Rick Muncrief, Devon Energy "Bakken Next Steps" NDPC Annual Meeting 9 18 2024

Hey, Ron. How are you?

It's not. You know, it's interesting. Todd said he lived here in 1984. That was the year I got transferred from Amarillo, Texas to Billings, Montana, and it was a different Williston Basin then.

Well, you know, I've got to say in 1984 and '85, '86, that time period, we actually were recompleting vertical wells, Red River wells, into the Bakken as a bailout zone basically. But there was a well that was drilled by Beartooth Oil and Gas. It was our key well out in the Badlands, and we keyed off that well. So in 1987, we did a horizontal well. I think it was the second one in the US, first one here in the Williston Basin, and achieved a 2,000-foot lateral. Of course, those were the days we didn't stimulate the wells. We didn't have the downhole technology which came on later, you know, early 2000s. But it was an exciting time. When Todd was talking about 1984, there weren't many rigs running in Williston, and we were chasing the Red River, you know, seismic bumps and some Madison wells, Mission Canyon wells, things like that. That was before the Bakken really took off. I think the third well completed in North Dakota was actually completed in the Bakken zone in about 1952. So this Bakken thing, it's been around a while.

No, I tell you what, Ron, it was a successful well. We drilled a 2,000-foot lateral. We basically would do an open-hole completion, so we did not cement the liner. We just had aluminum plugs. We would go in with a flat-bottom mill and shear old plugs off and let it turn around and come at you. So it was a completely different completion approach. But it was economic enough. We kept because we were just coming out of a period in the late '80s where you were starting to see, or we saw, Northern Rockies crude oil hit $9 a barrel, and it was a tough, tough time. But we came out of that. We actually kept anywhere from two to five rigs running in the Bakken, running horizontal Bakken wells from 1987 into about 1994.

Yeah, there are. Even Meridian became known as Burlington Resources. I know Darren Henke, he's down the board, and Darren was, I recall, just out of Texas Tech, came to work for us as a young engineer. So we had a great team.

Well, Jack's a great geologist, and a great, very talented team of geoscientists there at Continental. And obviously with Harold's knowledge and his passion and his drive, it was truly a recipe for success. You basically put the work ethic of North Dakotans on that, and the creativity. It's been a great story to be a part of over several decades now. We just felt like there was a ton of potential here. There were some people, we learned EOG, some of their geoscientists early on understood that you had a migration play, and a lot of that oil was generated in the heart of the Basin but actually migrated north and east up to Mountrail County and places like that. Early movers like EOG and Whiting and others just crushed it. They did a great job, and we felt like we could continue to leverage that success throughout the Basin, and we did. When I say 'we,' it's collectively. It was a lot of hard work. Todd just talked about the number of wells that have been drilled in this Basin since that time period. It's phenomenal. But I still say that even with the incredible resource the Permian Basin is today, the Bakken is where it started. The Bakken is where we started change in the world.

Yeah, Devon is a phenomenal story. I've been blessed. I've got five of our teammates here today with us, so if you haven't met them, make sure you do. Devon is a 50-year-old company. 15 years ago, we operated in Russia, China, West Africa, the Canadian oil sands, deepwater Gulf of Mexico, and a lot of marginal basins throughout the US. Over time, and certainly the merger with WPX Energy and Devon nearly four years ago now, really set us up for a great future here in the Lower 48, all land. We'll see what the next generation does. We may be back up in West Africa or something. I doubt it, but you never know. Right now, we're in five basins in five states. We're down in the Eagle Ford of South Texas. We're in the Permian Basin, West Texas, Southeast New Mexico. We're in the Mid-Continent area in the state of Oklahoma, just west of our home office there. We're in the Powder River Basin of Wyoming, and then up here in the Williston Basin. Our commodity mix is about 50% crude oil, 25% natural gas, and 25% natural gas liquids. Very diversified commodity mix. But on an equivalent basis, 50% of your production is oil, but at today's prices, it drives about 90% of our revenues. When I think about the Williston Basin, this oil-levered basin, I think it's going to continue to drive margins for companies for a long time.

You bet. So if I back up a moment, our legacy assets were all on the Fort Berthold Reservation, where we've operated since 2012. We have a great relationship and have had a lot of success there. But the Grayson Mill acquisition gives us another 300,000 acres, about 500 new wells to drill, about 300 identified refrac opportunities. So you'll see us take some of these 20- and 30-barrel-a-day wells back up to several hundred barrels a day. We're excited about that and just continue to do those sorts of production optimization things to sustain the production. I can tell you, our geoscience team, what they really like about the Grayson Mill acreage is it's 300,000 acres, so it's a big footprint. We start thinking about all these zones that we used to do DSTs on, all the way down to the Red River. We never did a DST on a Bakken. It was on the Mission Canyon, Madison, the NSU, the Duperow, the Interlake, Red River A, B, C, and D, all these different horizons. I can't wait to start contemplating utilizing today's technologies, today's efficiencies on that 300,000-acre footprint and what we might find. I think there's an exploration element still here in the Williston Basin. We call it the Bakken all the time, and the Bakken has been the money maker and the rainmaker. That being said, there's still a lot of oil in these other intervals, and I think that exploration is going to continue to play a role going forward. I'm also excited about the fact that Grayson Mill had a nice midstream asset, so we'll continue to grow that, leverage that to be efficient. We've got some work to do on some more of our flaring, so we'll get that down where it needs to be, like we've done across the country. Really excited. Some great people. The Grayson Mill team has done a phenomenal job with that company and what they built it into. Hats off to them. They're just good people, some of which I've actually worked with before in a prior life. So that's just the way it works.

