Devon Energy Excited About Haynesville Shale Potential

Our strongest buy recommendation among large independent producers, Devon Energy (DVN) is part of the legacy of Chairman Emeritus John W. Nichols who passed away on August 3. Mr. Nichols was a pioneer in developing San Juan Basin natural gas using funds obtained from investors after he registered the first drilling fund with the U.S. Securities and Exchange Commission in 1950.

Co-founding Devon in 1971, Mr. Nichol’s son, Larry, has been leading the company for decades, making money for investors and giving us confidence in the company’s future. Meanwhile, second quarter results reported today matched or exceeded expectations. Projected volumes along with futures prices from August 4 promise a high level of unlevered cash flow (Ebitda). Projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) supports Net Present Value [NPV] of $170 a share. Though down a few dollars in the past few days, long-term crude oil price remains in an uptrend where today’s settlement of $116 a barrel for delivery over the next six years is above the 40-week average of $104.

On the quarterly conference call, President John Richels was enthusiastic about Devon’s 483,000 acres with Haynesville Shale potential that he called the largest of any company announced to date. Early estimates of 73 trillion cubic feet in place under the acreage may put it in league with Devon’s Barnett Shale where DVN produces 2% of total U.S. daily natural gas volume.

Originally published on August 6, 2008.

Comments

[Trader Tim:]

Good article, Devon has basically come out of nowhere in the past 4 months to be one of the haynesville shales largest operators. The wells they have in East Texas are hitting 16MCF on a few wells. Great news for shareholders

oilshalegas.com/haynes...

2008 Sep 10 12:24 PM

[Alamo:]

Devon's enthusiasm in the Haynesville Shale trend is well founded.

The Haynesville shale is projected to contain about 4 times as much natural gas as the Barnett Shale and is in a considerably better area to develop the gas field. Much infrastructure (pipelines, good highways and road access and an area that is "oil patch" savvy,etc) and in between large metropolitan areas with great market potential.

From a development aspect, the Haynesville Shale represents the ideal setting. If the nation converts to CNG this thing is a gold mine.

2008 Sep 10 02:37 PM

[rc trader:]

agree that bigger picture if cng gets traction devon is a good play, but in the short run, nat gas prices are going lower. production is ramping up fast in haynesville and marcellus is right behind. margins will be neglible when nat gas is trading with a 6 handle or lower.

2008 Sep 12 08:30 PM