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Devon Energy: Bullish Updates

Summary

Devon Energy Corporation offered up several bullish updates on its Meramec drilling activity as its ramp gets underway.

Several of its pilot spacing programs are performing very well, with production curves holding up after 120 days.

Two new XL Meramec wells to monitor going forward, which posted stellar IP rates.

Devon Energy Corporation's drilling economics continue to improve as ongoing LOE and production tax costs in the STACK moved materially lower in Q3 versus Q2 and a year ago.

There are another round of updates coming out of Devon Energy Corporation (NYSE:DVN) and its STACK operations worth taking note of. After raising more cash than expected from its divestiture program and in light of crude prices moving over $40/barrel, Devon Energy Corporation increased its capex budget by $200 million to boost its drilling activity in the area.

When that announcement was made Devon Energy planned on adding three additional operated rigs to the STACK region, boosting its rig count to five. Management was also deliberating whether or not to increase that further. As of its latest STACK update, Devon Energy seems to be leaning towards bringing its STACK rig count up to six by year-end.

Meramec activity going strong

As of its Q2 2016 operations update Devon Energy sees the Meramec housing five productive intervals that are split between the Upper and Lower horizons. Across the play Devon has stated that three of those are capable of being developed at any given location. The firm labels those intervals the primary and secondary targets, with the tertiary offering room for upside. Devon plans to test out developing the tertiary intervals next year, probably in a co-development program alongside its main targets.

The biggest thing to take away is that the Meramec is split between two horizons, the Upper and Lower Meramec, which each house multiple productive intervals. What Devon is striving for is how to develop those intervals in the same section without having those wells negatively impact each others' production, which can often ruin well productivity and returns. Downspacing ties heavily into that. As Devon Energy maps out its future Meramec growth runway the firm is figuring out at what distance its well laterals can be drilled from each other without a material amount of communication.

Devon Energy brought its two Born Free pilot well program online back during the first quarter of this year and so far the average output from those wells has held up nicely after 120 days. That pilot was testing out a staggered spacing method that would enable well laterals in the over-pressurized oil window, or core, of the Meramec shale play to be drilled 400-feet away from each...


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