Devon Energy has entered into an agreement with Dow to jointly develop a portion of Dow’s STACK acreage in central Oklahoma. Under this agreement, Devon will monetize half of its working interest in 133 undrilled locations in exchange for approximately a $100 million drilling carry over the next four years. The average working interest is estimated at 60% across a mix of standard and extended-reach lateral drilling locations.
In addition to the benefits of a drilling carry, Devon’s returns associated with this agreement are expected to be enhanced by lower well costs from focused infill development drilling and midstream incentive rates that lower per-unit operating costs for each new well brought online.
“This innovative agreement is consistent with our strategy to optimize the capital efficiency and returns associated with our development programs,” Dave Hager, Devon’s President and CEO, said. “Dow is a world-class organization and this mutually beneficial agreement will help us bring forward value in the STACK, while delivering carry-enhanced returns that compete effectively for capital within our portfolio.”
“We are excited to expand our relationship with Dow to develop a portion of our liquids-rich acreage in the STACK,” David Harris, Devon’s Executive Vice President, Exploration and Production, said. “This agreement will benefit from the improvements in capital efficiency achieved in the play this year, driven by optimized infill development spacing and substantially lower drilling and completion costs.”
Devon anticipates no change to its production targets or capital spending outlook in 2020 as a result of this agreement. Activity in 2020 will start with the development of two drilling units in northern Canadian County, where drilling operations are expected to commence mid-year.
With this agreement, Devon will retain 100% of its production and cash flow from existing operations in the STACK play. Devon will serve as operator and is responsible for capital allocation and project timing with this agreement.