BP firesale creates Middle East opportunities

29 July 2010

UK oil major to sell $30bn of upstream assets by end of 2011

UK oil major BP will reduce its presence in North Africa and create major new investment opportunities for Middle East firms and governments following its decision to sell off up to $30bn of assets.

BP announced on 27 July that it planned to sell the assets to help pay for costs incurred by an oil spill at the Macondo field off the US’ Gulf of Mexico coast.

The $30bn includes the $7bn it raised by selling oil and gas properties in Egypt, the US and Canada to the US’ Apache Corporation in June. The remainder will be made up through further divestments over the next 18 months.

Mature fields

The assets put up for sale between now and the end of 2011 will be “mature” upstream properties, meaning oil and gas fields that have been producing for a several decades and have reached maximum output levels, says an executive at an international oil company (IOC) who is working in the region.

Table: BP’s major operations and assets in MENA

CountryRegionOperation/ assetNotes
AlgeriaIn SalahGas fieldOperational 2004
 In AmenasGas fieldOperational 2006
 Rhourde el-BaguelOil fieldOperational 1962
EgyptWestern DesertConcessionSold to Apache in June
 Gulf of SuezOil productionOperational 1965
 Nile DeltaExploration and production agreement 
IraqRumailaField technical service agreementDiscovered 1953
LibyaGhadames basinExploration and production agreement 
 Sirte offshore basinExploration and production agreement 
OmanAkaremGas fields exploration and production licenceSigned 2007
 KhazzanGas fields exploration and production licenceSigned 2007

Saudi Arabia
 Distribution operations 
UAEAbu DhabiPartner Abu Dhabi Marine Operating Company14.7 per cent share
 Abu DhabiPartner Abu Dhabi Company for Onshore Operations9.5 per cent share

BP’s oldest regional properties are in Egypt, where it has operated for almost 45 years.

Under the Apache deal, the company sold existing production assets and its part in a new exploration and production concession in the country’s Western Desert region for $650m.

BP also operates oil and gas producing assets in the Gulf of Suez, and these could be considered for sale at a later date, industry sources in the country say. BP also holds several exploration and production licences in the country, which are not likely to be sold.

The company has been producing gas from the In Salah development in Algeria since 2004, and is part of an enhanced oil recovery scheme at the Rhourde el-Baguel field. BP could consider looking for another company to take its 40 per cent part in the latter scheme, as it did in 2008.

In 2007, BP signed an exploration and production sharing agreement with the Libyan government, committing at the time to spend $900m on developing the onshore Ghadames and offshore deep water Sirte basin concessions. It could sell its offshore assets to allay fears over the presence of oil and because of political pressure from the US over its dealings with the Libyan government and its involvement in deepwater drilling, analysts say.

The company could also look for partners to take smaller shares in its North African projects, says Mohamed Zine, a regional energy analyst at the US’ IHS Global Insight. “Maybe they will look for partners. In some countries they could sell a share of a project without leaving entirely.”

The energy firm is developing the giant Rumaila field in southern Iraq in partnership with China National Petroleum Corporation (CNPC). This field is one of the company’s key assets and BP will not sell its interest in it, a source close the company says.

BP’s upstream assets in the Gulf are largely confined to new exploration and production deals in Oman, and its stake in two Abu Dhabi operating companies, Abu Dhabi Marine Operating Company (Adma-Opco) and Abu Dhabi Company for Onshore Operations (Adco).

BP’s contract to develop the Omani acreage will not be put up for sale, says a source close to the company. IOC executives say that they would be interested in the company’s 14.7 per cent share in Adma-Opco and its 9.5 per cent stake in Adco, although BP’s current agreements with Abu Dhabi will run out in 2018 and 2014 respectively.

“If BP was to sell some of their Middle East assets, there would definitely be some companies interested in the Abu Dhabi shares,” says a source at one medium-sized Western oil company.

Meanwhile, speculation is mounting that Middle Eastern governments and wealth funds could target some of the assets BP plans to sell outside the region, including acreage in Vietnam and Pakistan.

UAE visit

In June, former BP chief executive Tony Hayward met with Abu Dhabi government officials to discuss the company’s operations in the emirate. He also discussed potential investments from state funds International Petroleum Investment Company (Ipic) and Mubadala either through new shareholdings in the company or the acquisition of assets.

In 2007, Abu Dhabi Energy Company (Taqa) acquired all of BP’s assets in the Netherlands. Taqa has operations in the UK and Canada, and is among regional operators that could be interested in buying some of BP’s ageing oil and gas producing assets in the UK or Alaska.

Although there will be regional interest in the UK major’s plans, it is unlikely to become clear exactly which assets are up for sale until the end of the year, says one former Abu Dhabi-based IOC executive, who now works for a regional state fund.

“At the moment, only BP’s board really knows what is going on,” he says.

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