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DVN » Topics » Development of Business

These excerpts taken from the DVN 10-K filed Feb 27, 2009.
Development of Business
 
During 1988, we expanded our capital base with our first issuance of common stock to the public. This transaction began a substantial expansion program that has continued through the subsequent years. This expansion is attributable to both a focused mergers and acquisitions program spanning a number of years and an active ongoing exploration and development drilling program. We have increased our total proved reserves from 8 MMBoe1 at year-end 1987 to 2,428 MMBoe at year-end 2008.
 
During the same time period, we have grown proved reserves from 0.66 Boe1 per diluted share at the end of 1987 to 5.44 Boe per diluted share at the end of 2008. This represents a compound annual growth rate of 11%. We have also increased production from 0.09 Boe1 per diluted share in 1987 to 0.53 Boe per diluted share in 2008, for a compound annual growth rate of 9%. This per share growth is a direct result of successful execution of our strategic plan and other key transactions and events.
 
We achieved a number of significant accomplishments in our operations during 2008, including those discussed below.
 
  •  Drilling Success — We drilled a record 2,441 gross wells with an overall 98% rate of success. As a result of our success with the drill-bit, we replaced approximately 245% of our 2008 production. We
 
 
1 Excludes the effects of mergers in 1998 and 2000 that were accounted for as poolings of interests.


5

Table of Contents

  added 584 MMBoe of proved reserves during the year with extensions, discoveries and performance revisions, a total which was well in excess of the 238 MMBoe we produced during the year. Consistent with our two-pronged operating strategy, 93% of the wells we drilled were North American development wells, which was the main driver behind our 6% increase in production in 2008.
 
  •  Barnett Shale Growth — We continue to retain our positions as the largest producer and largest lease holder in the Barnett Shale area of north Texas. We increased our production from the Barnett Shale area by 31% in 2008, exiting the year at 1.2 Bcfe per day net to our ownership interest. We drilled 659 wells in the Barnett Shale in 2008. We have interests in approximately 3,800 producing wells in the Barnett Shale and hold approximately 715,000 net acres of Barnett Shale leases. At December 31, 2008, we had estimated proved reserves of 894 MMBoe in the Barnett Shale area.
 
  •  U.S. Onshore Production and Reserves Growth — Our U.S. onshore properties, including the Barnett Shale, the Groesbeck and Carthage areas in east Texas, the Washakie basin in Wyoming and the Woodford Shale area in Oklahoma, showed strong production growth in 2008. These four areas, which accounted for approximately 69% of our U.S. onshore production, had production growth in 2008 of 26% compared to 2007.
 
We also completed construction and commenced operation of our Northridge natural gas processing plant in southeastern Oklahoma. This plant can process up to 200 MMcf of natural gas per day and will support our growing production in the Woodford Shale.
 
We have also leveraged our knowledge of and expertise in the Barnett Shale into other unconventional natural gas plays, such as the Haynesville shale in eastern Texas and western Louisiana, the Cana shale play in western Oklahoma and the Cody play in Montana. We added approximately 800,000 net undeveloped acres to our lease inventory, positioning us with more than 1.4 million net acres in emerging unconventional natural gas plays.
 
In addition to production growth, our U.S. onshore properties also demonstrated measurable growth in proved reserves. U.S. onshore proved reserves grew 416 MMBoe due to extensions, discoveries and performance revisions. This was almost three times our U.S. onshore production in 2008 of 146 MMBoe. Our drilling activities increased our 2008 U.S. onshore proved reserves by 27% compared to the end of 2007.
 
  •  Marketing and Midstream — Our marketing and midstream business delivered another record setting year with operating profit increasing by 31% to $668 million.
 
  •  Jackfish — We ramped up production from our 100%-owned Jackfish thermal heavy oil project in the Alberta oil sands to 22,000 Bbls per day by the end of the year. In 2009, we expect to achieve our peak production target of 35,000 Bbls per day. Additionally, we received regulatory approval for the second phase of Jackfish. Like the first phase, this second phase of Jackfish is also expected to eventually produce 35,000 Bbls per day.
 
  •  Lloydminster — Also in Canada, we increased production from the Lloydminster heavy oil play in Alberta by 14%, exiting the year at approximately 45,000 Boe per day. We drilled 425 wells at Lloydminster in 2008, which added 19 MMBoe of proved reserves.
 
  •  Divestiture of African Properties — We substantially completed our Egypt and West Africa divestiture programs. We have now sold all of our oil and gas producing properties in Africa. These divestitures generated just over $3.0 billion of sales proceeds. After income taxes and purchase price adjustments, such proceeds totaled $2.2 billion and generated after-tax gains of $0.8 billion.
 
Pursuant to accounting rules for discontinued operations, the amounts in this document related to continuing operations for 2008 and all prior years presented do not include amounts related to our operations in Egypt and West Africa.
 
