US-based energy company Devon Energy intends to keep to its liquids-rich basins and remain as “oily” a producer as possible due to crude’s ability to drive superior margins compared with natural gas, CEO Rick Muncrief said Feb. 28.
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“We want to stay as oily as we can for as long as we can, and I think we’re seeing that play out in real time,” Muncrief told analysts on a call detailing 2023 performance and year-ahead guidance. Sub-$2/MMBtu natural gas prices is “not a good spot to be in,” he added.
Low gas prices constraining gas-focused producers has become a central theme as operators report their 2024 guidance. March 2023 NYMEX gas futures ended the day at $1.61/MMBtu on Feb. 27, posing challenges to the economics of sustained drilling activity for gas producers.
Many gas-focused producers plan to reduce spending and hold production flat to lower in 2024 in response in order to bolster free cash flow. Although the newly-prompt April 2024 gas futures contract has risen from recent lows, having settled 7 cents higher at $1.88/MMBtu on Feb. 28, prices along the futures curve remained below $3 until November 2023, data from CME Group showed.
US-based energy company Devon Energy intends to keep to its liquids-rich basins and remain as “oily” a producer as possible due to crude’s ability to drive superior margins compared with natural gas, CEO Rick Muncrief said Feb. 28.
“We want to stay as oily as we can for as long as we can, and I think we’re seeing that play out in real time,” Muncrief told analysts on a call detailing 2023 performance and year-ahead guidance. Sub-$2/MMBtu natural gas prices is “not a good spot to be in,” he added.
Low gas prices constraining gas-focused producers has become a central theme as operators report their 2024 guidance. March 2023 NYMEX gas futures ended the day at $1.61/MMBtu on Feb. 27, posing challenges to the economics of sustained drilling activity for gas producers.
Many gas-focused producers plan to reduce spending and hold production flat to lower in 2024 in response in order to bolster free cash flow. Although the newly-prompt April 2024 gas futures contract has risen from recent lows, having settled 7 cents higher at $1.88/MMBtu on Feb. 28, prices along the futures curve remained below $3 until November 2023, data from CME Group showed.
On the oil side, the current strip presents more favorable conditions for the crude producer. April 2024 WTI crude futures settled at $78.54/b on Feb. 28, data from CME Group showed. Devon’s 2024 guidance provides for a WTI breakeven price of roughly $40/b, Muncrief said.
Devon still remains optimistic about what the future of gas could be, Muncrief said, but “[the company is] going to be very interested in oil-prone basins.”
“Oil is going to drive the margins for the foreseeable future, and that’s kind of where we want to be,” he added.
2024 outlook
Devon reported full-year production of 658,000 b/d of oil equivalent for 2023, which accounted for an on-year growth of 8%. Nearly 66% of those volumes came from the Delaware Basin, with the rest split among the Williston, Anadarko and Powder River Basins and the Eagle Ford Shale.
In the fourth quarter 2023, the company’s crude volumes averaged a record-high 317,000 b/d, and its gas output was reported at about 1.06 Bcf/d for the quarter.
In 2024, the company plans to maintain production at around 650,000 boe/d, with an oil volume range of 312,000-318,000 b/d on 10% lower capital spending, Muncrief said.
“I feel really good about the next several years on our ability to keep our crude volumes where they’re at,” he said. “We’re still early. We still are not getting what I think is a strong, strong signal for demand. But when that call comes, I think we’ll be ready to step up for it.”
More than 60% of the planned 2024 spending is bound for the Delaware Basin, where 16 of the company’s 25 rigs planned for the year are located.
Outside of the Permian, Devon said it intends to cut capital activity in the Williston Basin by roughly 50%. The basin produced 55,000 boe/d for the company in 2023.
Devon was putting “a little too much capital” toward the basin, and will fund activity more “selectively” going forward, Chief Operating Officer Clay Gaspar said Feb. 28.
Gas infrastructure
Within the Delaware Basin, Devon also plans to put $100 million toward additional gas gathering and processing infrastructure in 2024. Executives discussed the spending as an effort to limit flaring, unnecessary shut-ins and overreliance on external parties to serve its needs on the gas side.
“Whether it’s on the [Permian] Midland side or the Delaware side, you’re going to continue to see gas production, NGL production continue to grow even in a flat oil scenario,” Muncrief said.
Associated gas production within the Wolfcamp-Delaware increased roughly 6% year over year to about 7.3 Bcf/d in 2023, according to data from S&P Global Commodity Insights.
Overall Permian associated gas production is expected to rise from about 17.5 Bcf/d in 2023 to more than 20 Bcf/d in 2025.
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