London-based oil major BP has agreed to buy Brazilian, Azeri and Gulf of Mexico assets from Devon Energy for $7 billion, as the U.S. producer refocuses on onshore U.S. fields.
The companies said on Thursday that BP has also agreed to sell Devon a 50 percent stake in its Kirby oil sands interests in Alberta, Canada, for $500 million and that the two companies would form a venture to develop Kirby.
The deal gives Europe’s second-largest oil company by market value reserves and highly prospective exploration which will help it meet its goal of growing production at 1 to 2 percent per annum in the next decade.
Analysts said it was hard to estimate whether BP was paying a good price for the assets as they included fields whose reserves are unknown as they are still being explored.
BP shares were unmoved by the deal, falling 0.7 percent against a 0.4 percent drop in the STOXX Europe 600 Oil and Gas index at 0837 GMT (3:37 a.m. ET).
The deal also gives BP the entry into Brazil which Chief Executive Tony Hayward has long eyed.
However, Devon’s assets are in the Campos basin, rather than the Santos basin where most excitement is focused after multi-billion barrel discoveries in recent years.
Devon announced its asset sale program in November, saying it hoped to pull in as much as $7.5 billion for its international and Gulf of Mexico assets as it looks to focus on its onshore oil and gas fields in North America.
The company, which felt investors had not ascribed a reasonable value to its Gulf and international assets, has already sold its interest in three deepwater development projects in the Gulf of Mexico for about $1.3 billion.
The companies did not put a figure on the reserves that BP was buying but Colin Smith at ICAP estimated that BP has bought 140 million barrels of oil equivalent (boe) of booked reserves.
However, a BP spokesman said the deal was largely predicated on the exploration upside the fields offer. Some of the best assets being bought, such as the Kaskida stake, are at the exploration stage of development and so have no booked reserves yet.
BP is also buying around 240 leases in the Gulf of Mexico, including Devon’s 30 per cent interest in the major Kaskida discovery, in which BP already has a 70 percent stake.
BP is also adding to its existing interest in the Azeri-Chirag-Gunashli oilfield off the coast of Azerbaijan.
Devon’s 5.63 percent stake will increase BP’s interest in ACG, which produces 820,000 barrels of oil a day, to 39.77 percent.
The parties will form a 50-50 joint venture to develop BP’s 90,000 net acres of oil sands at Kirby, and this will be operated by Devon.
ICAP’s Smith said this could unlock the potential of Kirby, which has sat dormant in BP’s portfolio for years, and would also help secure a crude supply for BP’s Whiting refinery, in which it has been investing heavily in recent years.
BP should be able to fund the acquisition out of cashflows or debt, analysts said.
BP’s gearing ratio was 21 percent at the end of 2009, against a targeted 20 to 30 percent range, while analysts believe the company is highly cash generative at current oil prices.