Devon boosts oil output guidance amid cost cutting

OREANDA-NEWS. Devon Energy significantly increased its 2015 oil production guidance, despite lower prices, as the US independent cut development costs and boosted well performance.

Devon plans to increase oil output this year by 25-35pc, up from its previous full year guidance for growth of 20-25pc. The company cut its spending plan to \$3.9bn-\$4.1bn, down by \$250mn.

The key drivers of those spending cuts are efficiency improvements and a sharp decline in the cost of drilling and pressure pumping, Devon's largest capital expenditure. Drilling and pressure pumping costs in the first quarter have declined by more than a fifth from the fourth quarter of 2014, the company said.

"The magnitude of the decline is not a surprise to us but the speed of the realization of these better rates exceeded our expectations," chief executive John Richels said.

Devon and other large independents such as Chesapeake Energy and Anadarko Petroleum have pared back development plans as crude prices plunged to six-year lows below \$50/bl. Devon has focused on low-cost, high-return assets such as the Eagle Ford shale in south Texas and the Delaware basin in southeastern New Mexico to drive its 2015 growth.

First quarter output rose to a company record in the first quarter of 685,000 b/d of oil equivalent (boe/d), up by 22pc from a year earlier after excluding divestitures. Oil output reached 272,000 b/d, a year-over-year increase of 55pc, while gas production rose to about 1.65 Bcf/d (47mn m?/d), up by 2pc from the 2014 quarter.

Production from south Texas' Eagle Ford shale surged to 122,000 boe/d, up by 23pc from the fourth quarter. Devon began producing from the Eagle Ford shale in March 2014 after acquiring assets in that field from GeoSouthern Energy for \$6bn in cash.

Devon's oil output growth from the Eagle Ford shale will be limited this quarter as the company contends with pipeline bottlenecks resulting from improved well performance.

Devon recently reached its pipeline takeaway capacity from the Eagle Ford. The company is working to relieve those constraints but production will likely be flat with first quarter levels, chief operating officer Dave Hager said. The company has a backlog of 130 uncompleted Eagle Ford wells.

Still, Devon's Eagle Ford output in the second quarter should be up by 85pc from a year earlier.

In addition, the company will take one of its Canadian oil sands production facilities down next month for 21 days of maintenance. The work will cut its Canadian output in the second quarter by 10,000 b/d to 95,000-100,000 b/d, which is still up by about 25pc from a year earlier, Devon said.

In the Delaware basin, Devon is using a new well design to increase production from its wells in the Bone Spring formation. The company raised its expectations for each new well in the field. It boosted its estimates of the oil and gas it can ultimately recovery from a well by a third to 600,000 boe. Initial, 30-day-production rates also increased by 60pc to 900 boe/d.

Devon reported a net loss of \$3.6bn after taking a write-down because of lower oil and natural gas prices. The company reported net earnings a year earlier of \$324mn. Excluding one-time items, the company reported first quarter profits of \$89mn.