Devon Energy's Midstream Growth Concentrated In Barnett, Woodford Shales

While Devon Energy's primary focus is in E&P, the company's midstream division is a very important and profitable segment of the company. "We produce somewhere around 250 million barrels per year, so that adds a couple of dollars per barrel on our net back. It's a very, very profitable business for us," John Richels, president and chief executive of Devon, said at the recent Barclays CEP Energy Power Conference in New York.

Indeed, the company's midstream division is designed to support its E&P operations, but it typically draws between $400- to $500 million in operating profits. This year profits are expected to be higher at $530 million.

Richels stated that profits from its multiple divisions allow the company to maintain a balanced portfolio and competitive cost structure that provides for high full-cycle returns. In addition, the company's diversified assets provide repeatable growth opportunities.

This flexibility carries over to its E&P operations where Devon has managed to not get bogged down with lease exploration issues. This has allowed the company to focus on plays and regions that it wants to focus on based on market conditions rather than on regions it must develop in order to hold leases. This philosophy has seen the company focusing on oil and liquids-rich plays in 2011 with 90% of its capital budget directed to such production.

"We're also allocating capital to evaluate the potential for several emerging liquids opportunities in the Permian Basin, Canada, the Rockies, and in some new organically generated plays," he said.

The growth from these plays has Devon directing more funds to its midstream segment to handle the increased production. Though the Barnett isn’t recognized as the "it" play any longer, Richels noted that has been a major focal point for the company.

"Our largest development asset is the Barnett shale…We have a terrific position with low average entry cost and a low royalty burden. This play just continues to get better and better. We produced a lot of gas and liquids out of this area over the last few years and we still expect to recover an additional 18 Tcf net to Devon over the life of the field.

"This is an area supported by our large midstream operation. We're expanding our Bridgeport plant from 650 million cubic feet per day (MMcf/d) by another 140 MMcf/d to handle our growth in liquids production from the region. That will give us a total capacity in the area of about 890 MMcf/d of inlet capacity with about 65,000 barrels per day of liquids production," he said.

Although the Barnett is arguably the company's most important play, its fastest growing play is the Cana-Woodford. "We were the first company into this play and hold over 50% of the best acreage," Richels said. This acreage is high in liquids content with production in Q2 2011 reaching 190 million cubic feet equivalent per day (MMcfe/d), which is expected to increase to 275 MMcfe/d in Q3 2011.

Devon is also anticipating strong midstream growth in the Woodford with a $125-million expansion of its 200 MMcf/d processing plant in the region. This expansion will add 150 MMcf/d of capacity to the facility when it is completed by year's end.