Ed Crooks BP buys $7bn of Devon assets, and makes a Canadian oil sands deal

BP has announced its deal with Devon Energy that it hopes will take it into the oil reserves of Brazil’s deep water for the first time, and some of the details are slightly different from what we thought when word first started circulating about the deal last night.

BP is paying $7bn, not $6bn, and is acquiring Devon’s assets in Azerbaijan – a country where BP is already very strong, and growing – as well as Brazil and the Gulf of Mexico.

Perhaps the most intriguing point – although a sideshow to the main event in Brazil and the Gulf of  Mexico – is what is going on with its Canadian heavy oil assets.

This comes in the form of a side deal, in which BP is selling Canadian heavy oil assets to Devon for $500m, meeting the US company’s objective of building up its North American “unconventional” oil and gas business.

The BP release says:

In addition, BP will sell to Devon Energy a 50 per cent stake in BP’s Kirby oil sands interests in Alberta, Canada, for $500 million. The parties have agreed to form a 50/50 joint venture, operated by Devon, to pursue the development of the interest. Devon will commit to fund an additional $150 million of capital costs on BP’s behalf.

So, while it has been blasted by environmentalists for seeking to push into Canada’s controversial oil sands, BP seems today to be edging out a little.

However that is not the whole story, because while BP made have sold some of its assets, it has also made it more likely that the project, which is still undeveloped, will go ahead.

The release adds:

BP and Devon have agreed an initial appraisal programme to assess the significant potential of the Kirby acreage and to establish a long-term development plan. In addition to forming the joint venture, BP and Devon have agreed to enter into a long-term heavy crude off-take agreement for production from the Kirby development as well as a portion of the production from some of Devon’s other oil sands assets.

BP is currently undertaking a major investment programme at its Whiting, Indiana, refinery, significantly increasing its capacity to process heavy crudes such as Canadian heavy oil. The Whiting upgrade is planned to come on-stream in 2012.

“Devon is an experienced operator in the Canadian oil sands with a proven track record of in situ development and production,” said [Andy] Inglis [BP head of exploration and production]. “We expect this transaction will accelerate the development of the Kirby assets and, through the associated crude off-take agreement, provide a secure source of Canadian heavy oil for our advantaged Whiting refinery.”

So there may be some more for the environmentalists to complain about, as well.

Related links:

BP close to $6bn deal with Devon (FT Energy Source)
BP chief says oil sands, cap-and-trade will help – but CCS won’t (FT Energy Source)
Shell’s Peter Voser interview transcript: On Canadian oil sands and more (FT Energy Source)