeting called for that purpose, the stockholders
of Devon shall not have approved the Amendment or the issuance of the shares to
be issued to Kerr-McGee in the Merger or pursuant to Section 2 hereof.

In the event of termination of this Agreement as provided in this Section
9, this Agreement shall forthwith become void and have no effect, without any
liability or obligation on the part of any party hereto, other than the
provisions of 6.01 and 6.02. Nothing contained in this Section shall relieve any
party from liability for any breach of the representations, warranties,
covenants or agreements set forth in this Agreement.

10. Additional Agreements of the Parties.

10.01 Closing/Post Closing Working Capital Adjustments.

(a) on or prior to the Closing Date, Kerr-McGee Oklahoma and Kerr-McGee Sub
shall each declare a dividend to their stockholders of record on the day
preceding the Closing Date in an amount equal to their respective positive Net
Working Capital (hereafter defined). Once declared, the dividend shall not be
rescinded, modified or otherwise changed without Kerr-McGee's written consent
and shall be treated as an obligation of Kerr-McGee Oklahoma and Kerr-McGee Sub,
respectively. The dividends shall be paid as hereinafter provided in this
Section 10.01. If the Net Working Capital of Kerr-McGee Oklahoma or Kerr-McGee
Sub is a negative number, Kerr-McGee shall make a capital contribution to
Kerr-McGee Oklahoma (or shall make a payment to Devon after the Merger) or
Kerr-McGee Sub or both of them, as the may be, of the Net Working Capital
negative amount. Payment of the capital contribution shall be made as
hereinafter provided in this Section 10.01.

(b) As used herein, the "Net Working Capital" of Kerr-McGee Oklahoma and
Kerr-McGee Sub shall mean the excess of their respective cash and cash
equivalents, accounts receivable, including joint interest billings and accrued
oil and gas revenues, net of bad debt reserves, over their respective accrued
and unpaid federal, Canadian, state, providential and local tax liabilities (to
the extent not paid by Kerr-McGee or Kerr-McGee Canada without reimbursement
obligations), accounts payable, including lease operating expenses, severance
taxes, revenues and royalties due others and accrued capital items, including
drilling costs, recompletion costs, capitalized workover costs, leasehold
acquisition costs, etc., determined as of the Effective Time of the Merger in
accordance with generally accepted accounting principles, as historically
applied to Kerr-McGee, in the case of Kerr-McGee Oklahoma, and Kerr-McGee
Canada, in the case of Kerr-McGee Sub.

(c) At the Closing, Kerr-McGee shall deliver to Devon a worksheet setting
forth Kerr-McGee's estimate of the Net Working Capital Amount of Kerr-McGee
Oklahoma and Kerr-McGee Sub at the Effective Time. The worksheet shall be
prepared by Kerr-McGee in consultation with Devon. At the Closing, Kerr-McGee
Oklahoma and Kerr-McGee Sub shall pay, and at the end of 30 days and 60 days
thereafter, Devon Nevada (with respect to the U.S. Onshore Oil and Gas Business
accounted for as if it were a separate business segment) and Kerr-McGee Sub
shall pay all of their Net Cash (hereafter defined) to Kerr-McGee, as a
dividend, not to exceed, however, the amount of their positive Net Working
Capital, if any, as reflected by the

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estimate. If the estimated Net working Capital of Kerr-McGee Oklahoma or
Kerr-McGee Sub is a negative number, Kerr-McGee shall, at the Closing, pay to
Kerr-McGee Oklahoma or Kerr-McGee Sub or both of them, as the case may be, the
negative Net Working Capital amount as a capital contribution. For purposes of
this Section 10.01, the "Net Cash" of Kerr-McGee Oklahoma and Kerr-McGee Sub
shall mean, at the time Net Cash is being determined, the excess, if any, of all
cash and cash equivalents over those accounts payable for which invoices have
been received. As applied to Devon Nevada after the Merger, Net Cash shall be
limited to items attributable to the U.S. Onshore Oil and Gas Business as
operated by Kerr-McGee Oklahoma immediately prior to the Effective Time of the
Merger accounted for as if it were a separate business segment.

(d) Within 90 days after the Closing Date, Kerr-McGee and Devon will agree
on the actual Net Working Capital of Kerr-McGee Oklahoma and Kerr-McGee Sub. If
Kerr-McGee and Devon do not agree on the actual Net Working Capital of
Kerr-McGee Oklahoma or Kerr-McGee Sub within 90 days after the Closing Date,
then all items remaining in dispute will be submitted within ten days thereafter
to an independent accounting firm of national reputation mutually acceptable to
Kerr-McGee and Devon (the "Neutral Auditors"). If Kerr-McGee and Devon are
unable to agree on the Neutral Auditors, then Kerr-McGee and Devon shall request
the American Arbitration Association to appoint the Neutral Auditors. All fees
and expenses relating to appointment of the Neutral Auditors and the work, if
any, to be performed by the Neutral Auditors will be borne equally by Kerr-McGee
and Devon. The Neutral Auditors will deliver to Kerr-McGee and Devon a written
determination (such determination to include a worksheet setting forth all
material calculations used in arriving at such determination and to be based
solely on information provided to the Neutral Auditors by Devon and Kerr-McGee,
or their respective affiliates) of the disputed items within 30 days of receipt
of the disputed items, which determination will be final, binding and
conclusive. The final, binding and conclusive Closing Date Worksheet, which
either is agreed upon by Kerr-McGee and Devon or is delivered by the Neutral
Auditors in accordance with this Section 10.01(b) is referred to herein as the
"Conclusive Worksheet."

(e) Promptly following agreement on or delivery of the Conclusive
Worksheet, the parties shall account to each other, by cash payments, so that,
(i) if the Net Working Capital as reflected in the Conclusive Worksheet is a
positive number, Kerr-McGee shall have received, after giving effect to the
payments, if any, received by Kerr-McGee pursuant to Section 10.01(c), an
aggregate amount of cash payments equal to the actual Net Working Capital as so
reflected or (ii) if the Net Working Capital as reflected in the Conclusive
Worksheet is a negative number, Devon shall have received, after giving effect
to the payments, if any, received by Devon pursuant to Section 10.01(c), an
aggregate amount of cash payments equal to the actual Net Working Capital as so
reflected.

10.02 House Creek (Sussex) Unit. The Real Property Interests owned by
Kerr-McGee Oklahoma include a group of producing oil and gas leases lying within
or near a unit known as the House Creek (Sussex) Unit Area located in Campbell
County, Wyoming (the "Subject Interests") which are burdened by certain
production payments created under certain instruments entitled "Conveyance of
Production Payment," which instruments and amendments thereto are described in
Schedule 4.10 attached hereto (collectively, the "House Creek Production
Payments"). As an additional inducement to Devon to enter into this Agreement,
Kerr-McGee hereby agrees to pay Devon Nevada, from and after the Effective Time,
one-third of all sums paid or refunded to the Production Payment Owner (as
defined in the House Creek Production Payment) on account of the Production
Payment (as defined in the House Creek Production Payments) by Devon Nevada;
provided, however, the aggregate sum of all payments by Kerr-McGee under this
Section 10.02 shall not exceed $3,000,000 in any event. Kerr-McGee shall make
such payments to Devon within 15 days after receipt from Devon Nevada of a
statement setting forth the date and amount of the payment or refund to the
Production Payment Owner and the basis upon which the amount was determined, in
reasonable detail. The obligations of Kerr-McGee under this Section 10.02 shall
run to the benefit of the successors and assigns of Devon Nevada of the Subject
Interests or any part thereof.

10.03 Royalty, Working Interest and Tax Liabilities. Kerr-McGee shall
assume, defend and be solely responsible for any claim that royalty, production
payment, net profits interest, working interest, production tax or similar
payments made by Kerr-McGee or any of its subsidiaries on crude oil, condensate,
natural gas, natural gas liquids or other hydrocarbon products (i) sold by
Kerr-McGee or any of its subsidiaries to an

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affiliate of any of them or (ii) transferred by Kerr-McGee or any of its
subsidiaries under in-kind exchange agreements, were inaccurate or insufficient
by reason of the price of or value ascribed to the products sold or transferred;
provided, however, Kerr-McGee shall not be required to defend or have any
liability for any claim arising after the Effective Time and Devon shall defend
and be solely responsible for all post Effective Time claims even if asserted in
the same action as claims for which Kerr-McGee is responsible.

10.04 Kerr-McGee Intercompany Payables. Kerr-McGee shall pay and shall
cause Kerr-McGee Canada to pay all sums owed by them to Kerr-McGee Oklahoma or
Kerr-McGee Sub promptly and in any case within 5 days after written demand for
payment.

10.05 Schedule Disclosures. A disclosure by Kerr-McGee or Devon in any
schedule to this Agreement shall be deemed an exception to any representation or
warranty herein made by either of them to the extent that the information
disclosed would be necessary to make a particular representation or warranty
true.

10.06 Tax Return and Reorganization Information. Kerr-McGee shall prepare
the 1996 federal and state income tax returns for Kerr-McGee Oklahoma and the
1996 Canadian income tax returns for Kerr-McGee Sub and deliver them to Devon
except to the extent they are included in consolidated tax returns of
Kerr-McGee. Kerr-McGee and Devon shall cooperate with each other in the
preparation of those returns. The Devon Group and Kerr-McGee agree to file as a
part of their federal tax return for the taxable year during which the Closing
Date occurs all information required by U.S. Treasury Regulation sec. 1.368-3.

10.07 Preservation of Books and Records. For a period of 10 years after
the Closing Date, Devon and Kerr-McGee shall, using procedures consistent with
their current record retention procedures (i) preserve and retain all books and
records held by either of them or their subsidiaries that relate to the U.S.
onshore Oil and Gas Business and the Canadian Onshore Oil and Gas Business,
including, but not limited to, any documents relating to any governmental or
nongovernmental actions, suits, proceedings or investigations arising out of the
conduct of those businesses before the Closing Date (the "Records") and (ii)
subject to Sections 6.01 and 6.02, respectively, make the Records available to
each other and their respective agents upon reasonable notice and at reasonable
times, it being understood that either party shall be entitled to make copies of
any of the Records at the copying party's expense. Devon and Kerr-McGee further
agree not to destroy any of the Records in their possession for a period of 10
years after the Closing Date unless the party proposing to destroy the Records,
or some portion thereof, gives the other party notice of the proposed
destruction and a reasonable opportunity, at the other party's expense, to take
possession of the Records designated for destruction. Devon and Kerr-McGee
further agree to cooperate with each other, including reasonable access to their
respective employees, in providing additional information and explanations
concerning the Records.

11. General Provisions.

11.01 Amendments. Subject to applicable law, this Agreement and the form
of any exhibit attached hereto may be amended upon authorization by the boards
of directors of the parties hereto before and after the Stockholders Meeting at
any time prior to the Closing except that no such amendment after the
Stockholders Meeting shall affect the rates of conversion and exchange provided
for in Sections 1 and 2 of this Agreement.

11.02 Survival of Covenants, Representations and Warranties. The
respective representations and warranties of Devon and Kerr-McGee contained in
Sections 4 and 5 of this Agreement and all covenants and undertakings required
to be performed at or prior to the Effective Time shall expire and be terminated
at the Effective Time of the Merger, unless otherwise specifically herein
provided. All agreements and undertakings to be or capable of being performed
after the Effective Time shall survive the Closing.

11.03 Certain Definitions. As used in Sections 7 and 8 of this Agreement,
a "Material Adverse Effect" on any one or more of the parties hereto is an event
or condition that has an adverse financial impact of more than $12.5 million, on
either Kerr-McGee Oklahoma and Kerr-McGee Sub, or the Devon Group, and the
statement that the representations and warranties of the parties are to be
"Substantially True" at the Closing shall be true if the cumulative adverse
financial impact of all untrue representations and warranties of the parties at
Closing is less than $12.5 million, in the case of Kerr-McGee Oklahoma and
Kerr-McGee Sub, and $12.5 million, in the case of the Devon Group.
Notwithstanding anything else in this Agreement to the contrary, no event
resulting from general economic conditions, no occurrence or condition affecting
oil and gas

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industry generally and no occurrence or condition arising out of the
transactions contemplated by this Agreement or the public announcement thereof
shall be considered adverse or make any representation or warranty herein
untrue.

