Log In | Register
OKLAHOMA CITY — Devon Energy Corp. is seeking partners to help lower costs of developing four of its discoveries in the Gulf of Mexico, the top executive of the independent oil and gas producer said Wednesday.
During a conference call with analysts, Devon CEO Larry Nichols said the company has seen the amount of money it spends on long-term projects rise above the 10 to 15 percent of the company's exploration and development budget traditionally desired by Devon executives.
Nichols said more than one-third of Oklahoma City-based Devon's 2009 exploration and development budget now is being spent on long-term projects, primarily in the Gulf and in Alberta, where the company is heavily involved in an oil-sands extraction project.
"In many ways, we're victims of our own success," Nichols said. "We believe that it is prudent, not only for current budget considerations, but for future years as well, to limit our capital allocation to these long-term projects."
He said the capital required on Devon's Gulf projects "is significantly larger" than that required for the company's Canadian projects, hence the decision to seek a partner in the Gulf.
David Hager, Devon's executive vice president for exploration and production, said the company's capital costs on its four Gulf oil discoveries could be as much as $1 billion annually.
Devon also has a position in about 20 undrilled exploration prospects in the Gulf, company spokesman Chip Minty said.
Nichols said Devon believes an opportunity to form such a partnership will appeal to large companies around the world. He said Devon is not under any pressure to execute an immediate transaction.
"For Devon, our share of the ongoing capital commitments will be reduced, while we would, of course, maintain and keep a meaningful interest in the play," he said. "We expect to open a data room to potential partners within the next several weeks and we will see what kind of interest that generates."
Nichols said it's too early to know how much of its Gulf discoveries Devon might be willing to sell, but that he doesn't think it would be more than 50 percent "as an absolute maximum. It's a hard number. I almost hesitate to say that, because the headline is 'Devon to sell 50 percent' and it probably won't be that much."
Nichols said that instead of a sale, Devon might consider a partial swap of its Gulf assets, "but those are exceedingly difficult to do. ... The objective is to reduce the long-term capital commitment and get it back in line with the overall budget."
Devon's stock on Wednesday rose $6.71, or 12 percent, to $61.19.
