Devon forecasts 2018 STACK and Delaware production increases

By Patrick C. Miller | February 26, 2018

Devon Energy Corp.—headquartered in Oklahoma City—has issued a three-year business outlook and detailed its capital and production plans for 2018.

For its operations in Canada, the Delaware Basin and Oklahoma, Devon is planning a capital budget between $2.2 billion and $2.4 billion. The company’s Delaware and STACK assets are on pace to increase oil production by greater than 35 percent in 2018 compared to 2017.

“Devon has reached an inflection point by building operating momentum across its U.S. resource plays and has successfully transitioned these world-class assets into full-field development,” said Dave Hager, president and CEO. “In 2018 and beyond, with our low-risk development programs focused in the economic core of the Delaware Basin and STACK plays, we expect to deliver a dramatic step change in capital efficiency, achieve attractive corporate-level returns and generate substantial amounts of free cash flow at prices above our base planning scenario of $50 WTI pricing.”

In a news release, Devon said the trajectory of its U.S. oil production profile is expected to steadily advance throughout the year and exit 2018 at rates more than 25 percent higher than the 2017 average.

Devon also announced that in 2018, it will use new revenue recognition accounting rules that change the way some processing fees are presented for natural gas and natural gas liquids. According to the company, this change will result in higher price realizations, increased revenues and increased production expenses.

The company noted that significant changes to the U.S. federal income tax code will have an overall positive impact on its business. Devon said it will also benefit from legislation allowing the tax-efficient repatriation of future Canadian earnings to the U.S.

In early 2018, production growth has accelerated in the company’s Delaware Basin and STACK assets, with current daily rates from these assets at approximately 195,000 oil-equivalent barrels (Boe) per day. The combined daily production rates from these two assets represent greater than a 10 percent increase compared to the fourth quarter of 2017 and nearly a 20 percent increase compared to the full-year 2017 average.

Devon said the substantial increase in daily production is driven by higher operated completion activity in the Delaware Basin and tie-in of more than 50 non-operated wells in the STACK around year end. In the Delaware Basin and STACK, the company’s top 30 operated wells during the fourth quarter of 2017 averaged initial 30-day production rates of greater than 2,500 Boe per day (60 percent oil).

“With our disciplined multi-year plan, Devon will accelerate value creation through the pursuit of capital-efficient cash-flow growth and portfolio simplification, not top-line production growth,” said Hager. “Looking beyond our initial priority of reducing up to $1.5 billion of debt from our upstream business, we plan to return excess cash flow from operations or divestitures to shareholders through both opportunistic share buybacks and dividend growth.”