Two significant deals signed over the weekend for BP PLC (BP) to explore for oil and gas offshore Russia and Australia show that the company's recovery from the Gulf of Mexico oil spill is strengthening, said analysts and investors Monday.
Two significant deals signed over the weekend for BP PLC (BP) to explore
for oil and gas offshore
Russia
and
Australia
show
that the company's recovery from the
Gulf of Mexico
oil
spill is strengthening, said analysts and investors Monday.
While the company's future in the
U.S.
remains uncertain, the new agreements demonstrate that the Deepwater Horizon
disaster is not deterring other countries from doing business with BP. But
while analysts praised the BP deals, they noted that both are long term and
therefore unlikely to provide rapid relief to BP investors who lost billions
due to the spill, analysts said.
One of the big fears was that BP wouldn't be awarded exploration licenses in
other countries because of the spill, said Colin Morton, a fund manager at
Rensburg Fund Management, which has a stake in BP. "Other countries aren't
saying that BP can't explore...they have no real concerns over BP's safety
record," he said.
"BP is moving onto the front foot," said analysts at Morgan Stanley
in a research note. The company is still a bold, confident and innovative
dealmaker, it said.
At 1611 GMT, BP shares were up 0.3%, or 2 pence, to 501p. BP shares closed at a
more than six-month high last week at it looked like the company could face
lower spill costs than expected.
BP's most dramatic recent deal came on Friday when it announced a joint venture
with state-controlled company OAO Rosneft (ROSN.RS) to look for for oil and gas
in
Russia
's
Arctic
. BP
will provide the funding and technical knowhow to lead exploration efforts in
125,000 square kilometers of the ice-bound South Kara Sea, which by Russian
estimates, could contain around 100 billion barrels equivalent of oil and gas.
BP and Rosneft also announced a share swap to cement the deal. Each company
will issue around $8 billion in new shares to the other and agree to hold them
for at least two years.
Monday, BP announced that it had been awarded four deepwater blocks covering
24,000 square kilometers off
South Australia
. Water
depths in some of the blocks are up to twice that of BP's Macondo well, which
leaked millions of barrels of oil into the Gulf last year in one of the world's
worst spills.
Igor Sechin,
Russia
's
Deputy Prime Minister and Chairman of Rosneft, said BP was chosen in part
because of its experience handling the Deepwater Horizon oil spill in the
Gulf
of Mexico
last summer. That disaster, "provided the
company with one of its competitive advantages, which we will rely upon as we
develop offshore," Sechin said at a press conference to announce the deal.
That BP has survived such a crisis makes it a more valuable partner, he said.
Australia
's
Energy Minister, Martin Ferguson, said BP was awarded the four permits
following an "extensive assessment" by regulators that examined the
company's technical and financial competence. BP has agreed to "fully
integrate lessons learned from the Deepwater Horizon incident into its systems
and processes,"
Ferguson
said.
"BP's credibility as an explorer and operator of the deepwater has been
revalidated," said Morgan Stanley.
However, analysts noted that both these deals are only likely to yield
commercial rewards in the long term. BP plans to drill its first Australian
exploration well in 2013 and its first Russian wildcat in 2015.
"While we think this offers a good opportunity for BP in the next decade,
it does little to address the lack of growth in the near term and the portfolio
gap in the 2015-2020 period versus peers," said analysts at Bernstein
research in a note.
BP has already written off $40 billion to cover the cost of the spill and could
face further fines running into the tens of billions of dollars. It also
suspended all dividend payments for the last three quarters.
The spill will also dent BP profits for years to come. The company has already
been forced to sell $22 billion worth of oil and gas production assets to cover
spill costs. It plans to sell up to $30 billion in total, probably reducing its
production by around 10%.
The deals in Russian and
Australia
will
yield only costs initially. BP will carry all exploration costs up to $2
billion in
Russia
, and
only claim Rosneft's share of expenditure back later. This will not be greeted
favourably by investors either, Bernstein added.
There are also short-term risks as BP continues to operate under heavy scrutiny
from the
U.S.
government and environmental groups.
Republican U.S. Congressman Michael Burgess, who sits on the House Energy and
Commerce Committee, has already raised national security concerns about a
company controlled by the Russian government becoming one of the largest
shareholders in BP, which is one of the largest suppliers of fuel to the
U.S.
military and operator of strategically important
U.S.
energy infrastructure.
"BP may think it can continue taking huge risks with our environment by
hiding out in the
Arctic
, but they're wrong,"
Ivan Blokov, a Campaign Director at Greenpeace
Russia
said
on the group's website. "The world is keeping a close eye on BP and any
company involved in Arctic drilling."
"From a political point of view and a PR point of view, they are going to
get quite a bit of stick for this," said Morton.
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