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Devon Adjusts 1Q Production, Price Estimates

Devon Energy estimated that first quarter oil and gas production will fall 2 MMBoe short of its previous estimate. Last week the company also revised its U.S. gas and Canadian oil price realizations.

The company revised its 2006 production estimate to reflect the first quarter change. Devon said the 1Q decrease is mainly due to lingering delays in restoring production that was suspended because of hurricanes in the Gulf of Mexico. Devon had about 23,000 Boe/d, or 2.1 million Boe in aggregate, suspended throughout the first quarter. About 13,000 Boe/d of production from its Red Hawk and West Cameron 291/165 properties was expected to resume in February. However, repairs to a necessary third-party downstream pipeline system were delayed until the second quarter. In addition to the 13,000 Boe/d expected to be restored in the second quarter, Devon said it expects to restore the remaining 10,000 Boe/d of suspended Gulf of Mexico volumes over the nest 12 months.

Devon also experienced weather-related delays in the Barnett Shale field in North Texas. Drought conditions prompted welding bans and other fire-control measures that delayed pipeline construction into Johnson and Parker counties. Bans were lifted following rains. As of Mar. 31, Devon had 24 wells awaiting pipeline completion. First quarter Barnett Shale Shale production was reduced by about 500,000 Boe.

Devon also adjusted price realizations for U.S. Gas and Canadian oil. Following the 2005 hurricanes, first quarter benchmark Nymex natural gas prices were high by historical standards, Devon said. "However, because of regional transportation limitations, much of the country's gas production did not benefit from the increase in Nymex prices brought about by the hurricanes. These discounts, or differentials, were especially wide in January but began to approach more normal levels in February and March as the Nymex price declined."

First quarter realizations for U.S. gas and Canadian oil production are expected to be at or near the low end of Devon's previous estimates. "The low end of the estimated ranges are 74% of Nymex for U.S. onshore gas, 92% of Nymex for U.S. offshore gas and 65% of Nymex for Canadian oil." Devon is not revising its full-year estimated ranges and said it believes area price differentials will narrow over the remainder of the year.

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