DEVON ENERGY CORP /OK/, S-3, 1999-07-15

DEVON ENERGY CORP /OK/
S-3, 1999-07-15
CRUDE PETROLEUM & NATURAL GAS

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<PAGE>

As Filed with the Securities and Exchange Commission on July 15, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

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

DEVON ENERGY CORPORATION
(Exact name of registrant as specified in its charter)

OKLAHOMA 73-1474008
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

J. LARRY NICHOLS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DEVON ENERGY CORPORATION
20 NORTH BROADWAY, SUITE 1500
OKLAHOMA CITY, OKLAHOMA 73102-8260
(405) 235-3611
(Address, including zip code, and (Name, address, including zip code,
telephone number, including area and telephone number, including
code, area code, of agent for service)
of registrant's principal executive
offices)

COPIES TO:

Jerry Warren Gregory F. Pilcher David Lopez
McAfee & Taft Vice President and Cleary, Gottleib, Steen &
A Professional Corporation General Counsel Hamilton
Two Leadership Square, Kerr-McGee Corporation One Liberty Plaza
10th Floor 123 Robert S. Kerr New York, New York 10006-
211 North Robinson Avenue 1470
Oklahoma City, Oklahoma Oklahoma City,
73102-7103 Oklahoma 73102

Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on the Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, check the following box. [_]

CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amounts to be Offering Price Aggregate Amount of
Registered Registered Per Share Offering Price Registration Fee
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Devon Common Stock(1)... 9,954,000 Shares $36.71875 (2) $365,498,438 (2) $101,609
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Includes the stock purchase rights associated with the Devon Common Stock.
(2) Estimated pursuant to Rule 457(c) solely for the purposes of computing the
registration fee based upon the average of the high and low prices of the
Devon Common Stock, as reported on the American Stock Exchange Composite
Transactions on July 8, 1999.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. Kerr- +
+McGee may not sell these securities until the registration statement filed +
+with the SEC is effective. This prospectus is not an offer to sell these +
+securities and we are not soliciting an offer to buy these securities in any +
+state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 15, 1999

PROSPECTUS

8,655,652 Shares

[Devon Energy Corporation]

Common Stock
$0.10 par value

--------

This prospectus relates to up to 9,954,000 shares of Devon Energy Corporation
common stock which may be delivered by Kerr-McGee Corporation, at its option,
on , 2004 to holders of debt exchangeable for common stock, or DECS, to be
issued by Kerr-McGee. This prospectus accompanies a prospectus and a prospectus
supplement of Kerr-McGee relating to the sale of the Kerr-McGee DECS. We
sometimes call these DECS exchangeable notes. The Kerr-McGee prospectus and
prospectus supplement are not a part of this prospectus.

Devon will not receive any of the proceeds from the sale of the exchangeable
notes or the delivery of common stock to which this prospectus relates and will
have no obligation with respect to the exchangeable notes.

Our common stock is listed on the American Stock Exchange under the symbol
"DVN." On July 14, 1999, the last reported sale price of the common stock on
the American Stock Exchange was $38.1875 per share.

Investing in our common stock involves risks. See "Risk Factors" beginning on
page 12.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

--------

Kerr-McGee has granted to the underwriters of the exchangeable notes a 30-day
option to purchase additional exchangeable notes, which may, at Kerr-McGee's
option, be exchanged at their maturity for up to an additional 1,298,348 shares
of Devon common stock. Kerr-McGee has granted this option solely to cover over-
allotments, if any.

July , 1999
<PAGE>

(This page intentionally left blank)

2
<PAGE>

You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information provided by this prospectus is accurate as of any date other than
the date on the front of this prospectus.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
About This Prospectus...................................................... 3
Prospectus Summary......................................................... 4
Risk Factors............................................................... 12
Risks Relating to the Oil and Gas Industry............................... 12
Risks Relating to an Investment in Devon................................. 13
Risks Relating to the Proposed Merger of Devon and PennzEnergy........... 14
Use of Proceeds............................................................ 17
New Devon After the Merger of Devon and PennzEnergy........................ 17
Capitalization............................................................. 18
Market Price Data.......................................................... 19
Unaudited Pro Forma Financial Information.................................. 20
Notes to Unaudited Pro Forma Financial Information......................... 24
Properties of New Devon After the Merger................................... 29
Directors and Executive Officers of New Devon After the Merger............. 32
Selling Stockholder........................................................ 34
Plan of Distribution....................................................... 34
Legal Matters.............................................................. 36
Experts.................................................................... 36
Where You Can Find More Information........................................ 37
Cautionary Statement Concerning Forward-Looking Statements................. 38
Commonly Used Oil and Gas Terms............................................ 39
</TABLE>

ABOUT THIS PROSPECTUS

This prospectus provides you with a general description of our common stock.
You should read this prospectus together with the additional information
described under the heading "Where You Can Find More Information" on page 37.

In this prospectus, the terms "Devon," "we," "us" and "our" mean Devon
Energy Corporation, an Oklahoma corporation, and its consolidated subsidiaries.

Unless otherwise indicated, all dollar amounts in this prospectus are
expressed in U.S. dollars.

3
<PAGE>

PROSPECTUS SUMMARY

This summary highlights selected information from this prospectus. It may
not contain all of the information that is important to you. You should read
the summary together with the more detailed information in the rest of this
prospectus and the documents to which we have referred you. See "Where You Can
Find More Information" on page 37.

Devon

We are an independent energy company engaged primarily in oil and gas
exploration, development and production, and in the acquisition of producing
properties. Our oil and gas properties are concentrated in six operating areas
in the United States and Canada. We are one of the top 15 public independent
oil and gas companies in both the United States and Canada, as measured by oil
and gas reserves. Our United States operations are primarily conducted in the
Permian Basin, the San Juan Basin, the Rocky Mountains and the Mid-continent.
Our Canadian operations are primarily conducted in the province of Alberta. At
December 31, 1998, our estimated proved reserves were 299.4 million barrels of
oil equivalent, of which 67% were natural gas reserves and 33% were oil
reserves.

Strategy

Our primary objectives are to build reserves, production, cash flow and
earnings per share by acquiring oil and gas properties, exploring for new oil
and gas reserves and seeking optimal production from existing oil and gas
properties. Our management seeks to achieve these objectives by:

.keeping debt levels reasonable,

.concentrating our properties in core areas to achieve economies of scale,

.acquiring and developing high profit margin properties,

.continually disposing of marginal and non-strategic properties, and

.balancing reserves and production between oil and gas.

Through our predecessors, we began operations in 1971 as a privately held
company. During 1988, we expanded our capital base by issuing common stock to
the public for the first time. This transaction began a substantial expansion
program that has continued through the years. We have used a two-pronged
strategy of acquiring producing properties and engaging in drilling activities
to achieve this expansion. Approximately two-thirds of our total capital spent
during this period was for property acquisitions and one-third was for
drilling. Total proved reserves increased from 8.1 million barrels of oil
equivalent at the end of 1987 to 299.4 million barrels of oil equivalent at the
end of 1998.

Our objective is to increase value per share, in addition to increasing
total assets. Reserves have grown from 1.31 barrels of oil equivalent per
diluted share at the end of 1987 to 5.61 barrels of oil equivalent per diluted
share at the end of 1998. At the same time, our net debt, or long-term debt
less working capital, has remained relatively low. At the end of 1998, our net
debt was $1.25 per barrel of oil equivalent.

Our completed merger with Northstar

On December 10, 1998, we completed a merger with Canadian-based Northstar
Energy Corporation. The merger was accounted for under the "pooling of
interests" method of accounting and Northstar became our wholly-owned
subsidiary. Northstar's properties are located primarily in the Western Canada
Sedimentary Basin in Alberta. Through the merger, we expanded our reserves by
approximately 115 million barrels of oil equivalent, or 62%, and nearly tripled
our undeveloped leasehold inventory. In addition, we retained the experienced
Northstar management team to continue to direct our Canadian operations.

4
<PAGE>

Our merger with Northstar has placed us in a unique position to take
advantage of growth opportunities both in the United States and in Canada. Our
properties are relatively balanced, with 52% of our proved reserves in the
United States and 48% in Canada. This balance gives us considerable exposure to
growing North American natural gas markets, while allowing us to retain
substantial oil reserves, particularly in the Permian Basin of the United
States. In addition, we own a large inventory of acreage and have the financial
flexibility to pursue the opportunities for drilling on this acreage.

As part of the merger consideration, we issued, through Northstar, 16.1
million exchangeable shares. The exchangeable shares are exchangeable at any
time, on a one-for-one basis, for shares of our common stock. Although the
exchangeable shares are essentially equivalent to our common stock, because
they were issued by Northstar, they qualify as a domestic Canadian investment
for Canadian institutional stockholders. The exchangeable shares trade on The
Toronto Stock Exchange under the symbol "NSX." Our common stock trades on the
American Stock Exchange under the symbol "DVN."

Our proposed merger with PennzEnergy

On May 19, 1999, we entered into an agreement to merge with PennzEnergy
Company. PennzEnergy is an independent oil and gas company engaged in the
acquisition, exploration, exploitation and development of prospective and
proved oil and gas properties and the production and sale of crude oil,
condensate, natural gas and natural gas liquids. We believe that the merged
company, which we refer to in this prospectus as New Devon, will rank solidly
in the top ten of all U.S.-based independent oil and gas producers in terms of
market capitalization, total proved reserves and annual production. We believe
that New Devon will create substantially more stockholder value than could be
achieved by either Devon or PennzEnergy individually.

The PennzEnergy merger is subject to customary conditions contained in the
merger agreement, many of which are not within our control. Closing conditions
include (a) obtaining the approval of stockholders of both Devon and
PennzEnergy, (b) the absence of any law or court order prohibiting the merger,
(c) the expiration of applicable regulatory waiting periods, (d) the approval
for listing of the New Devon shares on either the New York Stock Exchange or
the American Stock Exchange, (e) the continued accuracy of each company's
representations and warranties, and (f) the receipt of legal opinions as to the
tax-free qualification of the merger. In addition, either Devon or PennzEnergy
may terminate the merger if it does not close prior to December 31, 1999, and
under other circumstances. Although we believe that the conditions to closing
will be satisfied on or before the scheduled closing date of August 18, 1999,
we cannot assure you that the merger will be completed. If the merger is
completed, Devon stockholders will receive one share of New Devon common stock
for each share of Devon common stock that they own. PennzEnergy stockholders
will receive 0.4475 shares of New Devon common stock for each share of
PennzEnergy common stock that they own. Holders of the Kerr-McGee exchangeable
notes that are exchanged for common stock after the merger will receive shares
of New Devon common stock rather than shares of Devon common stock that they
would have received prior to the merger.

Devon has filed a proxy statement with the SEC that describes the merger and
risks related to it. The "Risk Factors" section of this prospectus, beginning
on page 12, discusses potential risks associated with the proposed merger. You
should consider these potential risks before you decide to invest in the common
stock offered by this prospectus. The prospectus incorporates by reference the
information contained in the merger proxy statement. To request a copy of the
merger proxy statement, see "Where You Can Find More Information" on page 37 of
this prospectus. This document does not constitute a solicitation of proxies
for Devon's stockholder meeting relating to the merger. We are soliciting
proxies for the meeting only through the merger proxy statement.

If the closing of the PennzEnergy merger does not occur, the financial
condition and business of Devon will be different than if the merger is
completed. This prospectus contains information relating to New Devon

5
<PAGE>

that assumes that merger will be completed. If the merger is not completed, the
receipt of shares of common stock of Devon upon exchange of the exchangeable
notes will be an investment solely in Devon, without regard to PennzEnergy,
and, therefore, you should review carefully the information relating to Devon
as a stand-alone company that is contained in the documents we incorporate by
reference under the caption "Where You Can Find More Information" on page 37 of
this prospectus.

Our proposed public offering of common stock

New Devon plans to raise between $300 and $500 million through a public
offering of newly issued shares of New Devon common stock shortly after the
merger with PennzEnergy is completed. However, depending upon market conditions
and other factors, Devon may make the offering prior to the merger. If the
offering is made prior to the merger, Devon plans to raise between $300 and
$350 million. It is also possible that Devon or New Devon may offer equity
securities other than common stock. Neither Devon nor New Devon can provide
assurances that they will successfully complete a public offering. The public
offering is not a condition to the merger. If Devon completes the public
offering before the merger, then each newly issued Devon share would be
converted into one share of New Devon in the merger. All further references in
this document to this proposed offering of securities will be made assuming it
will occur after the merger is completed.

This document does not constitute an offer to sell or a solicitation of an
offer to buy these newly issued shares. The new shares will be offered only
through a separate prospectus.

Our principal executive offices are located at 20 North Broadway, Suite
1500, Oklahoma City, Oklahoma 73102-8260. Our telephone number at that location
is (405) 235-3611.

The Kerr-McGee Exchangeable Notes Offering

The Kerr-McGee exchangeable notes are being offered by Kerr-McGee through
its exchangeable notes prospectus and prospectus supplement. The exchangeable
notes are mandatorily exchangeable for Devon common stock or, at Kerr-McGee's
option, the cash equivalent, at maturity on , 2004. Assuming Kerr-McGee
does not exercise its option to redeem any portion of the exchangeable notes
with cash, and assuming the underwriters exercise their option to purchase
1,298,348 exchangeable notes to cover over-allotments, up to 9,954,000 shares
of Devon common stock will be delivered pursuant to the terms of the
exchangeable notes. Kerr-McGee will not have the option to exchange the
exchangeable notes for Devon common stock prior to maturity. This prospectus
relates to shares of Devon common stock that Kerr-McGee may deliver under the
exchangeable notes. The Kerr-McGee prospectus and prospectus supplement
relating to the exchangeable notes are not a part of this prospectus and we
take no responsibility for any information included in or omitted from those
documents.

6
<PAGE>

Summary Unaudited Pro Forma Financial and Other Information

The following unaudited pro forma financial information has been prepared to
assist in your analysis of the financial effects of the PennzEnergy merger.
This pro forma information is based on the historical financial statements of
Devon and PennzEnergy.

