Devon's new Eagle Ford assets bring new flaring challenge

August 18, 2022

Devon Energy announced on August 9th that it would acquire private operator Validus Energy, in a $1·8 billion cash transaction slated to close late Q3 2022. The new assets add 42,000 net acres adjacent to Devon’s position in the core of the Eagle Ford play. Validus bought the property from Ovintiv for $0.9 billion just a year earlier, in June 2021, as it sought to reduce debt. Freeport McMoRan previously sold the acreage to Ovintiv for $3.1 billion, at the height of activity in 2014.

 

Are Devon’s new assets compatible from an ESG perspective? Devon set bold ESG targets since its merger with WPX Energy. The company plans to reduce greenhouse gas (GHG) emissions and flaring, aiming for Net Zero Scope 1 and 2 emissions by 2050. On the other hand, private Validus publishes no details on its ESG performance.

 

Our analysis suggests that Devon faces plenty of work to bring the new property up to its ESG standards. If Devon meets the challenge, the operator change could be an overall win for air quality and the environment.

 

ESG Dynamics’ Health Check helps producers like Devon and Validus, to avoid ESG surprises in asset transactions. During the deal evaluation, benchmark ESG performance and identify environmental compliance gaps or violations. By identifying and resolving issues early, companies can choose the right assets, attract new funding or sell to ESG-minded buyers.

 

Figure 1. Map of Devon and Validus asset locations in the Eagle Ford play.

Figure 1. Map of Devon and Validus asset locations in the Eagle Ford play.

 

Gas flaring intensity

Flaring rates across the Eagle Ford gradually fell since mid-2019 as overall production declined, dropping from 1.5% to 0.6% flaring intensity. Devon’s performance follows the regional trend, achieving just 0.1% flaring intensity in 2021.

 

Among top the Eagle Ford producers in 2022, Validus consistently has the highest flaring intensity (7%) and fuel gas use (25%). In fact, only one small operator flares more gas volume. Validus flares nearly 4 MMcf/d of natural gas, producing 34 kt CO2 equivalent emissions in the first quarter of 2022 according to ESG Dynamics estimates.

 

Flaring slowly increased from 2018 to 2021 under Ovintiv’s ownership, doubling intensity from 1.6% to 3.2% while gas production dwindled. After the sale to Validus, gas flaring accelerated as the company increased production with about 20 new wells. Gas production remained flat and gas-oil ratio dropped sharply. Validus added about 10 kboe/d with 70% oil to make the property attractive, which came at an environmental cost.

 

Devon places high importance on lowering air emissions, which accounts for 5 of its 7 major ESG targets, according to the 2021 sustainability report. The new operator has it has its work cut out, to slash flaring rates on the new assets. Devon won’t hit the mark this year. Even with no future flaring, intensity on this asset will average about 3% for 2022.

 

Figure 2. Production performance and flaring history of Devon, Validus and the combined portfolio. Quarterly data shown from 2018 through April 2022.

Figure 2. Production performance and flaring history of Devon, Validus and the combined portfolio. Quarterly data shown from 2018 through April 2022.

 

ESG Dynamics offers environmental data and compliance audits to quickly assess whether oil and gas companies are reporting ESG metrics consistently to the public. Our ‘Health Check’ consulting service and Energy Explorer modules unite data from diverse sources to provide an integrated view of ESG performance.

 

Other air emissions

Beyond GHG emissions from flaring, operators must report air emissions events to the Texas Commission on Environmental Quality (TCEQ). The performance picture here is mixed over the past 5 years. Past-operator Ovintiv indicated 9 emissions events totaling 2.6 MT of gas released. The early incidents happened in a variety of production operation, releasing a variety of contaminants. In 2020, flares were the only emissions point. Devon recorded only one air emissions event in late 2019, but it was orders of magnitude larger, releasing 493 MT of natural gas from a horizontal well site.

 

Figure 3. Eagle Ford air emissions events by Devon (1) and Ovintiv (9), from 2017 to 2021.

Figure 3. Eagle Ford air emissions events by Devon (1) and Ovintiv (9), from 2017 to 2021.

 

Hydrogen sulfide gas, or H2S, causes particular concern in the oilfield, due to potential health hazards or even death at high concentrations. Texas requires progressively more safety precautions, monitoring and enhanced equipment at higher H2S levels detected in hydrocarbon fluids. For concentrations greater than 100 ppm, operators must determine and report the potential radius of exposure.

 

The Validus properties lie in a more H2S-rich area than the legacy Devon properties. Devon reported no H2S encounters greater than 100 ppm in the last five years. Meanwhile, Ovintiv and Validus logged 12 H2S compliance certificates with the Texas Railroad Commission (RRC). To protect workers and the public, Devon will need to follow Validus’ lead and implement monitoring and safety protocols to reduce the risk of  a dangerous H2S gas release.

 

Figure 4. Concentration of H2S encountered by Devon and Validus in the Eagle Ford, 2018 to 2022.

Figure 4. Concentration of H2S encountered by Devon and Validus in the Eagle Ford, 2018 to 2022.

 

Liquids handling

Devon reported five hydrocarbon liquids spills in the Eagle Ford from 2012 to 2016, but none since. Almost all occurred at tank batteries, with no impact to water. The majority resulted from theft or vandalism. Validus reported no spills on the newly sold property.

 

The Texas RRC found six violations by Validus and legacy-operator Ovintiv from 2020 to 2021 for unpermitted disposal of oil and gas waste. Nearly quarterly citations suggest an ongoing practice of unpermitted disposal. Validus corrected about 2/3 of the incidents before reinspection, but one non-compliant case was referred to the State-Managed Cleanup Program.

 

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