Devon to boost rig count in Delaware basin, STACK play

Devon Energy Corp., Oklahoma City, now says it plans to add as many as 7 operated rigs to its acreage in the STACK play of Oklahoma and Delaware basin of Texas during the second half, with resulting incremental production seen in early 2017.

That’s up from the 3-rig plan reported in June. The increased activity is reflected by a $200-million increase in Devon’s full-year upstream capital program to $1.1-1.3 billion.

Devon’s second-quarter accrued upstream capital spending, which accounts for activity incurred during the reporting period, amounted to $221 million, down $29 million from the low end of the firm’s guidance range.

The firm reports operating cost savings from lease operating expenses (LOE), which is Devon’s largest field-level cost. LOE fell 26% $416 million compared with that of second-quarter 2015, and was 5% below the low end of guidance. The drop was primarily driven by improved power and water-handling infrastructure, declining labor expense, and lower supply chain costs.

As a result, Devon is lowering its full-year LOE outlook by $150 million to $1.6-1.7 billion, and is now on track to reduce LOE and production taxes by nearly $600 million compared with that of 2015.

Quarterly loss sustained

Even with the operational efficiencies, Devon took a second-quarter net loss of $1.57 billion compared with a second-quarter 2015 net loss of $2.82 billion. During the first half, the firm posted a net loss of $4.63 billion compared with $6.42 billion in first-half 2015.

Including the sale of its 50% interest in the Access Pipeline, Devon’s divestiture program is now complete at $3.2 billion, exceeding the top end of the firm’s $2-3 billion guidance range (OGJ Online, July 14, 2016). At least two thirds of sales proceeds are expected to be utilized for debt reduction, while the remaining amount will be reinvested in the firm’s US resource plays, Devon says.

Companywide net production was 644,000 boe/d during the second quarter. Of this amount, 545,000 boe/d was attributable to the firm’s core assets, where investment will be directed going forward. Production from core assets exceeded the midpoint of guidance by 6,000 boe/d, driven entirely by US resource plays.

Within the Devon’s US resource plays, production averaged 419,000 boe/d, highlighted by strong results from the STACK and Delaware where aggregate production increased 27% year-over-year. Light-oil production from US resource plays, which is Devon’s highest margin product, averaged 110,000 b/d, exceeding the top end of guidance by 2,000 b/d.

In Canada, net oil production from Devon’s heavy-oil projects averaged 121,000 b/d in the second quarter. Driven by the performance of the Jackfish 3 facility, Canadian oil production increased 24% compared with that of second-quarter of 2015. Scheduled maintenance at the Jackfish 2 facility curtailed production by 11,000 b/d in the quarter.