Devon Energy Corp., which continues to be weighted to natural gas, said its embrace of North American liquids and oil lifted production to record numbers in the final three months of 2011.

The company’s liquids production jumped in 4Q2011 by 21% to 238,000 b/d and helped to drive total North American onshore oil and gas output up by 10% to a record 680,000 boe/d. Total production in 4Q2010 was 618,000 boe/d.

Although the stock market suffered losses almost across the board, Devon’s report sent the company’s share price up by more than 7% in heavy trading to end the day at $71.70, a gain of $4.80/share.

Devon, which became the biggest unconventional gas producer in North America when the Barnett Shale first gained the spotlight, continues to produce gas — a lot of gas. In fact, total gas output is predicted to be up by around 10% this year.

However, the company today is not actively developing any dry gas plays, exploration and production (E&P) chief Dave Hager said during a conference call to discuss the quarterly and year-end performance.

“The dry gas we are working in the company is zero,” Hager told analysts. “We have no rigs drilling dry gas opportunities…Everything we are drilling is liquids-rich and oil. Even with this, in the Barnett, we have associated gas from the liquids production, and we continue to grow gas…We still have 2,500-3,000 locations in the Barnett, a very deep inventory.

“Company wide, natural gas is declining and will be flat to down in the Barnett, but we will continue to grow gas production from liquids from a portion of the Barnett…” In Devon’s other big, dry gassy plays, which include East Texas, the Rockies and in Canada, no dry gas development is under way, he said.

CEO John Richels said the “only reason gas production was up at all was because of drilling in liquids-rich gas areas.” In the Cana-Woodford Shale, “the core areas have a terrific liquids component..and the core of the Barnett has a high liquids content but it’s producing some gas.

“In dry gas areas, like the Rockies and conventional areas in Canada and East Texas, no capital is being directed to gas, and it’s declining…”

Even with the move to liquids and oil, Devon’s total North American gas production rose in the final quarter to 244.3 Bcf from 233.2 Bcf a year earlier. U.S. onshore gas production climbed to 191.8 Bcf from 180.6 Bcf, while Canadian gas output was flat at 52.5 Bcf. Total gas production averaged 2.085 Bcf/d in the quarter, compared with 1.963 Bcf/d in 4Q2010.

Devon’s portfolio long has had liquids-rich and oily plays, and it wasn’t difficult to restructure onshore operations as gas prices were falling.

“We had record production from each of our four core development areas that contributed to this strong liquids growth,” Richels said. “We have 42% of production in oil, and most of it is in black oil…Dry gas projects are increasingly challenged in the current environment. Ninety percent of our capital in 2011 was in oil and liquids. In 2012, virtually all of our capital will be allocated to liquids-rich project areas.”

Devon’s management team has long believed that a “balanced portfolio provides better adjusted returns than having just oil or gas,” said Richels. “A diversified portfolio allowed us to easily deploy capital to liquids-rich projects without having to shift our focus or overpay for new liquids projects.”

By the end of this year Devon is forecasting that oil production will be up 20% and that it will have “double-digit growth” in natural gas liquids (NGL). Liquids will make up 40% of the company’s total output by the end of 2012; 60% of that component will be oil, said the CEO.

E&P capital spending totaled $1.9 billion in the final quarter, which included $400 million for “opportunistic leasehold acquisitions,” consisting of acreage additions in Ohio’s Utica Shale and leasehold capture in an “undisclosed, new oil opportunity.”

In the Permian Basin oil and NGL output rose 22% in the quarter. Liquids production accounted for nearly 75% of the 53,000 boe/d produced in the basin. Devon completed eight operated Bone Spring wells in 4Q2011 with initial daily production per well averaging more than 600 boe/d.

Production from the Cana-Woodford Shale in western Oklahoma jumped 83% year/year. Net output averaged a record 250 MMcfe/d, including 3,100 b/d of oil and 7,400 b/d of NGLs. Barnett Shale output also hit a record 1.32 Bcfe/d in the final period, 11% higher than in 4Q2010. Barnett liquids production accounted for 21% of the total output, averaging 47,000 b/d. Six operated Granite Wash wells were brought online in the final period with initial production averaging 1,300 boe/d. Quarterly output from the Granite Wash reached 19,100 b/d, which was 47% higher than in 4Q2010.

Marketing and midstream profits rose 6% in 4Q2011 from a year ago to $542 million, which Devon attributed to higher gas throughput and higher NGL pricing.

Low natural gas prices pressured the Oklahoma City-based producer’s quarterly profits, which fell to $507 million ($1.25/share) from $562 million ($1.30), but the latest earnings results still beat Wall Street expectations by 8 cents/share. In 2011 Devon earned a record $4.7 billion ($11.29/share) versus 2010’s $4.6 billion ($10.35); cash flow from continuing operations was 23% higher at $6.5 billion.

Estimated proved reserves at the end of 2011 reached a record 3 billion boe. The company added 386 million boe in 2011 through drilling (extensions, discoveries and revisions other than price). Associated drill-bit capital invested totaled $6.9 billion, including $1.5 billion spent on exploration and acreage acquisitions.

“Our total drill-bit reserve additions comfortably outpaced production, including a liquids reserve replacement rate exceeding 230%,” said Hager. “These reserves were added at attractive finding and development costs while investing $1.5 billion on acreage acquisitions and exploration activity focused on enhancing growth in future years.”

Proved reserves from oil and natural gas liquids (NGL) increased to 42% of total proved reserves in 2011. Proved developed reserves reached 2.2 billion boe, or 74% of total proved reserves. Production from North American onshore operations averaged 658,000 boe/d in 2011, which was 8% higher than in 2010. Sales of oil, gas and NGL from continuing operations jumped 14% to $8.3 billion; liquids sales comprised nearly 60% of Devon’s total upstream revenues.

This year the producer expects to make significant progress in five emerging unconventional U.S. plays. Last month Devon clinched a joint venture exploration transaction with China’s Sinopec International Petroleum Exploration & Production Corp. for the Mississippi Lime, Tuscaloosa Marine Shale, Niobrara formation, Utica Shale and the Michigan Basin (see Daily GPI, Jan. 4). By the end of this year the companies expect to have drilled about 125 gross wells.

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