Barnett Shale

Devon loses $1.3 billion on big impairment charge

Devon Energy, the largest producer in the Barnett Shale, said it lost $1.3 billion in the first quater after taking a $1.9 billion non-cash impairment charge related to market prices of natural gas and crude oil. After adjustments for those and other items, Devon earned $270 million, or 66 cents a share, compared to financial analysts' consensus estimate of 56 cents. The company's shares (ticker: DVN) were up in early trading. Impairments occur when a company's estimate of assets under current economic conditions falls short of the expenses it booked to acquire the assets.

Devon said total production declined slightly from a year ago to the equivalent of 687,000 barrels of oil a day. Crude oil production was up 14 percent to 162,000 barrels a day, helped by a 23 percent increase in the Permian Basin in West Texas. In the Barnett Shale Devon said it averaged 1.4 billion cubic feet of natural gas a day in the quarter, including 55,000 barrels a day of liquids, up 5 percent from a year ago.

-- Jim Fuquay

Devon loses $357 million in fourth quarter on big impairment

Devon Energy, the biggest producer in the Barnett Shale, said it lost $357 million in 2012's fourth quarter, largely on the impact of an $896 million non-cash asset impairment. The Oklahoma City-based producer said that not counting the impairment and other one-time items, Devon earned $316 million in the quarter ended Dec. 31. The company's shares were down 3 percent in early trading.

For the year, Devon lost $206 million. Excluding $2 billion in impairments and other adjustments during the year, it earned $1.3 billion in 2012. Impairments are the result of a test, made at least once a year, of a company's book value of assets against its market value based on benchmark prices. If the market valuation is lower, the assets' book value must be lowered to the market value. Natural gas prices last year hit a 10-year low, dipping below $2 per 1,000 cubic feet briefly, and were depressed through the year.

In the Barnett Shale, Devon said its daily production averaged 1.4 billion cubic feet of natural gas equivalent per day during the fourth quarter. "Liquids production increased 3 percent year-over-year to 48,000 barrels per day," it said. During a conference call with analysts, the company said it plans to spend $500 million in the field and drill about 150 wells. It is running 10 drilling rigs, but plans to reduce that to six in "the next couple of months." It drilled 73 gross wells in the fourth quarter of 2012, it said.

“In spite of a challenging commodity price environment that impacted our financial results, Devon delivered solid operating results in 2012. During the year, we continued to make significant progress toward the conversion of our asset portfolio to a higher oil weighting,” CEO John Richels said in a prepared release. The company reported Wednesday that total production of oil, natural gas, and natural gas liquids increased to 250 million oil-equivalent barrels (boe) in 2012, a record and up 10 million boe from 2011. "The increase in 2012 production was driven almost entirely by growth in oil production," Devon said.

-- Jim Fuquay

Average Barnett Shale well likely to have lower production than many producers expected, new study says

Productivity in the Barnett Shale varies widely across the big natural gas field, where an average horizontal well can be expected to produce about 1.44 billion cubic feet of gas over its life, according to preliminary results of a comprehensive study by the Bureau of Economic Geology at the University of Texas. Wells in the richest portions of the field can top that and be profitable even at relatively low prices, while those in the poorest areas likely can't make money even at record high gas prices. Some results of the study could be released publicly as early as this month or in March, said Scott Tinker, the bureau's director.

The bureau looked at more than 16,000 Barnett wells drilled through June 2011 to make its estimates. Tinker told the Star-Telegram that if no more wells were drilled in the North Texas field, they would ultimately produce between 22 and 23 trillion cubic feet. But he expects the field's total production to be considerably more than that. "You'll see at least three times that before the field is put to bed, and possibly more than that," he said. The 1.44 bcf figure, called the estimate ultimate recovery, or EUR, is considerably less than the 2 bcf to 3 bcf EUR that many producers have historically estimated. But representatives of the field's two largest producers, Devon Energy and Chesapeake Energy, told the newspaper they still expect their Barnett wells to live up to the companies' forecasts.

For a complete report, see today's Star-Telegram. A link is here.

-- Jim Fuquay

Barnett rig count up three to 36 on Wise County drilling

Wise County's 10 active rigs pushed the Barnett Shale rig count to 36, up three from a week ago, according to RigData. Well over half the North Texas field's rigs are in the wet and "oily" portion of the field's northwest reaches, including Wise, Montague with six and Jack with five. Palo Pinto County, which doesn't often enter the picture, had a new vertical well by G&F Oil Inc., which also has a rig in Jack County. Johnson County had three active rigs, up from the one or two the former hotspot has been running in the past year. Devon Energy as usual is the busiest operator, with nine rigs, followed by EOG Resources with four and EnerVest Operating with three each

Nationally, rigs actively looking for oil and natural gas was down a dozen to 1,749. Houston-based Baker Hughes said iFriday. There were 1,316 rigs were exploring for oil and 429 for gas. Four were listed as miscellaneous. A year ago there were 2,008 active U.S. rigs.

