The makeover at Devon Energy Corp. to become an oil heavy proved its worth in the first quarter, fueled by a new midstream arm and production gains driven almost exclusively by the Permian Basin and Eagle Ford Shale.
The Oklahoma City-based super independent reported total output averaged 691,000 boe/d from output of 686,900 boe/d in 1Q2013. Excluding assets that have been sold, which produced 128,000 boe/d in 1Q2014, production rose 7% to 563,000 boe/d. Oil production from the go-forward base averaged 176,000 b/d, 21% higher than in 1Q2013, with record double-digit growth from the Permian.
In the West Texas/New Mexico formation, total production averaged a record 91,000 boe/d, with output up 36% year/year and 9% sequentially. Light oil production accounted for 60% of the total.
The most significant contributor once again was the Bone Spring in the Delaware Basin of Texas, where Devon added 35 new wells in the quarter with initial production (IP) rates averaging almost 700 boe/d. Two oil wells also targeted the emerging Delaware Sands in Lea County, NM, where IPs averaged 1,000 boe/d-plus. Devon has about 80,000 net acres in the Delaware Sands alone.
Within the Midland sub-basin of the Permian, 26 wells were brought online from the prolific Wolfcamp Shale, increasing average output in the play by 10,000 boe/d. A year ago, Devon was producing about 2,000 boe/d from the Wolfcamp.
All together, company engineers have identified about 5,000 prospects on its Delaware leaseholds, which represents close to 25 years of drilling.
"I think we've done an excellent job of improving our portfolio in a short amount of time," said CEO John Richels during a conference call Wednesday.
That's putting it mildly.
Devon has had only one month of production from its newly acquired Eagle Ford leasehold in South Texas, which it acquired late last year (see Shale Daily,Nov. 20, 2013). The purchase was completed a couple of months ago, with only March having net production. It still proved to be a strong contributor with 49,000 boe/d, even with some gathering system constraints and tie-in timings. At the end of May, output was around 64,000 boe/d; it was expected to average 65,000-70,000 boe/d by the end of June.
Devon estimates that it has at least 1,200 undrilled locations in the Eagle Ford holdings with risked recoverable resource estimated at 400 million boe. Based on well performance seen to date, management expects to average 70,000-80,000 boe/d for its 10 months of ownership in 2014 and produce more than 100,000 boe/d in 2015.
Devon's not just a two-play company. The Anadarko Basin, Barnett Shale, Mississippian/Woodford trend and Rockies production areas also contributed in the first quarter, as did oilsands operations in Canada.
In the Anadarko, Devon reported record production in 1Q2014 of 85,000 boe/d, with a 10% surge in output from the Cana-Woodford and Granite Wash plays from a year ago. This week Devon secured another 50,000 net acres; it now has about 300,000 net acres total (see related story).
The gassy Barnett Shale, where Devon first began to ply unconventional drilling techniques, the focus today is on liquids. Net production in 1Q2014 averaged 1.3 Bcfe/d, with liquids output increasing to an average 57,000 b/d -- 5% more than in the year-ago period. The Mississippian-Woodford trend also contributed, with production averaging 19,000 boe/d, half of it light oil, and 35% more output than in the year-ago period.
From its Powder River Basin (PRB) leasehold in the Rockies, Devon reported that liquids output rose up 21% from a year ago and accounted for almost half of the production mix in the region, where total production was 20,000 boe/d.
Drilling activity was highlighted by an Iberlin Ranch well targeting the Frontier formation with an IP averaging 2,000 boe/d, including more than 1,700 b/d of oil. Devon also began producing from a well that is targeting the Parkman formation, where the IP rates averaged 1,100 boe/d-plus, 96% light oil. Devon has 150,000 net acres in the PRB and has identified 1,000 risked locations.
The operator earned $324 million net (80 cents/share) in 1Q2014, versus a year-ago loss of $1.3 billion (minus $3.34). Adjusted for one-time items, profits were $547 million ($1.34/share). Upstream revenues rose 42% year/year to $2.6 billion, with oil sales accounting for more than half of the take. Marketing and midstream profits climbed 47% to $183 million, lifted by higher commodity prices and the consolidation of the new midstream business, EnLink Midstream LP. The master limited partnership was formed by Devon and Crosstex Energy LP and began operations in March (see Shale Daily, Feb. 19). Devon contributed most of its U.S. midstream assets to the business and it is the majority owner at 70%.
The operator isn't done with its strategic turnaround, management said Wednesday. Devon last November began to monetize noncore properties in North America and has since completed the sale of its conventional gas business in Canada, resulting in net proceeds of $2.7 billion. However, marketing continues. Devon expects to open data rooms for more U.S. assets during the second quarter and plans to complete the divestiture program by year's end.