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Devon to drill 100 horizontal wells outside Barnett Shale core Company will nearly double horizontals drilled; production decline from Barnett arrested, Devon says it expects to maintain production at current levels Ray Tyson Petroleum News Houston Correspondent
Devon Energy plans to drill some 100 horizontal wells next year outside the company’s core area in the Barnett Shale gas field, nearly doubling the number of horizontals thus far drilled by Devon on its entire half-million acre position in the prolific East Texas field.
Devon also has arrested the production decline at Barnett, reporting 2004 third-quarter volumes averaging 563 million cubic feet of gas equivalent per day, up slightly from 555 million cubic feet per day in the previous quarter. Several months ago Devon said it would spend an additional $58 million on drilling this year in an effort to reverse the decline.
The big exploration and production independent said it now plans to maintain Barnett’s production at roughly current levels while it learns better how to exploit the field’s vast but technologically challenging resource. Evaluation continues “We continue to drill wells across our acreage position in order to evaluate our entire 410,000-acre non-core inventory,” Devon President John Richels told industry analysts in a Nov. 4 conference call.
Devon, by far the dominant player in the unconventional Barnett Shale play, acquired its position in the field largely through its Mitchell Energy acquisition. Devon produces about twice as much gas as the other 30 companies in the gas play combined.
Devon uses innovations in technology known as fracturing to crack open the shale to release the natural gas sealed inside. Fresh water and a little sand are injected into the shale at a very high pressure to shatter the surrounding formation and release gas trapped inside. A well that passes horizontally through the reservoir often can capture more of the gas than a vertical well.
The Barnett now provides Devon with about one-third of the company’s entire North American gas production via 1,835 wells. Company will step up drilling Of the 123 horizontal wells completed at the end of the 2004 third quarter, 75 were situated in Devon’s roughly 100,000-acre core area and 40 outside the company’s much larger non-core area, where an additional 1.3 trillion cubic feet to 1.8 tcf of recoverable gas reserves are thought to exist. At year-end 2003, Devon had booked Barnett reserves of 1.3 tcf, essentially all in the core area.
The company’s net gas equivalent production from Barnett Shale wells outside the core area reached a new high in the 2004 third quarter of about 40 million cubic feet per day. Non-core production now represents more than 7 percent of Devon’s combined Barnett Shale gas equivalent production.
Based on solid results outside the core area, particularly in Johnson County, Devon has decided to step up drilling in the area next year with about 100 new horizontal wells, Richels said. To date, only eight of the 48 horizontals currently on production are located in Johnson County.
“We’ve seen continued improvements in this area,” he said, adding that the last three wells drilled in Johnson County had initial production rates averaging about 3.5 million cubic feet per day and estimated recoverable reserves per well of 2.9 billion cubic feet per well. Fifteen rigs in Barnett Shale At the end of the 2004 third quarter, Devon had 15 drilling rigs operating in the Barnett Shale, only five of which were outside the core area. However, only half of the 10 rigs in the core area were drilling horizontals, while all five rigs outside the core were drilling horizontals. Moreover, the company said it plans to send a second rig to drill horizontals in Johnson County.
“Our objective is to determine the approach that will optimize results in each area, and we’re working toward a comprehensive development plan for our entire Barnett Shale acreage base,” Richels said.
Devon’s worldwide oil, gas and natural gas liquids production during the 2004 third quarter averaged 679,000 barrels of oil equivalent, down 2 percent from the 689,000 barrels per day Devon produced in the third quarter of 2003. Hurricanes in the Gulf of Mexico reduced third quarter production by about 4,600 barrels of equivalent per day.
In spite of the slight overall production decline, lofty oil and gas prices helped propel Devon’s profit in the 2004 third quarter to $517 million or $2.12 per share, a 26 percent increase over $412 million or $1.76 per share the company earned during the same period last year. Revenues for the recent quarter totaled $1.9 billion, a 15 percent increase over the year-ago period.
After retiring $972 million of debt in the first nine months of 2004, Devon’s net debt to adjusted capitalization was 30 percent at the end of this year’s third quarter, down from 39 percent at year-end 2003.
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