Devon Energy Corp., Oklahoma City, plans to divest its Gulf of Mexico and international assets in a move toward focusing on high-growth US and Canadian onshore assets, the company reported Nov. 16.
The strategy, according to Devon Chairman and Chief Executive Officer J. Larry Nichols, will enable the company "to emerge with an even stronger balance sheet and one of the lowest overall cost structures" among its peers.
In other recent company news:
• Cameron International Corp. will be required to divest assets used in the production and sale of oil refining desalters before it proceeds with its $980 million acquisition of Natco Group Inc., the US Department of Justice said on Nov. 17.
• Qatar Petroleum International signed a series of agreements to acquire two Singapore chemical joint ventures from Royal Dutch Shell PLC. The agreements were signed with Shell Eastern Petroleum Pte. Ltd. Terms of the transactions were not discussed.
• Perenco strengthened its position in Gabon with the acquisition of Marathon Oil Corp.'s wholly owned subsidiary Marathon Oil Gabon Ltd., which holds a 56.25% working interest in three offshore production fields. The effective date of the transaction is Jan. 1 with completion anticipated during the fourth quarter.
• Occidental Petroleum Corp., Mubadala Development Co., and the National Oil & Gas Authority of Bahrain (NOGA) have formed a joint operating company to further develop Bahrain field.
• Indonesia's state-owned PT Pertamina, aiming for an 11% boost in oil production, expects to increase capital expenditure to $4.15 billion in 2010—a 77% increase over spending in 2009, according to a company official.
Devon's divestiture plan
Devon expects to open data rooms and start the divestiture process in first-quarter 2010. It expects to complete the process by yearend 2010.
The divestitures are expected to generate aftertax proceeds of $4.5-7.5 billion. The company expects the repositioning to be highly accretive to earnings, cash flow, production, and reserves beginning in 2011.
Devon has 3,500 wells in the Barnett shale gas play, and it also has acreage in the Haynesville shale. Internationally, the company has assets in Azerbaijan, Brazil, China, and Russia.
Based on estimated yearend 2009 proved reserves, Devon's Gulf of Mexico and international properties comprise 7% of Devon's proved reserves of 2.8 billion boe.
If the anticipated sale had occurred in 2009, Devon's estimated yearend 2009 proved reserves would have been 2.6 billion boe.
Oil and natural gas liquids account for 43% of companywide estimated proved reserves at yearend 2009. Pro forma for the divestiture of the Gulf of Mexico and international assets, oil and NGL will account for 41% of the total.
Regarding international assets, Devon primarily is involved off Brazil and off China.
Devon currently is developing the Polvo project in the Campos basin in 300 ft of water on Brazil's Block BM-C-8. Production started in 2007. Devon holds interest in 10 blocks off Brazil covering 1.4 million acres.
The company has joined exploration efforts with Petroleo Brasileiro SA (Petrobras) on five of these blocks.
Off China, Devon's oil production is from the Panyu development in the Pearl River Mouth basin in the South China Sea on Block 15/34.
In addition to Panyu, Devon holds 100% interest in four exploration blocks off China. In aggregate, Devon's Chinese acreage covers 7.9 million net acres.
Cameron-Natco deal
DOJ's antitrust division said the Cameron-Natco deal as originally proposed would substantially reduce US refinery desalter manufacturing competition, resulting in higher prices and lower quality, service, and innovation. Cameron and Natco are, respectively, the No. 1 and No. 2 US refinery desalter suppliers, it said.
The divestiture also would remedy harm caused by Cameron's 2005 acquisition of certain assets from Howe Baker Engineers Ltd., DOJ said in a civil action it filed in US District Court for the District of Columbia. DOJ said it also filed a proposed settlement which, if approved by the court, would resolve the lawsuit's competitive concerns.
Cameron and Natco, a recent entrant into the desalter market, are each other's closest competitors for a significant set of US refining customers, DOJ said.
According to the complaint, Cameron's $8.25 million purchase of the Howe Baker assets in 2005 reduced from two to one the number of US sellers of refinery desalters. Under the proposed settlement, Cameron would divest the desalter and dehydrator assets from that purchase (the EDGE business) and all related tangible and intangible assets.
It also would divest a nonexclusive license to certain Natco technology related to refinery desalters, which uses dual technology transformers. This dual technology license may be used worldwide for the development, production, sale, and service of refinery desalters using this technology, DOJ said.
QPI's Singapore ventures
Completion of the transactions are expected in December in what QPI calls its first downstream acquisition abroad.
Shell will sell its existing shareholdings in two companies to a new joint venture called QPI and Shell Petrochemicals (Singapore) Pte. Ltd.
