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Staying on an even keel dominates Devon Energy’s strategy as it navigates an uncertain business climate.
Devon’s current strategy is built “around our long-term development plan,” Rick Muncrief, Devon’s president and chief executive officer, told the Reporter-Telegram in advance of a reception honoring the company presented by the Midland Wildcat Committee.
The company’s merger with WPX Energy, completed in 2021, doubled Devon’s production from 150,000 barrels a day to 320,000 barrels a day currently.
Muncrief said the company operates 25 rigs companywide, 16 of them in the Permian Basin, about the same number as it operated for most of 2022. He said the company added two rigs mid-2022 after completing two major acquisitions, one in North Dakota and one in the Eagle Ford. That, he said, allowed Devon to main production at essentially flat levels.
Of the economic environment, “We’ve seen a great deal of volatility,” he noted. “As producers we need to keep the market well supplied, we need to help ensure service companies have steady work and keep a stable workforce, which promotes efficiency and safety.”
That volatility as prices are buffeted by concerns over tighter oil supplies and concerns over risks of an economic pullback or recession is encouraging the company to maintain its focus on capital discipline, Muncrief said. “There’s a lot in play.”
Devon’s priorities are to continue to be disciplined, stick to its game plan and work with employees, shareholders and its communities, he said.
Just as he believes continued capital discipline is the right thing, so is showing Devon’s commitment to the environment, one reason the company is joining the United Nations Environment Programme’s Oil and Gas Methane Partnership 2.0.
That is the foundation of ESG – Environment, Social and Governance – doing the right thing, he said. Governance is good and as for Social, he said sometimes the industry doesn’t get the credit it deserves but, especially with what’s going on in the world day, “we’re getting more thoughtful conversations.”
He added “We want to do the right thing – we won’t throw that away. That’s the foundation of ESG – doing the right thing.”
In its most recent earnings call, Devon told analysts approximately 60% of its 2023 capital expenditures will be in the Delaware Basin, and of that two-thirds will be in New Mexico and the remaining third in Texas.
“We’re right on the state line – we’re barely in New Mexico, we’re barely in Texas,” Muncrief said.
Along with the challenges of price volatility and uncertainty about the direction of the economy, there’s another challenge unique to the Permian Basin with its multiple levels of oil and natural gas formations.
“Here in the Permian Basin, over time, you see the core – the Tier 1 – get fully developed,” he said. “Then comes Tier 2 and we’re in that now. Current prices are giving producers more confidence (with Tier 2).”
Devon has some Lower Wolfcamp assets that are somewhat lower in percentage in oil and higher in percentage in natural gas and the Permian Basin’s proximity to the Gulf Coast and its export facilities offers opportunities for natural gas, he said. He also sees exciting opportunities in Mexico, which imports 6 billion cubic feet a day from the US, benefiting Mexico’s environment and economy.
Muncrief acknowledged that a lack of takeaway capacity has weighed on natural gas prices, especially at the Waha hub in Pecos County. In response Devon has hedged its base between the Waha and Henry Hub facilities and taken equity positions in new pipeline projects to ensure it has takeway capacity for its production.
He said Devon is always on the lookout for Permian Basin opportunities, pointing out that the company does not have a foothold in the Midland Basin.
“The thing about the Permian is that it’s a basin that keeps giving,” he said.
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