11.04 Governing Law. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of Oklahoma.

11.05 Notices. All notices, requests, demands or other communications
required or permitted by this Agreement shall be in writing and effective when
received, and delivery shall be made personally or by registered or certified
mail, return receipt requested, postage prepaid, or overnight courier or
confirmed facsimile transmission, addressed as follows:

(a) If to Devon:

Devon Energy Corporation
20 North Broadway, Suite 1500
Oklahoma City, Oklahoma 73102-8260

Attention: J. Larry Nichols, President
and Chief Executive Officer

Facsimile No.: (405) 552-4550

with a copy to:

McAfee & Taft
A Professional Corporation
10th Floor, Two Leadership Square
Oklahoma City, Oklahoma 73102

Attention: Gary F. Fuller, Esq.

Facsimile No.: (405) 235-0439

(b) If to Kerr-McGee:

Kerr-McGee Corporation
Kerr-McGee Center
P.O. Box 25861
Oklahoma City, OK 73125
Attention: Russell G. Horner, Jr.
Vice President and General Counsel

Facsimile No.: (405) 270-4211

With a copy to:

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017

Attention: David B. Chapnick, Esq.

Facsimile No.: (212) 455-2502

11.06 No Assignment. This Agreement may not be assigned by operation of
law or otherwise; provided, however, Devon may assign its rights to purchase the
Sub Shares to a wholly-owned Canadian subsidiary formed for that purpose but
such assignment shall not relieve Devon of its obligations hereunder.

11.07 Fees and Expenses. All fees and expenses, including attorneys' fees,
incurred in connection with this Agreement and the transactions contemplated
hereby shall be borne by the respective party who has incurred such fee or
expense; provided that the cost of incorporating and organizing Kerr-McGee
Oklahoma

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and Kerr-McGee Sub and any expenses incurred by them in connection with
negotiating and executing this Agreement and consummating the transactions
contemplated hereby shall be borne by Kerr-McGee.

11.08 Headings. The descriptive headings of the Sections and paragraphs of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.

11.09 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to each of the other parties hereto.

11.10 Entire Agreement. This Agreement and the other agreements
contemplated hereby constitutes the entire agreement among the Devon Group and
the Kerr-McGee Group with respect to the subject matter hereof. Unless this
Agreement is specifically amended in writing, it supersedes all other agreements
and under standings among the parties with respect to the subject matter hereof
and thereof.

11.11 Publicity. The initial press release relating to this Agreement
shall be a joint press release and thereafter Kerr-McGee and Devon shall,
subject to their respective legal obligations (including requirements of the
stock exchange and other similar regulatory bodies), consult with each other,
and use reasonable efforts to agree upon the text of any press release before
issuing any such press release or otherwise making public statements with
respect to the transactions contemplated hereby.

11.12 No Third Party Beneficiaries. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any person other than the parties to it, nor is
anything in this Agreement intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement, nor shall any
provision give any third persons any rights of subrogation or action over or
against any party to this Agreement.

11.13 Specific Performance. Devon and Kerr-McGee each acknowledge that
neither Devon nor Kerr-McGee would have an adequate remedy at law for money
damages in the event that this Agreement were not performed in accordance with
its terms, and therefore, agree that Devon and Kerr-McGee each shall be entitled
to specific enforcement of the terms hereof in addition to any other remedy to
which it may be entitled, at law or in equity.

11.14 Partial Illegality or Unenforceability. Wherever possible, each
provision hereof shall be interpreted in such manner as to be effective under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be illegal or unenforceable in any respect,
such illegality or unenforceability shall not affect any other provision of this
Agreement, and this Agreement shall be construed as if such illegal or
unenforceable provision or provisions had never been contained herein unless the
deletion of such provision or provisions would result in such a material change
as to cause completion of the transactions contemplated hereby to be
unreasonable.

EXECUTED and delivered the day and year first above written.

DEVON ENERGY CORPORATION

By /s/ J. LARRY NICHOLS
------------------------------
J. Larry Nichols
President and
Chief Executive Officer

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DEVON ENERGY CORPORATION
(NEVADA)

By /s/ J. LARRY NICHOLS
-------------------------------
J. Larry Nichols,
President and Chief Executive
Officer

KERR-MCGEE CORPORATION

By /s/ F. A. McPHERSON
-------------------------------
F. A. McPherson
Chairman of the Board and
Chief Executive Officer

KERR-MCGEE NORTH AMERICAN
ONSHORE CORPORATION

By /s/ TOM J. McDANIEL
-------------------------------
Tom J. McDaniel
Senior Vice President

KERR-MCGEE CANADA ONSHORE LTD.

By /s/ TOM J. McDANIEL
-------------------------------
Tom J. McDaniel
Senior Vice President

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EXHIBIT A

CERTIFICATE OF MERGER
MERGING
KERR-MCGEE NORTH AMERICAN ONSHORE CORPORATION
WITH AND INTO
DEVON ENERGY CORPORATION (NEVADA)

Devon Energy Corporation (Nevada) for the purpose of filing a Certificate
of Merger pursuant to Section 1082 of the Oklahoma General Corporation Act does
hereby execute the following Certificate of Merger:

1. The name and place of organization and governing law of each of the
constituent corporations are:

<TABLE>
<CAPTION>
PLACE OF ORGANIZATION
NAME AND GOVERNING LAW
---- ---------------------
<S> <C>
Devon Energy Corporation (Nevada)................................ Nevada
Kerr-McGee North American Onshore Corporation.................... Oklahoma
</TABLE>

2. The Agreement and Plan of Merger among Devon Energy Corporation, Devon
Energy Corporation (Nevada), Kerr-McGee Corporation, Kerr-McGee North American
Onshore Corporation and Kerr-McGee Canada Onshore, Ltd. (the "Plan"), has been
approved, adopted, executed and acknowledged by each of the constituent
corporation in accordance with the provisions of Section 82(C) of the Oklahoma
General Corporation Act.

3. The surviving corporation is Devon Energy Corporation (Nevada).

4. The certificate of incorporation of the surviving corporation shall be
its certificate of incorporation after the merger, without amendment.

5. The executed Plan is on file at the principal place of business of
surviving corporation at 20 North Broadway, Suite 1500, Oklahoma City, Oklahoma
73102-8260.

6. A copy of the Plan will be furnished by the surviving corporation on
request and without cost, to any shareholder of any constituent corporation.

7. The surviving corporation hereby agrees that it may be served with
process in this state and irrevocably appoints the Secretary of State of
Oklahoma as its agent to accept service of process. The Secretary of State shall
mail a copy of any such process to 20 North Broadway, Suite 1500, Oklahoma City,
Oklahoma 73102-8260.

8. The merger shall be effective upon filing.

DATED this 31st day of December 1996.

DEVON ENERGY CORPORATION
(NEVADA)

------------------------------------
President

ATTEST:

- - - ------------------------------
Secretary

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<PAGE> 144

EXHIBIT B

ARTICLES OF MERGER
MERGING
KERR-MCGEE NORTH AMERICAN ONSHORE CORPORATION
WITH AND INTO
DEVON ENERGY CORPORATION (NEVADA)

Devon Energy Corporation (Nevada), as the surviving corporation, for the
purpose of filing Articles of Merger pursuant to Nevada General Corporate Laws
Section 92A.200, does hereby execute the following Articles of Merger:

1. The name and place of organization and governing law of each constituent
entity to the merger are:

3. Approval of the owners of the parent corporations of the constituent
corporations is not required pursuant to Nevada law.

4. The Plan was approved by the unanimous consent of the owners of
Kerr-McGee North American Onshore Corporation. Approval by the owners of the
surviving corporation is not required.

5. The certificate of incorporation of the surviving corporation shall be
its certificate of incorporation, without amendment as a result of this merger.

6. The complete executed Plan is on file at the registered office of the
Surviving Corporation.

7. The merger shall be effective upon filing.

DATED this 31st day of December 1996.

DEVON ENERGY CORPORATION (NEVADA)

--------------------------------------
President

ATTEST:

- - - ----------------------------
Secretary

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<PAGE> 145

EXHIBIT C

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION

DEVON ENERGY CORPORATION, an Oklahoma corporation (the "Corporation"),
hereby certifies:

FIRST. The Corporation's board of directors, by unanimous written consent,
filed with the minutes of the board, duly adopted resolutions setting forth a
proposed amendment of the Certificate of Incorporation declaring the amendment
advisable and called a meeting of the shareholders to consider such amendment.
The first paragraph of Article Fourth of the Corporation's Certificate of
Incorporation is proposed to be amended to read in its entirety as follows:

The total number of shares of capital stock which the corporation shall
have authority to issue is 403,000,000 shares, consisting of 3,000,000
shares of Preferred Stock, par value $1.00 per share; 400,000,000 shares
of Common Stock, par value $.10 per share. The preferences,
qualifications, limitations, restrictions and the special or relative
rights in respect of the shares of each class are as follows:

SECOND. A majority of the Corporation's shareholders entitled to vote
thereon voted in favor of the proposed amendments at a special meeting called
and held upon notice in accordance with the provisions of Section 1067 of the
Oklahoma General Corporation Act.

THIRD. The amendment duly adopted in accordance with the provisions of
Section 1077 of the Oklahoma General Corporation Act.

IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by its President and its Secretary this day of ,
1996.

------------------------------------
President

ATTEST:

- - - ------------------------------
, Secretary

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EXHIBIT D HAS BEEN INTENTIONALLY OMITTED
<PAGE> 147

EXHIBIT E HAS BEEN INTENTIONALLY OMITTED
<PAGE> 148

EXHIBIT F

STOCK RIGHTS AND RESTRICTIONS AGREEMENT

STOCK RIGHTS AND RESTRICTIONS AGREEMENT, dated as of , 199 ,
between DEVON ENERGY CORPORATION, an Oklahoma corporation ("Devon"), and
KERR-McGEE CORPORATION, a Delaware corporation ("Kerr-McGee").

RECITALS:

A. As of the Effective Date (as defined below) and after giving effect to
the Closing (as defined below), Kerr-McGee will be the record and Beneficial
Owner (as defined below) of 9,954,000 Voting Shares (as defined below) (together
with any additional Voting Shares which Kerr-McGee may from time to time own of
record or Beneficially Own, the "Shares"), consisting of common stock, par value
$.10 per share, of Devon (the "Common Stock"), representing [31.0239](1)% of the
outstanding Voting Shares and [26.1938](2)% of the Fully Diluted Shares (as
defined below) as of the Effective Date and after giving effect to the Closing.

B. As of the Effective Date and after giving effect to the Closing, the
number of directors constituting the whole Board of Directors of Devon is nine
(9) and the following persons are the Kerr-McGee Designees (as defined below):
, and .

C. The Boards of Directors of Devon and Kerr-McGee deem it advisable to
establish certain rights and restrictions with respect to the Shares.

ACCORDINGLY, premises considered, the parties have entered into this
Agreement.

1. DEFINITIONS. For purposes of this Agreement, the following terms have
the meanings indicated:

(a) "Acquiring Person" shall have the meaning assigned to such term in
the Rights Plan, as in effect on the date hereof.

(b) "Affiliate" shall have the meaning assigned to such term in Rule
12b-2 under the Exchange Act, as in effect on the date hereof; provided
that, for purposes of this Agreement, neither Kerr-McGee nor any Affiliate
of Kerr-McGee shall be deemed to be an Affiliate of Devon.

(c) "Applicable Percentage" shall mean, for the period from the date
hereof until the second anniversary of the date hereof, [26.1938](3)% and,
thereafter, [31.1938](4)%, subject, in each case, to adjustment in
accordance with Section 2.4(d)(i)(A).

(d) "Beneficially Own" shall have the meaning assigned to such term in
Rule 13d-3 under the Exchange Act, as in effect on the date hereof.
"Beneficial Owner" and "Beneficial Ownership" shall have correlative
meanings.

