Devon Energy Primed For Oil Sands Growth

By Eric Fox | July 08, 2011 AAA

Devon Energy (NYSE:DVN) is active in the Canadian oil sands and has a number of expansion projects under construction or in the planning stages here. The company estimates that production from all its oil sands projects could increase to as much as 175,000 barrels of oil per day by 2020.
TUTORIAL: The Industry Handbook: The Oil Services Industry

Current Projects
Devon Energy is currently producing from the Jackfish 1 and Jackfish 2 projects on its oil sands leases in Alberta. Jackfish 1 is producing near its maximum capacity of 35,000 barrels of oil per day, while Jackfish 2 is expected to reach the same maximum capacity at the end of 2012. (Oil and gas investments can provide unmatched deduction potential for accredited investors. For more, see Oil: A Big Investment With Big Tax Breaks.)

Expansion Projects
Devon Energy has several expansion projects planned on various parts of its leases in Canada. The company filed for regulatory approval of Jackfish 3 in 2010 and expects to start construction in 2012. The company expects first production from Jackfish 3 in the 2014 to 2015 time frame. Jackfish 3 will be similiar to the the two previous projects and have the same productive capacity.

Jackfish Expansion
Devon Energy is also working on the Jackfish East expansion, which will be a smaller version of its current Jackfish operations.

Jackfish East will have gross productive capacity of 20,000 barrels of oil per day with a gross EUR of 150 million barrels of oil. If the project gets regulatory approval, construction at Jackfish East will begin in 2016 with production starting in 2018 or 2019. (Changes in the price of oil aren't arbitrary. For more, see What Determines Oil Prices?)

Joint Venture
Devon Energy is also involved with the Pike joint venture, where the company is the operator and owns a 50% working interest. The company believes that the reservoir in the Pike area has similar characteristics to the Jackfish projects and has already started delineation work at the site.

Devon Energy estimates that the Pike joint venture can support three phases of development, with each phase having a productive capacity of 35,000 barrels of oil per day. If the company moves forward with this expansion, first production is expected in 2016. Devon Energy reports that the company has total gross risked resources of 729 million barrels of oil at the Pike joint venture.

Production Growth
Devon Energy projects that production from its oil sands properties will increase at a compound annual growth rate between 17 and 19% through 2020. This would put production in a range of 150,000 to 175,000 barrels of oil per day by that time.

Other Players
Many other operators are active in developing the oil sands deposits in Canada. One of the largest projects is the Athabasca Oil Sands Project (AOSP), which is operated and 60% owned by Royal Dutch Shell (NYSE:RDS). The project has a current capacity of 155,000 barrels of oil per day, and Royal Dutch Shell has a 100,000 barrel per day expansion under construction. Other oil and gas companies involved at AOSP are Chevron (NYSE:CVX) and Marathon Oil (NYSE:MRO), each of which have a 20% ownership stake.

The Bottom Line
Devon Energy has a large position in the Canadian oil sands and plans an aggressive development program on its leases over the next decade. The company estimates that production may increase more than five-fold by the end of the decade. (For related reading, see How Does Crude Oil Affect Gas Prices?)

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