By the end of the year Devon Energy Corp. should have a joint venture (JV) partner on board to help develop a bevy of prospects in the deepwater Gulf of Mexico (GOM), CEO J. Larry Nichols said Wednesday.
The Oklahoma City-based producer is burdened by an embarrassment of riches both onshore and offshore North America, Nichols told participants at the Independent Petroleum Association of America's Oil & Gas Investment Symposium in San Francisco. Along with its heavy oil prospects in Canada, the producer is the top natural gas producer in the Barnett Shale in North Texas. Considerable acreage also awaits development in the Haynesville and Woodford shales, and in the emerging Horn River Basin of British Columbia (see related story).
Offshore Devon has a mountain of opportunities, with working interests in four potentially huge discoveries in the Lower Tertiary Trend of the GOM: Cascade, Kaskida, St. Malo and Jack. The discoveries cover 162 blocks, and it will take a long time -- and a lot of money -- to develop, Nichols said.
"We've been spending way too much money on the Gulf of Mexico," he said. "We usually spend 15% of our capex [capital expenditures] on long-term projects," and the deepwater discoveries all are long-term. Most of the budget is geared for the quicker turnaround. However, while Devon's been able to "scale back the short-term, we've not been able to scale back the long-term, and it's consuming a larger portion of our overall budget than we'd like."
The deepwater GOM spending is taking more than a third of Devon's capex, or around 37%, Nichols said. "It's too much...We love the plays, and we don't want to get out of it, but we've been too successful...It will require a very dramatic capital requirement in the future."
Earlier this year Devon began to scout for a JV partner (see NGI, May 11), and in July a data room was opened to allow potential suitors the opportunity to review the GOM prospects.
"We've attracted all the kinds of companies that you would think," Nichols said, including international oil companies and national oil companies. Interest has even come from China. Nichols was coy on what companies may be in the hunt, but he said, "some already have positions in the Lower Tertiary." Those operators would include Chevron Corp., StatoilHydro ASA, BHP Billiton and Petroleo Brasilerio SA. Under any JV scheme, Devon wants to retain "half or more of the interest going forward," he said.
Cascade, in which Devon holds a half stake, is scheduled to begin production within a year, Nichols said. A second appraisal well is being drilled at Kaskida, in which Devon holds a 30% working interest; a ramp-up is not yet scheduled. Devon has quarter interests in Jack and in St. Malo, which now are in the appraisal development stages. Jack and St. Malo, he said, likely will be operated "in some sort of joint production scheme."
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