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BP Expands Lower 48 Portfolio With Devon's Natural Gas-Rich Assets in San Juan Basin

BP plc's Lower 48 onshore business on Friday snapped up all of Devon Energy Corp.'s natural-gas rich San Juan Basin assets, including 480 wells spread across 33,000 gross acres, in the "first major acquisition" by the business in seven years.

The deal by the Houston-based arm of BP for an undisclosed amount significantly expands the operator's portfolio in an area of the San Juan in New Mexico near the Colorado border. BP has had a presence in the basin since the 1920s.

"This acquisition clearly demonstrates the importance of New Mexico and the San Juan Basin to our future," Lower 48 chief David Lawler said. "It's also consistent with our strategy of selectively expanding in BP's existing onshore basins, where we can link our innovative well design capability with our extensive subsurface expertise to generate industry leading capital efficiency."

Lawler is the first CEO of the Lower 48 unit, which early this year began operating as a separate business (see Shale DailyAug. 20, 2014). He formerly was COO of SandRidge Energy Inc. The Lower 48 arm has different governance, processes and systems designed to compete in the "unique operating environment of the U.S. onshore industry."

Most of the Devon acquisition, for an undisclosed amount, consists of operated interest in the Northeast Blanco Unit (NEBU), a natural gas unit on a section of federal lands in New Mexico's San Juan and Rio Arriba counties. The deal is expected to be completed before the end of March, pending regulatory approval.

BP already had more than 550,000 net acres in the San Juan, with average net output of 100,000 boe/d. BP now employs about 300 people in the basin in New Mexico and Colorado. The producer's Lower 48 business has a total material resource base of 7.5 billion boe across 5.7 million net acres with average total output of close to 290,000 boe/d net.

Lawler said the Lower 48 business "has begun to demonstrate material improvements in innovation, performance and competitiveness and therefore higher capital efficiency and lower operating costs, all while maintaining an unwavering commitment to safety and to the environment."

For the past decade, the London-based oil major has invested more than $90 billion in the United States, which it said is more than any other energy company. Close to 17,000 people are employed in the United States.

During a conference call in October to discuss third quarter results, the Lower 48 business was a big topic of discussion, and the management team said then that every item in the portfolio was being scrutinized (see Shale DailyOct. 27). If a project wasn’'t able to meet the price threshold, chances were lower that BP would move forward on development. At that time, upstream chief Lamar McKay said achieving growth in the Lower 48 with natural gas prices below $3.00/Mcf could be a stretch.

Lower 48 operations should be profitable "at basically about $3.00/Mcf," McKay said at the time. BP is "free cash flow positive around $3.00. Now that's not the easiest thing in the world, but that's what we've given the team to shoot for..." The Lower 48 operations team has made "massive progress on cost, where I think we're basically competitive in each basin that we operate, and they are making fast progress on capital..."

During the 1990s -- before the unconventional gas resource boom -- NEBU was Devon's largest gas asset. But it hasn’t been a contender for capital for awhile.

Earlier this month Devon announced a deal to buy properties in Oklahoma and the Powder River Basin (see Shale DailyDec. 7). Management talked about revamping the portfolio and selling off noncore assets, and although the San Juan business was not included on the list to sell, NEBU also wasn't on a map of the core onshore holdings.

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