Four unnamed sources say BP has hired Bank of America to help it divest from an unnamed project, and SLB to sell its stake in the Palliser Block in Canada.
Greetings from Chengdu, the capital of China’s Sichuan province. I am very impressed by the modern, yet ancient city in what was previously called Shu, one of the three kingdoms more than 2,000 years ago. This is also the home of the giant panda. I hope you get a chance to visit one day, too!
Now, let’s shift to two pieces of news from the past week.
Shangyou Nie
Editor, Well Read
BP Reported To Be Selling Another Offshore Wind Project
MacroEcon/Shutterstock.com
BP has reportedly hired Bank of America to sell a minority share in an offshore wind project. The British major will update its strategy in February 2025 to further lower its previously announced oil and gas reduction target.
Details:
Reuters reported the sale was imminent, and that BP does not currently have any offshore wind farms in operations, but according to Upstream, BP is only “weighing selling a minority stake” in the unnamed project, not exiting this offshore wind business altogether.
No specifics are available other than reports from four unnamed sources familiar with the matter, who say BP has hired Bank of America for this potential divestment.
BP wants to reduce its share of what has been a “hefty investment” in the project, two of the sources said.
BP has stakes in offshore businesses in the United Kingdom, Germany, the United States, and Asia, with a combined capacity of 9.6 gigawatts.
Context: Two weeks ago, The New York Times reported that BP was planning to drop its 2023 target of reducing oil and gas production by 25 percent before 2030. The shift is fueled by a change in leadership and a bigger trend among European majors.
CEO swap: Since Murray Auchincloss took the top position at BP in September 2023, the company’s strategy has changed significantly.
Auchincloss emphasized that BP will focus on ROI and become a simpler company.
BP has expanded exploration opportunities and walked back a bit on sustainability targets.
In August 2024, BP signed a memorandum of understanding with the Iraqi government to look into the redevelopment of the giant Kirkuk oil and gas fields, including exploration activity.
BP, again using its Azule Energy vehicle, is also reportedly one of the potential bidders for Galp Energia’s dilution of its Namibia oil discovery.
Walking back on renewables:
BP wrote off $1.1 billion in 2023 for its offshore wind business in 2023.
BP’s recent reversion on previous renewable energy targets exemplifies a broader trend of European international oil companies refocusing on their core business of oil and gas, which I will highlight in the November issue of AAPG’s Explorer magazine.
BP in particular has been under investor pressure, as the company has underperformed compared to its peers.
BP’s market cap stands at $83 billion as of 21 October. BP’s two biggest European peers, Shell and TotalEnergies, have market caps of $207 billion and $148 billion, respectively.
BP’s share price is down 22 percent over the past 12 months and 12 percent YTD in 2024.
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SLB announced it has entered into a definitive agreement to sell its 40-percent interest in the Palliser Block in Alberta, Canada for $430 million to an undisclosed buyer. The deal is expected to close in Q4 2024.
What SLB is selling:
The Palliser Block consists of oil and gas wells, surface facilities, a pipeline network, and select oil and gas development rights.
According to SLB, Palliser generated about $500 million annually for the company, with a CapEx of $150 million each year.
According to Upstream, SLB and operating partner Torxen bought the Palliser interest from Cenovus Energy in 2017 for $1 billion.
At the time of the original acquisition, SLB estimated the block would produce 54,000 barrels of oil equivalent per day.
In 2021, SLB was reportedly to have started a divestment program on its joint venture interest with Torxen, as part of an effort to exit oil producing assets globally.
What SLB is saying:
“This transaction will reduce our direct exposure to commodity prices…as well as reduce our capital intensity,” said Olivier Le Peuch, SLB CEO, during the company’s Q3 analyst call.
“It also allows us to eliminate significant future abandonment liabilities,” estimated to be around $280 million, or $1 billon on an undiscounted basis, according to SLB CFO Stephane Biguet.
About SLB and Torxen:
SLB announced a net income of $1.2 billion for Q3 2024 from a revenue of $9.2 billion.
SLB generated 81 percent of its revenue from its international business vs 19 percent from North America.
SLB has a market cap of $59.5 billion.
Its share is down 19.4 percent YTD and 30 percent in the past 12 months.
Torxen is a private company based in Calgary. It holds conventional oil and gas assets in southern Alberta.
Why it matters:
It is rare for service companies to own upstream assets, though occasionally strong synergy might lead to deal making.
The market tends not to look at such ownership favorably, as it is seen as a reflection of not focusing on core business or potentially competing against the customers.
It will be interesting to see whether more service companies leave upstream holdings, potentially creating a detectable trend.
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