Strategic acquirers are rumored to have as much as $1.4 trillion, that’s right, TRILLION dollars on their balance sheets in the United States. Of those potential acquirers, banks have between $600-800 billion of idle cash. Last year, I remember discussing with a colleague how Exxon Mobil had $200 billion in treasury stock and $30 billion in cash for acquisitions. Strategic acquirers will certainly pounce faster than financial acquirers.
According to Mr. Swint of Bloomberg, “BP Plc will pay Devon Energy Corp. $7 billion for assets in Brazil, the Gulf of Mexico and Azerbaijan, adding fields that may extend its production lead over Exxon Mobil Corp.
“This is one of the best deals BP has ever made,” Jason Kenney, head of oil and gas research at ING Commercial Banking in Edinburgh, said in a telephone interview. “Brazil was missing from BP’s portfolio, and the assets are all high-margin barrels.”
BP, which overtook Exxon for the first time last year with 4 million barrels a day of production, will enter deepwater exploration off Brazil. With his biggest purchase since becoming chief executive officer in 2007, Tony Hayward may add more than 100,000 barrels a day of oil by 2015, according to Kenney.
As part of the cash deal, Devon will buy a 50 percent interest in BP’s Kirby oil sands project in Canada, BP said in a press release today. Devon, which is selling assets to focus on North America, will pay $500 million for its stake and meet $150 million of BP’s capital costs.
Devon rose 1.4 percent to $72.70 as of noon in New York. BP closed down 0.2 percent at 623.7 pence in London. The shares have risen 39 percent in the past year.
In Brazil, BP will have access to deepwater exploration in eight blocks in the Campos and Camumu-Almada basins, as well as two onshore licenses in the Parnaiba basin.
Petroleo Brasileiro SA, Repsol YPF SA and BG Group Plc found more evidence of oil in the same offshore Brazilian block where the companies’ Guara field holds as much as 2 billion barrels of crude, Brazil’s National Petroleum Agency said yesterday. Royal Dutch Shell Plc and Galp Energia SGPS SA are investing in the country’s deep-sea pre-salt region, whose Tupi field is the largest find in the Americas since 1976.
For BP, “Brazil was the single type of asset play they lacked the most,” Gudmund Halle Isfeldt, an Oslo-based analyst at DnB NOR ASA, said in a telephone interview. “They also increase their footprint in deepwater oil in the Gulf of Mexico.”
Oil companies worldwide are seeking acquisitions to bolster reserves. Today’s purchase is BP’s biggest since it started the Russian TNK-BP joint venture in 2003.
Exxon sought last year to buy closely held Kosmos Energy LLC’s Ghana assets, including a stake in the offshore Jubilee field, valued at about $4 billion. Exxon agreed to buy gas producer XTO Energy Inc. for $29 billion in December. Total SA and China National Offshore Oil Corp. will become partners with Tullow Oil Plc in Uganda.
Devon’s assets may add 40,000 barrels a day for BP starting next year, based on current production, with “huge potential” for exploration, BP spokesman David Nicholas said. The company said last week it aims to increase production by as much as 2 percent annually through 2015.
“This strategic opportunity fits well with BP’s operating strengths and key interests around the world,” Hayward said in today’s statement. “As well as giving us a broad portfolio of assets in the exciting Brazilian deepwater, it will strengthen our position in the Gulf of Mexico, enhance our interests in Azerbaijan and enable us to progress the development of Canadian assets.”
Focus on U.S.
Devon, based in Oklahoma City, said Nov. 16 it plans to sell all its offshore and non-North American assets to focus on U.S. and Canada drilling.
The deal is subject to regulatory approval, BP said. In the Gulf of Mexico, the company will receive 240 leases, including interests in the Zia, Magnolia, Merganser and Nansen fields. In Azerbaijan, BP is buying Devon’s stake in the ACG development, increasing its interest to 40 percent.
Oil from the undeveloped Kirby sands in Canada will be routed to BP’s Whiting, Indiana, refinery through a supply agreement with Devon. BP is planning to expand the plant to process larger volumes of heavy crude oil, the type produced in Canada.
Deutsche Bank AG and JPMorgan Chase & Co. advised Devon on the transaction. BP didn’t use an outside financial adviser though Linklaters LLP gave the company legal advice.”