BP Secures Middle Eastern Oil

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What's going on?

BP, the massive UK-based energy company, has traded a 2% ownership stake in itself for a 10% ownership of the drilling rights to a big oil field in the Middle East.

What does this mean?

Its a pretty simple deal: the United Arab Emirates (UAE) is giving BP the right to drill some of its oil in exchange for shares that represent 2% of BP. Its a deal worth about 1.8 billion ($2.2 billion) and, as a result, Abu Dhabi (the emirate that is the capital of the UAE) will become one of BPs ten biggest shareholders (tweet this).

Why should I care?

For the stock: Its about access to (cheaper) oil.
For BP, the deal provides access to a lot of oil that costs relatively little to drill which, given that the oil price remains half of what it was two years ago, is useful to have. Also, the expected lifetime of the oil field is about 40 years, so BP will have access to this low-cost oil for a long period of time.


The bigger picture: Tough-to-reach oil is set to stay in the ground at least for now.
BP recently decided not to explore drilling off the south coast of Australia. Last year, Shell announced it would stop exploring for oil in the Arctic. It wasnt so much a win for the environmental movement as it was a consequence of the relatively low oil price. Offshore drilling, in many places, has become prohibitively expensive; its far cheaper to drill for oil in the Middle East or via shale drilling techniques in, say, Texas. That, of course, has a big impact on regions that have relied on higher-cost oil production (for example, the UKs North Sea and Canadas tar sands).

Originally posted as part of the Finimize daily email.

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