Barnett Shale

Devon seeks joint venture partner on 1.2 million acres

Devon Energy, the largest producer in North Texas’ Barnett Shale, said today it is seeking a joint venture partner to develop shale oil and natural gas formations in several states. In a conference call with financial analysts following its third-quarter earnings release, CEO John Richels said the Oklahoma City-based firm would prefer one partner to participate in the development of 1.2 million acres in leases it holds in Oklahoma, Michigan, Louisiana, the Utica Shale in Ohio and the Niobrara deposit in Wyoming and Colorado. He said Devon has a well in each area and plans 40 new wells soon.

It’s possible Devon could raise $1.8 billion selling just a one-third stake in those properties, based on comparable deals, Scott Hanold, a Minneapolis-based analyst for RBC Capital Markets, told Bloomberg News today.The company is hardly cash-poor. It reported $6.8 billion in cash and equivalents as of Sept. 30, the product of big overseas asset sales last year.

Analyst Phil Adams at Gimme Credit, an independent debt researcher, said Devon’s rich cash position could help it negotiate better terms if it strikes a deal. He judged the move a positive, allowing the company to reduce risk and get a faster return of cash spent acquiring the acreage.

-- Jim Fuquay

 

Devon shares jump on higher production, revenues in third quarter

Devon Energy, the largest producer in North Texas' Barnett Shale, said today it earned $1 billion in the third quarter, down from the $2.1 billion reported a year earlier on the strength of a big asset sale. Revenues were up 25 percent to $2.1 billion on higher production and prices for natural gas and crude oil. The most recent quarter included a $642 million non-cash gain on the value of its oil and gas hedges. After adjusting for unusual items, Oklahoma City-based Devon earned $638 million, or $1.54 a share, topping analysts' consensus estimate of $1.47. The company's shares (ticker: DVN) were up about 6 percent in early trading.

Devon said total production of natural gas, natural gas liquids and crude oil rose 8  in the quarter to the equivalent of 661,000 barrels a day. That included a 17 percent rise in oil and natural gas liquids, which command better prices than natural gas in the market. Barnett Shale production was up 8 percent to the equivalent of 1.3 billion cubic feet a day, which includes 46,000 barrels a day of liquids, up 15 percent from a year earlier.

-- Jim Fuquay

 

Low gas prices a signal to slow drilling, Devon chairman says

For U.S. energy producers, high-priced $11 natural gas is “kind of like a Saturday night drunk,” Devon Energy Executive Chairman Larry Nichols said at the opening session of the Unconventional Gas International Conference and Exhibition on Tuesday afternoon. “It may feel good at the time,” he said, but it isn’t a sustainable high.

Just as an $11 price is too high to persist, today’s current market prices of about $3.75 are too low for the industry to thrive and maintain strong natural gas production in the long term, said Nichols, who stepped down this year from his longtime position as CEO of Oklahoma City-based Devon, the leading producer in North Texas’ gas-rich Barnett Shale.

Even in the face of low gas prices, domestic energy producers have continued to do substantial drilling, particularly in major unconventional gas plays such as the Barnett, the Eagle Ford Shale in South and Central Texas, the Haynesville Shale in Louisiana and East Texas, and the Marcellus Shale in the Appalachian regionof the eastern U.S.

By continuing to drill despite weak prices, “we’ve been ignoring the free market,” Nichols said. But today’s depressed prices represent “the free market ... sending us a very powerful signal” that there is an oversupply of gas, he said.

Read more here.

-- Jack Z. Smith

Devon chief says drilling slowdown will continue

Devon Energy Corp. CEO Larry Nichols said Wednesday the company is reducing its natural gas drilling in the short-term until gas prices start to rebound. “We see absolutely no reason to continue to drill at this time and bring natural gas production on at this time, any more than we need to,” Nichols said at the company’s annual shareholders meeting. “It’s better to leave that gas in the ground and sell it next year, or in future years, when we can generate a greater profit for our shareholders.”

Devon has reduced its exploration and development capital budget to between $3.5 billion and $4.1 billion this year from $8.5 billion in 2008. Nichols said that 2009 continues to be a challenging year for the industry but that the largest U.S. independent oil and natural gas producer is well-placed to weather the economic downturn.
“While last year was a great year, this year is a tough year,” Nichols said, citing a steep decline in oil and natural gas prices during the second half of 2008.

Oil prices have doubled since March with some signs that the worst of the recession may be over and were hovering around $66 a barrel Wednesday afternoon on the New York Mercantile Exchange. Natural gas for June delivery tumbled 36.2 cents to $3.758 per 1,000 cubic feet after peaking last summer at $13.69 per 1,000 cubic feet.
Nichols said that natural gas prices will take longer to recover than will oil prices because of the current oversupply of natural gas.

 

-- Associated Press

 

 

Devon, Chesapeake execs talk leasing at conference

Top executives at Devon Energy and Chesapeake Energy, two of the biggest players in the Barnett Shale, bemoaned the high cost of getting leases in the Barnett Shale at a New Orleans investment meeting, reports Reuters news service. Chesapeake Chairman Aubrey McClendon, speaking to reporters at the Howard Weil  Energy Conference, called the escalating bonus payments "a discouraging trend," adding that "luckily, the costs of acquiring acreage are generally not a meaningful part of your overall cost equation."

