BP and Devon Energy have entered into a joint venture that will use the latter’s in-situ production expertise to develop BP’s Kirby oil sands leases in Alberta, Canada.

Devon will acquire 50% of BP's interest in the Kirby oil sands leases, paying $500 million at closing and committing to fund an additional $150 million of capital costs on BP's behalf.

Devon will operate the Kirby project, which is close to its Jackfish steam-assisted gravity drainage (SAGD) project. Like Jackfish, Kirby is expected to be a multi-stage SAGD development.

“We are excited about the opportunity to work with a world-class organisation such as BP to leverage our SAGD expertise from Devon's Jackfish project," said John Richels, Devon’s president. "While the Kirby development will require additional evaluation to confirm its size and scope, we believe it will support several phases of development and has total recoverable resources that are greater than our Jackfish complex. We believe Kirby to be similar to Jackfish in terms of geology, reservoir characteristics and oil quality.”

Joseph Doucet, Enbridge professor of energy policy at the University of Alberta’s School of Business, said: “Clearly, BP is interested in Devon’s expertise in in-situ mining, which is significant going forward in terms of the industry, because probably 80% of Alberta’s oil sands resource is not accessibly through mining, it will be developed through in-situ.”

As part of the deal, BP will also purchase all Devon’s assets in the deepwater Gulf of Mexico, Brazil and Azerbaijan for $7 billion. This marks BP’s entry into Brazil’s deepwater offshore fields.

Bruce Bullock, director of the Maguire Energy Institute at Texas’ Southern Methodist University’s Cox School of Business, said: “For a mid-sized independent like Devon, it’s very difficult to fund an aggressive international exploration and production programme while exploiting the type of properties they have in North America. Shale gas properties, for example, require significant cash flow and are very price sensitive, but there is far less risk and therefore it makes sense for a company the size of Devon to focus on those assets.”

In addition to assets in a number of other unconventional plays in North America, Devon has used fracturing technology to increase its production in the Barnett Shale in North Texas from 200 million cubic feet of natural gas equivalent per day in 2002 to more than 1 billion today.

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