Thursday, April 5, 2012

Devon Touts The Tuscaloosa Marine Shale

Devon presented details on the Tuscaloosa Marine Shale to analysts in Houston on Wednesday.  Here is a summary:

DEVON Analyst Meeting
April 4, 2012 – Houston, TX
·       Very large and meaningful acreage position; just under 300,000 net acres to JV; under 200,000 net acres to Devon
·       Very large resource potential associated with this play
·       Unrisked potential: 1.7 billion barrels; over 1.1 billion barrels unrisked net to Devon
·       To drill about 10 wells in the play this year
·       Highly overpressured reservoir
·       Put position together at very economic price
·       Some infrastructure will have to be built out
·       Tremendous resources associated with this play coupled with the high pressures that can add significantly potentially to the deliverability to the rates; very large prize potential here
·       Think that we’re going to get good rates from these wells once we unlock the keys to completions; main issue is getting costs down; relatively expensive wells for a resource play; this plays to Devon’s strengths; consistently done this in other plays
·       Cana Shale: similar depths to Tuscaloosa Marine Shale; reduced costs 30-40% since inception of drilling program; cost reduction will be the focus of the rest of the 2012 program
·       TMS Strat Column: highly laminated lithology; has brittle intervals of sand, siltstone, and limestone.  There has been discussion in industry that this is a ductile shale system and that it’s going to bend and not break. That’s one of the concerns of the play.  I can tell you that there are intervals of sand and siltstone that add to the brittleness of it that makes it frackable.  There’s a significant fracture system that’s present in there.  We know that it’s capable of production.
·       Wide spread shelfal setting with low structural relief.  Good thickness (150-200’); easy to target the right interval and stay in zone; high resistivity which indicates the very oily nature of this; believe that we’re in the oil window for the bulk of our acreage position
·       Highly overpressured; 0.7 psi/ft (normal .465 psi/ft); means you can pack a lot of hydrocarbons due to overpressuring and can have very high rates associated with this reservoir due to pressure
·       Good frac barriers above and below; Don’t want to frac into wet sands below; Frac barrier below the shale and above the Tuscaloosa sands
·       Conventional core: you can see fractures that are present; very dense; closely spaced fractures will improve permeability; provide significant benefit for the overall production; can be challenging on drilling side; lose a lot of fluids; one of the challenges that we have
·       Completed two wells (Beech Grove, Soterra); drilling Murphy and Weyerhaeuser; neither of first two were optimum from lateral length or completion design; not indicative of what productivity of play can be once completions are optimized; understand that Encana has had better completions to the north in what we consider same geological environment
·       Play has incredible potential; resource is huge; the prize once we optimize drilling and  completion techniques and costs; very compelling; we do have some learning curve to go through; been through this learning curve before; early completions in Cana had problems; optimistic we can work our way through these completion and cost issues and create great deal of shareholder value.
·       Joint Venture: Devon (2/3), Sinopec (1/3)
·       Gross Acres: 285,000 acres
·       Net Acres: 190,000 acres
·       Average Royalty: 21%
·       Unrisked reserves: Gross 1,730 MMBOE, Net 1,150 MMBOE
·       2012 Capital: Gross $167 MM, Net $44 MM
·       Drill & Complete Costs: $12-14 million
·       Estimated Ultimate Recovery: 400,000-600,000 (90% liquids)
·       Initial Potential Rate (1st Month Average): 700-900 barrels of oil per day

Presentation Slides:

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