Devon Energy Corp. is working with midstream companies to help advance a natural gas pipeline in the Permian Basin, management said Thursday.
CEO Rick Muncrief and his management team hosted a conference call to discuss first quarter earnings for the Oklahoma City-based oil and gas producer. Devon operates primarily in the Permian’s Delaware sub-basin, as well as the Anadarko, Williston and Powder River basins, plus the Eagle Ford Shale.
Devon also is part of the joint venture behind the 2.5 Bcf/d Matterhorn Express pipeline, which is slated to enter service this year.
CFO Jeff Ritenour said the Permian needs another natural gas pipeline within two years, and that he expects to see one sanctioned within six to 12 months.
Devon is “engaged in discussions with third-party pipeline providers” on potential projects, Ritenour said.
He added that, “historically, we've got a track record of leaning in to help those projects get off the ground, whether it be volume commitments or in the case of Matterhorn, we actually made an equity investment as well. So we're certainly going to be supportive of those projects.”
Permian natural gas prices have taken a beating this year, with prices at the Waha hub often in negative territory for most of April. NGI’s Waha forward fixed price for June delivery stood at 53.6 cents/MMbtu as of Thursday (May 2).
“On the gas side, we are experiencing weakness in Waha pricing within the Permian, but...our exposure is limited given our firm takeaway and basis hedging,” Ritenour said. “Looking ahead, we expect this situation to improve with the Matterhorn pipeline scheduled to come online later this year.”
The management team highlighted that 2 Bcf/d of gas processing capacity has been added in the Delaware over the past year. Devon also has firm transport rights for 10% of the capacity on Matterhorn.
“Our patience in giving this highly prolific area some breathing room for this infrastructure to mature was the right decision from an economics perspective as well as an environmental standpoint,” Muncrief told analysts.
Ritenour said Devon expects Matterhorn to come online by the end of September.
“I want to highlight that we haven't had any issues moving our molecules, despite the volatility that you've seen in Waha pricing and kind of the downward trajectory of pricing here over the last, call it, month and a half. We feel like we're in a pretty good position. Matterhorn is obviously going to help that when we get to the back half of the third quarter.”
The CFO noted that, “we move about two-thirds of our gas out of basin to the Gulf Coast via the firm transport that we have in place. And then another 15% of our Delaware gas is protected via the hedge program that we execute each quarter.”
Devon’s remaining gas volumes are exposed to Waha, but about 75% is sold at bidweek pricing.
“So we don't see all the volatility that you are looking at on the screen as it relates to the day-to-day when maintenance issues happen and other challenges out in the basin,” Ritenour said. “We feel like we're protected pretty well from the bit of exposure that we do have and certainly expect that Matterhorn is going to help relieve some of that pressure when we get into the third quarter.”
‘Improved Production Outlook’
Devon is increasing its 2024 full-year production forecast by 2% to a range of 655,000 to 675,000 boe/d. “This incremental production in 2024 is expected to be delivered without an increase in capital spending,” management said. “The company expects to deliver this improved production outlook with capital spending of $3.3-3.6 billion, a 10% decline versus 2023.”
Devon produced 1.08 Bcf/d natural gas in the first quarter, versus 1.03 Bcf/d in 1Q2023. The Delaware and Anadarko basins accounted for the bulk of output at 695 MMcf/d and 223 MMcf/d, respectively.
Muncrief said that in the Anadarko, “with the recent weakness in gas price, our capital activity was limited to one project placed online in the first quarter, but the flow rates were very impressive.”
Total production of 664,000 boe/d exceeded guidance by 4%. “Results were driven by better-than-planned well productivity, cycle time improvements that brought forward activity and the easing of infrastructure constraints in the Delaware Basin,” management said.
The company fetched an average realized natural gas price without hedges of $1.30/Mcf, down from $2.29 a year earlier. The average realized price including cash settlements was $1.62, down from $2.47.
Of the five main plays where Devon operates, the Powder River recorded the highest average gas price of $2.29.
Devon reported net income of $596 million (95 cents/share) for the first quarter, compared with profits of $995 million ($1.53) in 1Q2023. Revenues totaled $3.6 billion, down from $3.82 billion.
