Devon Energy Corporation announced it has signed an agreement with Sinopec International Petroleum Exploration & Production Corporation (SIPC) whereby SIPC will invest $2.2 billion in exchange for one-third of Devon’s interest in five new venture plays. Prior to this transaction, Devon had assembled 1.2 million net acres in the company’s previously announced positions in the Tuscaloosa Marine Shale, Niobrara, Mississippian, Ohio Utica Shale and the Michigan Basin. The companies have recently added acreage in the Ohio Utica Shale, increasing their joint position in the play to 235,000 net acres.

SIPC will also reimburse Devon for drilling costs incurred prior to closing and acreage acquisition costs incurred subsequent to the effective date of the agreement. SIPC will make a $900 million cash payment upon closing and $1.6 billion paid in the form of a drilling carry. The drilling carry will fund 70 percent of Devon’s capital requirements, which results in SIPC paying 80 percent of the overall development costs during the carry period. Based on the current work plan, the company expects the entire $1.6 billion carry to be realized by year-end 2014. Through 2012, the companies expect to drill approximately 125 gross wells in the five plays.

“This arrangement improves Devon’s capital efficiency by recovering our land and drilling costs to date and by significantly reducing our future capital commitments,” said John Richels, Devon’s president and chief executive officer. “We can accelerate the derisking and commercialization of these five plays without diverting capital from our core development projects. This transaction also provides us further flexibility to seek exposure to additional new play types with less risk.”

“While we are still in the early stages of derisking these plays, the tremendous response by industry to our data room process clearly underscores the attractiveness of this opportunity,” said Dave Hager, Devon’s executive vice president of exploration and production. “We believe our strong acreage positions in these plays, our reputation as a quality operator and the uniqueness of the opportunity for exposure to five different plays in a single venture make this a compelling value proposition.”

Devon will serve as the operator and will have ultimate responsibility for the allocation of capital. The company is also responsible for commercially marketing all production from these plays into the North American market. Subject to customary government and regulatory approvals, the closing is expected to occur in the first quarter of 2012.