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Devon sell-off attracting suitors?

November 17, 2009
TOPICS: Natural gas
Devon Energy's announcement that it would sell all of it offshore and international properties may have some major oil companies thinking merger.

Forbes energy reporter Christopher Helman says Devon's slimmer portfolio could be a tasty prize for an energy giant with the business environment worsening overseas.

From Forbes:

Exxon, more than the others, has focused internationally in recent years, leaving the onshore oil and gas basins of the U.S. to independents like Devon, XTO Energy, Chesapeake Energy and others. Now that it's getting ever harder to convince tightfisted OPEC nations to open their fields to development, and nearly impossible to grow oil and gas production volumes, it's likely that the giants will return to the U.S.

Devon, with a $30 billion market cap, is too big for all but the giants to take on. What would they get? Proven reserves of 2.8 billion barrels (split roughly 40/60 between oil and natural gas) and probable reserves of 12 billion barrels. The goodies are spread among some of North America's most promising basins: the Barnett shale around Fort Worth, Texas, the Haynesville shale of Louisiana, the Arkoma, the Cana, etc.

Then there's the Horn River Basin of British Columbia, Canada. Devon sees its acreage in this shale gas play ramping up from no current production to more than 350 million cubic feet a day by the end of 2014.

In July, ExxonMobil announced that it had leased 250,000 acres in the Horn River. In an interview with Forbes, Chief Executive Rex Tillerson said that although the Horn River was farther from market than many U.S. shales, it was "as rich as, if not better than the Barnett shale."

It would make sense for ExxonMobil to buy Devon. Not just for Horn River. Exxon has missed the U.S. shale gas boat, and spent the last decade using its massive balance sheet to build megaprojects in far-flung spots like Russia, Africa and Qatar. Exxon doesn't need Devon's international assets. Exxon has only a third of its reserves in the Americas, and just a tiny sliver in unconventional gas plays. The energy giant needs growth, and Devon has it.
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