  •  Polvo — We experienced numerous mechanical issues with our offshore development project that delayed our expected production growth. By the end of 2008, we had solved the mechanical issues and


6

Table of Contents

  are now producing at 17,000 Bbls per day. We expect production to increase in 2009. We have a 60% working interest in Polvo.
 
  •  Gulf of Mexico Exploration and Development — We continued to build off prior years’ successful drilling results with our deepwater Gulf of Mexico exploration and development program. To date, we have drilled four discovery wells in the Lower Tertiary trend — Cascade in 2002 (50% working interest), St. Malo in 2003 (25% working interest), Jack in 2004 (25% working interest) and Kaskida in 2006 (30% working interest). These achievements, along with our 2008 developments discussed below, support our positive view of the Lower Tertiary and demonstrate the potential of our exploration strategy on growth of long-term production, reserves and value.
 
Specific Gulf of Mexico developments in 2008 included the following:
 
  •  At Cascade, we commenced drilling the first of two initial producing wells and continued work on the production facilities and subsea equipment. We anticipate first production at Cascade in 2010. When Cascade begins producing, it will utilize the Gulf’s first FPSO.
 
  •  At Jack and St. Malo, our partners focused on development concepts for the two fields. Particular consideration has been given to joint development of the two fields that could employ the use of a single, semi-submersible production facility.
 
  •  At Kaskida, the largest of our Lower Tertiary discoveries, we are currently drilling an appraisal well.
 
Development of Business
 
During 1988, we expanded our capital base with our first issuance of common stock to the public. This transaction began a substantial expansion program that has continued through the subsequent years. This expansion is attributable to both a focused mergers and acquisitions program spanning a number of years and an active ongoing exploration and development drilling program. We have increased our total proved reserves from 8 MMBoe1 at year-end 1987 to 2,428 MMBoe at year-end 2008.
 
During the same time period, we have grown proved reserves from 0.66 Boe1 per diluted share at the end of 1987 to 5.44 Boe per diluted share at the end of 2008. This represents a compound annual growth rate of 11%. We have also increased production from 0.09 Boe1 per diluted share in 1987 to 0.53 Boe per diluted share in 2008, for a compound annual growth rate of 9%. This per share growth is a direct result of successful execution of our strategic plan and other key transactions and events.
 
We achieved a number of significant accomplishments in our operations during 2008, including those discussed below.
 
  •  Drilling Success — We drilled a record 2,441 gross wells with an overall 98% rate of success. As a result of our success with the drill-bit, we replaced approximately 245% of our 2008 production. We
 
 
1 Excludes the effects of mergers in 1998 and 2000 that were accounted for as poolings of interests.


5

Table of Contents

  added 584 MMBoe of proved reserves during the year with extensions, discoveries and performance revisions, a total which was well in excess of the 238 MMBoe we produced during the year. Consistent with our two-pronged operating strategy, 93% of the wells we drilled were North American development wells, which was the main driver behind our 6% increase in production in 2008.
 
  •  Barnett Shale Growth — We continue to retain our positions as the largest producer and largest lease holder in the Barnett Shale area of north Texas. We increased our production from the Barnett Shale area by 31% in 2008, exiting the year at 1.2 Bcfe per day net to our ownership interest. We drilled 659 wells in the Barnett Shale in 2008. We have interests in approximately 3,800 producing wells in the Barnett Shale and hold approximately 715,000 net acres of Barnett Shale leases. At December 31, 2008, we had estimated proved reserves of 894 MMBoe in the Barnett Shale area.
 
  •  U.S. Onshore Production and Reserves Growth — Our U.S. onshore properties, including the Barnett Shale, the Groesbeck and Carthage areas in east Texas, the Washakie basin in Wyoming and the Woodford Shale area in Oklahoma, showed strong production growth in 2008. These four areas, which accounted for approximately 69% of our U.S. onshore production, had production growth in 2008 of 26% compared to 2007.
 
We also completed construction and commenced operation of our Northridge natural gas processing plant in southeastern Oklahoma. This plant can process up to 200 MMcf of natural gas per day and will support our growing production in the Woodford Shale.
 
We have also leveraged our knowledge of and expertise in the Barnett Shale into other unconventional natural gas plays, such as the Haynesville shale in eastern Texas and western Louisiana, the Cana shale play in western Oklahoma and the Cody play in Montana. We added approximately 800,000 net undeveloped acres to our lease inventory, positioning us with more than 1.4 million net acres in emerging unconventional natural gas plays.
 
In addition to production growth, our U.S. onshore properties also demonstrated measurable growth in proved reserves. U.S. onshore proved reserves grew 416 MMBoe due to extensions, discoveries and performance revisions. This was almost three times our U.S. onshore production in 2008 of 146 MMBoe. Our drilling activities increased our 2008 U.S. onshore proved reserves by 27% compared to the end of 2007.
 
