Devon's Partners Buy Stakes at Cascade, St. Malo

HOUSTON (Dow Jones), Jan. 26, 2010

Devon Energy Corp. (DVN) confirmed Monday that its partners in two ultradeep water oil discoveries in the U.S. Gulf of Mexico have decided to exercise their preferential purchase rights, pushing aside Danish conglomerate AP Moller Maersk A/S (MAERSK-B.KO), which has previously agreed to buy the stakes.

"Our partners at Cascade and St. Malo have exercised their option to purchase our position in those places," said Chip Minty, a Devon spokesman. "We are still in the process of talking with Maersk about Jack and also other assets we have in the Gulf."

The Oklahoma City-based company said partners would pay the same amount Maersk had agreed to pay for those assets in December. Devon declined to give a breakdown of how much companies are paying for the stakes in each project. Maersk had announced late last year an agreement to buy the stakes in the three projects for $1.3 billion. The company sought a 25% interest in Jack and St. Malo and a 50% stake in Cascade. Maersk said Friday it is now considering its options under the purchase agreement to buy into the Jack field.

Brazil's state-run Petroleo Brasileiro S.A., or Petrobras (PBR, PETR4.BR), the operator of Cascade, confirmed Monday that it is buying the stake. San Ramon, Calif.-based Chevron Corp. (CVX), the operator and Devon's main partner in St. Malo, so far has declined to comment.

The companies' move to exercise their preferential purchase right is a major vote of confidence in the emerging Lower Tertiary play of the Gulf of Mexico, an area 150 miles off the coast of Louisiana where no oil is currently produced but where the energy industry has made several large finds.

"This a strong indication of how good those assets are," said Fadel Gheit, analyst at Oppenheimer & Co. Inc. "We are going to see more of these large companies waiting to see how much others want to pay and then match the bid."

Although exploring for energy resources in the Gulf of Mexico is onerous, with rates for drilling rigs still at more than a half million dollars a day, companies from around the world are flocking to the area because it is safer and offers a more stable fiscal regime than other regions. The Gulf of Mexico is also one of the few areas where major oil companies can still access new giant reserves using their technical and financial strength.

Devon said last year that it will sell its international and Gulf of Mexico assets to reduce debt and refocus in on North American onshore gas fields. The independent oil and natural gas producer said it expect to raise $4.5 billion to $7.5 billion from the asset sell.

Besides Devon and Chevron, Eni SpA (E), Exxon Mobil Corp. (XOM), Statoil ASA (STO, STL.OS) and Petrobras own stakes in St. Malo, according to records posted online by the U.S. Minerals Management Service, which oversees offshore oil and gas development.

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