2009 was a big year for Devon Energy (NYSE:DVN). The company came to an important realization that it had its hands full in the North American onshore business and decided to sell everything else. That divestiture process is in its early stages, but it's going well so far.
In terms of production growth, Devon had a reasonably good year. Total production rose more than 6% to 682,000 barrels equivalent per day, with North American onshore (NAO) accounting for 88%. Unit operating costs dropped 14% to $7.16 per barrel equivalent, reflecting the lower energy and service costs that the downturn ushered in.
Devon alone has taken its operated rig count from 23 back in August to 80 running today. Given the swift pace of the onshore rebound, I wouldn't expect costs to stay at this low level. Assuming the current pace is sustained, servicers like Nabors Industries (NYSE:NBR) and Weatherford International (NYSE:WFT) should be able to raise prices.
In terms of reserve additions, Devon saw a large but anomalous increase in 2009. The big boost didn't come from an explosion in shale play PUD (proved undeveloped) locations, a la Petrohawk Energy (NYSE:HK). Devon is conservative in that regard, with only 29% PUDs in the NAO. The key driver was Devon's Jackfish in situ oil sands project in Canada. Canadian oil reserves shot from 134 million barrels in 2008 to 514 million barrels at year end, with price revisions driving a large portion of the gain.
Even setting aside prices, a mismatch in timing between expenditures and reserve recognition at Jackfish also drove Devon's organic reserve additions in the NAO to a rock-bottom $6.59/barrel equivalent. The company is guiding for finding costs of around $13/barrel in 2010, which is more in line with that achieved by drillbit dreamboats like Anadarko Petroleum (NYSE:APC).
Devon had a lot of interesting things to say about its various plays, and I'll just focus on two that grabbed my attention.
First off, the core of the Cana Woodford play in Oklahoma is a real knockout. Thanks to a liquids-rich sweet spot, Devon is estimating ultimate recoveries of 11 billion cubic feet equivalent (Bcfe) per well in the core. To put that in context, Devon pegs its Haynesville wells in the Greater Carthage area in East Texas at 6 Bcfe, and Haynesville wells are some of the biggest, baddest shale wells around.
Speaking of the Haynesville, Devon is trying to extend the play to a new core area to the south. In early November, the firm announced a massive initial production rate on its first well down there. That rate has dropped around 90%, to "a little over three million cubic feet per day." This is an even steeper decline than normal in the Haynesville.
Devon explained that the shale here is thinner, which looks challenging for ultimate recoveries. I would expect operators in this area, which includes EOG Resources (NYSE:EOG) and St. Mary Land & Exporation (NYSE:SM), to shift their focus to the Bossier, which is thicker and may offer better economics.
