More insight into the sale from The Advocate
A decision by Devon Energy Corp. to sell roughly 297,000 acres of leases it owns in the Tuscaloosa Marine Shale may have more to do with the company’s operations than the formation’s profitability, according to energy industry experts.
“It’s not really that uncommon to see companies move in and out of plays and move assets from one play to the other,” said Don Briggs, president of the Louisiana Oil and Gas Association. “I don’t think it’s indicative at all of the Tuscaloosa’s capabilities of being a viable play. ...”
Companies are still figuring out the best way to drill in the Tuscaloosa, where well costs are higher than other areas of the country because the oil lies thousands of feet underground, Briggs said.
In January 2012, Dave Hager, Devon’s executive vice president of exploration and production, said the company hoped to lower its Tuscaloosa well costs by 30 percent to 40 percent to the $12 million to $14 million range.
Tuscaloosa wells range from 11,000 to 15,000 feet in depth.
In North Dakota’s Bakken Shale, the average well cost is about $8.5 million. In Texas’ Eagle Ford Shale, well costs have been reported at $6 million to $10 million.
Devon, of Oklahoma City, had been considered a leading operator in the Tuscaloosa, which covers the middle portion of Louisiana. But Scotia Waterous Inc., the oil and gas arm of Scotiabank, announced Monday it had been hired by Devon to help sell the company’s working interest in the shale.
Devon owns a two-thirds interest in the Tuscaloosa acreage. The remaining third is held by Sinopec, or China Petroleum & Chemical Corp.
Devon spent about $50 million acquiring the leases.
Scotia’s fact sheet says Devon has drilled eight wells in the formation. Six of those wells are active, with total production around 600 barrels of oil per day. A seventh well is expected to begin production in February.
Bids on the acreage are due March 13.
Scotia also is handling the sale of Devon’s 244,000 acres in eastern Ohio’s Utica Shale.
In his blog on the Tuscaloosa Trend, Amelia Resources LLC President Kirk Barrell said Devon’s operational approach has generated many questions.
Devon didn’t drill into the most productive layer of the shale in any of its wells, Barrell said in his blog. In addition, Devon used minimal amounts of proppant, the material that keeps fractures open after the drilling fluid has been pumped out. Oil is released through the fractures.
“The minimal proppant levels make the probability of achieving an economic well even more unlikely,” Barrell said.
Briggs said the proposed sale of the Devon lease probably has more to do with competition from other formations where well costs are lower and profits may be greater.
“You can drill just about anywhere you want to,” Briggs said.
“Depending on where they have their assets and where they want to operate at, it makes it a lot easier for them.”
Briggs said the company has been reorganizing, and selling its sizeable Tuscaloosa acreage may be a continuation of that.
Maybe Devon will wish they hadn't. Crosby well by Goodrich reported 1250 boepd this morning in this Wilkinson County TMS well.
March 13 has come and gone. What is the latest with Devon?
Oklahoma City-based Devon Energy has nine of what company officials are calling “exploratory rigs” in the Wolfcamp Shale and Cline Shale areas as it continues to find that sweet spot that is expected to yield huge reserves of oil and natural gas.
“There is good potential for the Cline to develop into a long term play,” Devon spokesman Chip Minty said Monday. He said, however, there still is a lot of work that needs to be done, a lot of exploration left before the company can be confident to pursue full drilling/production. “Our geologists and engineers recognize the potential here or we’re not going to be here.”
Devon also has been active in the Wolfcamp Shale areas, which are north, east and south of Midland. The Cline is east of the Midland Basin and runs roughly 140 miles north to south and is 70 miles wide. It goes through portions of Mitchell, Coke, Fisher, Howard, Nolan and Scurry counties in the Big Country.
In September, Devon closed a $1.4 billion joint venture agreement with Japan’s Sumitomo Corp. The agreement will cover 650,000 acres in the Cline and Midland-Wolfcamp shales, with Devon serving as operator.
The partnership drilled 40 gross wells in 2012, including 28 in the second half of the year.
Minty said early drilling results in the Cline “have been encouraging” and the company continues to experiment with various landing points, lateral lengths and completion techniques.
Minty said West Texas has had a long history of oil and gas production and new technology, such as hydraulic fracturing — commonly known as fracking, is allowing equipment to reach untapped resources. Fracking, combined with horizontal drilling, has turned previously unproductive organic-rich shales into some of the largest natural gas and oil fields in the world.
The Marcellus Shale in the Appalachian Basin, Barnett Shale in the Dallas-Fort Worth area and Bakken Formation in North Dakota are examples of previously unproductive areas that have been converted into fantastic gas or oil fields by hydraulic fracturing.
Devon also has opened an Abilene field office, which Minty said will serve as support location for company’s exploratory rigs and “once we start production, the office will oversee these productions.”
And so far, the Abilene office is the only structure the company has acquired in the area.
Devon’s fourth-quarter numbers showed its daily production rose 13 percent, including a growth of 30 percent in the U.S. It is due to release its 2013 first quarter earnings in May, when executives also will discuss what the company is doing and planning to do with the Cline Shale.
There has been a lot of estimate made by outside sources on the Cline’s potential, but Minty pointed out the company has “done little drilling.”
“The more you drill, the more you know,” he said, adding more exploration needs to be done for the company to confidently tell “how much oil is down there.”
Bids were to be in on March 13 for Devon's holdings in the TMS. My question is: Did anyone buy Devon's leases? I leased to Devon and the lease runs out in November. Just curious as to the status since I really thought no one would pay Devon top dollar when they could wait a few months and pick up probably a lot cheaper.
Does Devon hold an option to renew your lease? Many leases were 3 year with a 2 year renewal option. It will be interesting to see if Devon renews any TMS leases.
There is a 2 year option on my lease. You said it will be interesting to see if Devon renews any TMS leases Does that mean there were no takers on the bidding?
I have not heard the results of their offering. My question is whether Devon is renewing leases or letting leases lapse? Can anyone out there who is leased to Devon answer this question? David, you might call Devon and ask if they intend to renew your lease - though it may be too early for them to answer that since your lease doesn't expires until Nov. If they are renewing leases then they have not given up on the TMS.
Devon renewed its leases that were set to expire on March 1st, at least those in Tangipahoa and St. Helena Parishes.
I have not heard whether it renewed any leases that were set to expire on April 1st.
That's a good sign. Thanks for answering my question.
No problem. I dont expect Devon to undertake any further activity in the play. I believe they are simply trying to keep their leasehold together so as to ultimately sell it to another company.