  •  Marketing and Midstream — Our marketing and midstream business delivered another record setting year with operating profit increasing by 31% to $668 million.
 
  •  Jackfish — We ramped up production from our 100%-owned Jackfish thermal heavy oil project in the Alberta oil sands to 22,000 Bbls per day by the end of the year. In 2009, we expect to achieve our peak production target of 35,000 Bbls per day. Additionally, we received regulatory approval for the second phase of Jackfish. Like the first phase, this second phase of Jackfish is also expected to eventually produce 35,000 Bbls per day.
 
  •  Lloydminster — Also in Canada, we increased production from the Lloydminster heavy oil play in Alberta by 14%, exiting the year at approximately 45,000 Boe per day. We drilled 425 wells at Lloydminster in 2008, which added 19 MMBoe of proved reserves.
 
  •  Divestiture of African Properties — We substantially completed our Egypt and West Africa divestiture programs. We have now sold all of our oil and gas producing properties in Africa. These divestitures generated just over $3.0 billion of sales proceeds. After income taxes and purchase price adjustments, such proceeds totaled $2.2 billion and generated after-tax gains of $0.8 billion.
 
Pursuant to accounting rules for discontinued operations, the amounts in this document related to continuing operations for 2008 and all prior years presented do not include amounts related to our operations in Egypt and West Africa.
 
  •  Polvo — We experienced numerous mechanical issues with our offshore development project that delayed our expected production growth. By the end of 2008, we had solved the mechanical issues and


6

Table of Contents

  are now producing at 17,000 Bbls per day. We expect production to increase in 2009. We have a 60% working interest in Polvo.
 
  •  Gulf of Mexico Exploration and Development — We continued to build off prior years’ successful drilling results with our deepwater Gulf of Mexico exploration and development program. To date, we have drilled four discovery wells in the Lower Tertiary trend — Cascade in 2002 (50% working interest), St. Malo in 2003 (25% working interest), Jack in 2004 (25% working interest) and Kaskida in 2006 (30% working interest). These achievements, along with our 2008 developments discussed below, support our positive view of the Lower Tertiary and demonstrate the potential of our exploration strategy on growth of long-term production, reserves and value.
 
Specific Gulf of Mexico developments in 2008 included the following:
 
  •  At Cascade, we commenced drilling the first of two initial producing wells and continued work on the production facilities and subsea equipment. We anticipate first production at Cascade in 2010. When Cascade begins producing, it will utilize the Gulf’s first FPSO.
 
  •  At Jack and St. Malo, our partners focused on development concepts for the two fields. Particular consideration has been given to joint development of the two fields that could employ the use of a single, semi-submersible production facility.
 
  •  At Kaskida, the largest of our Lower Tertiary discoveries, we are currently drilling an appraisal well.
 
Development
of Business


 





During 1988, we expanded our capital base with our first
issuance of common stock to the public. This transaction began a
substantial expansion program that has continued through the
subsequent years. This expansion is attributable to both a
focused mergers and acquisitions program spanning a number of
years and an active ongoing exploration and development drilling
program. We have increased our total proved reserves from
8 MMBoe1

at year-end 1987 to 2,428 MMBoe at year-end 2008.


 





During the same time period, we have grown proved reserves from
0.66 Boe1

per diluted share at the end of 1987 to 5.44 Boe per diluted
share at the end of 2008. This represents a compound annual
growth rate of 11%. We have also increased production from 0.09
Boe1 per

diluted share in 1987 to 0.53 Boe per diluted share in 2008, for
a compound annual growth rate of 9%. This per share growth is a
direct result of successful execution of our strategic plan and
other key transactions and events.


 





We achieved a number of significant accomplishments in our
operations during 2008, including those discussed below.


 


















  • 
Drilling Success — We drilled a record
2,441 gross wells with an overall 98% rate of success. As a
result of our success with the drill-bit, we replaced
approximately 245% of our 2008 production. We

 
 


1 Excludes

the effects of mergers in 1998 and 2000 that were accounted for
as poolings of interests.





5




Table of Contents



















 

added 584 MMBoe of proved reserves during the year with
extensions, discoveries and performance revisions, a total which
was well in excess of the 238 MMBoe we produced during the
year. Consistent with our two-pronged operating strategy, 93% of
the wells we drilled were North American development wells,
which was the main driver behind our 6% increase in production
in 2008.


 






























  • 
Barnett Shale Growth — We continue to retain
our positions as the largest producer and largest lease holder
in the Barnett Shale area of north Texas. We increased our
production from the Barnett Shale area by 31% in 2008, exiting
the year at 1.2 Bcfe per day net to our ownership interest.
We drilled 659 wells in the Barnett Shale in 2008. We have
interests in approximately 3,800 producing wells in the Barnett
Shale and hold approximately 715,000 net acres of Barnett
Shale leases. At December 31, 2008, we had estimated proved
reserves of 894 MMBoe in the Barnett Shale area.
 