(e) "Business Combination Transaction" shall mean a merger,
consolidation, Share Acquisition (as defined below), recapitalization or
other transaction in which Devon is a constituent corporation or to which
Devon is a party, and pursuant to which the Voting Shares are exchanged for
cash, securities or other property, or a sale of all or substantially all
of the assets of Devon and its Subsidiaries taken as a whole; provided that
none of the following shall be deemed a Business Combination Transaction
for purposes of this Agreement: (i) a merger, consolidation, Share
Acquisition, recapitalization or other transaction in which the Beneficial
Ownership of the capital stock of Devon or the surviving corporation

- - - ---------------

(1) Subject to modification depending on facts at time of Closing.

(2) Subject to modification depending on facts at time of Closing.

(3) Subject to modification depending on facts at time of Closing.

(4) Subject to modification depending on facts at time of Closing.

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of the transaction (or of the ultimate parent of Devon or of such surviving
corporation) immediately after the consummation of such transaction is
substantially the same as the Beneficial Ownership of the capital stock of
Devon immediately prior to the consummation of the transaction or (ii) a
merger (A) in which Devon is the surviving corporation, (B) in which all
Voting Shares immediately prior to the consummation of such merger remain
outstanding immediately after the consummation thereof, (C) as a result of
the consummation of which no Person will Beneficially Own a majority of the
Fully Diluted Shares and (D) following the consummation of which the
Continuing Directors will represent a majority of the Board of Directors of
Devon.

(f) "Closing" shall have the meaning assigned to such term in the
Merger Agreement.

(g) "Common Stock" shall have the meaning set forth in paragraph A of
this Agreement.

(h) "Continuing Director" shall mean (i) any member of the Board of
Directors of Devon, while such person is a member of such Board of
Directors, (A) who is not an Acquiring Person, or an Affiliate or Associate
(each as defined in the Rights Plan as in effect on the date hereof) of an
Acquiring Person or a representative or nominee of an Acquiring Person or
of any such Affiliate or Associate, and (B) who (1) was a member of the
Board of Directors of Devon prior to the Effective Time or (2) is
recommended or elected to the Board of Directors by a majority of the
Continuing Directors to fill a vacancy arising as a result of an increase
in the number of directors of Devon occurring after the date hereof, and
(ii) any successor of a Continuing Director, while such successor is a
member of the Board of Directors of Devon, who is not an Acquiring Person,
or an Affiliate or Associate of an Acquiring Person or a representative or
nominee of an Acquiring Person or of any such Affiliate or Associate and is
recommended or elected to succeed the Continuing Director by a majority of
the Continuing Directors. Notwithstanding anything to the contrary in this
definition, for purposes of this Agreement, the Kerr-McGee Designees shall
not be considered Continuing Directors.

(i) "Current Market Price" shall mean, as of any date of
determination, with respect to Voting Shares or any other security to be
valued hereunder (the Voting Shares and/or such other security, the
"Valuation Securities"):

(i) if the Valuation Securities are listed or admitted to trading
on a national securities exchange, the closing price on such exchange's
consolidated or composite tape reporting transactions thereon (or any
successor composite tape reporting transactions on national securities
exchanges) or, if such a composite tape shall not be in use or shall not
report transactions in the Valuation Securities, the last reported sales
price regular way on the principal national securities exchange on which
the Valuation Securities are listed or admitted to trading (which shall
be the national securities exchange on which the greatest number of
Valuation Securities has been traded during the 20 consecutive trading
days preceding the date of determination), or, if there is no
transaction on any such day in any such situation, the mean of the bid
and asked prices on such day; or

(ii) if the Valuation Securities are not listed or admitted to
trading on any such exchange, the closing price, if reported, or, if the
closing price is not reported, the average of the closing bid and asked
prices, as reported by the automated quotation system of the National
Association of Securities Dealers, Inc. or a similar source selected
from time to time by Devon for this purpose; or

(iii) if all of the prices referred to in clauses (i) and (ii) are
unavailable, including because the Valuation Securities are not traded
on a national securities exchange, an automated quotation system of the
National Association of Securities Dealers, Inc. or a similar source,
the Current Market Price shall be deemed to be the value of the
Valuation Securities as determined by agreement between Devon and
Kerr-McGee or, if Devon and Kerr-McGee are unable to agree, by an
investment banking firm of national reputation selected by Kerr-McGee
with the consent of a majority of the Continuing Directors, which
consent shall not be unreasonably withheld. Any determination of the
value of the Valuation Securities shall be made within three business
days of the date of selection of the investment banking firm. The costs
and expenses of any such investment banking firm shall be borne by
Devon.

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(j) "Devon" shall have the meaning set forth in the first paragraph of
this Agreement.

(k) "Distribution Date" shall have the meaning assigned to such term
in the Rights Plan, as in effect on the date hereof.

(l) "Effective Date" shall have the meaning assigned to such term in
the Merger Agreement.

(m) "Equity Market Capitalization" shall mean, with respect to any
Person in connection with the commencement of an exchange offer, the amount
determined by multiplying (i) the number of outstanding "equity securities"
(as defined in Section 3 of the Exchange Act) of such Person required to be
registered pursuant to Section 12 of the Exchange Act at the time of the
determination by (ii) the Current Market Price of such equity securities at
such time of determination.

(n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, as in effect from time to time.

(o) "Exchangeable Security" shall mean a security of any type,
including but not limited to debt, equity, warrants or other rights, issued
by Kerr-McGee at any time after the second anniversary of this Agreement
and which includes or represents the right to acquire Voting Shares from
Kerr-McGee upon exchange, conversion or exercise thereof.

(p) "Fully Diluted Shares" shall mean, at any time, the sum of (i) the
Voting Shares then outstanding plus (ii) the number of Voting Shares
reserved for issuance or issuable in connection with the exercise, exchange
or conversion of employee stock options or securities of Devon then
outstanding which are exercisable or exchangeable for Voting Shares or are
convertible into Voting Shares.

(q) "Merger Agreement" shall mean the Agreement and Plan of Merger
dated October , 1996 among Devon, Devon Energy Corporation (Nevada),
Kerr-McGee, Kerr-McGee Oklahoma Corporation and Kerr-McGee Sub, Inc.

(r) "Person" shall mean any individual, firm, partnership,
association, group (as such term is defined in Section 13(d)(3) of the
Exchange Act, as in effect on the date hereof), corporation, trust,
business trust or other entity and includes any successor (by merger or
otherwise) of any such entity.

(s) "Public Offering" shall mean a firm commitment underwritten public
offering pursuant to a registration statement which has been declared
effective by the SEC under the Securities Act.

(t) "Qualified Tender Offer" shall mean a tender or exchange offer for
Voting Shares (i) that is for more than 50% of the then outstanding Voting
Shares, (ii) that is for a price per Voting Share at least 10% greater than
the average of the Current Market Prices of the Voting Shares determined
for each of the 10 consecutive trading days ending on the last full trading
day prior to the date of the public announcement of such tender or exchange
offer, (iii) the Tender Offer Statement on Schedule 14D-1 filed by the
Person making such tender or exchange offer for which discloses that such
Person has available to it, or will have available to it upon consummation
of such tender or exchange offer, the consideration to be paid or exchanged
in such tender or exchange offer for the Voting Shares tendered therein,
and (iv) in the case of an exchange offer, (A) in which the Person making
such exchange offer has, as of the date of commencement of such exchange
offer, an Equity Market Capitalization equal to or greater than the Equity
Market Capitalization of Devon, or (B) if the Equity Market Capitalization
of such Person is less than the Equity Market Capitalization of Devon,
which otherwise is a credible exchange offer.

(u) "Rights" shall mean, at any time, the rights to purchase capital
stock of Devon issued under the Rights Plan.

(v) "Rights Plan" shall mean the Rights Agreement dated as of April
17, 1995 between Devon and The First National Bank of Boston, as rights
agent, as amended, supplemented or otherwise modified from time to time,
and any successor agreement or plan to which Devon shall be a party.

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(w) "Rule 144" shall mean Rule 144 adopted by the SEC under the
Securities Act, or any successor rule.

(x) "SEC" shall mean the Securities and Exchange Commission.

(y) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute, as in effect from time to time.

(z) "Share Acquisition" shall mean a share acquisition under Section
1090.1 of the Oklahoma General Corporation Act (or any successor provision
of the Oklahoma General Corporation Act).

(aa) "Subsidiary" shall mean, with respect to any Person, any other
Person of which at least a majority of the voting power of the voting
equity securities or voting equity interest is owned, directly or
indirectly, by such Person.

(ab) "Kerr-McGee" shall have the meaning set forth in the first
paragraph hereof; provided, however, that the term "Kerr-McGee" shall
include Kerr-McGee and its Affiliates unless the context otherwise
requires.

(ac) "Kerr-McGee Designees" shall have the meaning set forth in
Section 2.3(b) hereof.

(ad) "Transfer" shall have the respective meanings set forth in
Section 2.5 hereof.

(ae) "Voting Shares" shall mean the Common Stock and any other
securities of Devon having voting power under ordinary circumstances with
respect to the election of directors of Devon.

2. SHARE RIGHTS AND RESTRICTIONS.

2.1 Limitation on Certain Business Combination Transactions. (a) Except as
otherwise permitted by this Agreement, Kerr-McGee agrees that Kerr-McGee shall
not, during the period from the date of this Agreement until its termination,
engage in any Business Combination Transaction with Devon, unless such Business
Combination Transaction shall have been approved by a majority of the Continuing
Directors.

(b) Except as otherwise permitted by this Agreement, Kerr-McGee agrees that
Kerr-McGee shall not, during the period from the date of this Agreement until
its termination, (i) request or solicit any Person (A) to make a tender or
exchange offer for Voting Shares or (B) to make a proposal for a Business
Combination Transaction, or (ii) make any proposal, written or oral, to Devon,
the Board of Directors of Devon or the shareholders of Devon with respect to a
Business Combination Transaction, a tender offer or exchange offer for Voting
Shares, or a liquidation of Devon, which proposal would be required by
applicable law to be publicly disclosed, unless, in either case referred to in
clause (i) or (ii) above, a majority of the Continuing Directors shall have
requested Kerr-McGee to take such action.

(c) In the event that Kerr-McGee shall receive any proposal from any Person
with respect to any matter referred to in Section 2.1(b), either with respect to
a proposal to be made by Kerr-McGee or such other Person, Kerr-McGee shall
immediately notify Devon thereof.

(d) In the event that Kerr-McGee shall receive any proposal from any Person
to acquire Voting Shares from Kerr-McGee which would exceed 5% of the
outstanding Voting Shares, Kerr-McGee shall immediately notify Devon; provided
that Kerr-McGee shall not be required to provide such notice if the proposal is
in connection with a Transfer permitted under Section 2.5 hereof.

2.2 [Intentionally omitted.]

2.3 Devon Board of Directors. (a) From and after the date hereof until the
termination of this Agreement, the number of directors constituting the Board of
Directors of Devon shall not be decreased to a number less than six (6), without
the prior written consent of Kerr-McGee.

(b) From and after the date hereof until the termination of this Agreement,
in connection with each election of directors of Devon, whether at an annual or
special meeting, Devon will nominate in accordance with its procedures for the
nomination of directors as provided in its by-laws and applicable law, a number
of persons designated by Kerr-McGee (all such persons who, at any time, are or
were designated by Kerr-

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McGee for purposes of this Agreement are referred to herein as the "Kerr-McGee
Designees") such that, after giving effect to the election of such persons to
the Board of Directors of Devon, the number of Kerr-McGee Designees then serving
on the Board of Directors of Devon shall equal the product (rounded to the
nearest whole number, but, in any event, not less than one) of (i) the total
number of directors constituting the entire Board of Directors multiplied by
(ii) the lesser of (A) 36% and (B) the percentage that the aggregate number of
Voting Shares owned by Kerr-McGee (determined without regard to Shares acquired
as permitted by Section 2.4(d)(i)(B) hereof) bears to the total number of Voting
Shares then outstanding (such lesser percentage, the "Director Percentage").

