Developing our full potential
Success for an exploration and production company can be measured in two important ways: by how much oil and natural gas we profitably produce today and tomorrow. Devon excelled in 2007 by both measures. On an oil-equivalent basis, we increased annual production from continuing operations by 12%, to 224 million barrels. We expect to grow production further in 2008 to between 240 million and 247 million equivalent barrels.
Our capacity to increase production is largely dependent upon how successfully we grow proved reserves. Proved reserves are technical estimates of the quantities of oil and gas still underground that can, with reasonable certainty, be recovered under current economic conditions. In 2007, we added 437 million oil-equivalent barrels to our proved reserves. That was nearly twice the amount we produced. Most of the reserve additions, 390 million equivalent barrels, came from successful drilling and positive performance revisions. We drilled 2,440 total wells in 2007, with a success rate of 98%. Development projects such as the Barnett Shale and Carthage in Texas and Lloydminster in Canada underpinned the growth. Exploratory areas such as the deepwater Gulf of Mexico, Brazil and China provide opportunities to increase reserves and production in the future. You can read about some of Devon's more important exploration and development projects on the following pages.
Accelerating Growth in the Barnett Shale
Based on both production and reserves, the Barnett Shale in north Texas is Devon's largest and most important asset — and it is still growing. 2007 was a banner year for us in the Barnett, as we increased annual production by 33% to more than 300 billion cubic feet of gas equivalent. We increased proved reserves in the Barnett in 2007 by 19%, finding more than three times the volume of gas we produced. The Barnett Shale is among the largest onshore natural gas fields in North America, and Devon is its largest producer.
We are growing production and reserves in the Barnett by drilling more wells and increasing per-well recoveries. Devon drilled 539 wells in the Barnett Shale in 2007, compared with 383 wells in 2006. This increase was due, in part, because of improved drilling efficiency. We have cut the number of days required to drill a typical horizontal Barnett well by half in just the past three years. Based on fourth-quarter results, we increased per well recoveries from new wells in the Barnett by about 15% in 2007. Almost all of the Barnett wells we drilled in 2007 were horizontal wells. Not only are horizontal wells more efficient than vertical wells, they also cause less surface impact because fewer drilling locations are required.
Another approach we are using in the Barnett to increase production and reserves is infill drilling, or spacing wells closer together. Our first horizontal wells in the Barnett Shale were drilled on about 160 surface acres per well. Next, we began drilling wells on 80 surface acres, or double the initial density. The success of that program led to a 40-acre pilot and we are now testing the viability of 20 surface-acre locations. Not all Barnett acreage will be suitable for the higher density spacing. With more experience we should be able to determine what the optimum well spacing is for all of our Barnett Shale leases.
Today, we have about 3,200 wells producing gas from the Barnett Shale. We hold proved reserves of more than 4.3 trillion cubic feet of gas equivalent, yet our engineers believe we are recovering a fraction of the gas in place. Horizontal and infill drilling and innovative reservoir management practices are enabling us to extract more and more of the clean-burning natural gas locked in the Barnett Shale to meet the country's growing energy demands.
Full Steam Ahead at Jackfish
In 2007, we started injecting steam at Devon's 100%-owned Jackfish oil sands project in eastern Alberta, Canada. Jackfish has been under construction since 2005 and utilizes the steam-assisted gravity drainage, or SAGD, process. Softened by steam, heavy oil is now flowing to the surface through wells drilled to a depth of about 1,300 feet. That oil is processed in surface facilities and blended with diluents to make it flow more easily. The blended oil is then transported on Devon's 50%-owned Access Pipeline for marketing. Production is expected to ramp up gradually to a peak of 35,000 barrels per day, which is the design capacity of the Jackfish facilities.
We anticipate receiving regulatory approval in 2008 for Jackfish 2, another 35,000 barrel per day SAGD project located on adjoining leases. Jackfish and Jackfish 2 are each expected to recover about 300 million barrels of oil over their more than 20-year productive lives. Devon is the first U.S.-based independent to operate a thermal oil sands project in Canada.