Devon Energy, the dominant producer in the unconventional Barnett Shale gas field of northeast Texas, says it has no interest in expanding company operations into a vast new Barnett Shale play recently opened by fellow independent EOG Resources.
However, Oklahoma-based Devon also told industry analysts during a May 4 conference call to discuss its 2005 first-quarter earnings that it might increase drilling activity this year on its own large acreage position in the Barnett Shale field.
“We’re currently considering accelerating our 2005 Barnett Shale activity,” Devon President John Richels said, adding that Devon would provide further details on the plan during the company’s 2005 second-quarter conference call this summer.
However, it appears Devon already is in the swing of things. The company’s daily production from the Barnett Shale recently exceeded 570 million cubic feet of gas equivalent, an impressive increase from Devon’s 2005 first-quarter average of 554 million cubic feet per day, Richels noted. Moreover, he said Devon currently has 15 drilling rigs operating in the field and plans to boost the rig count.
Regardless of its future plans, Devon intends to continue increasing drilling activity on the company’s non-core acreage, which consists of about 425,000 acres of Devon’s total 535,000-acre position in the Barnett, said Steve Hadden, Devon’s senior vice president of exploration and production. “We’re accelerating into that play,” he said.
At least 100 horizontal wells planned
Also, aside from any future plans in the Barnett Shale, Devon already intends to drill at least 100 horizontal wells in its non-core areas this year and has acquired more than 1,000 square miles of seismic studies covering the play, indicating that the company is serious about picking up the pace of drilling. Devon already holds an interest in 1,943 producing Barnett Shale wells, 172 of which are horizontal wells.
“With such a large producing base, even minor incremental improvements in field performance and recoveries can be very meaningful,” Richels said. “With that in mind, we have several projects underway to improve the effectiveness of our (gas) gathering system.”
However, the company made it clear it has no plans to move into a westerly play recently disclosed by EOG Resources, which maintains a 460,000-acre position in the Barnett Shale. EOG said drilling and research confirmed the Barnett field extends west into at least six additional Texas counties and that EOG’s entire acreage position was within Barnett’s “gas window.”
“We do understand that there are other people who are trying to expand the play, and we wish them all the success in the world,” Hadden told analysts. “But we’re pleased with our investments and our position because we think they are going to give us the best returns.”
EOG drilled two key test wells on the western and northwestern edge of its acreage in Jack and Erath counties about 47 to 32 miles west of an established gas area in Johnson County. One well produced at 500,000 cubic feet of gas per day with no oil. The second well tested at 900,000 cubic feet per day with only a trace of oil.
Despite EOG’s encouraging drilling results, “as we look beyond those areas that we’re currently in, we see that the risk and the performance relative to the position established as the lead operator coming in just don’t warrant the investment,” Hadden said.
Oil production down 6 percent
Overall, Devon averaged 660,000 barrels of oil equivalent per day in the 2005 first quarter, which was down 6 percent from 703,000 barrels per day produced in the 2004 first quarter. North American property divestitures accounted for the majority of the company’s first-quarter production decline, Devon said, adding that natural declines at its Zafiro field in Equatorial Guinea also contributed to the decreased output.
Meanwhile, Devon said it completed its previously announced property divestiture program with the sale of after-tax $1.1 billion in Canadian properties, bringing total sales of Devon’s Canadian and U.S. properties to after-tax $2 billion, about $500 million more than the company said it had expected.
Devon said it specifically entered into purchase and sale agreements for all of the properties it offered for sale at an average price of about $14 per barrel of oil equivalent based on year-end 2004 reserve estimates. The combined divestiture properties produced about 6.9 million barrels in the first quarter of 2005, the company said.
On the earnings front, Devon reported 2005 first-quarter profit of $563 million or $1.17 per share, a 14 percent increase over net income of $494 million or $1.03 per share earned during the same period last year. Still, Devon missed the Thompson-First consensus estimate by 7 cents per share. The company attributed the miss largely to lower realized commodity prices.
