Houston — Devon Energy will soon have enough permits for shale drilling on federal lands to cover its oil and gas production plans in the Permian's Delaware Basin through 2024, CEO David Hager said Oct. 30.
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That will protect the Oklahoma City-based company's expected output from potential US fossil fuel policy changes if Democratic presidential nominee Joe Biden is elected, Hager said during a conference call with analysts to discuss Devon's financial results for the July-September quarter.
As Devon works to complete its recently announced acquisition of rival WPX Energy, Hager sought to reassure investors that the company is prepared for whoever is in the White House in January. Beyond the prospect of a halt to new permits for fracking on federal lands, there is also the possibility under a Biden administration of stronger environmental limits that favor renewable resources over oil and gas.
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"We anticipate having about 650 federal permits by the end of the year," Hager said. "Eighty percent of those are going to be in the Delaware Basin, or about 520 federal permits in the Delaware Basin by the end of the year is our anticipation. The key point of that is that covers four years of activity that we would anticipate in the Delaware Basin."
He added, "So that's a level of permits that would allow production to actually grow in the Delaware Basin while keeping the overall production for the company as flat."
Hager acknowledged that there would likely be changes under Biden that would impact the oil and gas industry, but he doesn't believe they will be as transformational as some in the industry fear.
"It's a great hypothetical question, but frankly, we think, most likely, is that things will slow down, but there's not going to be a stopping of activity on federal acreage," Hager said. "Even if there is, we have four years' worth of activity covered with the permits we anticipate by the end of the year."
Amid lower demand during the coronavirus pandemic, US producers have been trying to overhaul their portfolios to reduce costs and leverage better returns from their remaining assets. Devon has been especially aggressive, starting to downsize well before the virus began to spread globally last winter. It substantially downsized its gas drilling operations by selling its acreage in North Texas' Barnett shale, dropping it to No. 23 on a list of top US gas producers.
With crude – and the Permian in particular -- its new focus, Devon announced Sept. 28 that it was buying smaller producer WPX. Together, they have promised to leverage their combined footprints across several major shale basins to further cut drilling and administrative costs to boost returns to investors. The all-stock transaction, which valued WPX at $2.56 billion at the time it was announced, is expected to close in the first quarter of 2021.
The combination will create one of the largest US unconventional oil producers, with 277,000 b/d of output. Their combined 400,000 net acres in the Permian's Delaware Basin will account for 60% of their total oil production. Associated gas production, particularly in the Permian, will continue to be part of the market equation.
"There's a lot of excitement and enthusiasm that the synergies are not only achievable, but we're going to see more than that," Hager said.