BP shells out US$7 billion for Devon Energy's assets in Brazil, Gulf of Mexico and Azerbaijan
BP (LSE: BP) said it is paying Devon Energy Corp (NYSE: DVN) US$7 billion in cash for assets in Brazil, Azerbaijan and the US deepwater Gulf of Mexico, giving the UK oil major a material exploration position in the deepwater offshore Brazil and significantly enhance its position in core strategic areas.
The assets it is acquiring include interests in ten exploration blocks in Brazil, including seven in the prolific Campos basin; a major portfolio of deepwater exploration acreage and prospects in the US Gulf of Mexico; and an interest in the BP-operated Azeri-Chirag-Gunashli (ACG) development in the Caspian Sea, Azerbaijan.
In addition, BP will sell to Devon Energy a 50 percent stake in BP's Kirby oil sands interests in Alberta, Canada, for US$500 million. The parties have agreed to form a 50/50 joint venture, operated by Devon, to pursue the development of the interest. Devon will commit to fund an additional US$150 million of capital costs on BP's behalf.
"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," said BP group chief executive Tony Hayward. "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."
The deal will give BP a diverse and broad deepwater exploration acreage position offshore Brazil with interests in eight licence blocks in the Campos and Camamu-Almada basins, in water depths ranging from 330 to 9,100 feet, as well as two onshore licences in the Parnaiba basin. The Campos basin blocks include three discoveries - Xerelete, pre-salt Wahoo and Itaipu - and the producing Polvo field.
In the Gulf of Mexico deepwater, BP will gain a high quality portfolio with interests in some 240 leases, with a particular focus on the emerging Paleogene play in the ultra-deepwater. The addition of Devon's 30 percent interest in the major Paleogene discovery Kaskida will give BP a 100 percent interest in the project. The assets also include interests in four producing oil fields: Zia, Magnolia, Merganser, and Nansen. In Azerbaijan, acquisition of Devon's 5.63 percent stake in the ACG development will increase BP's operating interest in the fields to 39.77 percent.
The undeveloped Kirby oil sands leases are in the south east of the Athabasca region of Alberta, close to the Devon-operated Jackfish development, which started production in 2007. Like Jackfish, the Kirby oil sands are suitable for in situ development using steam-assisted gravity drainage (SAGD).
BP and Devon have agreed an initial appraisal programme to assess the significant potential of the Kirby acreage and to establish a long-term development plan. In addition to forming the joint venture, BP and Devon have agreed to enter into a long-term heavy crude off-take agreement for production from the Kirby development as well as a portion of the production from some of Devon's other oil sands assets.
BP is currently undertaking a major investment programme at its Whiting, Indiana, refinery, significantly increasing its capacity to process heavy crudes such as Canadian heavy oil. The Whiting upgrade is planned to come on-stream in 2012.
On completion of the transaction, Devon's employees in Brazil are expected to join BP.
