Middle East investors are running slide rules over BP as the oil giant is understood to be considering the sale of non-core assets. The troubled oil company has been battered by the financial and political fallout from the Gulf of Mexico oil spill and is said by close advisers to be looking at raising cash to bolster its position.
Acquiring stakes in certain BP-operated oil and gas production projects, processing and transport infrastructure or early-stage developments could make sense for MENA-region sovereign wealth or private equity funds. Such investments could be closely aligned with the strategic priorities of the acquiring entities. They might also attract less political controversy than the straight purchase of BP shares.
Analysts and energy consultants have been speculating for weeks that the strategic investment vehicles of certain Arab states might seek to buy BP shares or assets at bargain prices. The discussion has intensified since the company announced last month it would seek to raise US$10 billion (Dh36.7bn) through asset sales. "Gulf sovereign wealth funds and other investors from the region might express interest, given the record of investing in companies in distress," said John Sfakianakis, the chief economist at Banque Saudi Fransi-Credit Agricole in Riyadh.
But when it comes to major oil and gas projects, part of their value is often the capabilities that BP brings to developing technically challenging reserves. It is likely that Middle East investors will seek to form strategic partnerships for such projects, rather than buying them wholesale. This could enable BP to leverage its technical know-how to reduce project-funding commitments in order to redirect cash flow to the problem in the Gulf of Mexico.
Here are some specific BP projects and related assets that could attract strategic investment from the Middle East: MENA gas projects BP has gas concessions in Algeria, Libya, Egypt, Jordan and Oman. All are strategically important to the host governments. Oman and Egypt face imminent domestic gas shortages, while Jordan imports most of its gas. All three countries are therefore urgently seeking to develop new reserves.
Libya could also run short of gas within a few years, experts warn, if it proceeds with plans for developing heavy industry and converting its oil-fired power stations to gas. In addition to supplying their own needs, Algeria, Libya and Egypt hope to capitalise on lucrative opportunities for exports to Europe as the continent's gas output falls. Central Asian oil and gas BP holds stakes in Azerbaijan's Chirag and Gunashli deepwater oil developments and the giant Shah Deniz gasfield in the Caspian Sea. It also operates the strategic Baku-Tblisi-Ceyhan oil pipeline. It holds a 30 per cent stake in this major overland conduit for Caspian crude to the Mediterranean through the Caucasus region and Turkey.
The Caspian projects might be especially attractive to Mubadala Development, a strategic investment company owned by the Abu Dhabi Government. The Abu Dhabi state-owned International Petroleum Investment Company (IPIC) might be interested in a stake in the pipeline. Asia-Pacific and Australian gas projects BP is involved in major liquefied natural gas (LNG) developments in Indonesia and Queensland and a big coal-bed methane project in West Papua. All the projects target Asia-Pacific markets with which the governments of Qatar and Abu Dhabi have been strengthening trade and political ties. Either emirate might be interested in taking strategic stakes in new LNG projects to serve the region. Abu Dhabi's IPIC already has an indirect stake in a Papua New Guinea LNG project led by the US oil major ExxonMobil.
Trinidad and Tobago LNG This might present an investment opportunity for Qatar, which has placed a moratorium until 2015 on further development of its huge North Field offshore gas deposit. The state-owned Qatar Petroleum has by now developed significant LNG operating expertise through its partnerships with ExxonMobil and Royal Dutch Shell in the world's largest LNG developments to date.
Qatar is already the world's biggest LNG exporter, and its government has no wish to extend that lead. Doha, however, may see value in investing in overseas projects to bolster its global marketing reach. North Sea oil and gas BP's remaining North Sea oil and gas assets are mainly in Norwegian and UK waters, after it sold its Dutch assets. The Abu Dhabi National Energy Company, or Taqa, which is 75 per cent owned by the Abu Dhabi Government, has oil production from the UK North Sea, and might be interested in acquiring further properties that it could operate synergistically. Under new, more conservative management charged with cutting debt, Taqa would be selective about further North Sea acquisitions. It might still act opportunistically if offered a bargain.