Devon adopted ASU No. 2016-02, Leases (Topic 842), as of January 1, 2019, using the modified retrospective transition approach. ASC 842 supersedes the previous lease accounting requirements in ASC 840 and requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. ASC 842 establishes a right-of-use model that requires a lessee to recognize a right-of-use asset and lease liability on the balance sheet for all leases with a term longer than 12 months. At adoption, using the modified retrospective transition approach, Devon recorded right-of-use lease assets of $394 million and lease liabilities of $380 million. Additionally, Devon recorded a $24 million before tax, $19 million net of tax, cumulative-effect adjustment to reduce retained earnings. Comparative periods have been presented in accordance with ASC Topic 840 and do not include any retrospective adjustments to reflect the adoption of Topic 842. Excluding land easements and rights-of-way, all leases that existed at January 1, 2019 or were entered into or modified thereafter, are accounted for under Topic 842. Devon elected the practical expedient provided in the standard that allows the new guidance to be applied prospectively to all new or modified land easements and rights-of-way. Devon also elected a policy not to recognize right-of-use assets and lease liabilities related to short-term leases with terms of 12 months or less. Additionally, Devon elected to account for lease components separately from the nonlease components.

Devon made certain significant assumptions and judgments in determining its right-of-use asset and lease liability balances. First is the determination of whether a contract contains a lease. Devon considered the presence of an identified asset that is physically distinct, and for which the supplier does not have substantive substitution rights and whether Devon has the right to control the underlying asset. Second, Devon assessed lease terms and considered whether Devon is reasonably certain to extend leases or exercise purchase options. Certain of Devon’s leases include one or more options to renew, with renewal terms that can extend the lease term for additional years. Certain leases also include options to purchase the leased property. For options to renew or purchase that Devon

is reasonably certain to exercise, these costs are recognized as part of the right-of-use assets and lease liabilities. Third, significant judgments have been made in determining discount rates. Devon estimates discount rates using market rates that approximate collateralized borrowings over the remaining term of Devon’s lease payments.

Devon’s right-of-use operating lease assets are for certain leases related to real estate, drilling rigs and other equipment related to the exploration, development and production of oil and gas. Devon’s right-of-use financing lease assets are related to real estate. Certain of Devon’s lease agreements include variable payments based on usage or rental payments adjusted periodically for inflation. Devon’s lease agreements do not contain any material residual value guarantees or restrictive covenants.

The following table presents Devon’s right-of-use assets and lease liabilities as of June 30, 2019.

	Finance		Operating		Total
Right-of-use assets	$	209	$	64	$	273
Lease liabilities:
Current lease liabilities ⁽¹⁾	$	7	$	39	$	46
Long-term lease liabilities		239		24		263
Total lease liabilities	$	246	$	63	$	309

		Three Months Ended			Six Months Ended
		June 30, 2019
Operating lease cost	Property, plant and equipment; G&A	$	12		$	25
Short-term lease cost ⁽¹⁾	Property, plant and equipment; G&A		21			45
Financing lease cost:
Amortization of right-of-use assets	DD&A		6			12
Interest on lease liabilities	Net financing costs		2			5
Variable lease cost	G&A		—			1
Lease income	G&A		(1	)		(2	)
Net lease cost		$	40		$	86

The following table presents Devon’s additional lease information for the three and six months ended June 30, 2019.

	Three Months Ended						Six Months Ended
	June 30, 2019						June 30, 2019
	Finance			Operating			Finance			Operating
Cash outflows for lease liabilities:
Operating cash flows	$	1		$	—		$	3		$	1
Investing cash flows	$	—		$	12		$	—		$	27
Right-of-use assets obtained in exchange for new lease liabilities	$	—		$	1		$	—		$	1
Weighted average remaining lease term (years)		8.5			1.9			8.5			1.9
Weighted average discount rate		4.2	%		3.2	%		4.2	%		3.2	%

The following table presents Devon’s maturity analysis as of June 30, 2019 for leases expiring in each of the next 5 years and thereafter.

	Finance			Operating			Total ⁽¹⁾
2019	$	3		$	22		$	25
2020		7			32			39
2021		7			8			15
2022		8			1			9
2023		8			1			9
Thereafter		306			1			307
Total lease payments		339			65			404
Less: interest		(93	)		(2	)		(95	)
Present value of lease liabilities	$	246		$	63		$	309

Devon rents or subleases certain real estate to third parties. The following table presents Devon’s expected lease income as of June 30, 2019 for each of the next 5 years and thereafter.

	Operating
	Lease Income ⁽¹⁾
2019	$	3
2020		6
2021		7
2022		7
2023		7
Thereafter		53
Total	$	83