Right now, BP is everyone’s favourite villain; lambasted by everyone from Louisianan prawn fishermen through fundinvesting pensioners to the US president, a company once regarded as an investor’s blue chip and as enduring a symbol of UK economic might as the pound, may have had one corporate crisis too many.
At the time of writing, the Deepwater Horizon leak in the Gulf of Mexico had wiped some 40% off the company’s share value and forced it to consider looking for a strategic investor to safeguard against being snaffled up by a bargain-hunting rival. Its chief executive Tony Hayward, who will leave the company in October, has been accused of arrogance, and the company at large of cutting corners and unsafe practice. Nor has the episode shown BP’s rivals in a favourable light, their senior officials conceding that had they been responsible for a spill on the same scale, their responses would not have been markedly different or more effective.
Where there is oil, there is inevitably a faint whiff of disapproval. Shell’s track record in the Niger Delta, the Exxon Valdez spill, Unocal in Burma, Talisman in Sudan: bitter experience has shown that no major oil company is immune from the tendency of its chosen commodity to corrupt, pollute and complicate. It fuels wars and coups, disrupts and distorts the economies it inflates. But it also employs. And if the spill has obscured another truth, it is that BP is one of the world’s biggest foreign direct investors, and if the company is in trouble, the repercussions will be felt across the globe.
BP may be in trouble right now, but as a global business (not just a global brand) it continues to employ some 80,000 personnel worldwide in exploration and production, refining, marketing and retail. It pledges investment on a massive scale with a view to reaping the rewards over several decades. And along the way it trains and develops skills (less out of altruism than for its need to develop its workforce), builds infrastructure and pays taxes and royalties. Albeit that these are sometimes spent unwisely by profligate governments and politicians, if BP were to collapse, it would not just be the pension funds that would be getting worried.
But what, then, are the likely repercussions of the Deepwater Horizon spill on BP’s FDI? That the company is looking for a strategic investor of its own is no surprise – a collapsing share price makes it vulnerable and in need of protection. BP has saidthat capital raising by dint of another share issue is not on thecards. More likely, it will look to sell off discrete assets, a prospect a BP spokesperson confirmed, telling fDi: “At the beginning of the year, before the Gulf of Mexico disaster, we planned to raise several million dollars through divestment. Currently we’re looking at increasing that sum to $10bn over the next 10 months.”
As of mid-July, BP has been reported to be in three separate sets of sell-off talks. One option is to dispose of some of $12bn-worth of assets to the US-based Apache Corporation, including its operations in Alaska’s Prudhoe Bay. It is also reported to be considering letting go of its 60% stake in Argentinian company Pan American Energy – potential buyers for which include China’s CNOOC and Bridas, also an Argentinean company. In addition, a package of assets in Venezuela, Colombia and Vietnam is being slated for the sell off.
Wherever the assets are located, a $10bn divestment is going to represent a massive opportunity for potential seekers of assets, whether international oil companies, such as CNOOC in Asia, or national oil companies such as Petronas and Petrobras, to acquire long-term strategic assets at a time when they are fortuitously priced.
But it will only dent the BP family silver. In the US alone, BP has invested $45bn in the past six years, employing 23,000 people and owning $47bn-worth of fixed assets. In Angola, it has awarded about $60mworth of contracts with local companies for the supply of goods and services. In Azerbaijan, where BP develops fields in consortium with the state oil company SOCAR, the company’s operations employ 2000 people. Some 85% of them are local and many work in senior positions. In Libya, where BP announced a major market entry in 2007 (having been awarded acreage the same size as the whole of Kuwait), the company pledged that it would spend up to $100m on education and training programmes for Libyan engineers and other professionals. And BP is one of the largest Western investors in Russia, as owner of half of the shares in TNK-BP, a company which employs more than 65,000 people.
This is a not only an enormous responsibility, but also a very particular one, almost unique to companies such as BP due to the very nature of their business. Certainly, BP is to be commended where it creates jobs (although typically the oil industry is capital intensive, not labour intensive), pays taxes and generates secondary activities. And yet the company is also exhausting a non-renewable resource which is the patrimony of a host country, the proceeds of which may or may not be used for the benefits of that
At the beginning of the year, before the
Gulf of Mexico disaster, we [BP] planned
to raise several million dollars through
divestment. Currently we’re looking at
increasing that sum to $10bn
Not on our doorstep
Critics of the international oil industry – and there are many – point to a number of ironies surrounding the Deepwater Horizon spill, the greatest being that other environmental catastrophes, typically in the developing world (such as in the Niger Delta), have done significantly greater damage to the environment while the companies responsible evade responsibility for the clean-up.
Cynics argue it is because the damage has occurred in the ‘first world’, and not the third, that BP finds itself in such a hole. A severe ear-bashing from the president of the US reverberates worldwide and the presence of a determined and unswerving legislature gives clout to the threat of a drilling ban. Elsewhere, particularly in the absence of transparency or true participation by civil society, opposition movements or media, environmental catastrophes on the scale of the Gulf of Mexico spill are much easier buried and their casualties paid off.
However, the spill might focus renewed attention on the nature of the oil business – an industry which at its best provides employment, training, and economic growth – and its relationship with host nations.