BP to Revive North Sea Fields

Zacks Equity Research

BP Plc (NYSE:BP - News) and its partners have signed a £3 billion (US$4.8 billion) agreement for the redevelopment of two oil fields in the North Sea.

The deal is as a part of BP’s strategy to uphold a superior business standard in the region despite a recent tax hike on oil and gas production in British waters.

The two fields –– Schiehallion and Loyal –– are located to the west of the Shetland Islands. The fields have already produced nearly 400 million barrels of oil since the commencement of production in 1998 and are still expected to hold 450 million barrels of resource.

The company intends to utilize a major portion of the investment in upgrade and replacement of the subsea facilities, with a view to start production in 2016, in order to facilitate full development of the reserves.

The existing Schiehallion floating, production, storage and offloading (:FPSO) vessel will be replaced with a new one, scheduled to be installed in 2015. The new vessel will be able to process and export up to 130,000 barrels of oil a day, and store in excess of 1 million barrels.

BP will enjoy 36.3% ownership interest in the new FPSO with Royal Dutch Shell Plc (RDS.A) holding an equal stake. The other co-partners include Hess Corporation (NYSE:HES - News) with a 12.90% stake, Statoil ASA (NYSE:STO - News) with 4.84%, and OMV (:UK) Ltd. and Murphy Oil Corporation (NYSE:MUR - News), with a 4.84% stake each.

The British group’s latest move comes after its planned $16 billion share swap and an Arctic exploration deal with Russia’s Rosneft fell apart. The unsuccessful venture was seen as BP’s greatest growth project since the Gulf of Mexico oil spill checked its growth.

BP is one of the world's largest energy companies, providing its customers with fuel for transportation, energy for heat and light, retail services, and petrochemical products. We believe the company's new strategy of active portfolio management, higher exploration activity, and refining and marketing repositioning will create value for shareholders.

Hence, the latest step for field re-development, which was welcomed by the U.K. government, will augment BP’s exploration venture and thereby boost its synergies to regain its position in the industry following the oil spill. BP’s prospects will be further enhanced by a stronger oil price environment and concentrated upstream portfolio.

We maintain our Neutral recommendation for the company. BP ADRs retain a Zacks #3 Rank, which translates to a short-term Hold rating.

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MURPHY OIL CORP (MUR): Read the Full Research Report

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