Devon Energy Corp. expects its Permian Basin natural gas production to increase along with its exposure to premium Gulf Coast pricing once the Matterhorn Express and Blackcomb pipelines enter service, according to management.
The Matterhorn Express Pipeline coming online is “going to be a positive, obviously not just for Devon specifically but the broader sector as we move more of those molecules away from the Waha hub,” said CFO Jeff Ritenour during Devon’s second quarter 2024 earnings call. Devon operates in the Permian’s Delaware sub-basin, as well as the Anadarko, Williston and Powder River basins, plus the Eagle Ford Shale.
Devon is part of the joint venture that developed the 2.5 Bcf/d Matterhorn project. The management team of EnLink Midstream LLC, another partner in the project, said Wednesday the pipeline is expected to enter service in September, a slight delay from previous projections for a summer 2024 in-service date.
Ritenour also highlighted that the 2.5 Bcf/d Blackcomb Pipeline, for which Devon is a firm transport capacity subscriber, is slated to enter service in 2026.
As for Matterhorn, “from our standpoint it absolutely is going to move molecules over to the Gulf Coast,” Ritenour said. “We’re hopeful to take advantage of the LNG pricing improvement that we’ll see over time as those projects get built out.”
He noted, however, that “there is absolutely a risk of some…backup of molecules being transferred from Waha over to Katy, and that’s why we’ve also taken advantage of some other opportunities to move the molecules further away from Katy into Louisiana and beyond.”
NGI’s Waha forward basis price for September delivery averaged minus-$2.410/MMBtu on Monday (Aug. 12), compared to the minus-29.7 cents at Katy.
Ritenour said Devon’s marketing team is “thinking about the entire value chain and how we move these molecules to where we can get the highest realized price because at the end of the day, that’s what we’re trying to accomplish.”
He cited the firm’s Oklahoma gas production as an example, explaining that, “we have the ability to move that gas to the Southeast markets where in the second quarter, we were able to capture a premium to Henry Hub…”
Ritenour said, “without a doubt, we believe we’re going to continue to see gas production grow…as we continue to pursue our commitment to drilling more and more oil projects in the Delaware Basin.”
He continued, “And so that’s why we think it’s so important to help support these projects like Matterhorn and Blackcomb by making these volume commitments.”
Production Outlook Revised Upward
Oklahoma City-based Devon, meanwhile, “is raising its full-year 2024 production forecast for the second time this year to a range of 677,000 to 688,000 boe/d,” according to management. “The updated volume outlook is due to better-than-expected well performance year-to-date and improving cycle times.
“The company maintains its full-year capital range of $3.3 billion to $3.6 billion but expects to be in the upper half due to efficiency gains bringing activity forward.”
COO Clay Gaspar said Devon expects to improve well performance in the Delaware by over 10% in 2024 versus 2023. “An important driver of this improvement is the easing of infrastructure constraints in New Mexico, which has enabled us to increase capital investments in areas [where] we have the most extensive runway of high quality inventory.”
CEO Rick Muncrief also touted Devon’s $5 billion, all-stock acquisition of privately held Williston Basin operator Grayson Mill Energy LLC in July. “These assets are an excellent addition to Devon, expanding our oil production, project inventory and operating scale,” he said.
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Devon produced 1.14 Bcf/d of natural gas during the second quarter, up from 1.05 Bcf/d in the same period last year. The Permian Delaware and Anadarko basins accounted for the bulk of gas output at 712 MMcf/d and 244 MMcf/d, respectively.
Oil production, meanwhile, averaged a company record of 335,000 b/d for 2Q2024.
Devon recorded an average realized natural gas price including cash settlements of $1.10/Mcf, from $1.66 a year earlier.
Among the regions where Devon operates, the Eagle Ford fetched the highest average realized gas price at $1.48.
Upstream capital expenditures totaled $828 million, compared with $958 million in the year-ago period.
Devon reported net income of $844 million ($1.35/share) for 2Q2024, compared with profits of $690 million ($1.08) in 2Q2023. Revenues totaled $3.92 billion, from $3.45 billion a year earlier.
