Devon Energy Corp. raises 2012 spending by $1 billion, targets oil

OKLAHOMA CITY, Okla., Wed Apr 4, 2012 – Devon Energy Corp. will spend $1 billion more than planned this year on acreage acquisition and exploration in shale basins that produce oil and more profitable natural gas with a high liquids content, the company said on Wednesday.

Devon, like most other U.S. exploration and production companies, is shifting capital away from natural gas drilling in a time when prices for that fuel are at a decade low. Energy companies are instead targeting crude oil trapped in rock like shale and natural gas that can be stripped of valuable liquids like propane.

“We’re very confident that there are a lot of oil and liquids-rich opportunities to be found in North America,” Dave Hager, Devon’s head of exploration and production, told analysts.

In addition to previously announced exploration plans in emerging basins like the Utica Shale in Ohio, Devon said it has amassed 500,000 acres in the Cline shale in West Texas that holds oil. Devon is also targeting oil on another 250,000 acres in an unspecified location and the company hopes to increase that position to 500,000 acres, Hager said in remarks broadcast over the Internet.

The Oklahoma City, Oklahoma, company now plans to spend $6.1 billion to $6.5 billion this year, up $1 billion from its original budget.

Devon has no plans to use its $7.1 billion cash pile on a large acquisition as some have speculated, said John Richels, the company’s chief executive officer.

Richels said he and other executives at Devon have not spent “five minutes” thinking about a big acquisition. Instead, the company’s cash will be invested in exploration and production projects, Richels said.

General Electric invests in Texas shale gas pipeline operator

FAIRFIELD, Conn., Fri Mar 16, 2012 – General Electric Co. has sunk its teeth further into the energy infrastructure and services business by investing in Howard Energy Partners, a natural gas pipeline operator in the booming Eagle Ford shale fields of south Texas.

GE Energy Financial Services will pay an undisclosed amount for 30.6 percent of Howard, GE said on Thursday. Other investors include Crosstex Energy LP, Quanta Services Inc. and Clear Springs Energy Company LLC, and the deal is expected to close in April.

“The shale boom has created the need for a dramatic build out of oil and gas infrastructure in North America, requiring significant capital,” John Shepherd, a managing director at GE Energy Financial Services, said in a statement.

Howard will use the money to help fund its purchase of the natural gas gathering assets of Meritage Midstream Services in south Texas, GE said.

At the closing of that deal, Howard will own and operate 450 miles (724 km) of pipelines in the state, which can handle more than 175 million cubic feet per day, and the San Antonio, Texas-based company has plans to grow to meet demand.

The so-called “midstream,” referring to infrastructure that moves oil and gas from the wellhead to its buyers, has become a hot market with the growth of North American shale development.

How to take advantage of the economic impact of the Marcellus and Utica Shale

Terry Coyne, Grubb & Ellis

The Marcellus Shale is a layer of rock that contains a large amount of natural gas deposits and is believed to be one of the largest natural gas reservoirs in the U.S. Recent explorations have estimated that the Utica Shale, a deeper and larger layer, contains a much greater volume of natural gas.

While these reserves were recognized for years, it was neither practical nor cost effective to drill until recently, due to new extraction methods like horizontal drilling and hydraulic fracturing.

Sales of land in affected regions of Ohio have picked up as investors position themselves to take advantage of the buying and leasing frenzy, says Terry Coyne, SIOR, CCIM, executive vice president with Grubb & Ellis.

“If you’re interested, move quickly,” Coyne says. “Because while most people are not aware of the value of this land, there are speculators moving in who are buying it up cheaply.”

Smart Business spoke with Coyne about how property owners and potential investors can best capitalize on the interest in the Utica and Marcellus Shale.

What is the economic impact of planned drilling in Ohio?

Carroll County is the center of initial drilling development, but the impact will be felt in Summit, Portage and Stark counties as well.

Direct Utica gas exploration and development expenditures amounted to $246 million in 2011. They are estimated to ramp up to $14 billion by 2015. Over the next five years, oil and gas producers are projected to spend more than $34 billion, not including lease and royalty payments.

By 2015, Utica Shale development alone is estimated to create or support more than 200,000 jobs in Ohio. You make money in real estate in areas with employment growth, and that is explosive employment growth.

How is the interest in natural gas from the Utica and Marcellus Shale regions affecting real estate in these areas?

There is gas drilling going on, there are real results, and people are making money. Now, in sleepy towns like Wellsville and Toronto, people are buying property. Whether it’s land or buildings, investors are buying it up for the purpose of servicing the oil and natural gas business.

In Canton, there has been a million square feet of leases or sales in the last 30 days. That’s a lot in any market, let alone in Canton, where properties can stay on the market for a long time. Canton and Akron stand to profit because they fit inside the Utica area, but can offer better proximity and real estate than places like Belmont and Carroll County.

Two brothers that purchased a property outside of Zanesville for $400,000 just sold it for $2.4 million. People are in need of real estate in the shale areas, and if the property is a building that is ready to be occupied today, its value is increased because the demand is real.

