Letter to Shareholders

Dear Fellow Shareholders: 2007 was the best year in Devon's 20-year history as a public company. We increased oil and natural gas production 12% to 224 million oil-equivalent barrels. This production growth, coupled with robust oil and natural gas prices, drove earnings and cash flow to the highest levels ever. Net earnings reached a record $3.6 billion, or $8.00 per diluted share, and cash flow from operations climbed to $6.7 billion.

During 2007, we also executed the largest drilling program in the company's history with excellent results. We drilled 2,395 successful oil and natural gas wells, adding almost 400 million equivalent barrels of new reserves at very attractive finding and development costs. This drove year-end proved oil and natural gas reserves to an all-time high of 2.5 billion oil-equivalent barrels.

We also achieved first production in 2007 on three important long-term projects: our Jackfish thermal oil sands project, our Merganser gas field in the deepwater Gulf of Mexico and our Polvo oil development in Brazil's Campos Basin. In addition, we sanctioned for development our first project in the deepwater Gulf of Mexico's Lower Tertiary trend. Yes, Devon's 2007 performance was outstanding on all fronts.

Committed to Results

Devon's 2007 growth reflects production increases from each of our geographic segments: the United States, Canada and International. In the United States, Devon continued its reign as the undisputed leader in North America's flagship gas resource play, the Barnett Shale. Our extensive experience base and technological advances are allowing us to drill wells more quickly and to increase per well recoveries. In 2007, only four years after Devon pioneered horizontal drilling in the play, we drilled our 1,000th horizontal Barnett well. During the year, we increased Devon's share of Barnett production by more than one third to 950 million cubic feet equivalent per day. Furthermore, we now expect to reach a production goal for the Barnett of one billion cubic feet of gas equivalent per day in mid-2008, 18 months ahead of schedule.

As first mover in the Barnett, we established the best acreage position in the play, by far. We have thousands of future drilling locations in the best areas of the field, and we acquired this position at a fraction of the cost of the late-comers. As a result, Devon's returns in the Barnett are far superior to that of the competition. Furthermore, we are positioned for continued growth in the Barnett Shale for many years to come.

The Barnett Shale is only one of several key onshore areas in the United States. At Carthage in east Texas, we increased production by 19% in the fourth quarter of 2007 to 277 million cubic feet equivalent per day. In Oklahoma, we are applying our Barnett Shale experience to the Woodford Shale play. In the Rocky Mountains, we continue active development programs in the Washakie and Powder River Basin areas in Wyoming and at Bear Paw in Montana.

Alberta's provincial government rocked the oil and gas industry in 2007 when it announced plans to increase the government's royalty take from energy producers. The rule changes are complex and impact different types of oil and gas production to varying degrees. As a result, Devon has reallocated some capital from Alberta to competing projects with more attractive returns elsewhere in Canada and in the United States. Fortunately, the economic impact of the royalty changes on two of our more significant areas of current investment in Alberta, Jackfish and Lloydminster, will be minimal.

In the fourth quarter of 2007, we completed construction of our 100%-owned Jackfish thermal oil sands project. With construction finished, we are injecting steam underground and oil is flowing to the surface. We expect production from Jack- fish to climb gradually to a peak of 35,000 barrels per day and to continue producing at that rate for more than 20 years. We also expect to sanction a second 35,000 barrel per day project, Jackfish 2, in 2008.

Southeast of Jackfish, in the Lloydminster area, we drilled 429 wells in 2007. This enabled us to increase production by 40 percent to 33,500 equivalent barrels per day. We expect to drill a similar number of wells at Lloydminster in 2008.

Committed to the Future

Devon's dependable and repeatable development projects underpin the production growth that we delivered in 2007 and expect to deliver in 2008. However, to ensure sustainable growth, the pipeline of development projects must be continually filled. To that end, we are committed to restocking our inventory of development projects through high-impact exploration.

Nothing better demonstrates Devon's long-term commitment and the promise it holds than our projects in the deepwater Lower Tertiary trend in the Gulf of Mexico. We drilled our first well in this emerging resource in 2002. And while we do not expect to produce our first barrel from the play until 2010, the potential of the prize more than justifies the wait.

Since 2002, we have made four significant discoveries in the deepwater Lower Tertiary. Devon's share of these four discoveries could be as much as 900 million barrels of oil. And this is just the beginning. As one of the first participants in the play, Devon was able to establish an extensive acreage position and gain considerable experience. We have a deep inventory of Lower Tertiary drilling prospects that will enable us to continue exploring the trend throughout the next decade.

Cascade, the first of Devon's four Lower Tertiary discoveries, is now entering the development phase. We are also moving closer to development decisions on the other three Lower Tertiary discoveries: Jack, St. Malo and Kaskida. We conducted appraisal drilling operations on each of these projects in 2007 and have more wells planned for 2008. We anticipate completing development plans within the next two years for Jack and St. Malo.

Devon's balanced portfolio of near-term, predictable development projects backed by high-impact, long-term exploration uniquely positions the company for lasting success. In a world where oil and natural gas are increasingly scarce commodities, we are well positioned to help satisfy the demand and reap the rewards.

Commitment Runs Deep

We say farewell to a member of our senior management team this year. Marian Moon, senior vice president of administration, is retiring after a 24-year career with Devon. I deeply appreciate Marian's years of service and her significant contribution to Devon's success. We will miss her and wish her the very best.

Devon could not have achieved the growth and success we have enjoyed without the commitment of our employees. The company was recently named to FORTUNE magazine's list of the "100 Best Companies to Work for." We congratulate each and every member of our team for their contributions to creating the culture that earned this elite recognition.

The theme of this annual report, Commitment Runs Deep, reflects our culture and the promise that Devon has made to our stakeholders. This promise is our commitment to continuous improvement and delivering positive results. It is our commitment to respect the environment and to improve the communities in which we live and work. Most importantly, it is our commitment to treat everyone with honesty, fairness and respect. I am extremely proud of how Devon's employees are delivering on this promise. In the following pages we will share with you some examples of the depth of Devon's commitment.

J. Larry Nichols
Chairman and Chief Executive Officer
March 20, 2008