Thanks to strong oil and liquids production growth and its ongoing divestiture strategy of noncore assets, Devon Energy Corp. boosted 3Q2010 net earnings to $2.1 billion, or $4.81 per common share ($4.79 per diluted common share), up from $499 million, or $1.13 per common share ($1.12 per diluted common share) during 3Q2009. Excluding adjusted items, which included the $1.5 billion gain on the sale of assets in Azerbaijan, the company earned $628 million, or $1.44 per diluted common share.
During the company's 3Q2010 earnings call, CEO John Richels said Devon plans to continue its focus on the production of liquids due to the favorable prices. "Given the significant divergence of oil and natural gas prices, similar to what we did in 2010, we expect to focus more than 90% of our 2011 capital on oil and liquids-rich opportunities within our existing portfolio," he said. "In the current environment, oil and NGLs [natural gas liquids] now account for roughly half of Devon's total oil, gas and NGL sales revenue."
Devon said the plan it implemented in late 2009 to strategically reposition itself as a focused North American onshore company continues. Devon has completed the sale of its assets in Azerbaijan and China and received aggregate pre-tax proceeds of $6.8 billion. The only significant remaining divestiture package, Devon's assets in Brazil, is under a $3.2 billion contract and is expected to close around year-end 2010, the company said, adding that total proceeds from the divestiture program are expected to exceed $10 billion with after-tax proceeds approximating $8 billion.
During the quarter Devon drilled 407 wells with an overall success rate of 99%. The company's total production averaged 613,000 boe/d, while the company's oil and natural gas liquids production totaled 193,000 boe/d, representing an 11% increase in liquids production compared to the third quarter of 2009. Unconventional plays led the way.
"On the operations front we continued the successful execution of our focused North American onshore strategy as evidenced by quarterly production records at our liquids-rich Barnett and Cana shale plays and a multi-year production high from our Permian Basin properties," Richels said.
In the Permian Basin, the company reported that increased oil and liquids-rich activity drove production 18% higher than the year-ago quarter to 44,000 b/d. The company is currently running 17 operated rigs and has assembled nearly 1 million net acres of leasehold targeting the Avalon Shale, Bone Spring, Wolfberry and a number of other plays.
Production from the company's Cana-Woodford Shale play in western Oklahoma averaged a record 117 MMcfe/d, representing an increase in production of 122% over the year-ago quarter. Devon said it expects to commence operations from its Cana gas processing plant by the end of 2010.
In the Granite Wash in the Texas Panhandle Devon drilled three "significant" horizontal wells during the quarter with initial production averaging 4,290 Boe/d, including 605 barrels of oil and 1,450 barrels of natural gas liquids per day. The company has an average working interest of 65% in the wells.
In North Texas Devon increased its net production from the Barnett Shale field to an all-time high of 1.2 Bcfe/d, including 40,100 b/d of liquids production, representing an 8% increase in production compared to the third quarter of 2009.
Sales of oil, gas, and NGLs from continuing operations were $1.7 billion in 3Q2010, representing a 14% increase compared to the year-ago quarter. Higher realized natural gas and liquids prices more than offset a decrease in production following the divestiture of Gulf of Mexico properties in the second quarter of 2010.
As part of the company's divestiture program, the company previously announced that a portion of its divestiture proceeds would be utilized to repurchase $3.5 billion of common stock. As of Sept. 30, Devon had repurchased 14.7 million shares of its common stock for $936 million. In addition, Devon directed $1.7 billion of sales proceeds to reduce debt balances and allocated $1.2 billion to capture leasehold across its North American onshore property base, principally in oil and liquids-rich areas.
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