  • 
U.S. Onshore Production and Reserves Growth —
Our U.S. onshore properties, including the Barnett
Shale, the Groesbeck and Carthage areas in east Texas, the
Washakie basin in Wyoming and the Woodford Shale area in
Oklahoma, showed strong production growth in 2008. These four
areas, which accounted for approximately 69% of our
U.S. onshore production, had production growth in 2008 of
26% compared to 2007.


 



We also completed construction and commenced operation of our
Northridge natural gas processing plant in southeastern
Oklahoma. This plant can process up to 200 MMcf of natural
gas per day and will support our growing production in the
Woodford Shale.


 



We have also leveraged our knowledge of and expertise in the
Barnett Shale into other unconventional natural gas plays, such
as the Haynesville shale in eastern Texas and western Louisiana,
the Cana shale play in western Oklahoma and the Cody play in
Montana. We added approximately 800,000 net undeveloped
acres to our lease inventory, positioning us with more than
1.4 million net acres in emerging unconventional natural
gas plays.


 



In addition to production growth, our U.S. onshore
properties also demonstrated measurable growth in proved
reserves. U.S. onshore proved reserves grew 416 MMBoe
due to extensions, discoveries and performance revisions. This
was almost three times our U.S. onshore production in 2008
of 146 MMBoe. Our drilling activities increased our 2008
U.S. onshore proved reserves by 27% compared to the end of
2007.


 






















































  • 
Marketing and Midstream — Our marketing and
midstream business delivered another record setting year with
operating profit increasing by 31% to $668 million.
 
  • 
Jackfish — We ramped up production from our
100%-owned Jackfish thermal heavy oil project in the Alberta oil
sands to 22,000 Bbls per day by the end of the year. In
2009, we expect to achieve our peak production target of
35,000 Bbls per day. Additionally, we received regulatory
approval for the second phase of Jackfish. Like the first phase,
this second phase of Jackfish is also expected to eventually
produce 35,000 Bbls per day.
 
  • 
Lloydminster — Also in Canada, we increased
production from the Lloydminster heavy oil play in Alberta by
14%, exiting the year at approximately 45,000 Boe per day. We
drilled 425 wells at Lloydminster in 2008, which added
19 MMBoe of proved reserves.
 
  • 
Divestiture of African Properties — We
substantially completed our Egypt and West Africa divestiture
programs. We have now sold all of our oil and gas producing
properties in Africa. These divestitures generated just over
$3.0 billion of sales proceeds. After income taxes and
purchase price adjustments, such proceeds totaled
$2.2 billion and generated after-tax gains of
$0.8 billion.


 



Pursuant to accounting rules for discontinued operations, the
amounts in this document related to continuing operations for
2008 and all prior years presented do not include amounts
related to our operations in Egypt and West Africa.


 


















  • 
Polvo — We experienced numerous mechanical
issues with our offshore development project that delayed our
expected production growth. By the end of 2008, we had solved
the mechanical issues and





6




Table of Contents



















 

are now producing at 17,000 Bbls per day. We expect
production to increase in 2009. We have a 60% working interest
in Polvo.


 


















  • 
Gulf of Mexico Exploration and Development — We
continued to build off prior years’ successful drilling
results with our deepwater Gulf of Mexico exploration and
development program. To date, we have drilled four discovery
wells in the Lower Tertiary trend — Cascade in 2002
(50% working interest), St. Malo in 2003 (25% working interest),
Jack in 2004 (25% working interest) and Kaskida in 2006 (30%
working interest). These achievements, along with our 2008
developments discussed below, support our positive view of the
Lower Tertiary and demonstrate the potential of our exploration
strategy on growth of long-term production, reserves and value.


 





Specific Gulf of Mexico developments in 2008 included the
following:


 




































  • 
At Cascade, we commenced drilling the first of two initial
producing wells and continued work on the production facilities
and subsea equipment. We anticipate first production at Cascade
in 2010. When Cascade begins producing, it will utilize the
Gulf’s first FPSO.
 
  • 
At Jack and St. Malo, our partners focused on development
concepts for the two fields. Particular consideration has been
given to joint development of the two fields that could employ
the use of a single, semi-submersible production facility.
 
  • 
At Kaskida, the largest of our Lower Tertiary discoveries, we
are currently drilling an appraisal well.


 






Development
of Business


 





During 1988, we expanded our capital base with our first
issuance of common stock to the public. This transaction began a
substantial expansion program that has continued through the
subsequent years. This expansion is attributable to both a
focused mergers and acquisitions program spanning a number of
years and an active ongoing exploration and development drilling
program. We have increased our total proved reserves from
8 MMBoe1

at year-end 1987 to 2,428 MMBoe at year-end 2008.


