Exclusive-BP explored deal for Devon’s Eagle Ford asset, sources say

By David French and Arathy Somasekhar

NEW YORK/HOUSTON, Sept 24 (Reuters) - BP studied a possible deal to buy Devon Energy's operations in South Texas, four sources familiar with the matter said, with one of the sources adding it has now backed away from such a move.

After years of prioritizing investments in renewable energy, and leadership churn that included five chief executives since 2020, London-headquartered BP has reverted to a strategy that places its traditional oil and gas business at its heart.

Since Meg O'Neill joined as CEO in April, BP has entered the data room on a small number of shale assets placed for sale, allowing the company access to confidential information provided to prospective buyers so they can evaluate the merits of a deal, according to six sources.

Among them was the data room for Devon's Eagle Ford asset, which opened in late August, four of the sources said. Analysts at TPH Research said in a note on Wednesday that Devon's asset could be worth around $4.5 billion.

However, after studying the merits of a deal, BP decided to walk away, one of the sources familiar with the matter said.

BP's shares fell 3.4% on Friday, while Devon's stock closed 1.8% higher on Thursday. Devon has risen around 34% this year, per LSEG data.

The sources cautioned that entering a data room does not guarantee that BP will formally bid on an asset. They spoke on condition of anonymity to discuss private deliberations.

“BP has been very clear about its five priorities, which includes a clear focus on strengthening the balance sheet - this priority remains unchanged alongside our commitment to maintaining capital discipline,” BP said in an emailed comment. The other priorities include simplifying its portfolio, operational excellence and faster decision making with higher accountability.

Devon did not respond to a comment request.

BPX ENERGY

BP's US shale operations are held within its BPX Energy unit, with assets in the Eagle Ford, Permian and Haynesville basins spanning Texas and Louisiana. Production in the second quarter was around 545,000 barrels of oil equivalent per day (boepd), of which its existing Eagle Ford was approximately 205,000 boepd, according to an August presentation.

The company is targeting over 650,000 boepd from BPX by 2030, according to BP's website. 

Despite its strategic pivot back to oil and gas, previously overseen by Albert Manifold before he was fired as chair and replaced on a permanent basis earlier this month by Ian Tyler, BP has spent the last 18 months focused on reducing debt and hitting a $20 billion divestment target.

While it has engaged in some acquisition activity in that time, including showing interest in buying a majority stake in the Shenandoah field in the US Gulf, BP had been largely absent from shale data rooms, making its re-emergence in recent weeks as a potential buyer notable, three of the sources said.

Buying assets near its existing footprint would be logical, four of the sources said, given the potential for cost savings and BP's familiarity with local geology.

Part of Devon's Eagle Ford asset was held in a joint venture between the company and BP until the partnership's dissolution in 2025.

DEVON DIVESTMENT

Devon is marketing for sale both its Eagle Ford and Powder River basin acreage in Wyoming, the sources said, as part of a portfolio review undertaken following its $58 billion merger with Coterra Energy. The Eagle Ford asset consists of around 90,000 net acres, and produced around 77,000 boepd in the second quarter, according to Devon's website.

The effort comes as U.S. energy assets have increased allure to buyers, as they can operate even as Middle Eastern conflict shakes global oil markets. The tension pushed crude back above $100 per barrel last week, with higher prices of benefit to sellers.

Conversely, market volatility makes it harder for buyers and sellers to agree on valuations, as buyers want to avoid the perception of paying an inflated price. Dealmaking involving US production assets has slumped in recent months as a result.

This uncertainty is reflected in potential valuations for Devon's Eagle Ford. The TPH Research analysts marked it at $4.5 billion, but the sources pointed to a range between $3.5 billion and roughly $4 billion.

Devon is also facing pressure from activist shareholders TOMS Capital and Kimmeridge Energy Management to improve performance and shed assets.

(Reporting by David French in New York and Arathy Somasekhar in Houston; Additional Reporting by Stephanie Kelly and Shadia Nasralla in London, editing by Colin Barr, Nick Zieminski and David Gregorio)