(EnergyAsia, January 5 2012, Thursday) — China Petrochemical Corp, also known as Sinopec Group, the country’s second-largest oil company, has agreed to pay Devon Energy Corp up to US$2.2 billion to acquire a one-third stake in five of its exploratory shale oil projects in the US and to cover drilling expenses.

Devon Energy said that as much as US$1.6 billion will be used to fund its programme to drill 125 wells while US$900 million in cash will be invested in expanding the Chinese company’s holdings of shale oil reserves through its subsidiary, Sinopec International Petroleum Exploration & Production Corporation (SIPC).

Subject to customary government and regulatory approvals, the closing is expected to occur in the first quarter of 2012, said Oklahoma-based Devon Energy.

The company already owned 1.2 million net acres in shale lands in Tuscaloosa Marine, Niobrara, Mississippian, Ohio Utica and the Michigan Basin before its deal with Sinopec. The partners now have added acreage in Ohio Utica, increasing their joint position in the shale play to 235,000 net acres.

Devon said it will serve as the operator and will have ultimate responsibility for the allocation of capital while SIPC will pay 80% of the overall development costs.

With a plan to completing the drilling programme by end-2014, Devon said it will be responsible for marketing all production from these plays into the North American market.
John Richels, Devon’s president and CEO, said:

“This arrangement improves Devon’s capital efficiency by recovering our land and drilling costs to date and by significantly reducing our future capital commitments.

“We can accelerate the de-risking and commercialisation 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.”

Dave Hager, Devon’s executive vice president of exploration and production, said:

“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.

“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.”

The deal marks China’s continuing attempt to expand its oil and gas reserves. According to Bloomberg, Chinese companies announced bids to acquire oil and gas projects and companies abroad worth a total US$18.3 billion.