 





During the same time period, we have grown proved reserves from
0.66 Boe1

per diluted share at the end of 1987 to 5.44 Boe per diluted
share at the end of 2008. This represents a compound annual
growth rate of 11%. We have also increased production from 0.09
Boe1 per

diluted share in 1987 to 0.53 Boe per diluted share in 2008, for
a compound annual growth rate of 9%. This per share growth is a
direct result of successful execution of our strategic plan and
other key transactions and events.


 





We achieved a number of significant accomplishments in our
operations during 2008, including those discussed below.


 


















  • 
Drilling Success — We drilled a record
2,441 gross wells with an overall 98% rate of success. As a
result of our success with the drill-bit, we replaced
approximately 245% of our 2008 production. We

 
 


1 Excludes

the effects of mergers in 1998 and 2000 that were accounted for
as poolings of interests.





5




Table of Contents



















 

added 584 MMBoe of proved reserves during the year with
extensions, discoveries and performance revisions, a total which
was well in excess of the 238 MMBoe we produced during the
year. Consistent with our two-pronged operating strategy, 93% of
the wells we drilled were North American development wells,
which was the main driver behind our 6% increase in production
in 2008.


 






























  • 
Barnett Shale Growth — We continue to retain
our positions as the largest producer and largest lease holder
in the Barnett Shale area of north Texas. We increased our
production from the Barnett Shale area by 31% in 2008, exiting
the year at 1.2 Bcfe per day net to our ownership interest.
We drilled 659 wells in the Barnett Shale in 2008. We have
interests in approximately 3,800 producing wells in the Barnett
Shale and hold approximately 715,000 net acres of Barnett
Shale leases. At December 31, 2008, we had estimated proved
reserves of 894 MMBoe in the Barnett Shale area.
 
  • 
U.S. Onshore Production and Reserves Growth —
Our U.S. onshore properties, including the Barnett
Shale, the Groesbeck and Carthage areas in east Texas, the
Washakie basin in Wyoming and the Woodford Shale area in
Oklahoma, showed strong production growth in 2008. These four
areas, which accounted for approximately 69% of our
U.S. onshore production, had production growth in 2008 of
26% compared to 2007.


 



We also completed construction and commenced operation of our
Northridge natural gas processing plant in southeastern
Oklahoma. This plant can process up to 200 MMcf of natural
gas per day and will support our growing production in the
Woodford Shale.


 



We have also leveraged our knowledge of and expertise in the
Barnett Shale into other unconventional natural gas plays, such
as the Haynesville shale in eastern Texas and western Louisiana,
the Cana shale play in western Oklahoma and the Cody play in
Montana. We added approximately 800,000 net undeveloped
acres to our lease inventory, positioning us with more than
1.4 million net acres in emerging unconventional natural
gas plays.


 



In addition to production growth, our U.S. onshore
properties also demonstrated measurable growth in proved
reserves. U.S. onshore proved reserves grew 416 MMBoe
due to extensions, discoveries and performance revisions. This
was almost three times our U.S. onshore production in 2008
of 146 MMBoe. Our drilling activities increased our 2008
U.S. onshore proved reserves by 27% compared to the end of
2007.


 






















































  • 
Marketing and Midstream — Our marketing and
midstream business delivered another record setting year with
operating profit increasing by 31% to $668 million.
 
  • 
Jackfish — We ramped up production from our
100%-owned Jackfish thermal heavy oil project in the Alberta oil
sands to 22,000 Bbls per day by the end of the year. In
2009, we expect to achieve our peak production target of
35,000 Bbls per day. Additionally, we received regulatory
approval for the second phase of Jackfish. Like the first phase,
this second phase of Jackfish is also expected to eventually
produce 35,000 Bbls per day.
 
  • 
Lloydminster — Also in Canada, we increased
production from the Lloydminster heavy oil play in Alberta by
14%, exiting the year at approximately 45,000 Boe per day. We
drilled 425 wells at Lloydminster in 2008, which added
19 MMBoe of proved reserves.
 
  • 
Divestiture of African Properties — We
substantially completed our Egypt and West Africa divestiture
programs. We have now sold all of our oil and gas producing
properties in Africa. These divestitures generated just over
$3.0 billion of sales proceeds. After income taxes and
purchase price adjustments, such proceeds totaled
$2.2 billion and generated after-tax gains of
$0.8 billion.


 



Pursuant to accounting rules for discontinued operations, the
amounts in this document related to continuing operations for
2008 and all prior years presented do not include amounts
related to our operations in Egypt and West Africa.


 


















  • 
Polvo — We experienced numerous mechanical
issues with our offshore development project that delayed our
expected production growth. By the end of 2008, we had solved
the mechanical issues and





6




Table of Contents



















 

are now producing at 17,000 Bbls per day. We expect
production to increase in 2009. We have a 60% working interest
in Polvo.


