Tony Hayward had better get used to defending his company’s push into the oil sands. BP’s newly-named chief executive officer is likely to be doing major Alberta acquisitions in the not too distant future.
Mr. Hayward took heat from the British press this week for BP’s first foray into the what’s being called the “dirty” oil sands - that being the company’s $11.7-billion (U.S.) joint venture with Husky Energy. The Europeans seem underwhelmed with the Kyoto-breaching nature of oil sands development.
Mr. Hayward’s response is that BP will be part of the solution to these environmental issues, as a long-term player in the oil sands. Expect to hear that refrain repeated.
What’s happening at BP is a slow but massive reversal of former CEO John Browne’s long-standing strategies. Mr. Browne judged the oil sands too expensive, and exited the play. Canadian Natural Resources picked up the properties and never looked back. Mr. Browne also felt liquefied natural gas (LNG) was too capital-intensive, so BP walked away from that sector in the early 1990s.
It’s not Kyoto criticisms that sting Mr. Hayward. It’s the concerns of energy analysts such as David Stedman at Daiwa Securities in London, who wrote this week: “We have argued for a number of years that BP has too narrow a set of growth opportunities.”
Mr. Stedman praised BP’s joint venture with Husky Energy, and a recently announced LNG project in Qatar, but said these initiatives only amounted to “a good start.” When you run the world’s third largest oil company, with a $232-billion enterprise value, then $11-billion investments qualify as simply dipping a toe in the pool, or the sands.
“BP may, in our view, turn to corporate acquisitions to gain a significant leg up,” Mr. Stedman concluded. Using BP’s guidance, the analyst calculates that the oil company will spend $22-billion on building its operations in 2008, in line with the company company’s capital spending last year.
Obviously, some of those billions will go to fixing BP’s well-documented problems at U.S. refineries, and on LNG. But it’s clear that Mr. Hayward is making a commitment to the oil sands that his predecessor never contemplated. And with this kind of acquisition budget, nothing in the Alberta oil sands is beyond Mr. Hayward’s reach.
