DVN
#Again we are looking to further quantify just how rich our inventory is.
We know it is rich, but we would like to get more information on the spacing in the various intervals that we are testing, both in the STACK play and the Delaware Basin.
Also, just how many of these different intervals are working.
So we would like to further detail that, to know for sure.
It has certainly been true historically that the slope in the Delaware Basin does not appear to compete as well, although I will note there has been some pretty big purchases there recently, by some other companies, but I think historically it has not competed as well.
And the Barnett, although you can get returns well above the cost of capital, have not competed in our portfolio.
But again, we are currently testing some innovations in the refrac technology side, to significantly lower that cost, and we are trying some new wells out there with modern drilling and completion.
So we would like to understand that potential before ---+ both in terms of just how deep our inventory is, and also what is the real upside better from these other plays before we make a final decision.
We understand the question very well.
It's not lost on us.
We understand, and like I say, we have not hesitated historically when the time is right to make these strategic decisions.
But that's what were working through, before we make a decision.
Ron, this is <UNK>, and last quarter we did roll out our first extended reach type curve for what we consider the over pressure [oil] window within the STACK.
And the EURs on that are approaching two million barrels per well on an equivalent basis, and depending upon the streams of casing, whether it's two or three, the cost of the ---+ D&C cost can range from $7.5 million to $9 million.
And from an IP-rate perspective, these are pretty prolific wells as well.
It's well north of 2,000 barrels equivalent per day on a 30-day rate.
So that's our initial type curve, and I think <UNK> can talk about maybe what we're seeing at the earlier results on that, and how it's trending.
When we were out a few months ago talking about that, we said we expected high single-digit inflation across all aspects of the business.
We have revised that upwards a little bit now.
We're saying now in the 10% to 15% across all aspects of business.
If you look at ---+ and we have accounted for that in the capital guidance we have provided to you.
We were originally talking about a capital program around $2 billion, a couple three months ago.
Now with a $2 billion to $2.3 billion, we probably upped the midpoint about $150 million of that.
About $100 million of that is due to just moving up the timing of some rig activity, particularly in the Delaware Basin, and about the other $50 million or so is due to additional cost inflation now.
At the same time, we think we can largely mitigate about 75% of this cost inflation, that we anticipate to see this year.
You're seeing examples of us across our portfolio, where we are lowering the drill times associated with these wells.
We have our 24/7/365 drilling control room is really helping out a great deal with the efficiency, and nearly 100% in zone on these wells.
Yes, it does appear the inflation has picked up somewhat from a few months ago, but we think we can largely offset that.
This is <UNK>.
First off, from a corporate standpoint, given the strength of our balance sheet and our financial strength, we are comfortable right now spending approximately at cash flow, in any given year.
We want to stay a strong investment-grade credit company, and we believe with our net debt position at this point, that the spending within cash flow is approximately where we should be.
Now we recognize, depending on who's price deck you use there, that there may be the potential to ---+ that we may have a little bit of free cash flow this year.
I think frankly we would probably have to subtract off the dividend off the numbers in our book there, and you will probably see we are really at cash flow neutral.
But if there is the potential where we have a little bit stronger cash flow than we anticipate, we certainly have the program, and we are very confident we can deliver on good returns on that program, for a little bit higher capital spend.
So that, we are not doing, we're not announcing we're doing that obviously right now, but that potential is there.
We have some of the highest best positions in onshore North America, and we have focused on delivering outstanding returns on that, and we could ratchet up to some degree our capital spending and be confident that we could maintain those returns.
As far as the 2017, or excuse me, the 2018 capital program, basically what we're ---+ we're not going to give you a specific numbers there, but do feel comfortable stating that we're roughly planning to once again spend within cash flow and deliver on our growth targets that we have outlined there.
Another thing to keep in mind on that, the 2018 capital spend really has a bigger impact on 2019 production than it does 2018 production.
