Devon Ropes In a Chinese Partner - Analyst Blog


Independent oil & gas company Devon Energy Corporation ( DVN ) has joined hands with a Chinese partner Sinopec International Petroleum Exploration & Production Corporation ("SIPC") for development of its oil and gas holdings.

Per the agreement, SIPC will get a 33.3% interest from Devon's combined 1.2 million net acres in Tuscaloosa Marine Shale, Niobrara, Mississippian, Ohio Utica Shale and the Michigan Basin.

SIPC will make outright cash payment of $900 million and pay another $1.6 billion in phases. The $1.6 billion payment is designated to cover 70% capital expenditure of Devon, expected to be incurred for the development of its holdings in the five plays till 2014.

Devon will continue to act as the operator in these plays and enjoy the right to commercially distribute the produce in the North American market. The oil and gas industry being capital intensive is getting a much needed financial boost from these international investments. Devon plans to drill 125 gross wells in the five plays in 2012. The phased payment of SIPC would be a big help for the company.

We see the North American oil and gas assets as drawing attention from the international oil and gas majors for its reserve potential. In the beginning of the year, France based TOTAL S.A . ( TOT ) acquired a 25% share in Chesapeake Energy Corporation 's ( CHK ) and EnerVest's holdings in the liquids-rich area of the Utica Shale. At year-end 2011, SIPC paid $2.2 billion to acquire Daylight Energy Ltd to increase its oil and gas assets in Canada.

We expect more such agreements in the near term as these would bode well for the U.S. shale assets and turn out to be mutually accretive. While these allow one party to prudently leverage its position in the oil and gas rich shale assets backed by the requisite funding, the other party benefits from the produce from these plays and thereby a big share of the asset pie.

Devon Energy currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

Based in Oklahoma City, Oklahoma Devon Energy Corporation engages primarily in exploration, development and production of oil and natural gas. The company's oil and gas operations are concentrated in the onshore areas of North America, including the United States and Canada.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: CHK , DVN , TOT

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