Underwater Amazon beckons BP

By Reuters Staff
March 12, 2010

(Acquisitions Monthly) The job lot sold to BP by Oklahoma-based oil company Devon Energy, as part of its deep water disposal program, includes a ticket for BP into Brazil’s ultra-deepwater oilfields, likened in potential size to the next North Sea, but still very much an unknown quantity.

“Exciting”, is how Tony Hayward, BP group chief executive, describes Brazilian deepwater.

Although the transaction with Devon Energy involved other significant assets around the globe – in the Gulf of Mexico, in the Caspian Sea and in the tar sands of Canada – and although the transaction was also a two-way deal involving the US$500m sale by BP to Devon of a 50% stake in its Kirby oil sands interest in Canada (along with the establishment of a joint venture), it is Brazil’s deepwater fields that the deal is about for BP.

Was the cash price of US$7bn fair? That is typically the first question, but attempts to translate the number into the industry’s valuation standard of dollars per barrel (proven or probable) are of little use, given that the full Brazilian upside of the deal for BP has yet to be explored and will not begin to materialise until 2015. The Brazilian assets include 10 exploration blocks, of which seven are in the Campos basin.

Immediate market reaction on March 11, the day of the announcement, suggested that Devon narrowly got the better of the deal, its share pricing rising 1% compared with a corresponding dip in BP’s share price, but eventually BP’s share price closed just 1.2p lower at 623.7p.

But if the Brazilian licences were what BP was really after, then to get them it is a fair chance that a generous deal was done in Canada and a full price paid for the rest of the assets: a portfolio of exploration acreage and prospects in the US Gulf of Mexico, focused on the “emerging Paleogene play in the ultra-deepwater”, and an additional 5.63% stake in the Azeri-Chirag-Gunashli (ACG) development in the Caspian Sea off Azerbaijan, taking BP’s stake there to 39.77%, assuming that other major oil producers do not exercise pre-emption rights over the ACG stake.

By Quentin Carruthers

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