(c) If at any time the Director Percentage shall decrease so that
Kerr-McGee would be entitled to designate fewer directors than are currently
serving as Kerr-McGee Designees, Kerr-McGee shall cause one or more of the
Kerr-McGee Designees serving as Devon directors to resign so that the percentage
of the board of directors consisting of Kerr-McGee Designees does not exceed the
Director Percentage. Further, upon termination of this Agreement in accordance
with its terms, Kerr-McGee shall cause all Kerr-McGee Designees then serving as
directors of Devon to resign immediately.

(d) (i) In the event that any Kerr-McGee Designee shall cease to serve as a
director for any reason (other than as set forth in Section 2.3(c)), the vacancy
resulting thereby shall be filled by the remaining directors of the Company in
accordance with its Certificate of Incorporation, by-laws and applicable law by
a new Kerr-McGee Designee and such new Kerr-McGee Designee shall thereafter
serve until the expiration of the term of the Kerr-McGee Designee replaced by
such new Kerr-McGee Designee.

(ii) If there shall exist at any time any vacancy or vacancies on the Board
of Directors of Devon as a result of any increase in the number of directors
that constitutes the entire Board of Directors of Devon, which the directors of
Devon then in office intend to fill in accordance with Devon's Certificate of
Incorporation, by-laws and applicable law, Kerr-McGee shall be entitled to
designate one or more persons as Kerr-McGee Designees to fill such vacancy or
vacancies if and to the extent necessary so that, after giving effect to the
filling of such vacancy or vacancies, the number of Kerr-McGee Designees then
serving on the Board of Directors of Devon shall equal the Director Percentage.
Devon agrees to take all actions appropriate or necessary to ensure that any
Kerr-McGee Designees designated pursuant to the preceding sentence are appointed
to the Board of Directors to fill any such vacancy or vacancies filled by the
Board of Directors of Devon as provided in the preceding sentence.

(e) Notwithstanding anything to the contrary contained herein, no
Kerr-McGee Designee may be a person who previously has been a director of Devon
and was properly removed for cause from the Board of Directors of Devon or a
person who has been convicted of a felony or a crime involving moral turpitude.

(f) The Kerr-McGee Designees will be furnished with all information that is
provided to all other directors of Devon (in their capacities as such) at the
same time as such information is furnished to such other directors (in their
capacities as such).

(g) Kerr-McGee shall cause all Kerr-McGee Designees serving as directors of
Devon to comply with the retirement policies of Devon as in effect on the date
hereof or as hereafter amended or modified from time to time by the Board of
Directors of Devon or its shareholders; provided that no such amendment or
modification shall be binding upon Kerr-McGee or the Kerr-McGee Designees unless
at least one Kerr-McGee Designee shall have voted in favor of such amendment or
modification at the meeting, or in the action in lieu of a meeting, of the Board
of Directors of Devon at or in which it is considered.

2.4 Limitation on Acquisition of Additional Shares by Kerr-McGee. (a)
Except as permitted by any of Section 2.4(b), (c) or (d), from and after the
date hereof until the termination of this Agreement, Kerr-McGee shall not
acquire Beneficial Ownership of any Voting Shares, other than the Voting Shares
Beneficially Owned by Kerr-McGee as of the Effective Time and after giving
effect to the Closing, without the prior written consent of a majority of the
Continuing Directors.

(b) Kerr-McGee may purchase Voting Shares, or securities exercisable or
exchangeable for Voting Shares or convertible into Voting Shares, in market,
private or other transactions (including without limitation brokerage
transactions involving the solicitation of seller's orders and block trades off
the American Stock

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Exchange or any other national securities exchange on which the Voting Shares
are then listed) or in public offerings of Voting Shares (including Public
Offerings of Voting Shares); provided that, after giving effect to any such
purchase, Kerr-McGee shall not Beneficially Own more than the Applicable
Percentage of the Fully Diluted Shares; provided, further, that in no event
shall Kerr-McGee acquire Beneficial Ownership of additional Voting Shares which
would, based on the then most recent information contained in documents filed by
Devon or Kerr-McGee pursuant to Section 13(a), 13(c), 13(e), 14 or 15(d) of the
Exchange Act, reduce the number of shares of Common Stock held by Persons other
than Kerr-McGee, Devon or any Affiliate of either Kerr-McGee or Devon to less
than 15,000,000, unless such acquisition of Beneficial Ownership by Kerr-McGee
is necessary in order that, after giving effect thereto, Kerr-McGee shall
Beneficially Own 20% of the Fully Diluted Shares.

(c) Kerr-McGee may acquire Beneficial Ownership of Voting Shares without
regard to the Applicable Percentage of the Fully Diluted Shares if any Person
(other than Kerr-McGee, Devon or any Affiliate of Kerr-McGee or Devon) shall
have commenced a tender or exchange offer for Voting Shares (i) that is
recommended or approved by a majority of the Continuing Directors, (ii) with
respect to which a majority of the Continuing Directors has taken a position
contemplated by Rule 14e-2(a)(2) under the Exchange Act, (iii) with respect to
which a majority of the Continuing Directors has resolved to redeem the Rights
or has amended the Rights Plan so that the Person making such tender or exchange
offer will not become an Acquiring Person or trigger a Distribution Date, or
(iv) that is a Qualified Tender Offer and in connection with which (A) a final
and non-appealable court order has declared the Rights Plan invalid or
inapplicable, or required that the Rights issued under the Rights Plan be
redeemed, and (B) the Person making such Qualified Tender Offer will be
permitted under applicable law to accept for payment or exchange the Voting
Shares tendered in such Qualified Tender Offer.

(d) (i) Notwithstanding anything to the contrary in this Agreement,
Kerr-McGee shall not be deemed to be in violation of this Section 2.4 if its
Beneficial Ownership of Voting Shares exceeds the Applicable Percentage of the
Fully Diluted Shares as a result of (A) an acquisition by Devon or any of its
Affiliates of Voting Shares then outstanding, or securities then outstanding
exercisable or exchangeable for Voting Shares or convertible into Voting Shares,
or a recapitalization by Devon, or any other transaction or action by Devon, or
any expiration or termination of the right to exercise, exchange or convert
securities exercisable or exchangeable for Voting Shares or convertible into
Voting Shares, which, in any such case, by reducing the number of Fully Diluted
Shares, increases Kerr-McGee's Beneficial Ownership of the Fully Diluted Shares
to more than the Applicable Percentage, and, in the event of any such reduction
in the number of Fully Diluted Shares as provided in this Section 2.4(d)(i)(A),
the Applicable Percentage shall thereafter be deemed to have been increased to
the percentage of the Fully Diluted Shares Beneficially Owned by Kerr-McGee
after giving effect to such reduction, provided that, in the case of any such
increase in Kerr-McGee's Beneficial Ownership of the Fully Diluted Shares due to
an expiration or termination of the right to exercise, exchange or convert
securities exercisable or exchangeable for Voting Shares or convertible into
Voting Shares pursuant to this clause (A), Kerr-McGee shall, to the extent
permitted by Rule 144, Transfer a number of Shares (or securities of Devon
exercisable or exchangeable for or convertible into a number of Voting Shares)
as promptly as is commercially reasonable so that, following such Transfer,
Kerr-McGee shall Beneficially Own a number of Voting Shares not in excess of the
Applicable Percentage immediately prior to such reduction in the number of Fully
Diluted Shares and, following each such Transfer, the Applicable Percentage
shall be reduced to the percentage of the Fully Diluted Shares then Beneficially
Owned by Kerr-McGee, and, provided, further, that Kerr-McGee shall not be
required to Transfer Shares (or such securities) pursuant to the immediately
preceding proviso at any time when it would be required to pay any profit
realized upon such Transfer to Devon pursuant to Section 16(b) under the
Exchange Act, or (B) a transaction whereby, directly or indirectly, control of
(by merger, tender offer or otherwise), or all or substantially all of the
assets of, any Person is transferred to Kerr-McGee or any of its Subsidiaries
(an "Acquisition Transaction"), provided that, in the case of clause (B) above,
Kerr-McGee shall comply with the provisions of Section 2.4(d)(ii), except that
Kerr-McGee shall not be obligated to comply with Section 2.4(d)(ii), and any
Voting Shares the Beneficial Ownership of which is acquired by Kerr-McGee in an
Acquisition Transaction shall not be deemed to violate this Agreement, solely to
the extent that such Voting Shares were held by the other Person that is a party
to such Acquisition Transaction as part of the assets of a pension plan
maintained by such other Person

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for the benefit of its employees and retirees, and, provided, further, that, in
the case of clause (B) above, the ownership of Voting Shares by the Person in
the Acquisition Transaction is incidental to the conduct of an active trade or
business other than investing in securities and in no event shall such Person
own more than 1,000,000 Voting Shares. For purposes hereof, "control" means the
possession, directly or indirectly or as trustee or executor, of the power to
direct or cause the direction of the management policies of a Person, including
the power to direct or cause the direction of the disposition of the assets of
such Person.

(ii) (A) No later than five business days following the consummation of an
Acquisition Transaction which results in Kerr-McGee Beneficially Owning more
than the Applicable Percentage of the Fully Diluted Shares, Kerr-McGee shall
provide written notice (the "Offer Notice") to Devon offering Devon the right
(the "Purchase Right"), exercisable in whole or in part, to purchase a number of
Shares (such Shares, the "Purchase Right Shares") equal to the difference
between (1) the number of Shares minus (2) the product, rounded to the nearest
whole Voting Share, of the Applicable Percentage multiplied by the Fully Diluted
Shares, at a price per Purchase Right Share equal to the average of the Current
Market Prices of the Voting Shares determined for each of the 10 consecutive
trading days ending on the last full trading day prior to the date of the Offer
Notice (the "Purchase Price"). Devon shall have five business days from the date
of its receipt of the Offer Notice to provide written notice to Kerr-McGee of
its exercise of the Purchase Right (the "Exercise Notice"). The Exercise Notice
shall indicate the number of Purchase Right Shares with respect to which Devon
exercises the Purchase Right (such number of Purchase Right Shares, the "Sale
Shares"). If the Exercise Notice shall not have been delivered to Kerr-McGee
within five business days from the date of Devon's receipt of the Offer Notice
or if Devon shall have delivered to Kerr-McGee written notice that it is not
exercising the Purchase Right, then Devon will be deemed not to have exercised
the Purchase Right. If Devon exercises the Purchase Right by delivery to
Kerr-McGee of an Exercise Notice as provided above, then, on the fifth business
day after the receipt by Kerr-McGee of such Exercise Notice, Devon shall
purchase from Kerr-McGee, and Kerr-McGee shall sell to Devon, the Sale Shares.
At the closing of any such purchase and sale, Kerr-McGee shall deliver to Devon
a certificate or certificates representing the Sale Shares, duly endorsed for
transfer or accompanied by a stock power or powers duly executed in blank,
against delivery by Devon to Kerr-McGee of the aggregate Purchase Price for the
Sale Shares, by wire transfer in immediately available funds. Any exercise of
the Purchase Right as provided in this Section 2.4(d)(ii)(A) shall be
irrevocable and shall constitute a commitment by Devon to purchase from
Kerr-McGee, and by Kerr-McGee to sell to Devon, the Sale Shares at the Purchase
Price per Sale Share. Notwithstanding anything to the contrary contained in this
Section 2.4(d)(ii)(A), if the Current Market Price is required to be determined
pursuant to clause (iii) of the definition thereof and, on or prior to the fifth
business day after Devon's receipt of the Offer Notice, the Current Market Price
shall not have been so determined, then the time period for the delivery of the
Exercise Notice shall be extended until such time as the Current Market Price
shall have been so determined.

(B) If Devon shall not have exercised the Purchase Right in accordance with
Section 2.4(d)(ii)(A) or shall have exercised the Purchase Right in part, then,
to the extent permitted by Rule 144, Kerr-McGee shall Transfer the Purchase
Right Shares then held by it as promptly as is commercially reasonable; provided
that Kerr-McGee shall not be required to Transfer Purchase Right Shares under
this Section 2.4(d)(ii)(B) at any time when it would be required to pay any
profit realized upon such Transfer to Devon pursuant to Section 16(b) under the
Exchange Act.

