Devon CEO Says Company to Build on Last Year's Big Purchases in 2011

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Researched by Industrial Info Resources (Sugar Land, Texas)--At the Independent Petroleum Association of America (IPAA) Oil and Gas Investment Symposium on April 13 in New York City, New York, Devon Energy Corporation (NYSE:DVN) (Oklahoma City, Oklahoma) President and Chief Executive Officer John Richels discussed his company's plans to drive production through 2011 by investing in U.S. and Canadian drilling and repurchasing shares.

Devon is one of the largest U.S. independent oil and gas production companies, with 2.9 billion barrels of oil equivalent in reserves at year-end 2010, 40% of which was from oil and liquid and 60% from natural gas; production was 620,000 barrels of oil equivalent per day. According to Richels, the company allocated $1.2 billion in 2010 to increasing its lease positions, including boosting its position in the Canadian oil sands. However, Richels said that the company expects to put less money into land capture in 2011: about 86% of the total budget will go to development projects, almost all of which will go to oil or liquids-rich projects. The remaining 14% will go to land capture in North America.

"We're in the fortunate position now of not only being able to fund some very robust exploration and production programs, but also allocate a material amount of capital to debt management and stock buybacks," Richels said. "In fact, we're in the process of repurchasing $3.5 billion of our outstanding stock." He expects the company to complete repurchasing by year's end.

"We're clearly in a position to compete very effectively with the large-cap peer group in terms of internally funded growth," he said.

Richels believes spending will drive top-line production growth by about 6% to 8%; with the share buyback program, it should come out to about 15% per-share growth, almost all of which comes from oil and gas-liquids growth.

The company's thermal heavy-oil business in Canada is set to expand, following a 50:50 venture with BP plc (NYSE:BP) (London, England) for the Pike development in Alberta, which has a potential for four to five Jackfish-size projects; Devon's Jackfish development, which is just north of the Pike development, consists of three phases that are each 300 million barrels recoverable. The first phase is up and running, the second is set to begin in late 2011, and the third is expected to receive regulatory approval by early 2012.

"On our existing leases at Jackfish and Pike, we expect very significant growth in oil production over the next eight or nine years; in fact, we see that growing by about 20% per year through the end of this decade, to a total of 150,000 to 175,000 barrels per day net to Devon," Richels said. "And we don't need any new leases for this. This is strictly getting out there and executing on what we already have."

Among Devon's other expansion plans for 2011 are about 170 new wells in the Lloydminster development in Alberta and Saskatchewan, which produced 40,000 barrels oil equivalent per day in 2010; about 325 new wells in the Barnett Shale development in Texas, which is expected to remain at the 2010 level of 1.2 billion cubic feet equivalent per day; more than 200 new wells in the Cana Woodford development in Oklahoma, which produced 137 million metric cubic feet equivalent per day in 2010 and is expecting 250 million in 2011; and about 300 new wells in the Permian Basin development in New Mexico and Texas, which produced 45,000 barrels oil equivalent per day in 2010 and is expecting 20% production growth in 2011.

"We're going to spend about $900 million in Barnett this year, and at about $4.50 gas, it will [create] about $1.4 billion of cash flow, or about $500 million of free cash flow, and about 80% of our midstream operating profits comes from this area as well, so that's another $400 million," Richels said.

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