UK oil super major, BP plc. (BP) is buying a bunch of assets of US independent oil and gas producer Devon Energy Inc (DVN) for $7.0 billion in cash. These include properties in offshore Brazil, Azerbaijan and the US deepwater Gulf of Mexico (GoM).
Offshore Brazil assets include interests in ten exploration blocks of Brazil, including seven in the prolific Campos basin. For Azerbaijan assets, BP will acquire Devon’s interest in the Azeri-Chirag-Gunashli (ACG) development in the Caspian Sea. In the US GoM, the company will buy a major portfolio of deepwater exploration acreage.
Along with other bidders, BP was the leading contender for these assets, as stated in the The Wall Street Journal report. Other bidders include China National Offshore Oil Corporation (CNOOC) and major Western oil companies like Chevron (CVX).
On the other hand, BP will sell its 50% interest in the Alberta’s Kirby oil sands for $500 million to Devon. Both the parties have agreed to form a 50/50 joint venture for the development of this property. Devon will be the operator and commits to fund an additional $150 million of capital costs on BP’s behalf.
Due to lack of adequate financial strength to develop all these assets, Devon hinted late last year that it may sell off its international and Gulf of Mexico assets to pull approximately $7.5 billion to support its ongoing endeavor of concentrating on its onshore North American property development. Devon has already sold its interest in three deepwater development projects in the Gulf of Mexico for about $1.3 billion.
BP is already the largest producer in the Gulf of Mexico (GoM) and has been successfully accessing substantial new resource opportunities. The exploration success in the Tiber discovery, a giant field in GoM, coupled with appraisal success on Mad Dog South helps to underpin the potential for continued growth in the deepwater GoM.
While BP has had a strong position in the GoM, so far, it had no exposure to offshore Brazil. And management of the company has been keen to enter Brazil to leverage BP’s expertise, as one of the world’s leading deep-water operators.
This deal will help BP to maintain its target of an average production growth of 1% to 2% per year up to 2015. Continued strong operational performance and a solid project pipeline provide strength to the group’s overall upstream operations.
While a slow and gradual economic recovery is anticipated this year, we like the company’s initiatives to focus on improving upstream exposures and reducing downstream operations. We are currently Neutral on BP plc.
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