Oil Companies Devon Energy and BP Strike Deal

One of Fortune magazine's "World's Most Admired Companies" and "100 Best Companies to Work For" is moving forward with its repositioning plans that it first announced in November 2009. Devon Energy Corporation, an oil and gas production company based in Oklahoma City, has announced an agreement to sell Gulf of Mexico, Brazil and Azerbaijan assets to British oil company BP for $7 billion. BP will also take over Devon's leases in Seadrill West Sirius in Gulf of Mexico and Transocean Deepwater Discovery rigs in Brazil.

The two set up an oil sands joint venture to develop BP's oil sands leases in Alberta, Canada. Devon plans to purchase 50 percent of BP's interest in Kirby oil sands acreage for $500 million and serve as operator in the joint venture. Devon hopes to leverage SAGD (steam assisted gravity drainage) expertise in top-tier resource Kirby that is comparable to industry-leading Jackfish project.

Devon is dropping international assets so it can forge ahead with its plans to establish itself as an onshore North American exploration and production (E&P) company where Devon is most competitive. This will speed up development that the company expects to see the highest returns with the lowest risk. The divesting of international assets and adding the Canadian joint venture will help Devon gain more liquidity strengthening its balance sheet and lower 2010 capital requirements by $400 million.

This repositioning will help Devon see a high accretion in 2011 and beyond in earnings, cash flow, production and reserves. Devon expects its North American onshore E&P capital to consist of 40 percent in shale plays, 22 percent in oil sands and the rest divided into other Canada and U.S.

BP sees the deal as an opportunity to enter the emerging market country of Brazil as well as a strategy opportunity that leads to long-term growth. The London-based company expects to a profit increase by over $3 billion in two to three years while upping oil and gas production by 1 to 2 percent within five years.

You catch Devon's webcast here.