Barnett Shale

No impact in Barnett from Devon consolidation

Devon Energy's consolidation of jobs at its towering Oklahoma City headquarters has "no impact" on employment in the Barnett Shale, a  company spokesman says. Devon on Thursday announced it would close its Houston office and relocate exploration and development personnel from South Texas, East Texas and Louisiana. The company is the largest producer in the Barnett Shale and employs more than 400 people in the field, centered around its Bridgeport processing plant and offices.

The Houston Chronicle reported that the move affects about 500 Houston workers. "Consolidating our U.S. operations will improve our ability to quickly shift the focus of our workforce between project areas as economic conditions dictate," Dave Hager, Devon's executive vice president of exploration and production, said in the company's announcement. "In addition, this move will improve the sharing of best practices and enhance overall operational efficiency."

-- Jim Fuquay

Devon sells Johnson County gathering assets to Crestwood Midstream

Crestwood Midstream Partners says it agreed to buy gathering and processing assets in the liquids-rich southwestern area of the Barnett Shale from Devon Energy for $90 million. Houston-based Crestwood and Devon, the largest producer in the Barnett, inked a "20-year, fixed-fee gathering, processing and compression agreement under which Crestwood will gather and process Devon's natural gas production" from 20,500 acres that currently produce 95 million cubic feet a day. The deal should close in the third quarter.

Assets include a 74-mile low-pressure gathering system, a 100-million cubic-feet-a-day cryogenic processing facility and 23,100 horsepower of compression equipment in western Johnson County built since 2006. It's all adjacent to Crestwood's Cowtown gathering system purchased in 2010 from Quicksilver Resources, which includes two natural gas processing plants totaling 325 million cubic feet a day of capacity. "Upon closing, Crestwood is expected to consolidate the systems by increasing the system interconnect capacity with the ultimate goal to process all of Devon's West Johnson County natural gas production in Crestwood's Cowtown and Corvette processing plants," Crestwood said.

-- Jim Fuquay

 

 

The Barnett Shale's oil play

Even as drilling activity has plummeted in the Barnett Shale from 2008's highs, rigs continue to work in the oil window of the big North Texas field. EOG Resources started it, but more companies are looking for oil and valuable condensate in an area that made its name in natural gas. The Star-Telegram takes a look at the play in Montague, Wise and other counties in the northwest reaches of the field. The story is here.

-- Jim Fuquay

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.