-- Jim Fuquay

Devon Energy still No. 1 in the Barnett Shale

Last month we published an item noting that by the Texas Railroad Commission's count, Chesapeake Energy had edged past Devon Energy as the biggest  gas producer in the Barnett Shale as of June, the latest figures at the time. But both companies quickly questioned the numbers and we qualified our report, with good reason as it turns out. Gene Powell, the data dean of the Barnett Shale and publisher of Powell Shale Digest, just ran the numbers for production through October 2012, the latest available from the Railroad Commission, and Devon is still No. 1, just ahead of Chesapeake. Both are well ahead of No. 3 XTO Energy.

According to Powell's numbers, Devon in October averaged 1.495 billion cubic feet a day. Chesapeake averaged 1.375 Bcf/d and XTO averaged 826 million cubic feet a day. The difference maker is wells in the Railroad Commission's pending file, which contains wells that are backlogged or contain incomplete information. Production from those wells doesn't  show up on the Railroad Commission's Barnett Shale summary page. Based on our recent conversations with both producers, Devon last year drilled about 300 wells, vs. Chesapeake's fewer than 100, so perhaps that has something to do with it.

Powell notes that the Barnett Shale was still chugging along at 5.2 Bcf/d in October despite the sharp decline in drilling in the field. Some of that doubtless is because wells drilled in the past were finally connected to a sales line. For example, Chesapeake only last year laid an 8-inch line to its Westgate padsite on the southern edge of downtown Fort Worth, and that well was drilled in 2008 and completed in 2009. See our item here. But operators also say that despite their deserved reputation for sharp production declines in the early years, Barnett wells are proving to be pretty decent long-term producers. We've run some numbers ourselves using Powell's data and wells that are 10 years old still produce 11 percent of their peak initial production, while those 20-30 years old are still producing on average 10 percent of their peak. Of the 85 Barnett Shale wells 20 years old or older, all but four were still producing in June, the latest month we have. They averaged 99,000 cubic feet a day.

-- Jim Fuquay

Barnett rig count down 8 to 30

Active drilling rigs in the Barnett Shale took an unusually large drop this week, down eight to 30, as icy weather could have delayed activity in the field, most of which received snow Christmas Day. Half the area's rigs were in Montague and Wise counties, where operators migrated months ago in search of oil and liquids-rich gas. Devon Energy was running seven rigs in four counties, while EOG Resources had five, all in Montague and Cooke counties, according to RigData. Montague was busiest with eight rigs, followed by Wise with seven, and Parker and Tarrant with three each.

Nationally, the rig count dropped 11 to 1,763. Rigs seeking crude oil were down 13, to 1,327, and rigs seeking natural gas were up two, to 431. Five were miscellaneous. 

-- Jim Fuquay

Devon Energy co-founder to retire Dec. 31

Larry Nichols, who helped found Oklahoma City-based Devon Energy and oversaw its purchase of Barnett Shale pioneer Mitchell Energy in 2002, will retire Dec. 31, the company said in a regulatory filing. The Oklahoman has a report here.

-- Jim Fuquay

Chesapeake now biggest Barnett Shale producer -- maybe?

Chesapeake Energy has overtaken Devon Energy as the largest producer in the Barnett Shale, at least through the year's first seven months, according to Texas Railroad Commission figures. (See note below.) Devon was long the leader, owing to its 2002 purchase of Barnett pioneer Mitchell Energy. But in July, Chesapeake edged out Devon in production during 2012, 285.6 billion cubic feet to 284.6 bcf. XTO Energy is third at 170.3 bcf. A link to the Railroad Commission's Barnett Shale data page, which has data on permits, wells and the top 10 producers, is here.

Editor's note: Since publishing this, we've heard from Chesapeake and Devon, who both questioned the Railroad Commission's rankings. Chesapeake says they have determined that their production is correct, but Devon has its doubts and is checking. We'll post an update when we're sure about who's No. 1 in the Barnett Shale.

-- Jim Fuquay

Impairments hit third-quarter earnings

Natural gas producers saw their third-quarter earnings statements generally turn into loss reports, often on account of taking "impairments" -- write-offs in the value of holdings in the wake of low product prices. The Star-Telegram has an explainer on the accounting of impairments here.

-- Jim Fuquay

Devon impairment produces big third-quarter loss

Devon Energy, the largest producer in the Barnett Shale, said it lost $719 million in the third quarter after taking a $1.1 billion impairment on assets, a common action among independent producers following the decade-low natural gas prices seen in the summer. After adjusting for that and other one-time items, the Oklahoma City-based company  earned $355 million, or 88 cents a share. Financial analysts were expecting an adjusted 69 cents, but  the company's shares were down about 8 percent Wednesday on a day when shares overall were weak, particularly energy stocks. Devon also booked $533 million in cash from its joint venture agreement with Sumitomo. 

-- Jim Fuquay