Q&A with J. Larry Nichols, CEO, Devon Energy
- J. Larry Nichols (Devon Energy) | John Donnelly (JPT Editor)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- July 2006
- Document Type
- Journal Paper
- 30 - 31
- 2006. Copyright is retained by the author. This document is distributed by SPE with the permission of the author. Contact the author for permission to use material from this document.
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How have recent high oil prices affected your E&P program?
Our capital budget has tripled over the past 5 years. Part of that has come from higher oil and gas prices, but part of that has been because we have been growing the size of the company. While oil and gas prices have had some impact, we recognize that prices are volatile, and we are not relying on them staying at their current elevated level.
How did last year’s hurricanes in the Gulf of Mexico affect your operations?
We were affected some, but not as badly as a lot of other companies. We had three platforms that suffered damage—they actually sank—but they were not critical platforms. They were in the area of other platforms, and we just rearranged our production scheme without having to rebuild those platforms. We were affected by some third-party pipelines that resulted in about 80,000 BOPD being suspended for a period. We have restored all but 6,000 BOPD of that now.
You recently acquired Chief Holdings and have made major acquisitions in the past. What is Devon’s philosophy regarding growing through acquisitions or through the drill bit? Does that philosophy change in a high-price environment?
We have always stated that we like both; it depends on the circumstances whether acquisitions are attractive. We certainly have done a lot of acquisitions since we went public in 1988. But because of high oil prices, they are now increasingly difficult. One of the things we have done with our acquisitions is that each time we have bought a company, we have turned around and sold the bottom part of our portfolio, resulting in an ever-increasing quality of our portfolio. It is now difficult to find transactions that are accreting in value and that improve the quality of our portfolio. Chief was one of those rare exceptions.
What is your outlook for oil and natural gas prices?
You have to start with oil because that has such an influence on gas prices. It involves huge political questions that are very difficult to answer. Obviously, the world supply of oil is tight, and in the countries where one could increase production, many of them are difficult to do business in. That is why oil is trading where it is now, because of the political uncertainty of the Middle East, Venezuela, now Bolivia, and Nigeria. Long-term, we think that oil in the area of U.S. $50–55/bbl is probably a reasonable number, but that is not to say that there might not be huge volatility both above and below that number.
Gas is also challenged. In the U.S., companies are denied access in many areas where they could expand production, which has resulted in the supply of natural gas being very tight. We had a mild winter last year, and that helped.
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