Devon Energy (NYSE:DVN) plans to reduce spending on oil and gas drilling in 2012 while continuing the company's focus on crude oil and liquids plays on its vast onshore North American property base.
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2012 Capital Budget
Devon Energy plans to spend between $5.1 billion and $5.5 billion in capital on exploration and development in 2012, down from $6.6 billion in 2011. The company signed an agreement with Sinopec (NYSE:SHI) to jointly develop five emerging unconventional plays, and will partially offset this capital plan through the receipt of $900 million from that company in 2012. (For related reading, see A Guide To Investing In Oil Markets.)
Devon Energy estimates that this level of spending will lead to production in a range from 690,000 to 700,000 barrels of oil equivalent (BOE) per day in 2012. The company reported production of 658,000 BOE per day in 2011.
One major focus for Devon Energy in 2012 will be the Permian Basin, where the company plans to spend approximately $1 billion during the year. The company's development plan here calls for 300 wells in 2012 targeting various formations including the Bone Springs, Wolfberry and Wolfcamp Shale.
Devon Energy seemed particularly optimistic on the Wolfcamp shale, where it has 92,000 net acres under lease. The company has drilled four horizontal wells here to date, with the best performing well coming in with an initial production rate of 935 BOE per day.
The Permian Basin is attracting many other operators as the industry looks for crude oil and other liquids opportunities. Energen Corp. (NYSE:EGN) recently added to its position here, spending $65.8 million to purchase 32,000 net acres.
Devon Energy plans an active development program in the Barnett Shale and has allocated $950 million to drill 300 wells. The company is currently operating 10 rigs in the Barnett Shale but plans to move two of these rigs to the Permian Basin in the second quarter of 2012.
EOG Resources (NYSE:EOG) is also active in the Barnett Shale and recently added 25,000 net acres to its position here.
The Cana Woodford Shale will also see substantial capital in 2012, with Devon Energy drilling 200 wells at a cost of $870 million.
Devon Energy also advanced on those plays included in the company's new ventures group and in the joint venture with Sinopec. The company reported successful wells at the start of drilling in various areas including a Mississippian oil play in Oklahoma, the Niobrara in Colorado, the Tuscaloosa Marine Shale and the A1 Carbonate in Michigan. (For related reading, see What Determines Oil Prices?)
New Oil Play
Devon Energy also reported that it has started accumulating leasehold in a new onshore oil play in North America. The company would not disclose the location or price per acre due to competitive reasons, and said that it was targeting a total position size between 300,000 and 500,000 net acres.
The Bottom Line
Although Devon Energy was a first mover into the unconventional oil and gas space more than a decade ago, the company is not counting on those early plays and is advancing steadily on various emerging areas of its portfolio. This effort will set up Devon Energy for the future growth that many investors crave.
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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.