Devon asset sale underlines potential of US onshore gas play

The announcement by Devon Energy that it will sell its Gulf of Mexico and international assets to generate up to $7.5bn, so it can focus its attention on the north American onshore assets and retire debt, underlines the growing significance of the US natural gas play.

Devon, which has been an early investor in the natural gas play, with its leading position in the Barnett Shale, must believe that future returns lie with natural gas trapped in shale across the US. Indeed, a lot of the independents do.

They are the ones who have created this shale play, using horizontal drilling and high-pressure water to fracture source rock to extract natural gas. The industry now estimates the US has enough natural gas resources to satisfy demand, at current rates, for 100 years – up from estimates of just 30 years supply a few years ago. Continued technological improvements could increase those estimates further. Indeed, the industry is certain it will.

So Devon wants to focus its energy on growing its onshore natural gas position. Here is how Larry Nichols, Devon’s chief executive, put it:

Devon’s success has led to an overabundance of opportunities, and this repositioning will allow us to optimize value for our shareholders. We do not believe that the value of our high-quality Gulf and international assets is being adequately reflected in our stock price. By monetizing these assets, we will realize their full value, allowing us to unleash the growth potential that resides within our world-class onshore assets. Following the divestitures, Devon will be uniquely positioned to deliver high organic growth on a sustainable basis, funded entirely with internally generated funds

It seems like a smart move. For even though Congress and the Obama Administration have yet to recognize the importance of natural gas in meeting the US’ goals of energy security and reducing carbon emissions, the industry is quite certain it will eventually do so. Renewables can only grow so much so fast. And with natural gas so readily available in the US, it would be a mistake not to use it. Certainly it still emits carbon. But it emits about half the carbon of electricity generated by coal.

So even though the Obama Administration has its heart set on continued coal use, with carbon capture and sequestration solving the emissions’ problem, it sure does make more sense to want to capture half the carbon and keep it sequestered – which is what burning natural gas instead of coal would do.

But politicians have a hard time believing the industry. Perhaps Devon’s move to sell its international and deep water assets to focus on the onshore natural gas play will wake the politicians up to the fact that the industry is putting its money where its mouth is and banking its future on natural gas.

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