A US$2.5 billion joint venture alliance between Devon Energy and Sinopec has been announced. Sinopec will acquire a 33.33% interest in Devon's acreage across five new venture plays. The alliance includes an estimated 1.2 million acres in the Tuscaloosa Marine Shale, Niobrara, Oklahoma Mississippian play, Ohio Utica shale, and the Michigan Basin. The Niobrara, Mississippian and Utica shale acreage is liquids weighted. The Michigan and Tuscaloosa acreage includes both oil and gas. The distribution of total acreage contributed to the alliance by play is shown below.
Sinopec will acquire its interest in the combined JV acreage through a US$900 million upfront cash payment. Sinopec will also carry 70% of Devon's capital obligations associated with the acreage until a cumulative maximum of US$1.6 billion has been incurred. Under these terms, Sinopec is paying a combined US$6,250 per net acre.
Devon anticipates that the carry obligation will be fulfilled by end of year 2014, suggesting an aggressive drilling program including 125 wells in 2012. However, the specifics of the partners' drilling plans are not available and, therefore, the economics of the deal cannot be fully evaluated at this time. Devon drilling plans for 2011 may give some clue. These plans called for an expected 35 wells in the five areas on a combined basis with the majority focused on the Niobrara (10 wells) and Mississippian (12 to 15 wells) acreage.
While the full potential of the deal from Sinopec's perspective cannot yet be quantified there is considerable potential that it will realize significant oil and gas production in the United States by 2014 and beyond. This transaction, when combined with deals in Argentina, Australia, Brazil, and Canada, greatly expands and diversifies Sinopec's growth asset base as well as makes Sinopec a global player to watch.
Sinopec's growth asset base as well as 35 others across 3 major peer groups is highlighted in a recently released study in partnership with Energy Intelligence Group: Global Exploration & Production: Focus Areas of Growth