BP: strategy for growth lies outside the US

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18 January 2011, Oil, Gas

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Hydrocarbon resources in the South Kara Sea are estimated at 40 billion barrels of oil and 350 trillion cubic feet of gas. BP will be providing its deepwater drilling expertise to the partnership, which includes the painful lessons it learnt from the Gulf of Mexico spill. Up to $2bn could initially be invested in a joint venture to develop the South Kara resource, which will include research into extraction in the Arctic environment. While BP has previously operated in icy conditions, this project will be the first to attempt production in the Arctic, and the need to address environmental concerns is paramount.

After a round of asset shedding to cover immediate expenses from the Deep Horizon disaster, BP has turned its attention to opportunities for revenue growth. In order to generate income from its deepwater drilling expertise, new CEO Bob Dudley has said that BP is looking to access "large hydrocarbon basins and new basins with potential." Due to political pressure post-spill, new activity will need to be focused outside the US for the time being.

The deal has caused surprise and consternation for some. However, criticism from US senators concerned about Russian influence on BP's US energy operations, such as Edward Markey, recommendations from President Barack Obama's advisors for a moratorium on Arctic drilling, and concerns from AAR, BP's Russian partners in the TNK-BP venture, will all ultimately fail to scupper the deal.

With little access to spare capital, a share swap involving reserves in hydrocarbon-rich Russia seems like a natural first step in improving prospects for future production growth. Looking forward, BP can be expected to increase activity in areas with resource potential that it already has an interest in, such as Iraq, Libya, and Oman.

Source: Datamonitor

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