Yahoo Finance BP to Spin-Off Iraq Operations for Clean Energy Transition
BP plc BP is considering spinning off its Iraq operations into an independent organization as part of plans to pivot from oil and gas and refocus on cleaner energy, reported The Wall Street Journal.
The new entity would hold BP’s interest in the super-giant Rumaila oilfield, the biggest producing field in Iraq. The new company will be jointly owned by China National Petroleum Corporation (“CNPC”), one of the company’s partners at the site.
Discovered in 1953, Rumaila is one of the largest oil fields in the world. Notably, the oilfield has been a backbone in BP’s portfolio of assets. In 2009, BP and CNPC won the development rights of the oilfield and acquired a 20-year technical servicing contract, which was extended by 5 years to December 2034.
BP, which is a lead contractor for the field, has a 47.6% ownership interest, while CNPC and the State Organization for Marketing of Oil (“SOMO”) hold 46.4% and 6% interest, respectively, in the field. Importantly, the oil produced from the field constitutes nearly one-third of Iraq’s total oil production.
BP considers spinning off to allocate additional capital toward its renewable businesses, while squeezing more from their oil and gas assets. Notably, the spin-off is likely to provide BP with more flexibility to invest in low-carbon energy and reduce its spending on oil and gas. The spun entity would take on its debt, separate from BP, and is expected to distribute its earnings through dividends.
BP has extensive experience in oil exploration and production, and has been one of the largest foreign partners in Iraq. Notably, the country has been attractive to major oil companies as crude production is relatively easy and cheap in there despite the political turmoil, which at times tempered interest.
On its part, the spin-off highlights how some Europe-based oil companies are moving away from decades of pioneering exploration to focus on places, where future energy demand is expected to grow. Notably, most analysts expect more oil companies to undertake similar deals to free up cash.
Company Profile & Price Performance
Headquartered in London, UK, BP is a fully integrated energy company, with a strong focus on renewable energy.
Shares of the company have outperformed the industry in the past six months. Its stock has gained 28.4% compared with the industry’s 23.3% growth.
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Zacks Rank & Stocks to Consider
The company currently carries a Zack Rank #3 (Hold).
Some better-ranked players in the energy space are TOTAL SE TTE, PetroChina Company Limited PTR and Royal Dutch Shell Plc RDS.A, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Over the past 60 days, the Zacks Consensus Estimate for TOTAL’s 2021 earnings has been raised by 6.9%, whereas that for PetroChina has been increased by 67.7%.
Shell’s earnings for 2021 are expected to increase 15.5% year over year.
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