 


















  • 
Gulf of Mexico Exploration and Development — We
continued to build off prior years’ successful drilling
results with our deepwater Gulf of Mexico exploration and
development program. To date, we have drilled four discovery
wells in the Lower Tertiary trend — Cascade in 2002
(50% working interest), St. Malo in 2003 (25% working interest),
Jack in 2004 (25% working interest) and Kaskida in 2006 (30%
working interest). These achievements, along with our 2008
developments discussed below, support our positive view of the
Lower Tertiary and demonstrate the potential of our exploration
strategy on growth of long-term production, reserves and value.


 





Specific Gulf of Mexico developments in 2008 included the
following:


 




































  • 
At Cascade, we commenced drilling the first of two initial
producing wells and continued work on the production facilities
and subsea equipment. We anticipate first production at Cascade
in 2010. When Cascade begins producing, it will utilize the
Gulf’s first FPSO.
 
  • 
At Jack and St. Malo, our partners focused on development
concepts for the two fields. Particular consideration has been
given to joint development of the two fields that could employ
the use of a single, semi-submersible production facility.
 
  • 
At Kaskida, the largest of our Lower Tertiary discoveries, we
are currently drilling an appraisal well.


 






These excerpts taken from the DVN 10-K filed Jun 9, 2008.
Development of Business
 
During 1988, we expanded our capital base with our first issuance of common stock to the public. This transaction began a substantial expansion program that has continued through the subsequent years. This expansion is attributable to both a focused mergers and acquisitions program spanning a number of years and an active ongoing exploration and development drilling program. We have increased our total proved reserves from 8 MMBoe1 at year-end 1987 to 2,496 MMBoe2 at year-end 2007.
 
During the same time period, we have grown proved reserves from 0.66 Boe1 per diluted share at the end of 1987 to 5.56 Boe2 per diluted share at the end of 2007. This represents a compound annual growth rate of 11%. We have also increased production from 0.09 Boe1 per diluted share in 1987 to 0.50 Boe2 per diluted share in 2007, for a compound annual growth rate of 9%. This per share growth is a direct result of successful execution of our strategic plan and other key transactions and events.
 
 
1 Excludes the effects of mergers in 1998 and 2000 that were accounted for as poolings of interests.
2 Excludes reserves in West Africa that are held for sale and classified as discontinued operations as of December 31, 2007.


5

Table of Contents

We achieved a number of significant accomplishments in our operations during 2007, including those discussed below.
 
  •  Drilling Success — We drilled 2,440 wells with an overall 98% rate of success. As a result of our success with the drill-bit, our proved reserves increased 9% to reach a record of 2.5 billion Boe at year-end 2007. We added 390 MMBoe of proved reserves during the year with extensions, discoveries and performance revisions, a total which was well in excess of the 224 MMBoe we produced during the year. Consistent with our two-pronged operating strategy, 92% of the wells we drilled were North American development wells.
 
  •  Barnett Shale Growth — We continue to retain our positions as the largest producer and largest lease holder in the Barnett Shale area of north Texas. We increased our production from the Barnett Shale area by 33% in 2007, exiting the year at 950 MMcfe per day net to our ownership interest. We drilled 539 wells in the Barnett Shale in 2007, which included our 1,000th horizontal well. We have interests in nearly 3,200 producing wells in the Barnett Shale and hold approximately 727,000 net acres of Barnett Shale leases. At December 31, 2007, we had estimated proved reserves of 724 MMBoe in the Barnett Shale area.
 
  •  U.S. Onshore Production and Reserves Growth — Our U.S. onshore properties, including the Barnett Shale, the Groesbeck and Carthage areas in east Texas and the Washakie basin in Wyoming, showed strong production growth in 2007. These three areas, which accounted for a little over 60% of our U.S. onshore production, had production growth in 2007 of 19% compared to 2006.
 
In addition to production growth, our U.S. onshore properties also demonstrated measurable growth in proved reserves. U.S. onshore proved reserves grew 282 MMBoe due to extensions, discoveries and performance revisions. This was more than double our U.S. onshore production in 2007 of 125 MMBoe. Our drilling activities increased our 2007 U.S. onshore proved reserves by14% compared to the end of 2006.
 
  •  Gulf of Mexico Exploration and Development — In 2007, we continued to build off prior years’ successful drilling results with our deepwater Gulf of Mexico exploration and development program. To date, we have drilled four discovery wells in the Lower Tertiary trend — Cascade in 2002 (50% working interest), St. Malo in 2003 (22.5% working interest), Jack in 2004 (25% working interest) and Kaskida in 2006 (20% working interest). These achievements, along with our 2007 developments discussed below, support our positive view of the Lower Tertiary and demonstrate the potential of our high-impact exploration strategy on growth of long-term production, reserves and value.
 
Specific Gulf of Mexico developments in 2007 included the following:
 
  •  We commenced production from the deepwater Merganser field. At the end of 2007, our combined production from the two Merganser natural gas wells was about 51 MMcf per day. We have a 50% working interest in the Merganser field, which produces into the Independence Hub.
 
