China's Sinopec invests $2.2 bn in US shale deal

Oklahama City- Devon Energy Corporation yesterday said it has signed an agreement with Sinopec International Petroleum Exploration & Production Corporation (SIPC),  a subsidiary of China Petroleum & Chemical Corp (Sinopec) whereby SIPC will invest $2.2 billion in exchange for one-third of Devon's interest in five new venture plays.

Prior to this transaction, Devon had assembled 1.2 million net acres in the company's previously announced positions in the Tuscaloosa Marine Shale, Niobrara, Mississippian, Ohio Utica Shale and the Michigan Basin. The companies have recently added acreage in the Ohio Utica Shale, increasing their joint position in the play to 235,000 net acres.

SIPC will also reimburse Devon for drilling costs incurred prior to closing and acreage acquisition costs incurred subsequent to the effective date of the agreement.

SIPC will make a $900 million cash payment upon closing and $1.6 billion paid in the form of a drilling carry. The drilling carry will fund 70 per cent of Devon's capital requirements, which results in SIPC paying 80 per cent of the overall development costs during the carry period.

Based on the current work plan, the company expects the entire $1.6 billion carry to be realised by year-end 2014. Through 2012, the companies expect to drill approximately 125 gross wells in the five plays.

''This arrangement improves Devon's capital efficiency by recovering our land and drilling costs to date and by significantly reducing our future capital commitments,'' said John Richels, Devon's president and chief executive officer. ''We can accelerate the derisking and commercialisation of these five plays without diverting capital from our core development projects. This transaction also provides us further flexibility to seek exposure to additional new play types with less risk.''