Devon Energy Corporation · NYSE:DVN
Devon Energy — IPAA Oil & Gas Investment Symposium 2014
67 slides from Devon Energy's conference presentation, Apr 8, 2014
Slide 1: IPAA Oil & Gas Investment Symposium
IPAA Oil & Gas Investment Symposium April 8, 2014
Slide 2: Investor Notices
Investor Notices Safe Harbor Some of the information provided in this presentation includes “forward-looking statements” as defined by the Securities and Exchange Commission. Words such as “forecasts," "projections," "estimates," "plans," "expectations," "targets," and other comparable terminology o
Slide 3: Devon Today
Devon Today Sharpening The Focus Devon’s Core & Emerging Assets • Proved reserves: 2.6 billion BOE(1) • 2014e net production: 580 – 620 MBOED(1) Heavy Oil Core — Expect multi-year oil growth >20% Emerging — Oil & liquids ≈55% of 2014e production • Deep inventory of oil opportunities — Top-tier Eagle
Slide 4: Sharpening The Focus
Sharpening The Focus Recent Strategic Actions • Accretive Eagle Ford acquisition • Innovative midstream combination • Announced non-core asset sales NYSE: DVN www.devonenergy.com Slide 4
Slide 5: Accretive Eagle Ford Acquisition
Accretive Eagle Ford Acquisition Strategic Rationale • Entry into another world-class, light oil play — Best part of best play in North America — Derisked and ready for full development — Visible oil growth in low-risk, repeatable play • Significantly increases high-margin oil weighting • Self-fundi
Slide 6: Innovative Midstream Combination
Innovative Midstream Combination EnLink Midstream Overview PA • Devon retains majority ownership OH MARCELLUS — GP (ENLC 70%) CANA- OK — MLP (ENLK 53%) WOODFORD UTICA ARKOMA- WV • EnLink transaction highly accretive WOODFORD PERMIAN to shareholders BASIN HAYNESVILLE — Initial transaction valued cont
Slide 7: Non-Core Asset Sales
Non-Core Asset Sales Sharpening The Focus • Announced sale of Canadian conventional business for C$3.125 billion — US$2.7 billion after tax (≈5% effective tax rate after repatriation) — Highly accretive transaction: 7 times 2013 EBITDA — Closed April 1, 2014 • Ongoing U.S. non-core assets for sale:
Slide 8: Sharpening The Focus
Sharpening The Focus Devon’s “Go-Forward” Asset Base • Increased focus on core assets • Significant oil production growth visibility • Higher operating margins • Maintaining gas optionality • Continued financial strength NYSE: DVN www.devonenergy.com Slide 8
Slide 9: Disciplined Capital Allocation
Disciplined Capital Allocation Top strategic objective: Maximize growth in cash flow per share, adjusted for debt • Investing in E&P capital projects — Accelerating development of high-margin oil projects — Leveraging JV drilling carries in emerging plays • High-grading asset portfolio • Returning c
Slide 10: 2014 E&P Capital Program
2014 E&P Capital Program Delivering Strong Oil Growth 2014 Capital Budget Key Highlights • 2014 E&P capital: 5% — “Go-forward” assets: $4.8 - $5.2 billion — $260 million attributable to non-core properties • Capital concentrated in oil development plays — “Go forward” assets delivering >70% growth i
Slide 11: Permian Basin Overview
Permian Basin Overview 2014 Focus Areas NEW MEXICO OKLAHOMA • Net acreage: 1.3 million basin-wide with stacked-pay potential New Mexico Texas TEXAS • Q4 2013 net production: 86 MBOED Eastern Northwestern (≈60% oil) Midland Shelf Shelf Basin • Deep inventory of low-risk projects Wolfberry Bone Spring
Slide 12: Permian Basin: Delaware Basin Oil Developments
Permian Basin Delaware Basin Oil Developments Overview • Net acreage: 320,000 • Q4 2013 net production: 24 MBOED (≈60% oil) • Low-risk, high-margin oil plays • Stacked oil pays Central Eddy • Operated rig count: 12 Bone Spring / Delaware Sands • Repeatable, high-impact wells Lea — Recent 30-day IP’s
Slide 13: Permian Basin: Midland-Wolfcamp Shale Oil Development
