BP may have a fight to keep $7bn deal on tap

BP was last night preparing for a possible legal battle over a giant oilfield in the Caspian Sea as it announced a $7 billion (£4.6 billion) deal designed to bolster its position in three of the world’s most promising oil provinces.

The purchase of a string of offshore assets in Brazil, the Gulf of Mexico and Azerbaijan from Devon Energy in the United States represents BP’s biggest acquisition since 2003, when the oil giant invested $8 billion in its Russian joint venture, TNK-BP.

It also marks a turning point for Tony Hayward, the chief executive, who has made a strategic bet on BP’s ability to discover deep-water fields in the Campos Basin off Brazil. The basin is close to an area where a spate of recent discoveries have been made that promise to transform Brazil into one of the world’s top oil exporters.

However, it emerged last night that a key plank of the deal — the acquisition of Devon’s 5.6 per cent stake in a giant offshore field in Azerbaijan’s Caspian Sea, could be vetoed by Devon’s partners in the project, triggering a potential legal battle.

BP and Devon confirmed that the purchase of Devon’s stake in the Azeri-Chirag-Gunashli (ACG) project, worth an estimated $3 billion, is subject to pre-emption rights by the other shareholders that include some of BP’s top rivals: ExxonMobil, Chevron, Statoil and Hess.

ACG produces about 820,000 barrels of crude per day, worth almost $500 million per week at current prices and representing 1 per cent of global crude production.

ExxonMobil, the US giant that holds an 8 per cent stake in the field, signalled that it would consider exercising the pre-emption rights. The company said that it “routinely evaluates potential opportunities around the world” but declined to comment further.

Chevron, which holds a 10 per cent stake, also declined to comment.

BP is already the biggest shareholder in the field with 34 per cent but is looking to increase this to nearly 40 per cent. It is understood that the companies can choose to exercise their pre-emption rights in the field and sell the stake on to a third party. Two Chinese companies, Sinopec and CNOOC, have both already expressed interest.

BP brushed aside the concerns and expressed confidence that the Azeri part of the deal, which represents an estimated 43 per cent of its total value, would proceed.

The company said that the $7 billion acquisition from Devon would include interests in ten exploration blocks in Brazil, chiefly in the Campos Basin, plus its stake in the Kaskida field in the Gulf of Mexico, and a portfolio of deepwater exploration blocks in the same area, where BP is already a major player.

BP, a specialist in deep-water development, will pay for the fields in cash and used no advisers on the deal.

As part of the agreement, BP will also sell Devon a 50 per cent stake in its Kirby oil sands interests in Alberta, Canada, for $500 million.

The companies have agreed to form a 50-50 joint venture to develop the project in the Athabasca region of northern Canada.

Mr Hayward said: “This strategic opportunity fits well with BP’s operating strengths and key interests around the world, offering us significant additional long-term growth potential with an emphasis on high-margin oil.”

Robin Pagnamenta, The Times 12-03-2010