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Devon CEO Expects Barnett Output to Approach 1 Bcf/d in 'Near Future'

May 29, 2006
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Devon Energy Corp., now the far-and-away predominant player in the Barnett Shale, expects to be producing "close to a Bcf a day in the near future" following its recent acquisition of privately held Chief Oil & Gas, CEO J. Larry Nichols said last week. Lower gas prices and high storage levels will have little effect on Devon's production numbers, he said.

Speaking at the UBS Global Oil & Gas Conference in Austin, TX, on Wednesday, Nichols said the Oklahoma City-based independent spent the past five years accumulating assets but now plans to "grow organically" with a renewed exploration effort in the Barnett. Devon moved into the Barnett long before it was cool with its acquisition of Mitchell Energy in 2002 (see NGI, Jan. 28, 2002). Earlier this month, the company scooped up its nearest competitor, Chief Oil & Gas (see NGI, May 8).

"Our crown jewels are in North America, and the largest is the Barnett Shale," and the Barnett is where most of Devon's attention will be, Nichols said. "We truly dominate."

Devon's net production last year in the shale was about 650 MMcf/d from 2,500 producing wells. But with its drilling success at about 98%, Nichols said producing 1 Bcf/d will come fairly soon. Devon expects to drill about 425 wells in the Barnett this year, up from 268 in 2005. "Of the 50 best wells drilled horizontally [in Barnett], Devon has 28 of them, four times [those of] our largest competitor."

Nichols' confidence comes from Devon's phenomenal drilling success to date.

"When we bought Mitchell in 2002, we thought the ultimate recovery growth [in the Barnett] was 9-10%. This year, it's 16%. We have proven production methods. Just going from 2004, when it was 10-12% recovery, adding another 5% adds half a Tcf." Besides its core Barnett holdings, Devon has about 521,300 acres in the shale that have yet to be explored, he said. "Those acres could hold even more potential. We're just in the core now. There's no reason not to say the same thing holds in the noncore [holdings] where we have even more acreage."

Asked at what price natural gas would have to drop to before Devon might consider "laying off rigs," Nichols said, "That depends." But he added, "there is no gas price this summer that would cause us to lay off rigs. We're very confident in what we know from last summer...therefore, gas prices are expected to be weak this summer. How weak? There will be a floor down there when air conditioning kicks in, and then there's the hurricane season. We would view any weakness as a temporary phenomenon. We don't require high gas prices...Most of our production has locked-in contracts, so we won't shut in any gas."

As far as gas storage levels, Nichols said that too "doesn't make a whole lot of difference. You know, by Nov. 1, storage will be full. It's essentially the same as last year and the year before that."

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