  •  We sanctioned Cascade for phase one development and awarded various service and facilities contracts for he project. We anticipate first production at Cascade in 2010.
 
  •  We initiated the drilling of delineation wells at St. Malo, Jack, Kaskida and Mission Deep. We have a 50% working interest in Mission Deep, which is a Miocene discovery made in 2006.
 
  •  We are participating in two Lower Tertiary exploratory wells that were initiated in 2007 — Chuck (29.5% working interest) and Green Bay (23% interest). The Chuck well has reached total depth and is being evaluated. Drilling of the Green Bay well toward its target objective continues.
 
  •  Jackfish — We completed construction and commenced steam injection at our 100%-owned Jackfish thermal heavy oil project in the Alberta oil sands. Oil production from Jackfish is expected to ramp up throughout 2008 toward a peak production target of 35,000 Bbls per day. Additionally, we began front-end engineering and design work on an extension of our Jackfish project. We hope to receive regulatory


6

Table of Contents

  approval and formally sanction this second phase in the middle of 2008. Like the first phase, this second phase of Jackfish is also expected to eventually produce 35,000 Bbls per day.
 
  •  Lloydminster — Also in Canada, we increased production from the Lloydminster oil play in Alberta by 40% to approximately 33,500 Boe per day. We drilled 429 wells at Lloydminster in 2007, which added 22 million Boe of proved reserves.
 
  •  Polvo — We completed construction and fabrication of the Polvo oil development project offshore Brazil and began producing oil from the first of ten planned wells. Polvo, located in the Campos basin, was discovered in 2004 and is our first operated development project in Brazil. We have a 60% working interest in Polvo.
 
In November 2006 and January 2007, we announced plans to divest our operations in Egypt and West Africa, including Equatorial Guinea, Cote d’Ivoire, Gabon and other countries in the region. Divesting these properties will allow us to redeploy our financial and intellectual capital to the significant growth opportunities we have developed onshore in North America and in the deepwater Gulf of Mexico. Additionally, we will sharpen our focus in North America and concentrate our international operations in Brazil and China, where we have established competitive advantages.
 
In October 2007, we completed the sale of our operations in Egypt and received proceeds of $341 million. As a result of this sale, we recognized a $90 million after-tax gain in the fourth quarter of 2007. In November 2007, we announced an agreement to sell our operations in Gabon for $205.5 million. We are finalizing purchase and sales agreements and obtaining the necessary partner and government approvals for the remaining properties in the West African divestiture package. We are optimistic we can complete these sales during the first half of 2008.
 
Pursuant to accounting rules for discontinued operations, the amounts in this document related to continuing operations for 2007 and all prior years presented do not include amounts related to our operations in Egypt and West Africa.
 
Development
of Business


 



During 1988, we expanded our capital base with our first
issuance of common stock to the public. This transaction began a
substantial expansion program that has continued through the
subsequent years. This expansion is attributable to both a
focused mergers and acquisitions program spanning a number of
years and an active ongoing exploration and development drilling
program. We have increased our total proved reserves from
8 MMBoe1
at year-end 1987 to
2,496 MMBoe2
at year-end 2007.


 



During the same time period, we have grown proved reserves from
0.66
Boe1
per diluted share at the end of 1987 to 5.56
Boe2
per diluted share at the end of 2007. This represents a compound
annual growth rate of 11%. We have also increased production
from 0.09
Boe1
per diluted share in 1987 to 0.50
Boe2
per diluted share in 2007, for a compound annual growth rate of
9%. This per share growth is a direct result of successful
execution of our strategic plan and other key transactions and
events.

 
 


1 Excludes
the effects of mergers in 1998 and 2000 that were accounted for
as poolings of interests.



2 Excludes
reserves in West Africa that are held for sale and classified as
discontinued operations as of December 31, 2007.





5




Table of Contents






We achieved a number of significant accomplishments in our
operations during 2007, including those discussed below.


 




































  • 
Drilling Success — We drilled 2,440 wells
with an overall 98% rate of success. As a result of our success
with the drill-bit, our proved reserves increased 9% to reach a
record of 2.5 billion Boe at year-end 2007. We added
390 MMBoe of proved reserves during the year with
extensions, discoveries and performance revisions, a total which
was well in excess of the 224 MMBoe we produced during the
year. Consistent with our two-pronged operating strategy, 92% of
the wells we drilled were North American development wells.
 
  • 
Barnett Shale Growth — We continue to retain
our positions as the largest producer and largest lease holder
in the Barnett Shale area of north Texas. We increased our
production from the Barnett Shale area by 33% in 2007, exiting
the year at 950 MMcfe per day net to our ownership
interest. We drilled 539 wells in the Barnett Shale in
2007, which included our 1,000th horizontal well. We have
interests in nearly 3,200 producing wells in the Barnett Shale
and hold approximately 727,000 net acres of Barnett Shale
leases. At December 31, 2007, we had estimated proved
reserves of 724 MMBoe in the Barnett Shale area.
 
