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Repositioned Devon Reports Record Onshore Production

Devon Energy Corp.'s exit from the Gulf of Mexico last year and the recent sale of its Brazilian assets in order to focus on North American onshore drilling have begun to pay significant dividends for the Oklahoma City-based independent, including record high North American onshore production, CEO John Richels said Wednesday.

The sale in May of $3.2 billion of Brazilian assets leaves Devon "in an enviable position" and "essentially completes the strategic repositioning of Devon to a company focused entirely onshore in North America," Richels said during a conference call with analysts.

"We have a deep inventory of low-risk drilling locations, including years of high-margin oil and liquids-rich development in our cornerstone project areas," including the Barnett and Cana-Woodford shales, Richels said. "We're drilling our most economic wells ever in the liquids-rich portions of the Barnett. Our first mover position has provided us with the largest and best acreage position. Furthermore, our low entry and royalty costs enhance the economic returns across our inventory of thousands of undrilled Barnett locations.

"In the liquids-rich Cana, we're taking advantage of opportunities to increase our working interest, and are continuing to delineate our condensate-rich acreage to the northwest."

A Devon strategy, first tested in the Cana-Woodford -- focusing acreage acquisitions on what appear to be the best parts of oil- and liquids-rich plays -- is paying off in the Tuscaloosa Marine Shale, Niobrara Shale, Mississippian Lime, Ohio Utica Shale and the A1 Carbonate and Utica Shale in Michigan.

"Utilizing this approach, we've secured 1.1 million net acres at very reasonable costs in what we believe to be highly economic parts of these five plays," Richels said. "While each of these plays has risks, it's likely that several will turn out to be highly economic large-scale development plays."

Devon executives recently announced that the company will drill more wells in North America's onshore this year than it originally planned, with an eye on discovering another emerging play (see Shale Daily, June 30). In early May Devon disclosed that it had added 250,000 net acres in the prospective Tuscaloosa Marine Shale, which exploration chief Dave Hager said at the time "could be equal to the Eagle Ford" shale (see Shale Daily, May 5).

Devon's North American onshore production averaged 660,000 boe/d in 2Q2011, the highest daily rate in the company's history and a more than 6% increase from 2Q2010. The increase was driven by a 12% increase in oil and natural gas liquids (NGL) production, Devon said. In addition, sales of oil, natural gas and NGLs from continuing operations were $2.2 billion in 2Q2011, a 23% increase over 2Q2010, and Devon's marketing and midstream operating profit of $148 million in 2Q2011 increased 19% compared with 2Q2010.

Devon increased its Permian Basin production to 49,000 boe/d in 2Q2011, a 17% increase compared with 2Q2010 results. Oil and NGLs accounted for 75% of 2Q2011 Permian production. Production in the Cana-Woodford shale averaged 189 MMcf/d in 2Q2010, an 80% increase from 2Q2010, and Barnett Shale production was 1.3 Bcf/d, a 13% increase from the year-ago period.

Devon was ranked as the fifth largest U.S. natural gas producer in a recent analysis by Natural Gas Intelligence of federal filings (see Shale Daily, July 14).

Excluding adjusting items -- among them a $2.5 billion gain on the sale of the Brazilian assets -- Devon earned $726 million in 2Q2011 ($1.71/share), a 2.8% increase compared with $706 million ($1.59/share) in 2Q2010.

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