Tag Archives: Tony Hayward

How Will BP Raise $50 Billion?

The drilling of the relief well in the Gulf of Mexico continues to hold our attention. But in the aftermath of the spill and – as pointed out several times here at the Econotwist’s Blog –  the fate of BP’s global assets may provide the greatest long-term complications.

“My sources high up in BP are clear about one thing: The company has three ways to raise that kind of money… and they are moving on all three fronts.”

Dr. Kent Moore


Selling its assets is one way for BP to put together the funds needed to pay its expected liabilities. Those sales are moving right into a new round of mergers and acquisitions that are taking place anyway in the oil and gas sector due to rising volatility and the inability of some to withstand the uncertainty. So, the Big Oil are about to get much bigger – except for BP, of course.

BP are likely to emerge from the mess it created in the Gulf as a smaller, leaner, and hopefully, wiser company.

“Though, having been an adviser to these guys on three continents, I would not hold my breath on that last one,” oil industry expert Dr. Kent Moore writes in a recent newsletter.

But they do, however, have an overall plan:

Public attention remains focused on the $20 billion fund for compensation and the payments that are beginning to be made from it.

Yet the BP brain trust has decided the aggregate liability could well extend to $50 billion.

At least that seems to be the line they are drawing on the courtroom floor, as they move into years of litigation, assessing of damages, and counter-suits with other affected companies – Transocean, Halliburton, Anadarko Petroleum and Cameron International.

Dr. Kent Moore

“My sources high up in BP are clear about one thing: The company has three ways to raise that kind of money… and they are moving on all three fronts,” Dr. Moore writes

BP is acquiring lines of credit in the amount of $15 billion to $20 billion, one already secured from Credit Suisse (more on that one in a moment).

Then they plan to obtain between $15 billion and $30 billion from the sale of assets.

And, finally, they will either issue a supplemental placement for the remainder in BP common stock or float bonds.

Of course, the more they have to rely on this last option; the more they are effectively diluting existing shares or mortgaging future cash flow.

Support from sovereign wealth funds, especially those in the Persian Gulf, may temper that somewhat.

After all, a private placement with a buyer not interested in reselling the shares anytime soon would be the preferred approach, as would bonds with a likely rollover potential.

Here’s The Basic Problem

BP will be spinning off assets. They have already done so in several parts of the world.

Moving forward, that reduces the company’s profit base – not a preferable environment for issuing additional shares. Or, for securing bank credits, for that matter…

Because in addition to the assets it puts on the auction block, BP will need to tie up other assets as collateral for the loans it will take out.

BP To Become RP?

And that has some governments concerned. Like the Kremlin, for instance.

Trouble in Russia… Vietnam… Venezuela…

About-to-be-replaced CEO Tony Hayward (you remember, the poor fellow who wanted his life back) was jetting around the Persian Gulf looking for financial support to avoid either a collapse or a takeover.

Exxon Mobil, for one, has been flying circles overhead, waiting to see if the patient dies.

(According to the Norwegian oil industry expert professor Øystein Nordeng, Statoil is also hunting for leftovers from the BP cadaver.)

In the middle of the trip, Hayward was summoned to Moscow.

Officials there were livid.

BP used a stake it owns in their state-controlled oil giant Rosneft as collateral for that Credit Suisse loan, mentioned above.

Russian officials literally called Hayward on the carpet and demanded to know what the company’s overall strategy was going to be.

From Russia With...Nothing

Here’s one clue that you are in hot water with the government: You come into town as one of the major foreign investors in the country, yet neither President Dmitry Medvedev or Prime Minister Vladimir Putin has time to see you.

For BP and Hayward, the best they could rustle up was Deputy Prime Minister Igor Sechin, who has oil and gas in his portfolio.

Now, Sechin is a no-nonsense administrator.

He had a great concern in assessing BP’s intentions: the fate of the half BP owns of one of Russia’s top five oil producers, TNK-BP.

(The investor’s play is with the holding company actually controlling the joint venture’s assets – OTC:TNKBF.)

The Kremlin apparently received the assurance they were looking for – BP will not be selling its holding abroad.

