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Devon Bullish on Permian’s Delaware After Leonard Shale Spacing Test

With a spacing test in southeastern New Mexico further delineating the stacked-play potential of its acreage, Devon Energy Corp. said it could ramp up to 10 rigs in the Permian Basin’s Delaware sub-basin by year-end 2017.

The Oklahoma City-based exploration and production (E&P) company released results Tuesday from its two-well Thistle spacing pilot targeting the Leonard Shale. The Thistle pilot tested 400-foot vertical spacing in the Leonard B and C intervals in Lea County, NM. The wells posted an average 30-day initial production rate of 1,800 boe/d, 75% weighted to light oil. The wells cost about $6 million each to drill with average 7,000-foot laterals, Devon said.

Thus far the Thistle pilot is showing “minimal interference between wells, suggesting potential for joint development of multiple intervals,” leading management toincrease Devon’s risked inventory to 950 gross Leonard drilling locations. “This increase...represents growth of nearly 20% from previous estimates and conservatively assumes only six wells per surface section,” management said. “The company expects its risked inventory in the Leonard to continue to expand with further delineation work.”

Devon said it has 60,000 net surface acres prospective for the Leonard Shale and estimates that the play could contain more than 1 billion boe in recoverable resources.

“The strong flow rates from the Thistle spacing pilot is another example of the positive rate of change we are achieving in the Delaware Basin and is another critical step in further delineating the massive resource upside associated with our North American onshore portfolio,” COO Tony Vaughn said. “In the upcoming year, we plan to continue to accelerate drilling in” the Delaware sub-basin and in the Oklahoma STACK (the Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties.“We expect this increased activity to deliver strong growth in high-margin production and further expand our recoverable resource in the U.S.”

Management said Devon is preparing to ramp up to three operated rigs in the Delaware by the end of the year, with the potential to reach 10 rigs by year-end 2017 depending on cash flow. Between the Delaware Sands, the Leonard Shale, the Bone Spring and the Wolfcamp formations, Devon said its stacked-play potential in the Delaware gives it exposure to a total 670,000 net acres by formation, with close to 6,000 risked undrilled locations.

Last week’s agreement by the Organization of the Petroleum Exporting Countries to curtail production for the first time in eight years has brought more bullish sentiment to the U.S. onshore, with independents like Devon among those whose stock prices jumped on the news.

The Permian is poised to the lead the way among U.S. oil plays under improved commodity pricing, with producers grabbing up acreage in the basin this year to take advantage of its best-in-class economics.

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