Devon Asset Sales Could Spur Fresh Indonesia Exit
BEIJING Apr 03, 2007 (Dow Jones Newswires)
Devon Energy Corp. (DVN) would listen to offers for more of its fringe assets, but expects its withdrawal from Africa to be the only deal done this year, a senior executive of its international division said Tuesday.
Earl Reynolds, president of Devon International, also said Indonesia and Russia were not focus areas for the Oklahoma City-based company, which wants to concentrate on the deepwater potential of countries such as China and Brazil outside its production heartland of North America.
Devon has already put oil and gas blocks in West Africa and Egypt up for sale and management expects their divestment to be finalized during this year. The Egypt fields have been mostly targeted by Middle Eastern and Asian companies.
Asked by Dow Jones Newswires whether Devon would also consider offers for its assets in Indonesia, Reynolds said: "We'd look at anything like that and see how it fits."
Devon has exited Indonesia once before when it sold stakes in six oil fields for more than $200 million to PetroChina Co. (PTR), China's largest listed oil producer by capacity, in 2002.
But the company's $5.3 billion acquisition of Ocean Energy Inc. in 2003 brought with it new properties in Indonesia, which have remained in its portfolio ever since.
Devon also has an interest in the Onbysk and Demkinsky fields in the Russian republic of Tatarstan through a joint venture. According to the company website, development drilling is ongoing in these fields.
But its share of production and reserves are small and the company isn't concentrating on growing its position in Russia.
Windfall Tax A Concern In China
China has become a more attractive destination than West Africa for investment in the offshore oil industry due to its political stability and availability of cheap labor and raw materials.
However, Beijing has also shown a tendency towards ad hoc policy moves that have hurt investors, notably the windfall tax on oil sales that was introduced with little warning a year ago.
U.S. oil major ConocoPhillips has asked for arbitration in a dispute with China National Offshore Oil Corp. over costs incurred due to the windfall tax, people familiar with the situation told Dow Jones Newswires earlier this year.
ConocoPhillips is the partner of Devon in the Panyu project that is producing 70,000 barrels of oil per day in the South China Sea.
Speaking on the sidelines of the China Offshore Oil & Gas Summit in Beijing, Reynolds said the case was being closely watched and the company hadn't ruled out making a similar move towards arbitration, although it wasn't currently being considered.
"We were disappointed to see it enacted," Reynolds said of the windfall tax.
"We have contractual rights just like everyone else, but it's a pretty complex issue."
He added: "We're having dialogue with ConocoPhillips, we're having dialogue with Cnooc, and with industry in general. We'll decide what to do in the near future."
The windfall tax is an important issue for companies like Devon, which are looking to ramp up exploration activities in China over the coming years.
At the end of 2006, Devon signed production sharing contracts with Cnooc for deepwater blocks 64/18 and 53/30 in the South China Sea. That deal was Devon's third in a year with Cnooc, meaning that it now has an interest in five offshore blocks in China.
In December 2005, Devon signed a production sharing agreement with Cnooc for deepwater natural gas block 42/05, which covers around 2,700 square miles in the Pearl River Mouth Basin.
This agreement was followed two months later with a deal to explore oil block 11/34 in China's Yellow Sea.
Reynolds said that a complete set of 3-D seismic data for block 42/05 would be available in the next two months, and that drilling would commence there early next year if a rig could be found.
Block 42/05 is around 24 kilometers away from where Canada's Husky Energy Inc. (HSE.T) had a major find in June 2006 of recoverable reserves of natural gas estimated at between 113 billion and 170 billion cubic meters.
Reynolds added that Devon was interested in acquiring more acreage and would evaluate some of the 22 blocks that Cnooc is making available for joint development with foreign companies this year, although only a small proportion include deep water.
"Our weighting in China is clearly towards deep water so we would look at those in the context of how they fit in our portfolio in China and also around the world," Reynolds said.
Copyright (c) 2007 Dow Jones & Company, Inc.
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