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BP Acquires Devon Assets for $2B
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ShareBP Plc (BP - Analyst Report) completed the acquisition of an additional interest in the Azeri-Chirag-Gunashli (or “ACG”) oilfield development in the Azerbaijan sector of the Caspian Sea from the U.S. independent oil and gas company Devon Energy (DVN - Analyst Report) for $2 billion. This is part of the deal that BP announced in last March.
Under the terms of the agreement, BP had announced that it will pay $7 billion in cash for Devon Energy's assets in Brazil, Azerbaijan and the U.S. deepwater Gulf of Mexico (GoM). In addition, BP had also announced that it would dispose its 50% stake in Kirby oil sands interests in Alberta, Canada to Devon for $500 million.
Since the completion of BP’s acquisition in the GoM and the sale of its 50% stake in Kirby oil sands, the Azerbaijan purchase marks the completion of the third deal. The purchase of assets in Brazil is expected to be completed by the end of this year.
In Azerbaijan, Devon only has a 5.63% stake in the ACG field that will be divided between BP and other project partners, including Chevron Corp. (CVX - Analyst Report), Inpex Corp. (IPXHF.PK) and Itochu Corp. (ITOCY.PK). After taking the additional stake from Devon, operating interests will increase to 37.43% for BP, 11.27% for Chevron and 4.30% for Itochu. The remaining interests will be held by AzACG, a subsidiary of the State Oil Company of the Azerbaijan Republic (or “SOCAR)” with a 10% stake, Statoil ASA (STO - Analyst Report) with an 8.56% stake, Exxon Mobil Corp. (XOM - Analyst Report) with 8%, TPAO with 6.75% and Hess Corp. (HES - Analyst Report) with 2.72%.
The ongoing strategic transactions allow BP significant additional long-term growth potential with an emphasis on high-margin oil after the Macondo oil spill tragedy. According to Devon Energy, current production from the ACG field is 17 thousand barrels of oil per day. The Caspian region is a core strategic area for BP and the ACG oilfield acquisition will increase its growth opportunity in the region.
However, we remain skeptical on the performance of BP shares following lower-than-expected second-quarter results and the sustaining effect of the Macondo incident, which is reflected in its 4% year-over-year decline in production volumes.
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