Devon’s exploration strategy has evolved significantly over the last 15 years. Devon divested its Gulf of Mexico and international assets in 2010 to focus on growing production and reserves from its North American unconventional and Canadian oil sands projects. By the middle of 2016, the company had been through a seven-month flurry of M&A, repositioning its portfolio to be better suited for growth in a low-price environment. After shedding its non-core positions, Devon will focus entirely on developing six core assets. Oil-led exploitation in the Eagle Ford, the Permian Basin, the STACK, Powder River Basin and Canadian heavy oil sector will be the main growth engine. This will be supported by the cash generative Barnett shale, which provide additional optionality into a gas price recovery.
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Affected by supply and demand, the economy of individual countries and technological breakthroughs, oil and gas exploration is an industry in constant motion. The high costs of finding and developing new oil and gas fields that can be commercially developed has created a challenging atmosphere, with explorers increasingly seeing low returns, low value and slow progress.
This Exploration Summary report quantifies the company's exploration volume and value performance over the past 10 years, and reviews its outlook for future success.
Businesses can use this report to get a detailed analysis of this company, what exploration areas they're involved in, what wells to watch and how well placed they are. It will help you understand company performance and shows how the best explorers have achieved their success.
Wood Mackenzie benchmarks exploration results for over 40 companies. Our analysts provide accurate information on the cost of exploration compared to the value of discoveries so that you can develop profitable strategies. We are the established global industry standard for oil and gas exploration performance.
Conventional assets sales created value and funded early unconventional exploration
Shale gas success limited by gas price falls
Tight oil plays creating the most value
Partly through a merger with Santa Fe Snyder in 2000, and partly through multiple other acquisitions, Devon holds one of the largest positions in the Permian region. Whilst the company has an enviable portfolio of several oil-weighted plays in the region, it is focused on developing the Bone Spring in the Delaware Basin.
Historically, the plays were developed by vertical drilling, but Devon has been using horizontal techniques to achieve higher initial production compared to wells in other oil producing plays in the basin. This horizontal drilling programme is the main growth driver for Devon in the basin.
Devon’s position in the Delaware basin is in an earlier stage of development and holds some of the most upside across US tight oil, mostly in the form of improved well results, new-zone development, and cost efficiencies. In 2012, the company commercialised its acreage across the CB Slope, Northwest Shelf and Western Fairway sub-plays in the Bone Spring. It’s strong track record of improving operational results means that its average oil IP rate and drilling speed are 22% and 32% higher than peers in the Bone Spring. This helps drive healthy development value in the play, totalling over US$2.5 billion, despite current low commodity prices.
We also consider that Devon commercialised its position in the STACK Oil Mississippian play during 2012. Like the Bone Spring, this is another core, liquid-rich, play where it excels in operational performance. The play is a key growth asset for the company and we estimate that it contributes nearly US$2 billion in development value to the company.
In 2012, the company formed a joint venture with Sumitomo in the Cline and Wolfcamp. The joint venture provided the Devon with nearly US$400 million of cash and another US$1 billion in drilling cost carry which helped to accelerate drilling in the play and create value from its legacy position.
Devon established a position in the Mississippi Lime play on the border of Oklahoma and Kansas in 2011. The company commercialized the play in 2012, and solidified value in the position when it formed a joint venture with China’s Sinopec. As part of the joint venture, Sinopec acquired a one-third interest in five of Devon’s exploratory tight oil plays throughout the US for a total cash and carry consideration of US$2.2 billion - essentially funding Devon at no cost. Therefore, we estimate half of the $900 million cash consideration is attributed to the Mississippi Lime. In addition to the Mississippi Lime, the Sinopec deal included the Niobrara, Utica, Tuscaloosa Marine, and Michigan Basin shale plays, as well as funding in the Rockies and the Niobrara. Since then, Devon has divested its positions in all of these plays, selling its remaining interest in the Mississippi Lime play to White Star Petroleum in April 2016.
In this report there are 22 tables or charts, including:
Basins drilled and all conventional & organic unconventional discoveries 2006-2015
Ten year performance summary
Investment and costs
Exploration & appraisal spend and reinvestment
Exploration & appraisal spend by water depth
Exploration & appraisal spend by basin maturity
Discovery costs by water depth
Gross exploration & appraisal wells by basin and sector
Exploration wells drilled and spend per well
Exploration success rates
Reserves and resources
Conventional new field discoveries (2005 to 2014)
Reserves and resources: Table 2
Volumes discovered by year
Volumes discovered by water depth
Volumes discovered by country
Volumes discovered by basin
Production from new field discoveries and organic unconventionals, and as a proportion of all future production
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Company report | Oct 2016
Devon Energy oil and gas exploration summary
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