Devon Energy (NYSE:DVN) has increased the company's 2012 capital budget by $1 billion over previous levels, with the extra funds to be used for exploration and additional oil and gas leasehold acquisitions during the year. The company is targeting various crude oil and other liquid plays in the onshore United States.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

2012 Capital Budget
Devon Energy's original capital budget was set in a range from $5.1 billion to $5.5 billion, with 90% of the funds devoted to the development of the company's extensive domestic inventory, and only 10% allocated to exploration and leasehold acquisitions.

The new budget adds an additional $1.07 billion for these purposes, bringing the exploration and acquisitions budget to $1.6 billion, or 25% of the total. The company's five-year capital plan calls for exploration and production spending of $35.4 billion through 2016.

Leasehold Acquisitions
Devon Energy will spend $350 million on acreage prospective for the Cline Shale in the Permian Basin, and $500 million on an undisclosed play in the onshore U.S. The company has already acquired 250,000 net acres exposed to this new play and is targeting a total position of 500,000 net acres.

It will use the final additional $220 million on various other undisclosed plays that produce oil and liquids.

Cline Shale
The company has built up a position of 500,000 net acres prospective for the Cline Shale and plans to drill 15 wells into this play in 2012. It estimates that unrisked resources here may total 3.6 billion barrels of oil equivalent (BOE). See Understanding Oil Industry Terminology.

Other operators have started to explore and develop the Cline Shale formation. Range Resources (NYSE:RRC) has 100,000 net acres exposed to this play and recently reported the production results of a well drilled and completed to this formation. The well had an initial production rate of 600 BOE per day, and an estimated ultimate recovery (EUR) of 340,000 BOE.

Laredo Petroleum Holdings (NYSE:LPI) is also active in the Permian Basin and has allocated $560 million in capital for the Cline Shale and other plays here.

Apache Corp (NYSE:APA) is also targeting the Cline Shale and other plays in the Permian Basin. The company plans to spend at total of $1.7 billion to develop the Permian Basin in 2012, and will drill six wells to the Cline Shale in 2012.

Production Growth
Devon estimates that it will grow production by a 6 to 8% compound annual growth rate (CAGR) from 2011 to 2016. Crude oil and natural gas liquids production will increase at a faster rate and grow at a 16 to 18% CAGR over that time.

The Bottom Line
Devon Energy is taking advantage of its large cash hoard to increase its exploration and acquisitions budget for 2012. The company's decision two years ago to divest its offshore and international oil and gas segments has turned out to be a prescient one and has added to shareholder value. See What Determines Gas Prices?

Use the Investopedia Stock Simulator to trade stocks mentioned in this stock analysis, risk free!

At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  3. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  4. Stock Analysis

    What Exactly Does Warren Buffett Own?

    Learn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
  5. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  6. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  7. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  8. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  9. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  10. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Trading Center