2.5 Restrictions on Transfer. From and after the date hereof until the
termination of this Agreement, Kerr-McGee shall not sell, transfer or otherwise
convey (when used as a verb, "Transfer" and, any sale, transfer or other
conveyance, a "Transfer") Beneficial Ownership of any Shares (including Shares
subject to Exchangeable Securities), without the prior written consent of a
majority of the Continuing Directors, which consent shall not be unreasonably
withheld, except that, in any event, any of the following shall be permitted:

(a) a Transfer in accordance with Rule 144;

(b) a Transfer in a Public Offering or in a public offering (other
than a Public Offering) made pursuant to a registration statement which has
been declared effective by the SEC under the Securities Act (any such
Public Offering or public offering, a "Registered Transaction"); provided,
however, that, in

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connection with any such Registered Transaction, Kerr-McGee shall obtain
from the managing underwriter of such Public Offering or from each broker
through which such public offering is made, as the case may be, a
commitment to use its reasonable best efforts to make a broad public
distribution of the Shares (including an indirect distribution of Shares as
a result of a distribution of Exchangeable Securities) to be Transferred in
such Registered Transaction. The managing underwriter or broker, as the
case may be, will be advised that, for purposes of this Agreement, a "broad
public distribution" means a distribution such that no Person is allocated
for purchase in such Registered Transaction:

(i) a number of Shares in excess of (A) 14.9% of the Voting Shares
(after giving effect to the offering of the Shares and any other
securities being offered by Devon concurrently therewith in such
Registered Offering) or (B) in the case of a Public Offering, in excess
of 20% of the number of Shares being offered in such Public Offering,
provided that, in the case of this clause (B), Shares allocated for
purchase by a mutual fund, a pension fund or an investment advisers
(which investment adviser shall be registered under the Investment
Advisers Act of 1940, as amended) for any mutual fund or pension fund
shall be disregarded;

(ii) a number or amount of Exchangeable Securities which would
represent the right to acquire in excess of 14.9% of the Voting Shares;
or

(iii) any combination of (i) and (ii) above;

(d) a Transfer to Devon or a to a direct or indirect Subsidiary of
Devon (pursuant to a tender offer or otherwise);

(e) a Transfer pursuant to a merger, consolidation or Share
Acquisition, in which Devon is a constituent corporation;

(f) a Transfer made as a pro rata dividend or distribution to the
holders of the common stock of Kerr-McGee; or

(g) a Transfer to any Person (other than Kerr-McGee, Devon or any
Affiliate of Kerr-McGee or Devon) who shall have commenced a tender or
exchange offer for Voting Shares (i) that is recommended or approved by a
majority of the Continuing Directors, (ii) with respect to which a majority
of the Continuing Directors has taken a position contemplated by Rule
14e-2(a)(2) under the Exchange Act, (iii) with respect to which a majority
of the Continuing Directors has resolved to redeem the Rights or has
amended the Rights Plan so that the Person making such tender or exchange
offer will not become an Acquiring Person or trigger a Distribution Date,
or (iv) that is a Qualified Tender Offer and in connection with which (A) a
final and non-appealable court order has declared the Rights Plan invalid
or inapplicable, or required that the Rights issued under the Rights Plan
be redeemed, and (B) the Person making such Qualified Tender Offer will be
permitted under applicable law to accept for payment or exchange the Voting
Shares tendered in such Qualified Tender Offer.

2.6 Voting for Directors. Kerr-McGee agrees to vote all of the Shares in
favor of the Devon Board of Director's nominees for election to the Board of
Directors; provided that, in connection with any such vote, the provisions of
Section 2.3(b) shall have been complied with.

2.7 Right to Participate in Certain Issuances by Devon. (a) Devon shall
not issue any security exercisable or exchangeable for or convertible into
Voting Shares, other than employee stock options ("Devon Convertible
Securities"), in a public or private offering for cash, unless Devon shall have
first complied with, in the case of an issuance other than pursuant to Public
Offering, the provisions of Section 2.7(b) or, in the case of a Public Offering,
the provisions of Section 2.7(c).

(b) If Devon determines to issue any Devon Convertible Security in a public
or private offering for cash, other than in a Public Offering, then Devon shall
provide written notice of such determination to Kerr-McGee, which notice shall
include all the anticipated terms of such issuance and shall offer to Kerr-McGee
the right to purchase, at the same price and on the same terms as Devon proposes
to issue such Devon

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Convertible Security to others, a number or amount of the Devon Convertible
Securities proposed to be issued that represents the right to acquire upon
exercise, exchange or conversion of such Devon Convertible Securities a number
of Voting Shares equal to the Applicable Percentage (the "Offer Notice"). If
Kerr-McGee determines to accept the offer contained in the Offer Notice (subject
to final determination of terms), Kerr-McGee shall deliver a written notice to
Devon indicating its conditional acceptance within 10 days after its receipt of
the Offer Notice, which notice shall indicate whether Kerr-McGee has
conditionally accepted such offer in whole or in part, and, if accepted in part,
the number or amount of Devon Convertible Securities as to which such offer has
been conditionally accepted (an "Acceptance Notice"). If the final terms of the
offering differ from the terms contained in the Offer Notice, Devon shall notify
Kerr-McGee as promptly as practicable of the final terms (the "Final Notice"),
and Kerr-McGee shall notify Devon of its acceptance or rejection of the offer as
promptly as the circumstances require (a "Final Acceptance Notice"). Any
acceptance of the offer contained in a Final Acceptance Notice, or in an Offer
Notice as to which the terms of the offering do not change, by delivery of a
Final Acceptance Notice, or an Acceptance Notice as to which the terms of the
offering do not change, shall be irrevocable and shall constitute a commitment
by Kerr-McGee to purchase from Devon, and by Devon to sell to Kerr-McGee, the
number or amount of Devon Convertible Securities covered by such Final
Acceptance Notice or Acceptance Notice upon the terms contained in the Final
Notice or the Offer Notice.

(c) If Devon determines to issue any Devon Convertible Securities in a
Public Offering, Devon shall use its best efforts to cause the underwriter to
allocate to Kerr-McGee its Applicable Percentage of such Public Offering if
Kerr-McGee shall have submitted to the underwriter an offer to purchase the
Devon Convertible Securities on terms which are not worse than the final terms
that are established by the underwriter.

3. STOCK CERTIFICATES AND OTHER RESTRICTIONS.

3.1 Endorsement of Certificates. (a) All certificates representing Shares
shall, subject to Section 3.1(c), bear the following legend:

"THIS CERTIFICATE IS SUBJECT TO THE PROVISIONS OF A STOCK RIGHTS AND
RESTRICTIONS AGREEMENT BETWEEN DEVON ENERGY CORPORATION AND KERR-McGEE
CORPORATION DATED AS OF , 1996. A COPY OF SUCH AGREEMENT IS ON
FILE AT THE PRINCIPAL BUSINESS OFFICE OF DEVON ENERGY CORPORATION."

(b) All certificates representing Shares shall, subject to Section 3.1(c),
bear the following legend:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE CONVEYED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO RULE 144 UNDER THE ACT,
UNLESS THE COMPANY SHALL HAVE BEEN FURNISHED WITH AN OPINION OF COUNSEL,
WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR DEVON ENERGY
CORPORATION, THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED."

(c) After such time as either of the legends set forth in Sections 3.1(a)
and (b) is no longer required hereunder (including without limitation as a
result of the termination of this Agreement in accordance with its terms) or if
the securities represented by a certificate have been registered under the
Securities Act pursuant to an effective registration statement or are to be sold
pursuant to Rule 144, or if the Company shall have been furnished with an
opinion of counsel, which opinion shall be reasonably satisfactory to counsel
for Devon, that registration under the Securities Act is not required, as the
case may be, then, in any such event, upon the request of Kerr-McGee, Devon
shall cause such certificate or certificates to be exchanged for a certificate
or certificates that do not bear any legend.

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3.2 Improper Transfer. Any attempt by Kerr-McGee or its Affiliates to
Transfer any Shares other than in accordance with this Agreement shall be null
and void and neither Devon nor any transfer agent for such securities shall be
required to give any effect to such attempted Transfer in its stock records.

4. GENERAL PROVISIONS.

4.1 Representations and Warranties. (a) Devon represents and warrants to
Kerr-McGee that (i) Devon is a corporation duly organized, validly existing and
in good standing under the laws of the State of Oklahoma and has the corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder, (ii) the execution and delivery of this Agreement by
Devon and the consummation by Devon of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Devon and
no other corporate proceedings on the part of Devon are necessary to authorize
this Agreement or any of the transactions contemplated hereby, and (iii) this
Agreement has been duly executed and delivered by Devon and constitutes a valid
and binding obligation of Devon, and, assuming this Agreement constitutes a
valid and binding obligation of Kerr-McGee, is enforceable against Devon in
accordance with its terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium, fraudulent conveyance and similar laws affecting
creditors' rights generally from time to time and to general principles of
equity.

(b) Kerr-McGee represents and warrants to Devon that (i) Kerr-McGee is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power and authority to enter into
this Agreement and to carry out its obligations hereunder, (ii) the execution
and delivery of this Agreement by Kerr-McGee and the consummation by Kerr-McGee
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Kerr-McGee and no other corporate
proceedings on the part of Kerr-McGee are necessary to authorize this Agreement
or any of the transactions contemplated hereby, and (iii) this Agreement has
been duly executed and delivered by Kerr-McGee and constitutes a valid and
binding obligation of Kerr-McGee, and, assuming this Agreement constitutes a
valid and binding obligation of Devon, is enforceable against Kerr-McGee in
accordance with its terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium, fraudulent conveyance and similar laws affecting
creditors' rights generally from time to time and to general principles of
equity.

4.2 Amendment and Modification; Waiver of Compliance. This Agreement may
be amended or waived only by written instrument duly executed by the parties. In
the event of the amendment or modification of this Agreement in accordance with
its terms, the Board of Directors of Devon shall adopt any amendment to the
by-laws of Devon that may be required as a result of such amendment or
modification to this Agreement, and, if required, shall propose any amendment to
the Certificate of Incorporation that may be required as a result of such
amendment or modification to this Agreement to the Devon shareholders entitled
to vote thereon at a meeting duly called and held for such purpose, and shall
recommend that the Devon shareholders vote in favor of such amendment to the
Certificate of Incorporation.

4.3 Injunctive Relief. Each of the parties hereto hereby acknowledges that
in the event of a breach by any of them of any material provision of this
Agreement, the aggrieved party may be without an adequate remedy of law. Each of
the parties therefore agrees that in the event of a breach of any material
provision of this Agreement the aggrieved party may elect to institute and
prosecute proceedings in any court of competent jurisdiction to enforce specific
performance or to enjoin the continuing breach of such provision, as well as to
obtain damages for breach of this Agreement. By seeking or obtaining any such
relief, the aggrieved party will not be precluded from seeking or obtaining any
other relief to which it may be entitled in equity or at law.

4.4 Bylaws. At all times while this Agreement shall be in effect, Devon
shall cause its Bylaws to conform to the provisions of this Agreement, including
by causing its Bylaws to be amended.

4.5 No Amendment of Rights Plan. Devon's Board of Directors shall not
adopt any Rights Plan or amend the Rights Plan as in effect on the date hereof
without the approval of a majority of the Kerr-McGee Designees then on the Board
of Directors of Devon, unless such Rights Plan or amendment would not adversely
affect the rights or interests of Kerr-McGee or its Affiliates.

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4.6 Limitation on Reductions of Public Float by Devon. Devon shall not
take any action, including without limitation an acquisition by Devon or any of
its Affiliates of Voting Shares then outstanding, or a recapitalization by
Devon, which would reduce the number of shares of Common Stock held by Persons
other than Kerr-McGee, Devon or any Affiliate of either Kerr-McGee or Devon to
less than 15,000,000, without the prior written consent of Kerr-McGee.

4.7 Governing Law. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of Oklahoma, without regard to the principles of conflicts of law thereof.

