Devon Energy Corp. on Tuesday announced a $2.5 billion deal with a Chinese company for a share of its interests in five new resource plays.
Before this transaction, Devon assembled 1.2 million net acres in the Tuscaloosa Marine Shale, Niobrara, Mississippian, Ohio Utica Shale and the Michigan Basin.
Devon and Sinopec International Petroleum Exploration & Production Corp. recently added acreage in the Utica Shale, increasing their joint position in the play to 235,000 net acres.
The acquisitions added another $300 million to what was announced Tuesday as a $2.2 billion deal.
Sinopec will pay $900 million in cash when the deal closes. The company also will fund 70 percent of Devon's drilling costs until the remaining $1.6 billion is paid.
“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 CEO John Richels said.
“We can accelerate the derisking and commercialization of these five plays without diverting capital from our core development projects.
“This transaction also provides us further flexibility to seek exposure to additional new play types with less risk.”
Devon expects to exhaust Sinopec's investment by the end of 2014. The companies intend to drill about 125 wells this year in the five plays.
“While we are still in the early stages of derisking these plays, the tremendous response by industry to our data room process clearly underscores the attractiveness of this opportunity,” said Dave Hager, Devon's executive vice president of exploration and production.
“We believe our strong acreage positions in these plays, our reputation as a quality operator and the uniqueness of the opportunity for exposure to five different plays in a single venture make this a compelling value proposition,” he said.
Devon's stock rose $4.11, or 6.63 percent, on Tuesday after a deal with a Chinese company was announced, closing at $66.11.