Permian Basin Midland-Wolfcamp Shale Oil Development Overview • Net acreage: 117,000 • Low-risk, high-margin light oil play • Delivering consistent economic results • Thick pay with multiple intervals (up to 1,100’) Reagan Irion • Multi-year drilling inventory (>800 locations) • Efficiencies achieve
Slide 14: Permian Basin: Significant Oil Production Growth
Permian Basin Delivering Significant Oil Production Growth 60 46 Net Production (MBOPD) 40 36 28 23 20 20 0 2009 2010 2011 2012 2013 NYSE: DVN www.devonenergy.com Slide 14
Slide 15: Eagle Ford Overview
Eagle Ford Overview World-Class Oil Asset OKLAHOMA • Located in best part of Eagle Ford TEXAS • Net acreage: 82,000 — Working interest: 50% — Net revenue interest: 38% Gonzales • Acquisition closed on February 28th Lavaca • 2014e net production: 70 – 80 MBOED(1) — 57% Oil — 19% NGLs DeWitt — 24% Gas
Slide 16: Eagle Ford: Low-Risk Development Inventory
Eagle Ford Low-Risk Development Inventory OKLAHOMA TEXAS Devon Existing Undrilled Acreage Producer Infill • Derisked and ready for development • Risked resource: ≈400 MMBOE DeWitt — 80% resides in DeWitt County • Risked undrilled locations: ≈1,200 NYSE: DVN www.devonenergy.com Slide 16
Slide 17: Eagle Ford Production Outlook
Eagle Ford Production Outlook Multi-Year Production Outlook (MBOED) • Expected production CAGR in excess 135 - 145 of 30% through 2017 • Generates significant free cash flow — Immediately self-funding in 2014 — >$2.5 billion of free cash flow expected through 2017 40 2013(1) 2017e (1) Represents ful
Slide 18: Jackfish Overview
Jackfish Overview SAGD Oil Development Overview • Low F&D • Flat production profile • Long reserve life >20 years Jackfish 1 • Q4 2013 production from Jackfish projects Jackfish 2 — Gross production: 58 MBOPD — Net production: 53 MBOPD Jackfish 1 • Facility running at peak capacity 1 Mile Jackfish 3
Slide 19: Jackfish SAGD Developments
Jackfish SAGD Developments Visible Oil Growth & Free Cash Flow Generation Oil Production Growth Outlook Free Cash Flow Outlook 100 1,000 77 - 82 800 Net Production (MBOPD) 75 62 - 67 $ in millions 600 47 - 52 50 400 25 200 0 0 2014e 2015e 2016e 2014e 2015e 2016e Assumptions: 1) $90 WTI oil and $4.00
Slide 20: Mississippian-Woodford Trend
Mississippian-Woodford Trend Emerging Oil Opportunity Overview • Net acreage across trend: >600,000 • Multiple oil-bearing intervals • December net production rate: 16,000 BOED Kay • Operated rig count: 8 Grant • Drilling activity focused on joint venture acreage Osage • 2014 plans: Drill >200 wells
Slide 21: Mississippian-Woodford Trend: Net Production
Mississippian-Woodford Trend Emerging Oil Opportunity 30 20 - 25 Net Production (MBOED) 20 14 10 9 5 3 2 1 0 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 2014e Exit Rate NYSE: DVN www.devonenergy.com Slide 21
Slide 22: Liquids-Rich Gas Optionality
Liquids-Rich Gas Optionality Barnett Shale & Anadarko Basin Net risked resource: >25 TCFE Risked locations: >10,000 • Net acreage: >900,000 Hemphill Blaine Canadian Oklahoma City • Low average royalty burden: <20% Wheeler Anadarko Basin Caddo (Cana & Granite Wash) • Q4 2013 net production: 1.9 BCFED
Slide 23: Financial Strength & Flexibility
Financial Strength & Flexibility • Cash balances at 12/31/13: $6.1 billion • Net debt-to-cap ratio: 23% • Investment-grade ratings — Fitch: BBB — Moody’s: Baa1 — S&P: BBB+ • Flexibility to invest in all market cycles • Cash flow protected by hedges Note: Includes a non-GAAP measure, see appendix for
Slide 24: Attractively Hedged
Attractively Hedged Oil Hedges • ≈70% of “go-forward” oil production hedged in 2014 — 75 MBOPD swapped at $94 per BBL — 70 MBOPD collared at $89 - $101 per BBL Natural Gas Hedges • ≈75% of “go-forward” gas production hedged in 2014 — 800 MMCFD swapped at $4.42 per MCF — 460 MMCFD collared at $4.03 -
Slide 25: Why Own Devon?
