Echoing remarks by energy analysts, Devon Energy Corp. CEO J. Larry Nichols last week said weak demand should continue to push down natural gas prices through the summer. About 60% of the Oklahoma City-based independent's production is natural gas.
Speaking at the company's annual shareholder meeting on Wednesday, Nichols blamed the expected lower gas prices on high gas storage levels, which followed warmer-than-normal winter temperatures. The Energy Information Administration (EIA) last week revised downward its Henry Hub spot price forecast for the year to $7.74/Mcf from the $8.11/Mcf that was projected last month, and dropped its average price forecast for 2007 to $8.81/Mcf from its May prediction of $9.17/Mcf (see related story). EIA also said an active hurricane season, as has been predicted for this year, could cause the spot price projections to sharply reverse direction in late summer.
Nichols appeared to agree with EIA's assessment. "There's going to be pressure on gas prices all summer," he said.
In May, Devon announced it would spend $2 billion to buy privately held Chief Oil & Gas, second only to Devon in Barnett Shale exploration (see NGI, May 8). But with its share price down about 9.5% this year, compared with an average gain of about 9% in the energy index, Nichols said the market is still waiting for proof that Devon's spending will lead to more gas and oil output. The company, whose production was impacted by last year's hurricanes and asset sales, expects output this year to total 217 MMboe, down from 226 MMboe in 2005.
"Our strategy has been a long-term strategy," Nichols told shareholders. The company's results to date haven't "hit the financial statement yet."
Devon, which spends most of its capital on onshore North American assets, raised its annual production growth forecast beginning in 2007 to 11% from 8% because of new fields that will be ramping up in the Gulf of Mexico, Canada and overseas. The new output, along with increased production from existing assets, is expected to help Devon reach production targets of 241 MMboe in 2007, 276 MMboe in 2008 and 297 MMboe in 2009.
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