Sumitomo to take part in tight oil development project in Texas
Sumitomo Corp has signed an agreement with Devon Energy Corp to participate for 30% in Devon’s tight oil development project in the Permian Basin in Texas. The project, expected to drill for 15 years and produce over 30 years, includes oil 60%, liquid natural gas 20%, and natural gas 20%.
Sumitomo has agreed to invest in the non-operated interests of the project, including leases, existing wells, and facilities. Sumitomo will make a cash payment equivalent to 25% of consideration upon closing, and will also pay the rest of the consideration in the form of a drilling carry.
Sumitomo plans to invest approximately $2 billion including the consideration and drilling carry over a three year period. Sumitomo and Devon will jointly develop three target formations in the co-development area in the Permian Basin. Sumitomo is considering financing arrangements mainly from Japan Bank for International Corporation (JBIC).
The Permian Basin has been a prolific producing area since the 1920s as a conventional development field. It has the largest proven oil reserves in North America (approximately 5 billion barrels), by far exceeding those of Alaska and the Gulf of Mexico.
In December 2009, Sumitomo became the first Asian company to join a shale gas project in the United States, participating in the shale gas development project in the Barnett Shale Fields, in Texas. The following September, Sumitomo also participated in the Marcellus Shale Fields in Pennsylvania.