4.8 Termination. (a) This Agreement may be terminated:

(i) by the mutual written consent of the parties hereto;

(ii) by Kerr-McGee or Devon if Kerr-McGee shall have become the
Beneficial Owner of less than 5% of the Voting Shares;

(iii) by Kerr-McGee if any Person (other than Kerr-McGee or any
Affiliate) shall have proposed to Devon a Business Combination Transaction
and a majority of the Continuing Directors shall have approved such
proposal or shall have retained (or authorized Devon to retain) the
services of an investment banking firm and shall have instructed such
investment banking firm to solicit indications of interest with respect to
a Business Combination Transaction; provided that, if a proposal with
respect to a Business Combination Transaction referred to in this clause
(iii) shall have been terminated or withdrawn by the Person who made such
proposal and Kerr-McGee shall have withdrawn, terminated or permitted to
expire any tender or exchange offer or proposal with respect to a Business
Combination Transaction made by Kerr-McGee, then the provisions of this
Agreement shall thereafter be reinstated (without liability to any party
for any failure to have complied with the terms and provisions of this
Agreement during the period when it shall have been terminated in
accordance with this Section 4.8(a)(iii)) and this Agreement shall
thereafter continue in full force and effect in accordance with its terms.

(iv) by Kerr-McGee if (A) any Person other than Kerr-McGee or its
Affiliates shall have acquired Beneficial Ownership of 15% or more of the
Voting Shares at a time when the Rights Plan is in effect and a majority of
the Continuing Directors shall have approved such acquisition or otherwise
taken action so that such acquisition would not result in such Person
becoming an Acquiring Person, or triggering a Distribution Date, under the
Rights Plan or (B) any Person other than Kerr-McGee or its Affiliates shall
have acquired Beneficial Ownership of 20% or more of the Voting Shares at a
time when the Rights Plan is not in effect, and, in any event referred to
in clause (A) or (B) above, such Person shall not have entered into an
agreement with Devon containing restrictions and other provisions at least
as favorable to Devon as those contained in this Agreement;

(v) by Kerr-McGee if the Continuing Directors shall not constitute a
majority of the Board of Directors of Devon; or

(vi) by Kerr-McGee if Devon shall have materially breached any
provision of this Agreement and Kerr-McGee shall have delivered a written
notice of such breach to Devon; provided that, if such material breach is
reasonably susceptible of cure and Devon shall proceed diligently to cure
such material breach, then this Agreement shall not be terminated unless
such material breach shall not have been cured on or prior to the fifth day
after the delivery of written notice by Kerr-McGee to Devon that Devon has
materially breached this Agreement.

(b) Unless this Agreement shall have been earlier terminated as provided in
Section 4.8(a), this Agreement shall terminate twenty-one years from and after
the death of the last survivor of J. Larry Nichols and Luke R. Corbett.

4.9 Notices. All notices, requests, demands or other communications
required or permitted by this Agreement shall be in writing and effective when
received, and delivery shall be made personally or by

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registered or certified mail, return receipt requested, postage prepaid, or
overnight courier or confirmed facsimile transmission, addressed as follows:

(a) If to Devon:

Devon Energy Corporation
20 North Broadway, Suite 1500
Oklahoma City, Oklahoma 73102-8260
Attention: J. Larry Nichols, President
and Chief Executive Officer
Facsimile No.: (405) 236-4258

with a copy to:

McAfee & Taft
A Professional Corporation
10th Floor, Two Leadership Square
Oklahoma City, Oklahoma 73102
Attention: Jerry A. Warren, Esq.
Facsimile No.: (405) 235-0439

(b) If to Kerr-McGee:

Kerr-McGee Corporation

Attention:
Facsimile No.: ( ) -

with a copy to:

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: David B. Chapnick, Esq.
Facsimile No.: (212) 455-2502

4.10 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.

4.11 Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof. This Agreement shall not
be assigned by operation of law or otherwise.

4.12 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.

4.13 Headings. The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.

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4.14 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.

DEVON ENERGY CORPORATION

By:
--------------------------------
Name:
Title:

KERR-McGEE CORPORATION

By:
--------------------------------
Name:
Title:

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EXHIBIT G

REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT, dated , 1996 by and between
Devon Energy Corporation, an Oklahoma corporation (the "Company"), and
Kerr-McGee Corporation, a Delaware corporation ("Security Holder").

W I T N E S S E T H:

WHEREAS, the Company and Security Holder have entered into an Agreement and
Plan of Merger dated as of , 1996 (the "Merger Agreement") which
provides, among other things, for the execution of this Agreement;

NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and in the Merger Agreement the parties hereto agree as follows:

Section 1. Definitions. The terms defined in this Section, whenever used in
this Agreement, shall, unless the context otherwise requires, have the
respective meanings hereinafter specified. Terms not defined in this Agreement,
and defined in the Merger Agreement have the meanings assigned them in the
Merger Agreement.

" Agreement" shall mean this Registration Rights Agreement.

"Commission" shall mean the United States Securities and Exchange
Commission.

"Common Stock" shall mean the Company's authorized Common Stock, par value
$.10 per share.

"Company" shall mean Devon Energy Corporation, an Oklahoma corporation, and
any successor corporation by merger, consolidation or otherwise and any parent
corporation resulting from the merger or consolidation of the Company with or
into a subsidiary of another corporation.

"Evergreen Registration Statement" shall mean a Registration Statement
filed pursuant to Rule 415, or any successor rule under the Securities Act,
relating to an offering on a continuous or delayed basis and which may, in lieu
of filing a post-effective amendment that (x) includes any prospectus required
by Section 10(a)(3) of the Securities Act or (y) reflects facts or events
representing a material or fundamental change in the information set forth in
the Registration Statement, be amended by the incorporation by reference of
information required to be included in (x) or (y) above contained in periodic
reports filed pursuant to Section 13 or 15 (d) of the Exchange Act in the
Registration Statement.

"Exchange Act" shall mean the Securities Exchange Act of 1934, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time.

"Exchangeable Security" shall mean a security of any type, including but
not limited to debt, equity, warrants or other rights, issued by Security Holder
at any time after the second anniversary of this Agreement and which includes or
represents the right to acquire Registrable Securities from Security Holder upon
exchange, conversion or exercise thereof; provided that such security shall
confer on Security Holder the right to suspend the right of the holder of such
security to exchange, convert or exercise such security to the extent necessary
for Security Holder to comply with the terms of Section 2.D. of this Agreement;
and provided further that the right to exchange or convert into, or exercise
for, Registrable Securities shall be limited to a period of seven years
commencing upon issuance of the Exchangeable Security.

"Person" shall mean an individual, a corporation, a partnership, a trust,
an unincorporated organization or a government or any agency or political
subdivision thereof.

"Public Offering" shall mean a firm commitment underwritten public offering
pursuant to a registration statement under the Securities Act.

"Registrable Securities" shall have the meaning subscribed thereto in
Section 2.A.

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"Registration" shall mean the registration under the Securities Act of
Registrable Securities pursuant to either Section 2.A hereof or 2.B hereof.

"Registration Statement" shall mean a registration statement filed under
the Securities Act or a similar document filed pursuant to any other statute
then in effect corresponding to the Securities Act.

"Securities Act" shall mean the Securities Act of 1933, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.

"Security Holder" shall mean Kerr-McGee Corporation, a Delaware
corporation, its permitted assigns, or any affiliate thereof holding Common
Stock or any successor corporation to any of the foregoing by merger or
consolidation or otherwise.

Section 2. Registration Rights.

A. Required Registration. If the Company shall receive a written request
from Security Holder requesting that the Company file a Registration Statement
relating to a Public Offering of shares of Common Stock owned by Security Holder
("Registrable Securities"), the Company will as promptly as practicable prepare
and file a Registration Statement and use its best efforts to cause the
Registration Statement to become effective; subject, however, to the following
provisions:

(1) the Company shall be required to file no more than three (3)
Registration Statements on behalf of Security Holder pursuant to this
Section 2.A;

(2) the Company shall not be obligated to file a requested
Registration:

(i) in the event that the aggregate number of Registrable
Securities to be included in such requested Registration is less than
five percent (5%) of the issued and outstanding Common Stock;

(ii) from the time it gives notice to Security Holder, provided
such notice is given prior to time of receipt by Devon of Security
Holder's request to file a Registration Statement, that it is preparing
to file a Registration Statement other than for the account of Security
Holder until 60 days after the Registration Statement has been declared
effective by the SEC; provided, the Company shall use its best efforts
to cause such Registration Statement to be declared effective as
promptly as practicable; and, provided further, the obligation to file a
Registration Statement on behalf of Security Holder shall be reinstated
if the Company does not file a Registration Statement within 30 days
after giving the notice referred to above; or

(iii) for a period from the time the Company gives Security Holder
notice, provided such notice is given prior to time of receipt by Devon
of Security Holder's request to file a Registration Statement, that the
Company is conducting negotiations for a material business combination
or that there is a material development or event pending which has not
yet been publicly disclosed and as to which the Company believes
disclosure will be prejudicial to the Company until the earlier of (a)
120 days after the notice with respect to a material business
combination or 90 days after the notice with respect to a material
development or event; (b) the public announcement of the combination,
development or event referred to above; or (c) the time the Company
gives Security Holder notice that suspension of its obligation is no
longer required.

(3) a Registration Statement filed pursuant to a request of Security
Holder shall first include all Registrable Securities requested to be
included by Security Holder and, only after such inclusion, may, include
securities of the Company being sold for the account of the Company or
other security holders; provided, however, that securities to be offered on
behalf of the Company or such other security holders will be included in
such Registration Statement only to the extent that, in the reasonable
opinion of the managing underwriter for the Public Offering of Registrable
Securities on behalf of Security Holder, such inclusion will not materially
adversely affect the distribution of Registrable Securities on behalf of
Security Holder;

(4) the selection of an underwriter for a Public Offering of
Registrable Securities by Security Holder shall be subject to the approval
of the Company, which shall not be unreasonably withheld; and

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(5) for purposes of paragraph (1) of this Subsection A, if a requested
Registration Statement is filed and the Company otherwise complies with its
obligations hereunder, but the Registration Statement is withdrawn by
Security Holder due to a delay in the offering requested by the Company,
then no requested Registration Statement shall be deemed to have been
filed.

B. Incidental/"Piggy-back" Registration. If the Company at any time
proposes to file a Registration Statement (other than a Registration Statement
filed pursuant to Subsection A of this Section) under the Securities Act
relating to a Public Offering of Common Stock to be sold for cash that would
permit the registration of Registrable Securities, it will give Security Holder
as much advance notice, in writing, as is reasonably practicable under the
circumstances, but in any event not less than 5 days, before the filing with the
Commission of such Registration Statement, which notice shall set forth the
intended method of disposition of the securities proposed to be registered. The
notice shall offer to include in such filing such amount of Registrable
Securities as Security Holder may request. If Security Holder wishes to have
Registrable Securities registered pursuant to this Subsection B, it shall advise
the Company in writing within 20 days after the date of receipt of such offer
from the Company (or such shorter period, but in any event not less than 5 days,
as the Company shall specify in its notice to Security Holder), setting forth
the amount of Registrable Securities for which Registration is requested. If the
managing underwriter of the proposed Public Offering of Common Stock by the
Company shall advise the Company in writing that, in the reasonable opinion of
the managing underwriter, the distribution of the Registrable Securities
requested by Security Holder to be included in the Registration Statement
concurrently with securities being registered for sale by the Company would
materially adversely affect the distribution of such securities by the Company,
then the Company shall so advise the Security Holder and the number of
securities that are entitled to be included in the registration and underwriting
shall be allocated first to the Company and then pro rata among the shareholders
(including Security Holder) whose shares are to be included in such Registration
Statement. If any Person does not agree to the terms of any such underwriting,
such Person shall be excluded therefrom by written notice from the Company or
the underwriter.

Any Registrable Securities excluded or withdrawn from such underwriting
shall nevertheless be included in any Registration Statement (but not the
underwriting) filed pursuant to this Subsection B during the first two years
after the date of this Agreement in an amount not to exceed 5% of the issued and
outstanding Common Stock; provided, the Registrable Securities so included may
be offered and sold only during a 90 day period commencing on the last day of
any period during which "Affiliates" (as that term is defined in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended) of the Company have agreed not to dispose of Common Stock in accordance
with the underwriting agreement.

