British major BP Plc (NYSE: BP) plans to acquire all of the interests in the deepwater Gulf of Mexico, Brazil and Azerbaijan from Oklahoma City-based Devon Energy Corp. (NYSE: DVN) for $7 billion in cash. The deal comes as Devon nears the end of its repositioning to onshore North America assets.
Devon will additionally joint venture with BP in the latter’s Canadian Kirby oil-sands leases in Alberta.
BP group chief executive Tony Hayward says, “This strategic opportunity fits well with BP’s operating strengths and key interests around the world, offering us significant additional long-term growth potential with an emphasis on high-margin oil.
“As well as giving us a broad portfolio of assets in the exciting Brazilian deepwater, it will strengthen our position in the Gulf of Mexico, enhance our interests in Azerbaijan and enable us to progress the development of Canadian assets.”
As of year-end 2009, Devon’s Gulf of Mexico assets had proved reserves of 20 million bbl. of liquids and 198 billion cu. ft. of gas (37% proved developed). Producing fields include Nansen, Magnolia, Sturgis and Merganser as well as a 30% interest in the Kaskida discovery, giving BP a 100% interest. Devon also holds interests in approximately 240 deepwater leases with a focus on the emerging Paleogene play in the ultra deepwater.
BP will assume Devon’s leases of the Seadrill West Sirius and Transocean rigs valued at approximately $1.1 billion.
In Brazil, as of year-end 2008, Devon held interests in 3.1 million acres in 12 licensed blocks, largely in the offshore Campos, Barreirinhas and Camamu-Almada basins. The Campos Basin blocks include three discoveries—Xerelete, pre-salt Wahoo and Itaipu—and the producing Polvo Field. Two onshore licenses are in the Parnaiba Basin. Proved reserves were reported as 4 million barrels of oil equivalent (BOE).
Andy Inglis, BP chief executive of exploration and production, says, “Through our entry into Brazil, BP will add a major position in another attractive deepwater basin. Together with the additional new access in the Gulf of Mexico, it further underlines our global position as the leading deepwater international oil company.”
In Azerbaijan, as of year-end 2008, Devon held a 5.6% interest in 107,000 acres in the offshore Azeri-Chirag-Gunashli (ACG) oil fields in the Caspian Sea. Proved reserves were 84.7 million BOE. The deal will increase BP’s operating interest in the fields to 39.7%.
Devon chairman and chief executive Larry Nichols says, “These sales, combined with our previously announced divestitures of $1.3 billion of deepwater Gulf of Mexico assets, put Devon well on the way to completing its strategic repositioning.”
Closing is expected by year end. Proceeds will be used to accelerate development of Devon’s North American onshore properties as well as for debt reduction.
Devon also will acquire 50% of BP’s interest in the Kirby oil-sands leases near its Jackfish steam-assisted gravity drainage (SAGD) project in the Athabasca region of Alberta involving approximately 90,000 net acres. Devon will pay $500 million at closing and fund an additional $150 million of BP’s costs. Devon will be the operator.
Devon president John Richels says, “While the Kirby development will require additional evaluation to confirm its size and scope, we believe that it will support several phases of development and has total recoverable resources that are greater than our Jackfish complex. We believe Kirby to be similar to Jackfish in terms of geology, reservoir characteristics and oil quality.”
BP’s Inglis adds, “Devon is an experienced operator in the Canadian oil sands with a proven track record of in-situ development and production. We expect this transaction will accelerate the development of the Kirby assets and, through the associated crude off-take agreement, provide a secure source of Canadian heavy oil for our advantaged Whiting (Indiana) refinery.”
Devon currently has data rooms open for its remaining divestiture properties in the Gulf of Mexico shelf, offshore China and other international assets.
Analysts at Tudor, Pickering, Holt & Co. Securities Inc. estimate BP paid $2.3 billion for the Gulf of Mexico assets, $2.3 billion for Brazil and $2 billion for Azerbaijan. Estimating a purchase price of $1.3 billion for Gulf of Mexico proved reserves, the analysts value that portion of the deal at $22 per proved BOE.