Mikaila Adams
OGFJ Associate Editor

Sale furthers Devon’s repositioning, allows BP entry into promising deepwater Brazil 

Oklahoma City-based independent energy company Devon Energy Corp. has entered into agreements to sell all of its assets in the deepwater Gulf of Mexico, Brazil, and Azerbaijan to BP for $7 billion. The two companies also plan to form a heavy oil joint venture to develop BP's Kirby oil sands leases in Alberta, Canada.

With the sale, BP enters the deepwaters offshore Brazil and expands its already commanding presence in the Gulf of Mexico. Last year, the company made a discovery in the Tiber field and is currently partnering with Devon in the Kaskida field. With the sale, BP will assume Devon's leases of the drilling rigs Seadrill West Sirius and Transocean Deepwater Discovery for the duration of the contract terms.

For Devon, the sale moves the company one step closer to the planned repositioning, and puts the balance sheet in a good position going forward.

In November, Devon announced plans to divest its Gulf of Mexico and international assets to allow the company to focus on its North American onshore assets. The divestiture proceeds will be allocated between the acceleration of development of Devon's North American onshore properties and debt reduction. 

"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," said Larry Nichols, Devon's chairman and CEO. "Given any reasonable sales price for Devon's remaining divestiture assets, the transactions to date suggest that our total after-tax proceeds for the entire divestiture program will exceed our previously announced range of $4.5 to $7.5 billion." 

Oil sands JV
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 serve as the operator of the Kirby project which lies in close proximity to Devon's 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, 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 international assets BP is purchasing were reported as discontinued operations at December 31, 2009 and, as such, were excluded from Devon's reported reserves and 2010 guidance for production from continuing operations.