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Devon thriving 10 years after Mitchell Energy deal

Ten years ago, Devon Energy Corp. announced plans for a $3.5 billion acquisition credited with launching a shale gas revolution.
BY JAY F. MARKS jmarks@opubco.com Published: August 14, 2011
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Keeping watch

Nichols said Devon had been monitoring Mitchell Energy's work in the Barnett even though it opted not to buy the company in 1999.

Devon approached Mitchell about a potential acquisition in 2001, Nichols said, because officials thought George Mitchell's company was onto something new.

He said Mitchell Energy figured out how to fracture dense shale in vertical wells. Devon improved on the technique with horizontal drilling.

That formula turned out to be a boost for the entire industry.

“As Devon and other companies have taken it around the country, we have been able to dramatically increase the reserves of natural gas that the country has,” Nichols said. “That obviously has very significant economic impact and very significant environmental impact on the U.S.

“Natural gas, of course, is the cleanest burning fuel that we have. So being able to replace coal-fired plants with natural gas will have a significantly improved effect on the air that we breathe.”

Culture change

Once the Mitchell Energy acquisition was completed in January 2002, Devon officials quickly realized horizontal drilling was the way to go.

Foster said they learned horizontal wells cost about 2.5 times more than traditional wells, but the resulting production and reserves was 3.5 times more.

“That was the real aha moment for us,” he said.

Foster said those involved in the Barnett project discovered that approach would work throughout the play, but it was not easy to change to a new way of operating.

Devon had to change the culture of its people and its equipment.

He said Devon drilled its first few horizontal wells in the Barnett with undersized, underpowered rigs before working with Tulsa-based Helmerich & Payne to develop the first “modern-day” rigs in 2004.

H&P CEO Hans Helmerich credited Devon officials for their willingness to collaborate on innovative technology.

“They had a vision for doing what they have so successfully done, which is use the best tech available ... and drive performance in the field,” he said. “It's been a great partnership for us.”

Helmerich said the 92-year old company had about 80 rigs when it started working with Devon to develop a new rig suitable to the company's needs. It will have 300 rigs by the end of 2011.

Devon's Fortenberry said the first rig H&P developed for Devon is still working for the company in western Oklahoma's Cana play.

“That was the first application of the high-efficiency rig to an unconventional horizontal play,” he said. “We really feel like we set the standard. “That's the model that most companies are following now.”

In addition to breaking in new technology, Fortenberry said Devon has to learn the nuances of operating horizontal wells. Many of their intricacies are the opposite of vertical wells.

He said input from H&P and other consultants helped to cut its well completion time from 33 days in 2004 down to 12 days.

Foster said wells in some shallower areas of the Barnett can be completed in about seven days.

Devon currently has more than 4,200 producing wells in the Barnett.

“It's been amazing. Our purpose was to find a way to make hundreds of thousands of Barnett acreage economic, make it viable and make it work,” Fortenberry said. “Now it's being replicated across the planet.

“That's pretty cool.”


Also ...

Nichols lauds

Mitchell deal

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 today.

“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.”

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