BP could be a savvy investment for Gulf buyers

BP

British energy giant BP was forged in the Gulf. Originally founded as ‘Anglo-Persian’, it opened the whole era of Middle East oil with its first discovery in Iran in 1908. 

It was also a leading member of the consortia that uncovered oil in Iraq (1927), Kuwait (1938), Qatar (1940) and the UAE (1958). 

On Monday BP announced a new joint venture with the Abu Dhabi National Oil Company (Adnoc). Will the venerable but troubled British company find its future in the Gulf?

Once an industry trendsetter under CEO John Browne who ran the company from 1995 to 2007, BP’s subsequent performance has been dismal. As Bloomberg’s Javier Blas notes, the company’s current market value stands at $75 billion, less than its $80 billion valuation in 1998, before its transformative mega-mergers with Amoco and Arco redefined the global oil industry.

Just before the disastrous Macondo blowout in the Gulf of Mexico in 2010, BP was valued at $188 billion. The clean-up and penalties for Macondo cost the company $65 billion as of 2018.

It also took a $24.4 billion charge in 2022 when it declared it would exit its shareholding in Russian state oil giant Rosneft following Russia’s invasion of Ukraine, a position acquired during the messy resolution of its TNK-BP joint venture.

BP has seen the turbulent exit of three chief executives over the years. Browne resigned in 2007, Tony Hayward stepped down during Macondo, and Bernard Looney left in September 2023 after misleading the board about relationships with subordinates. 

American Bob Dudley, who had earlier run TNK-BP before succeeding Mr Hayward, was the sole leader in this period to depart in honourable retirement.

But more seriously, the company lost its way. Mr Browne had rebranded BP as “Beyond Petroleum” and invested in solar power, but this was more of a marketing gimmick.

Mr Looney took the helm in February 2020, as the Covid pandemic slashed world oil demand, and moved the company more aggressively into low-carbon energy. It said it would cut its oil and gas production 40 per cent by 2030.

• Adnoc and BP and Adnoc launch joint gas platform Arcius Energy
• BP seeking new investments in Iraq and Kuwait
• BP plans assets transfer into new venture with Adnoc

However BP is seen to have heavily overpaid for offshore wind assets, and struggled to make its renewable business profitable. Its compatriot Shell has had similar problems, but started in a stronger position. 

Mr Looney’s successor, Murray Auchincloss, has refocused on oil and gas, but his is a promotion from within, and investors have continued to punish the stock.

In light of these ongoing struggles, Bloomberg’s Blas has argued that BP should put itself up for sale. He discusses the likely buyers – Shell being the most obvious. He also suggests a Middle Eastern national oil company as potential suitors, perhaps via a minority stake.

It’s a very challenging but compelling proposition. Kuwait Petroleum (KPC) can probably be ruled out, as it has internal issues and Kuwaiti domestic politics to navigate. Saudi Aramco or QatarEnergy may be contenders. But Adnoc seems the most obvious partner.

The two companies are already close. Mr Looney has just joined the board of XRG, Adnoc’s new international low-carbon venture, while Bob Dudley is a regular visitor to Abu Dhabi. 

In February BP and Adnoc announced a partnership to develop gas in the East Mediterranean, and on Monday announced that their new joint venture, Arcius Energy, owned 51 percent by the British firm, would start off in Egypt.

Among other assets, Arcius holds BP’s 10 percent stake in Zohr, Egypt’s largest gas field, in which Abu Dhabi strategic state investor Mubadala already owns 10 percent.

Perhaps most crucially, a deal would resolve BP’s strategic dilemma

Rarely does an opportunity arise to buy such a company and build an international energy leader. A Gulf acquirer would obtain BP’s world-class trading business, which all regional oil companies have been trying to build.

BP’s liquefied natural gas business spans South America, Africa, Australia, and south-east Asia. This is not quite at the scale of Shell’s or TotalEnergies, but it would still accelerate Qatar, Adnoc, or Aramco’s international LNG ambitions. 

The gas fields of Khazzan in Oman and Shah Deniz in Azerbaijan and its holdings in various fields in Abu Dhabi are strategic and valuable. The stake in Iraq’s Rumaila is large, if low-margin, while recent discussions over Kirkuk – whose discovery in 1927 opened BP’s history in Iraq – offers growth.

Post-Macondo, the oil major’s Gulf of Mexico deepwater assets are world-class. Its onshore US shale position is sub-scale, but could probably be sold at a good price to a rival such as Chevron, ExxonMobil or Occidental.

Perhaps most crucially, a deal would resolve BP’s strategic dilemma. The Gulf countries’ efforts in renewables and other low-carbon ventures are carried out mostly by specialists, such as Masdar in the UAE and the Public Investment Fund in Saudi Arabia. 

BP’s 2.7 gigawatts of renewables and its claim of a portfolio of 58.3 GW of opportunities would be a useful boost to Masdar’s ambition of 100 GW by 2030. BP also has interesting positions in green hydrogen production in Oman, and biofuels in Brazil.

A Gulf buyer could then focus the BP business entirely on hydrocarbons and related areas. Unlike their single-minded US rivals, a joint venture would not suffer the split personality that bedevils the European oil companies.

The discovery of oil in Iran in 1908 built a leading global company from nothing. Adnoc, Aramco or QatarEnergy can continue building their international businesses laboriously piece by piece.

Or, as John Browne did in 1998 with Amoco and Arco, they can seize leadership with a single risky, bold move.

Robin M Mills is CEO of Qamar Energy and author of The Myth of the Oil Crisis