Devon Energy may look to convert its Powder River Basin play in Wyoming to development mode later this decade.
The E&P holds stacked pay in the multi-formation basin where it’s landing laterals primarily in the Niobrara, in addition to prospecting in the Turner, Parkman and Teapot formations.
The leasehold is mostly locked up by Devon, EOG Resources, Continental Resources and Occidental Petroleum.
“I just want to keep it on your horizon as a really valuable piece of our portfolio that probably has zero value out there in the world [in] our share price,” Clay Gaspar, Devon COO, told investors and securities analysts in its August earnings call.
Devon’s second-quarter production from the basin was 18,000 boe/d, including 13,000 bbl/d of oil, or 2% of companywide boe/d of volume, according to its most recent quarterly report.
Most of its output came from the Delaware Basin that averaged 461,000 boe/d in the second quarter, consisting of 221,000 bbl/d of oil, 121,000 bbl/d of NGL and 712 MMcf/d.
The balance of its second-quarter output was from the Eagle Ford Shale (79,000 boe/d), Anadarko Basin (84,000 boe/d) and Williston Basin (61,000 boe/d).
“What I would expect in time—maybe the second half of the decade—[is] there will be more of an opportunity for the Powder to really step in,” Gaspar said.
“In the meantime in the front half of the decade, we really need to make sure that we're ready for that and what my signal to you today is we're really pleased with that steady progress that we're seeing.”
Industry-wide, the basin already is heating up. In the first half of the year, Wyoming nearly matched Colorado for the most permitted wells, well ahead of North Dakota and Oklahoma, according to the Wyoming Oil and Gas Conservation Commission and other state energy commissions.
Wyoming counted 508 wells permitted, just behind 512 in Colorado. Texas, of course, easily led the way with 3,186 wells, according to the Texas Railroad Commission.
Wyoming had a "race to permit" anomaly in its rules that resulted in thousands of permits that could be renewed in perpetuity, resulting in squatting.
The new rule, enacted in 2020, has resulted in a permit count that is still higher than true intentions to drill, but the count is substantially reduced.
‘Needle-movers’
Devon’s second-quarter capex in the Powder was $53 million of its total $896 million spend on E&P operations across its portfolio.
Currently, it is continuing to take best practices from the Delaware and its other plays, and then testing them in its one-rig and half-time-frac-spread Powder wildcatting.
“The great news is we're going to be able to ride the back of the Delaware Basin and the other really strong basins that are much more mature and developed while we unlock the potential in the Powder,” Gaspar said.
Work is continuing on productivity, spacing and completion. A new casing design “we just applied is a very material cost savings.”
To date, it’s “resulted in higher productivity and has continued to bolster our confidence in this asset,” Gaspar said.
The next step is to crack the code on development spacing “across a very large fairway,” in addition to reducing costs.
But, so far, Devon has seen improvements “that are shaping up to be needle-movers.”
Looking ‘over the fence’
Upon scaling it up in Wyoming, costs should decline, Gaspar said.
“There’s 100% certainty in my mind that … costs are going to come down materially, and that's on the back of [what Devon has seen in] every other basin we've ever worked in.”
But the Powder’s full potential remains in the ground for now “until we get that [scale]. That's the chicken-and-egg conundrum.”
Meanwhile, Devon is picking up intelligence in the basin, looking “over the fence,” he said, at neighbors’ drilling and completion recipes and results.
“A couple of companies have a little bit more activity, and we can [also] extrapolate our learnings from the other basins to allow with certain confidence what the potential can be, and that will really start to play a bigger part.”
But, he added, Devon has time.
“Time is on our side. We have long-term leases. We have a great inventory that allows us to de-risk this play in time.”
There won’t be “a sudden … rush of capital towards the Powder,” Gaspar said. “We’ll continue to de-risk this and unlock this potential in a very systematic way.”
Devon’s capex is largely targeted to its Delaware Basin property. “There's a big chunk of that that's still … ready to go.”
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