BP piles up assets as the CEO says the worst is over

By Rakteem Katakey on 12/19/2016

ABU DHABI (Bloomberg) -- BP is piling up assets with more than $3 billion of deals in three days as CEO Bob Dudley sees the company emerging from the doldrums after a two-year price slump.

Since Saturday, BP has announced a $2.2 billion expansion of output in Abu Dhabi and a $916 million investment in fields in Mauritania and Senegal. That brings its 2016 acquisitions to more than $3.8 billion, the highest in four years, according to data compiled by Bloomberg.

The spending spree may herald a return to growth for Dudley, who has spent most of his six-year tenure divesting assets to pay for the catastrophic Gulf of Mexico oil spill in 2010, for which BP set aside more than $50 billion. Europe’s No. 3 oil company, a third smaller since then, plans to start seven or eight major projects next year as crude prices recover from their worst collapse in a generation.

“It’s time for BP to start growing,” Dudley, 61, said Dec. 17 in a Bloomberg Television interview in Abu Dhabi. “We’ve walked through so many difficulties in the U.S. that I think the company now is well-positioned for growth.”

BP shares have risen almost 40% this year. Notwithstanding a slide in the next few weeks, that would mark the stock’s best year since 1993. Its larger European competitors have also performed well, with Royal Dutch Shell adding almost 50% and Total SA about 16%.

The Abu Dhabi and West African deals secure new reserves and production for BP well into the next decade, said Brendan Warn, a managing director at BMO Capital Markets in London. Shell’s purchase of BG Group this year gave it assets in Brazil and Australia, Eni has gas projects in Egypt and Mozambique and Exxon Mobil is seeking to buy InterOil Corp., but investors weren’t sure where BP’s future volumes would come from, he said.

“The market was questioning their ability to grow post-2020 and these are the resource-sustenance deals they were looking for,” he said. “The timing of these deals is also interesting, coming at a time oil prices are rising.”

Benchmark Brent crude has gained more than 45% this year, reversing last year’s 35% decline. Amid the rally, BP has also snapped up a 10% stake in Eni’s giant Zohr gas field in Egypt for $375 million and a bigger chunk of Indonesia’s Tangguh LNG project for $313 million.

In a further sign of confidence, BP this month approved the $9-billion expansion of its Mad Dog deepwater project in the Gulf of Mexico, not far from the site of the oil spill. It also backed an $8-billion expansion of the Tangguh project in July.

Oil companies have been emboldened by a recent 20%t surge in the oil price after the Organization of Petroleum Exporting Countries said Nov. 30 it would cut production to curb the global oversupply. OPEC oil ministers have said a price of $60/bbl would be acceptable to everyone.

BP says it can cover spending and dividends without having to borrow at a price of $50 to $55 next year, down from an earlier estimate of $60.

While oil is currently around $55, it has averaged less than $45/bbl this year compared with $108 in 2013, and BP’s adjusted earnings have fallen year-on-year for nine consecutive quarters. The company trimmed its 2016 capital-expenditure forecast last month.

“One has to have some confidence in the price,” Dudley said. However, “we are going to remain very, very disciplined about the capital we spend and projects we select.”

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