Hope as BP inks mega-deals
Firm pulls out all stops to end two-year slump
BP IS piling up assets with more than $3-billion (R42-billion) of deals in three days as chief executive Bob Dudley expects the company to emerge from the doldrums after a twoyear price slump.
Since Saturday, BP has announced a $2.2-billion (R30-billion) expansion of output in Abu Dhabi and a $916-million (R12.8-billion) investment in fields in Mauritania and Senegal.
That brings its 2016 acquisitions to more than $3.8billion (R53-billion), the highest in four years, according to data compiled by Bloomberg.
The spending spree may herald a return to growth for Dudley, who has spent most of his sixyear tenure divesting assets to pay for the catastrophic Gulf of Mexico oil spill in 2010, for which BP set aside more than $50-billion (R700-billion).
Europe’s number three oil company, a third smaller since then, plans to start seven or eight major projects next year as crude prices recover from their worst collapse in a generation.
“It’s time for BP to start growing,” Dudley said in a Bloomberg Television interview in Abu Dhabi.
“We’ve walked through so many difficulties in the US that I think the company now is well positioned for growth.”
BP shares have risen almost 40% this year. Notwithstanding a slide in the next few weeks, that would mark the stock’s best year since 1993. Its larger European competitors have also performed well, with Royal Dutch Shell adding almost 50% and Total about 16%.
The Abu Dhabi and West African deals secured new reserves and production for BP well into the next decade, said Brendan Warn, a managing director at BMO Capital Markets in London.
Shell’s purchase of BG Group this year gave it assets in Brazil and Australia, Eni has gas projects in Egypt and Mozambique and Exxon Mobil is seeking to buy InterOil, but investors were not sure where BP’s future volumes would come from, he said.
“The market was questioning their ability to grow post-2020 and these are the resource-sustenance deals they were looking for,” he said.
“The timing of these deals is also interesting, coming at a time oil prices are rising.”
Benchmark Brent crude has gained more than 45% this year, reversing last year’s 35% decline. Amid the rally, BP has also snapped up a 10% stake in Eni’s giant Zohr gas field in Egypt and a bigger chunk of Indonesia’s Tangguh liquefied natural gas project.
In a further sign of confidence, BP in December approved the $9-billion (R126-billion) expansion of its Mad Dog deepwater project in the Gulf of Mexico, not far from the site of the oil spill. It also backed an $8-billion (R112-billion) expansion of the Tangguh project in July.
Oil companies have been emboldened by a recent 20% surge in the oil price after oil cartel Opec said on November 30 it would cut production to curb the global oversupply. Opec oil ministers have said a price of $60 a barrel would be acceptable to everyone.
BP says it can cover spending and dividends without having to borrow at a price of $50 to $55 a barrel next year, down from an earlier estimate of $60.
While oil is currently around $55, it has averaged less than $45 a barrel this year compared with $108 in 2013, and BP’s adjusted earnings have fallen yearon-year for nine consecutive quarters. The company trimmed its 2016 capital-expenditure forecast in December.
“One has to have some confidence in the price,” Dudley said. “We are going to remain very, very disciplined about the capital we spend and projects we select”. — Bloomberg-BDLive