Through the new venture, QPI and Shell will hold 50% of Petrochemical Corp. of Singapore Pte. Ltd. (PCS) and 30% of The Polyolefin Co. (Singapore) Pte. Ltd. (TPC).
The other shareholders in PCS and TPC are Japanese consortiums led by Sumitomo Chemical Co. Ltd.
PCS owns and operates two naphtha steam crackers totaling 1.9 million tonnes/year of olefins production capacity and is an anchor olefins supplier for the Singapore Petrochemical Complex on Jurong Island.
TPC owns and operates 260,000 tpy of low-density polyethylene capacity in three plants and 600,000 tpy of polypropylene capacity in five plants. These plants receive feedstock from PCS.
The latest joint venture agreement is part of a wider strategic cooperation. QPI and Shell, together with PetroChina, are progressing with joint preliminary studies to assess the viability of building a refinery and petrochemical complex in China.
Shell continues to develop with QPI proposals for a petrochemicals complex in Qatar.
Perenco's Gabon position
Perenco's acquisition of Marathon's stakes in the Tchatamba Marin, Tchatamba South, and Tchatamba West fields will add about 15,000 bo/d gross production to the company's current 50,000 bo/d operated production in Gabon.
Perenco will now be the operator at these fields, from where production is processed on a single facility at Tchatamba Marin, with processed oil being transported through a pipeline to a nonoperated onshore facility.
Tchatamba Marin field, which lies 15 miles offshore and 100 miles southeast of Port Gentil, was discovered in 1995 and began production in early 1998. Tchatamba South and West fields were discovered in 1997 and came on stream in 1999 and 2000, respectively.
Bahrain field JV formed
The joint entity, Tatweer Petroleum-Bahrain Field Development Co., will serve as the operator for the field and will operate under the development and production-sharing agreement (DPSA) signed in April by all three partners.
Tatweer Petroleum, which will begin production and development activities immediately, will be comprised of workers from Bahrain Petroleum Co. (Bapco) as well as from Oxy and Mubadala. The venture also plans to hire additional local employees.
Ray R. Irani, Oxy chairman and chief executive officer, said, "Tatweer Petroleum further expands our presence in the region and is a key element of our growth strategy for the Middle East."
Mubadala Chief Executive Officer and Managing Director Khaldoon Khalifa Al Mubarak said, "This investment is aligned with [Mubadala's] ambition to include enhanced oil recovery projects as one of the key pillars of its investment strategy in the [Middle East and North Africa] region."
Abdul Hussain Bin Ali Mirza, minister of oil and gas affairs and NOGA chairman, noted, "The [DPSA] with Oxy and Mubadala represents a paradigm shift for the oil industry in Bahrain. The revitalization of one of the longest producing oil fields in the world is the cornerstone for fueling the economic diversification plans set by the political leadership in Bahrain and will bring added prosperity and opportunity to the whole nation."
Pertamina spending up
Pertamina Financial Director Frederick Siahaan said of the company's planned spending increase, "The increase in capital expenditures was made to meet the increasing number of new projects and preparations to build a number of refineries."
He said, "This is our prediction, but we still need approval from the shareholder meeting." Frederick noted that as much as $2.5 billion would be secured from loans, including $1 billion in dollar-denominated bonds and 1 trillion rupiah in rupiah-denominated bonds.
"We can only issue the bonds after the financial audit for 2009 is finished. Thus, this will perhaps be in March or April next year," said Frederick, who added that Pertamina plans to use two thirds of the planned expenditure for upstream activities.
Frederick also said Pertamina will also use $17-19 billion of the planned outlays to upgrade existing refineries at Plaju, Cilacap, Balikpapan, Dumai, and Balongan and to construct three new refineries in Cilacap, Banten Bay, and East Java.
According to Karen Agustiawan, Pertamina president director, the state firm expects to increase oil production to 193,900 b/d in 2010, up 10.93% over the projected 174,000 b/d for 2009. Karen said the Cepu block is expected to contribute significantly to next year's targeted oil production increase.
"We expect that the Cepu block will start its early production of 20,000 b/d by the beginning of 2010. Of this production, Pertamina expects to get 9,000 b/d," Karen said.
The announcements of increased spending coincided with other reports that Pertamina is looking to acquire a 25% participating interest in the Mahakam block before the expiry of Total E&P Indonesie's contract in 2017.
Karen said Pertamina already had submitted a request letter to the government to control a 25% participating interest in Mahakam block, East Kalimantan, but that the eventual target is 100% control.
"In 2027, we hope to control 100% participating interest and become the operator of Mahakam block. We have announced this to the government on Nov. 4," Karen said.
Karen said Pertamina also wants 100% control in the West Madura block, where the contract will expire in 2011. If 100% control is not possible, Karen said, "We hope to at least seize a 60% interest."
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