  • 
U.S. Onshore Production and Reserves
Growth — Our U.S. onshore properties,
including the Barnett Shale, the Groesbeck and Carthage areas in
east Texas and the Washakie basin in Wyoming, showed strong
production growth in 2007. These three areas, which accounted
for a little over 60% of our U.S. onshore production, had
production growth in 2007 of 19% compared to 2006.


 



In addition to production growth, our U.S. onshore
properties also demonstrated measurable growth in proved
reserves. U.S. onshore proved reserves grew 282 MMBoe
due to extensions, discoveries and performance revisions. This
was more than double our U.S. onshore production in 2007 of
125 MMBoe. Our drilling activities increased our 2007
U.S. onshore proved reserves by14% compared to the end of
2006.


 
















  • 
Gulf of Mexico Exploration and Development — In
2007, we continued to build off prior years’ successful
drilling results with our deepwater Gulf of Mexico exploration
and development program. To date, we have drilled four discovery
wells in the Lower Tertiary trend — Cascade in 2002
(50% working interest), St. Malo in 2003 (22.5% working
interest), Jack in 2004 (25% working interest) and Kaskida in
2006 (20% working interest). These achievements, along with our
2007 developments discussed below, support our positive view of
the Lower Tertiary and demonstrate the potential of our
high-impact exploration strategy on growth of long-term
production, reserves and value.


 



Specific Gulf of Mexico developments in 2007 included the
following:


 














































  • 
We commenced production from the deepwater Merganser field. At
the end of 2007, our combined production from the two Merganser
natural gas wells was about 51 MMcf per day. We have a 50%
working interest in the Merganser field, which produces into the
Independence Hub.
 
  • 
We sanctioned Cascade for phase one development and awarded
various service and facilities contracts for he project. We
anticipate first production at Cascade in 2010.
 
  • 
We initiated the drilling of delineation wells at St. Malo,
Jack, Kaskida and Mission Deep. We have a 50% working interest
in Mission Deep, which is a Miocene discovery made in 2006.
 
  • 
We are participating in two Lower Tertiary exploratory wells
that were initiated in 2007 — Chuck (29.5% working
interest) and Green Bay (23% interest). The Chuck well has
reached total depth and is being evaluated. Drilling of the
Green Bay well toward its target objective continues.


 
















  • 
Jackfish — We completed construction and
commenced steam injection at our 100%-owned Jackfish thermal
heavy oil project in the Alberta oil sands. Oil production from
Jackfish is expected to ramp up throughout 2008 toward a peak
production target of 35,000 Bbls per day. Additionally, we
began front-end engineering and design work on an extension of
our Jackfish project. We hope to receive regulatory





6




Table of Contents



















 

approval and formally sanction this second phase in the middle
of 2008. Like the first phase, this second phase of Jackfish is
also expected to eventually produce 35,000 Bbls per day.


 


























  • 
Lloydminster — Also in Canada, we increased
production from the Lloydminster oil play in Alberta by 40% to
approximately 33,500 Boe per day. We drilled 429 wells at
Lloydminster in 2007, which added 22 million Boe of proved
reserves.
 
  • 
Polvo — We completed construction and
fabrication of the Polvo oil development project offshore Brazil
and began producing oil from the first of ten planned wells.
Polvo, located in the Campos basin, was discovered in 2004 and
is our first operated development project in Brazil. We have a
60% working interest in Polvo.


 



In November 2006 and January 2007, we announced plans to divest
our operations in Egypt and West Africa, including Equatorial
Guinea, Cote d’Ivoire, Gabon and other countries in the
region. Divesting these properties will allow us to redeploy our
financial and intellectual capital to the significant growth
opportunities we have developed onshore in North America and in
the deepwater Gulf of Mexico. Additionally, we will sharpen our
focus in North America and concentrate our international
operations in Brazil and China, where we have established
competitive advantages.


 



In October 2007, we completed the sale of our operations in
Egypt and received proceeds of $341 million. As a result of
this sale, we recognized a $90 million after-tax gain in
the fourth quarter of 2007. In November 2007, we announced an
agreement to sell our operations in Gabon for
$205.5 million. We are finalizing purchase and sales
agreements and obtaining the necessary partner and government
approvals for the remaining properties in the West African
divestiture package. We are optimistic we can complete these
sales during the first half of 2008.


 



Pursuant to accounting rules for discontinued operations, the
amounts in this document related to continuing operations for
2007 and all prior years presented do not include amounts
related to our operations in Egypt and West Africa.


 




EXCERPTS ON THIS PAGE:

10-K (4 sections)
Feb 27, 2009
10-K (2 sections)
Jun 9, 2008

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