Drilling deep

The search for black gold can be a challenging experience. Rebecca Goozee caught up with Devon Energy’s Rick Mitchell to find out why effective exploration requires more than a tattered treasure map and a sense of adventure.

“Even though it's difficult, you have to set up everything yourself and get going. There are a lot of people in our company who like that challenge and enjoy it - we certainly don't shy away from that side of operations”
-Rick Mitchell, Devon Energy

As job titles go, they don’t come much more exciting than ‘Head of Exploration’. The very words conjure up images of adventure and derring-do, of pushing knowledge to the known limits, of going beyond the frontiers of what is possible. “We call it the Indiana Jones factor,” laughs Rick Mitchell, VP of Drilling and E&P Services at Devon Energy. “We like the challenge of finding ourselves in remote areas and supporting our divisions in setting up operations from scratch, where no drilling has been done before.” And while his role doesn’t necessarily require him to carry a bullwhip and a revolver, finding the buried treasure can still be a challenging experience.

Of course, just like Hollywood’s favorite fedora-wearing hero, Mitchell’s job isn’t all fieldwork; diligent research and hours of preparation go into making sure the search for oil and gas is a productive one. He can typically be found going over drilling reports and talking with various divisions on what is working well or where there may be a problem, and assisting and supporting the staff. “I focus quite a bit of energy on our Devon Procurement Steering Committee, the group that oversees the major procurement of goods and services within our company,”  he explains. In addition, Mitchell is in charge of the Supervisory Control and Data Acquisition (SCADA) group, which handles the remote monitoring of wells and facilities, as well as Devon’s major capital projects group. “My job encompasses many different things,” he says. “We’re responsible for supporting the seven different business units within the corporation, and we’re also the support group that helps and support all our exploration and production groups, as well as our marketing and midstream group. There’s a lot to do.”

While at first glance his role seems more average Joe than Indiana Jones, Mitchell is facing a growing number of challenges within the industry. He believes that the top challenge is access, which is becoming more and more difficult. “That’s a common issue for all oil and gas operators,” he says. “At Devon, particularly over the past year, the E&P divisions have done an outstanding job of securing additional lands and picking up acreage from Canada through the US, and internationally to where we continue to access and gain land at reasonable prices that will help us maintain profitability.” Nevertheless, Mitchell is a firm believer that more needs to be done to open new areas for drilling if the US is to meet its energy needs and achieve energy independence.

The other main challenge is controlling costs and ensuring the liability of operations. Costs have grown significantly since 2000, doubling across the board for just about every company in the industry. One of the ways that Mitchell’s team has been supporting the E&P divisions in controlling costs is by ensuring efficiency in operations so that there is as little downtime as possible. “A deepwater drilling operation currently costs about $8 or $9 per second, a shallow operation is around $5 per second and a US onshore operation about $0.50 a second,” he explains. “Time is money, and when you can focus on efficiency and minimize problems, that’s one of the top ways in which you can control your costs.”

To help meet this challenge, Devon’s E&P divisions spend a great deal of time sharing best practices and lessons learned so that when they have a great market success rate or a good level of performance, it can be shared across divisions so problems are less likely to occur. “We capitalize on the learnings and experiences of others, which helps us to hit the next level of performance,” says Mitchell. “We spend a lot of time in supporting the divisions in experimenting with new technologies in a controlled environment, and in this way we can find that next level of technology that helps us improve and reduce costs even further.”

Expansion and diversity
As the largest US-based independent producer of oil and gas, Devon Energy provides three percent of all the gas consumed in North America and also produces about 600,000 barrels of oil a day. Since Mitchell joined Devon Energy in 2003, the independent oil giant has expanded to incorporate a diverse portfolio of exploration and production activities, including conventional oil and gas exploration and production in Canada, as well as good growth in heavy oil production and development in Canada and the deepwater Gulf of Mexico. The company also has a strong US conventional and non-conventional oil and gas production operation on the US onshore.