Well, it is. Maybe internally, but some of us have worked in the B for a long time. We actually drove out. We had Dusty Gack, who I used to work with in the past, and Dusty kind of shepherded us well. We did a quick tour of things yesterday morning, and it just brought back a lot of memories, Ron, of all the places we've worked before, and we're successful. So I'm real excited about this acreage. While it's not where Devon has operated before, I call it a three-wood away. So we're on the same golf course, and we'll be in good shape.

Well, what we've got to really look at is at the company level. We still have not closed the Grayson Mill acquisition. We hope to do that in the next couple of weeks, and then we'll start the integration. Timing is going to be really good. We'll be working our 2025 budget as well. But we are basically planning on keeping our production pretty flat to where we are today. Activity-wise, we'll probably be in the plus or minus three rigs, just a constant activity level, keep efficiencies really high. We're going to do that at the company level too. Currently, we're running 21 operated rigs, and then we have a joint venture down in the Eagle Ford with BP, and we have three rigs there. So 24 rigs. As fast as we're drilling these wells, company-wide, that's quite a bit of capital. A little over $4 billion of capital next year for new projects. We'll drill about 400-plus wells next year as a company. So we're motoring through it. I'm excited about transactions like this and some of our exploration work we're doing internally. We're continuing to add inventory, so just continuing to build for the future.

We actually did. The most recent before that was an Eagle Ford company. And then we bought some acreage offsetting us on the reservation, Rimrock. So since the merger three years ago, we've done three other transactions, just continuing to add to things. With the Rimrock acreage here in North Dakota, I'm still optimistic we're going to have some real nice returns from that coming, especially in the southeast part of the Fort Berthold. Also, the secondary recovery potential. I know we're working with a lot of companies. That is phenomenal rock that we have, and the Rimrock acreage fit in really nicely with that. When I start thinking about the next 5, 10, 15 years, you start thinking about unitization for secondary recovery purposes. It's sure nice to have that acreage sewed up. It makes things a lot easier.

No, you're seeing those secondary recovery conversations being had in the Permian and down in the Eagle Ford as well. Every reservoir is different, every basin is different, so it's going to have its own unique characteristics, and we'll figure out what works. It just takes time, but you've got enough companies looking at it. We'll figure it all out.

I don't know if I see it that way, but that's... I'm not... Let's compare notes later on, Ron, see what it is. So just tell us a little bit about the zones in the Permian and what you're looking at in a spacing unit in the Permian.

You mentioned New Mexico. Similar to North Dakota, New Mexico is very, very dependent on oil and gas production. It's always been that way. I grew up in that country. I went to school there until my dad got transferred out of there when I was a sophomore in high school to Oklahoma. It was true then, it's true today, 50, 60 years later, that oil and gas pays the bills. You can talk about a lot of other things, but oil and gas pays the bills. It always has and probably always will for that state. There's a long runway. Even though the politics lean at times pretty hard to the left, they also know how to balance a checkbook. They know when it's time where the rubber meets the road. Even though we fight through some really tough regulatory issues, we figure out a way to do it as an industry, and the state works with us. So it's looking pretty good.

Well, I think this AI train is coming. There's a lot of excitement about it. Satya Nadella, who's CEO of Microsoft, saw my name badge. I didn't know him prior, that was the first time I'd ever met him. He said, 'Oh, Devon Energy.' He said, 'Well, I thought 25 years ago I went to work for a software company. I now realize I work for an energy company.' I think it's pretty powerful when you start thinking about the recognition of how much energy it's going to take, how critical it is. Whether those sources are renewable or whether they're traditional like oil and gas, especially natural gas, it's going to have to be used. If you're going to win the AI race, you better be using natural gas to power it. I think more and more the recognition is there. When I think about states like North Dakota, or down in Oklahoma, Texas, New Mexico, I think a lot of the states here in what I call the hydrocarbon fairway of the central part of the US, more and more the data centers will be built here. We'll see how it all plays out. Many of the developers are thinking about electricity. I've been pretty public about my concern about the nation's grid. Something as simple as getting enough transformers to do repairs and expand normal growth, let alone a large load increase like you're going to see with AI. That's one of our big challenges as a nation, but it's also a big opportunity. I'm bullish that natural gas is going to play a larger role in AI generation than a lot of people think.

Not really. To be honest with you, people are still hoping that they can pave a way to get renewables to be the... So you're hearing more and more about nuclear, you're thinking about solar and wind, and that's fine. That's okay to be thinking long-term. But at the end of the day, you need to be thinking about alternative plans like natural gas, which is here and powers every day. So I think we'll see how it plays out, but that's my bet: natural gas is going to have a pretty good outlook.

