Devon Ups 2012 Capex Guidance - Analyst Blog


Independent oil and natural gas exploration and production company Devon Energy Corporation ( DVN ) increased its 2012 capital budget to $6.4 billion from its previous expectation of $5.1 billion - $5.5 billion. Devon will utilize the additional capital outlay for exploration and further oil and gas leasehold acquisitions.

In 2012, Devon Energy is expected to spend an additional $1.07 billion for the development of its wide array of domestic inventories; $1.6 billion will be allotted for exploration and acquisition purposes, $350 million for increasing acreage in the Cline Shale in the Permian Basin and $500 million for an undisclosed onshore project in the U.S. Apart from that, the company will also utilize a portion of the budget for its $35.4 billion five-year capital plan for exploration and production.

Devon Energy will deploy a major portion of its 2012 capital in oil and liquids-rich projects, including additions in Canadian Jackfish 3 and US-based Permian Basin acreage. As of December 31 2011, Jackfish and Permian Basin projects had total proved reserves of 457 and 189 million barrels of oil equivalent ("MMBoe"), respectively. In the fourth quarter of 2011, Jackfish 1 and Jackfish 2 projects generated record production, with an average of 43,000 barrels per day.

The company also expects oil and natural gas liquids-rich parts of the Cana operations to generate an average of 16,000 barrels per day in 2012. We think that the company is currently trying to leverage its oil-focused opportunities to expand its footprint and establish new positions in the existing operations. The additional investments in existing assets will increase the company's total production, which is likely to average approximately 50,000 barrels per day in 2012.

Devon Energy's earlier announced 2012 capital budget allocated 90% of the total amount for the company's domestic inventory development purposes while the remaining 10% was allocated for leasehold acquisitions and explorations.

In 2011, Devon Energy's capital expenditure of approximately $7.5 billion was directed at acquisitions of new acreage, costs related to the Pike oil sands acquisition, and higher exploration and development activities. The expenses in midstream activities were largely the result of intensive oil and gas drilling activities, primarily construction and the addition of natural gas processing plants and pipeline extension.

As of December 31 2011, Devon Energy had 13,371,000 of net acres spanning its U.S. and Canadian operations. The company plans to further increase acreage acquisitions through 2012 incurring reasonable expenses. The company has already acquired 250,000 net acres for its new projects this year and aims to acquire 500,000 net acres by year-end.

We believe that Devon Energy's continuous acreage acquisitions program along with related drilling and development activities and higher midstream capital activities will act as important near-term growth indicators. The company's diversified portfolio, with significant oil and natural gas liquids-rich projects, is also likely to generate better risk-adjusted profit.

Based in Oklahoma City, Oklahoma, Devon Energy Corporation, is an independent energy company engaged primarily in exploration, development and production of oil and natural gas. The company competes with Chesapeake Energy Corporation ( CHK ).

Devon Energy currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

CHESAPEAKE ENGY ( CHK ): Free Stock Analysis Report
DEVON ENERGY ( DVN ): 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: CHK , DVN

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