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BP back in favour despite spill legacy, Russia doubts

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LONDON – If you had spent 10 pounds on BP shares on April 19, 2010, you would have just nine pounds now, including dividends. A poor investment, however you cut it, but also a remarkable recovery.

A day later an explosion at the Deepwater Horizon oil rig in the Gulf of Mexico would deal the United States its worst offshore oil spill, and BP would face the wrath of President Barack Obama himself for the death and destruction it caused.

Over the next two months, BP shares lost nearly two thirds of their value as the scale of the disaster threatened to sink the company.

Now some investors are sensing a better future than they had dared to hope.

The shares are flirting with post-spill highs, and are the second-best performer in the industry’s top five behind Exxon Mobil since the start of the fourth quarter.

This may have something to do with the misfortunes of its peer group – a profit warning at Shell, cost overruns at Chevron, and worries about cashflow and production at Exxon – not to mention a price-enhancing share buyback programme put in place last year, but it is still quite a turnaround in sentiment from 2010.

Then, the price of credit default swaps on BP bonds showed that even its solvency was in question, and Shell thought it might have to mount a rescue bid.

“It wasn’t so much that we wanted to buy, more we thought the British government might ask us to step in,” recalled Peter Voser, Shell’s chief executive at the time, in a discussion with Reuters last year.

Now, in a change of fortunes, Shell has warned investors that it suffered its worst quarter since 2009 at the end of last year – albeit with little damage to its share price – while BP has reshaped itself.

BP sold $40 billion worth of prime assets to stay afloat – and spent $42.5 billion on the spill clean-up, fines and provisions for future costs.

In a note published on Friday downgrading profit forecasts across the sector, analysts at UBS predict BP’s return on average capital employed (ROACE) this year will be 11 percent – on a par with Shell’s.

BP shed a big chunk of its earning power to pay for the spill, but got prices that now look enviable as the industry cycle turns down. Rivals are now falling over each other to get assets on the block, at the risk of driving prices lower.

A leaner, meaner asset base has emerged, too. Meanwhile, having settled criminal proceedings, and two phases into a three-stage civil trial, an army of lawyers is working to push remaining spill fines and penalties way into the future. Barely a week goes by without a new legal challenge from the British group aimed at keeping a lid on its liabilities.

Explaining a bet it made on BP in a letter to investors last week, U.S. hedge fund manager David Einhorn’s firm Greenlight Capital said investors were overlooking the company’s improved return on capital in its core business and remained too focused on the spill fallout.

Greenlight said it had bought BP stock at an average price of $47.39 a share. It said the company had a net asset value of nearly $70 a share, even assuming it will have to pay out far more than it has provided for. BP’s U.S.-listed stock traded at around $48.60 on Friday.

Deutsche Bank – one of 13 investment banks with a buy or outperform note on the stock, according to ThomsonReuters data, compared with three rating it underperform or sell – argues that the net present value of spill litigation has fallen.

“This is not to say that BP’s position in the court trial has improved … rather… it is likely to be multiple years before additional cash of any magnitude over and above that already agreed flows from the BP balance sheet,” the bank said in a research note.

The note estimated cash outflows from future fines at less than $1 billion a year over the next decade.

That is only about two weeks’ worth of capital spending at current rates.

RUSSIAN QUESTION

But numbers rarely tell the whole story, as analysts discovered to their cost in 2010 when they flagged repeated opportunities to buy BP shares – all the way down from 6 pounds to a low of less than 3 pounds.

Some investors and insiders privately question the direction and style of management since former chief executive Tony Hayward resigned, taking responsibility for the spill.

Hayward’s replacement, Bob Dudley, has extracted about $12 billion from the company’s troublesome Russian investment and given some $8 billion of it back to shareholders.

But he has yet to prove that the remaining half – which became a 19.75 percent stake in state-controlled Rosneft – is anything more than a high-risk minority holding in a company based in a politically unpredictable country, despite his seat on the board.

“Dudley doesn’t seem to have that pally relationship you need with Igor Sechin,” said an industry source who has done business with the Rosneft CEO.

The BP CEO himself remains confident of his Russian move. “BP’s strategic investment in Rosneft allows us access to growth opportunities previously unavailable to us in Russia, one of the world’s largest producers of oil and gas combined with unparalleled resource potential,” he said in October last year.

Spill litigation still takes up a lot of management time, too. The outcome of a New Orleans trial under judge Patrick Juneau, conducted under the terms of U.S. maritime law without a jury, is still very much in flux.

BP is also banned, due to its criminal conviction for the rig disaster, from bidding for any new U.S. licences in the Gulf of Mexico.

Time will tell, but for some, the company still has a long way to go.

“BP has become a litigation-dominated company, and they have an issue in Russia,” said oil and gas blogger and independent industry investment adviser Malcolm Graham-Wood.

“If they have a profit warning anything like Shell’s, they will have to buy back a lot more that 7 million shares a day to keep the price up.”

BP reports fourth quarterly results on February 4 and will update investors on its plans for the future on March 4.

