Devon Energy to partner with BP in Alberta oilsands, sell US$7 billion of assets elsewhere to BP

LONDON - BP PLC is partnering with Devon Energy Corp. to develop an Alberta oilsands project as part of a much larger deal in which BP will pay US$7 billion to buy exploration rights in several countries from the Amerian company.

BP, which has not been a major player in the Alberta oilsands, said Thursday it will sell a 50 per cent stake in its Kirby leases for US$500 million to Oklahoma-based Devon, which already has an oilsands project in the same area.

Devon (NYSE:DVN), which has committed to fund an additional $150 million of capital costs for the Kirby project and operate it on BP's behalf, said it plans a multi-stage development that will use steam to soften and extract the bitumen.

"While the Kirby development will require additional evaluation to confirm its size and scope, we believe that it will support several phases of development and has total recoverable resources that are greater than our Jackfish complex. We believe Kirby to be similar to Jackfish in terms of geology, reservoir characteristics and oil quality," Devon president John Richels said in a statement.

Elsewhere, Devon is selling to BP the rights for 10 offshore exploration blocks in Brazil and a portfolio of rights in the United States, Gulf of Mexico and in the Caspian Sea.

"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 per cent 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 one per cent to two per cent 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."

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 seven per cent 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.

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.

For its part, 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.

"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."

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