BP to pay $7 billion for exploration rights

LONDON (AP) – BP is expanding its dominant oil and gas operations in the Gulf of Mexico and dropping anchor off Brazil with a $7 billion deal to buy exploration rights from Devon Energy.

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BP will get the rights for 10 exploration blocks in Brazil and others in the Gulf of Mexico and in the Caspian Sea near Azerbaijan. BP PLC already is the largest leaseholder in the Gulf of Mexico with more than 650 blocks producing over 400,000 barrels of oil equivalent daily.

Brazil is one of the world’s most promising areas for oil exploration.

Devon, based in Oklahoma City, has interests in more than 450 offshore blocks in the Gulf that account for about 7 percent of Devon’s total oil and natural gas production. In December, it sold stakes in three development projects in the Gulf to Maersk Oil for $1.3 billion.

Devon has 10 offshore blocks in Brazil covering 1.4 million acres. It has been working with national oil company Petrobras on five of the blocks. BP is acquiring eight offshore blocks and two onshore blocks from Devon.

As the world’s petroleum supplies become more difficult and more expensive to access, major oil companies are building their oil and gas holdings by taking over smaller companies. Raymond James analyst Pavel Molchanov said it makes sense for BP to buy Devon’s Brazil operations instead of starting its own deep-water projects there. "It’s very difficult for a western company that’s not already in Brazil to enter places like the Campos Basin where Devon is already present. Brazil’s government wants to make sure they maintain control."

Brazil’s president pledged last summer to exert more state control over the immense oil fields discovered off its shores.

The Brazilian assets represent potential future growth for BP.

"It’s not instant gratification," Molchanov said. "These assets aren’t going to deliver barrels of oil bubbling up very soon. But in the long run it makes sense."

There have been a series of major discoveries in the deep water off Brazil since the massive Tupi field, estimated to hold five to eight billion barrels of oil, was found in 2007. Petrobras says the offshore areas already auctioned for exploration could produce up to 16 billion barrels. Estimates for the entire area range up to 100 billion barrels.

The offshore fields lie miles underwater and beneath a thick layer of salt, making exploration and production challenging. Petrobras has exploration deals with Exxon Mobil, Amerada Hess, Royal Dutch Shell and several other multinational oil companies.

BP said two weeks ago that it expects to boost its annual pretax profit by more than $3 billion over the next two to three years. It aims to increase oil and gas production by 1 percent to 2 percent within five years. CEO Tony Hayward said BP hopes to start up 42 major projects by 2015 as existing fields decline.

BP also is selling a 50 percent stake in its Kirby oil sands interests in Canada to Devon for $500 million. The companies will form a joint venture as Devon beefs up its North American onshore portfolio.

BP shares rose 30 cents to close at $56.51 in New York. Devon shares added 39 cents to close at $72.09.

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Associated Press writers Deborah Lee in New York and Stan Lehman in Sao Paulo, Brazil, contributed to this report.