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Profitable new natural-gas technologies

Posted By Jerome R. Corsi On 12/06/2005 @ 1:00 am In Commentary | Comments Disabled

Devon Energy Corporation is the largest U.S.-based independent producer of natural gas in America. Almost all their natural gas production – approximately 86 percent – comes from North America. Devon produces 2.3 billion cubic feet of natural gas each day, about 3 percent of all the gas that is consumed in North America.

Headquartered in Oklahoma City, Devon has some 4,000 employees worldwide, is a Fortune 500 company, is listed on the New York Stock Exchange (symbol, DVN) and is one of the stocks included in the S&P 500 Index. Devon closed Friday at 62.9 a share, up 0.39 (0.63 percent).

Devon has drawn attention as the largest operator in the Barnett Shale field in Texas. The field was undiscovered until 1981, when independent Mitchell Energy drilled the first well. Not considered a good prospect for oil, traditional petro-geologists had for decades discounted the economic potential of the Barnett shale. The breakthrough came in 1986 when Mitchell Energy decided to drill a well into a tectonic fault zone in the Barnett Shale.

While the shale proved to be extensively fractured, most of the fractures were completely filled up and sealed by calcium carbonate. After years of experimentation, Mitchell Energy finally began employing a “gel frac” injected into the wells to open up the shale below. This worked. By 1997, Mitchell had developed a state-of-the-art technology using a “water frac” technique that dramatically increased the natural gas recovery rate.

Today, Devon is the largest operator in the Barnett Shale field. In January 2002, Devon completed the acquisition of the field’s pioneer Mitchell Energy. In the third quarter 2005, Devon opened its 2,000th producing well in the Barnet Shale core area, wells that today produce more than 550 million cubic feet of natural gas per day.

Devon has two competitive advantages. First, according to Brian Engel, Manager of Public Affairs for Devon, the company’s success in large part derives from developing a light sand, water fracturing technology that permits efficient natural gas exploration from the field. Second, Devon dominates the leases in the Barnett Shale’s core area, a large area comprising 120,000 net acres stretching north from Fort Worth to the western outskirts of Denton.

Fort Worth, Texas, is built on top the Barnett Shale natural gas field, a field so vast that the U.S. Geological Service estimates that the field contains some 26 trillion cubic feet of yet to be discovered natural gas. Estimates are that as much as 160 billion cubic feet of natural gas are in place per square mile in the Barnett Shale formation. “The Barnett Shale formation,” says Mr. Engel, “has rightfully emerged as the largest natural gas field in Texas and one of the most important natural gas fields in the nation.”

Now that Devon has proved the economic potential of the Barnett site, the oil and gas major companies – including ExxonMobil, BP and Shell have moved in to buy up leasing rights. “It makes sense,” industry analyst Tom Biracree explained to WND last week. “The industry is seeing a decided trend moving toward the development of on-shore natural gas resources in the continental U.S.”

Biracree is senior financial editor with John S. Herold Inc., an energy research and investment valuation firm based in Norwalk, Conn. “It’s an economic market play,” explained Mr. Biracree, “With the price of natural gas at $10 per thousand cubic feet, not $2, it becomes very attractive for the major industry players to focus more attention on exploring for natural gas right here at home.”

Devon’s Internet site describes the company’s innovative light sand fracturing technique as follows:

Devon Energy is a pioneer in the Barnett, using innovations in technology to literally crack open the shale to release the natural gas sealed inside. Engineers are using a method known as fracturing to foster permeability in the rock. Crews inject a mixture of fresh water and sand into the shale at a very high pressure to fracture the surrounding formation and release gas trapped inside. The technology has given Devon access to vast reserves, transforming this challenging play north of Fort Worth into one of the nation’s most important natural gas producing fields.

Devon’s story is one of a company capable of using technological innovation to develop a huge, previously unappreciated energy resource, in natural gas – a hydrocarbon fuel that in previous decades was burned off oil fields as a worthless nuisance. The company’s website also quotes University of Tulsa Petroleum Geology Professor Parke A. Dickey, who said in September 1958: “Several times in the past we have thought that we were running out of oil, when actually we were running out of ideas.”

On Nov. 2, 2005, Devon announced $744 million in earnings for the quarter ended Sept. 30, 2005, an increase of 44 percent above Devon’s third quarter 2004 net earnings of $517 million. On Dec. 1, 2005, Devon declared a quarterly cash dividend on Devon’s common stock for the fourth quarter of 2005, at a rate of seven and one-half cents per share based on a record date of Dec. 15, 2005.

On Dec. 2, 2005, Morningstar.com listed Devon as one of five large-cap “stocks to watch,” all companies that have consistently increased revenues, operating income, and earnings per share over the past several years.

Robust energy markets and disciplined management have boosted Devon. From the Analyst Report: “Devon is one of the largest U.S.-based independent oil companies. With about 90 percent of its reserves and production in North America, Devon has a lower risk profile than some of its more internationally focused competitors.”

Devon’s story defies “Peak-Production” theorists, such as M. King Hubbert, famous for the bell-shaped “Hubbert’s Peak,” a chart that predicted the United States would eventually run out of oil and natural gas reserves. Hubbert, a Shell Oil employee, drew his famous “peak” in 1956, decades before the Barnett Shale’s potential for producing natural gas was discovered. Needless to say, the Barnett Shale’s gas reserves were not entered into the reserve estimates Hubbert saw doomed to depletion.


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