The information was prepared based on the following:

. New Devon will utilize the full cost method of accounting for its oil
and gas activities.

. The merger will be accounted for as a purchase of PennzEnergy by New
Devon.

. New Devon plans to raise between $300 and $500 million in a public
offering of additional shares of New Devon common stock. The proceeds
from the planned offering would be used to fund capital expenditures and
repay long-term debt. The pro forma financial statements do not reflect
any effects of the planned offering.

. Expected annual cost savings of $50 to $60 million have not been
reflected as an adjustment to the historical data. These cost savings
are expected to result from the consolidation of the corporate
headquarters of Devon and PennzEnergy and the elimination of duplicate
staff and expenses.

. The unaudited pro forma statements of operations do not include the
effects of a reduction of the carrying value of oil and gas properties
because the reduction is directly related to the merger. As of March 31,
1999, the pro forma reduction would have been $657.0 million ($407.4
million after tax). The unaudited pro forma balance sheet does include
the effect of this reduction.

The March 31, 1999, pro forma reduction was based on a posted West Texas
Intermediate oil price of $15.25 per barrel and a Texas Gulf Coast index
gas price of $1.80 per Mcf. As of June 30, 1999, both West Texas
Intermediate oil and Texas Gulf Coast index gas prices had increased to
$16.50 per barrel and $2.14 per Mcf, respectively. Using these prices,
the pro forma reduction of the carrying value of oil and gas properties
would be reduced to less than $200 million (less than $150 million after
tax). The actual reduction, if any, that will be recorded by New Devon
will depend on the oil and gas prices in effect at the end of the
quarter in which the merger is actually closed.

No pro forma adjustments have been made with respect to the following
unusual items. These items are reflected in the historical results of Devon or
PennzEnergy, as applicable, and should be considered when making period-to-
period comparisons:

. In 1998, PennzEnergy realized pretax gains on the sale and exchange of
Chevron Corporation common stock of $230.1 million. The summary
unaudited pro forma operations data does not include the related $207.0
million after-tax extraordinary loss resulting from the early
extinguishment of debt.

. In 1998, PennzEnergy incurred $24.3 million of nonrecurring general and
administrative expenses in connection with the spin-off of Pennzoil-
Quaker State Company on December 30, 1998.

. In 1998, Devon incurred $13.1 million of nonrecurring expenses related
to the merger with Northstar.

. In 1998, Devon reduced the carrying value of its oil and gas properties
by $126.9 million ($88.0 million after-tax) due to the full cost ceiling
limitation.

The unaudited pro forma information is presented for illustrative purposes
only. If the merger had occurred in the past, New Devon's financial position or
operating results might have been different from those presented in the
unaudited pro forma information. You should not rely on the unaudited pro forma
information as an indication of the financial position or operating results
that New Devon would have achieved if the merger had occurred on March 31, 1999
or January 1, 1998. You also should not rely on the unaudited pro forma
information as an indication of the future results that New Devon will achieve
after the merger.

7
<PAGE>

<TABLE>
<CAPTION>
New Devon Pro
Forma as of
March 31, 1999
--------------
(In Thousands,
Except Per
Share Data)
<S> <C>
Balance Sheet Data:
Investment in common stock of Chevron Corporation (see note 3
on page 26).................................................. $ 629,453
Total assets.................................................. 4,092,118
Debentures exchangeable into shares of Chevron Corporation
common stock (see note 3 on page 26)......................... 757,721
Other long-term debt.......................................... 1,422,793
Convertible preferred securities of subsidiary trust.......... 149,500
Stockholders' equity.......................................... 997,750
Book value per share.......................................... 14.27

</TABLE>

<TABLE>
<CAPTION>
New Devon Pro Forma
-------------------------
Three Months
Year Ended Ended
December 31, March 31,
1998 1999
------------ ------------
(In Thousands,
Except Per Share Data)
<S> <C> <C>
Operations Data:
Operating Results
Oil sales......................................... $ 302,918 $ 64,914
Gas sales......................................... 553,938 122,979
NGL sales......................................... 63,703 12,813
Other revenue..................................... 295,803 9,390
---------- ---------
Total revenue................................... 1,216,362 210,096
---------- ---------
Lease operating expenses.......................... 294,739 66,336
Production taxes.................................. 28,148 5,937
Depreciation, depletion and amortization.......... 444,650 97,752
General and administrative expenses............... 139,378 28,291
Northstar combination expenses.................... 13,149 --
Interest expense.................................. 176,659 36,545
Deferred effect of changes in foreign currency
exchange rate on subsidiary's long-term debt..... 16,104 (3,161)
Distributions on preferred securities of
subsidiary trust................................. 9,717 2,429
Reduction of carrying value of oil and gas
properties....................................... 126,900 --
---------- ---------
Total costs and expenses........................ 1,249,444 234,129
---------- ---------
Loss before income taxes.......................... (33,082) (24,033)
Income tax expense (benefit):
Current......................................... 10,324 1,914
Deferred........................................ (3,340) (11,032)
---------- ---------
Total income tax expense....................... 6,984 (9,118)
---------- ---------
Net loss.......................................... (40,066) (14,915)
Preferred stock dividends......................... 5,625 2,434
---------- ---------
Net loss applicable to common shareholders........ $ (45,691) $ (17,349)
========== =========
Net loss per share--basic and diluted............. (0.66) (0.25)
Cash dividends per share.......................... 0.17 0.05
Weighted average common shares outstanding........ 69,729 69,900
Cash Flow Data
Net cash provided by operating activities......... $ 388,992 67,088
Net cash used in investing activities............. (222,959) (136,895)
Net cash provided (used) by financing activities.. (143,300) 60,472
Modified EBITDA................................... 740,948 109,532
Cash margin....................................... 544,248 68,644
</TABLE>

8
<PAGE>

<TABLE>
<CAPTION>
New Devon Pro Forma
--------------------------------
Three Months
Year Ended Ended
December 31, 1998 March 31, 1999
----------------- --------------
<S> <C> <C>
Production, Price and Other Data
Production:
Oil (MBbls)................................ 26,128 6,168
Gas (MMcf)................................. 303,693 76,502
NGL (MBbls)................................ 7,128 1,690
MBoe ...................................... 83,872 20,609
Average prices:
Oil (per Bbl).............................. $ 11.59 $ 10.52
Gas (per Mcf).............................. 1.82 1.61
NGL (per Bbl).............................. 8.94 7.58
Per Boe.................................... 10.98 9.74
Costs per Boe:
Operating costs............................ 3.85 3.51
Depreciation, depletion and amortization of
oil and gas properties.................... 5.24 4.68
General and administrative expenses........ 1.66 1.37
</TABLE>

<TABLE>
<CAPTION>
New Devon
Pro Forma
as of
December 31, 1998
-----------------
<S> <C>
Property Data
Proved reserves:
Oil (MBbls)............................................... 272,688
Gas (MMcf)................................................ 2,050,528
NGL (MBbls)............................................... 45,654
Total (MBoe).............................................. 660,096
SEC 10% present value (thousands)......................... $2,087,666
Standardized measure of discounted future net cash flows
(thousands).............................................. 1,816,542
</TABLE>

9
<PAGE>

SUMMARY HISTORICAL SELECTED FINANCIAL AND PRODUCTION DATA

The following selected financial information (not covered by the independent
auditors' reports) for the fiscal years has been derived from Devon's audited
consolidated financial statements. The following information of the interim
periods has been derived from Devon's unaudited financial statements.

<TABLE>
<CAPTION>
As of December 31, As of March 31,
--------------------------------- ---------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets.......... $1,183,290 $1,248,986 $1,226,356 $1,329,626 $1,267,505
Long-term debt........ 83,000 305,337 405,271 312,420 422,293
Convertible preferred
securities of
subsidiary trust..... 149,500 149,500 149,500 149,500 149,500
Stockholders' equity.. 678,772 596,546 522,963 610,423 529,798

<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------------- ---------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Operations Data:
Operating Results
Oil sales........... 136,023 207,725 143,624 41,589 27,913
Gas sales........... 101,443 219,459 209,344 51,905 53,551
NGL sales........... 19,299 24,920 16,692 4,814 3,929
Other revenue....... 34,570 47,555 17,848 2,129 1,873
---------- ---------- ---------- ---------- ----------
Total revenues.... 291,335 499,659 387,508 100,437 87,266
---------- ---------- ---------- ---------- ----------
Lease operating
expenses........... 58,734 100,897 113,484 29,376 27,420
Production taxes.... 10,880 19,227 13,916 3,415 2,969
Depreciation,
depletion and
amortization....... 70,307 169,108 123,844 29,993 33,558
General and
administrative
expenses........... 15,111 24,381 23,554 5,643 6,223
Northstar
Combination
expenses........... -- -- 13,149 -- --
Interest expense.... 12,662 18,788 22,632 5,410 6,664
Deferred effect of
changes in foreign
currency exchange
rate on
subsidiary's long-
term debt.......... 199 5,860 16,104 -- (3,161)
Distributions on
preferred
securities of
subsidiary trust... 4,753 9,717 9,717 2,429 2,429
Reduction of
carrying value of
oil and gas
properties......... -- 625,514 126,900 -- --
---------- ---------- ---------- ---------- ----------
Total costs and
expenses......... 172,646 973,492 463,300 76,266 76,102
---------- ---------- ---------- ---------- ----------
Earnings (loss)
before income
taxes.............. 118,689 (473,833) (75,792) 24,171 11,164
Income tax expense
(benefit):
Current........... 7,834 26,857 7,687 3,160 1,903
Deferred.......... 43,252 (200,699) (23,194) 6,786 3,281
---------- ---------- ---------- ---------- ----------
Total........... 51,086 (173,842) (15,507) 9,946 5,184
---------- ---------- ---------- ---------- ----------
Net earnings
(loss)............. $ 67,603 $ (299,991) $ (60,285) $ 14,225 $ 5,980
========== ========== ========== ========== ==========
Net earnings (loss)
per share:
Basic............. $ 2.06 $ (6.38) $ (1.25) $ 0.29 $ 0.12
Diluted........... 1.99 (6.38) (1.25) 0.29 0.12
Cash dividends per
common share....... 0.15 0.14 0.15 0.03 0.05
Weighted average
common shares
outstanding--
basic.............. 32,812 47,040 48,376 48,310 48,470
</TABLE>

10
<PAGE>

<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
---------------------------------- ------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- -------- --------
(In Thousands, Except Per Share and Per Unit Data)
<S> <C> <C> <C> <C> <C>
Cash Flow Data
Net cash provided by
operating
activities........... $ 144,248 $ 253,056 $ 191,571 $ 71,788 $ 57,067
Net cash used by
investing
activities........... (243,451) (147,583) (271,960) (29,605) (77,648)
Net cash provided
(used) by financing
activities........... 96,420 (77,141) 57,618 (38,832) 14,884
Modified EBITDA....... 206,610 355,154 223,405 62,003 50,954
Cash margin........... 181,361 299,792 183,369 51,004 39,658
Production, Price and
Other Data
Production:
Oil (MBbls)......... 6,780 11,783 11,903 3,197 2,565
Gas (MMcf).......... 62,186 121,810 133,065 32,523 35,122
NGL (MBbls)......... 1,255 1,891 1,939 509 476
MBoe................ 18,399 33,976 36,020 9,127 8,895
Average prices:
Oil (Per Bbl)....... $ 20.06 $ 17.63 $ 12.07 $ 13.01 $ 10.88
Gas (Per Mcf)....... 1.63 1.80 1.57 1.60 1.52
NGL (Per Bbl)....... 15.38 13.18 8.61 9.46 8.25
Per Boe............. 13.96 13.31 10.26 10.77 9.60
Costs per Boe:
Operating costs..... 3.78 3.54 3.54 3.59 3.42
Depreciation,
depletion and
amortization of oil
and gas
properties......... 3.69 4.86 3.32 3.17 3.66
General and
administrative
expenses........... 0.82 0.72 0.65 0.62 0.70
<CAPTION>
As of December 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Property Data
Proved reserves:
Oil (MBbls)......... 80,155 97,041 83,457
Gas (MMcf).......... 898,319 1,150,604 1,198,894
NGL (MBbls)......... 14,190 17,178 16,079
Total (MBoe)........ 244,065 305,986 299,351
SEC 10% present
value (thousands).. $1,999,748 $1,340,644 $1,009,039
Standardized measure
of discounted
future net cash
flows (thousands).. 1,454,974 1,100,676 931,588
</TABLE>

11
<PAGE>

RISK FACTORS

You should carefully consider the following risk factors, and all of the
other information contained in this document and the documents to which we have
referred you, before deciding to invest in our common stock.

Risks Relating to the Oil and Gas Industry

Our results are highly dependent on oil and gas prices, which are volatile and
beyond our control

Our revenues, results of operations and financial condition depend largely
on the prices we receive for our oil and gas production. Extended periods of
low prices could adversely affect the ultimate return on past investments and
our ability or willingness to continue or complete our current and planned
drilling programs and acquisitions.

Our calculations of proved reserves are only estimates

There are many uncertainties in estimating quantities of oil and gas
reserves. In addition, the estimates of future net cash flows from our proved
reserves and their present value are based upon assumptions about future
production levels, prices and costs that may prove to be inaccurate. Our
estimated reserves may be subject to upward or downward revision based upon our
production, results of future exploration and development, prevailing oil and
gas prices, operating and development costs and other factors.

Our exploration, development and acquisition activities might not result in
significant additional reserves

The rate of production from oil and gas properties generally declines as
reserves are depleted. Our proved reserves will decline materially as oil and
gas are produced unless we acquire additional properties with proved reserves,
conduct successful exploration and development activities or our reserve
estimates increase. Our future oil and gas production is consequently dependent
upon our success in acquiring or finding additional reserves.

