HOUSTON - Devon Energy Corp. will increase its oil production by 20% in 2012 as the independent oil and gas producer joins its peers in fleeing a weak natural gas market.
Devon and other oil and gas producers have scaled back their gas production activities as prices for the commodity have fallen to their lowest point in a decade. New drilling technology has helped lead to a glut in natural gas supply that has pushed prices to $2.50 a million British thermal unit, down from nearly $14 in July 2008.
"We're focused on oil opportunities," Devon Chief Executive John Richels said during a call with investors. "In 2012, virtually all of our capital will be directed to our oil and liquids-rich project areas."
Devon budgeted up to $5.5 billion for capital expenditure projects for 2012, down nearly a quarter from 2011. About 90% of that will be spent increasing acreage holdings or drilling activity in liquids-heavy fields, Richels said.
Devon said for 2012 it will invest $1 billion in the Permian Basin in west Texas and New Mexico, $950 million in the Barnett shale formation in East Texas, and $870 million in the Cana field in west Oklahoma. Devon spent about $400 million the fourth quarter acquiring acres in the sprawling Utica shale in the Midwest and another undisclosed area.
The company said it was particularly excited by the results of test wells it drilled in the Mississippi Lime, a limestone formation stretching through Kansas and Oklahoma. The company plans to have 50 wells drilled in the formation in 2012 after a test well produced 590 barrels of oil equivalent a day that were "some of the best quality crude oil in the lower 48," according to David Hager, Devon's vice president of exploration and production.
Devon's production in natural gas wells for 2012 will decrease "slightly" as it stops investing in wells of that type. It still expects its overall natural gas production to stay steady as it captures the natural gas trapped in oil wells.
Devon will also boost its quarterly dividend by 18%, to 20 cents a share, Richels said.
Copyright (c) 2012 Dow Jones & Company, Inc.
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