Sumitomo Corp. will invest $1.4 billion in exchange for 30% of Devon Energy Corp.’s interest in 650,000 net acres in the Cline shale and Midland-Wolfcamp shale in the Permian basin.
Sumitomo will invest $340 million in cash at closing and a further $1.025 billion in the form of a drilling carry. The drilling carry will fund 70% of Devon’s capital requirements, resulting in Sumitomo paying 79% of overall drilling and completion costs during the carry period.
The partnership expects to drill 40 gross wells in 2012. Based on the current work plan, Devon expects the entire $1.025 billion carry to be realized by mid-2014.
Devon will serve as operator and is responsible for commercially marketing all production from the plays into the North American market. Closing is expected to occur in the third quarter of 2012 retroactive to Jan. 1, 2012. Devon said it has had a strong working relationship with Sumitomo for a long time.
Devon said its Permian basin oil production in the quarter ended June 30 was 24% higher than in the second quarter of 2011. Output was nearly 59,000 b/d of oil equivalent, nearly 60% oil.
The Cline shale lies between the Wolfcamp and Strawn formations (OGJ Online, Aug. 29, 2011).