Potential hazards could damage or destroy our oil and gas wells, production
facilities or damage or injure property, persons and the environment

The exploration for and production of oil and gas can be hazardous,
involving natural disasters, blowouts, cratering, fires and losses of well
control. These hazards can damage or destroy oil and gas wells and production
facilities, injure or kill people and cause damage to property and the
environment. We maintain insurance against many potential losses and
liabilities in accordance with customary industry practices, however our
insurance does not protect us against all operational risks.

Government regulations, including environmental regulations, may adversely
affect our results

Our exploration and production operations are regulated at the federal,
state and local levels in the United States as well as by governments in other
countries. We make large expenditures to comply with the requirements of these
regulations. Future changes in the regulation of the oil and gas industry could
significantly increase these costs.

We are subject to various federal, state, local and foreign regulations
relating to the protection of the environment. We may be liable for the cost to
clean-up pollution resulting from our operations and for the cost of pollution
damages. We also may be required to suspend or cease operations in affected
areas. Additional future regulations for the protection of the environment
could adversely affect our operations and results.

12
<PAGE>

Risks Relating to an Investment in Devon

Our stock price might decline if we do not complete the PennzEnergy merger

Our current stock price could reflect value that investors anticipate will
result from the PennzEnergy merger. If so, our failure to complete the
PennzEnergy merger could cause our stock price to decline. The merger is
subject to conditions, including stockholder approval. We cannot assure you
that those conditions will be satisfied or that the merger will be completed.

The interest of Devon's largest stockholder may conflict with the interests of
Devon's or New Devon's other stockholders

Kerr-McGee Corporation currently owns 9,954,000 shares, or 20.4%, of the
outstanding Devon common stock. After completion of the merger, Kerr-McGee
would own up to 14.2% of the outstanding shares of New Devon's common stock.
This percentage will be reduced further if New Devon completes a planned public
offering of new shares of common stock. Sales by Kerr-McGee of substantial
amounts of Devon or New Devon common stock in the public or private market, or
the perception that such sales may occur, could cause the prices of those
shares to decline. Kerr-McGee has requested that Devon register with the SEC
with this document the Devon common stock held by Kerr-McGee in connection with
the offering of Kerr-McGee DECS as described on page 6. These DECS would be
mandatorily exchangeable for Devon common stock or, at Kerr-McGee's option, the
cash equivalent.

As a substantial stockholder, Kerr-McGee may have the power to influence the
outcome of matters submitted to a vote of the Devon or New Devon stockholders,
and Kerr-McGee's interests may not reflect the interests of other stockholders.
Devon and Kerr-McGee have not implemented any specific procedures to deal with
conflicts that may arise in the future between Kerr-McGee's interests and those
of other Devon or New Devon stockholders. In the event a conflict arises, we
will implement procedures we deem appropriate to deal with the specific
situation.

Under an agreement between Devon and Kerr-McGee dated December 31, 1996,
Devon is obligated to nominate a specified number of persons designated by
Kerr-McGee for election to Devon's board. The exact number would generally be
set so that Kerr-McGee's representation on the Devon board approximates the
percentage of Devon's common stock that Kerr-McGee owns. The December 31, 1996,
agreement also restricts Kerr-McGee's ability to acquire or dispose of Devon
common stock and grants Kerr-McGee preemptive rights in connection with
offerings of Devon convertible securities.

The Kerr-McGee designees to Devon's board resigned their positions on May
19, 1999, and Devon and Kerr-McGee have agreed that the December 31, 1996,
agreement will terminate when the merger occurs.

Devon has charter and other provisions that may make it difficult to cause a
change of control

Some provisions of Devon's certificate of incorporation and by-laws and of
the Oklahoma General Corporation Act, as well as Devon's stockholder rights
plan, may make it difficult for stockholders to cause a change in control of
Devon and replace incumbent management. These provisions include:

. a classified board, the members of which serve staggered three-year
terms and may be removed by stockholders only for cause;

. a prohibition on stockholders calling special meetings and acting by
written consent; and

. rights issued under its rights plan, which would "flip in" if a hostile
bidder acquired 15% of Devon's common stock.

New Devon's certificate of incorporation and bylaws, the Delaware General
Corporation Law and New Devon's stockholder rights plan will also have similar
provisions.

13
<PAGE>

Risks Relating to the Proposed Merger of Devon and PennzEnergy

We may not successfully integrate the operations of Devon and PennzEnergy or
achieve the benefits we are seeking

The success of the merger will partially depend upon the integration of the
current management and operations of Devon and PennzEnergy. The management team
of New Devon will not have experience with the combined businesses of Devon and
PennzEnergy. New Devon may not be able to integrate the operations of Devon and
PennzEnergy without the loss of key employees, customers or suppliers; loss of
revenues; increases in operating or other costs; or other difficulties. In
addition, New Devon may not be able to realize the operating efficiencies and
other benefits sought from the merger.

Significant charges and expenses will be incurred as a result of the merger

Devon and PennzEnergy expect to incur approximately $71.5 million of costs
related to the merger. These expenses will include investment banking expenses,
severance, legal and accounting fees, financial printing expenses and other
related charges. In addition, New Devon expects to incur an estimated $20 to
$30 million in costs to combine the two companies. New Devon may incur
additional unanticipated expenses in connection with the merger.

New Devon also may incur a noncash after-tax charge to earnings related to a
full cost ceiling limitation. Under the full cost method of accounting followed
by Devon and to be followed by New Devon, the net book value of oil and gas
properties, less related deferred income taxes, may not exceed a calculated
"ceiling." The ceiling is the estimated after-tax future net revenues from
proved oil and gas properties, discounted at 10% per year. The ceiling
limitation is applied separately by country. In calculating future net
revenues, prices and costs in effect at the time of the calculation are held
constant indefinitely, except for changes that are fixed and determinable by
existing contracts. The net book value, less deferred tax liabilities, is
compared to the ceiling on a quarterly basis. Any excess of the net book value,
less deferred taxes, is written off as an expense. An expense recorded in one
period may not be reversed in a subsequent period even though higher oil and
gas prices may have increased the ceiling applicable to the subsequent period.

As of March 31, 1999, New Devon's pro forma after-tax charge would have been
$407.4 million. This pro forma amount was based on a posted West Texas
Intermediate oil price of $15.25 per barrel and a Texas Gulf Coast index gas
price of $1.80 per Mcf. As of June 30, 1999, both West Texas Intermediate oil
and Texas Gulf Coast index gas prices had increased to $16.50 per barrel and
$2.14 per Mcf, respectively. Using these prices, the pro forma after-tax charge
to earnings would be reduced to less than $150 million. The actual charge, if
any, that will be recorded by New Devon will depend on the oil and gas prices
in effect at the end of the quarter in which the merger is actually closed.

New Devon may incur a tax liability for a prior PennzEnergy transaction as a
result of the merger

If PennzEnergy's distribution to its stockholders of the stock of Pennzoil-
Quaker State Company in December 1998 were to be considered part of a plan or
series of related transactions that includes the merger, New Devon would
recognize gain under Section 355(e) of the Internal Revenue Code. PennzEnergy
and Devon believe the distribution and the merger should not be considered part
of such a plan or series of related transactions because, among other things,
neither party contemplated a business combination with the other and until
April 1999 the parties had no discussions regarding a business combination.
However, any transaction within a four-year period beginning two years before
the distribution is presumed to be part of such a plan. We cannot assure you
that PennzEnergy will be able to overcome this presumption. PennzEnergy
currently estimates New Devon's potential tax liability upon such a transaction
at $16 million in additional tax for 1998 and the elimination of approximately
$183 million in net operating loss carryovers through 1998.

14
<PAGE>

New Devon's business will expose Devon stockholders to different risks

Some of PennzEnergy's assets are outside of North America and a significant
portion of its production and reserves are located offshore in the Gulf of
Mexico. Additionally its reserves and production are more weighted towards oil
than Devon's. Therefore, the assets of New Devon will expose the former Devon
stockholders to more risks associated with oil prices and offshore Gulf of
Mexico and international operations than they were exposed to prior to the
merger. Production in the Gulf of Mexico generally declines at faster rates
than onshore production in North America.

In addition, offshore operations in this area are subject to tropical
weather disturbances. Some of these disturbances can be severe enough to cause
substantial damage to facilities and possibly interrupt production. In
accordance with customary industry practices, New Devon will maintain insurance
against some, but not all, of these risks. Losses could occur for uninsurable
or uninsured risks or in amounts in excess of existing insurance coverage. We
cannot assure you that New Devon will be able to maintain adequate insurance in
the future at rates it considers reasonable or that any particular types of
coverage will be available. An event that is not fully covered by insurance
could have a material adverse effect on New Devon's financial position and
results of operations.

New Devon will be subject to other uncertainties of foreign operations

New Devon will have international operations in Australia, Azerbaijan,
Brazil, Canada, Egypt, Qatar and Venezuela. Local political, economic and other
uncertainties may adversely affect these operations. These uncertainties
include:

. the risk of war, general strikes, civil unrest, expropriation, forced
renegotiation or modification of existing contracts, and import, export
and transportation regulations and tariffs;

. taxation policies, including royalty and tax increases and retroactive
tax claims;

. exchange controls, currency fluctuations, devaluation or other activities
that limit or disrupt markets and restrict payments or the movement of
funds, and other uncertainties arising out of foreign government
sovereignty over international operations;

. laws and policies of the United States affecting foreign trade, taxation
and investment;

. the possibility of being subject to the exclusive jurisdiction of foreign
courts in connection with legal disputes and the possible inability to
subject foreign persons to the jurisdiction of courts in the United
States; and

. difficulties in enforcing New Devon's rights against a governmental
agency because of the doctrine of sovereign immunity.

New Devon will have a higher debt level than Devon, which may result in a lower
debt rating and require a substantial portion of operating cash flow to pay
interest and principal

New Devon will have higher levels of debt and interest expense than Devon on
a stand-alone basis. The increase in total indebtedness and leverage of New
Devon after the merger may have a negative impact on New Devon's ability to
realize the expected benefits of the merger, including a possible downgrade in
the credit rating of New Devon from that currently maintained by Devon.
Standard & Poor's has announced that, because of the higher leverage of New
Devon, it may assign a debt rating to New Devon that is lower than Devon's
current senior debt rating of "BBB+". The increased debt level will also
require New Devon to use a substantial portion of its operating cash flow to
pay interest and principal on its debt instead of for other corporate purposes.

15
<PAGE>

New Devon plans to raise between $300 and $500 million in a public offering
of additional shares of New Devon common stock and intends to use the net
proceeds from the offering to fund capital expenditures and repay indebtedness.
There can be no assurances that the proposed public offering will be completed
and, consequently, there can be no assurance that the total indebtedness of New
Devon will be reduced from the proceeds of an offering.

16
<PAGE>

USE OF PROCEEDS

Devon will not receive any of the proceeds from the sale of Kerr-McGee's
exchangeable notes or from delivery of the Devon common stock by Kerr-McGee
under the exchangeable notes.

NEW DEVON AFTER THE MERGER OF DEVON AND PENNZENERGY

If Devon's merger with PennzEnergy is completed, we believe that New Devon
will rank solidly in the top ten of all United States-based independent oil and
gas producers in terms of market capitalization, total proved reserves and
annual production. We expect the merger to provide New Devon with the following
advantages:

Larger and More Diversified Asset Base. At the end of 1998, Devon and
PennzEnergy combined had aggregate proved reserves of approximately 660 million
barrels of oil equivalent. On an energy equivalent basis, about 52% of these
reserves were natural gas and 48% were oil and natural gas liquids.
Approximately 64% of the proved reserves, or 423 million equivalent barrels,
were located in the United States. These reserves were concentrated in four
primary operating areas: the Permian Basin, the Rocky Mountain Region, the Gulf
Coast/East Texas Region and the Offshore Gulf of Mexico. Approximately 22% of
the combined reserves, or 144 million equivalent barrels, were located in the
Western Canadian Sedimentary Basin. The balance of proved reserves,
approximately 94 million equivalent barrels, was located outside North America,
primarily in Azerbaijan. In addition to the proved oil and gas properties, the
combined companies had a substantial inventory of exploration acreage totaling
approximately 15 million net acres.

New Devon should also realize substantial oil and gas production. Assuming
the merger was effective as of January 1, 1999, New Devon's estimated 1999
production would be between 28 and 31 million barrels of oil and natural gas
liquids and between 275 and 300 billion cubic feet of natural gas.

Increased Financial Strength and Flexibility. New Devon's equity market
capitalization is expected to be approximately $2.9 billion as a result of the
merger (not including New Devon's planned common stock offering). As a result
of this size and market capitalization, New Devon should have greater access to
capital than either Devon or PennzEnergy currently has alone. In addition, we
believe that New Devon should have an enhanced ability to pursue acquisitions
and to participate in further consolidation among independent exploration and
production companies.

Cost Savings. New Devon is expecting $50 to $60 million in annual cost
savings from reduced operating and general and administrative expenses. New
Devon plans to consolidate the corporate headquarters and selected field
offices of Devon and PennzEnergy, eliminate duplicative staff and expenses,
achieve purchasing synergies and implement other cost saving measures.

Improved Capital Efficiencies. New Devon plans to pursue the best
exploration opportunities available to the combined company and to focus on
exploitation projects with the highest rates of return. In addition, due to its
greater financial strength, New Devon will be better able to pursue and
accelerate the development, exploitation and exploration of PennzEnergy's oil
and gas assets. As a result, New Devon believes it has the potential for
greater returns on capital than Devon or PennzEnergy could achieve alone.

Greater Human and Technological Resources. New Devon will have significant
expertise with regard to various oilfield technologies, including coal bed
methane, enhanced oil recovery, deep onshore natural gas drilling, shallow and
deep water offshore drilling and other exploration, production and processing
technologies. New Devon will also have significant international operations and
experience in Canada and outside North America. As a result, New Devon will
have an enhanced ability to acquire, explore for, develop and exploit oil and
natural gas reserves domestically both onshore and offshore, as well as
internationally.

