Update: More recent details of the $7bn Devon deal, and its Canadian oil sands side-deal.
BP plans to pay about $6bn for oil and gas assets put up for sale by Devon Energy of the US, particularly offshore acreage in the Gulf of Mexico and Brazil, taking advantage of its financial strength to make an important strategic move.
As of midnight London time, a deal was close, according to people with knowledge of the negotiations, and could come on Thursday.
For Devon, the deal looks pretty good. It has moved sharply on the sale, which had been expected to take until the end of the year. The price is hard to assess without the full details, but it does not look bad: BP is paying the mid-point of the $4.5bn-$7.5bn price that Devon hoped to raise, and it is not yet clear whether it is taking all of the assets that have been put up for sale. The disposal will free up capital to enable Devon to invest in its onshore US and Canadian business, particularly its position in the booming unconventional gas industry.
However, it is probably more significant for BP.
The assets fit perfectly into the strategy of using BP’s technological superiority to develop resources in the most challenging locations, such as the deep waters of the Gulf of Mexico and off the coast of Brazil.
And Tony Hayward, the CEO, gave a pretty clear hint that he had something like this at the company’s strategy presentation on March 2. As the FT reported at the time:
Tony Hayward, chief executive, also suggested that BP was not likely to acquire any other companies, saying it would continue buying assets but he would be “surprised if we saw opportunities at the corporate level”.
Adding the additional acreage in the Gulf strengthens a position that BP sees as one of its most strategically important regions, as it opens up new reserves six miles below the sea bed. It is already a partner of Devon in the Kaskida field, a large deep-water discovery in the Gulf made in 2006. (It is interesting, meanwhile, that Statoil of Norway is also taking a keen interest in the deep-water Gulf, buying Devon’s stake in the St Malo project.)
However, the more momentous move may be BP’s entry into Brazil: arguably the world’s most exciting oil frontier right now, with expectations of vast resources but some daunting technical challenges and worries over the regulatory regime. The prize assets are six licence blocks were Devon is co-operating with Petrobras of Brazil to explore the most promising offshore areas.
Tony Hayward has expressed an interest in the Brazilian assets that could be offered by Repsol, and said BP planned to bid in the country’s next licensing round. The deal with Devon gives him a chance to take a leap forward ahead without waiting for either of those to come off.