OKLAHOMA CITY (dpa-AFX) - Sinopec International Petroleum Exploration and Production Corp., a wholly owned subsidiary of China Petrochemical Corp. (SNP), agreed Tuesday to invest $2.2 billion to acquire one-third of oil and gas explorer Devon Energy Corp.'s (DVN) interest in five new venture plays in North America. The deal, subject to customary government and regulatory approvals, is expected to close in the first quarter of 2012.
'This arrangement improves Devon's capital efficiency by recovering our land and drilling costs to date and by significantly reducing our future capital commitments,' Devon President and CEO John Richels said in a statement.
The five new venture plays assembled by Devon are the Tuscaloosa Marine Shale, Niobrara, Mississippian, Ohio Utica Shale and the Michigan Basin, totally consisting of 1.2 million net acres.
Devon is among the other U.S. energy companies that are their selling stakes in shale assets in order to raise capital to fund their accelerated drilling programs.
The deal will see Sinopec make a $900 million cash payment upon the closure of the deal, and also pay $1.6 billion in the form of a drilling carry. Sinopec will also reimburse Devon for drilling costs incurred prior to closing and acreage acquisition costs incurred subsequent to the effective date of the agreement.
The companies expect to drill about 125 gross wells in the five plays in 2012, and currently expects the entire $1.6 billion carry to be realized by year-end 2014. The drilling carry amount will fund 70 percent of Devon's capital requirements, and will result in Sinopec paying 80 percent of the overall development costs during the carry period.
Devon will serve as the operator and will be responsible for the allocation of capital. It will also be responsible for commercially marketing all production from these plays into the North American market.
Devon intends to use the proceeds from the stake sale to seek exposure to additional new play types with less risk. The deal will also help Devon to accelerate the derisking and commercialization of the five plays without diverting capital from its core development projects.
In Tuesday's regular trading session, DVN is currently trading at $65.24, up $3.24 or 5.23 percent on a volume of 0.69 million shares. In the past 52-week period, the stock has been trading in a range of $50.74 to $93.56.
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© 2012 AFX News