17
<PAGE>

CAPITALIZATION

The following table compares our actual capitalization as of March 31, 1999,
to our pro forma capitalization including the PennzEnergy merger. In preparing
the pro forma information, we have assumed that the merger closed on March 31,
1999. New Devon plans to raise between $300 and $500 million in a public
offering of additional shares of New Devon common stock proposed to be made
soon after completion of the merger. The proceeds from the planned offering
would be used to fund capital expenditures and repay long-term debt. The
following table does not reflect any effects of the planned offering.

You should read the following table in conjunction with the historical
consolidated financial statements of Devon which are filed with the SEC and
incorporated by reference in this document and the unaudited pro forma
financial information included in this document.

<TABLE>
<CAPTION>
As of March 31, 1999
----------------------
New Devon
Actual Pro Forma
---------- ----------
(In Thousands)
<S> <C> <C>
Long-term debt:
Borrowings under credit facilities with banks........ $ 197,293 $ 323,148
Notes:
6.76% due July 19, 2005............................. 75,000 75,000
6.79% due March 2, 2009............................. 150,000 150,000
Debentures:
9.625% due November 15, 1999, principal amount of
$200 million....................................... -- 200,000
10.625% due June 1, 2001, principal amount of $150
million............................................ -- 150,000
10.25% due November 1, 2005, principal amount of
$250 million....................................... -- 287,725
10.125% due November 15, 2009, principal amount of
$200 million....................................... -- 236,920
Debentures exchangeable into shares of Chevron
Corporation common stock (see note 3 on page 25)
4.90% due August 15, 2008, principal amount of
$443.8 million..................................... -- 441,721
4.95% due August 15, 2008, principal amount of
$316.5 million..................................... -- 316,000
---------- ----------
Total long-term debt............................... 422,293 2,180,514
---------- ----------
Devon-obligated mandatorily redeemable trust
convertible preferred securities...................... 149,500 149,500
Stockholders' equity:
Preferred stock, $1.00 par value..................... -- 1,500
Common stock, $0.10 par value........................ 4,849 6,994
Additional paid-in capital........................... 798,640 1,670,306
Accumulated deficit.................................. (239,353) (646,712)
Accumulated other comprehensive loss................. (34,338) (34,338)
---------- ----------
Total stockholders' equity......................... 529,798 997,750
---------- ----------
Total capitalization.............................. $1,101,591 $3,327,764
========== ==========
Shares authorized:
Preferred stock...................................... 3,000 4,500
Common stock......................................... 400,000 400,000
Shares outstanding:
Preferred stock...................................... -- 1,500
Common stock......................................... 48,492 69,938
Common shares reserved for issuance of options under
Devon's stock option plans............................ 1,826 4,826
Employee stock options outstanding..................... 3,430 5,511
</TABLE>

The above New Devon pro forma capitalization includes six separate debentures
issued by PennzEnergy. The aggregate pro forma amount of the debentures is
$72.1 million higher than the aggregate principal amount. The excess amount is
the amount by which the debentures' estimated fair value at March 31, 1999
exceeded the principal amounts. Because the PennzEnergy merger will be
accounted for using the purchase method of accounting for business
combinations, New Devon will record these debentures at their fair values at
the date the merger is closed. The difference will be amortized over the
debentures' lives as adjustments to interest expense.

The pro forma increase in the number of common shares reserved for issuance
of stock options assumes the related proposal is approved by Devon's
stockholders at the special meeting to be held on August 17, 1999.

<PAGE>

MARKET PRICE DATA

Devon common stock is listed on the AMEX under the symbol "DVN." We
commenced the payment of regular quarterly cash dividends on our common stock
on June 30, 1993, in the amount of $0.03 per share. Effective December 31,
1996, we increased our quarterly dividend payment to $0.05 per share. We
anticipate that we will continue to pay regular quarterly dividends in the
foreseeable future. Dividends are also paid on the exchangeable shares at the
same rate and on the same dates as dividends paid on the common stock.

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

<TABLE>
<CAPTION>
High Low Volume
---- ---- --------------
(In Thousands)
<S> <C> <C> <C>
1996:
Quarter Ended March 31, 1996........ $25 3/4 $19 7/8 2,825
Quarter Ended June 30, 1996......... $26 1/8 $ 22 2,474
Quarter Ended September 30, 1996.... $27 1/2 $22 3/4 4,715
Quarter Ended December 31, 1996..... $35 1/2 $25 1/4 6,011
1997:
Quarter Ended March 31, 1997........ $38 7/8 $29 1/2 4,458
Quarter Ended June 30, 1997......... $38 1/2 $27 3/8 5,619
Quarter Ended September 30, 1997.... $45 1/4 $36 1/8 3,851
Quarter Ended December 31, 1997..... $49 1/8 $35 4,460
1998:
Quarter Ended March 31, 1998........ $41 1/8 $32 7/8 5,542
Quarter Ended June 30, 1998......... $40 1/2 $32 5/8 6,144
Quarter Ended September 30, 1998.... $36 5/8 $26 1/8 10,170
Quarter Ended December 31, 1998..... $ 36 $27 3/4 9,017
1999:
Quarter Ended March 31, 1999........ $31 3/4 $20 1/8 14,271
Quarter Ended June 30, 1999......... $37 7/16 $25 15/16 14,221
Quarter Ended September 30, 1999
(through July 14, 1999)............ $38 1/2 $36 1,511
</TABLE>

On July 14, 1999, the last full trading day prior to the date of this
prospectus, the last reported sales price on the American Stock Exchange of
shares of Devon common stock was $38 3/16.

19
<PAGE>

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma financial information has been prepared to
assist in the analysis of the financial effects of the proposed merger. This
pro forma information is based on the historical financial statements of Devon
and PennzEnergy.

The information was prepared based on the following:

. New Devon will utilize the full cost method of accounting for its oil and
gas activities.

. The merger will be accounted for as a purchase of PennzEnergy by New
Devon.

. The unaudited pro forma balance sheet has been prepared as if the merger
occurred on March 31, 1999. The unaudited pro forma statements of
operations have been prepared as if the merger occurred on January 1,
1998.

. Expected annual cost savings of $50 to $60 million have not been
reflected as an adjustment to the historical data. These cost savings are
expected to result from the consolidation of the corporate headquarters
of Devon and PennzEnergy and the elimination of duplicate staff and
expenses.

. In 1998, PennzEnergy realized pretax gains on the sale and exchange of
Chevron Corporation common stock of $230.1 million. The unaudited pro
forma statement of operations does not include the related $207.0 million
after-tax extraordinary loss resulting from the early extinguishment of
debt.

. In 1998, PennzEnergy incurred $24.3 million of nonrecurring general and
administrative expenses in connection with the spin-off of Pennzoil-
Quaker State Company on December 30, 1998.

. In 1998, Devon incurred $13.1 million of nonrecurring expenses related to
the merger with Northstar.

. In 1998, Devon reduced the carrying value of its oil and gas properties
by $126.9 million ($88.0 million after-tax) due to the full cost ceiling
limitation.

The unaudited pro forma financial statements and related notes are presented
for illustrative purposes only. If the proposed merger had occurred in the
past, New Devon's financial position or operating results might have been
different from those presented in the unaudited pro forma information. The
unaudited pro forma information should not be relied upon as an indication of
the financial position or operating results that New Devon would have achieved
if the merger had occurred as of March 31, 1999 or January 1, 1998. You also
should not rely on the unaudited pro forma information as an indication of the
future results that New Devon will achieve after the merger.

20
<PAGE>

Unaudited Pro Forma Balance Sheet

March 31, 1999
(In Thousands)

<TABLE>
<CAPTION>
PennzEnergy
Historical Pro Forma
Reclassified Adjustments New Devon
Devon (Note 5) (Note 2) Pro Forma
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Assets:
Current assets........... $ 101,067 $ 124,264 $ (10,300)(a) $ 225,331
10,300 (c)
Oil and gas properties,
net..................... 1,128,388 1,640,894 413,455 (a) 3,078,591
552,884 (c)
(657,030)(d)
Other properties, net.... 23,674 -- 5,000 (a) 28,674
Investment in common
stock of Chevron
Corporation (Note 3).... -- 629,453 -- 629,453
Other assets............. 14,376 36,537 79,156 (a) 130,069
---------- ---------- --------- ----------
Total assets........... $1,267,505 $2,431,148 $ 393,465 $4,092,118
========== ========== ========= ==========
Liabilities:
Current liabilities...... $ 95,152 $ 161,564 $ (5,374)(a) $ 251,342
Debentures exchangeable
into shares of Chevron
Corporation common stock
(Note 3)................ -- 739,810 17,911 (a) 757,721
Other long-term debt..... 422,293 852,353 76,602 (a) 1,422,793
71,545 (a)
Other long-term
liabilities............. 34,590 131,327 (2,590)(a) 163,327
Deferred income taxes.... 36,172 161,282 (161,282)(a) 349,685
563,184 (c)
(249,671)(d)
Company-obligated
mandatorily redeemable
convertible preferred
securities of subsidiary
trust holding solely
6.5% convertible junior
subordinated debentures
of Devon Energy
Corporation............. 149,500 -- 149,500

Stockholders' equity:
Preferred stock.......... -- 1,500 1,500
Common stock............. 4,849 43,507 2,145 (a) 6,994
(43,507)(b)
Additional paid-in
capital................. 798,640 356,351 709,166 (a) 1,670,306
14,000 (a)
148,500 (a)
(356,351)(b)
Accumulated deficit...... (239,353) (34,172) 34,172 (b) (646,712)
(407,359)(d)
Accumulated other
comprehensive earnings
(loss).................. (34,338) 247,223 (247,223)(b) (34,338)
Treasury stock........... -- (229,597) 229,597 (b) --
---------- ---------- --------- ----------
Total stockholders'
equity................ 529,798 384,812 83,140 997,750
---------- ---------- --------- ----------
Total liabilities and
stockholders' equity.. $1,267,505 $2,431,148 $ 393,465 $4,092,118
========== ========== ========= ==========
</TABLE>

21
<PAGE>

Unaudited Pro Forma Statement of Operations

Year Ended December 31, 1998

(In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
PennzEnergy
Historical Pro Forma
Reclassified Adjustments New Devon
Devon (Note 5) (Note 2) Pro Forma
-------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Oil sales.................. $143,624 $159,294 $ 302,918
Gas sales.................. 209,344 344,594 553,938
NGL sales.................. 16,692 47,011 63,703
Other...................... 17,848 286,468 (8,513)(h) 295,803
-------- -------- --------- ---------
Total revenues........... 387,508 837,367 (8,513) 1,216,362
-------- -------- --------- ---------
Costs and expenses:
Lease operating expenses... 113,484 181,255 294,739
Production taxes........... 13,916 14,232 28,148
Depreciation, depletion and
amortization.............. 123,844 208,009 112,797 (e) 444,650
General and administrative
expenses.................. 23,554 126,124 (10,300)(h) 139,378
Northstar combination
expenses.................. 13,149 -- 13,149
Interest expense........... 22,632 156,272 4,114 (f) 176,659
(6,359)(g)
Exploration expenses....... -- 139,970 (139,970)(h) --
Deferred effect of changes
in foreign currency
exchange rate on
subsidiary's long-term
debt...................... 16,104 -- 16,104
Distributions on preferred
securities of subsidiary
trust..................... 9,717 -- 9,717
Reduction of carrying value
of oil and gas
properties................ 126,900 74,739 (74,739)(h) 126,900
-------- -------- --------- ---------
Total costs and
expenses................ 463,300 900,601 (114,457) 1,249,444
-------- -------- --------- ---------
Earnings (loss) before income
tax expense (benefit)....... (75,792) (63,234) 105,944 (33,082)
Income tax expense (benefit):
Current.................... 7,687 2,637 -- 10,324
Deferred................... (23,194) (20,405) 40,259 (i) (3,340)
-------- -------- --------- ---------
Total income tax expense
(benefit)............... (15,507) (17,768) 40,259 6,984
-------- -------- --------- ---------
Net earnings (loss).......... (60,285) (45,466) 65,685 (40,066)
Preferred stock dividends.... -- 5,625 -- 5,625
-------- -------- --------- ---------
Net earnings (loss)
applicable to common
shareholders................ $(60,285) $(51,091) $ 65,685 $ (45,691)
======== ======== ========= =========
Net loss per average common
share outstanding--basic and
diluted..................... $ (1.25) $ (1.07) $ (0.66)
======== ======== =========
Weighted average common
shares outstanding--basic
(Note 4).................... 48,376 47,716 69,729
======== ======== =========
</TABLE>

22
<PAGE>

Unaudited Pro Forma Statement of Operations

Three Months Ended March 31, 1999

(In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
PennzEnergy
Historical Pro Forma
Reclassified Adjustments New Devon
Devon (Note 5) (Note 2) Pro Forma
------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Oil sales...................... $27,913 $ 37,001 $ 64,914
Gas sales...................... 53,551 69,428 122,979
NGL sales...................... 3,929 8,884 12,813
Other.......................... 1,873 11,163 (3,646)(h) 9,390
------- -------- ------- --------
Total revenues............... 87,266 126,476 (3,646) 210,096
------- -------- ------- --------
Costs and expenses:
Lease operating expenses....... 27,420 38,916 66,336
Production taxes............... 2,969 2,968 5,937
Depreciation, depletion and
amortization.................. 33,558 68,141 (3,947)(e) 97,752
General and administrative
expenses...................... 6,223 24,643 (2,575)(h) 28,291
Interest expense............... 6,664 30,560 1,028 (f) 36,545
(1,707)(g)
Exploration expenses........... -- 9,107 (9,107)(h) --
Deferred effect of changes in
foreign currency exchange rate
on subsidiary's long-term
debt.......................... (3,161) -- (3,161)
Distributions on preferred
securities of subsidiary
trust......................... 2,429 -- 2,429
------- -------- ------- --------
Total costs and expenses..... 76,102 174,335 (16,308) 234,129
------- -------- ------- --------
Earnings (loss) before income tax
expense (benefit)............... 11,164 (47,859) 12,662 (24,033)
Income tax expense (benefit):
Current........................ 1,903 11 -- 1,914
Deferred....................... 3,281 (19,125) 4,812 (i) (11,032)
------- -------- ------- --------
Total income tax expense
(benefit)................... 5,184 (19,114) 4,812 (9,118)
------- -------- ------- --------
Net earnings (loss).............. 5,980 (28,745) 7,850 (14,915)
Preferred stock dividends........ -- 2,434 -- 2,434
------- -------- ------- --------
Net earnings (loss) applicable to
common shareholders............. $ 5,980 $(31,179) $ 7,850 $(17,349)
======= ======== ======= ========
Net earnings (loss) per average
common share outstanding--basic
and diluted..................... $ 0.12 $ (0.65) $ (0.25)
======= ======== ========
Weighted average common shares
outstanding--basic (Note 4)..... 48,470 47,888 69,900
======= ======== ========
</TABLE>

23
<PAGE>

NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION

December 31, 1998 and March 31, 1999

1. Method of Accounting for the Merger

New Devon will account for the merger using the purchase method of
accounting for business combinations. Accordingly, PennzEnergy's assets
acquired and liabilities assumed by New Devon will be revalued and recorded at
their estimated "fair values." In the merger, New Devon will issue 0.4475
shares of New Devon common stock for each outstanding share of PennzEnergy
common stock. This will result in New Devon issuing approximately 21.4 million
shares of its common stock to PennzEnergy stockholders.

