Last month, Devon Energy announced that they are seeking a single partner for five of their exploratory oil and gas projects as it tries to minimize risk and improve its capital efficiency. A joint venture would allow the company to eliminate debt, increase capital in the drilling program, or share repurchases. The deal could possibly be valued at $1.3 Billion USD and involve 1.2 million acres.
The five projects are the Tuscaloosa Marine Shale in Louisiana, the Mississippi Lime in Oklahoma, the Niobrora Shale in Wyoming, and the Utica Shale and Michigan Basin in Ohio. Of course, any joint venture will require a large amount of cast to be paid of front, which has quickly become the norm in unconventional joint ventures.
Argus Analyst Phil Weiss praised the idea of the single joint venture partner. Weiss wrote that this will greatly reduce Devon’s risk and allow the company to only drill when the economics are right, rather than being forced into drilling in non-economic climates. An example of drilling even with bad economics is the Haynesville. Operators in the Haynesville have been forced to drill at unsustainable rates in order to hold acreage and not lose the large amount of money that was employed to lease the acreage.
The idea of the single JV partner not only seems like a winning idea for Devon, but also for the company that joins Devon in the venture. International companies that could possibly be looking for technology transfer could have a skilled, experienced partner to teach them the art of unconventional drilling. For domestic companies looking to expand their portfolio, a single transaction (rather than multiple deals) could automatically put them in five emerging play areas in the United States.
The map below from DI Desktop shows Devon’s 2011 permits, with the five proposed joint venture areas. Even without a current partner, Devon is actively permitting in the plays.
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