Any obligation of the Company to effect a Registration pursuant to this
Subsection B shall be conditioned upon Security Holder entering into an
underwriting agreement with the Company and the managing underwriters of the
registered offering of the type described in paragraph (10) of Subsection C.

C. Registration Procedures. If the Company is required by the provisions of
Subsections A or B of this Section 2 to effect the Registration of any of the
Registrable Securities under the Securities Act, the Company will, as
expeditiously as possible:

(1) Prepare and file with the Commission a Registration Statement with
respect to such securities and use its best efforts to cause such
Registration Statement to become and, subject to paragraph (2) of this
Subsection C, remain effective.

(2) Keep such Registration effective, and the prospectus used in
connection therewith, current for a period of ninety (90) days or until the
Security Holder has completed the distribution described in the
Registration Statement relating thereto, whichever first occurs (the
"Selling Period"); provided, however, that (a) the Selling Period shall be
extended for a period of time equal to any period that Security Holder
refrains from selling any securities included in such registration (i)
pursuant to an agreement between Security Holder and an underwriter of
Common Stock at the request of the Company in order to facilitate the
Company's offering thereunder or (ii) pursuant to paragraph 8 of this
Subsection C and in the case of a registration which includes Registrable
Securities in accordance with

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the penultimate paragraph in Subsection B of this Section 2, the Selling
Period shall be extended for the period contemplated thereby; provided that
Rule 415, or any successor rule under the Securities Act, permits an
offering on a continuous or delayed basis; and provided further that
applicable rules under the Securities Act governing the obligation to file
a post-effective amendment permit, in lieu of filing a post-effective
amendment that (i) includes any prospectus required by Section 10(a)(3) of
the Securities Act or (ii) reflects facts or events representing a material
or fundamental change in the information set forth in the Registration
Statement, the incorporation by reference of information required to be
included in (i) and (ii) above to be contained in periodic reports filed
pursuant to Section 13 or 15(d) of the Exchange Act in the Registration
Statement.

(3) Prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective and such prospectus current in compliance with Section
10 of the Securities Act, and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all Common
Stock covered by such Registration Statement whenever Security Holder shall
desire to sell or otherwise dispose of the same, and provide Security
Holder with copies of any correspondence with the Commission, or copies of
memoranda relating to oral communications with the Commission, with respect
to any request by the Commission for any amendment of or supplement to the
Registration Statement or the prospectus included therein or for additional
information; provided, however, that the Company shall have no obligation
under this paragraph (3) after the period required by paragraph (2) of this
Subsection C has lapsed.

(4) Furnish to Security Holder such number of copies of such
Registration Statement and of each amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
included in such Registration Statement (including each preliminary
prospectus, summary prospectus and prospectus supplement), in conformity
with the requirements of the Securities Act, and such other documents, as
Security Holder may reasonably require in order to facilitate the public
offering, sale or other disposition of the Registrable Securities owned by
Security Holder.

(5) Use its best efforts to register or qualify the Common Stock
covered by such Registration Statement under such other securities or blue
sky laws of such jurisdictions as Security Holder shall reasonably request
(excluding however any jurisdiction in which the filing would subject the
Company to additional tax liability, and any jurisdiction in which the
Company would be required to execute a general consent to service of
process in effecting such Registration or qualification which consent would
not be required but for this paragraph (5)), and do such other acts and
things as may be required to enable Security Holder to consummate the
public sale or other disposition in such jurisdictions of the Registrable
Securities owned by Security Holder.

(6) Otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least 12 months, but not more than 18 months, beginning
with the first month after the effective date of the Registration
Statement, which earnings statement shall ratify the provisions of Section
11(a) of the Securities Act.

(7) Immediately notify Security Holder at any time when a prospectus
is required to be delivered under the Securities Act within the Selling
Period referred to in paragraph (2) of this Subsection C, of the Company
becoming aware that the prospectus included in the Registration Statement,
or as such prospectus may be amended or supplemented, includes an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein
not misleading in light of the circumstances then existing, and at the
request of Security Holder to promptly prepare and furnish to Security
Holder a number of copies of an amended or supplemental prospectus as may
be necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading in the light of the circumstances then existing. In the event
the Company shall give any such

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<PAGE> 165

notice, Security Holder shall immediately suspend use of the prospectus and
the Selling Period shall be extended by the number of days during the
period from and including the date of the giving of such notice to and
including the date when Security Holder shall have received the copies of
such supplemented or amended prospectus.

(8) In the event that, in the judgment of the Company, it is advisable
to suspend use by Security Holder of a prospectus relating to an offering
of Registrable Securities, other than a Public Offering, because the
Company is conducting negotiations for a material business combination or
due to pending material developments or events that have not yet been
publicly disclosed and as to which the Company believes public disclosure
will be prejudicial to the Company, the Company shall deliver notice in
writing to the effect of the foregoing and, upon receipt of such notice,
the Security Holder shall not use the prospectus, and the Selling Period
shall cease to run or will not commence, until such Security Holder has
received copies of the supplemented or amended prospectus provided for in
paragraph 3 of this Section C, or until it is advised in writing by the
Company that the prospectus may be used, and has received copies of any
additional or supplemental filings that are incorporated or deemed
incorporated by reference in such prospectus; provided that the duration of
such suspension shall not exceed 30 days. The Company will use its best
efforts to ensure that the use of the prospectus may be resumed, and the
Selling Period will commence, as promptly as is practicable and, in any
event, promptly after the earlier of (x) public disclosure of such material
business combination or pending material development or event sufficient to
permit an affiliate of the Company to sell Common Stock or (y) in the
judgment of the Company, public disclosure of such material business
combination or material development or event would not be prejudicial to
the Company.

(9) Use its best efforts to list such Registrable Securities on the
primary securities exchange or other trading market on which the Common
Stock is then listed, if such Registrable Securities are not already so
listed and if such listing is then permitted under the rules of such
exchange or other trading market, and to provide a transfer agent and
registrar for such Registrable Securities covered by such Registration
Statement not later than the effective date of such Registration Statement.

(10) Enter into such agreements (including an underwriting agreement
in customary form and containing customary provisions relating to legal
opinions and accountants' letters and customary representations and
warranties and customary provisions for mutual indemnification and
contribution between the Company and the underwriters for Security Holder)
and take such other actions as Security Holder may reasonably request in
order to expedite or facilitate the disposition of such Registrable
Securities.

(11) Make available for inspection by Security Holder, by any
underwriter participating in any disposition to be effected pursuant to
such Registration Statement and by any attorney, accountant or other agent
retained by Security Holder or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of the Company, and cause all of the Company's officers, directors and
employees to supply all information requested by Security Holder, such
underwriter, attorney, accountant or agent, as is reasonably needed in
connection with such Registration Statement.

D. Exchangeable Securities. In lieu of one of the Registration Statements
to which Security Holder is entitled pursuant to Section 2.A. hereof, after
written request from Security Holder the Company shall file one Evergreen
Registration Statement for registration of Registrable Securities deliverable by
Security Holder pursuant to the terms of an offering of Exchangeable Securities
(including the sale of the Registrable Securities by Security Holder on the
redemption or maturity of the Exchangeable Securities), and use its best efforts
to cause the Registration Statement to become effective.

The terms of the Exchangeable Securities will provide that the conversion,
exercise or exchange right may only be utilized (x) during the calendar month of
April in any year that the Exchangeable Securities are outstanding and (y)
during the 30 days ending on the maturity or redemption of the Exchangeable
Securities; provided, there shall be only one conversion, exercise or exchange
period in any calendar year.

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E. Expenses; Limitations on Registration. All Commission and blue sky
filing fees and underwriting discounts and commissions attributable to
securities offered on behalf of Security Holder, and the fees and expenses of
separate counsel for Security Holder, incurred in connection with effecting a
Registration pursuant to this Section 2 shall be borne by Security Holder.
Printing expenses of a prospectus which includes Registrable Securities shall be
borne by the Company and each shareholder (including Security Holder) whose
shares are included in the Registration Statement in proportion to the number of
shares being offered by each. All other expenses incurred in connection with the
Registration Statement shall be borne by the Company.

It shall be a condition precedent to the obligation of the Company to take
any action pursuant to this Section 2 in respect of the Registrable Securities
which are to be registered at the request of Security Holder that Security
Holder shall furnish to the Company such information regarding the securities
held by it and the intended method of disposition thereof as the Company shall
reasonably request and as shall be required in connection with the action taken
by the Company.

F. Indemnification. (1) In the event of any Registration of any Registrable
Securities under the Securities Act pursuant to this Section 2, the Company
agrees to indemnify and hold harmless Security Holder, its directors, officers
and employees, and each other Person, if any, who controls Security Holder
within the meaning of Section 15 of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which Security Holder or
any such director, officer, employee or controlling Person may become subject
under the Securities Act or any other statute or at common law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any alleged untrue statement of any material fact
contained, on the effective date thereof, in any Registration Statement under
which such securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or (ii) any alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and shall reimburse Security Holder or such director, officer, employee or
controlling Person for legal or any other expenses reasonably incurred by
Security Holder or such director, officer, employee or controlling Person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any alleged untrue statement or alleged omission
made in such Registration Statement, preliminary prospectus, prospectus, or
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by
Security Holder stating that it is specifically for use therein; and provided,
further, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the prospectus if such untrue statement or alleged untrue
statement or omission or alleged omission has been the subject of a notice given
to Security Holder pursuant to paragraph (7) of Subsection (C) if Security
Holder after receipt of such notice and prior to the receipt of a corrected
prospectus sold a Registrable Security to the Person asserting such loss, claim,
damage, liability or expense who purchased such Registrable Security which is
the subject thereof form Security Holder. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of
Security Holder or such director, officer, employee or participating Person or
controlling Person, and shall survive the transfer of such securities by
Security Holder.

(2) Security Holder agrees to indemnify and hold harmless the Company, its
directors, officers and employees and each other Person, if any, who controls
the Company against any losses, claims, damages or liabilities joint or several,
to which the Company or any such director, officer, or employee or any such
Person may become subject under the Securities Act or any other statute or at
common law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any alleged untrue
statement of any material fact contained, on the effective date thereof, in any
Registration Statement under which Registrable Securities were registered under
the Securities Act at the request of Security Holder, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereto,
or (ii) any alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such alleged untrue

A-G6
<PAGE> 167

statement or alleged omission was made in such Registration Statement,
preliminary prospectus, prospectus, amendment or supplement in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by Security Holder specifically stating it is for use
therein, and shall reimburse the Company or such director, officer, employee or
other Person for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such loss, claim, damage,
liability or action.

(3) Promptly after receipt by an indemnified party hereunder of written
notice of the commencement of any action or proceeding involving a claim
referred to in the preceding paragraphs of this Subsection E, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action;
provided, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligation under this
Subsection E to the extent the indemnifying party is not materially prejudiced
by such failure. In case any such action is brought against an indemnified
party, the indemnified party shall permit the indemnifying party to assume the
defense of such action or proceeding, provided that counsel for the indemnifying
party, who shall conduct the defense of such action or proceeding shall be
approved by the indemnified party (whose approval shall not be unreasonably
withheld) and the indemnified party may participate in such defense at such
indemnified party's expense unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, in which event the indemnifying
party shall pay the reasonable fees and expense of separate counsel for the
indemnified party. No indemnifying party will consent to entry of any judgment
or enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation. The
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm for all indemnified parties. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent.

(4) Indemnification similar to that specified in the preceding paragraphs
of this Subsection E shall be given by the Company and Security Holder (with
such modifications as shall be appropriate) with respect to liability related to
any required registration or other qualification of Registrable Securities under
any Federal or state law or regulation of governmental authority other than the
Securities Act.