Why Own Devon? • Disciplined focus on returns • Deep inventory of oil opportunities — Top-tier Eagle Ford development — Strong Permian Basin position — World-class SAGD oil projects — Upside potential in emerging oil plays • Visible, low-risk oil production growth • Strong balance sheet • Active por
Slide 26: Thank You
Thank You
Slide 27: Appendix A: Strategy & Operations
Appendix A Strategy & Operations
Slide 28: Strategic Objective
Strategic Objective Devon strives to maximize long-term value for our shareholders by growing cash flow per share, adjusted for debt. NYSE: DVN www.devonenergy.com Slide 28
Slide 29: We Pursue Our Strategic Objective By
We Pursue Our Strategic Objective By: • Exercising capital discipline • Maintaining a low-cost structure to maximize operating margins • Focusing on high-return projects • Improving performance through our midstream operations • Preserving financial strength and flexibility NYSE: DVN www.devonenergy
Slide 30: Advantaged Resource Base
Advantaged Resource Base • Low entry costs (acreage and royalties) • Large, concentrated positions • High-graded portfolio (capturing and divesting) • Strategic midstream presence in key plays NYSE: DVN www.devonenergy.com Slide 30
Slide 31: Portfolio Management
Portfolio Management Goal: Optimize depth, diversity, and quality of drilling inventory • Harvesting mature and lower-return assets • New leasehold capture • Joint ventures / farm-ins NYSE: DVN www.devonenergy.com Slide 31
Slide 32: U.S. Non-Core Asset Divestitures
U.S. Non-Core Asset Divestitures Net Production – Q4 2013 Gas NGLs Oil BOE (MMCFD) (MBLD) (MBOD) (MBOED) Rockies 125 5 3 30 Gulf Coast 94 2 1 18 Mid-Continent 36 2 - 8 Total U.S. Non-Core 255 9 4 56 Reserves – 12/31/2013 Gas NGLs Oil BOE (MMCFD) (MBLD) (MBOD) (MBOED) Rockies 438 24 13 110 Gulf Coast
Slide 33: Rockies Oil
Rockies Oil Powder River Basin MT • Net acreage: 150,000 Sheridan WY • Stacked oil targets (Parkman, Turner, Frontier & others) • High impact wells (Best wells: IP’s >1,000 BOED) Johnson • Operated rig count: 3 Campbell • 2014 plans: Drill ≈30 wells Natrona Converse Slide 33
Slide 34: Pike Overview
Pike Overview SAGD Oil Development Pike leasehold Jackfish Pike 1 • 50% operated working interest Development Area • Similar reservoir characteristics to Jackfish • Up to five 35 MBOPD SAGD development phases Pike Project Area Potential Pike 1 development • Single plant pad • Up to three 35 MBOPD pr
Slide 35: SAGD Upside
SAGD Upside Solvents Potential Benefits • Increases production rates per well and plant production capacity • Lower steam-oil ratios (15% - 50% decrease) • Reduces plant emissions Risks • Access to solvent • Solvent recovery Status Update • 1st pilot program: Initiated in 2013 NYSE: DVN www.devonene
Slide 36: Small-Scale SAGD
