Onshore unconventional powerhouse Devon Energy Corp. plans to spend “significantly less” on exploration in 2013, but exploration activity still will remain at 2012 levels, CEO John Richels said last week.

The formerly natural gas-focused independent has run from gas and liquids — even though it has a cupboard full of prospects — on low prices. Today all of the attention is for unconventional oil prospects in North America.

“Even with this reduced level of spending, we expect to maintain an oil-focused drilling program with activity levels similar to those in 2012,” Richels told analysts during a conference call. “The organic conversion of our asset portfolio to oil weighting remains on track. We continue to invest a majority of our capital in high-margin North American oil projects. Over time, with a higher rate of return and greater capital efficiency, it should result in superior growth.”

However, operational issues weighed on the company’s output in the latest quarter, with “third quarter top line production about 1% below the midpoint of our guidance,” Richels said. “The shortfall came on two factors: lower volumes from liquids-rich prospects than we initially planned, and the Jackfish ramp-up was slower than expected.” Jackfish is Devon’s massive oilsands complex in Alberta. It was shuttered for three weeks for a turnaround, followed by a two-week restart. Without the turnaround downtime, Devon’s oil production in the quarter would have increased more than 20%, he said.

Meanwhile, U.S. oil production jumped 26% year/year, “driven largely by success in the Permian Basin,” where output jumped 35% year/year and accounted for nearly 60% of Devon’s 65,000 boe/d produced in the basin.

Devon is planning to spend “significantly less” in the coming year than in 2012 “because of less leasehold capture,” said Richels. Also the company will have “higher drillbit activity” on joint venture (JV) projects; partners would “fund roughly 80% of well costs. And in 2013 we plan to aggressively pursue Permian activities, expand oilsands in Canada and accelerate the Mississippi Lime play.”

Total production averaged 678,000 boe/d, 3% higher than a year ago. Year/year declines in natural gas volumes driven by reduced activity levels in liquids-rich gas projects partially offset the company’s oil production growth. Average daily oil-equivalent output was 2.6% higher than in 3Q2011. Realized prices, excluding hedging effects, fell 20%.

In October Devon announced that it would consolidate its North American exploration and production operations group in Oklahoma City, where it long has been headquartered, and would close its Houston office by the end of March. The consolidation is expected to result in some cost savings, said the CEO. Other cost savings are to come through JVs and outright sales.

The company in August agreed to sell 30% of its stake in about 650,000 net acres in the Permian Basin’s Cline and Midland-Wolfcamp shales to Japan’s Sumitomo Corp. in a transaction valued at an estimated $1.4 billion (see NGI, Aug. 6). Gathering and processing assets in the Barnett Shale also were sold to Crestwood Midstream Partners. And Devon entered a JV early this year with China’s Sinopec Group, which is helping to fund activity in the Tuscaloosa Marine Shale, Niobrara formation, Mississippian Lime, Ohio’s Utica Shale and the Michigan Basin (see NGI, Jan. 9).

Devon reported a net loss in 3Q2012 of $719 million (minus $1.80/share), compared with profits a year ago of $1.04 billion ($2.50). Excluding a one-time $1.1 billion asset-impairment charge related to natural gas prices adjusted earnings were $355 million (88 cents). Revenue plunged 47% year/year to $1.87 billion. Wall Street had forecast earnings of 69 cents/share on revenue of $2.27 billion. Cash flow from operations was $1.4 billion in the latest quarter. Combined with $533 million in cash payments from closing the Sumitomo JV, as well as other asset sales, cash inflows totaled $1.9 billion.

©Copyright 2012Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.