(5) If the indemnification provided for in this Subsection E is unavailable
or insufficient to hold harmless an indemnified party under paragraphs (1) or
(2) above, then the indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraphs (1) or (2) above, in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and
Security Holder on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equity considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or Security Holder and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and Security
Holder agree that it would not be just and equitable if contributions pursuant
to this paragraph (5) were to be determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to in the first sentence of this paragraph (5). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this paragraph (5) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim (which shall be limited as provided in paragraph (3) above if the
indemnifying party has assumed the defense of any such action in accordance with
the provisions thereof) which is the subject of this paragraph (5).
Notwithstanding the provisions of this paragraph (5), in respect of any loss,
claim, damage or liability based upon any untrue or alleged untrue statement of
a material fact or omission or alleged omission to state a material fact which
relates to information other than information supplied by Security Holder,
Security Holder shall not be required to contribute any amount in excess of the
amount by which the total price at which the Registrable

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<PAGE> 168

Securities offered by it and distributed to the public were offered to the
public exceeds the amount of any damages which Security Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. Promptly after receipt by an indemnified party under this
paragraph (5) of notice of the commencement of any action against such party in
respect of which a claim for contribution may be made against an indemnifying
party under this paragraph (5), such indemnified party shall notify the
indemnifying party in writing of the commencement thereof if the notice
specified in paragraph (3) above has not been given with respect to such action;
but the omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to any indemnified party under this paragraph
(5) to the extent such omission is not prejudicial.

G. Public Availability of Information. The Company shall comply with all
public information reporting requirements of the Commission, to the extent
required from time to time to enable Security Holder to sell Registrable
Securities without Registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of Security Holder, the
Company will deliver to Security Holder a written statement as to whether it has
complied with such requirements.

H. Supplying Information. The Company shall cooperate with Security Holder
in supplying such information as may be necessary for Security Holder to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of any Registrable Securities.

I. Specific Performance. Each party hereto acknowledges and agrees that
each other party hereto would be irreparably harmed and would have no adequate
remedy of law if any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. Accordingly, it
is agreed that, in addition to any other remedies by law or in equity which may
be available, the parties hereto shall be entitled to obtain temporary and
permanent injunctive relief with respect to any breach or threatened breach of,
or otherwise obtain specific performance of the covenants and other agreements
contained in this Agreement.

Section 3. Representations and Warranties of the Company. The Company
represents and warrants to Security Holder that (a) the Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Oklahoma and has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder, (b) the execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or any of
the transactions contemplated hereby, and (c) this Agreement has been duly
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, and, assuming this Agreement constitutes a valid and
binding obligation of Security Holder is enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium, fraudulent conveyance and similar laws affecting
creditors, rights generally from time to time and to general principles of
equity, and except as the enforceability thereof may be limited by
considerations of public policy.

Section 4. Representations and Warranties of Security Holder. Security
Holder represents and warrants to the Company that (a) it is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and authority to enter into this Agreement
and to carry out its obligations hereunder, (b) the execution and delivery of
this Agreement by Security Holder and the consummation by Security Holder of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Security Holder and no other corporate
proceedings on the part of Security Holder are necessary to authorize this
Agreement or any of the transactions contemplated hereby, and (c) this Agreement
has been duly executed and delivered by Security Holder and constitutes a valid
and

A-G8
<PAGE> 169

binding obligation of Security Holder, and, assuming this Agreement constitutes
a valid and binding obligation of the Company, is enforceable against Security
Holder in accordance with its terms subject to applicable bankruptcy,
reorganization, insolvency, moratorium, fraudulent conveyance and similar laws
affecting creditors' rights generally from time to time and to general
principles of equity, and except as the enforceability thereof may be limited by
considerations of public policy.

Section 5. Stock Rights and Restrictions Agreement. This Agreement shall be
in all respects subject to the terms and conditions of the Stock Rights and
Restrictions Agreement between the parties hereto and of even date herewith.

Section 6. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or transmitted by
telex, telegram or facsimile transmission or mailed by registered or certified
mail (return receipt requested) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):

(a) if to Security Holder, to:

Kerr-McGee Corporation
P.O. Box
Oklahoma City, Oklahoma 73125

Attention: General Counsel

with a copy to:

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954

Attention: David Chapnick
Facsimile No: (212) 455-2502

(b) if to the Company, to:

Devon Energy Corporation
20 North Broadway, Suite 1500
Oklahoma City, Oklahoma 73102-8260

Attention: J. Larry Nichols, President
Facsimile No.: (405) 552-4550

with a copy to:

McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
Oklahoma City, Oklahoma 73102-7103

Attention: Jerry A. Warren, Esq.
Facsimile No.: (405) 235-0439

Section 5. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Oklahoma.

Section 6. Counterparts. This Agreement may be executed in any number of
counterparts, which together shall constitute a single agreement.

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<PAGE> 170

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their officers thereunto duly authorized.

DEVON ENERGY CORPORATION

--------------------------------
J. Larry Nichols
President and Chief Executive
Officer

KERR-MCGEE CORPORATION

--------------------------------
Luke R. Corbett, President and
Chief Operating Officer

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<PAGE> 171

EXHIBIT H-1

FIRST AMENDMENT TO RIGHTS AGREEMENT

The Rights Agreement dated April 17, 1995 between Devon Energy Corporation
and The First National Bank of Boston (Massachusetts) is hereby amended this
16th day of October, 1996 by the amendment of Section 1(a) as follows:

"Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall hereafter become
the Beneficial Owner of 15% or more of the Voting Shares of the
Company then outstanding, but shall not include the Company, any
Subsidiary of the Company or any employee benefit plan of the Company
or any Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company or a Subsidiary of the Company
for or pursuant to the terms of any employee benefit plan; provided, a
Person who or which does no more than (i) become an Affiliate or
Associate of a Person who or which (together with all Affiliates or
Associates) is now a Beneficial Owner of 15% or more of the Voting
Shares now outstanding, and/or (ii) become, by operation of clause
(ii) or clause (iii) of Section 1(c), the Beneficial Owner of shares
beneficially owned by a Person who or which (together with all
Affiliates or Associates) is now a Beneficial Owner of 15% or more of
the Voting Shares now outstanding, is not an Acquiring Person.
Further, no Person shall become an Acquiring Person solely as the
result of (a) a reduction in the number of Voting Shares outstanding
due to an acquisition of Voting Shares by the Company which increases
the proportionate number of such Voting Shares Beneficially Owned by
such Person to 15% or more unless and until that Person shall purchase
or otherwise become (as a result of actions by such Person or its
Affiliates or Associates) the Beneficial Owner of any additional
Voting Shares of the Company; provided, further, that Kerr-McGee
Corporation and its affiliates shall not be deemed an Acquiring Person
pursuant to this Section solely as a result of (a) the execution and
delivery of the Agreement and Plan of Merger among Devon Energy
Corporation, Devon Energy Corporation (Nevada), Kerr-McGee
Corporation, Kerr-McGee North American Onshore Corporation, and
Kerr-McGee Canada Onshore Ltd., dated October 16, 1996, and to be
executed subsequent to the time of execution of this Amendment (the
"Merger Agreement"), or (b) any action taken pursuant to such Merger
Agreement prior to the Effective Time (as defined in the Merger
Agreement).

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the 16th day of October, 1996.

DEVON OKLAHOMA CORPORATION

By
--------------------------------
J. Larry Nichols, President
and Chief Executive Officer
ATTEST:

- - - ----------------------------------
Marian J. Moon, Secretary
THE FIRST NATIONAL BANK OF BOSTON
(MASSACHUSETTS)

By
--------------------------------
Vice President

ATTEST:

- - - ----------------------------------
Secretary

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<PAGE> 172

EXHIBIT H-2

SECOND AMENDMENT TO RIGHTS AGREEMENT

The Rights Agreement dated April 17, 1995 between Devon Energy Corporation
and The First National Bank of Boston (Massachusetts), as amended on October 16,
1966, is hereby amended this 31st day of December, 1996 by the amendment of
Section 1(a) as follows:

"Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall hereafter become
the Beneficial Owner of 15% or more of the Voting Shares of the
Company then outstanding, but shall not include the Company, any
Subsidiary of the Company or any employee benefit plan of the Company
or any Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company or a Subsidiary of the Company
for or pursuant to the terms of any employee benefit plan; provided, a
Person who or which does no more than (i) become an Affiliate or
Associate of a Person who or which (together with all Affiliates or
Associates) is now a Beneficial Owner of 15% or more of the Voting
Shares now outstanding, and/or (ii) become, by operation of clause
(ii) or clause (iii) of Section 1(c), the Beneficial Owner of shares
beneficially owned by a Person who or which (together with all
Affiliates or Associates) is now a Beneficial Owner of 15% or more of
the Voting Shares now outstanding, is not an Acquiring Person.
Further, no Person shall become an Acquiring Person solely as the
result of a reduction in the number of Voting Shares outstanding due
to an acquisition of Voting Shares by the Company which increases the
proportionate number of such Voting Shares Beneficially Owned by such
Person to 15% or more unless and until that Person shall purchase or
otherwise become (as a result of actions by such Person or its
Affiliates or Associates) the Beneficial Owner of any additional
Voting Shares of the Company; provided, further, that Kerr-McGee
Corporation and its affiliates shall not be deemed an Acquiring Person
pursuant to this Section solely as a result of the acquisition of
Common Stock of the Company (i) upon consummation of the transactions
pursuant to the Agreement and Plan of Merger among Devon Energy
Corporation, Devon Energy Corporation (Nevada), Kerr-McGee
Corporation, Kerr-McGee North American Onshore Corporation, and
Kerr-McGee Canada Onshore Ltd. of even date herewith (the "Merger
Agreement"); (ii) pursuant to transactions permitted by a Stock Rights
and Restrictions Agreement substantially in the form of Exhibit F to
the Merger Agreement, as such agreement may be amended from time to
time (the "Stock Agreement"); and (iii) subsequent to termination of
the Stock Agreement pursuant to Subsections 4.8(iii) (unless the Stock
Agreement is reinstated pursuant to that Subsection), 4.8(iv), 4.8(v)
or 4.8(vi).

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.

DEVON OKLAHOMA CORPORATION

By
--------------------------------
J. Larry Nichols, President
and Chief Executive Officer
ATTEST:

- - - -------------------------------
Marian J. Moon, Secretary
THE FIRST NATIONAL BANK OF BOSTON
(MASSACHUSETTS)

By
--------------------------------
Vice President
ATTEST:

- - - -------------------------------
Secretary

A-H2
<PAGE> 173
DEVON ENERGY CORPORATION

PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned stockholder of Devon Energy Corporation, an Oklahoma
corporation, hereby nominates and appoints John W. Nichols and J. Larry
Nichols, or either of them, with full power of substitution, as true and
lawful agents and proxies to represent the undersigned and vote all shares of
stock of Devon Energy Corporation owned by the undersigned in all matters
coming before the Special Meeting of Stockholders (or any adjournment thereof)
of Devon Energy Corporation to be held at ___________________________________
on _____________________________, 1996, at __________, local time. The board
of directors recommends a vote "FOR" the matters set forth on the reverse side.

PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE

[x] PLEASE MARK
VOTES AS IN THIS
EXAMPLE.

WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER SPECIFIED BELOW
BY THE STOCKHOLDER. TO THE EXTENT CONTRARY SPECIFICATIONS ARE NOT GIVEN, THIS
PROXY WILL BE VOTED "FOR" ITEMS 1 AND 2.

1. AUTHORIZE THE ISSUANCE OF
9,954,000 SHARES OF DEVON COMMON
STOCK TO KERR-MCGEE CORPORATION
IN CONNECTION WITH THE TRANSACTION

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

3. OTHER MATTERS:

In their discretion, to vote
with respect to any other matters
that may come before the meeting or
any adjournment thereof, including
matters incident to its conduct.

I RESERVE THE RIGHT TO REVOKE THE
PROXY AT ANY TIME BEFORE THE EXERCISE
THEREOF.

Please sign exactly as your name
2. APPROVE THE AMENDMENT TO DEVON'S appears at left, indicating your
CERTIFICATE OF INCORPORATION TO official position or representative
INCREASE THE AUTHORIZED COMMON capacity, if applicable. If shares
STOCK TO 400 MILLION SHARES are held jointly, each owner should
sign.

FOR AGAINST ABSTAIN
[ ] [ ] [ ] Signature Date
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Signature Date
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