BP Buys Devon Energy’s Long-Held San Juan Coalbed Methane Assets

BP Plc (NYSE: BP) said Dec. 18 it has bought the interests of one of Devon Energy Corp.’s (NYSE: DVN) storied assets—the Northeast Blanco Unit (NEBU) in the San Juan Basin.

The acquisition adds Devon’s regional holdings in the basin, which spans northern New Mexico and southern Colorado. The value of the transaction was not disclosed.

For BP, it’s the first major acquisition by its Houston-based Lower 48 onshore oil and natural gas business in seven years and “highlights the commitment to the San Juan Basin,” the company said.

The purchase revolved around Devon’s operated interest in the NEBU, a section of federal lands located in San Juan and Rio Arriba counties of New Mexico.

BP has had a presence in the area since the 1920s. The company anticipates taking over operations of the unit’s 480 wells and 33,000 gross acres in the first quarter of 2016 after receiving required government agency approvals.

Devon used new techniques to produce coalbed methane in the NEBU, which had seen little success before 1988.

Devon began developing the field while still a small company with two geologists, six engineers and four landmen, according to a Devon video about developing the NEBU.

In 1998, Devon had a 23% working interest and 18% net revenue interest in 33,000 acres in the NEBU. At the time, the unit held Devon’s largest reserves.

Larry Nichols, Devon’s co-founder, said the basin had been disregarded for years and was thought of as old and fully developed.

“We found a whole new reservoir that had been overlooked by the industry for decades,” Nichols said in the video.

Production from the NEBU helped make Devon one of New Mexico’s top natural gas producers.

“This acquisition clearly demonstrates the importance of New Mexico and the San Juan Basin to our future,” said David Lawler, chief executive of BP’s U.S. Lower 48 onshore business. “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.”

BP began operating its U.S. Lower 48 onshore operations as a separate business in 2015. The business has different governance, processes and systems designed to compete in the U.S. onshore industry.

Contact the author, Darren Barbee, at dbarbee@hartenergy.com.