It is not every day that Abu Dhabi Crown Prince Mohammed bin Zayed Al-Nahyan, who incidentally also heads the strategic investment company owned by the Abu Dhabi government, Mubadala Development, receives the CEO of a beleaguered petroleum company.
Sheikh Mohammed bin Zayed’s portfolio is interesting otherwise too. He sits on the Abu Dhabi Supreme Petroleum Council, the powerful policy-directing body that functions as a combination of energy ministry for the emirate and board of directors for the state-owned Abu Dhabi National Oil Company (ADNOC).
And indeed it is not an everyday happening that the CEO of British Petroleum travels to the region. After all, when he does there must be a reason. And when BP CEO Tony Hayward traveled to the region, it was definitely not for yachting. He had other pressing reasons: fishing for prospective investors.
Since handing over control of the Gulf of Mexico oil spill response to Robert Dudley and making an ignominious exit from the US, the embattled Hayward has spent much of his time zipping around the globe in a private jet. After generating an outrage on his pleasure trip, enjoying a yachting weekend at the height of the oil spill crisis last month, his current journey to the region was definitely not a pleasure trip.
As doubts continue to nag about BP’s long-term viability under the burden of tens of billions of dollars in oil spill costs, Hayward has been engaged in what could easily be described as a global charm offensive. He has been on a well-defined mission of convincing his long-term partners that BP will survive, continue to operate as normal and maintain investment in oil and gas assets.
His first stop was Russia, where Hayward reassured the government that BP would not sell its 50 percent stake in its local joint venture TNK-BP and would retain its $1 billion holding in Russia’s state oil company Rosneft. Next up was Azerbaijan, where Hayward assured the authorities BP would continue to invest in existing facilities and explore for more oil in the Caspian Sea.
These countries account for more than half of BP’s oil production. Feverish speculation in the past month over BP declaring bankruptcy, being taken over by a rival or meeting some other grisly end has left local partners in need of reassurance. This necessitated the trip by the CEO.
However, Hayward’s trip to Gulf generated all sort of speculations all around. Some said he was looking for a deep-pocketed sovereign wealth fund to improve BP’s liquidity and fend off acquisitive rivals. BP, now desperate to avoid hostile takeover by predators, was apparently looking for investors from the Middle East for protection, some insisted. Exxon, Total and Royal Dutch Shell were all tipped as likely predators.
And the timing of Hayward’s move was also not too bad, as a feeling was growing that the bottom had finally arrived. From the 14-year low the BP shares hit on June 29, the stock has rebounded by more than 20 percent, helped indeed in no small part by the rumors that regional backers were about to put their weight behind the beleaguered company.
And since some of these sovereign wealth funds had helped bail out some major global financial institutions during the crisis, the speculation was not without a basis. In recent weeks, BP executives have held talks with a number of sovereign wealth funds, including Abu Dhabi, Kuwait, Qatar and Singapore, Reuters reported, quoting anonymous source. There are reports that a Saudi business team including energy industry investors seeking to acquire between 10 and 15 percent of BP’s shares, were preparing to hold talks with the company.
Libya’s top oil official Shokri Ghanem also added fuel to the fire when he said last week BP was a bargain, recommending the nation’s sovereign wealth fund invest in the oil giant.
The Guardian reported that BP was talking to the Kuwait Investment Office about significantly increasing its 1.75 percent stake in the oil giant. As per some other reports, BP was separately talking to Qatar, too.
Quoting sources, Dow Jones Newswires said Abu Dhabi may buy up to a 10-percent stake in BP. Britain’s Sunday Times said BP’s advisers were trying to drum up interest among rival oil groups and sovereign-wealth funds to take a stake of between 5 and 10 percent in the company at a cost of up to 6 billion pounds ($9.1 billion). Abu Dhabi’s National newspaper cited unnamed “informed sources” saying that (Abu Dhabi) investors have submitted proposals to BP advisers and are waiting for a response. A businessman in Abu Dhabi was quoted as saying that the BP chief executive had proposed up to 15 percent of stakes to institutional investors. BP has a particularly long history with the UAE, operating since the 1930s as the center of the company’s Middle East and Pakistan operations. China was also cited in some reports as interested in buying stakes in BP — once a sought-after blue chip company.
But increased investments in BP from the Middle East could trigger rather hostile reviews in Washington, given the company’s US subsidiary, BP America, which drills for oil and natural gas through government leases and sells gasoline and other products to consumers and businesses. The US Justice Department already has asked BP for at least 30 days’ notice of “any significant corporate actions.”
Four years ago, Congress threatened to block Dubai from operating eight US ports as part of the emirate’s takeover of a British company. Dubai relented and agreed to transfer its stake in the facilities to a US entity. And five years ago, Congress foiled China National Offshore Oil Corp.’s bid to buy oil company Unocal Corp. In both cases, lawmakers cited security concerns. The US Department of Justice is seeking to prevent BP from disposing of any assets without consulting them first. And this may prove to be a major hurdle. Sensitivities — of political nature — are there too.
BP once stood for British Petroleum. Then in a bid to move toward renewable, some said, it became “Beyond Petroleum.” And some sarcastically add today that BP epitomizes “Big Problem.” Now whether BP is Big Problem or not, the fact is Tony Hayward has maneuvered shrewdly, taking his company out of the abyss it had touched on June 29 — by capitalizing — rather fueling the speculations. And Middle Eastern funds are on their way. The fund may or may not materialize. BP may not even be seeking it, as the company is insisting, yet the sentiments seem to be paying off. Fortunes have changed.
This is a sharp, well-thought-out strategy, Hayward, and you need to be complimented — at least on this count.