I think with oil and gas where it's at, it's an interesting time. We have some pretty good balance in oil and gas. In other words, we're not short of supply, we don't have demand going through the roof. Where we're at today, it's in pretty good balance. From a perspective of the challenges we've been facing the last several years, topics like ESG and concerns like that, we've made a lot of advancements on water fronts with the E and the S. The G, from a governance perspective, I think with our industry, when I think about publicly traded companies, governance has always been really strong. A lot of the G of ESG was actually in the financial services industry. But for our industry, around the E and S, I think we've done a phenomenal job. I'm damn proud of what we've done as a country and as a group of producers in moving the needle, and at the same time providing this energy to power the world. I think that recognition from the financial community is there too. Now, I will say that if you're in this supply and demand world, everything's pretty well in balance. If you're an investor at this point in time, Ron, the reality is, where's the catalyst for growth? I think a lot of the fund flow for investors has come over into technologies, something that... and a lot of these technologies won't work to the degree people are investing in. I'm convinced of that. But that being said, there's a lot of momentum and inertia headed toward technology companies. So traditional companies that are value-oriented, like oil and gas, midstream, it could be water, it could be utilities, they're not getting the love that the technology companies are. That will cycle back. We all remember the dot-com era. When that fund flow starts coming back our way, it's going to be pretty fast and pretty strong. I think that looks good. But we as an industry have done the right thing in living within our means, not outspending our cash flow, and getting capital back to shareholders either through dividends or share repurchases, paying down debt, keeping our debt levels down. So I think investors are kind of in a wait-and-see now. For companies, we just need to keep doing the right thing, and it'll come back to us.

Absolutely. It's so critical. Number one, I appreciate everyone here being a supporter of the North Dakota Petroleum Council, because I think Ron and his team do a phenomenal job and have for a long time. At the national level, I'm on the board of API and the board of AXPC. What we talked about a few years ago, Ron, is we felt that AXPC had to be the voice of us independents, not just multinational or integrated companies that had refining and midstream and E&P. We were the exploration and production team, and we were the ones that felt like we changed the world in growing volumes here in the US, here in America. So we decided to not just be a me-too trade group to second whatever someone else recommended. We were going to take the bull by the horns and be that voice. We have about 30 companies. Most of the largest E&Ps are in there, including XTO, which is a subsidiary of Exxon, but XTO is a longtime member. Unlike API, where your leverage is depending on how big a company you are or your dues you pay or how much production you make, AXPC is one company, one vote. It's similar to a lot of smaller trade groups. I think we've been very effective in the last few years. I was just chair a couple of years ago, and we did that change. We've had several chairmen over the last few years, and her team does a phenomenal job. We now have Chair Travis Stice from Diamondback Energy. Travis is a great leader, as we all know. So I think we've got a good outlook. But trade groups are so important. We've got to get out, we've got to pound the streets, we've got to pound the halls of Congress, and just continue to be front and center in front of legislators.

I think Kelly Armstrong is the man to lead us forward here in North Dakota. I really knew his dad, Mike Armstrong, since the early '80s when I lived in Billings. So I've known him a long time. Great family. They are loyal and they love the state of North Dakota and want to do the right thing for North Dakota, which is the kind of leadership you need. At this point in time, with the election, whether it's local, state, national, you can't take anything for granted. So I encourage that he may have a big lead, but don't take it for granted. Get out and vote. Get out and support the people that support us. I'll leave it at that. As I look at North Dakota, we're going to need strong leadership. We've got a lot of work to do up here. I was reading a note from Enverus the other day, who is one of the leading authorities. A lot of financial firms really tend to look at their research as the gospel. It's not the gospel, but a lot of times it's pretty good. They say here in the Williston Basin and Bakken, we have about 10 years of solid drilling. So that's the way I look at it. We have a decade in the Bakken of drilling new wells, and we have a lot of restimulation. I think the next 15 years after that are going to be things like secondary recovery and enhanced oil recovery. So that's for the next 25 years. You're still going to have a large base that's going to provide a lot of steady income for the state. There's a tremendous amount of work that takes place, so we're going to have a lot of jobs to be filled and replaced as we see retirements and additional work complications. I think the North Dakota energy industry is in a position to provide a lot of revenue for the state, security for the country, and a lot of jobs for families here in North Dakota and across the US.

Yeah, well, the fact is, people ask me sometimes internally, 'When are we going to get there?' You're never there. There's typically always a better way. The next chapter of this industry continues to evolve, continues to get better. Both my children are in this industry, and I think they're going to have long careers. Hopefully my grandkids, I've got four grandkids now, and I hope... That's what we like about this Bakken Area Skills Center right over here. The next great thing will come from right here. Hats off to Dale. You're talking about what McKenzie County's done. We all remember the challenging times, but McKenzie County and the entire state of North Dakota, and keep including our friends over in the eastern half that have helped provide funding and a lot of the right legislative decisions to keep it going out here. Dale, on behalf of someone that doesn't live here in the state, I come to Watford City and throughout the state, it's phenomenal what you've done here. So good job and thanks for your leadership.