During this period of record volatility in the natural gas market, Devon Energy has made an effort to reduce its downside commodity price risk with several hedging instruments, including costless collars, price swaps and fixed price transactions that cover a substantial amount of its natural gas production. The company became the largest independent natural gas producer in North America last month with its Oct. 15 acquisition of Anderson Exploration. The deal increased its gas production to 2.2 Bcf/d.

For the fourth quarter, Devon entered into price swaps and fixed price contracts covering 147,000 MMBtu/d at an average price of $2.70/MMBtu. The price swaps and fixed price contracts will be settled using the first of the month published index prices in the regions in which the gas is produced. Devon also entered into costless collars for the fourth quarter covering 40,000 MMBtu/d. The average floor and ceiling prices for the costless collars are $3 and $3.38/MMBtu, respectively.

In aggregate, including previously disclosed transactions, Devon has downside price protection in place for 513,000 MMBtu/d in the fourth quarter at an average price of $3.06/MMBtu. For 2002, Devon recently entered into price swaps and fixed price contracts covering 220,000 MMBtu/d at an average price of $2.79/MMBtu. The price swaps and fixed price contracts will be settled using the first of the month published index prices in the regions in which the gas is produced. In aggregate, including previously disclosed transactions, Devon has downside price protection in place for 685,000 MMBtu/d in 2002. This downside price protection is at an average price of $3.02/MMBtu.

For 2003, Devon entered into price swaps and fixed price contracts covering 118,000 MMBtu/d at an average price of $3.17/MMBtu. These price swaps and fixed price contracts also will be settled using the first of the month published index prices in the regions in which the gas is produced. Devon also recently entered into costless collars for 2003 covering 300,000 MMBtu/d with average floor and ceiling prices for the costless collars at $2.91 and $3.85/MMBtu, respectively. In aggregate, Devon has downside price protection in place for 439,000 MMBtu/d in 2003. This downside price protection is at an average price of $3.03/MMBtu.

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