The purchase price of PennzEnergy's net assets acquired will be based on the
value of the New Devon common stock issued to the PennzEnergy stockholders. The
value of the New Devon common stock issued is based on the average trading
price of Devon's common stock for a period of three days before and after the
public announcement of the merger. This average trading price equaled $33.40
per share.

2. Pro Forma Adjustments Related to the Merger

The unaudited pro forma balance sheet includes the following adjustments:

(a) This entry adjusts the historical book values of PennzEnergy's assets
and liabilities to their estimated fair values as of March 31, 1999. The
calculation of the total purchase price and the preliminary allocation to
assets and liabilities are shown below.

<TABLE>
<CAPTION>
(In Thousands,
Except Share
Price)
--------------
<S> <C>
Calculation and preliminary allocation of purchase price:
Shares of New Devon common stock to be issued to
PennzEnergy stockholders................................. 21,446
Average Devon stock price................................. $ 33.40
----------
Fair value of common stock to be issued................... 716,296
Plus preferred stock to be assumed by New Devon........... 150,000
Plus estimated merger costs to be incurred................ 71,545
Plus fair value of PennzEnergy employee stock options to
be assumed by New Devon.................................. 14,000
Less estimated stock registration and issuance costs to be
incurred................................................. (4,985)
----------
Total purchase price........................................ 946,856
Plus fair value of liabilities to be assumed by New Devon:
Current liabilities....................................... 156,190
Debentures exchangeable into Chevron Corporation common
stock.................................................... 757,721
Other long-term debt...................................... 928,955
Other long-term liabilities............................... 128,737
----------
2,918,459
----------
Less fair value of non oil and gas assets to be acquired by
New Devon:
Current assets............................................ 113,964
Non oil and gas properties................................ 5,000
Investment in common stock of Chevron Corporation......... 629,453
Other assets.............................................. 115,693
----------
864,110
----------
Fair value allocated to oil and gas properties, including
$111 million of undeveloped leasehold...................... $2,054,349
==========
</TABLE>

24
<PAGE>

NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION--(Continued)

December 31, 1998 and March 31, 1999

The total purchase price includes the value of the New Devon common stock to
be issued, net of $5.0 million of estimated registration and issuance costs.
The purchase price also includes:

. $150 million of New Devon preferred stock to be issued in exchange for
the same amount of PennzEnergy preferred stock. The unaudited pro forma
balance sheet includes $1.5 million of PennzEnergy's historical aggregate
par value of the preferred stock, plus $148.5 million of additional paid-
in capital.

. $71.5 million of estimated merger costs. These costs include advisory
fees, severance and other merger-related costs. These costs are added to
long-term debt in the unaudited pro forma balance sheet.

. $14 million of New Devon employee stock options to be issued in exchange
for existing vested PennzEnergy employee stock options. The value of
these options is added to additional paid-in capital in the unaudited pro
forma balance sheet.

(b) This adjustment includes a $43.5 million reduction to par value, a
$356.4 million reduction of additional paid-in capital, a $34.2 million
reduction of accumulated deficit, a $247.2 million reduction of accumulated
other comprehensive earnings and a $229.6 million reduction of treasury
stock. These adjustments eliminate PennzEnergy's historical book values of
those accounts.

(c) This adjustment increases the value of PennzEnergy's oil and gas
properties acquired by $552.9 million, and increases current assets by
$10.3 million, both for related deferred income taxes. This adjustment
equals the deferred income tax effect of the difference between the fair
values assigned to PennzEnergy's assets and liabilities and their bases for
income tax purposes. Due to the tax-free nature of the merger, New Devon's
tax basis in those assets and liabilities will be the same as PennzEnergy's
tax basis.

(d) This adjustment reduces the value of proved oil and gas properties by
$657.0 million pursuant to the "ceiling test" required under the full cost
method of accounting. As of March 31, 1999, the pro forma carrying value of
New Devon's oil and gas properties, less deferred income taxes, would have
exceeded the pro forma full cost ceiling by approximately $407.4 million.
Accordingly, the unaudited pro forma balance sheet reflects a reduction of
$657.0 million to oil and gas properties, partially offset by a $249.6
million deferred income tax benefit, resulting in an after-tax charge of
$407.4 million taken against retained earnings.

This adjustment reflects the estimated full cost ceiling reduction that
would have been required had the merger occurred on March 31, 1999, based on a
posted West Texas Intermediate oil price of $15.25 per barrel and a Texas Gulf
Coast index gas price of $1.80 per Mcf. As of June 30, 1999, both West Texas
Intermediate oil and Texas Gulf Coast index gas prices had increased to $16.50
per barrel and $2.14 per Mcf, respectively. Using these prices, the pro forma
reduction of the carrying value of oil and gas properties would be reduced to
less than $200 million (less than $150 million after tax). The actual
reduction, if any, that will be recorded by New Devon will depend on the oil
and gas prices in effect at the end of the quarter in which the merger is
actually closed.

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

(e) This adjustment reflects the pro forma depreciation, depletion and
amortization expense using the full cost method of accounting based on the
allocation of the purchase price. This adjustment assumes an estimated
$657.0 million ($407.4 million after tax) reduction of the carrying value
of oil and gas properties under the full cost ceiling test, as of January
1, 1998. See pro forma adjustment (d) above for further information on this
estimated noncash charge. This pro forma reduction is directly related to
the merger and therefore is not reflected in the accompanying unaudited pro
forma statements of operations.

25
<PAGE>

NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION--(Continued)

December 31, 1998 and March 31, 1999

(f) This adjustment increases interest expense due to the $71.5 million of
merger costs assumed to be funded with borrowings from credit facilities.

(g) This adjustment reduces interest expense for the year 1998 and the
first quarter of 1999 by $6.4 million and $1.7 million, respectively. These
amounts represent the amortization of the pro forma premium recorded in
long-term debt as of January 1, 1998, as part of pro forma adjustment (a)
to record PennzEnergy's assets and liabilities at their estimated fair
values.

(h) This adjustment eliminates historical amounts recorded by PennzEnergy
under the successful efforts accounting method for gains on property sales,
general and administrative expenses, exploration expenses and asset
impairments to conform to the full cost method of accounting followed by
Devon. Under the full cost method, proceeds from the sale of oil and gas
properties are generally recorded as an adjustment of the carrying value of
the properties, with no gain or loss recognized. Also, general and
administrative expenses incurred for property acquisition, exploration and
development activities are capitalized under the full cost method. In
addition, exploration expenses, which include items such as dry hole costs
and lease expirations or impairment expenses, are capitalized under the
full cost method. The $74.7 million reduction of oil and gas properties
recorded by PennzEnergy in the year 1998 was calculated under the
successful efforts method and therefore has been eliminated in the pro
forma statement of operations for 1998.

(i) This adjustment records the net tax effect of all pro forma adjustments
at an effective income tax rate of 38%.

3. Investment in Chevron Common Stock and Related Exchangeable Debentures

As of March 31, 1999, and December 31, 1998, PennzEnergy beneficially owned
approximately 7.1 million shares of Chevron Corporation common stock. These
shares have been deposited with an exchange agent for possible exchange for
$761.2 million principal amount of exchangeable debentures of PennzEnergy. Each
$1,000 principal amount of the exchangeable debentures is exchangeable into
9.3283 shares of Chevron common stock, an exchange rate equivalent to $107 7/32
per share of Chevron common stock.

The exchangeable debentures consist of $443.8 million of 4.90% debentures
and $317.4 million of 4.95% debentures. The exchangeable debentures were issued
on August 3, 1998, and mature August 15, 2008. The exchangeable debentures are
callable beginning on August 15, 2000. The exchangeable debentures are
exchangeable at the option of the holders at any time prior to maturity for
shares of Chevron common stock. In lieu of delivering Chevron common stock,
PennzEnergy may, at its option, pay to any holder an amount in cash equal to
the market value of the Chevron common stock to satisfy the exchange request.

4. Common Shares Outstanding

Net earnings (loss) per average share outstanding have been calculated based
upon the pro forma weighted average number of shares outstanding as follows:

<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1998 1999
------------ ------------
(In Thousands)
<S> <C> <C>
Devon's weighted average common shares
outstanding.................................. 48,376 48,470
New Devon shares to be issued in exchange for
all outstanding shares of PennzEnergy ....... 21,353 21,430
------ ------
Pro forma weighted average New Devon shares
outstanding.................................. 69,729 69,900
====== ======
</TABLE>

26
<PAGE>

NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION--(Continued)

December 31, 1998 and March 31, 1999

Pro forma common shares outstanding at March 31, 1999, assuming the merger
occurred on that date, are as follows:

<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
Devon's common shares outstanding........................ 48,492
New Devon shares to be issued in exchange for all
outstanding shares of PennzEnergy ...................... 21,446
------
Pro forma New Devon common shares outstanding............ 69,938
======
</TABLE>

5. PennzEnergy Historical and Reclassified Balances

Devon and PennzEnergy record certain revenues and expenses differently in
their respective consolidated financial statements. To make the unaudited pro
forma financial information consistent, we have reclassified certain of
PennzEnergy's balances to conform to Devon's financial presentation. The
following tables present PennzEnergy's balances as presented in its historical
financial statements and the reclassified balances which are included in the
accompanying unaudited pro forma statements of operations.

Securities and Exchange Commission rules regarding pro forma presentation
require that the pro forma statements of operations disclose income or loss
from continuing operations. As shown in the tables below, PennzEnergy's
historical results for the year 1998 included a loss from discontinued
operations and extraordinary items that are not included in the reclassified
balances presented in the accompanying unaudited pro forma statement of
operations for 1998.

27
<PAGE>

NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION--(Continued)

December 31, 1998 and March 31, 1999

In addition to the reclassifications shown below for the unaudited pro forma
statements of operations, a reclassification has been made to PennzEnergy's
historical balance sheet for the accompanying unaudited pro forma balance sheet
as of March 31, 1999. PennzEnergy had $40.9 million classified as minority
interest in its March 31, 1999, historical consolidated balance sheet. To
conform to Devon's presentation, this amount is included as other long-term
liabilities in the accompanying unaudited pro forma balance sheet.

<TABLE>
<CAPTION>
Year Ended December 31, 1998 Three Months Ended March 31, 1999
------------------------------------------ ------------------------------------------
PennzEnergy PennzEnergy
PennzEnergy Historical PennzEnergy Historical
Historical Reclassifications Reclassified Historical Reclassifications Reclassified
----------- ----------------- ------------ ----------- ----------------- ------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales.............. $ 550,899 $(550,899) $ -- $115,313 $(115,313) $ --
Oil sales.............. -- 159,294 159,294 -- 37,001 37,001
Gas sales.............. -- 344,594 344,594 -- 69,428 69,428
NGL sales.............. -- 47,011 47,011 -- 8,884 8,884
Investment and other
income................ 286,468 -- 286,468 11,163 -- 11,163
--------- --------- -------- -------- --------- --------
Total revenues....... 837,367 -- 837,367 126,476 -- 126,476
--------- --------- -------- -------- --------- --------
Costs and expenses:
Lease operating
expenses.............. 217,194 (35,939) 181,255 46,643 (7,727) 38,916
Production taxes....... -- 14,232 14,232 -- 2,968 2,968
General and
administrative
expenses.............. 52,228 73,896 126,124 8,972 15,671 24,643
Depreciation,
depletion and
amortization.......... 208,009 -- 208,009 68,141 -- 68,141
Impairment of long-
lived assets.......... 74,739 -- 74,739 -- -- --
Exploration expenses... 161,615 (21,645) 139,970 13,118 (4,011) 9,107
Taxes, other than
income................ 30,544 (30,544) -- 6,901 (6,901) --
Interest charges,
net................... 156,272 -- 156,272 30,560 -- 30,560
--------- --------- -------- -------- --------- --------
Total costs and
expenses............ 900,601 -- 900,601 174,335 -- 174,335
--------- --------- -------- -------- --------- --------
Loss from continuing
operations before
income tax............. (63,234) -- (63,234) (47,859) -- (47,859)
Income tax benefit...... (17,768) -- (17,768) (19,114) -- (19,114)
--------- --------- -------- -------- --------- --------
Loss from continuing
operations............. $ (45,466) $ -- $(45,466) $(28,745) $ -- $(28,745)
========= ======== ========= ========
Loss from discontinued
operations............. (3,246) --
--------- --------
Loss before
extraordinary items.... (48,712) (28,745)
Extraordinary items..... (206,963) --
--------- --------
Net loss................ (255,675) (28,745)
Preferred stock
dividends.............. 5,625 2,434
--------- --------
Net loss available to
common shareholders.... $(261,300) $(31,179)
========= ========
</TABLE>

