BP to pay $7 billion for exploration rights

[March 11, 2010]  LONDON (AP) -- Oil company BP PLC said Thursday it will pay $7 billion to acquire exploration rights from US-based Devon Energy Corp. that will strengthen BP's dominant position in the Gulf of Mexico and give it access to a promising region off Brazil.

BP will buy the rights for 10 offshore exploration blocks in Brazil and a portfolio of rights in the U.S. Gulf of Mexico and in the Caspian Sea.

BP said it is also selling, for $500 million, a 50 percent stake in its Kirby oil sands interests in Canada to Devon, based in Oklahoma City, Oklahoma.

Devon is repositioning itself to concentrate on its North American onshore natural gas and oil portfolio.

"These sales, combined with our previously announced divestitures of $1.3 billion of deep water Gulf of Mexico assets, put Devon well on the way to completing its strategic repositioning," said Larry Nichols, Devon's chairman and CEO. In December, Devon sold stakes in three development projects in the Gulf of Mexico to Maersk Oil for $1.3 billion.

"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," Nichols said.

BP is the largest leaseholder in the Gulf of Mexico with more than 650 blocks producing about 400,000 barrels of oil equivalent daily. Devon has interests in more than 450 offshore blocks in the Gulf that account for about 7 percent of Devon's total oil and natural gas production.

In Brazil Devon has interests in 10 offshore blocks covering 1.4 million acres. It has been working with Brazilian oil company Petrobras on five of the blocks. BP completed exploration of two deep-water blocks off Brazil in 2004.

BP shares were down 0.5 percent at 621.5 pence in early trading on the London Stock Exchange.

"This is a good deal for BP and is consistent with its recent comments that it sees more asset based deals than corporate transactions," said Richard Griffith, analyst at Evolution Securities.

Griffith said the Kaskida discovery in the Gulf of Mexico, which BP now owns in full after buying Devon's 30 percent stake, could be worth $6 billion.

BP said in a strategy briefing two weeks ago that it expected to boost its annual pretax profit by more than $3 billion over the next two to three years, and to boost oil and gas production by 1 percent to 2 percent within five years.

Chief Executive Tony Hayward had said BP will make final investment decisions on 24 new major projects over the next two years. It hopes to start up 42 new major projects between 2010 and 2015 as existing fields decline.

The Devon deal, Hayward said Thursday, "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."

Andy Inglis, BP's chief executive of exploration and production, said the joint venture in Canada gave BP a partner which 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," Inglis said.

[Associated Press; By ROBERT BARR]

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