BP is wisely choosing growth over control in Norway. The UK oil major is teaming with Det norske and its main investor Aker to create the largest Norwegian independent oil firm in a $1.3 billion share deal. BP will have only a 30 per cent stake in the Oslo-listed company, but matching its mature assets with Det norske's growing and efficient operations makes sense.
Norway is a plum destination in the oil world because it has a relatively stable regulatory regime that encourages exploration. BP has been there for over 50 years, but its relatively small asset base is maturing and will eventually face decommissioning costs. BP's chief Bob Dudley said on June 10 the company has been offered cash to exit Norway, which it could simply have handed back to shareholders. But oil companies are also in the business of finding oil, and it's not easy to redeploy that cash elsewhere.
The deal means BP's Norwegian production goes from declining seven per cent a year to growing up to 2.5 per cent on a compound basis to 2023, according to analysts at Redburn. Det norske needs capital to keep growing. It has a stake in prized giant field Johan Sverdrup, which won't start producing until 2019. The combined group aims to double current production to more than 250,000 barrels of oil equivalent per day by 2023, as new projects come on-stream.
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The financials of the deal are harder to unpick, since the companies haven't provided any estimates on synergies. BP gets shares in Det norske, a more efficient operator, worth some $1.3 billion. BP will simultaneously sell some of those shares to Aker, which emerges with a 40 per cent stake, and the UK group will receive a net $140 million in cash.
Existing minority Det norske investors get diluted down to 30 per cent from around 50 per cent, but the eight per cent pop in Det norske's shares in morning trading on June 10 suggests they don't mind much. As for BP, the deal is a reminder that there are creative ways to boost growth without resorting to expensive acquisitions.
