Devon details inventory upside in Delaware basin

Nov. 15, 2021

Devon Energy executives the first week of November said they have identified at least 2,500 possible low-risk development locations in their footprint—a number that, at the company’s current pace, constitutes more than 10 years of work.

President and Chief Executive Officer Rick Muncrief and his team presented the information along with Devon’s third-quarter results, which showed a net profit of $838 million (versus a $92 million loss in the prior-year quarter) on revenues of nearly $3.5 billion. A major factor in that big increase were productivity gains in the Delaware basin, where Devon gets two-thirds of its output: Drilling and completion costs per foot came in at $554, down from 2020’s average of $614 and 2019’s number of $846.

The Delaware also is where much of the future focus is for Devon, which early this year merged with WPX Energy in a deal that had a $12 billion enterprise value. (OGJ Online, Oct. 5, 2020). The inventory study conducted in the wake of the WPX deal identified how many locations Devon can add to its arsenal of roughly 4,000 now—and how it could do so in capital-efficient ways. Chief Operating Officer Clay Gaspar said the study focused on wells that would be competitive in a $55 oil environment and the Delaware accounts for about 70% of the opportunities in Devon’s upside scenario.

That number could grow further, Muncrief said, as Devon looks to both extend the lateral lengths of its wells to beyond two and even three miles.

“We have opportunity to do a lot more trading and optimizing our portfolio,” Muncrief said. “I think that’s going to even further optimize the returns we get […] We are really focused on bolt-on type of things that really make […] a lot of sense from an industrial perspective.”

Devon today runs 13 operated rigs and four frac crews in the Delaware and brought on 52 wells there during the third quarter. In the first 9 months of this year, the company has dedicated more than $1.1 billion of its $1.36 billion upstream capital budget in the basin. The Devon team told analysts and investors on a Nov. 3 conference call it is primarily focused on capital returns these days—cash flows are expected to jump at least 40% in 2022 and the company’s board has approved $1 billion share buyback program—and will, if necessary, limit growth investments until “demand side fundamentals sustainably recover and it becomes evident that OPEC+ spare oil capacity is effectively absorbed by the world market,” Muncrief said.

On the operations side, that means a measured expected increase in upstream capital spending to $1.9-2.2 billion from what should be about $1.8 billion this year.

“The luxury that we have today is because we have so much quality out in front of us, we don’t have […] to invest a significant amount into that de-risking program,” Gaspar added. “So we could accelerate it faster but we’re going to be very measured about this. By far, most of our investment is just plowing the ground, driving down costs, getting exceptionally efficient and just wringing out that free cash flow machine.”