BP’s net profit is expected to be around $2.7 billion on a replacement cost basis for the quarter, down from around $3.9 billion a year ago based on BP’s own poll of around 20 banks.

Analysts have recently been reducing their forecasts across the industry and taking note of unexpectedly weak pre-results statements from Chevron and Shell.

– REUTERS

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Oil

FG Introduces New Incentives To Revitalize Nigeria’s Oil & Gas Industry

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In a strategic move to revitalize Nigeria’s oil and gas sector, the Federal Government has unveiled two key fiscal incentives aimed at attracting investment and enhancing energy security.

The announcement was made by Mr. Wale Edun, the Minister of Finance and Coordinating Minister of the Economy on Wednesday.

The first initiative, the Value Added Tax (VAT) Modification Order 2024, introduces critical exemptions for essential energy products and infrastructure, including Diesel, Feed Gas, Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), Electric Vehicles, Liquefied Natural Gas (LNG) infrastructure, and Clean Cooking Equipment.

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These exemptions are designed to reduce living costs for Nigerians, promote energy security, and accelerate the transition to cleaner energy alternatives.

The second initiative, the Notice of Tax Incentives for Deep Offshore Oil & Gas Production, offers new tax relief options for deep offshore exploration projects.

This measure aims to position Nigeria’s deep offshore basin as a premier destination for international oil and gas investments, boosting the country’s appeal to foreign investors.

These reforms are part of a broader set of policy initiatives, known as Policy Directives 40-42, endorsed by President Bola Ahmed Tinubu.

The directives reflect the administration’s commitment to fostering sustainable development in the energy sector and enhancing Nigeria’s competitive edge in the global oil and gas market.

 

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Tinubu set to approve ExxonMobil-Seplat oil deal, expands CNG bus initiative

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By Yemie Adeoye

NIGERIA’s President Bola Tinubu has announced that the protracted ExxonMobil-Seplat upstream oil divestment will be formally approved by the Minister of petroleum within a matter of days, just as he announced his government’s intention to expand the Compress natural Gas, CNG buses initiative.

The President who stated this during his Independence day nationwide broadcast stated that the move is in line with his administration’s commitment to free enterprise, free entry and free exit in investments which is the hallmark of his administration investment policy.

“Fellow compatriots, our administration is committed to free enterprise, free entry, and free exit in investments while maintaining the sanctity and efficacy of our regulatory processes. This principle guides the divestment transactions in our upstream petroleum sector, where we are committed to changing the fortune positively. As such, the ExxonMobil Seplat divestment will receive ministerial approval in a matter of days, having been concluded by the regulator, NUPRC, in line with the Petroleum Industry Act, PIA. This was done in the same manner as other qualified divestments approved in the sector.”

The President also seized the opportunity to plead with Nigerians to be patient with his administration’s reform policies. “As your President, I assure you that we are committed to finding sustainable solutions to alleviate the suffering of our citizens. Once again, I plead for your patience as the reforms we are implementing show positive signs, and we are beginning to see light at the end of the tunnel”.

“Our energy transition programme is on course. We are expanding the adoption of the Presidential Initiative on Compressed Natural Gas for mass transit with private sector players. The Federal Government is ready to assist the thirty-six States and FCT in acquiring CNG buses for cheaper public transportation.

Fellow Nigerians, while we are working to stabilise the economy and secure the country, we also seek to foster national unity and build social harmony and cohesion. Our economy can only thrive when there is peace”. he enthused.

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Oil

ExxonMobil To Invest $10bn In Nigeria’s Deep-Water Oil Operations

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As part of the administration’s push to improve Ease of Doing Business (EoDB), Nigeria’s Vice President Kashim Shettima has expressed support for ExxonMobil’s plan to invest $10 billion in the country’s deep-water oil sector.

Speaking on Wednesday, September 25, 2024, during a meeting with ExxonMobil executives at the 79th United Nations General Assembly (UNGA) in New York, Shettima called the investment “a clear testament to the administration’s economic reforms and investor-friendly policies.”

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This announcement follows news that international maritime company DP World intends to develop a multibillion-dollar port project in Nigeria.

Stanley Nkwocha, Senior Special Assistant to the President on Media and Communications, shared the development in a statement on Wednesday. He quoted Shettima as saying: “ExxonMobil’s potential investment aligns with the vision of President Bola Ahmed Tinubu’s administration for a more investment-friendly Nigeria.

We are committed to fostering an environment that supports such transformative projects.”Shettima also discussed the administration’s broader efforts to improve the ease of doing business, highlighting the “Renewed Hope Agenda,” which aims to simplify bureaucratic processes, enhance transparency, and offer fiscal incentives to attract global investors.

“Our administration has taken bold steps to unify the exchange rate, remove fuel subsidies, and implement tax reforms. These measures, though challenging in the short term, are intended to create a stable and predictable business environment in the long term,” he added.

On the oil and gas sector, Shettima mentioned that the government is revising the fiscal framework for deep-water operations to attract investment while ensuring fair returns for the Nigerian people.

 

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