Firm's agreement with Kosmos Energy follows all-share pact for stake in U.A.E. fields

By Sarah Kent and Bradley Olson

LONDON-- BP PLC has pulled off a string of deals in recent weeks that signal the British oil giant is looking to grow again after six years of retrenchment following the deadly Deepwater Horizon disaster.

The latest evidence: A near $1 billion investment in a vast natural gas field off the coast of Africa announced Monday. The deal with Dallas-based Kosmos Energy Ltd. followed a $2.2 billion all-share deal Saturday to take a 10% stake in a parcel of United Arab Emirates oil fields.

Over the past month, BP also has bought a stake in the supergiant Zohr gas field offshore Egypt and expanded its interest in Indonesia's Tangguh natural-gas project. It has bought in to two exploration blocks in the North Sea and approved a $9 billion oil project in the Gulf of Mexico.

BP's executives highlighted the company's growth prospects this year now that they have a handle on the financial toll of the 2010 Gulf of Mexico well blowout that killed 11 people, caused an environmental disaster and forced the company to shrink dramatically.

The company sold off around $50 billion in assets to help pay for the cleanup and legal costs that ultimately totaled more than $60 billion, only to be hit by a dramatic slump in oil prices that took hold two years ago and compounded its financial woes. Its daily production shrank to 3.3 million barrels of oil equivalent a day in 2015, down from 4 million aday in 2009.

BP has moved ahead with the recent spate of deals now that the Gulf spill costs are largely contained and the oil market is buoyed by a production-cut deal struck last month by the Organization of the Petroleum Exporting Countries.

"They are on the other side of the mountain now," said Fadel Gheit, a managing director at Oppenheimer & Co. "They were in a steep climb to survive. That is now behind them."

BP Chief Executive Bob Dudley said in July that the company was prepared for "a new phase of growth" now that it had "drawn a line under our Deepwater Horizon liabilities."

A BP spokesman said the deals were examples of its long-term strategy "coming to fruition."

"It's all part of the strategy: getting bigger on gas, doing low cost oil, deepening relationships and partnerships," the spokesman said.

For the most part, BP's recent deals are relatively small bolt-on acquisitions, but they show that companies are gradually beginning to invest again after years of cutbacks and layoffs as higher oil prices help return some confidence to the sector.

"Companies are now on a firmer financial footing after two years of savage cuts, and they're able to look beyond survival and look to how they start growing again," said Tom Ellacott, a senior analyst at Edinburgh-based consultancy Wood Mackenzie. "The BP deals are very good examples of this."

The agreement Monday with exploration company Kosmos Energy calls for BP to pay more than $900 million in the coming years to help test the viability of the Tortue prospect in waters off Mauritania and Senegal. By some estimates, the field could hold as much as 50 trillion cubic feet of natural gas. That is enough to meet demand in the United Kingdom for about 20 years, according to the U.S. Energy Information Administration.

The huge gas assets play into BP's strategy to invest more heavilyin the lower-carbon fossil fuel at a time when investors and regulators are increasing their scrutiny of carbon emissions. BP has said it expects around 60% of its production to be natural gas by the end of the decade.

The deal also makes BP the operator of the project, giving the British oil giant another potential growth opportunity in its portfolio as two years of low energy prices and cost-cutting have reduced the number of new drilling frontiers. Funding from BP will be used for further drilling, as well as feasibility studies and development costs that should put BP and Kosmos in a position to make a final investment decision on the project by 2018, according to Kosmos.

"The industry has taken a timeout over the last two years, exploration has fallen off and many don't have the depth of portfolio that they used to," Andrew Inglis, the chairman and chief executive of Kosmos, said in an interview. "The big companies are startingto address that issue."

In the U.A.E., BP has bought access to one of the last big oil concessions available in the Middle East. The 40-year deal will give BP access to 165,000 barrels of oil a day--a rich prize in today's world, where many oil-rich countries in the Gulf are off limits to big international oil companies. It ends a yearslong standoff over terms that many within the industry criticized as unattractive despite the volumes at stake.

Write to Sarah Kent at sarah.kent@wsj.com and Bradley Olson at Bradley.Olson@wsj.com

(END) Dow Jones Newswires

December 20, 2016 02:47 ET (07:47 GMT)

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