BP Finally Cleared to Operate in Deepwater Brazil

+12.00%
Upside
37.68
Market
42.20
Trefis
BP: BP logo
BP
BP

BP (NYSE:BP) recently announced that the Brazilian National Petroleum, Natural Gas and Biofuels Agency (ANP) has approved its bid to purchase ten exploration and production blocks in Brazil from Devon Energy. [1] BP had declared its decision to buy the assets from Devon in March 2010, and had been waiting for the regulatory approvals from ANP since then. [2] The third largest of the six oil & gas ‘supermajors’, BP competes with oil & gas heavy-weights including Exxon Mobil (NYSE:XOM), Royal Dutch Shell (NYSE:RDS.B), Chesapeake (NYSE:CHK), Anadarko (NYSE:APC) and Chevron (NYSE:CVX).

Relevant Articles
  1. BP Stock Up 7% This Year, What’s Next?
  2. Flat Since The Beginning of 2023, Where is BP Stock Headed?
  3. What’s Happening With BP Stock?
  4. BP Stock Up 11% Over Last Month. What’s Next?
  5. BP Stock Up 8% Over Last Month. Will It Continue?
  6. Should A Benchmark Price Correction Weigh Heavily On BP Stock?

The BP-Devon Deal Explained

The $7-billion deal between BP and Devon was for the latter’s assets in Brazil, Azerbaijan and the U.S. deepwater Gulf of Mexico. The assets included exploration blocks in Brazil’s prolific Campos basin, where BP could capitalize on its deepwater mining expertise.

The deal was in-line with the interests of both companies, as BP continues to focus on leveraging the strength of its deepwater operations, while Devon Energy decided to divest its deepwater and international assets in November 2009  to focus on onshore exploration and production in the U.S. and Canada.

Impact of the Deal on BP

The transaction in Azerbaijan was completed in August 2010. [3] BP raised its interest in the Azeri-Chirag-Gunashli (ACG) development in the Caspian Sea to 39.77% as a result of the deal. BP has been operating the ACG oil field since 1997.

However, the ANP put the deal in Brazil on hold – admittedly to see how BP contains the oil spill in the Gulf of Mexico – and finally cleared it now seeing BP’s response to the world’s largest accidental oil spill.

With the Brazilian deepwaters showing a lot of promise in terms of oil & gas reserves, BP’s exploration in the area is expected to primarily add to the company’s oil production capacity in the years to come.

Our price estimate for BP stock stands at $53.67, implying a premium to market price.

See our full analysis for BP

Notes:
  1. BP Receives Approval to Complete Purchase of Exploration and Production Blocks in Brazil, BP Press Releases, May 10 2011 []
  2. BP Enters Deepwater Brazil and Strengthens Core Portfolio, BP News Releases, March 11 2011 []
  3. BP Completes Devon Energy Transaction in the Caspian, BP Press Release, Aug 16 2011 []