Devon Starts Its Transformation

Dec.25.09 | About: Devon Energy (DVN)

Danes adore the deepwater.

That's the message sent by Maersk Oil, part of the A.P. Moller-Maersk Group, this week. The firm has agreed to scoop up three of Devon Energy's (NYSE: DVN) most high-profile interests in the Gulf of Mexico's Lower Tertiary trend.

Devon started seeking a partner to help fund these projects back in May. Then, last month, the firm finally acknowledged its imperial overstretch and decided to offload all of its offshore and international assets. Before being pitched the entire enchilada, I assume Maersk Oil had been talking about farming into Devon's interest in these projects, as the firm has done with Hess (NYSE: HES), ExxonMobil (NYSE: XOM), and Chevron (NYSE: CVX) in recent years.

So what does Maersk get for its $1.3 billion?

For one, there's the 50% interest in Petrobras' (NYSE: PBR) Cascade project. First oil is expected in late 2010, so Maersk wouldn't have to wait long to see cash flow from the landmark project, which will be the first to use a floating production, storage and offloading (FPSO) facility in the U.S. Gulf.

In addition, Maersk picks up a 25% interest in the Jack and St. Malo fields, which are being developed in tandem by Chevron. This project is less advanced than Cascade, with a final investment decision expected by late next year.

Maersk could hardly ask for better deepwater partners. That's assuming, of course, that the other interest owners don't exercise preferential rights to bump up their stakes. That would include Statoil (NYSE: STO) at Jack and Petrobras at St. Malo.

This deal is a very good start for Devon. There are plenty more disposals to come as we make our way through 2010. It will be interesting to see who steps up to the plate next time.

Disclosure: no position in any company mentioned.