BP deals with Devon on Brazil and Canada

The oil and gas giant announced terms under which it will pay $7bn to US company Devon Energy for new acreage.

It also announced a separate deal to sell the US company a stake in a project to exploit oil heavy sand (also known as tar sands) in Canada.

As well as major rights in Brazil – a country BP has long harboured a desire to enter – the deal extends the company's position in the Gulf of Mexico, where it is the largest producer, and Azerbaijan.

Shares in BP dropped 1 per cent in early trading, over fears that it may have overpaid for the assets. BP eventually closed down 1.2p at 623.7p.

The deal adds production of about 40,000 barrels a day, with proven reserves of 150 million barrels, implying a cost of more than $47 a barrel.

However the assets have estimated possible reserves of 1.6 billion barrels.

Chief executive Tony Hayward, who has stripped hundreds of millions in costs from the business, said the deal fitted with the group's focus on high margin oil production.

"This strategic opportunity fits well with BP's operating strengths and key interests around the world, offering us significant additional long-term growth potential with an emphasis on high-margin oil," he said.

Central to the deal is a foothold in Brazil, where the waters are thought to contain up to 80 billion barrels of oil, putting it on a par with the now declining North Sea.

Although there are some concerns about the government's plans to maximise revenues from oil, a string of foreign companies have had success there, notably US giant ExxonMobil and Britain's BG Group.

Andy Inglis, BP's head of exploration and production said: "Through our entry into Brazil, BP will add a major position in another attractive deep water basin.

"Together with the additional new access in the Gulf of Mexico, it further underlines our global position as the leading deep water international oil company."

According to BP the acquisition gives it eight licence blocks to explore Brazil's "most promising offshore areas" in partnership with Petrobras, the state owned oil company.

For Devon, one of the largest independent oil producers in the US, the deal will cut debt and allow it to focus on "unconventional" oil and gas production, through shale gas and tar sands in Canada.

It has agreed to pay $500m (335m) for a 50 per cent stake in BP's Kirby oil sands project in Alberta. Inglis said as an experienced operator in oil sands, Devon's involvement would help accelerate the project.