28
<PAGE>

PROPERTIES OF NEW DEVON AFTER THE MERGER

The following table shows the total proved reserves of New Devon on a pro
forma basis as of December 31, 1998:

<TABLE>
<CAPTION>
Proved Reserves as of December 31, 1998
------------------------------------------------------------
10%
10% Present Present
Primary Operating Areas Devon PennzEnergy New Devon MBoe% Value Value %
- ----------------------- --------- ----------- --------- ----- -------------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
North America--MBoe
Western Canadian
Sedimentary Basin..... 143,908 -- 143,908 22% $ 462,921 22%
Permian Basin.......... 53,375 61,351 114,726 17% 292,951 14%
Rocky Mountain
Region................ 78,973 23,677 102,650 16% 355,902 17%
Gulf Coast/East Texas
Region................ 1,800 86,927 88,727 13% 390,560 19%
Offshore Gulf of
Mexico................ -- 78,674 78,674 12% 339,995 16%
Other U.S.............. 21,295 16,477 37,772 6% 107,583 5%
--------- ------- --------- --- ---------- ---
Total--North America.... 299,351 267,106 566,457 86% 1,949,912 93%
--------- ------- --------- --- ---------- ---

International--MBoe
Azerbaijan............. -- 76,082 76,082 11% 135,867 7%
Other International.... -- 17,557 17,557 3% 1,887 0%
--------- ------- --------- --- ---------- ---
Total International..... -- 93,639 93,639 14% 137,754 7%
--------- ------- --------- --- ---------- ---
Total North America and
International.......... 299,351 360,745 660,096 100% $2,087,666 100%
========= ======= ========= === ========== ===
Oil--MBbls
U.S.................... 44,451 95,969 140,420 21%
Western Canadian
Sedimentary Basin..... 39,006 -- 39,006 6%
Azerbaijan............. -- 76,082 76,082 11%
Other International.... -- 17,180 17,180 3%
--------- ------- --------- ---
Total................ 83,457 189,231 272,688 41%
========= ======= ========= ===
Gas--MMcf
U.S.................... 596,987 849,368 1,446,355 37%
Western Canadian
Sedimentary Basin..... 601,907 -- 601,907 15%
Other International.... -- 2,266 2,266 0%
--------- ------- --------- ---
Total................ 1,198,894 851,634 2,050,528 52%
========= ======= ========= ===
NGLs--MBbls
U.S.................... 11,494 29,575 41,069 6%
Western Canadian
Sedimentary Basin..... 4,585 -- 4,585 1%
--------- ------- --------- ---
Total................ 16,079 29,575 45,654 7%
========= ======= ========= ===
Total--MBoe............. 299,351 360,745 660,096 100%
========= ======= ========= ===
</TABLE>

Primary Operating Areas--North America

New Devon's North American property base will be concentrated in five
primary operating areas: the Western Canadian Sedimentary Basin, which
encompasses portions of British Columbia, Alberta, Saskatchewan and Manitoba;
the Permian Basin of southeastern New Mexico and west Texas; the Rocky Mountain
Region, which spans from northeast Wyoming to northwest New Mexico; the
offshore Gulf of Mexico; and the Gulf Coast/East Texas Region in portions of
Texas and Louisiana.

Western Canadian Sedimentary Basin

New Devon's single largest reserve position will be in the Western Canadian
Sedimentary Basin with proved reserves of 143.9 million barrels of oil
equivalent, or 22% of the total company on a pro forma basis as of December 31,
1998. This basin is a large geologic feature encompassing portions of British
Columbia, Alberta, Saskatchewan and Manitoba. This basin feature forms of
wedge-shaped depression that tapers from a maximum thickness of 17,000 feet on
the western and southern margins to a zero edge along the northeast.

29
<PAGE>

New Devon's properties in this basin will range from shallow oil and natural
gas production in Northern Alberta to deep, long-lived gas reservoirs in the
Foothills area near the Alberta/British Columbia border. In addition,
approximately 2.2 million net acres of undeveloped leasehold in the Western
Canadian Sedimentary Basin should continue to provide New Devon with numerous
exploration and development opportunities.

Permian Basin

This region encompasses approximately 66,000 square miles in southeastern
New Mexico and West Texas and contains more than 500 major oil and gas fields.
Since 1987, several significant acquisitions of properties by Devon in the
Permian Basin have established prospective acreage in areas in which leasehold
positions could not otherwise be obtained. The Permian Basin will represent one
of New Devon's largest reserve positions with total reserves of 114.7 million
barrels of oil equivalent, or 17% of the total company on a pro forma basis as
of December 31, 1998. In addition, several hundred thousand acres of
undeveloped leasehold should continue to provide New Devon with numerous
exploration and development opportunities in the Permian Basin.

Rocky Mountain Region

The Rocky Mountain Region includes oil and gas producing basins that are
grouped together because of their geographic location rather than their
geological characteristics. The region generally encompasses all or portions of
the states of Colorado, Montana, New Mexico, North Dakota, Utah and Wyoming.
New Devon's properties will be primarily located in the San Juan Basin in
northwest New Mexico, the Raton Basin in northeast New Mexico and southeast
Colorado, and the Big Horn and Powder River basins in northeast Wyoming. The
Rocky Mountain Region will represent one of New Devon's largest reserve areas
with 102.7 million barrels of oil equivalent, or 16% of the total company on a
pro forma basis as of December 31, 1998. New Devon will also have over one
million acres of net undeveloped leasehold in the Rocky Mountain Region.

New Devon's single largest natural gas reserve position in the Rocky
Mountain Region will relate to its interests in two federal units in the San
Juan Basin. The San Juan Basin is a densely drilled area covering 3,700 square
miles. It has been historically 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 could be considered the largest gas
producing basin in the United States.

New Devon's coal seam expertise will also play an important role in both the
Powder River and Raton basins. These basins, which are less developed than the
San Juan Basin, have become two of the more active domestic onshore exploration
areas in the United States. During the next five years, New Devon plans to
drill several thousand coalbed methane wells in the Powder River and Raton
Basins which could, in aggregate, add proved natural gas reserves in excess of
two trillion cubic feet. Peak production for the Powder River Basin is
anticipated for 2003, while peak production in the Raton Basin is estimated for
2004 to 2006. Additionally, New Devon anticipates initial operation of a 126-
mile gas gathering system servicing the Powder River Basin in the fourth
quarter of 1999. When it is fully developed in 2001, this system will have an
estimated capacity of 450 million cubic feet of gas per day and will have
access to multiple interstate pipelines.

Gulf Coast/East Texas Region

New Devon's interest in the Gulf Coast/East Texas Region consists of over
465,000 net acres in portions of the states of Texas and Louisiana and includes
both oil and gas producing zones. On a pro forma basis as of December 31, 1998,
New Devon's Gulf Coast/East Texas reserves were 88.7 million barrels of oil
equivalent, or 13% of the total company. In south Texas, where exploration by
the oil and gas industry is accelerating, 3-D seismic data covers New Devon's
major acreage positions underlain by Charco Lobo, the Middle Wilcox and the
Frio-Vicksburg formations.

30
<PAGE>

Offshore Gulf of Mexico

New Devon will be one of the ten largest producers on the shelf in the
Offshore Gulf of Mexico with operations on 75 blocks. On a pro forma basis as
of December 31, 1998, proved reserves in the Gulf totaled 78.7 million barrels
of oil equivalent, or 12% of the total company. New Devon will operate more
than 40 fields and 80 platforms on the central and western shelf. New Devon
also will hold interests in another 98 exploratory blocks, 39 of which are
deepwater. Of the 39 deepwater blocks, two blocks are in production and two
blocks are undergoing development. New Devon will conduct both shallow and
deepwater exploration and development drilling in the Gulf of Mexico.

Primary Operating Areas--International

New Devon's property base outside North America will include approximately
94 million barrels of oil equivalent reserves or 14% of the total company on a
pro forma basis as of December 31, 1998. New Devon will also have 10.5 million
net undeveloped acres outside of North America. While New Devon's international
operations will be focused primarily in Azerbaijan, New Devon will also have
interests in Venezuela, Brazil, Egypt, Qatar and Australia.

Azerbaijan

Most of New Devon's proved reserves that lie outside North America will be
in Azerbaijan. On a pro forma basis as of December 31, 1998, proved reserves in
Azerbaijan totaled 76.1 million barrels of oil equivalent, or 11% of the total
company. New Devon's properties in Azerbaijan will be located in the Caspian
Basin, which is considered home to some of the world's last known major
undeveloped hydrocarbon reserves. New Devon will hold a 4.8% carried interest
in the Azeri-Chirag-Gunashli joint development area, which is estimated to
contain five billion barrels of crude oil. Peak production for Azerbaijan is
estimated sometime between 2005 and 2008.

Developed and Undeveloped Acreage

The following table sets forth New Devon's developed and undeveloped oil and
gas lease and mineral acreage on a pro forma basis as of December 31, 1998.
Gross acres are the total number of acres in which New Devon will own a working
interest. Net refers to gross acres multiplied by New Devon's fractional
working interests therein.

<TABLE>
<CAPTION>
Developed Undeveloped
----------- -------------
Gross Net Gross Net
----- ----- ------ ------
(In Thousands of Acres)
<S> <C> <C> <C> <C>
United States--Onshore......................... 2,815 1,583 3,049 1,789
United States--Offshore........................ 328 204 532 384
Canada......................................... 1,120 584 2,995 2,175
Australia...................................... -- -- 679 271
Azerbaijan..................................... 10 -- 202 39
Egypt.......................................... -- -- 9,111 8,842
Qatar.......................................... -- -- 519 389
Venezuela...................................... 23 12 1,434 1,004
----- ----- ------ ------
Total........................................ 4,296 2,383 18,521 14,893
===== ===== ====== ======
</TABLE>

31
<PAGE>

DIRECTORS AND EXECUTIVE OFFICERS OF NEW DEVON AFTER THE MERGER

Directors

The New Devon certificate of incorporation classifies the New Devon board
into three classes having staggered terms of three years each. The number of
directors will be fixed from time to time by resolution of the New Devon board.
The New Devon board is currently set at four members. Upon completion of the
merger, we expect the New Devon board will be set at fourteen members,
initially consisting of the following:

<TABLE>
<CAPTION>
Current Board Expiration of
Name Age Membership First Term
---- --- ------------- -------------
<S> <C> <C> <C>
Thomas F. Ferguson(1)..................... 63 Devon 2001
David M. Gavrin(2)........................ 64 Devon 2001
Michael E. Gellert(3)..................... 68 Devon 2002
John A. Hagg.............................. 51 Devon 2000
Henry R. Hamman........................... 61 PennzEnergy 2000
William J. Johnson(4)..................... 62 -- 2002
Michael M. Kanovsky....................... 50 Devon 2002
Robert A. Mosbacher, Jr................... 48 PennzEnergy 2002
J. Larry Nichols.......................... 57 Devon 2000
James L. Pate(5).......................... 63 PennzEnergy 2002
H.R. Sanders, Jr.......................... 67 Devon 2002
Terry L. Savage........................... 54 PennzEnergy 2001
Brent Scowcroft........................... 74 PennzEnergy 2001
Robert B. Weaver.......................... 60 PennzEnergy 2000
</TABLE>
- --------
(1) Chairman of the Audit Committee. The Audit Committee will also consist of
one additional former Devon board member and one former PennzEnergy board
member.
(2) Chairman of the Compensation and Stock Option Committee. The Compensation
and Stock Option Committee will also consist of one additional former
Devon board member and two former PennzEnergy board members.
(3) Chairman of the Nominating Committee. The Nominating Committee will also
consist of one additional former Devon board member and two former
PennzEnergy board members.
(4) Designated by PennzEnergy and mutually approved by PennzEnergy's chairman
of the board and Devon's president. Mr. Johnson is a private consultant
for the oil and gas industry and is President and a director of JonLoc
Inc., an oil and gas company of which he and his family are the sole
shareholders. He also serves as a director of Tesoro Petroleum and J. Ray
McDermott, S.A. From 1991 to 1994, Mr. Johnson was President, Chief
Operating Officer and a director of Apache Corporation.
(5) Chairman of the Board and Chairman of the Executive Committee. The
Executive Committee will consist of Mr. Pate and Mr. Nichols.

The New Devon certificate provides that until New Devon's annual stockholder
meeting in 2000, (1) the initial directors of New Devon designated by Devon and
their designated successors will nominate successors to and fill any vacancies
in that Devon group of directors and (2) the initial directors of New Devon
designated by PennzEnergy and their designated successors will nominate
successors to and fill any vacancies in that PennzEnergy group of directors.
One member of the PennzEnergy group of directors must be a person mutually
agreed to by New Devon's chairman and president. The New Devon certificate
provides that at and after the annual stockholder meeting in 2000, a majority
of the whole board, will nominate successors and fill vacancies.

32
<PAGE>

Executive Officers

The New Devon board will elect executive officers of New Devon annually to
serve in their respective capacities until their successors are duly elected
and qualified or until their earlier resignation or removal. The following will
initially serve as executive officers of New Devon:

<TABLE>
<CAPTION>
Current
Company
Name Age Position in New Devon Affiliation
---- --- ------------------------------------- -----------
<S> <C> <C> <C>
J. Larry Nichols... 57 President and Chief Executive Officer Devon
J. Michael Lacey... 53 Vice President--Operations and
Exploration Devon
Duke R. Ligon...... 58 Vice President--General Counsel Devon
Darryl G. Smette... 52 Vice President--Marketing and
Administrative Planning Devon
H. Allen Turner.... 46 Vice President--Corporate
Development Devon
William T. Vaughn.. 52 Vice President--Finance Devon
Danny J. Heatly.... 43 Controller Devon
Gary L. McGee...... 50 Treasurer Devon
Marian J. Moon..... 49 Secretary Devon
</TABLE>

33
<PAGE>

SELLING STOCKHOLDER

This prospectus relates to 8,655,652 shares of Devon common stock plus up to
an additional 1,298,348 shares solely to cover over-allotments, which may be
delivered by Kerr-McGee, at its option, pursuant to the terms of the
exchangeable notes that are being offered by Kerr-McGee pursuant to the Kerr-
McGee prospectus and prospectus supplement. These shares of Devon common stock
are owned by Kerr-McGee. Assuming Kerr-McGee does not exercise its option to
redeem any portion of the exchangeable notes with cash and delivers all
9,954,000 shares of Devon common stock pursuant to the terms of the
exchangeable notes, Kerr-McGee will thereafter own no shares of Devon common
stock.

