Devon Energy to Put $1.1B in Eagle Ford - Analyst Blog

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Oil and gas company Devon Energy Corp . ( DVN ) is all keen to strengthen its position in the reserve rich Eagle Ford shale by investing $1.1 billion in 2014. The company has plans to drill 200 wells in this region this year.

Why Eagle Ford?

Eagle Ford is fast becoming a hotspot for investment due to its locational advantage (nearness to refining hubs) and the high quality of existing reserves. The U.S. Geological Survey roughly estimates total reserves of 7 billion to 10 billion barrels of oil in the shale. However, this estimate could move upwards in the long run as big oil and gas majors are investing heavily in exploration and production activities.

Devon's Strategy

Devon Energy has been working on a strategy to monetize its international assets and use the proceeds to concentrate more on North American assets. Last month Devon decided to sell the majority of its Canadian conventional assets to Canadian Natural Resources Limited for US$2.8 billion. Devon intends to use the proceeds to repay the debts incurred for its Eagle Ford shale expansion.

Holdings in Eagle Ford

Devon Energy has lately acquired 82,000 net acres in the Eagle Ford shale from GeoSouthern Energy for $6 billion. The acquired assets are located in the DeWitt and Lavaca counties of Texas Reserves are estimated at 400 million barrels of oil equivalent (BOE), the majority of which is proved reserves. The acquired assets have at least 1,200 undrilled locations.

Current Production

Production of the acquired assets is around 53,000 barrels of oil equivalent (BOE) per day, which is expected to climb up to 70,000-80,000 BOE per day before the end of the year.

Production is expected to grow at a compound annual growth rate of 25% for the next few years, reaching a peak production rate of 140,000 BOE per day, a whopping increase of 164.1% from current levels.

Other Eagle Ford Players

Another operator in the region, Forest Oil Corporation ( FST ) announced that it has improved well drilling and completion efficiencies in the Eagle Ford shale. As a result, the company will be able to lower well operating cost by 12% this year. The cost of operating a well will be around $5 million, down from $5.6 million incurred in fourth quarter 2013. This development will make drilling more profitable in the region.

While drillers are pressing hard to maintain the unprecedented production levels seen in the recent past in the U.S., the midstream companies are also stepping up their investments to provide transportation services in tandem with production. Recently Exterran Partners L.P. ( EXLP ) entered into a $360 million deal to acquire natural gas compression assets from MidCon Compression, L.L.C., a subsidiary of Chesapeake Energy Corporation ( CHK ). The acquired assets would provide services to Eagle Ford operators.

Looking Forward

The growth in U.S. shale production will lower the country's dependence on imports to meet its energy requirements.  As per the U.S. Energy Information Administration (EIA), the import share of the total U.S. energy consumption will decline to 4% in 2040 from 16% in 2012. The investments made by Devon and other major players in the country will go a long way to fulfill the dream of energy independence.

Overall, the Eagle Ford continues to see a lot of drilling activity. We would not be surprised if Devon invests more in the Eagle Ford shale to unlock further value from these assets going forward.

Devon currently has a Zacks Rank # 3 (Hold).



CHESAPEAKE ENGY (CHK): Free Stock Analysis Report

DEVON ENERGY (DVN): Free Stock Analysis Report

EXTERRAN PTNRS (EXLP): Free Stock Analysis Report

FOREST OIL CORP (FST): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: BOE , EIA , CHK , DVN , EXLP

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