Martin Flanagan: BP oils up the deal wheels again

BP's west Africa deal shows divestments are not the only game in town, writes Martin Flanagan. Picture: Gareth Fuller/PA
BP's west Africa deal shows divestments are not the only game in town, writes Martin Flanagan. Picture: Gareth Fuller/PA
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Much has been talked about the malaise in the energy sector.

The oil and gas industry has been pummelled, with scores of shutdowns, job losses and shelved projects as the oil price slumped from $115 in the summer of 2014 to a low of $27 last January, and only partly recovered at $54 last night.

But oil giant BP has shown that its recovery from the Gulf of Mexico disaster in 2010 continues as it hits the dealmaking trail again. The group yesterday invested nearly $1 billion (£800m) in a huge natural gas field off the west coast of Africa.

The agreement with US exploration company Kosmos Energy to explore waters off Mauritania and Senegal comes within days of BP signing a $2.4bn deal to buy a stake in Abu Dhabi’s largest oilfields, in return for which the government of Abu Dhabi will take a 2 per cent stake in the British company.

READ MORE: BP invests $1bn in huge gas field off west Africa

It fits in with Big Oil’s new generic strategy of being prepared to spend big, and pay top dollar, where prospects look good, while being penny-pinching and divestment‑minded in mature regions of less obvious potential (such as the North Sea).

Under yesterday’s agreement, BP will pick up a 62 per cent stake in Kosmos’s Mauritanian operation and 32.5 per cent of its Senegalese unit. However, showing that the major players are judging each business case on its merits, BP’s arch-rival Royal Dutch Shell yesterday unveiled the $1.4bn sale of its 31 per cent holding in Japan’s Showa Shell Sekiyu.

Expect more of this, as leading energy players deal, if not with the new sector reality, at least what looks like a prevailing lower price for some time yet – buying and selling significant assets worlwide as they reposition.

To put yesterday’s African deal into perspective, BP has sold assets worth $40bn since the Deepwater Horizon tragedy more than six years ago.

But it still can’t hide the fact that it is a major strategic move by BP chief executive Bob Dudley, with massive potential. It is said that the west African fields could contain roughly 50 trillion cubic feet of natural gas.

That could address Britain’s power needs for up to a couple of decades, and Dudley goes so far as to say it “could create a new liquefied natural gas hub in Africa”.

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