Really the bulk of the 2018 production, given the time delay between when you spend the money and you have first production, is largely determined by the 2017 capital spend.
That is a decision that we will visit the second half of 2017.
We are very confident that Pike is going to be like Jackfish, in the sense that it's going to be a top-10%-type project in the SAGD.
Geologically, it looks just as good if not better than the Jackfish project, and obviously, we've shown the ability to execute on the construction side at Jackfish as well as anybody, and we have the graphs in our operations reports that just show the efficiency with which we're able to manage that production to, in terms of steam-oil ratios, and also goes back as well to just the quality of the reservoir.
So we like the project a great deal.
Now obviously, the question is not what prices are going to be in 2017, but what we anticipate prices will be when first production happens, which would probably be around 2021 or so.
So, we are hoping to get at some greater clarity on that question.
There are other variables that obviously factor into it beyond price, and also just the capital costs.
We do not necessarily see the proposed border adjustment tax as a negative to Canadian prices.
We do see where it could be positive overall for our portfolio, in that the bulk of our oil is in the US, and we think it would cause WTI prices to go up.
It may cause the differentials to increase a little bit, but not necessarily lower the price is coming out of Canada, because that heavy oil is needed by the refineries here in the US, that's what they are tooled to handle.
And with the decrease in Mayan crude particularly too, we think the draw on Canadian crude will still be there largely.
So we don't see that as a negative on our Canadian operations at all.
You might even benefit from a positive FX as well, impact to it.
We will visit that question the second half of the year.
We like the project a lot, but obviously does take a ---+ it's a little bit lower return than our well oriented programs here in the US, but the way I describe it is more the bond in our portfolio.
It is a lower risk, we know how to do it, and generate good returns with it.
So we will make a call with our partner, BP, later on in the year on this.
<UNK> is dying to tell you about it <UNK>, that is what we call our [Maveta] area down there, so I'll let <UNK> talk about it a while.
<UNK> would like to do this one, also.
<UNK> I'm not sure exactly where you're going with that, but what I would say is that we obviously are driven by returns in all of our capital allocation decisions.
Those returns were largely driven by what our anticipating prices are for both oil and natural gas.
Given right now the reality of strength of oil compared to natural gas, that does mean that the bulk of our capital program is going to those plays that have a higher proportion of oil versus our dry-gas-type opportunities.
We still have some of those in the portfolio, and the Barnett would be the big one, and some areas even in a deeper part of [Cana], for instance, that we are not having a lot of activity going.
So that will drive our capital allocation decisions.
Just our belief in what the relative strength of the commodities will be.
And obviously that not only does it from our capital allocation, but we take that into account when we are making strategic decisions, as to where we think the portfolio should be positioned.
We are spending money there not to maintain production.
We are 100% dedicated to putting our capital where we believe the highest returns are.
In the case of the Barnett, and <UNK> can detail it, we are spending a little bit of capital there this year, not a large amount, because we are investigating the how well a new refrac design, which may be around $700,000 versus previously was around $1 million to $1.2 million cost to refrac those wells, how well that is going to work.
And if that is successful, it could have returns that are very competitive within our portfolio.
There's also the potential that with a modern drilling and completion design, that you could also have returns that are competitive within our portfolio.
Remember, we haven't had an active drilling program there for several years, and there has been tremendous advancements on both the drilling and completion side since then.
So we are not putting a lot of capital into that, but the only reason we are is because we believe that could lead to a program that could be competitive within our portfolio, or any body else's portfolio, if we choose to make a strategic decision around that.
<UNK>, real quick this is <UNK>, just to add on a little bit to the end of that, just to provide a percentage.
About three-quarters of our activity will be development drilling, and that is one of the reasons why we are so confident with our production outlook with the Delaware Basin.
If you look at our Operations Report, you are going to see greater than 20% growth from Q4 to Q4 on a 2017 to 2016 basis.
