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All In: Devon Energy is Banking on a Rebound for Anadarko
03/08/2022
Devon Energy Corp. intends to take advantage of its position in the Anadarko Basin to drive its cash return model. The company also intends to position itself as the leader for ESG within the industry.
The reason behind this move is simple: top management at Devon believes that the Anadarko Basin is a hidden treasure.
The number of rigs has increased by 180%, and production per rig is up. Technological advancements, longer laterals, and optimized completions are driving this trend. As the company has been in Anadarko all along, Devon will continue planning for the 300,000 net acres that they currently have within this basin, while others only becoming familiar with it at the moment.
Devon is implementing its cash return model when it comes to developing Anadarko Basin, which includes five key components — moderate growth, reduced investment rates, low leverage, fixed-plus-variable dividends, and ESG excellence, which generated $550 million in free cash flow by itself in 2021 alone.
Consequently, the Oklahoma City-based independent E&P company plans to drill 45 new wells in the Midcontinent by 2022, as well as to produce 600,000 boe/d across five operating basins, including the Eagle Ford Shale, Permian, Powder River, and Williston basins.
According to Aaron Ketter, a vice president at Devon Energy, Devon's approach to technology development is long-term. It is based on a consistent allocation of capital. These policies have been in place for decades. Data access, standardization, and trust form the foundations of this system. In line with this, technology teams and field teams, as well as vendor teams, are continually seeking net-zero improvement. Right now, that means using three different sensors to monitor emissions continuously — fixed cameras, a long-range laser network, and aerial laser surveys — to catch any harmful carbon or methane emissions.
Technology advances are bringing about a step change in the transition to observed emissions reporting. Devon will also work with agencies and NGOs in this regard, to conduct research and provide external reports. A preventative phase, methane fees, and carbon tax ensure the company does not become compliant, that any leaks are discovered as soon as possible, that they are fixed quickly, and that compliance is avoided.
However, it remains to be seen whether or not this strategy will produce the necessary results. We should note, however, that Devon Energy, Corp. (DVN) shares have surged 30.7% just this year alone amid recent macro uncertainties and rising energy prices. On both the topline and bottomline, Devon's recent fourth-quarter results were better than Street estimates.
Revenue increased by 233.8% to $4.27 billion, exceeding estimates by $1.04 billion. Earnings per share of $1.39 exceeded consensus by $0.15. Production growth in the Delaware basin and an increase in margins drove this performance. As of the end of the quarter, the company's total production averaged 611 thousand oil-equivalent barrels (Boe) per day.
It appears that they are doing something right, at least for the moment.
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Who's Next after Diamondback? Potential Takeover Targets in the Permian Basin
The $26 billion purchase of Endeavor Energy Resources by Diamondback Energy, with its stock up 2.6%, is the newest big deal combining oil and gas production in the Permian Basin under a few big companies
$1B Deal: Williams Buys Out Houston-based Midstream in Haynesville Basin
By purchasing the gathering and processing assets of Trace Midstream, Williams' existing footprint gains expanded capacity in one of the nation's largest growth basins, bringing its Haynesville gathering capacity to over 4 Bcf/d — increasing more than 200% from 1.8 Bcf/d. The deal also includes a long-term commitment from Trace and Quantum to support Williams' Louisiana Energy Gateway project (LEG), which is aimed to deliver responsibly sourced Haynesville’s naturalgas to markets along the Texas and Louisiana GulfCoast
Kinetik Holdings recently announced a series of transactions in the energy sector. They struck a deal to buy Durango Permian infrastructure for $765 million. At the same time, they're selling their 16% share in the Gulf Coast Express Pipeline to ArcLight Capital Partners for $540 million. The total purchase cost includes $510 million in cash paid immediately and an additional $30 million that will be paid later, depending on whether they decide to expand further.
Recently, the Permian has seen significant acquisitions: Exxon Mobil purchased Pioneer Natural Resources for about $60 billion. Diamondback Energy's $26 billion deal to acquire Endeavor Energy Resources is currently on hold due to requests from the U.S. Federal Trade Commission. Occidental’s acquisition of CrownRock for $12 billion in the Midland.
EOG Resources is pushing boundaries in Ohio's Utica oil play and now drilling on the Sable pad, also located in Noble County. This site features the 3.7-mile lateral currently under construction. The company's first multi-well pads in the area Timberwolf and Xavier have each produced over 200,000 barrels of oil since their inception—Timberwolf in August and Xavier in October. A third site, the four-well White Rhino pad in Noble County, is also showing promising early results, according to Keith Trasko, EOG’s Senior Vice President of Exploration and Production, who noted the wells are performing as expected in their initial weeks.