Devon Energy’s Delaware Basin operations led to record oil production and expanding EBITDA in the second quarter, the company reported in its Aug. 7 second-quarter results.
The company used a fourth frac crew in the basin to bring online 62 new wells in the second quarter, Devon President and CEO Rick Muncrief said during the company’s earnings call.
“Productivity from this batch of wells are on-track to achieve more than 10% uplift compared to last year's program,” Muncrief said.
For the quarter, oil production reached a record high of 335,000 bbl/d. And a key driver of Devon’s surging oil output was the company’s continuing outperformance in the Delaware.
But success in the Permian was only part of the story as the company looks to reinvigorate its assets in more mature basins.
Devon highlighted ongoing work with its recompletions activity in the Eagle Ford Shale and the Williston Basin.
Devon is among Eagle Ford E&Ps including ConocoPhillips, Marathon Oil, BPX Energy, SilverBow Resources and others—that are extending their drilling programs with refracs in South Texas.
RELATED
Baytex Energy Joins Eagle Ford Shale’s Refrac Rally
Devon COO Clay Gaspar addressed the topic of recompletions during a Q&A with analysts.
“We are excited about what we're seeing specifically in South Texas around refracing,” he said. “We have more experience and frankly more running room there.”
Gaspar said Devon has quietly posted “some really nice numbers and de-risked that potential from how we approach these.”
“How we screen the wells and clean out the wellbore, prepare them for re-frac, and then ultimately determine the right stimulation produces a pretty compelling return, and it's all upside to existing portfolio,” he said.
Devon has also tested refracs in the Anadarko and Williston basins with what he called “OK” results.
‘Not a big capital call’
“Then you flip to the Grayson Mill and those guys have done a fantastic job on some of these re-fracs,” Gasper said.
Devon will have more running room in the Bakken after completing its acquisition of private Bakken E&P Grayson Mill. The $5 billion deal, announced in July, consists of $3.25 billion cash and $1.75 billion worth of stock.
Devon will now learn what Grayson was able to achieve in the Williston and apply that to “even more of what we already have in the legacy assets” to supplement the company’s base production, Gaspar said.
As with other E&Ps, refracs are compelling because they are typically as capital intensive as drilling and completing new wells.
“We’re probably not going to be highlighting this as the big capital call on where we spend a significant portion of our overall capital dollars,” Gaspar said.
“Think of it as more supplemental and as we try extract more of the hydrocarbon resource out of these incredible basins. I think this will be a very important tool in our portfolio.”
The low down on downspacing
In the Eagle Ford, where Devon has more experience with refracs, the company is also taking units that appear fully developed and capitalizing on downspacing opportunities, Gasper said.
“What we're finding is we're able to drill these wells in much tighter spacing to fully develop the units,” Gaspar said. “These new development wells are coming in at phenomenal rates.”
“It's the gift that keeps on giving,” he said.
When complimented with refracing of some existing wells, “we're really finding a one-two punch that continues to provide lots of running room in areas that look fully developed,” Gasper said.
Muncrief said redevelopment success in the Eagle Ford downspacing appraisals as well as progress in the Powder River Basin complements the company’s legacy Williston position, which contributed to second-quarter production.
However, integration of the Grayson Mills asset will be key for the company, including its refrac efforts, Morgan Stanley Research analyst Danielle Popper said in a July report.
Devon’s most recent Bakken purchase, an $865 million deal for RimRock, underperformed expectations, Popper said.
Morgan Stanley said the Grayson acquisition will add 500 undrilled locations and 300 refrac opportunities, extending Devon’s Williston inventory life by 10 years at maintenance activity.
Execution, earnings
Overall, Devon saw its guidance surpassed expectations “by a wide margin with our per share volumes growing at a healthy clip of 9% yoy [year-over-year],” Muncrief said.
The company’s “attractive per share growth rate was driven by oil production” setting a company record, coupled with the benefits of a sustained stock repurchase efforts throughout the year, he said.
The company was also able to control costs with capital and operating capex coming in well below guidance for the quarter.
“Beginning with the second quarter financial performance, Devon's core earnings significantly expanded yoy and totaled $885 million, or $1.41 per share,” Devon CFO Jeff Ritenour said.
“This level of earnings translated into operating cash flow of $1.5 billion, a 9% increase y-o-y operating cash flow, which funded all capital requirements and generated $587 million of free cash flow for the quarter,” Ritenour said.
Devon ended the second quarter with $1.2 billion of cash on the balance sheet and a low net debt to EBITDA ratio of 0.6x, consistent with the company’s discipline cash return framework, he said.
“We returned approximately 70% of excess free cash flow to shareholders through a combination of buybacks and dividends,” Ritenour said.
Siebert Williams Shank analysts said Devon reported strong second quarter results with a 2.8% oil production beat supported by its Delaware Basin output.
“We view the 2024 outlook tweaks as a wash, as it raised the company’s oil/total production guidance by 1.6%/2.5%, while expecting to come in at the upper half of its standalone capex range due to efficiency gains bringing activity forward,” analysts said.