Middle East Oil Producers Considering Investment in BP

As BP makes plans to continue on after the Gulf oil spill with a new chief executive, the London-based company might look attractive to many Middle East sovereign wealth funds, also known as SWF’s. It would be ironic to departing CEO Tony Hayward if his efforts earlier this month to court the funds in Abu Dhabi and other oil-producing countries were indeed to come to fruition.

It is seems at first glance unusual that funds which were set up to diversify assets for oil exporters would want to invest in a major oil company. However, over the last few years, BP has reinforced its decision to go “beyond petroleum”, and could thus do the same for oil producers. BP, originally known as British Petroleum, has energetically acquired assets in natural gas and renewable energy over the past years, which could provide a useful transfer of technology to the well-invested sovereign funds.

Victoria Barbary, a senior analyst at the Monitor advisory group, recently told Reuters, “SWFs over the last two years have been actively investing into technology transfer from an economic diversification point of view. From this perspective, BP actually has an attractive portfolio.” In July, Tony Hayward embarked on multiple trips to court SWFs as shareholders, in large part to bolster the company’s defense against a takeover. Hayward met with many investment executives, including Abu Dhabi’s Prince Mohammed bin Zayed al-Nahyan, who he encouraged to commit the emirate’s sovereign wealth fund, considered to be the largest in the world, to acquire up to 10% of BP, according to news reports.
Libya reportedly was also considering an investment through its sovereign wealth fund, Kuwait, however, which already owns BP stock, ruled out any further acquisitions in the near future.

In addition to its decision to replace Hayward as chief executive, the BP board this week also agreed to sell off $30 billion in company assets to offset its expenditures in connection with containing and cleaning the Gulf oil spill. The sale, which represents 10% of BP’s assets, would offer an opportunity for oil producers to acquire non-oil assets directly from the company.

-Chris Termeer