The volatility in commodities, particularly the energy market, has investors looking for oil plays. With earnings season just past, their is no shortage of candidates growing their production. We'll look at one company's progress and plans for 2011. Devon Energy (NYSE:DVN) reported an increase in production in the first quarter of 2011, and disclosed a position in a new shale oil play in the United States. The company is also nearly finished with the divestiture program that will complete its reorientation to a domestic onshore oil and gas company. (Find out how to take advantage of this market without having to open a futures account. For more, see A Guide To Investing in Oil Markets.)
TUTORIAL: The Industry Handbook: The Oil Services Industry
Devon Energy reported average daily production of 629,000 oil equivalent barrels (BOE) per day in the first quarter of 2011, with approximately 33% of this production composed of liquids. The company said that this production was up 7% over the first quarter of 2010, and the increase was led by its operations in the Woodford and Barnett Shale areas. (For more, see Oil And Gas Primer.)
The New Shale Play
Devon Energy also disclosed a new acreage position in the Tuscaloosa Marine Shale, a Cretaceous age formation located across parts of Louisiana and Mississippi. Devon has assembled a 250,000 net acre position at an average cost of $180 per acre and plans to drill two horizontal wells later in 2011.
Devon Energy compared the play to the Eagle Ford Shale and will be targeting the section of the Tuscaloosa Marine Shale play that contains oil and liquids. The company said that recent vertical wells drilled into the formation had initial production rates of 300 BOE per day.
Other Companies in the Mix
Encore Acquisition Company was involved with the Tuscaloosa Marine Shale in 2008, and leased up more than 200,000 acres. The company drilled two wells here but shifted attention to other areas as oil prices declined.
Denbury Resources (NYSE:DNR) purchased Encore Acquisition Company in 2010, and the company recently announced that it was involved in a two well joint venture in the Tuscaloosa Marine Shale.
Other exploration and production companies are also working on establishing positions in new basins but haven't disclosed any information due to competitive reasons. Newfield Exploration (NYSE:NFX) stated in its first quarter of 2011 earnings report that the company was acquiring acreage in an undisclosed resource play. The company increased its 2011 capital budget by $200 million and plans to use part of these extra funds to continue leasing more acreage. (For more, see An Overview of Commodities Trading.)
Devon's Strategic Repositioning
Devon Energy announced a strategic repositioning in late 2009 that involved the divestiture of the company's international and offshore properties, leaving Devon Energy as an onshore domestic operator. The company moved quickly to sell these assets and is currently awaiting regulatory approval on the sale of its Brazilian assets, the last major portion to be divested. These assets are being purchased by BP (NYSE:BP).
Devon Energy announced a position in a new shale play in the Gulf Coast area and plans to start horizontal drilling later in 2011. Moreover, the company is almost done with the strategic shift to an onshore domestic oil and gas company. (For more, see How To Invest In Commodities.)
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