BP Back In Contention For Abu Dhabi Concession After Initial Snub

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BP Plc (NYSE:BP) is back in contention for Abu Dhabi’s onshore oil concession after not being invited over the summer to bid to be part of a renewed deal in 2014. The 75 year old concession expires in 2014 and BP is keen to keep its stake in a business that produces 1.4 million barrels of oil a day, nearly half of Abu Dhabi’s entire current output. [1]

BP had earlier not received a letter in July that was sent to a long list of companies inviting them to bid for a fresh deal. Speculation continues to be rife that it was a political decision triggered by the UAE government’s anger at the UK government. The reason is speculated to be the critical attitude of the British towards UAE for cracking down heavily on an alleged Islamist extremist cell. The UAE government reportedly felt that the British were being too tolerant of dangerous elements who are seeking political influence in the Gulf region. Diplomacy is supposed to have eventually resolved matters in BP’s favor. [2]

The license for the concession is currently held by the Abu Dhabi Company for Onshore Oil Operations (ADCO) which is a consortium of the Abu Dhabi National Oil Company(ADNOC) (60%), international oil majors BP, ExxonMobil, Royal Dutch Shell and Total (9.5% stake each) and Portugal’s Partex (2%). [3]

See our full analysis for BP

Why Does The Concession Matter To BP?

If BP were to lose the concession it would cost the company 125,000 barrels per day in production which amounts to nearly 3.5% of its total daily production. BP’s output has dipped in recent years as it has been forced to sell off oilfields to cover the Gulf oil spill costs. The Abu Dhabi concession thus not only represents a significant quantity of production, it assures a steady stream of revenues since Abu Dhabi is a politically stable country.

Further, Abu Dhabi is one of the only Gulf countries which allows western companies to explore for oil. By ensuring that it maintains a good relationship with the government, BP could be hoping to gain opportunities for future exploration. Abu Dhabi wants to expand nationwide production capacity from 2.8 million barrels per day to 3.5 million barrels per day. Although it is known that Abu Dhabi is keen to bring in more companies from Asian countries which are expected to be its biggest consumers in the future, western majors like BP still rule the roost when it comes to technology. For this reason, they are unlikely to be displaced completely by Asian companies even if their overall stake goes down. [4]

How Was the Day Saved For BP?

The official version emanating from Abu Dhabi is that BP was never excluded from the bidding process and there was never any cloud over its candidacy. The company’s exclusion from the list of invitees was explained away as inconsequential since the intent of the pre-qualification letter was merely solicitation of interest, something seen as unnecessary for a company like BP. It is all the same strange that these comments are being made after a visit to Abu Dhabi last month by David Cameron, the prime minister of UK. We think that it must have taken considerable persuasion at the highest diplomatic level to persuade Abu Dhabi, since there has been extensive media criticism in the UK over Abu Dhabi’s handling of alleged Islamic extremists. All the same, it is nearly impossible to know or prove anything for sure.

We have updated our price estimate for BP to $43 based on the third quarter earnings release.

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Notes:
  1. BP back in running for Abu Dhabi contract, Financial Times []
  2. Cloud over BP’s stake in Abu Dhabi, Financial Times []
  3. Abu Dhabi conference participants on edge over looming concession expiry, Platts []
  4. BP woos Abu Dhabi over oil deal renewal, The National []
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  • commented 1 years ago
  • tags: XOM COP BP CVX
  • This seems very surprising as I would have expected that the UK together with the US was one of the most proactive anti extremist country in the whole world.

    Most Gulf States are backing the rebels in Syria and the US and UK were about the only countries to strongly be in favour of action against the Syrian Government over the use of nerve gases.