Devon Energy Corp., which ran five rigs in the U.S. onshore during the third quarter, may have as many as 10 in operation by year’s end, the Oklahoma City-based independent said Tuesday.

The activity is expected to result in $400-425 million of exploration and production capital spending in the final three months and follows a boost in activity from a 37% decrease in lease operating expenses (LOE) from peak rates, which should contribute to $1 billion of cost savings this year.

Meanwhile, production in the go-to play, the Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties, aka the STACK, rose 38%..

“Devon delivered an outstanding operational performance in the third quarter,” CEO Dave Hager said. “Our development programs generated the best quarterly drillbit results in Devon’s 45-year history. These prolific well results were centered in the STACK play, where production increased by 38%…”

Devon drilled 37 of 52 total wells in the STACK during 3Q2016 and it ran four rigs in the play. In the Permian Basin’s Delaware sub-basin, eight wells were drilled and one rig was operated, while in Canada’s heavy oil region, three wells were drilled with one rig.

STACK production averaged 92,000 boe/d between July and September, while Delaware output was 59,000 boe/d. Eagle Ford Shale output averaged 61,000 boe/d, while heavy oil production was 140,000 boe/d. Barnett Shale was still responsible for the most output, despite no wells drilled and no rigs there, at 166,000 boe/d. Rockies oil accounted for 16,000 boe/d, while “other” assets accounted for another 16,000 boe/d.

Total production worldwide averaged 577,000 boe/d in the quarter, which included 1.231 Bcf/d of natural gas. A year ago Devon produced 1.319 Bcf/d.

Excluding divestitures, production from the retained asset base amounted to 550,000 boe/d. With the shift to higher-margin production, oil for the first time is Devon’s largest component of product mix at 45% of total volumes. To further enhance production profitability, Devon rejected about 6,000 b/d of ethane in the period.

Most of Devon’s retained asset production was attributable to U.S. resource plays, which averaged 410,000 boe/d. Production benefited from new well activity that was record setting. In aggregate, Devon started up production on 20 development wells, with initial 30-day rates averaging an all-time quarterly high of 2,000 boe/d. The prolific results were concentrated in the STACK, where production increased 38% year/year.

In Canada, heavy-oil operations also delivered impressive results with net output reaching 137,000 b/d. Led by the Jackfish complex, Canadian oil production increased 13% from a year ago.

“In addition to our strong operating performance, we were able to successfully complete our $3.2 billion divestiture program,” Hager said. “These accretive transactions strengthened our investment-grade position and significantly reduced our leverage from earlier this year. This improved financial strength allows us to further accelerate investment in our best-in-class U.S. resource plays,” led by the STACK and the Permian Basin’s Delaware sub-basin.

Looking ahead, fourth quarter production from retained assets is expected to be “relatively stable” from third quarter levels at 238,000-248,000 b/d. Key drivers are high activity levels in the STACK and accelerated completion activity in the Eagle Ford Shale. Top-line production from retained assets is projected to range between 524,000 boe/d and 546,000 boe/d.

Cost-reduction initiatives resulted in LOE of $355 million in 3Q2016, 8% below the low end of guidance. The strong cost result represented a decline of 37% from peak costs in mid-2015. The decrease in LOE primarily was driven by improved power and water-handling infrastructure, declining labor expense and lower supply chain costs.

Devon also realized significant general and administrative (G&A) cost savings, with net G&A spending declining to $141 million. Including capitalized costs, total G&A expense declined to $195 million, a 44% improvement from peak rates in early 2015, driven mostly by reduced personnel costs.

Because of solid cost reductions year-to-date, Devon has lowered its full-year 2016 LOE outlook by $55 million to a midpoint of $1.6 billion. With the improved outlook, Devon is on track to reduce LOE, production taxes and G&A costs by $1 billion from 2015.

Improving commodity prices advanced upstream revenue to $1.1 billion in 3Q2016, with per-unit realizations increasing 13%. Oil revenue increased to 67% of total upstream sales in the quarter.

Midstream results also improved, with operating profits of $210 million, which brought the year-to-date total to $619 million, a steady source of profitability driven by Devon’s majority ownership of EnLink Midstream. Year-to-date, EnLink-related operating profit has expanded 7% from the same nine months of 2015.

EnLink’s growing profitability is derived from an asset base that includes the STACK, the Permian’s Midland and Delaware sub-basins and a natural gas liquids business that services end-user demand along the Gulf Coast. In aggregate, ownership in EnLink is valued at about $3.5 billion and is expected to generate cash distributions of $270 million in 2016.

Devon exited September with $2.4 billion of cash on hand. Adjusted for the recent Access Pipeline sale in Canada, cash balances reached $3.5 billion (see Shale Daily, July 14). At the end of September, consolidated debt totaled $11.4 billion. The hedging position in 2017 was increased for more than 30% of current oil and natural gas production, adding 83,000 b/d of oil and 390 MMcf/d of gas volumes.

Net earnings jumped year/year to $993 million ($1.89/share) from a year-ago loss of $3.5 billion (minus $8.64). Operating cash flow reached $726 million, a 117% sequential increase. Combined with proceeds received from asset sales, total cash inflows for the quarter reached $2.4 billion.