Small-Scale SAGD • Reusable SAGD facilities designed to exploit smaller accumulations of bitumen (4 prospects identified) — Targeted resource: 35-70 MMBO per project — Peak production rates up to 10 MBOPD per project — Less upfront capital commitments (30% of the capital required for traditional SAG
Slide 37: SAGD Oil Midstream Infrastructure
SAGD Oil Midstream Infrastructure Access Pipeline JACKFISH & PIKE • ≈200 mile dual pipeline from Edmonton to Devon’s thermal acreage • Devon ownership: 50% • Capacity net to Devon — Blended bitumen: 105 MBOPD (170 MBOPD after expansion in 2014) Sturgeon Terminal — Condensate: 60 MBPD (95 MBPD after
Slide 38: Lloydminster
Lloydminster Oil Development Iron River • Net acreage: ≈700,000 Manatokan • Low-risk development • Strong operating margins End Lake • Q4 2013 net production: 32 MBOED • 2014 plans: ≈150 wells Lloydminster Alberta Lloydminster B. C. Sask. NYSE: DVN www.devonenergy.com Slide 38
Slide 39: Barnett Shale
Barnett Shale Liquids-Rich Gas Development Jack Wise Denton • Net acreage: ≈600,000 Denton Bridgeport Plant • Low average royalty burden: 18% • Q4 2013 net production: 1.3 BCFED Palo Pinto Parker DRY GAS — Liquids 26% of total production LIQUIDS-RICH — Total liquids growth 20% year over year Ft. Wor
Slide 40: Cana Woodford Shale
Cana Woodford Shale Liquids-Rich Gas Development Dewey Blaine OKLAHOMA • Net acreage: ≈250,000 TEXAS • Low average royalty burden: 21% • Q4 2013 net production: 58 MBOED Custer — Oil & NGLs 38% of total production Canadian — Total liquids growth 24% year over year • Recently expanded gas processing
Slide 41: Granite Wash
Granite Wash Oil & Liquids-Rich Gas Development • Net acreage: 65,000 • Legacy land position held by production • Low average royalty burden: 19% Hemphill • Q4 2013 net production: 23 MBOED Wheeler Granite Wash OKLAHOMA Oklahoma City TEXAS NYSE: DVN www.devonenergy.com Slide 41
Slide 42: Joint Venture Transactions
Joint Venture Transactions Oil & Liquids Exploration Sinopec Joint Venture • $2.5 billion transaction ($900 million cash and $1.6 billion drilling carry) • Drilling carry balance: $850 million (12/31/13) • Sinopec receives 33% of Devon’s interest • Net acreage in joint venture: >1 million Michigan •
Slide 43: Appendix B: EnLink Midstream
Appendix B EnLink Midstream
Slide 44: EnLink Midstream Business
EnLink Midstream Business Ownership Structure Devon Energy Corporation (NYSE: DVN) GP Public Unitholders ≈70% (115 MM units) ≈53% LP (120 MM units) ≈30% General Partner 100% Incentive Distribution Rights (IDRs) EnLink Midstream LLC (ENLC) General Partner, MLP ≈7% LP and Public IDRs Unitholders Maste
Slide 45: EnLink Midstream: 2014e Financial Outlook
EnLink Midstream 2014e Financial Outlook • Adjusted EBITDA (Q2-Q4 2014e) — ≈$525 MM combined (≈$700 MM annualized) — ≈$375 MM at the MLP (≈$500 MM annualized) • Capital expenditures (Q2–Q4 2014e ) — Maintenance: $80 MM ($50 MM at MLP) — Growth: $300 MM • 2014e Distributions per unit — GP (ENLC): $0.
