Robert Dudley’s second $7 billion (R50bn) deal this year signals a shift for BP toward the world’s fastest-growing economies as exploration drilling remains closed in the US after the Macondo oil spill.
Dudley, the first American chief executive of the UK-based company, agreed on Monday to pay Reliance Industries $7.2bn to help explore deepwater fields in India. That followed an $8bn share swap with Rosneft to expand into Russia’s Arctic Sea in January. Last year BP signed a deal to explore off Brazil and sealed a partnership with Cnooc for offshore licences in the South China Sea.
The deals are putting BP’s exploration unit closer to regions that the company predicts will generate the majority of energy demand growth for the next 20 years. Dudley is also reducing BP’s dependence on the Gulf of Mexico, where it has yet to resume drilling following the worst US spill of all time last year.
“The Reliance deal represents another step in reshaping BP’s portfolio,” said Theepan Jothilingam, an analyst at Morgan Stanley. “The strategy is clear – a genuine focus on exploration and a shift toward resource and consumer markets.”
In India, BP said it would acquire a 30 percent interest in 23 blocks as well as form a venture with Reliance to market gas. Future performance payments and investment could increase the size of the deal to $20bn.
Dudley said the investment in India did not mean BP would turn its back on the US, where the company is obliged to pay into a $20bn fund for spill victims for the next three years.
“We’re fully committed to the US. This is part of the shift in energy demand across the globe,” he said.
BP predicts global energy use will rise by almost 40 percent by 2030, led by demand from emerging nations.
Reliance chairman Mukesh Ambani said he chose BP because it was “one of the finest deepwater exploration companies in the world.”
BP’s purchase is the largest foreign direct investment in India.
“It’s a bold move not long after Macondo,” said Ivor Pether of Royal London Asset Management. “It’s evidence that BP still has strong credentials in deepwater.”
Like BP’s Rosneft equity swap, its Reliance deal might carry some political risk, said Colin McLean at SVM Asset Management. – Bloomberg