The company is focusing more on deep water, tight gas, and shale gas as its divestiture plan continues.
By shedding an array of interests, including onshore gas operations in the US and offshore UK North Sea, BP is making good on its goal to divest upwards of US $38 billion in assets by the end of 2013.
The moves are aligned with the company’s focus on core activities and future growth, targeting frontier exploration areas such as Australia’s Ceduna basin.
“This week’s announcements continue our divestment program as part of the previously announced $38 billion plan, post oil spill, initially to fund the response, but since 2011 more strategically to focus the company on higher value assets not just volumes for their own sake,” said Robert Wine, a spokesman for BP in London. “This week’s [June 25] sales are assets with lower growth potential, hence lower long-term value.”
The transactions bring the company’s total announced divestments to $24 billion.
The sale of interests in the Alba and Brittannia fields, which averaged about 7,000 boe/d, in the UK North Sea to Mitsui & Co. for $280 million is expected to be complete by the end of 3Q 2012. Linn Energy’s approximately $1 billion acquisition of BP’s Jonah Gas Operations in Wyoming should be completed by July 31.
Since 2010, BP has sold billions of dollars in assets in Vietnam, Colombia, Canada, South Africa, Pakistan, and Vietnam. For example, the company also got rid of properties in the Pompano and Mica fields in Mexico, the Wytch Farm field in the UK, and production in the Permian basin. More are forthcoming although BP is mum, for now, on which ones.
The common thread among assets that became targets for divestments involves future potential.
The company is divesting assets with “lower long-term potential,” Wine said. Those properties are typically smaller and older.
The exception is BP’s interest in TNK-BP, billed as the third largest vertically integrated oil and gas company in Russia. BP is trying to shake itself loose from its 50% stake in the company that is half owned by a group of Russian billionaires. The effort is not part of the $38 billion divestiture goal, and BP had no updates on the situation as of June 29.
Focus On Deep Water, Gas
Instead, BP is moving toward deep water, tight gas, and shale gas, Wine added.
By year-end 2011, BP had announced $16 billion in acquisitions. Those purchases included new assets in Namibia’s Orange Delta, South China Sea, and Angola’s Kwanza and Benguela basins – to name a few.
“We will continue to invest in deep water, gas, and renewables. We are investing in growing markets, for instance India and Brazil, as well as in North America and elsewhere,” BP CEO Bob Dudley said in a presentation on BP’s 4Q 2011 results and 2012 strategy earlier this year. “And we are using our global reach to leverage technology and learning wherever we see the greatest opportunities.”
Speaking on the company’s strategy, Dudley said, “First, we want to own assets where we have distinctive capability and can therefore achieve advantaged returns.
“Second, we aim to achieve a size of the upstream that is small enough to generate growth in operating cash flow – and large enough to enable us to take on the energy challenges and needs of governments for decades.
“Third, we intend to deliver the funds to live within our financial framework,” he added.
New access gained in about the last 18 months has been in Brazil, India, China, Indonesia, Australia, Uruguay, Namibia, Angola, UK North Sea, and the US Gulf of Mexico (GoM).
“There’s always a pipeline of investments in any basin – so we have old mature assets, current production, new developments, and exploration potential in a large area like the North Sea – some coming in, some going out,” Wine said, referring to the UK North Sea. “We’ve been selling assets there since at least 1996, while investing heavily at the other end of the chain.”
Four of BP’s North Sea projects are expected to come online over the next five years. These include:
- the Clair Ridge Project, which will install two bridge-linked platforms capable of producing about 640 MMbbl of oil;
- the Devenick gas field project in the central North Sea, expected to provide up to 3% of UK’s gas needs;
- the redevelopment of the Schiehallion and Loyal fields, West of Shetland, and
- the development of the Kinnoull field in the central North Sea also are in the works, BP reported.
The GoM also remains a strategic target as the turnaround from the oil spill continues. Shoreline cleanup is essentially complete. BP reported paying more than $7.8 billion to meet individual and business claims and government payments, and by year-end 2011, the company had paid more than $15.1 billion into a trust fund.
BP – the largest producer in the GoM – anticipated eight rigs will be operating in the GoM this year. The Mad Dog field is expected to become operational by the end of this year. The Galapagos, Na Kika Phase 3, and Mars B execution are major projects also expected to start up within the next three years.
New Opportunities For Other Companies
BP’s divestitures and shift in strategy have opened new doors for other companies looking to make a foray into liquids-rich fields. Linn Energy, which landed BP’s Jonah gas operations, is one of them.
“This acquisition provides Linn with a significant operated position in the Green River basin of Wyoming and the opportunity to add employees to our staff who have hands-on experience with operations in the Jonah field,” Mark Ellis, the company’s CEO, said in a statement. "The long-life, low-decline characteristics of the Jonah field make this asset an excellent fit for us.”
The agreement covered the Sublette County property along with its 260 operated wells. Recent natural gas production was 80 MMcfe/d, BP figures showed.
“This sale will allow us to realize the value of the mature Jonah assets and reinvest in higher growth opportunities in BP’s North America gas business and elsewhere,” Dudley said in a prepared statement. “We are actively managing our portfolio of assets and businesses worldwide, focusing our investment on future growth in BP’s areas of strength.”
Contact the author, Velda Addison, at vaddison@hartenergy.com.
