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BP PLC

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BP Considering Plan to Spin Off Iraq Operations Into New Company, Sources Say--Update

06/11/2021 | 09:53am EDT

By Sarah McFarlane and Benoit Faucon

LONDON -- BP PLC is working on a plan to spin off its operations in Iraq into a stand-alone company, according to people familiar with the matter, as the oil giant shuffles its assets and investment plans in its pivot toward lower-carbon energy.

The new company would hold BP's interest in Iraq's giant Rumaila oil field -- one of the world's largest -- and be jointly owned by China National Petroleum Corp., one of the British company's partners at the site, the people said. The new entity would hold its own debt, separate from BP, and distribute profits via dividends, the people added.

The plan aims to give BP more flexibility to invest in low-carbon energy by enabling it to reduce its spending on oil and gas, the people said.

Such a move would underscore how some European oil companies are backing away from decades of pioneering exploration in sometimes challenging locations to refocus on where future energy demand is expected to grow: low-carbon fuels and electricity.

The potential shift would have particular significance for BP because of its history in Iraq, dating to the 1920s. In 2009, BP was the first international oil business to return to Iraq after the U.S.-led invasion.

To advance its goal, BP would first need to secure the agreement of state-backed Basra Oil Company and Iraq's national oil company, the State Organization for Marketing of Oil, or SOMO, which are part of the Rumaila Operating Organization.

BP's plan for its Iraqi business is similar to what it recently said it was considering in Angola, the people familiar with the matter said.

BP and Italy's Eni SpA last month said they had signed a memorandum of understanding to combine their oil and gas assets in Angola into a new jointly-owned company to save on costs and boost growth. The companies plan for the new entity to be self-funded, and have appointed advisers to help raise money for the new venture.

Any potential new company isn't expected to change BP's reporting of production and emissions for its Angola assets. It isn't clear whether the plans for Iraq would affect BP's production or emissions.

Consultants and analysts have said that they expect more oil companies to pursue similar deals as a way to free-up budget. Mature oil and natural gas fields, which don't require large investments and provide a steady income, could be suited to such deals, they said.

"It's the switch in mentality for the oil-and-gas operations from being a growth engine to a cash cow," said Biraj Borkhataria, analyst at RBC Capital Markets.

Major European oil companies including BP, Royal Dutch Shell PLC and TotalEnergies SE have said they plan to reduce their dependence on fossil fuels in the coming years and curb emissions by shrinking their oil production and investing more in low-carbon energy.

BP last year committed to increasing its low carbon investments 10-fold to $5 billion by 2030, at the same time as reducing its oil and gas output by 40%.

Iraq's Rumaila is one of the world's largest oil fields and has been a cornerstone in BP's portfolio. The company was involved in the discovery of the field in 1953, and the site now accounts for roughly a third of Iraqi's annual crude production.

BP is one of Iraq's largest foreign partners. The country has been attractive to major oil companies because its crude is relatively easy and cheap to extract, although political instability has at times tempered some interest.

In 2009, BP and CNPC won the rights to develop Rumaila, securing a 20-year technical servicing contract, which was then extended by 5 years to December 2034. BP is the lead contractor with 47.6%, while CNPC has 46.4% and SOMO has 6%.

In the past three years, some companies have left Iraq while others arrived.

Shell handed over its Majnoon field operations to Basra Oil Co. in 2018 and more recently Exxon Mobil Corp. has sought to leave. Earlier this year, Exxon held talks to sell its position in the West Qurna 1 field to the government, according to people familiar with the matter. Exxon and the Iraqi government declined to comment on those talks.

Meanwhile, Chevron Corp. signed a memorandum of understanding with the government last year including exploration activities in Southern Iraq.

--Ben Dummett contributed to this article.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Benoit Faucon at benoit.faucon@wsj.com

(END) Dow Jones Newswires

06-11-21 1153ET

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Net income 2021 11 489 M - -
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P/E ratio 2021 7,48x
Yield 2021 5,00%
Capitalization 86 220 M 86 126 M -
EV / Sales 2021 0,60x
EV / Sales 2022 0,55x
Nbr of Employees 63 600
Free-Float 94,0%
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