Sunday marks 10 years since Devon Energy Corp. announced a $3.5 billion acquisition that transformed the company and sparked a revolution in the oil and gas industry.
Devon's plan to acquire Mitchell Energy and Development Corp. was not warmly received by analysts, especially after the Sept. 11, 2001, terror attacks shook the economy.
Devon co-founder Larry Nichols said he believed the technology Mitchell Energy CEO George Mitchell had developed in North Texas' Barnett Shale could be a boon to his company.
“We thought we could take that technology and combine it with horizontal drilling and be able to significantly improve the economics of the wells and drill in a lot more places,” Nichols said. “There was some doubt in the investment community and Wall Street at the time whether or not we'd be able to do that, but obviously we have.”
By the end of 2011,
History has made a believer of Oppenheimer analyst Fadel Gheit.
“George Mitchell is the father of the shale gas revolution with the discovery of the Barnett Shale.
“I hope there is enough vision and will left in the country to take gas to the next logical level, which is power generation and transportation.”
The lessons Mitchell Energy and Devon learned in the Barnett have spread nationwide, allowing producers to unlock unprecedented amounts of oil and gas.
Domestic oil production has increased for the first time since the 1970s thanks to those new techniques, Devon spokesman Chip Minty said.
On the market
Devon wasn't the only company with a chance to capitalize on Mitchell Energy's methods.
The company had hired Goldman Sachs in 1999 to find a buyer for it, but no one made an offer.
Nichols said Devon took a look at the hydraulic fracturing technology Mitchell Energy was using in its core area in the Barnett Shale, but didn't think it worked.
Brad Foster, executive vice president of Devon's central division, said George Mitchell had recognized the presence of natural gas in the Barnett as far back as 1981.
“The only problem was nobody knew how to get to it,” he said.
Eventually Mitchell tried slick-water frac technology that had been used in East Texas.
“Basically that's just an awful lot of fresh water, a little bit of sand and some friction reducer, which is kind of like soap,” Foster said.
Devon drilling engineer David Fortenberry was at Mitchell Energy before it was acquired by Devon. He said standard fracturing was not economical for wells in the Barnett, but the slick-water method cut costs while significantly improving production for Mitchell Energy in 1999.
“That set the stage to start focusing on the Barnett,” Fortenberry said. “In 2000, Mitchell did about 120 wells and set the plan to drill 280 in 2001. “That's what brought Devon back.”
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Devon Energy Corp. has been through 27 mergers and acquisitions in its 40-plus-year history.
Executive Chairman Larry Nichols maintains the Mitchell Energy deal was one of the most important.
“It underscores how technology continues to open up new resources for this country. The oil and natural industry has a long track record of using new technology to go into old areas and produce new oil reserves and new natural gas reserves for the country,” Nichols said. “It's continuing
“There is no doubt in my mind that 10, 20 years from now someone will have had even add breakthroughs in tech that will allow us to do things that now we can only dream of.”