“After various mergers took place in the late 1990s and early 2000s, we had many different exploration blocks and areas all around the world, and Devon has now consolidated those into a strong and focused approach,” explains Mitchell. Since 2003, Devon has strategically defined its international approach and the company now works in just three main areas, China, Brazil and the former Soviet Union. “We have a wide variety of activities and projects throughout the company, and we’ve continued to grow production year over year, and that’s very exciting for us.”

Mitchell joined Devon Energy as Director of Deepwater Drilling and Facilities, a unit that he is still involved in today. In 2007, deepwater exploration accounted for around 10 percent of Devon’s portfolio, and the company is keen to keep expanding. “Right now, we have three deepwater rigs operating for us and our activity level is expanding,” he explains. “Over the past five to 10 years, Devon has spent a lot of time focusing on expanding its deepwater portfolio, and preparing some high impact and high potential prospects to drill.”

In terms of its deepwater exploration, Devon is concentrating on three main geographical areas, the first being the Gulf of Mexico. So far Devon has four proven discoveries with partners in the Lower Tertiary trend, of which several are starting the drilling phase now – the Cascade project is one such example, and Devon expects to see the first production from the project in 2010. “We are also partners in Jack and St. Malo with Chevron, and the Kaskida project with BP, so we’ve got some very good projects underway, with drilling expected for both projects by the end of the year,” says Mitchell. “We are working very closely with our partners, and we’re working such that we can accelerate, get these projects moving and a return on production as soon as possible. We don’t have firm start-up dates for Jack and St. Malo and Kaskida yet, but we think they’ll probably be in the 2013 timeframe.”

There are two other areas that Mitchell is excited about, including deepwater China, which he considers a frontier area, citing the one significant discovery there by Husky Oil and Gas. Deepwater Brazil is another area with numerous prospects. Devon is currently one of the largest exploration and production companies with leaseholds in the area. Last September, Devon announced the preliminary results of an exploratory pre-salt well in the Campos Basin offshore Brazil. “We’ll be continuing with a rather aggressive and exciting exploration program in Brazil for several years to come,” he says.

Technology
Technology has been vital in improving operations at Devon, and is quickly transforming E&P operations. With an evermore prevalent focus on horizontal drilling in the US and Canada, Mitchell has seen much improvement in the capabilities of the down hole drilling equipment to help drill horizontal wells. The number of horizontal wells drilled per year was about four percent back at the beginning of the century; now the figure stands at around 12 percent. Mitchell predicts a further focus on drilling technology that incorporates horizontal drilling and completion techniques. “In 2009, we believe that Devon could be drilling as many as 700 horizontal wells, and that’s a key area that will help us to become more successful,” he predicts.

He is also tremendously excited about some of the new horizontal completion technologies that are currently coming online. “These completion technologies allow us to drill and complete longer intervals so that we can stimulate more zones and maximize the production and reserves per well in a timely and cost-effective manner,” he says. Of course, one of the key changes that technology has made is that in almost every circumstance, safety techniques have been improved, from rig designs to the way in which the equipment is handled. Mitchell also believes there has been a focus on making things more efficient, and Devon’s E&P divisions are doing a great job in this area.

Technology has also made it easier to access the reserves that lie in the most inhospitable places in the world, and possible to work with unconventional oil deposits such as oil sands. Although Mitchell admits that there have been challenges in these areas, he goes on to explain that a relatively large group of employees at Devon that have spent a great deal of time working in difficult places and have the experience to make these opportunities successful.

“It goes back to that Indiana Jones factor,” laughs Mitchell. “Even though it’s difficult, you have to set up everything yourself and get going. There are a lot of people in our company who like that challenge and enjoy it – we certainly don’t shy away from that side of operations.”

Environment
Even in more remote locations, the onus is on improving productivity and reducing costs while making safety targets and environmental regulations. Mitchell says that Devon uses the same model throughout the organization regarding environmental and social issues. Devon has always put the environment and people first. “When you take the time, effort and precautions to put the people and the environment first, the challenges don’t seem to be as great, and you are accepted by more people in the community,” he explains. “People tend to want to help you and be a part of the team if they see you as a good corporate citizen.”

