Devon Energy Corporation (DVN) has agreed to sell its assets in the deepwater Gulf of Mexico, Brazil and Azerbaijan to BP PLC (BP) for $7.0 billion. BP will also assume Devon’s leases of the Seadrill West Sirius and Transocean Deepwater Discovery drilling rigs for the duration of the contract terms.
The company also announced that Devon and BP will form a heavy oil joint venture (JV) to develop BP’s Kirby oil sands leases in Alberta, Canada.
Devon’s Repositioning Plans
As previously announced, Devon is repositioning itself to concentrate on its North American onshore natural gas and oil portfolio. These sales, combined with the company’s previously announced sale of three development projects in the Gulf of Mexico to Maersk Oil for $1.3 billion, put Devon well on the way to completing its strategic repositioning.
Given any reasonable sales price for Devon’s remaining assets, the company expects the total proceeds for the entire divestiture program to exceed its previously announced range of $4.5 to $7.5 billion.
Devon expects to use the divestiture proceeds for the acceleration of development of its North American onshore properties and debt reduction. Upon completion of the repositioning, Devon will emerge with even more liquidity and with one of the strongest balance sheets in the peer group.
Devon expects closings on the various assets to occur at different times before year-end, subject to customary closing conditions and regulatory approvals.
Benefit to BP
Under the transaction, BP will acquire interests in ten exploration blocks in Brazil, and a portfolio of rights in the U.S. Gulf of Mexico and in the Caspian Sea. The acquisition is expected to strengthen BP’s dominant position in the Gulf of Mexico and give it access to a promising region offshore Brazil.
Devon-BP Joint Venture
In order to facilitate the oil sands joint venture, Devon will acquire 50% of BP’s interest in the Kirby oil sands leases. Devon will pay BP $500 million at closing and commit to fund an additional $150 million of capital costs on BP’s behalf. Devon will be the operator of the Kirby project, which lies in close proximity to Devon’s highly successful Jackfish steam-assisted gravity drainage (SAGD) project. Like Jackfish, Kirby is
expected to be a multi-stage SAGD development. Devon and BP also agreed to negotiate a long-term heavy crude sales agreement for Devon’s share of Kirby production.
Impact on Devon’s Proved Reserves and Production
As of December 31, 2009, Devon’s reported estimated proved reserves included 20 million barrels of liquids and 198 Bcf of natural gas associated with the Gulf of Mexico assets being purchased by BP. Roughly 37% of these reserves were classified as proved developed. The excluded international assets BP is purchasing were reported as discontinued operations as of December 31, 2009 and, as such, were from Devon’s reported reserves and 2010 guidance for production from continuing operations.
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