Outside of the real estate business, people aren’t recognizing this quite yet. But there are anecdotal tales from the Pittsburgh market, where vacancy rates for industrial and office are both sub 5 percent because the oil and gas service business has descended on these properties for shale development.

In real estate, you want to be in a rising market. This is a rising market.

What can companies that are already established in these areas do to take advantage of the rising market?

You have to work with professionals to do two things: first, negotiate properly for your mineral rights. If you are looking to sell your building, make sure you either retain your mineral rights separately, or if you do sell your mineral rights with the building, make sure your price reflects it. Don’t give away your mineral rights. Retain them or get paid for them.

Second, when marketing your building for this specific use, you should connect with someone who knows the Utica/Marcellus real estate market.

Essentially, there are two ways to make money. One is through royalties; so every time a dollar of oil or natural gas comes out of the ground, the land’s owner gets some percentage of it. These royalties typically used to be 12 percent of the gross, but the standard now seems to be 17.5 percent and some deals have even reached 19 percent.

The other way to make money is through bonus checks, or ‘lease payments.’ For instance, a landowner might be paid 17.5 percent in royalties plus $1,000 per acre. In some situations, purchasers have paid $5,000 per acre just for the right to drill.

If you decide to sell your mineral rights, how can you ensure they are accurately valued?

It’s tricky, because you could just as easily get a dry hole as a hit. In this case, your property income is not very predictable. The best way to find out what the property income will be is to learn what neighboring wells have produced. That is public data that you can find yourself, or you can call an expert.

What kind of development can be expected in the near future?

There is a whole supply chain of vendors and suppliers moving in. We’ve already seen Timken Co., V&M Star and Republic Steel ramp up their capacity for products that are sold into the oil and natural gas supply chain. Then there are companies that haul water, provide mud, or provide well tending services, and others that build hotels and temporary housing, because of the need to handle the population of incoming workers. That will drive retail demand and housing demand.

Terry Coyne, SIOR, CCIM, is an executive vice president with Grubb & Ellis. Reach him at [email protected] or (216) 453-3001. For more information on Marcellus and Utica Shale, visit

Williams Partners to buy pipeline system for $750 million

TULSA, Okla. ― Williams Partners LP agreed to acquire a pipeline system serving the prolific gas producing Marcellus Shale in north-east United States from Delphi Midstream Partners for $750 million.

The Tulsa Oklahoma-based pipeline operator will buy Laser Northeast Gathering system, comprised of 33 miles in Pennsylvania and 10 miles in Southern New York.

“As production in the Marcellus increases, the Laser system is expected to reach a capacity of 1.3 billion cubic feet per day,” the company said in a statement.

Williams Partners said it plans to fund the deal value with a combination of $300 million cash and about 7.5 million of its common units.

Earlier this month, the company’s Transco pipeline system was seeking approval for a capacity increase in northeast U.S.

Shares of Williams closed at $59.58 Wednesday on the New York Stock Exchange.

Endeavour scraps Pennsylvania Marcellus shale purchases

HOUSTON ― U.S. oil and gas exploration firm Endeavour International Corp. has scrapped its proposed purchase of Pennsylvania Marcellus shale assets from SM Energy Co. and other minority owners.

Endeavour did not cite a reason for its decision.

In July, Endeavour had said it would buy the assets for about $110 million.

The Marcellus shale, which stretches from West Virginia and Ohio across Pennsylvania and into New York, is one of the biggest natural gas finds in the United States in decades, but the hydraulic fracturing drilling used to tap into the vast quantities of fuel locked in the shale rock has prompted environmental concerns in the region.

Marathon to pay $3.5 billion for Eagle Ford Texas shale field assets

NEW YORK ― Marathon Oil Corp. will buy oil and gas properties in Texas’ Eagle Ford shale field $3.5 billion from private equity firm KKR and Hilcorp Resources Holdings LP, the companies said Wednesday.

The deal for the 140,000 acres in the Eagle Ford shale is the latest in a frenzy by energy producers to snap up oil and gas properties that were too difficult for the industry to tap into only a decade ago.

Eagle Ford has emerged as the hottest of those North American shale fields, since much of its output is oil, which remains above $100 per barrel, rather than natural gas that flows from fields such as the Marcellus shale.

With the new agreement, Marathon’s overall holdings in the Eagle Ford will total more than 285,000 acres by the end of the year, it said, giving it potentially 100 million barrels of oil equivalent in proved reserves.

Marathon is a currently an integrated oil company like its larger peers Exxon Mobil and Chevron Corp., owning both oil and gas production assets and refineries, but it is planning to spin off its refining assets into a separate company at the end of June.

KKR’s stake in Hilcorp will be valued at $1.13 billion, nearly triple the $400 million the firm invested in the company a year ago.

The Hilcorp properties, which are located primarily in Atascosa, Karnes, Gonzales and DeWitt counties, had 36 producing wells at the beginning of May, with an output of 7,000 net barrels of oil equivalent per day.

Year-end production is expected to be 12,000 net BOE per day, and is likely to rise to 80,000 BOE per day by 2016.

Marathon will use cash on hand to pay for the assets, which will immediately contribute to earnings and are expected to be self-funding by 2014, it said.