Devon Energy Hikes Stakes in Eagle Ford and Permian, Expands in Canadian Oil Sands as Revenues Soar

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading U.S. oil and gas company Devon Energy Corporation (NYSE:DVN) (Oklahoma City, Oklahoma) reported solid growth in second-quarter 2014 as it boosted U.S. oil production 79% from the same period last year, largely from growth in the Eagle Ford Shale and Permian Basin. As natural gas prices have remained low, Devon is turning to such oil-rich hot spots.

Industrial Info is tracking more than $6.8 billion in active projects involving Devon, including the $1.05 billion construction of Pike, a new in-situ oil sands project in the Southern Athabasca Oil Sands region, near Lac La Biche, Alberta. The project involves constructing field-gathering and production facilities, and a central processing facility, to produce 35,000 barrels per day (BBL/d) of bitumen from oil sands deposits, utilizing steam-assisted gravity drainage technology. The company is planning additions within the next two years that will take bitumen production to 70,000 BBL/d. Initial production is expected to begin in 2016. Devon and BP Canada Energy, a subsidiary of BP plc (NYSE:BP) (London, England) each hold a 50% working interest in Pike.

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Total revenues stood at $4.51 billion, a 46.05% increase from the same period last year. Total production of oil, natural gas and natural gas liquids (NGL) increased 14% to 667,000 barrels of oil equivalent per day (or 620,000 barrels, when excluding divested assets). In the U.S. operations alone, oil production jumped 79%, driven largely by growth in the Permian Basin and Eagle Ford Shale. In the Permian, Devon added 22 wells to the Bone Spring play in the Delaware Basin and brought 30 online in the Wolfcamp Shale; in the Eagle Ford, Devon added 60 wells and completed construction on the 56-mile Victoria Express Pipeline, which runs from DeWitt County to the Gulf Coast.

In Canada, Devon's Jackfish 1 and Jackfish 2 thermal oil projects continued to see growth, with gross production surpassing nameplate capacity at Jackfish 1. Western Canadian Select benchmark pricing also improved during the quarter, boosting price realizations at the Jackfish projects 22%.

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Net earnings for the quarter were reported to be $675 million, a 1.17% decrease from second-quarter 2013; the decline was attributed largely to higher operational expenses from new and expanded facilities.

Capital expenditures were reported to be $1.93 billion for the quarter, with a little more than half attributed to U.S. exploration and development. Eagle Ford and Cana acquisitions accounted for $231 million. For the first half of 2014, capital expenditures were reported to be $9.54 billion, with Eagle Ford and Cana acquisitions making up $6.36 billion.

Also during the quarter, Devon completed the sale of its Canadian conventional gas business for $2.8 billion, and agreed to sell all of its non-core U.S. oil and gas properties to Linn Energy LLC for $2.3 billion. The asset sales were part of a program announced late last year in which Devon will shift its focus to its high-growth properties by selling off non-core U.S. and Canadian assets, 77% of which in the second quarter was natural gas. For more information, see July 23, 2014, article - Devon Shifts Focus to Eagle Ford Oil Plays with Asset Sale to LINN Energy

"We're applying these proceeds [from the asset sales] to strengthen our balance sheet by reducing the debt taken on to fund our Eagle Ford acquisitions," said John Richels, the president and chief executive officer of Devon, in a conference call. "Our go-forward assets are generating excellent, full-cycle returns, we have a strong investment-grade balance sheet, and we have a deep inventory of highly economic, low-risk development projects in some of the most attractive basins in North America."

Devon executives believe the company is in a position to deliver high-margin growth for the next few years, with almost 60% of production consisting of liquids by the end of 2014. In the Eagle Ford, Devon expects to average between 70,000 and 80,000 barrels of oil equivalent per day for the full year. In Canada, first oil production from the Jackfish 3 thermal oil project is expected in the third quarter, and production is expected to ramp up throughout 2015. Peak production at the three Jackfish facilities is expected to reach 105,000 barrels per day.

"Our retained asset portfolio remains on track to deliver companywide oil production growth of more than 30% year-over-year," Richels said in the conference call. "This exceptional oil growth rate is driven entirely by the 70%-plus increase we expect in U.S. light oil production."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.