Oil and gas company
Devon Energy Corp
) 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 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
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.
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
Other Eagle Ford Players
Another operator in the region,
Forest Oil Corporation
) 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.
Exterran Partners L.P.
) entered into a $360 million deal to acquire natural gas
compression assets from MidCon Compression, L.L.C., a subsidiary
Chesapeake Energy Corporation
). The acquired assets would provide services to Eagle Ford
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
CHESAPEAKE ENGY (CHK): Free Stock Analysis
DEVON ENERGY (DVN): Free Stock Analysis
EXTERRAN PTNRS (EXLP): Free Stock Analysis
FOREST OIL CORP (FST): Free Stock Analysis
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Devon currently has a Zacks Rank # 3 (Hold).