Slide 46: Appendix C: Supply & Demand
Appendix C Supply & Demand
Slide 47: Canadian Crude Oil Supply & System Capacity
Canadian Crude Oil Supply & System Capacity 8.0 7.0 6.0 5.0 MMBOD 4.0 3.0 2.0 1.0 0.0 2011 2012 2013e 2014e 2015e 2016e 2017e 2018e Oil Supply Current Export & Local Demand Capacity Rail Alberta Clipper - Flanagan South Trans Mountain Expansion Keystone XL Energy East Northern Gateway Source: Canadi
Slide 48: Canadian Oil Pipeline Capacity Additions
Canadian Oil Pipeline Capacity Additions Flanagan South: Flanagan to USGC Kitimat • Capacity: 0.6 MMBOPD • Estimated in service by mid-2014 Edmonton Alberta Clipper/Southern Access: Hardisty to Flanagan • Capacity: up to 0.8 MMBOPD • Estimated in service by 2015 Hardisty Vancouver Keystone XL: Hardi
Slide 49: Canadian Oil Rail Transport Fees
Canadian Oil Rail Transport Fees Potential Rail $ Per BBL Costs Oil Sands Trucking & Loading ≈$5.00 Rail Car Rental ≈$2.50 Transport Fee Variable (Mileage Based) West Coast Refining Offloading Fee ≈$2.00 East Coast Refining Gulf Coast Refining
Slide 50: Heavy Oil Refinery Expansions
Heavy Oil Refinery Expansions In-Service Capacity Operator Location Date Increase (BOPD) Fully BP Whiting, Indiana 260,000 Operational Northwest Edmonton, Alberta 2016 80,000 Upgrading Total Capacity Increase 340,000 NYSE: DVN www.devonenergy.com Slide 50
Slide 51: U.S. Natural Gas Demand Growth By Sector
U.S. Natural Gas Demand Growth By Sector 2013-2018 90 85 6.5 0.5 80 2.1 3.7 BCFD 75 2.5 -0.5 87 70 72 65 60 2013 Industrial Res/Com Electric Mex/Can Other LNG 2018 Total Baseline Exports Exports Source: Wood Mackenzie, EIA, PIRA, Bloomberg, FERC, US DOE, and Devon estimates NYSE: DVN www.devonenergy
Slide 52: U.S. Natural Gas Coal Retirement Demand Forecast
U.S. Natural Gas Cumulative Coal Retirement Demand Forecast Renewable Generation Coal Retirements Fuel Switching Net Effect 6 4 3.7 2.9 BCFD 2 1.6 0.0 0 -0.2 -2 2014F 2015F 2016F 2017F 2018F Source: NYSE: DVN Wood Mackenzie, Bernstein, PIRA, and Devon estimates www.devonenergy.com Slide 52
Slide 53: U.S. Natural Gas Annual Industrial Demand
U.S. Natural Gas Annual Industrial Demand Base Y/Y Growth 25 22.5 22.1 21.7 22 21.1 20.3 20.0 19 BCFD 16 13 10 2008 2009 2010 2011 2012 2013E 2014F 2015F 2016F 2017F 2018F Source: Wood Mackenzie, EIA, and Devon estimates NYSE: DVN www.devonenergy.com Slide 53
Slide 54: U.S. Natural Gas LNG Projects
U.S. Natural Gas LNG Projects Final Total Capacity Non-FTA DOE Start-Up Approval Investment Facility Developer(s) Location FTA/Non-FTA Capacity Approval Date FERC Decision (BCFD) (BCFD) Non-FTA (FID) Sabine Pass Cheniere Cameron, LA 2.2 2.2 4Q 2015 Approved Approved July 2012 (phase 1 & 2) Freeport
Slide 55: Canadian Natural Gas LNG Projects
Canadian Natural Gas LNG Projects Capacity Start-Up NEB Export Facility Developer(s) Location (BCFD) Date License Douglas Channel Energy LNG Partners, Haisla Floating LNG, 0.1 2017 Approved Nation Kitimat, B.C. Kitimat LNG Apache, Chevron Kitimat, B.C. 0.7 2018 Approved LNG Canada Shell, Mitsubishi,
Slide 56: Natural Gas Liquids: Ethane Rejection & Supply
Natural Gas Liquids Ethane Rejection & Supply Estimated Ethane Rejection U.S. NGL Supply by Component 1.4 4.0 1.2 3.5 1.0 3.0 2.5 0.8 MMBPD MMBPD 2.0 0.6 1.5 0.4 1.0 0.2 0.5 0.0 0.0 Q1 Q2 Q3 Q4* Q1 Q2 Q3 Jan 2010 Jan 2011 Jan 2012 Jan 2013 2013 Ethane Extraction Ethane Rejection 2012 2013 2013F 2014
