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Devon Energy proceeds with BP joint venture in oilsands

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    Mrityunjay Singh

    Partners in projects are sticking with BP
    Devon and others say oil spill isn’t keeping them from proceeding
    By BRETT CLANTON Copyright 2010 Houston Chronicle
    June 29, 2010, 11:48PM

    Devon Energy Corp. is not letting the disaster in the Gulf deter it from moving forward on a Canadian oil sands project with BP.

    On Tuesday, the Oklahoma City-based oil and gas company closed a $500 million joint venture with the British oil giant, announced earlier this year, and is making plans to begin exploratory drilling under the pact later this year, Devon spokesman Chip Minty said.

    Despite the shadow the spill is casting over BP, Devon is comfortable with the partnership and does not believe involvement with BP poses a risk to Devon’s finances or reputation, he said.

    At the same time, Minty was quick to note that Devon, not BP, is taking the lead in developing BP’s Kirby oil sands leases in Alberta.

    “BP is very interested in us bringing our experience and expertise into that project,” he said.

    The arrangement underscores the awkward position several U.S. companies are in as they try to balance the risks and rewards of business partnerships with BP.

    Once eager to tout the financial support and technical expertise that came with such a partnership, some companies are now trying to establish a safe distance from BP, wary that its financial and image troubles might taint them.

    “I’m sure that all of their counter-parties are looking at ‘how much do we want to have in exposure?’ ” said Loretta Cross, a managing partner in Grant Thornton’s corporate advisory and restructuring services group in Houston.

    Other projects unaffected
    Devon is among several BP partners who say that so far, the Gulf disaster isn’t affecting their joint projects. Likewise, none acknowledged contingency plans for a BP bankruptcy or any other change that could disrupt joint projects.

    But it’s almost certain those conversations are taking place, Cross said. And others likely are exploring whether it’s worth being associated with BP at all, especially in the offshore arena, after accusations the company cut corners at its Macondo well.

    It blew out on April 20, killing 11 workers and launching the worst U.S. oil spill.

    “It’s possible that on offshore activity, BP could face some issues in the future,” said Phil Weiss, analyst with Argus Research.

    Under pressure
    In recent weeks, critics have hammered BP for what they view as a broken safety culture at the company, a string of insensitive remarks by CEO Tony Hayward and the company’s continued failure to cap the gushing well.

    Last week, James Hackett, CEO of Anadarko Petroleum Corp., left open the possibility of never doing business with BP again if investigations confirm BP acted recklessly in the Macondo well accident. The Woodlands-based Anadarko could face billions in Gulf cleanup costs for its 25 percent share in the deep-water well.

    But BP partners in onshore energy projects say the spill has not yet created problems.

    “All our joint operations with BP are normal and steady as she goes,” said Aubrey McClendon, CEO of Oklahoma City-based Chesapeake Energy Corp., which has a joint venture with BP to drill natural gas wells in the Fayetteville and Woodford shale plays.

    Verenium Corp., a biofuels firm in Cambridge, Mass., is in talks with BP about extending two joint ventures to develop nonfood based ethanol and build production plants, Verenium spokeswoman Kelly Lindenboom said.

    “It’s certainly a very significant issue and one that BP is taking and looking at very seriously,” she said of the spill. “But the work we’re doing is completely separate from all of that.”

    Exxon Mobil Corp. and Houston’s ConocoPhillips declined to speculate how BP’s oil operations in Alaska’s Prudhoe Bay, in which they are minority partners, could be affected by the Gulf spill.

    Devon announced in March it would form a heavy oil joint venture with BP on the same day it said it would sell deep-water fields in the Gulf of Mexico, Brazil and Azerbaijan to BP for $7 billion.

    Under the deal, Devon paid BP $500 million to acquire a 50 percent stake in BP’s Kirby oil sands leases and pledged to commit another $150 million on BP’s behalf. It has since renamed the project Pike.

    $20 billion account
    With spill-related liabilities mounting, BP has pledged to set aside $20 billion in an escrow account to meet compensation claims from the oil spill and said it will suspend dividend payments, reduce capital expenditures and step up asset sales.

    David Nicholas, a BP spokesman, would not say if BP has made any assurances to its joint venture partners in North America.

    “We are obviously in contact with our partners throughout our daily business,” he said, “and if they request, we will inform them about the situation in the Gulf of Mexico.”

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