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Thursday, July 2, 2015

Is BP now an attractive takeover target?

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July 02:





The end is now in sight for the darkest period in BP's history. © 2015 Gerald Herbert/AP


Now that the Deepwater Horizon settlement has been reached perhaps other major international oil companies will take a look at BP and consider a bid for the company


IN THE five years since one of the worst disasters in the history of the oil industry, in which 11 oil workers lost their lives and millions of barrels of oil leaked into the Gulf of Mexico and onto the US coastline, BP has had to carry on its global businesses with a huge cloud of uncertainty hanging over it.


But the end is now in sight for the darkest period in the company's history.


The announcement on Thursday of BP’s $18.7bn settlement with various US government agencies of claims resulting from the Deepwater Horizon explosion in April 2010 is in addition to the $29.1bn of costs associated with the initial and ongoing clean-up operations and the settlement of civil claims brought by businesses damaged by the oil spill. So the final bill is approximately $50bn.


This is an enormous sum of money, even for a company whose annual revenues in 2014 were more than $350bn (as stated in BP’s annual report).


The settlement document reveals that BP will repay the $18.7bn over an 18-year period. This implies that the burden is manageable over time without BP having to resort to more asset sales to raise money.


Previous assets disposals post-Deepwater Horizon included $27bn raised from the sale of BP’s share in its Russian joint venture TNK-BP and less valuable sales of non-core assets in the North Sea, the Gulf of Mexico, Alaska and elsewhere.


A consequence of BP’s asset sales and other production problems since 2010 has been the gradual decline in its production of oil and gas from 3.8m barrels per day of oil equivalent to only 3.2m bpdoe in 2014, again using data from BP’s annual report.


Compounding this problem is the fact that in 2010 the average price of a barrel of Brent crude oil was $80 and so far in 2015 the price is averaging only $60 a barrel.


BP is probably sighing with relief that the terms of the $18.7bn settlement are not more draconian and it can now plan its future with greater certainty. The Deepwater Horizon settlement is, however, not the only problem BP has. Here are a formidable list of challenges facing BP – and some of its peers. 
Falling crude oil prices 


Oil production is less valuable with crude oil prices having fallen from $115 per barrel in mid-June 2014 to less than $65 per barrel today. 
Falling oil demand growth 


Only Asia is a significant long term growth market for oil products but even in China the rate of demand growth has fallen sharply in recent years. 
Insecurity in Iraq 


BP has a big stake in Iraq with a technical services contract in the Rumaila field. BP (38%); CNPC (37%); and the Iraqi government (25%). The idea is to grow production from this field to 2.85 million bpd but progress is in doubt due to the rise of ISIS forces. Even if operations were normal the government takes 98% of revenues from the field. 
Russia 


BP owns 19% of Rosneft, Russia’s largest oil company and the provider of 9% of the country’s GDP. BP’s 19% stake in Rosneft is a major factor in the 1m bpd of oil it produces in Russia, about 30% of its global production. Sanctions are a big potential problem for BP in its wish to grow production.


This is a formidable list. Now that the Deepwater Horizon settlement has been reached perhaps other major international oil companies will take a look at BP and consider a bid for the company.

Source: http://www.lloydslist.com/ll/sector/tankers/article464275.ece?

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