Slide 57: Natural Gas Liquids: Demand – LPG Exports
Natural Gas Liquids Demand – LPG exports Actual LPG Exports Forecasted LPG Projects Capacity 1,200 1,000 800 MBPD 600 400 200 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: EIA, Argus, Platts, Waterborne Energy, and Wells Fargo NYSE: DVN www.devonenergy.com Page 57
Slide 58: Natural Gas Liquids: Inventories and Cracking Rates
Natural Gas Liquids Inventories and Cracking Rates U.S. Ethane Inventories U.S. Ethane Cracking Rate 5 Yr. High/Low 2013 2012 5 Yr. AVG. 5 Yr. High/Low 2013 2012 5 Yr Average 40 1,100 35 30 900 25 MMBPD MMBbl 20 700 15 10 500 5 300 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
Slide 59: Appendix D: Key Modeling Statistics
Appendix D Key Modeling Statistics
Slide 60: Key Modeling Statistics: Bone Spring and Delaware Sands
Key Modeling Statistics Based on 2014 Drilling Program Bone Spring (Permian Basin) Delaware Sands (Permian Basin) Working interest / royalty: 76% / 21% Working interest / royalty: 76% / 14% Drill & complete costs: $6 MM Drill & complete costs: $6 MM 30-day IP rate: 550 - 600 BOED 30-day IP rate: 450
Slide 61: Key Modeling Statistics: Midland-Wolfcamp and Wolfberry
Key Modeling Statistics Based on 2014 Drilling Program Midland-Wolfcamp Shale (Permian Basin) Wolfberry (Permian Basin) Working interest / royalty: 62% / 24% Working interest / royalty: 97% / 23% Drill & complete costs: $6 MM Drill & complete costs: $1.5 MM 30-day IP rate: 400 BOED 30-day IP rate: 1
Slide 62: Key Modeling Statistics: Eagle Ford
Key Modeling Statistics Based on 2014 Drilling Program Eagle Ford (DeWitt County) Eagle Ford (Lavaca County) Working interest / royalty: 50% / 25% Working interest / royalty: 50% / 25% Drill & complete costs: $9 - $10 MM Drill & complete costs: $9 MM 30-day IP rate: 1,200 – 1,400 30-day IP rate: 1,0
Slide 63: Key Modeling Statistics: Mississippian Lime and Woodford
Key Modeling Statistics Based on 2014 Drilling Program Mississippian Lime (Mississippian-Woodford Trend) Woodford Oil Shale (Mississippian-Woodford Trend) Working interest / royalty: 35% / 19% Working interest / royalty: 42% / 22% Drill & complete costs: $3 - $4 MM Drill & complete costs: $3 - $3.5
Slide 64: Key Modeling Statistics: Cana-Woodford and Barnett
Key Modeling Statistics Based on 2014 Drilling Program Cana-Woodford Shale Barnett Shale Working interest / royalty: 51% / 21% Working interest / royalty: 89% / 18% Drill & complete costs: $8 MM Drill & complete costs: $3 - $3.5 MM 30-day IP rate: 5.5 MMCFED 30-day IP rate: 3 MMCFED EUR: 8 BCFE EUR:
Slide 65: Appendix E: Risk Factors & Non-GAAP Reconciliations
Appendix E Risk Factors & Non-GAAP Reconciliations
Slide 66: Discussion of Risk Factors
Discussion of Risk Factors Information provided in this presentation includes “forward-looking statements” as defined by the Securities and Exchange Commission. Forward-looking statements are identified in this presentation as “forecasts, projections, estimates, plans, expectations, targets, opportu
Slide 67: Non-GAAP Reconciliation: Net Debt & Adjusted Capitalization
Non-GAAP Reconciliation Net Debt & Adjusted Capitalization Devon believes that using net debt for the calculation of “net debt to adjusted capitalization” provides a better measure than using debt. Devon defines net debt as debt less cash, cash equivalents and short-term investments. Devon believes
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