BP plc (NYSE:BP) – Locks up Access to New Set of Oil Assets
London-based BP (NYSE:BP), the giant international oil and gas company, is considered one of the most undervalued of the “Big Oil” set by Agora Financial commodities expert Byron W. King. In his opinion, it was not well managed for many years in the 2000s, and even so far back as into the 1990s. However, he’s seen a lot of intriguing news of late which he discusses in a recent update.
Here is King’s latest take on BP:
“Under new management with CEO Tony Hayward, in the past 18 months, BP has been playing a strong game of catch-up. And doing it all while paying out a nice, solid dividend that’s currently yielding a 5.9% return.
“In the past week, BP announced an agreement to buy a large chunk of oil business from Devon. BP will pay Devon $7 billion for hydrocarbon assets in Brazil, Azerbaijan and the Gulf of Mexico. Plus, BP and Devon will form a joint venture to develop an oil sands project in Alberta.
“BP’s Tony Hayward stated that the Devon deal gives BP ‘significant additional long-term growth potential with an emphasis on high-margin oil.’ Indeed, the Brazilian asset alone will give BP strong interests in the prolific Campos Basin. This includes three discoveries — Xerelete, pre-salt Wahoo and Itaipu — and the already producing Polvo field.
“Add to this the fact that the Devon concessions offshore Brazil cover much more of that deep pre-salt play. There’s more out there to find, and BP is very strong in deep earth exploration, based on a powerful learning curve in the Gulf of Mexico and elsewhere. By my back-of-the-envelope calculations, BP may be paying under $1 per barrel for future oil reserves.
“Meanwhile, the Azerbaijan deal with Devon also opens doors to BP, which is traditionally strong in the Middle East. Note that BP is also one of the leaders in rebuilding the Iraqi oil industry. So at the very least, BP is locking up access to future flows of Middle Eastern crude oil. And with rising energy prices (have you noticed?), BP is holding a stronger and stronger hand.
“The bottom line is that just with the Devon deal, BP has acquired a terrific new set of oil assets, spanning three continents. It’s immensely foresighted, and great for the long-term prospects of BP.
“All that, and almost lost in the noise was the announcement that BP is putting the finishing touches on a $100 million facility that will process commercial volumes of heavy oil from Alaska’s North Slope.
“The new BP facility, at the Milne Point field, is finally ready to go. It’s due to begin continuous operations in May. It’ll initially process oil from four wells that will tap the vast but elusive layer of heavy oil above the North Slope’s conventional oil reserves. The future potential of this heavy oil play is in the billions of barrels. It’s just immense.”
King seems like he could barely be more content with BP investment and execution right now. In addition to BP, he follows a number of investment opportunities in the commodities and energy space, more of which you can read about by visiting the Agora Financial reports page, available here.
[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]