Houston — Devon Energy expects oil growth driven by drilling in Texas' Permian and Wyoming's Powder River basins to accelerate in the second half of the year as the company focuses more on crude production and less on natural gas, the company said Wednesday.
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Oklahoma City-based Devon is currently in the process of selling two legacy assets - its Canadian oil sands and a large position in the Barnett Shale natural gas play in North Texas - to position itself as largely a US unconventional oil and liquids producer.
Devon raised its oil output guidance by 17% for 2019, excluding assets held for sale, over last year's 122,000 b/d (for retained assets), versus 15% projected earlier.
The company expects to close on the asset sales by year-end and has already segregated them in its accounting tables. Once those assets are sold, Devon will focus its attention around four key plays in the Permian in West Texas and New Mexico, the Powder River Basin in Wyoming, the Eagle Ford Shale in South Texas and the STACK play in Oklahoma.
Devon's raised oil production guidance stems from improved well performance that during the first quarter delivered some of the most productive Permian wells ever recorded in the basin, Devon executives said.
UPSIDE SEEN TO EXISTING WELL PRODUCTIVITIES
"If well productivity ... continues to outperform expectations, there is certainly additional upsides to our growth rates in 2019," company CEO Dave Hager said during the company's first-quarter earnings call.
Total Q1 production slid to 529,000 barrels of oil equivalent a day, down nearly 3% from the year-ago period. But for retained assets, the figures were 308,000 boe/d in Q1, up 24% year on year.
Total oil and bitumen production rose about 1% in Q1 to 254,000 b/d, although for retained assets the figure was 138,000 b/d, up 24%, while gas production slid 13% to 1.024 Bcf/d for all assets but rose 18% for retained assets.
Hager said the raised oil guidance will be achieved with no increase to the company's projected 2019 capital budget of $1.8 billion-$2 billion released earlier this year.
That spending level should continue even if US oil prices, which have been above $60/b since late March, rise further this year.
"We will not raise our capex just because of great first-quarter results," Hager said.
Operationally, those results included five wells in the western Permian or Delaware Basin that averaged 24-hour rates of 10,000 boe/d each. That rate, which is several times higher than that of an average Permian well, was achieved largely to understand well deliverability, Devon said in the presentation.
In the Powder River Basin, oil growth is set to accelerate more than 50% by Q4 2019 from Q4 2018's 13,000 b/d.
MAJOR COST-CUTTING MEASURES THIS YEAR
Besides selling gas assets, Devon has also been cutting costs.
Chief among them is that the company should achieve at least $780 million in sustainable yearly cost savings by 2021 compared with 2018. In fact, by year-end 2019, 70% of those cost savings should already be achieved, Hager said.
The company's general and administrative costs also rose 23% year on year in Q1, and should rise a further 10%-plus in Q2. With the planned exit from Canada and the Barnett Shale, it expects to attain more than $200 million of yearly G&A savings by year-end, Hager said.
Exiting those two assets will allow paydown of up to $3 billion in debt, reducing interest costs 45% or $130 million/year. In addition, capital efficiency gains were achieved as capital spending dropped 15% year on year while well productivity increased, he said.
"We are not finished improving our business and we are acting with a sense of urgency to materially improve our entire cost structure," Hager said.
Sale of Canadian assets has made "substantial progress," as data rooms have been opened and discussions with multiple parties are being held.
A data room on the Barnett will be opened by midyear and has already been met with interest, Hager said.
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