Devon Energy Sells Off Brazil Assets

By Mark Beresford, Senior Contributing Reporter

RIO DE JANEIRO – The largest U.S.-based independent natural gas and oil producer Devon Energy could disclose this week more details about progress in the much anticipated sale of its Brazilian assets, when it holds its year-end 2009 conference call on Wednesday February 17th.

Oklahoma City-based Devon Energy put its international assets for sale in November, in order to focus on the less risky US and Canadian onshore sector. Devon expects to start making the first sales of its international assets in the first quarter of 2010, and to complete the process by the end of this year. Devon believes the divestitures will generate a total of US$4.5 billion to US$7.5 billion after-tax proceeds.

The assets that Devon has put up for sale include seven offshore exploratory blocks in Brazil, of which six are in the pre-salt region. The Brazilian assets are particularly attractive, as they are coming up for sale at the same time as Brazilian legislators debate new laws which would reduce the role of international oil companies in exploration and production in the country.

While the new proposals for the sector include making state-run Petrobras the operator of all pre-salt blocks, the Devon Energy licenses were awarded under the previous regulatory framework for exploration leases, which imposed no requirement for Petrobras to participate.

This has turned the Devon Energy acreage into prime real estate for oil companies looking to increase their Brazilian exposure; international oil companies such as Chevron and ExxonMobil are seen as potential bidders, in addition to Brazilian oil company OGX and Petrobras itself.

Devon says that it has identified twenty prospects in its Brazilian leases, with potential of two billion to four billion barrels of oil.

In Brazil, Devon is the operator of block BM-C-8 in the Polvo field, sixty miles off the Buzios coast, which it has been operating since 2007, and which has estimated recoverable reserves of fifty million barrels.

Devon is also a major player in the Campos Basin, the area that currently produces 87 percent of Brazil’s oil. In December, Devon announced an oil discovery in the BM-C-32 block in the Campos Basin, 78 miles southeast of Vitoria in Espirito Santo. Devon operates the well with a forty percent working interest, with partner Anadarko Petroleum having a 33.3 percent stake.

The Itaipu discovery is approximately six miles southeast of the giant pre-salt Jubarte Field and sixteen miles north of the 2008 Wahoo discovery on block BM-C-30, also in the Campos Basin. Devon has a 25 percent interest in Wahoo, where Anadarko is the lead operator.

Despite its close relationship with Devon, Anadarko itself has ruled out participating in the auction of the Devon assets.

As part of its divestment of international assets, this year Devon has already sold three development projects in the Gulf of Mexico, including a stake in the offshore Cascade field to Petrobras, which was the lead operator, with a fifty percent interest in the field, and which chose to exercise its preferential purchase rights.