End of an Era: Devon Energy exits the Barnett Shale, first major discoveries in America's Shale Revolution.
By ADAM WILMOTH
Published: Sun, December 22, 2019 1:07 AM Updated: Sun, December 22, 2019 1:33 AM
When Devon Energy Corp. executives this week agreed to sell the company's Barnett Shale properties for $770 million, the move capped a transformation for Devon and reflects on dramatic changes in the oil and natural gas industry.
The Barnett is the home of the first successful, wide-scale natural gas development of shale rock, a move that transformed the oil and natural gas industry and led to shifts in global geopolitics.
It also led to rapid growth at Devon, which now is housed in Oklahoma's tallest skyscraper.
Texas oilman George Mitchell first developed the Barnett field. Mitchell developed the hydraulic fracturing processes that made it possible to economically produce the the vast volumes of natural gas trapped under and just northwest of Fort Worth. But he didn't have the cash to develop it properly.
He sold his field and idea to Devon in 2002. The Oklahoma City company then added horizontal drilling to Mitchell's hydraulic fracturing, and production expanded quickly.
Devon's success in the Barnett led to the development of oil and natural gas in shale and other dense rocks throughout the country. That allowed the United States to reverse nearly a half-century of oil production declines and quickly propel the country from the world's largest importer to a net oil exporter.
Booming U.S. production drastically reduced the country's dependence on oil from the Middle East. That move has led to shifting alliances and other geopolitical consequences that are yet to shake out completely.
The oil and natural gas industry today is struggling from the results of too much success in shale and other dense rock production. The industry flooded the market first with overabundant natural gas and then with oil.
Oil prices have been kept afloat in part because it is a global product and in part because the Organization of Petroleum Exporting Countries and its allies, including Russia, have sought to restrain their production to hold up oil prices.
But natural gas prices have been in a bear market for more than a decade. Growing exports have eased some pressure, but U.S. natural gas still is largely constrained to North America. One barrel of oil contains about six times the energy of a thousand cubic feet of natural gas. Historically, prices have averaged close to that 6-to-1 ratio. But not over the past decade.
As a result of the ongoing price difference, many independent oil and natural gas producers have switched their focus to oil. Devon now invests most of its drilling budget in the oil-rich Permian Basin in southeast New Mexico and west Texas. The company also has oil production in Oklahoma, Wyoming and south Texas.
With the sale of the Barnett field, Devon is further reducing its natural gas production and increasing its focus on oil.
“We feel really good about where we are positioned now. We have assets in four of the best onshore basins (the Powder River, STACK, Delaware and Eagle Ford), and our acreage is located in the best parts of each,” Devon CEO Dave Hager said this week. “So we have a very deep inventory of high-return opportunities we can drill."
Wall Street has reacted positively both to the Barnett sale and Devon's plans to use the proceeds of the sale to help expand its ongoing share buyback program by another $1 billion to a total of $6 billion.