Back in 2007, Devon Energy
I viewed Devon's oil sands divestment as an attempt to jettison some non-core acreage and increase concentration on its Jackfish project. This deepwater business is a whole different story.
Along with Anadarko Petroleum
Rather than an attempt to trim the portfolio, Devon's move more resembles Chesapeake Energy's
That said, Devon's long-term project commitments are outrunning their typical 10% to 15% share of the firm's capital budget. This year, they've devoured more like one-third of the total. And those commitments are headed higher in future years.
Based on an estimate of $45 oil and $5.50 natural gas, Devon was already planning on outspending cash flow by a billion dollars in 2009. Without a snapback in gas prices, that gap will widen further. Even after dropping more than half of its drilling rigs, the company's still got a pretty full plate in terms of capital spending. The move to bring in a partner thus strikes me as a sign that Devon's in a bit over its head in the deepwater.
Want to help us educate, amuse, and enrich? Become a contributing writer for Fool.com! We’re always looking for nimble writers who have a passion for investing and the ability to explain complex investing issues with clarity, style, and good humor. If that sounds like you, why wait? Apply now!