PLAN OF DISTRIBUTION

Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, Kerr-McGee has agreed to sell to the underwriters for
this offering, and the underwriters have severally agreed to purchase, the
number of DECS set forth opposite the name of such underwriters below:

<TABLE>
<CAPTION>
Number of
Underwriter DECS
----------- ----------
<S> <C>
Salomon Smith Barney Inc. ........................................
Credit Suisse First Boston Corporation............................
ABN AMRO Incorporated.............................................
Lehman Brothers Inc. .............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................
----------
Total...........................................................
==========
</TABLE>

The underwriters, for whom Salomon Smith Barney Inc., Credit Suisse First
Boston Corporation, ABN AMRO Incorporated, Lehman Brothers Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated are acting as representatives, have
advised us that they propose to offer some of the DECS directly to the public
initially at the public offering price set forth on the cover page of DECS
prospectus supplement and some of the DECS to certain securities dealers at a
discount from the public offering price of up to $ per DECS. Any such
securities dealers may resell any DECS purchased from the underwriters to other
brokers or dealers at a discount from the public offering price of up to $
per DECS. If all of the DECS are not sold at the initial offering price, the
underwriters may change the offering price and other selling terms.

We have agreed not to offer, sell, contract to sell, or otherwise dispose of
(or enter into any transaction which is designed to, or might reasonably be
expected to, result in the disposition (whether by actual disposition or
effective economic disposition due to cash settlement or otherwise) by us or
any of our affiliates or any person in privity with us or any of our
affiliates) directly or indirectly, including the filing (or participation in
the filing) of a registration statement with the Securities and Exchange
Commission in respect of, or establish or increase a put equivalent position or
liquidate or decrease a call equivalent position within the meaning of Section
16 of the Exchange Act, any shares of common stock or any securities
convertible into, or exchangeable for, or warrants to acquire shares of common
stock (other than the shares sold in connection with the offering of the DECS)
or announce an intention to effect any such transaction, on or prior to the
lockup termination date (as described below) without the prior written consent
of Salomon Smith Barney Inc., which consent will not be unreasonably withheld;
provided, however, that

. we may publicly announce and discuss our intention to offer up to $500
million of shares of Devon stock or securities convertible into, or
exchangeable for, or warrants to acquire shares of such stock and
register and offer such securities;

. we may issue shares of Devon common stock to (1) shareholders of
PennzEnergy in the merger and (2) shareholders of Devon in the proposed
merger of Devon Oklahoma Corporation, an Oklahoma corporation, with Devon
in connection with the merger;

34
<PAGE>

. we or any of our affiliates may offer shares of capital stock, or any
securities convertible into, or exchangeable for, or warrants to acquire
shares of such capital stock, to any owner of any business or assets
acquired or proposed to be acquired by us or any of our affiliates as
consideration for any such acquisition or proposed acquisition. However,
the securities issued for non-cash consideration will not exceed $250
million and, together with any securities issued for cash, will not
exceed $500 million prior to the lockup termination date;

. we may issue shares of common stock in connection with any exchange of
Northstar exchangeable shares; and

. Devon, PennzEnergy or any of their respective affiliates may issue shares
of capital stock pursuant to (1) any stock option plan, equity-incentive
plan, stock purchase plan or dividend reinvestment plan existing as of
July 14, 1999, or as contemplated by the merger agreement with
PennzEnergy, or (2) any security convertible into or exercisable or
exchangeable for any such capital stock outstanding as of July 14, 1999.

The "lockup termination date" shall be the earlier of (1) the 45th day after
the date of the underwriting agreement or (2) if the registration statement
filed with respect to the Devon common stock offered by this prospectus is
declared effective by the Securities and Exchange Commission on or prior to
August 2, 1999, September 6, 1999, or (3) if, at Kerr-McGee's request, we do
not (a) file such registration statement with the Securities and Exchange
Commission on or prior to July 16, 1999, or (b) on or prior to July 22, 1999,
request the Securities and Exchange Commission to declare effective such
registration statement, on September 6, 1999.

Kerr-McGee has agreed not to offer, sell, contract to sell, or otherwise
dispose of (or enter into any transaction which is designed to, or might
reasonably be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise) by us or our affiliates or any person in privity with us or any of
our affiliates) directly or indirectly, including the filing (or participation
in the filing) of a registration statement with the Securities and Exchange
Commission in respect of, any debt securities issued or guaranteed by us or
publicly announce an intention to effect any such transaction, for a period of
7 days after the date of the underwriting agreement without the prior written
consent of Salomon Smith Barney Inc. If the underwriters give any such consent,
it would not necessarily be preceded or followed by a public announcement of
consent.

Kerr-McGee has granted to the underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to an additional
1,298,348 DECS from Kerr-McGee, at the same price per DECS as the initial DECS
purchased by the underwriters. The underwriters may exercise such option only
for the purpose of covering over-allotments, if any, in connection with the
DECS offering. If this option is exercised, each underwriter will be obligated,
subject to certain conditions, to purchase a number of additional DECS
approximately proportionate to such underwriter's initial purchase commitment.

The DECS will be a new issue of securities with no established trading
market. Application has been made to list the DECS on the New York Stock
Exchange and the underwriters intend to make a market in the DECS, subject to
applicable laws and regulations. However, the underwriters are not obligated to
do so and may discontinue any market-making at any time in their sole
discretion without notice. Accordingly, the underwriters cannot assure the
liquidity of the market for DECS.

In connection with this offering of DECS and Devon common stock, Salomon
Smith Barney Inc. on behalf of the underwriters may purchase and sell DECS and
Devon common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
amount of DECS than they are required to purchase from us, and in such case the
underwriters may purchase DECS in the open market following completion of the
offering to cover all or a portion of their short position. The underwriters
may also cover all or a portion of such short position in the DECS, up to
1,298,348 DECS, by exercising the underwriters' over-allotment option referred
to above. Stabilizing transactions consist of certain bids or purchases made
for the

35
<PAGE>

practice of preventing or retarding a decline in the market price of the DECS
or the Devon common stock while this offering is in progress. In addition, the
underwriters may impose penalty bids. This occurs when a particular underwriter
repays to the underwriters a portion of the underwriting discount received by
it because the underwriters have repurchased DECS sold by or for the account of
that underwriter in stabilizing or short-covering transactions. Any of the
activities by the underwriters described in this paragraph may stabilize,
maintain or otherwise affect the market price of the DECS or the Devon common
stock. As a result, the price of the DECS or the Devon common stock may be
higher than the price that otherwise might exist in the open market. The
underwriters may effect these transactions on the American Stock Exchange, in
the over-the-counter market or otherwise. If these activities are commenced,
they may be discontinued by the underwriters at any time.

At Kerr-McGee's option, when the DECS mature, Kerr-McGee may deliver shares
of Devon common stock pursuant to the terms of the DECS. For a description of
the terms of such exchange, see this prospectus and prospectus supplement of
Kerr-McGee to which this prospectus is attached.

The underwriting agreement provides that we and Kerr-McGee will indemnify
the underwriters against certain liabilities, including liabilities under the
Securities Act, or contribute to payments the underwriters may be required to
make in respect of such liabilities.

In the ordinary course of their respective businesses, certain of the
underwriters and their affiliates may have engaged in and may in the future
engage in commercial and investment banking transactions with us, Kerr-McGee
and our respective affiliates, for which the underwriters and their affiliates
have receive or may receive customary compensation.

LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed
upon for us by McAfee & Taft A Professional Corporation. Certain legal matters
will be passed upon for the underwriters by Cleary, Gottleib, Steen & Hamilton.

EXPERTS

The consolidated financial statements of Devon as of and for each of the
years ended December 31, 1998, 1997 and 1996 have been incorporated by
reference herein in reliance upon the reports of KPMG LLP, independent
certified public accountants, and Deloitte & Touche LLP and
PricewaterhouseCoopers LLP, chartered accountants, incorporated by reference in
this document, and upon the authority of said firms as experts in accounting
and auditing.

The consolidated financial statements of PennzEnergy and its subsidiaries
incorporated by reference in this registration statement/prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and is incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.

Certain information with respect to our oil and gas reserves derived from
the reports of LaRoche Petroleum Consultants, Ltd., AMH Group Ltd., Paddock
Lindstrom & Associates Ltd. and John P. Hunter & Associates, Ltd., independent
consulting petroleum engineers, has been included and incorporated by reference
herein upon the authority of said firms as experts with respect to matters
covered by such reports and in giving such reports.

Certain information with respect to PennzEnergy's oil and gas reserves
derived from the report of Ryder Scott Company, L.P., independent consulting
petroleum engineers, has been included and incorporated by reference herein
upon the authority of said firm as experts with respect to matters covered by
such report and in giving such report.

36
<PAGE>

WHERE YOU CAN FIND MORE INFORMATION

Devon files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements
or other information we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-
SEC-0330 for further information on the public reference rooms. Our SEC filings
are also available to the public from commercial document retrieval services
and at the web site maintained by the SEC at "http://www.sec.gov".

We filed with the SEC a registration statement on Form S-3 with respect to
the common stock offered by this prospectus. This prospectus is a part of that
registration statement. As allowed by SEC rules, this prospectus does not
contain all the information you can find in the registration statement or the
exhibits to the registration statement.

The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this prospectus,
except for any information superseded by information in, or incorporated by
reference in, this prospectus. This prospectus incorporates by reference the
documents set forth below that we or PennzEnergy have previously filed with the
SEC. These documents contain important information about our companies and
their finances.

<TABLE>
<CAPTION>
Devon SEC Filings
(File No. 001-10067) Period
------------------------------------ -----------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Report on Form 10-Q Quarter ended March 31, 1999
Current Report on Form 8-K/A Filed on February 2, 1999
Current Report on Form 8-K Filed on February 8, 1999
Current Report on Form 8-K Filed on February 22, 1999
Proxy Statement on Schedule 14A Filed on April 9, 1999
Current Report on Form 8-K Filed on April 28, 1999
Current Report on Form 8-K Filed on May 21, 1999
Current Report on Form 8-K Filed on June 1, 1999
Proxy Statement on Schedule 14A Filed on July 16, 1999
<CAPTION>
PennzEnergy SEC Filings
(File No. 001-05591) Period
------------------------------------ -----------------------------------
<S> <C>
Part II, Item 8. "Financial
Statements and Supplementary Data"
of the Annual Report on Form 10-K Fiscal year ended December 31, 1998
Part I, Item 1. "Financial
Statements" of the Quarterly Report
on Form 10-Q Quarter ended March 31, 1999
Proxy Statement on Schedule 14A Filed on March 25, 1999
</TABLE>

We are also incorporating by reference additional documents that we file
with the SEC between the date of this prospectus and the termination of the
offering.

Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this prospectus. You may obtain documents incorporated by reference
in this prospectus by requesting them in writing, by e-mail or by telephone
from us at the following address:

Devon Energy Corporation
20 North Broadway, Suite 1500
Oklahoma City, Oklahoma 73102-8260
Attention: Corporate Secretary
Tel: (405) 235-3611
[email protected]

37
<PAGE>

You can also get more information by visiting Devon's web site at
"http://www.devonenergy.com". Web site materials are not part of this
prospectus.

CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS

Devon has made forward-looking statements in this document and in the
documents referred to in this document which are subject to risks and
uncertainties. These statements are based on the beliefs and assumptions of our
management and on the information currently available to it.

Statements and calculations concerning oil and gas reserves and their
present value also may be deemed to be forward-looking statements in that they
reflect the determination, based on estimates and assumptions, that oil and gas
reserves may be profitably exploited in the future. When used or referred to in
this document, these forward-looking statements may be preceded by, followed
by, or otherwise include the words "believes," "expects," "anticipates,"
"intends," "plans," "estimates," "projects" or similar expressions, or
statements that certain events or conditions "will" or "may" occur.

Except for our ongoing obligations to disclose material information as
required by the federal securities laws, we do not have any intention or
obligation to update forward-looking statements after we distribute this
document.

38
<PAGE>

COMMONLY USED OIL AND GAS TERMS

"Bbl" means barrel.

"Bbl/d" means Bbl per day.

"Bcf" means billion cubic feet.

"Boe" means equivalent barrels of oil, calculated by converting gas to
equivalent Bbls. The U.S. convention for this conversion is six Mcf equals one
Boe.

"Boe/d" means Boe per day.

"Cash margin" means total revenues less cash expenses. Cash expenses are all
expenses other than the non-cash expenses of depreciation, depletion and
amortization, deferred effect of changes in foreign currency exchange rate on
subsidiary's long-term debt, reduction of carrying value of oil and gas
properties and deferred income tax expense.

"MBbls" means thousand barrels.

"MBoe" means thousand Boe.

"Mcf" means thousand cubic feet.

"Mcfe" means thousand equivalent cubic feet of gas, calculated by converting
oil and NGLs to equivalent Mcf. The U.S. convention for this conversion is one-
sixth Bbl equals one Mcfe.

"MMBbls" means million barrels.

"MMBoe" means million Boe.

"MMBtu" means million British thermal units, a measure of heating value.

"MMcf" means million cubic feet.

"MMcf/d" means MMcf per day.

