Devon heads back to shore with $1.3B Gulf sale

AP News
Posted: Dec 22, 2009 3:48 PM

Devon Energy began its withdrawal from the Gulf of Mexico on Tuesday, lured back to shore by land-based natural gas reserves that are less risky, and less expensive to exploit.

Devon sold three Gulf projects for $1.3 billion to Maersk Oil, just the start of a strategic shift that the company said will free up billions for operations within suddenly prolific U.S. gas fields.

The independent oil and gas producer, based in Oklahoma City, said last month it would sell all of its assets in the Gulf and in deep waters like those off the shore of Brazil.

About 30 percent of Devon's capital investments last year went to offshore drilling operations.

"With only 70 percent of our capital spending we were able to grow significantly onshore," said spokesman Chip Minty. "We didn't record any growth internationally."

For Devon it is a rededication to onshore drilling and the techniques that it helped to pioneer almost a decade ago.

The company acquired Mitchell Energy in 2002, a company that had figured out how to free enormous amounts of natural gas from rock formations using pressurized water mixed with sand and chemicals.

Devon began drilling in the Barnett Shale of north Texas, and total extraction reached about 200 million cubic feet of natural gas equivalent per day.

Those drilling techniques have spread, and the Barnett Shale is now producing about 4 billion cubic feet of natural gas per day. About a quarter of that is produced by Devon.

Those eyepopping numbers have since drawn Big Oil into the mix. For years, independents like Devon and Chesapeake Energy have operated quietly in shale formations from Texas to North Dakota and New York.

Last week, Exxon Mobil Corp. stunned the industry when it announced that it would buy XTO Energy, a major U.S. natural gas producer, for around $30 billion. European oil majors have also struck deals with U.S. producers and many expect other majors will follow Exxon.

That would bring enormous amounts of capital, and potentially unprecedented amounts of natural gas to the market.

Devon's sale of offshore assets will give the company some more firing power in coming years. The company estimates that it will receive after-tax proceeds of up to $7.5 billion from the sales, including the one announced Tuesday.

"There are a lot of great opportunities in the Gulf and internationally, but we looked onshore and saw more opportunities," Minty said.

Devon shares rose 30 cents to $70.95 Tuesday.