BP to pay $7 billion for Devon exploration rights (AP)

LONDON – BP is expanding its dominant oil and gas operations in the Gulf Mexico and dropping anchor off Brazil with a $7 billion deal to buy exploration rights from Devon Energy.

BP will get the rights for 10 offshore exploration blocks in Brazil and others in the Gulf of Mexico and in the Caspian Sea near Azerbaijan. BP also is selling a 50 percent stake in its Kirby oil sands interests in Canada to Devon for $500 million as Devon beefs up its North American onshore portfolio.

BP PLC already is the largest leaseholder in the Gulf of Mexico with more than 650 blocks producing over 400,000 barrels of oil equivalent daily.

Devon, based in Oklahoma City, has interests in more than 450 offshore blocks in the Gulf that account for about 7 percent of Devon's total oil and natural gas production. In December, it sold stakes in three development projects in the Gulf to Maersk Oil for $1.3 billion.

Devon's 10 offshore blocks in Brazil cover 1.4 million acres. It has been working with national oil company Petrobras on five of the blocks.

"For BP it means that they will, in addition to bulking presence in the Gulf of Mexico and Azerbaijan, have access to one of the premier growth industries, which is Brazil," said Raymond James analyst Pavel Molchanov. "It's not instant gratification. These assets aren't going to deliver barrels of oil bubbling up very soon. But in the long run it makes sense."

There have been a series a major discoveries off Brazil since the massive Tupi field, estimated to hold five to eight billion barrels of oil, was found in 2007. National oil company Petrobras says the offshore areas already auctioned for exploration could produce up to 16 billion barrels. Estimates for the entire area range up to 100 billion barrels.

Petrobras has exploration deals with Exxon Mobil, Amerada Hess, Royal Dutch Shell and several other multinational oil companies.

BP said in a strategy briefing two weeks ago that it expected to boost its annual pretax profit by more than $3 billion over the next two to three years, and to increase oil and gas production by 1 percent to 2 percent within five years. CEO Tony Hayward said BP hopes to start up 42 major projects by 2015 as existing fields decline.

Molchanov said it makes sense for BP to buy Devon's Brazil operations instead of starting its own deep-water projects there. "It's very difficult for a western company that's not already in Brazil to enter places like the Campos Basin where Devon is already present. Brazil's government wants to make sure they maintain control."

As the world's petroleum supplies become more difficult and more expensive to access, major oil companies are building their oil and gas holdings by taking over smaller companies. Earlier this week Arrow Energy, a major natural gas producer in Australia said it received a $3.3 billion takeover bid from a company owned by Royal Dutch Shell and PetroChina. In December Exxon Mobil said it will expand its natural gas operations with the $29 billion acquisition of XTO Energy.

Chairman and CEO Rex W. Tillerson told analysts during a meeting in New York on Thursday that Exxon Mobil intends to boost capital spending this year by 3 percent to about $28 billion. Spending should range between $25 billion and $30 billion a year on average through 2014.

In afternoon trading BP shares rose 33 cents to $56.52. Devon shares added 60 cents at $72.29.

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Associated Press writers Deborah Lee in New York and Stan Lehman in Sao Paulo, Brazil, contributed to this report.

Taken from here