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The rationale behind the sale, according to Larry Nichols, CEO of Devon Energy, is that the value of its international and Gulf of Mexico assets are "not adequately reflected in our stock price".
Who Might Be Interested In These Assets?
A logical buyer would be a company involved in some of the same projects that Devon Energy is developing.
Offshore Brazil, Devon Energy is developing a project in the Polvo Field. The company has a 60% interest with a South Korean company owning the balance. Devon Energy started production from this field in July 2007 and just cut its estimate of peak oil production from it. The original estimate was 50,000 barrels of oil equivalent (BOE) per day, and that has been reduced to "between 17,000 and 50,000" per day.
It's possible that the value to a buyer of the international assets may be what Devon Energy hasn't found yet on its leasehold. The company has 7.9 million acres in China and 1.4 million acres in Brazil, almost all of which are undeveloped.
Devon Energy is not the only energy company to announce a plan to sell assets. Last month, ConocoPhillips (NYSE: COP) said it would sell up to $10 billion in assets, but the company didn't provide many details on what it was selling.
Gulf Of Mexico
Devon Energy has much more attractive assets in the Gulf of Mexico, particularly in the deepwater area. The company has 662 producing wells here, reserves of 101 million BOE and 16,000 BOE per day of production. However, this vastly understates the worth of the assets, as the company has interests in many fields that will take years to develop before any production starts or reserves are booked.
Lower Tertiary
Some of these Devon Energy properties target the Lower Tertiary formation in the Gulf of Mexico. At Kaskida, Devon Energy has a 30% working interest, with BP PLC (NYSE: BP) owning the balance. BP just announced the success of an appraisal well at Kaskida, which confirmed an extension of the field. BP is eager to increase its U.S. holdings and would probably be interested in buying out Devon Energy here.
Jack And St. Malo Fields
Devon Energy also has stakes in the Jack and St. Malo fields in the Gulf of Mexico. Chevron (NYSE: CVX) operates this large project, which the company estimates might produce between 120,000 and 150,000 BOE per day at its peak.
Focus Is Now Exclusively On U.S. And Canadian Acreage
Investors are not the only ones caught up in the excitement generated by the prolific shale plays in North America, as Devon Energy has decided to reverse course by selling all of its international and offshore assets. The company will now focus exclusively on its U.S. and Canadian acreage. (For a primer on the oil industry, refer to our Oil and Gas Industry Primer.)
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