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Toledo is a duster, but… One more well earns Devon Energy a handsome 25 percent stake in 71 blocks Ray Tyson Petroleum News Houston Correspondent
The highly anticipated Toledo exploration well in ultra-deepwater Gulf of Mexico has come up dry, Toledo partner Devon Energy has disclosed. But the big Oklahoma-based independent already is looking ahead for bigger fish to fry in the Gulf under an agreement that broadly expands its acreage position.
Devon said in a Feb. 5 conference call on its 2003 fourth-quarter earnings results that drilling just one more exploration well under its joint venture with Toledo operator ChevronTexaco earns Devon a 25 percent stake in an additional 71 deepwater Gulf blocks currently held by the major.
Jack is Devon’s next and last of four prospects to be drilled under the joint venture, but there are nine additional prospects to be pursued on ChevronTexaco acreage, said Vince White, Devon’s head of investor relations. “We expect to be exploring on this acreage within the foreseeable future,” he added.
Jack, located on Walker Ridge Block 759, is situated just west of the recent St. Malo discovery on Walker Ridge Block 678. The discovery well is said to have encountered more than 450 feet of net oil pay over a gross hydrocarbon column of 1,400 feet, indicating a major hydrocarbon accumulation by Gulf standards. Devon holds a 22.5 percent interest in St. Malo. And the Jack exploratory well is expected to spud next month, Devon said. Toledo could have been third anchor to hub Nevertheless, a dry hole at the Toledo prospect in Alaminos Canyon would have to be considered a disappointment. Not only did it come with a robust pre-drill estimate, it could have served as a desirable third anchor to a potential hub facility requiring lots of reserves because of its remote location and water depths of around 10,000 feet. Devon holds a 25 percent interest in Toledo.
The two other hub anchors under consideration in ultra-deep Alaminos Canyon are the Shell-operated Great White discovery and Unocal’s Trident find. Great White is thought to contain about 400 million barrels of oil equivalent and Trident roughly 200 million barrels.
Devon’s deepwater dry hole expenses also are beginning to mount. The company’s share of Toledo was $18 million, plus an additional $40 million for abandoned wells at Hawkes and Yorktown in Mississippi Canyon. Still, the company said it is pushing forward this year with additional deepwater wells that in addition to the Jack wildcat include appraisal wells at Cascade, Sturgis and St. Malo.
Devon also gave the strongest indication yet that various operators in the Eastern Gulf may be close to a decision on forming a hub facility to collect and process natural gas from several deepwater fields that include two in which Devon holds an interest, Merganser and Vortex.
Devon’s White said the Eastern Gulf partners are working on “early design work” that could lead to production from Merganser and Vortex in 2006. Other field candidates include Anadarko Petroleum discoveries at Atlas, Atlas NW, Jubilee and Spiderman. The owners believe they have the necessary 500 billion cubic feet of combined natural gas reserves to pursue a joint development. Sterling fourth quarter financial results In terms of financial performance, Devon turned in sterling results for the 2003 fourth quarter, posting net income of $543 million or $2.32 per share, reflecting a hefty $218 million due to lower Canadian income tax rates partially offset by a $74 million after-tax reduction in the carrying value of international oil and gas properties. Devon reported net income of $84 million or 52 cents per share for the 2002 fourth quarter.
“Record earnings allowed us to fund our entire $2.5 billion drilling and facilities budget (for 2003) while generating more than $1 billion for debt retirement,” said Larry Nichols, Devon’s chief executive officer.
Devon reported it had more than $1.3 billion in cash on hand at year-end 2003, and reduced its debt during the year to 41 percent from 60 percent of capitalization. The company projected it would grow production 4 percent to 6 percent in 2004.
Also in 2003, Devon said it increased production 21 percent from the prior year to a record 228 million barrels of oil equivalent, reflecting the company’s larger production base following last April’s merger with Ocean Energy and growth from development projects in North America, West Africa and China.
Year-end 2003 proved reserves also grew 30 percent from the prior year to 2.089 billion barrels of oil equivalent, including 661 million barrels of oil, 7.3 trillion cubic feet of natural gas, and 209 million barrels of gas liquids. Devon acquired 556 million barrels of oil equivalent primarily because of its merger with Ocean. Another 188 million barrels of equivalent were added through the drill bit.
In light of recent reserve write downs by Shell and Forest Oil following increased industry scrutiny by the U.S. Securities and Exchange Commission, Nichols was careful to note that 95 percent of Devon’s reserves over a three-year period are reviewed or audited by independent engineers.
“During our 15-year history as a publicly traded company, we have never had a negative reserve revision,” he noted.
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