Friday, April 24, 2009

Devon: Update

Devon Energy is another one of those companies that is quietly sitting on a huge position in the Haynesville Shale (570,000 net acres). Much of this is likely held by production (HBP), as the royalty burden is less than 20% and the company only added 40,000 Haynesville acres in 2008.

Devon estimates that it is sitting on 70 Tcf of gas in the play, but they have been very concerned over the past six months on the big picture from a corporate perspective. They are cutting spending, preserving cash and strengthening their balance sheet. This is all good stuff for Devon and it positions the company to survive the downturn in gas prices, but it doesn't lead to a lot of news on the exploration and production side.

In the six months through the end of March 2009, Devon has decreased its company-wide rig count from 112 to 32. The company's 2009 plan is for 11 horizontal wells in the Haynesville Shale, but Devon's mantra is evaluation, evaluation, evaluation. Not production. So they are going to spend money drilling, coring and testing well sites. This activity should put them in position to start a drilling campaign in earnest once gas prices pick up, which is expected by the end of the year.

No comments: