The new, increasingly mysterious, BP | FT Alphaville

The new, increasingly mysterious, BP

Here’s a big table for institutional investors to pore over on Tuesday:

It’s Citigroup’s list of the asset sales and acquisitions made by BP since the start of 2010 — so it includes stuff unloaded when the company had to raise cash to pay its legal bills after the Gulf oil spill.

But since then…

Monday’s deal for Indian gas assets with Reliance Industries is the first time that post-2010 acquisitions have outweighed divestment, says Citi’s Alastair Syme. Not only that — it’s another high-risk foray from BP, after January’s pact (and share swap) with Rosneft for Arctic exploration and another trip to the geological frontier.

So is the promise paying off? Says Citi:

In a distressed situation we would argue BP has done well to reposition the portfolio in a way that does not look value destructive. But is it value accretive? Strategically, BP looks to be backing its expertise that exploration can deliver closer to the unrisked resource potential, which we estimate at 20 billion boe. This could be a material prize versus BP’s current resource base of 64 billion boe, but with long lead times to drilling we think the market is unlikely to view this strategy as materially accretive to NPV today.

What is interesting to us is that the strategic shift in BP’s portfolio looks to be moving the company away from the low-growth, high dividend yield model of its European peers towards a strategy that offers the potential for long-term growth… We think long lead-time to judge the success of this strategy does little to alleviate market concerns around medium-term growth and profitability, metrics against which we believe the market will continue to benchmark BP relative to peers. We maintain our Hold / Medium Risk (2M) rating.

The thing is — lower dividends, higher risk = quite a different sort of proposition for institutional investors, no?

It’s not just long lead-time, we think — it’s lengthy legal complications that are threatened too, just as a previous entry into a frontier market (Libya) collapses.

And when you consider just how BP is hoping to ride through recent gyrations in global oil benchmarks, well, the mystery goes on.

Related links:
Oil shock 2.0, or the benchmark wars – FT Alphaville
BP eyes emerging markets but politics holds risks – FT
For Reliance, does BP’s cash = validation? – FT Tilt