BP has confirmed its return to expansion after more than six years by sealing a second deal in a matter of days in a flurry of activity that could dramatically boost its reserves.
The oil major is to spend nearly $1 billion developing big gasfields off west Africa. It is acquiring a 62 per cent interest in Kosmos Energy’s exploration blocks in Mauritania and Senegal.
The agreement comes after BP concluded a deal on Saturday that handed a 2 per cent stake to the government of Abu Dhabi. It is the company’s fourth expansionary move in the past few weeks.
BP has been excluded from big deals in the US since the Deepwater Horizon disaster in the Gulf of Mexico in 2010, which killed 11 people and cost the company more than $60 billion. More broadly, oil companies have been saving cash and cutting costs since oil prices began sliding from more than $100 a barrel in 2014, leading to a sharp slowdown in expansionary moves.
Even the megadeal between Royal Dutch Shell and BG Group earlier this year was coupled with a huge divestment programme as Shell cherry-picked the best projects from the enlarged pipeline.
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Bob Dudley, BP’s chief executive, said that Mauritania and Senegal represented “an exciting strategic opportunity to work with Kosmos Energy in an emerging world-class hydrocarbon basin”.
He added: “We believe our expertise in integrating the gas value chain, together with a talented exploration partner in Kosmos [and] the support of the Mauritanian and Senegalese governments bring together all the elements needed to create a new LNG hub in Africa.”
Tom Ellacott, an analyst at Wood Mackenzie, estimated that the deal gave BP access to 3.5 billion barrels of oil equivalent in new resources. This would add 20 per cent to its reserves.
Over the weekend BP struck a deal to buy a 10 per cent stake in Abu Dhabi’s onshore Adco concession, in return for handing 2 per cent stake of the company to the emirate state. It has also bought a stake in Eni’s Zohr project off Egypt and pressed ahead with the Mad Dog project in the Gulf of Mexico after the cost of the investment was cut from $20 billion to $9 billion.
“BP is certainly ending the year with a bang,” Mr Ellacott said. “They now have good visability on the liability they’re facing with Macondo [the prospect on which the Deepwater Horizon disaster occured] and they’re ready for the next phase of the business. The portfolio is in pretty good shape and what they’re now doing is hitting near and long-term growth options.”
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The deals demonstrated that oil companies were making ends meet at lower oil prices, Mr Ellacott said. “We will look back and 2016 will have been the bottom of the cycle. If you go back to 2014 the sector needed $100 a barrel to achieve cashflow. Next year it will be mid-50s.”
Alex Brooks, an analyst at Canaccord Genuity, said that the transaction “underscores the renewed confidence at BP and that it has got its balance sheet in sufficiently good shape to start doing deals again”. Other majors have also begun to show signs of stirring.
ExxonMobil, the world’s biggest private oil producer, announced in July that it was buying InterOil, a Canadian gas producer, in a $2.54 billion deal. In the same month Statoil, the Norwegian state company, bought a controlling stake in one of Brazil’s promising offshore deepwater fields.
BP’s deal with Kosmos, which is based in Dallas, includes a $162 million payment up front, $221 million to be spent on exploration and $533 million on development costs. Kosmos will receive a $2 bonus for every barrel produced, up to a billion barrels.
Abu Dhabi’s deal means that it overtakes Kuwait, a shareholder in BP for nearly 30 years, to become one of the company’s ten biggest investors. The 2 per cent stake comprises new shares worth about £1.90.
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BP had been a shareholder in the state’s Adco’s onshore concession since 1939, but the agreement expired in 2014, just as oil prices began to slide. Since then Abu Dhabi has been recruiting international oil companies to share a 40 per cent stake in a series of giant onshore fields that are expected to produce 1.7 million barrels of oil a day this year.
The other international companies involved with Adco are Total, of France, Inpex, of Japan, and GS Energy, of South Korea.
BP also holds a 15 per cent stake in Abu Dhabi’s offshore concession and a 10 per cent stake in two downstream businesses: the Abu Dhabi Gas Liquefaction Company and the National Gas Shipping Company.