BP mergers Norway assets Det Norske for $1.3 billion
London-based BP (ticker: BP) announced that it will spin off its Norwegian oil and gas fields, combining them in a new, publicly traded company with Norwegian firm Det Norske Oljeselskap ASA. The new company will be the largest independent European oil and gas E&P, producing 122 MBOEPD.
Under the agreement, Det Norske will give BP shares worth $1.3 billion in return for BP’s Norwegian assets, forming a new company called Aker BP ASA.
BP will hold a 30% share in the combined company, while Det Norske’s major shareholder, holding company Aker ASA, will hold a 40% interest, and other Det Norske investors hold the remaining 30% of the company, according to a BP press release.
Det Norske will issue 135.1 million shares at 80 kroner ($12.11) per share for all of BP’s stocks, a tax loss carry forward and a net cash position, according to the statement. Aker will buy 33.8 million of these shares from BP at the same price to achieve the agreed ownership structure.
The deal, which came after BP considered selling the whole of its Norwegian business, illustrates tactics global oil majors are employing in order to remain competitive in today’s market. Oil giants like BP and Shell (ticker: RDSA) have acknowledged that smaller companies are often better at operating existing fields.
Apache (ticker: APC), for example, acquired the Forties Oil Field in the North Sea from BP after production had fallen more than 90% from peak levels. APC was able to raise production about 20% following the acquisition, reports New York Times.
“BP needs, in this hypercompetitive world, to think about different commercial models in different places,” Robert Dudley, the British company’s chief executive, told analysts on Friday during a conference call.
In its press release, BP said “Aker BP will benefit from the combined strength of Det [sic] norske’s efficient, streamlined operating model and BP’s long experience in Norwegian offshore operations, asset knowledge, technical skills and international experience.” The companies believe that Det Norske’s efficient model combined with the backing of an oil major like BP could see production from the assets more than double to 250 MBOEPD by “the early 2020s” the company said in its release.
BP said it plans to sell $3-$5 billion in assets this year, but will receive only $140 million in cash as part of this deal.
“Whilst the deal is small from BP’s point of view, we’d view both the receipt of cash and the continued interest through a 30% stake in the new entity positively,” Exane BNP Paribas wrote in a note to clients.
BP operates five oil and gas fields in Norwegian waters, including Valhall field which began production in 1982 and the Ula asset which began four years later. The company also started the Skarv field in the Norwegian Sea in 2013. The lifespans of its projects could potentially be extended with the discovery of any future fields tied back to existing platforms as well.
“We think this was the right decision,” Dudley said. If BP had sold for cash, it would have missed out on “the long-term growth potential in this company.”
