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Cnooc, Sinopec Said to Mull Devon’s Caspian Stake

Source: Bloomberg 2/18/2010, Location: Asia

Cnooc Ltd. and China Petroleum & Chemical Corp. are considering bidding for a Devon Energy Corp. stake in an Azerbaijan oil field that may fetch as much as $3 billion, said two people with knowledge of the matter.

Japan’s Itochu Corp. and Inpex Corp. are also among companies that may bid for the 5.6 percent holding in the Azeri- Chirag-Gunashli oil project, four people said, asking not to be identified because they aren’t authorized to discuss the sale publicly.

A Chinese purchase would add to $18 billion of energy acquisitions since December 2008 as the nation scours the globe for resources to feed the world’s fastest-growing major economy. Devon, the biggest independent oil and natural-gas producer in the U.S., announced plans in November to sell its Gulf of Mexico and overseas assets to raise as much as $7.5 billion to cut debt and fund onshore developments.

This reflects China’s “big appetite for oil assets worldwide,” said Hirofumi Kawachi, an analyst at Mizuho Investors Securities Co. in Tokyo. “The U.S. is gradually shifting investment to unconventional energy sources, such as shale gas reserves at home.”

More than a dozen companies, including several in North America and Europe, have shown interest in the Azeri field, one of the people said.

Itochu Explores Options
Itochu is looking into the feasibility of bidding, said a spokesman who declined to be named, citing company policy. Spokespeople for the other companies identified as potential buyers declined to comment.

Devon has opened data rooms for prospective buyers of the central Asia field stake and assets in Brazil and China, Chief Executive Officer Larry Nichols told investors on a Feb. 17 conference call. Devon expects all bids by midyear, he said.

Potential buyers may submit their first offers around late March, two of the people said.
Existing partners in the Azeri-Chirag-Gunashli field can exercise a right of first refusal to buy Devon’s stake, two of the people said. The other partners are Exxon Mobil Corp., Statoil ASA, Turkiye Petrolleri AO, Chevron Corp., BP Plc, Hess Corp. and State Oil Co. of Azerbaijan.

Chevron spokesman Mickey Driver and Patrick McGinn of Exxon Mobil declined to comment on whether their companies would exercise preferential rights. Hess spokesman Jay Wilson didn’t immediately respond to a message seeking comment.

Oil & Natural Gas Corp., India’s largest energy explorer, and China National Petroleum Corp. have also been invited to make a bid, one of the people said. ONGC Chairman R.S. Sharma and Mao Zefeng, the Hong Kong-based spokesman for CNPC’s listed arm, declined to comment. Beijing-based China Petroleum & Chemical is known as Sinopec.

Devon’s share of proved reserves at Azeri-Chirag-Gunashli was 64 million barrels of oil as of Jan. 31, 2009, up from 58 million barrels a year earlier, said company spokesman Chip Minty.

Based on that figure, the Devon stake is worth about $1.3 billion, said Biju Perincheril, an analyst at Jefferies & Co. in New York who rates Devon shares at “buy” and owns none. A price of $3 billion would be $45 per barrel of proved reserves, “which seems rich to me,” he said.

Light, Sweet Crude
The oil field is the largest in the Azerbaijan sector of the Caspian basin, according to BP, the operator and holder of a 34 percent working interest. In 2009, Devon’s share of Azeri- Chirag-Gunashli’s production was 16,698 barrels of light, sweet crude oil a day, Minty said.

Devon won’t comment on speculation about pricing or potential bidders for its assets, Minty said.
The sales of international assets will include properties that account for about 7 percent of the company’s 2.8 billion barrels of oil equivalent in reserves, according to a Nov. 16 statement by Oklahoma City-based Devon. Cutting debt and directing spending to U.S. and Canadian fields will increase cash flow, production and reserves, the company said.

Deutsche Bank AG is advising Devon on the sale of its assets outside of North America, the people with knowledge of the plan said. JPMorgan Chase & Co. and Bank of Nova Scotia are working on sales in the deep waters of the Gulf of Mexico, and Bank of America Corp. is handling sales in shallow waters of the Gulf, the people said.

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