Devon Energy sets sights on new plays

$350M to be spent on 90 wells this year

This is a “critical year” for Devon Energy Corp.’s exploration program in Canada as it investigates 10 new conventional oil and gas plays while continuing to build its oilsands operations, investors were told Wednesday.

“We know that many of the Canadian engineers are having success in these plays, but the question is, is whether the scale will be big enough for Devon,” said Dave Hager, Devon’s head of exploration and production, during an investor day presentation in Houston.

“And so if it’s not, we’re going to look at various ways to realize the value of our positions and our success.”

He explained that could mean selling or finding joint venture partners on some of the plays.

The Oklahoma City company said it plans capital spending of $6.1 billion to $6.5 billion US this year, up $1 billion from its original budget range.

On Thursday, its shares closed down 11 cents at $71.17 on the New York Stock Exchange.

Hager pointed out that the company has over 1.6 million hectares of prospective oil and liquids-rich natural gas drilling rights in Western Canada and expects to spend $350 million there to drill about 90 wells this year, testing plays including the Viking in Saskatchewan and the Cardium, Montney and Second Specs in Alberta.

Chris Seasons, president of Devon Canada, said later in the meeting that the company is accelerating its oilsands schedule and will make regulatory application this year for its initial Pike series of three 35,000-barrel-per-day projects it owns 50:50 with BP Canada. Initial production with Devon as operator is expected to begin in 2016.

Seasons said Devon’s 100 per cent owned Jackfish 2 project, meanwhile, which finished construction and began steaming a year ago, was producing 14,000 bpd at year-end and is now at 18,000 bpd.

Jackfish 3, approved by the province in December, started field construction in January and is already 30 per cent complete, he added.

Each of the Jackfish phases is for 35,000 bpd. Devon is also proposing a Jackfish East project which would start up in 2019 and produce 20,000 to 25,000 bpd.

“We’re at on Jackfish 1 a steam-oil ratio of 2.67, the industry is about 3.5,” he said, referring to a measure of efficiency that states how many barrels of steam it takes to produce one barrel of oil.

“On a production per well, we’re about double the average production per well, running 930 barrels a day versus 460 on average. So clearly we’re in the right neighbourhood and doing a few things right.”

Devon hopes to grow its oilsands output from 43,000 bpd at Dec. 31 to 150,000 to 175,000 bpd by 2020.

The company which is more than 50 per cent weighted to natural gas production expects declines in output this year as it starves that division of funding. But it said it expects oil output to grow by 22 per cent to 24 per cent, driven mainly by growth in output from the Permian Basin in Texas and at Jackfish.

Devon said it has amassed 200,000 hectares in the Cline shale in West Texas that hold oil, adding it may pursue a joint venture there similar to its $2.5-billion US deal with Sinopec that gives the Chinese oil company a onethird stake in five developing oil and gas formations in the United States.