A major part of the exploration process is seeking input upfront about the areas Devon is working in, and Mitchell explains how employees will go in and meet with the local communities in the environment to make sure all goals are aligned from day one. “It makes a lot of sense to understand the area you’re working in, and who you’re working with,” he points out. “And when we collaborate with the local people, we get potential problems sorted out in advance, and typically costs and performance then fall right in line and you don’t have to deal with unforeseen events, which can be costly and cause delays.”

Future focus
Devon has plans to maintain its strong presence in Canada, where Mitchell wants to continue the good work in the heavy oil area. He believes that Devon is currently leading the way in producing natural gas from the Barnett Shale in North Texas, the Woodford Shale in Southeast Oklahoma and other shale plays that continue to emerge, predicting growth in these areas. It is, he concedes, an exciting time.

Mitchell also says that work will continue with the ultra-deepwater programs, such as exploration in the Gulf of Mexico, Brazil and China. “We’ve got fantastic deepwater and international teams at the moment, and you will see Devon continue to explore and develop its existing discoveries. We expect to do more of the same, executing the strategies and programs that we have because we believe that these are the right places to be and the right things to do, and we’ll do our best to continue growing the company.”

He does, however, sound one final note of caution: for the industry to truly progress, more must be done to address the talent shortage. Much has been achieved already, but even so the industry cannot afford to take its eyes off the prize. “Everybody is just so busy right now,” he concludes. “We’ve got lots of new and relatively inexperienced people in the industry.  It takes a lot of time and extra effort for us to ensure that we’re protecting our people and the environment, and then are able to execute and perform at a high level of expectation with all the new things going on and the significant levels of activity. It’s a challenge, but one we’re enjoying meeting.”

Fact file

Headquarters: Oklamhoma City
Founded: 1971
Employees: 5000+ worldwide
Production: 224 million barrels in 2007
E&P Budget: $5.6-$5.9 billion in 2008

Operations
Devon’s worldwide portfolio of undeveloped oil and gas properties provides an extensive inventory of exploration drilling opportunities to enhance the company’s potential for sustained growth. Devon’s production is weighted toward natural gas and most of its operations are in North America.

• 64% of production is clean-burning natural gas
• 36% is oil and natural gas liquids, such as propane, butane and ethane
• More than 90% of both production and proved reserves are in North America, including the US onshore, Canada and the Gulf of Mexico
• Devon produces 2.4 billion cubic feet of natural gas each day, or about 3% of all the gas consumed in North America
• About 40% of Devon’s gas production is from unconventional sources, such as the Barnett Shale in north Texas, and coalbed natural gas fields in New Mexico, Wyoming and Canada

The Barnett Shale story

Not long ago, the Barnett Shale formation in north Texas represented a geological puzzle that had gone unsolved for more than 40 years. Geoscientists knew vast energy reserves were sealed inside the tight, black rock formed from organic material deposited 325 million years ago. The challenge was recovering them.

Through a lot of hard work and a great deal of unconventional thinking, Devon unlocked the stingy shale known for its low porosity and high complexity. Engineers use a method known as fracturing to foster permeability in the shale. Crews inject a mixture of fresh water and sand into the rock at high pressure to fracture the formation and release gas trapped inside. The technology has given Devon access to vast reserves, transforming this challenging play surrounding Fort Worth into one of the nation’s most important natural gas producing fields.

In all, Devon has more than 3500 wells producing in the field. The company uses innovations such as horizontal drilling and advanced seismic technology to ensure each well reaches its full production potential. Devon is optimistic about its future production growth in the Barnett Shale and will continue to expand and recover gas reserves contained under a dominant lease position of more than 715,000 net acres.

Through Devon’s pioneering efforts, the Barnett Shale has emerged as the largest natural gas field in Texas. Within the last several years, Devon has made significant advances in developing and enhancing production from the Barnett. The north Texas play has potential to remain one of the country’s most vital energy resources for many years to come. Devon’s accomplishments in the Barnett are an example of technology and innovation helping meet growing energy demands by finding new ways to tap North America’s remaining reserves.