BP’s recent attempts to get Middle Eastern investors to help plug the leak in its blown-out balance sheet could cause more problems for the embattled British oil company.
BP Chief Executive Tony Hayward has reportedly told the government of Abu Dhabi, a U.S. ally, that the company would be open to selling the emirate an ownership stake of up to 10%. In recent days Libya’s top oil official said that the nation’s sovereign wealth fund should invest in BP, calling the company’s shares a bargain.
But increased investments in BP from the Middle East could trigger reviews in Washington, given the company’s U.S. subsidiary, BP America, which drills for oil and natural gas through government leases and sells gasoline and other products to consumers and businesses. The U.S. Justice Department already has asked BP for at least 30 days’ notice of “any significant corporate actions.”
Striking a deal with Abu Dhabi, which is part of the United Arab Emirates, could raise national security concerns.
Four years ago, Congress threatened to block Dubai, another emirate, from operating eight U.S. 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 U.S. 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.
Phil Flynn, vice president and energy analyst with PFGBest Research, said increased Middle Eastern investment would only add to BP’s image problems in the United States.
“I had an e-mail from a BP investor today that sums up the feeling: ‘What a way to win the public relations battle. Turn your company into a pariah in the U.S. and then consider taking on Libya as a shareholder,’ ” Flynn said. “I definitely think it’s going to raise eyebrows. It reminds me of when the Chinese wanted to buy Unocal. People were outraged.”
No investment deals have been announced by BP. And there was little reaction from Washington as Congress is on a weeklong recess and many lawmakers were travelling.
But Michael A. Levi, director of the Program on Energy Security and Climate Change at the Council on Foreign Relations, said opposition to potential Middle Eastern investment could be counterproductive for U.S. officials who want to make sure the company pays the multibillion-dollar costs for cleaning up the gulf oil spill, Levi said.
“People keep saying they want BP to pay up,” Levi said. “Part of making sure that BP pays up is making sure BP is solvent.”
Solvency has been a concern as BP’s stock value has plummeted as much as 55% since oil started spewing from the Gulf of Mexico well in April. Amid fears the company could be a takeover target, Hayward has been visiting major shareholders, trying to shore up the company’s finances.
Hayward was in Azerbaijan on Tuesday and then headed to Abu Dhabi on Wednesday.
Daren Beaudo, a BP spokesman based in Houston, wouldn’t comment on reports that Hayward was actively courting new investment.
“We are not putting additional equity out there,” Beaudo said. “If someone wants to increase their share, they can.”
Phil Weiss, an analyst at Argus Research, said finding new investors is the only realistic route available to BP to bolster its balance sheet.
“They could issue new stock, which is unlikely because that would just hurt current stockholders. The only other scenario for them is to go to investors looking at the long term to help stabilize the stock price,” Weiss said. “If you can get 10% of your stock into the hands of investors who will hold on to it for five to 10 years, that would really help the stock.”
Such a move also would help fend off a takeover by putting large blocks of stock in the hands of new investors, Weiss said.
Amid the developments, BP’s stock has staged a mini-rally, regaining about 10% of its value since late June. On Wednesday, BP’s U.S.-traded shares rose $1.28, or 4%, to $33.19.
John Hofmeister, former president of Shell Oil Co., said BP’s main goal should be protecting its shareholders.
“They could sell assets, but then they are gone. If you issue more shares, it looks like a panic,” said Hofmeister, who now leads Citizens for Affordable Energy, a nonpartisan advocacy group based in Houston. “Finding a strategic investor with a long-term appetite for a good return is a good move.”
U.S. officials are concerned about BP’s finances as spill cleanup costs rise; BP has said expenses have topped $3 billion.
The Justice Department has a team in New Orleans monitoring the cleanup to ensure that BP reimburses the costs. And on June 23, a member of that team, Tony West, head of the Justice Department’s civil division, sent a letter to BP requesting advance notice of major corporate actions, such as asset sales, transfers of cash or restructuring.
“We have not yet responded, and we will be replying in due course,” BP’s Beaudo said.
In addition, the U.S. has a formal process through the interagency — the Committee on Foreign Investment in the United States — for reviewing deals involving foreign control of a U.S. business. Although BP is not talking about selling a controlling stake, a review still could be triggered, Levi said.
The government of Kuwait is one of BP’s largest shareholders, owning about 1.8% of its stock. Kuwait owned 21.6% of BP in 1988 when British officials ordered it to divest half its holdings.
Even if a U.S. review is not required, additional Middle Eastern investments in BP would create an opening for its opponents, Levi said.
“People are driving a narrative about dirty oil companies and people are driving a narrative about Middle Eastern oil, and if the circumstances present an opportunity to tie the two of them together, a lot of people will jump on it,” Levi said.