Obviously, we expect to stabilize production in the first quarter, and even more important I think is just how excited we are about the momentum that carries into 2018.
So this is absolutely going to be a strong growth asset with some of the best returns in North America.
I am not going to announce anything today, so I'm not sure I can really answer that question fully.
But I would say we're working both sides to really understand what the potential is in a more complete manner in our core plays, both in the STACK and the Delaware Basin, as well as trying to make sure we understand the true value of other assets that may be considered for monetization.
You never have complete knowledge, we understand that.
There is not a set point in time where you fully understand, and you make this call.
But it's our judgment right now that we would like to learn more, rather than make that decision today.
But again, it is not lost on us that there is a ---+ at some point, that call will have to be made one way or the other.
We certainly, as I keep saying, have not shown any reluctance to do that historically, when we think the time is right to do that.
We fully understand the values that are being paid in the Delaware Basin.
We understand all of the variables.
I don't need to lay them all out on the table here, I don't think.
But we just feel it would be helpful to have some increased knowledge at this point of the continued appraisal in both the STACK and Delaware Basin, before we make that final call.
I would say that is probably on balance, probably the more likely scenario, that we would go that direction.
Yes, I would agree with that.
<UNK>, this is <UNK>.
With regards to the inventory, probably two-thirds is going to be in the basin, which we consider is superior returns to the slope.
And as far as the acreage, you are probably looking at 55% of our acreage from a surface perspective is going to be located in the basin as well, so we're certainly levered to the basin.
<UNK>, your question, you broke up a little bit, your question is what landing zones for the Bone Springs at those particular wells.
And I will hand it over to <UNK>, but essentially those are in two very different areas, than where we have drilled historically.
It was the Thistle area obviously was one of those areas where we drilled at Bone Spring, and I believe it is the <UNK> area is where we drilled our other Bone Spring.
<UNK>, feel free to jump in, but obviously I believe it is a second Bone Spring is what the <UNK> area would be targeting, and when you think about the Thistle, it may be more shallow member of the Bone Spring.
But <UNK>, just to provide a more global thought, when you think about our overarching inventory in that play for the Bone Spring we have inventory across the first, second and third members of the Bone Spring, and it just depends on where you are at within the basin, it can be very localized.
But certainly we are more heavily levered toward that second Bone Spring opportunity, which we believe delivers the best returns.
<UNK>, one thing to add with that, it is really ---+ we have been asked a lot about the upside with the STACK play, and one example that is lost on a lot of people but not you would be that with the offsetting well actually not showing degradation, and a lot of that comes down to landing zone.
We're still optimizing landing zones in this early stage play, so as we continue to better understand landing zones and we extend these laterals out further, that's where we expect well productivity and capital efficiency to continue to ratchet up in this play.
The forecast is based on our type curve, <UNK>.
We will be happy to, <UNK>.
I tell you when you look at the results we are seeing, it is extremely early.
The results have been above-type curve, and the wells are cleaning up.
But if you remember, we are about, we are probably about halfway through on a real-time basis on the completion of these wells, and so the flowback is pretty early.
I believe the questions <UNK>, were not around the sale of any of our core assets.
The core of the Delaware Basin or the core of the STACK or anything, more directed around some assets that we can still have some capital programs, that are probably well above the cost of capital, but they are not going compete in our portfolio, and not going to receive capital.
And so the question is, I believe people are asking is, at what point will you make that decision that is not going to be an area that you will allocate significant capital to, and might consider for rationalization.
But certainly, there is no consideration on our point of selling any of the core assets in our portfolio.
We're glad we have them, and we think we are some of the best, and we will execute on them incredibly well.
I think that is probably the questionable area.
I am showing we are at the top of the hour and there are still a lot of people left in the queue, so we apologize for everyone that we are not getting to, but please don't hesitate to reach out to the Investor Relations Team at any point, which consists of myself or Chris Carr, and have a good day, and we do appreciate your interest in Devon.
Thank you.