"We are amazed at the royalty rates and bonuses that some people are paying to get into the area," Devon Chairman Larry Nichols told Reuters. Devon got into the play with its 2001 acquisition of Mitchell Energy, the Barnett Shale's pioneer, and expanded that in 2006 with its purchase of Chief Oil and Gas. It has stayed mostly in rural areas, unlike Chesapeake, which has jumped headlong into the most densely populated portions of the play.

-- Jim Fuquay

Chesapeake donates $1 million to United Way

Chesapeake Energy has pledged $1 million to the United Way of Metropolitan Tarrant County, kicking off the first-ever Barnett Shale Endowment Fund. UPDATE: Click here to read the full Star-Telegram story.

The United Way is not only looking for other energy companies to donate, but also homeowners drawing cash from the leasing of their mineral rights, said Nancy O'Malley, spokeswoman for the group.

Oklahoma City-based Chesapeake announced the donation, which will be paid in roughly $200,000 annual payments over five years, this evening at the opening of the new headquarters for United Way. The non-profit just moved into the Mercado development on Main Street just north of downtown Fort Worth.

United Way plans to spend 5% of the value of the fund annually and keep the rest to build interest income. United Way's first distribution of the fund is expected by April 2009, O'Malley said.

While this is not the first large donation from a deep-pocketed energy company getting rich off the Barnett Shale, it is considered to be the largest natural-gas-related donation for the United Way's Fort Worth office.

Examples of other donations thanks to the Barnett Shale:

• In June 2007, Chesapeake announced a total pledge of $3.75 million for scholarships to students in Fort Worth and Dallas.
• For the past three years, Fort Worth-based XTO Energy has been a big benefactor at the Fort Worth Stock Show & Rodeo, buying the Grand Champion steer each time. The company has also been big in buying up and redeveloping property in downtown Fort Worth. The company has a total seven buildings and a parking garage in downtown, imploded another one and is redeveloping a building in the Fort Worth Stockyards.
• Devon Energy gave $3 million to the Fort Worth Museum of Science and History building project in 2007 and was the lead donor in the Fort Worth Police and Firefighters Memorial Project with a $200,000 gift last year. The Oklahoma City-based company, the largest player in the Barnett Shale, gave another $100,000 to the North Texas High School Rodeo Association last year. Several Barnett Shale players were major founding donors to the Science Museum's capital campaign.
• Here's a story from S-T reporter Sarah Bahari on how corporate sponsorship of charitable organizations is tightening, but Chesapeake says it still gives a lot.

-- David Wethe

(Photo: United Way of Tarrant County moves to new headquarters in Mercado building, north Fort Worth, in January)

EOG Resources goes for oil in the Barnett Shale

EOG Resources, the No. 3 producer of natural gas in the Barnett Shale, caused a stir Thursday with its announcement it intends to produce oil from 250,000 acres it has leased in Montague, Clay and Archer counties. That's on the northern fringe of the Barnett Shale, where the formation has a higher content of crude oil than elsewhere. EOG's activities there won't affect the "core" area of the Barnett Shale, made up largely of Tarrant, Johnson and Denton counties, where the rock contains mostly natural gas.

For a full report, see the Star-Telegram's news story here.

Burleson "Holdouts" organize

To hear the folks in South Burleson tell it, lately, landmen have been crawling over the city like ants.

The South Burleson Homeowners Association reports it's changed its name to the "Community of Gas Lease Holdouts," as "this seems to define our reason for being and so many were afraid of the Homeowners part of the name, because they thought that we were going to restrict some things in their neighborhood."

The Community of Holdouts says 19 landmen representing Chesapeake Energy, Devon Energy, and several other entities have peppered South Burleson with lease offers carrying $1,500-$10,000 per-acre signing bonuses and 21-25 percent royalties.

The Community has had two meetings so far, including one Saturday. More than 300 people attended and "new properties are being added daily to the over-350 properties already registered," says Bill Mahanay, pmahb@sbcglobal.net, spokesman and organizer for the group. "With many volunteers to make phone calls and canvas the areas of South Burleson," the group hopes to add more properties to its list, Mahanay said.

The group's next meeting is 4 p.m. Feb. 23 at the Burleson Church of Christ, 820 S.W. Wilshire.

-- Scott Nishimura

Having a meeting on the Barnett Shale? Publicize it here, on our new Community Calendar!

Devon, Chesapeake, EOG make Fortune's best companies list

Devon Energy is No. 48, Chesapeake Energy is No. 61 and EOG Resources is No. 64 on Fortune magazine's latest list of the "100 Best Companies to Work For." Devon and Chesapeake are based in Oklahoma City, EOG in Houston, but all have substantial Barnett Shale activities and employment.

The magazine noted that the median bonus at Devon in 2006 was $9,000 and ranked it fourth on the list for low turnover and eighth for work-life balance. Fortune highlighted Chesapeake's employee daycare center, which it says Chairman Aubrey McLendon approved, but not before doubling its size and cutting its fee in half. At EOG, employees all get stock options, a nice perk when the company's shares appreciate 43 percent like they did last year.

For the complete report, click here.

-- Jim Fuquay

(Photo: Monitoring a Devon drill head in northern Tarrant County)

Three injured in gas well incident in Alvarado

The Star-Telegram's Bill Miller has the story. Check back at star-telegram.com for updates.

-- Scott