Devon Energy Corp. has signed another long-term contract for a second semisubmersible drilling rig in the Gulf of Mexico (GOM), signaling its intentions to capitalize on its potential, resource prospects.

Devon’s initial four-year $690 million contract with Seadrill Offshore AS is for use of the West Sirius rig, which would be capable of drilling any prospect in Devon’s deepwater inventory. The rig, currently under construction, is designed to drill to 37,500 feet in up to 10,000 feet of water. The rig is scheduled for delivery from Singapore in 2Q2008, and Devon has the option to extend the lease term to five or six years.

Before entering into the West Sirius contract, Devon obtained a four-year contract on Diamond Offshore’s Ocean Endeavor deepwater drilling rig. The Ocean Endeavor is being refurbished in Singapore and is scheduled to arrive in the GOM in 2Q2007. The Ocean Endeavor is capable of drilling to 35,000 feet in 10,000 feet of water.

“This second long-term rig agreement reflects our growing confidence in the value of Devon’s deepwater Gulf of Mexico position,” said Devon’s Stephen J. Hadden, senior vice president, exploration and production. “Our successful Lower Tertiary exploration program, progress toward commercialization and strong prospect inventory present us with an extensive set of deepwater Gulf of Mexico drilling opportunities. With two deepwater rigs under contract we will have additional capacity and flexibility to test, appraise and develop multiple prospects in the Lower Tertiary and Miocene trends.”

Devon has to date made four discoveries in the GOM’s deepwater Lower Tertiary trend, and it estimates that its participation in just those four discoveries could yield 900 million boe, which would increase its 2005 year-end booked reserves by 43%. All told, Devon now holds stakes in 19 prospects in the Lower Tertiary.

The trend is a relatively unexplored region, with a shallow salt cover that forms a “salt canopy” across the play. In 2002, relatively few wells had penetrated the deep rock, and few believed the tertiary sands would be productive in the deepwater. That changed in June 2002 with the Cascade discovery by Devon, BHP Billiton and Petrobras (see Daily GPI, Aug. 16; June 4, 2002).

In September, Devon (25% stakeholder) and partners Chevron Corp. and Statoil ASA announced completion of the deepest extended drill stem test in history, with a successful production test on the Jack No. 2 well at Walker Ridge Block 758 in the Lower Tertiary (see Daily GPI, Sept. 6). In August, Devon announced plans to conduct additional drilling and commence production from the Cascade discovery, and in that month Devon announced another discovery on trend in the Kaskida prospect, Appraisal drilling on Kaskida and on the previously announced St. Malo discovery is also planned.

“Our growth strategy in the deepwater Gulf was to build a strong exploration portfolio through lease sales, joint ventures and acquisitions,” said Hadden. “Execution of this strategy has resulted in four discoveries and 19 additional Lower Tertiary prospects, six of which we operate. We have also identified 16 Miocene prospects, five operated by Devon. These opportunities represent resource potential that could more than double the company’s current reserve base.”

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