Devon Energy vows no more decline in 2004 at Barnett Shale

Gas volumes slip in huge East Texas field while total daily production jumps 11% to 683,000 barrels of oil equivalent

Ray Tyson

Petroleum News Houston Correspondent

Devon Energy says it doesn’t expect further production declines this year from its huge share of the East Texas Barnett Shale gas field, which at roughly 555 million cubic feet per day accounts for more than a third of the company’s 1.65 billion cubic feet of daily U.S. natural gas volumes.

After registering strong quarterly production increases from the unconventional gas play near Dallas, Texas, Devon’s Barnett Shale output during the 2004 second quarter slipped from the previous quarter, raising concern among some industry analysts who participated in an Aug. 5 conference call.

Devon, the largest U.S.-based exploration and production independent, by far is the dominant player in the Barnett Shale, which is thought to be among the hottest natural gas plays in the United States.

“We’re on track now for an increase in 2004 Barnett Shale production over the actual 2003, and we think the outlook from here is pretty stable to up,” Devon spokesman Vince White said.

However, Barnett Shale’s production profile all depends on how many dollars the company invests in drilling during 2005 and that corporate decision won’t be made until later this year, White said.

“When we finalize our capital budget for 2005, we’ll decide whether we’re going to take the thing up or down,” he added. “But we don’t expect additional declines in 2004.”

Other production up

Increased production, coupled with strong commodity prices, also generated a healthy 41 percent increase in Devon’s profit during this year’s second quarter to $502 million or $2.07 per share, compared to a 2003 second-quarter profit of $356 million or $1.67 per share. Revenues were $2.22 billion versus $1.81 billion in the year-ago period.

Meanwhile, Devon said it completed its 100th horizontal well in the Barnett Shale, and reassured analysts that field work remains on track. Horizontal wells now account for more than 20 percent of Devon’s Barnett Shale production, the company said, adding that it plans to drill about 60 horizontals in the field’s core area this year alone.

Lots of opportunity

“We’re looking at longitudinal wells, we’re looking horizontal wells,” Foster said. “We’re also looking at seismic data and simulation models, core data, and a number of different areas to … really try to increase the recovery out of the core area.”

He said the resource is so large inside the core area that a 1 percent increase in the recovery rate yields about 230 billion cubic feet of recoverable reserves, or about 40 million cubic feet per day net to Devon.

“We think we have another two years where we’re hoping we can sit there and apply technology and expertise and be able to get more reserves on that vast resource base,” Foster said.

He said Devon hopes to boost recovery in the core area by 5 percent over the next five years, “but that’s a pure guess right now.”

In addition to the more than 100,000 acres that make up the core area, Devon holds title to 390,000 acres of largely exploration area outside the core area, which the company said holds perhaps another 1.3 to 1.8 trillion cubic feet of recoverable gas reserves.

“Between the drilling we see, the additional infill opportunity and the advent of technology, we see a lot of running room both inside and outside the core in the Barnett Shale field,” Devon President John Richels said.