"Modified EBITDA" means earnings before interest (including deferred effect
of changes in foreign currency exchange rate on subsidiary's long-term debt,
and distributions on preferred securities of subsidiary trust), taxes,
depreciation, depletion and amortization and reduction of carrying value of oil
and gas properties.

"NGL" means natural gas liquids.

"Oil" includes crude oil and condensate.

"SEC 10% present value" is the pre-tax present value of future net cash
flows from proved reserves, discounted at 10% per year. Oil, gas and NGL prices
used to calculate future revenues are based on year-end prices held constant,
except where fixed and determinable price changes are provided by contractual
arrangements. Future development and production costs are also based on year-
end costs and assume the continuation of existing economic conditions.

"Standardized measure of discounted future net cash flows" is the SEC 10%
present value defined above, less applicable income taxes.

"Tcf" means trillion cubic feet.

39
<PAGE>

[LOGO OF DEVON ENERGY APPEARS HERE]

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following is a statement of estimated expenses incurred by Devon in
connection with the shares of common stock being registered hereby. Devon will
pay for the fees and expenses of the offering of the shares of common stock
offered hereby.

<TABLE>
<S> <C>
SEC Registration Fee................................................. $101,609*
Legal Fees and Expenses.............................................. 125,000
Printing and Engraving Expenses...................................... 90,000*
Accounting Fees and Expenses......................................... 15,000
Transfer Agent and Registrar Fees and Expenses....................... --
Blue Sky Fees and Expenses (including legal fees).................... --*
Miscellaneous........................................................ 10,000
--------
Total.............................................................. $341,609
========
</TABLE>
- --------
* Under the terms of the Registration Rights Agreement between Devon and Kerr-
McGee dated as of December 31, 1996, Kerr-McGee is responsible for the
payment of these items.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Oklahoma General Corporation Act (the "OGCA"), under which Devon is
incorporated, permits indemnification against expenses, including attorneys'
fees, actually and reasonably incurred by a director, officer or agent of a
corporation in connection with the defense of any action, suit or proceeding in
which such a person is a party by reason of such person being or having been a
director, employee or agent of the corporation, or of any corporation,
partnership, joint venture, trust or other enterprise in which he served as
such at the request of the corporation, provided that he acted in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful, and
provided further (if the threatened, pending or completed action or suit is by
or in the right of the corporation) that he shall not have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation (unless the court determines that indemnity would nevertheless be
proper under the circumstances). Article Ninth of Registrant's Certificate of
Incorporation, 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 OGCA. 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 OGCA, (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. Article Thirteenth of Devon's Certificate of
Incorporation, also provides for indemnification of Devon's directors and
officers. Such Article also permits Devon to purchase and maintain insurance on
behalf of Devon's directors and officers against any liability arising out of
their status as such, whether or not Registrant would have the power to
indemnify such directors and officers against such liability. These provisions
may be sufficiently broad to indemnify such persons for liabilities arising
under the Securities Act of 1933.

II-1
<PAGE>

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<C> <S>
1.1 Form of Underwriting Agreement.*
2.1 Amended and Restated Agreement and Plan of Merger among
Registrant, Devon Delaware Corporation, Devon Oklahoma Corporation
and PennzEnergy Company dated as of May 19, 1999 (incorporated by
reference to Exhibit 2 to Registrant's Form S-4 filed on July 15,
1999).
3.1 Registrant's Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3 to Registrant's Form 8-K
dated as of December 11, 1998).
3.2 Registrant's By-laws (incorporated by reference to Exhibit 3.2 to
Registrant's Registration Statement on Form 8-B filed on June 7,
1995).
5.1 Opinion of McAfee & Taft A Professional Corporation
23.1 Consent of KPMG LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Arthur Andersen LLP
23.5 Consent of LaRoche Petroleum Consultants, Ltd.
23.6 Consent of AMH Group Ltd.
23.7 Consent of Paddock Lindstrom & Associates Ltd.
23.8 Consent of John P. Hunter & Associates, Ltd.
23.9 Consent of Ryder Scott Company, L.P.
23.10 Consent of McAfee & Taft A Professional Corporation (contained in
its opinion in Exhibit 5.1)
24.1 Power of Attorney.
</TABLE>
- --------
* To be filed by amendment.

ITEM 17. UNDERTAKINGS

(a) The undersigned registrant hereby undertakes

(1) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in this Registration
Statement shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;

(2) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the undersigned registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective;

(3) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offer of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by any such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether or not such indemnification is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

II-2
<PAGE>

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oklahoma City, State of
Oklahoma, on the 15th day of July, 1999.

DEVON ENERGY CORPORATION

/s/ J. Larry Nichols
By: __________________________________
J. Larry Nichols
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on July 15, 1999.

<TABLE>
<S> <C> <C>
</TABLE>
Signature Title

/s/ John W. Nichols Chairman of the Board
- ---------------------------------- and Director
John W. Nichols

/s/ J. Larry Nichols President,
- ---------------------------------- Chief Executive
J. Larry Nichols Officer and Director

/s/ William T. Vaughn Vice President Finance
- ----------------------------------
William T. Vaughn

/s/ Danny J. Heatly Controller
- ----------------------------------
Danny J. Heatly

/s/ Thomas F. Ferguson Director
- ----------------------------------
Thomas F. Ferguson

/s/ John A. Hagg Director
- ----------------------------------
John A. Hagg

/s/ David M. Gavrin Director
- ----------------------------------
David M. Gavrin

/s/ Michael M. Kanovsky Director
- ----------------------------------
Michael M. Kanovsky

/s/ Michael E. Gellert Director
- ----------------------------------
Michael E. Gellert

/s/ H.R. Sanders, Jr. Director
- ----------------------------------
H.R. Sanders, Jr.

II-3
<PAGE>

EXHIBIT INDEX

<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
2.1 Amended and Restated Agreement and Plan of Merger among Registrant,
Devon Delaware Corporation, Devon Oklahoma Corporation and PennzEnergy
Company dated as of May 19, 1999 (incorporated by reference to Exhibit 2
to Registrant's Form S-4 filed on July 15, 1999).
3.1 Registrant's Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3 to Registrant's Form 8-K dated
as of December 11, 1998).
3.2 Registrant's By-laws (incorporated by reference to Exhibit 3.2 to
Registrant's Registration Statement on Form 8-B filed on June 7, 1995).
5.1 Opinion of McAfee & Taft A Professional Corporation
23.1 Consent of KPMG LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Arthur Andersen LLP
23.5 Consent of LaRoche Petroleum Consultants, Ltd.
23.6 Consent of AMH Group Ltd.
23.7 Consent of Paddock Lindstrom & Associates Ltd.
23.8 Consent of John P. Hunter & Associates, Ltd.
23.9 Consent of Ryder Scott Company, L.P.
23.10 Consent of McAfee & Taft A Professional Corporation (contained in its
opinion in Exhibit 5.1)
24.1 Power of Attorney.
</TABLE>
- --------
* To be filed by amendment.

<PAGE>

EXHIBIT 5.1

OPINION OF McAFEE & TAFT

McAfee & Taft
A Professional Corporation
Tenth Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102-7103
(405) 235-9621
Fax (405) 235-0439
E-Mail: [email protected]
http://www.mcafee-taft.com

July 15, 1999

Devon Energy Corporation
120 North Broadway
Suite 1500
Oklahoma City, Oklahoma 73102-8260

Ladies and Gentlemen:

We have acted as counsel to Devon Energy Corporation (the "Company"), an
Oklahoma corporation, in connection with the registration of shares of the
Company's common stock which may be delivered by Kerr-McGee Corporation to
holders of debt exchangeable for common stock to be issued by Kerr-McGee
Corporation. This opinion letter is furnished to you in connection with a
registration statement on Form S-3 (the "Registration Statement") filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, for the registration of up to 9,954,000 shares of common stock, $0.10
par value per share (the "Shares"), of the Company which may be delivered by
Kerr-McGee.

We have examined, and have relied as to matters of fact upon, the
Registration Statement, and originals, or duplicates or certified or conformed
copies, of the Company's Certificate of Incorporation and such records,
agreements, instruments and other documents and such certificates of public
officials and of officers and representatives of the Company, and have made
such other and further investigations as we have deemed relevant and necessary
in connection with the opinions expressed herein.

In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as duplicates or certified or conformed copies, and the
authenticity of the originals of such latter documents.

Based upon the foregoing, and subject to the qualifications and limitations
stated herein, we are of the opinion that the Shares have been duly authorized,
validly issued, fully paid and nonassessable.

We hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement. We also consent to the reference to this firm appearing
in the Registration Statement under the caption "Legal Matters."

We are members of the Bar of the State of Oklahoma, and we do not express
any opinion herein concerning any law other than the laws of the State of
Oklahoma.

Very truly yours,

McAfee & Taft A Professional
Corporation

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Devon Energy Corporation

We consent to incorporation by reference herein of our report dated January
26, 1999, relating to the consolidated balance sheets of Devon Energy
Corporation and subsidiaries as of December 31, 1998, 1997 and 1996 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years then ended, which report appears in the December
31, 1998 annual report on Form 10-K of Devon Energy Corporation and to the
reference to our firm under the heading "Experts" in the prospectus.

KPMG LLP

Oklahoma City, Oklahoma
July 12, 1999

<PAGE>

EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this registration statement
on Form S-3 of Devon Energy Corporation of our report dated January 20, 1999 to
the shareholders of Northstar Energy Corporation, relating to the consolidated
balance sheets of Northstar Energy Corporation and subsidiaries as at December
31, 1998 and 1997 and the related consolidated statements of operations and
comprehensive income (loss), stockholders' equity, and cash flows for each of
the years than ended, which report appears in the December 31, 1998 annual
report on Form 10-K of Devon Energy Corporation.

We also consent to the reference to our firm under the heading "Experts" in
the prospectus.

/s/ DELOITTE & TOUCHE LLP
-------------------------------------
Chartered Accountants

Calgary, Alberta
Canada
July 12, 1999

<PAGE>

EXHIBIT 23.3

INDEPENDENT AUDITORS' CONSENT

We consent to incorporation by reference in this registration statement on
Form S-3 of Devon Energy Corporation of our report dated February 5, 1997,
relating to the consolidated balance sheet of Northstar Energy Corporation and
subsidiaries as of December 31, 1996 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended, which
report appears in the December 31, 1998 annual report on Form 10-K of Devon
Energy Corporation. We also consent to the reference to our firm in this
prospectus as experts in accounting and auditing.

PRICEWATERHOUSECOOPERS LLP

Calgary, Alberta, Canada
July 12, 1999

<PAGE>

EXHIBIT 23.4

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated March 19, 1999
included in the PennzEnergy Company Form 10-K for the year ended December 31,
1998 and to all references to our Firm included in this registration statement.

ARTHUR ANDERSEN LLP

Houston, Texas
July 12, 1999

<PAGE>

EXHIBIT 23.5

ENGINEER'S CONSENT

We consent to the reference to our appraisal report for Devon Energy
Corporation as of the years ended December 31, 1996, 1997 and 1998,
incorporated herein by reference.

LAROCHE PETROLEUM CONSULTANTS, LTD.

/s/ William E. LaRoche

-------------------------------------
William E. LaRoche
Partner

July 13, 1999

<PAGE>

EXHIBIT 23.6

ENGINEER'S CONSENT

We consent to the reference to our appraisal report for Devon Energy
Corporation as of the years ended December 31, 1996, 1997 and 1998,
incorporated herein by reference.

AMH GROUP LTD.

/s/ A. K. Ashton
-------------------------------------
A. K. Ashton
President

July 13, 1999

<PAGE>

EXHIBIT 23.7

ENGINEER'S CONSENT

Paddock Lindstrom & Associates Ltd.

We consent to the reference to our appraisal report for Northstar Energy
Corporation as of the years ended December 31, 1996, 1997 and 1998,
incorporated herein by reference.

PADDOCK LINDSTROM & ASSOCIATES LTD.

/s/ D.L. Paddock
-------------------------------------
D.L. Paddock, P. Eng.
Vice President

July 13, 1999

<PAGE>

EXHIBIT 23.8

ENGINEER'S CONSENT

We consent to the reference to our appraisal report for Northstar Energy
Corporation as of December 31, 1997, incorporated herein by reference.

JOHN P. HUNTER & ASSOCIATES, LTD.

/s/ John P. Hunter
---------------------------------------
John P. Hunter

July 13, 1999

<PAGE>

EXHIBIT 23.9

ENGINEER'S CONSENT

We consent to the reference to our appraisal report for PennzEnergy Company
as of the years ended December 31, 1996, 1997, and 1998, incorporated herein by
reference.

RYDER SCOTT COMPANY, L.P.

July 13, 1999

<PAGE>

Exhibit 24.1

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Larry Nichols, H. Allen Turner and Marian J.
Moon, and each or any one of them, his true and lawful attorney-in-fact and
agent, each acting alone, with full powers of substitution and resubstitution,
for him and in his name, place, and stead, in any and all capacities, to sign
any or all amendments (including post-effective amendments) and supplements to
this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

<TABLE>
<S> <C> <C>
</TABLE>
Signature Title

/s/ John W. Nichols Chairman of the Board
- ----------------------------------- and Director
John W. Nichols

/s/ J. Larry Nichols President,
- ----------------------------------- Chief Executive
J. Larry Nichols Officer and Director

/s/ William T. Vaughn Vice President Finance
- -----------------------------------
William T. Vaughn

/s/ Danny J. Heatly Controller
- -----------------------------------
Danny J. Heatly

/s/ Thomas F. Ferguson Director
- -----------------------------------
Thomas F. Ferguson

/s/ John A. Hagg Director
- -----------------------------------
John A. Hagg

/s/ David M. Gavrin Director
- -----------------------------------
David M. Gavrin

/s/ Michael E. Gellert Director
- -----------------------------------
Michael E. Gellert

/s/ Michael M. Kanovsky Director
- -----------------------------------
Michael M. Kanovsky

/s/ H.R. Sanders, Jr. Director
- -----------------------------------
H.R. Sanders, Jr.