Low natgas prices lift Devon's oil sands returns

By Jeffrey Jones

CALGARY, Alberta (Reuters) - The low natural gas prices that have prompted Devon Energy Corp (DVN.N) to rein in drilling are also boosting the profitability of its Canadian oil sands operations, the independent U.S. oil explorer's chief executive said on Thursday.

Devon CEO Larry Nichols told the Reuters Global Energy Summit that the first phase of the company's Jackfish oil sands project in Alberta is on track to reach capacity production of 35,000 barrels a day later this year.

Jackfish, located south of the oil sands hub of Fort McMurray, Alberta, is pumping about 30,000 barrels a day of tar-like bitumen, Nichols said.

"The profitability of Jackfish I is quite good today because we're buying natural gas a lot cheaper than we historically have relative to the price of oil," Nichols said.

At Jackfish, Devon employs steam-assisted gravity drainage technology. It buys gas to generate the steam it pumps into the ground, which loosens up the extra-heavy crude so it can be pumped to the surface in wells.

Oil prices have doubled since late last year to nearly $70 a barrel, but natural gas prices have fallen under the weight of brimming inventories across North America.

Gas futures settled at $3.81 per million British thermal units Thursday, less than a third of the price of a year ago.

Meanwhile, cost inflation that plagued the oil sands industry before the downturn late last year is easing as numerous developers put their projects on hold, Nichols said.