What was the biggest challenge for the oil and gas industry this year?
Hager: Low natural gas prices coupled with the high service-cost environment present one of the biggest challenges we are facing today and going forward.
Traditionally, service costs have tracked commodity price cycles fairly closely, so lower oil and gas prices would bring reduced service costs. Currently, we are seeing continuing high activity levels, and hence, continuing high service costs. Meanwhile, we are seeing diminished revenue from natural gas production, which poses an unusual challenge for the industry.
Did the regulatory landscape shift for onshore production? How did it affect you?
Whitsitt: With the growing realization across the country and around the world that the shale revolution is real, … there has also been increasing realization within and outside our industry that there must be greater understanding of how we develop and produce our resources in ways that are safe and compatible with the environment. This shouldn’t be a surprise since we are now very active in areas that have not seen the type and scale of activity caused by shale resource development.
This year we have seen new and better industry efforts — from the community level to the national level — to explain how we conduct our business so as to maintain trust and what we call our “social license to operate.” We’ve worked with states to improve disclosure of hydraulic fracturing additives. We’ve worked with a number of states moving to update their rules, regulations and enforcement in the face of new shale-related activity. We support additional state reviews of their regulatory practices and staffing to ensure public confidence. And we are very active in encouraging continuing improvement of already-good industry operating and management practices that, along with good state regulatory oversight, have led to a solid environmental record with respect to shale energy development.
Devon is very involved in the Permian Basin. What is it about that play that has drawn your attention?
Hager: The Permian Basin is attractive because we have a very large lease acreage position with a growing number of potential drilling locations. Much of our activity is focused on the Wolfberry, the Wolfcamp, the Delaware and the Bone Spring plays.
The Permian is a historic basin that has been producing oil and gas for decades. … Horizontal drilling and hydraulic fracturing have brought the Permian back to life once again, and we are optimistic about future production growth there.
We have 19 rigs operating across the basin, and we saw our third-quarter production increase by 17% over the year-ago quarter. In total, our Permian production averaged 50,000 equivalent barrels of oil per day in the third quarter with 75% of that being oil and natural gas liquids.
The region is a good illustration of opportunities Devon and others in the industry are pursuing across the United States. Plays that were once abandoned or passed over as depleted or uneconomic now have new potential through advanced drilling and completion technology.
Images courtesy of Devon Energy.
This question-and-answer session was produced as part of SmartBrief’s 2011 Best Of reports, which capture the year’s most important stories in each industry. Sign up now for API SmartBrief to get tomorrow’s report on the top must-read stories from the oil and natural gas industry.