Devon Energy Contracts Second Deepwater Rig for Gulf of Mexico

Devon Energy

Devon Energy has signed a long-term contract with Seadrill Offshore AS to utilize the West Sirius semisubmersible in the Gulf of Mexico. The initial contract term with Seadrill is four years. Devon has the option to extend the term to five or six years. The company's total commitment under the terms of the four-year contract is approximately $690 million.

The West Sirius is designed to drill to 37,500 feet in up to 10,000 feet of water and capable of drilling any prospect in Devon's deepwater inventory. The rig is currently under construction and is scheduled for delivery from Singapore in the second quarter of 2008.

Prior to entering into the West Sirius contract, Devon entered into a four-year contract on Diamond Offshore's Ocean Endeavor deepwater drilling rig. The Ocean Endeavor is being refurbished in Singapore and is scheduled to arrive in the Gulf of Mexico in the second quarter of 2007. The Ocean Endeavor is capable of drilling to 35,000 feet in 10,000 feet of water.

"This second long-term rig agreement reflects our growing confidence in the value of Devon's deepwater Gulf of Mexico position. Our successful lower Tertiary exploration program, progress toward commercialization and strong prospect inventory present us with an extensive set of deepwater Gulf of Mexico drilling opportunities," said Stephen J. Hadden, senior vice president, exploration and production. "With two deepwater rigs under contract we will have additional capacity and flexibility to test, appraise and develop multiple prospects in the lower Tertiary and Miocene trends."

Lower Tertiary Potential to Drive Deepwater Drilling

Devon has to date made four important discoveries in the Gulf of Mexico's deepwater lower Tertiary trend. The company has recently announced several developments concerning these discoveries.

On September 5, 2006, Devon announced the results of a production test of the Jack #2 well. This test was a significant step forward in determining the commerciality of the Jack discovery and, potentially, other projects in the trend. Jack #2 sustained flow rates of more than 6,000 barrels of oil per day. The tested interval was approximately 40 percent of the total net pay measured in the well. Devon and its co-owners plan to drill another appraisal well on the Jack prospect in 2007. Devon has a 25 percent working interest in Jack.

On August 15, 2006, the company announced plans to conduct additional drilling and commence production from the Cascade discovery in late 2009. Devon also announced that it had increased its working interest in the Cascade Unit from 25 percent to 50 percent.

Additionally, on August 31, 2006, Devon announced a discovery on the Kaskida prospect. Appraisal drilling on Kaskida and on the previously announced St. Malo discovery is also planned. Devon has a 20 percent working interest in Kaskida and a 22.5 percent working interest in St. Malo.

"Our growth strategy in the deepwater Gulf was to build a strong exploration portfolio through lease sales, joint ventures and acquisitions," added Hadden. "Execution of this strategy has resulted in four discoveries and 19 additional lower Tertiary prospects, six of which we operate. We have also identified 16 Miocene prospects, five operated by Devon. These opportunities represent resource potential that could more than double the company's current reserve base."