Don’t be surprised if the Russian partners in TNK-BP end up buying the whole package outright…

Needs Cash – Now!

BP needs to raise cash quickly, and for that to happen, it will need to select assets carefully and sell them at a discount.

Plus, the Russian government is always paranoid about national resources being owned by foreign parties.

And then there is the curious fact that TNK-BP is uncomfortably grandfathered under a new Russian statute.

The venture controls strategic fields that, the law says, can have foreigners owning only minority positions.

“And there is BP, sitting out there like a sore thumb, owning half of all of them,” Mr. Moore comments.

Recognizing that BP is in an untenable position, some other governments are not waiting.

Vietnam has decided that BP will be removed as operator in a new offshore project. Hanoi is actively shopping around the position to other international majors.

And then there is Caracas…

TNK-BP was one of five Russian majors banding together in a major deal to develop fields in Venezuela’s Orinoco heavy oil belt. BP is pulling out, under pressure from President Hugo Chávez.

In areas as far-flung as Columbia, Texas, Egypt, Pakistan, and Alaska, BP has sold, or is planning to sell,  its production assets.

Here’s cash the only thing that matter – no fancy stock swaps allowed in these transactions!

The Harder They Come, The Harder They Fall

The sales may end up accounting for more than 10% of the company’s about $250 billion in worldwide assets and reduce the company’s production figures by at least that much.

“This means that the money problems facing the company may be the longer-term problem in the aftermath of the Macondo spill. The production assets BP has to relinquish to survive could end up plaguing the company’s bottom line long after it has settled the lawsuits,” Dr. Kent Moore concludes.

But there are those living in the Gulf States who might have a word for that – “Justice”.

Here’s more from Dr. Kent Moore:  “How To Play In The Big League”

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Related by the Econotwist:

BP Collecting Millions In Government Stimulus Funds

BP’s Oily Aftermath – Colbert Style

So, You Thought BP Was An OIL Company?

Response To The BP Derivatives Story

New CEO Isn’t the Long-Term Answer at BP, Expert Says

Statoil May Buy BP Assets, Expert Says

BP Rules Out Issuing New Shares

Norway’s Oil Fund Among BP’s Largest Shareholders As Bankruptcy Rumors Hit Market

Fears Of Oil Spill Consequences Subside, CDS Spreads Show

EU To Seek Temporary Ban On Deep-Water Oil Permits

Gulf Oil Spill: A Carefully Planned Inside Job?

Readers Response: The BP Conspiracy

Oil Spill Makes Waves

BP Is Drowning In Its Own Oil Spill

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BP Collecting Millions In Government Stimulus Funds

The federal government is giving a joint venture involving oil giant BP millions of dollars in stimulus money to build a power plant on farmland near the tiny Kern County town of Tupman, even as the company faces heavy government pressure and a criminal probe into the Gulf of Mexico oil spill.

“If I was the government right now, I would not give BP $300 million to do anything.”

Tom Frantz


BP is benefiting from a $308 million federal grant over several years for the cutting-edge power plant on cotton and alfalfa fields seven miles from the western edge of Bakersfield. More than half of the money, $175 million, is coming from stimulus funds. The rest is coming from another federal program.

The stimulus portion alone ranks as the second biggest award in California to a corporation and among the largest in the country benefiting private interests, according to data reported to the government by stimulus recipients, the California Watch reports.

The U.S. Department of Energy announced the grant last year to Hydrogen Energy California, a joint partnership of BP and the multinational mining firm Rio Tinto, and has paid out $13.6 million so far.

The money continues to flow even as the Obama administration bills BP for the massive costs of the oil spill.

“If you’re trying to get money out of them, why are you giving them money?” said Tom Frantz, a local environmental advocate and part-time almond farmer who opposes the power plant.

“If I was the government right now, I would not give BP $300 million to do anything.”

A power plant involving a BP joint venture would be built near the town of Tupman.

A power plant involving a BP joint venture would be built near the town of Tupman.

The stimulus award highlights the disconnect that occurs when the government gives grants and contracts to companies it has fined or prosecuted.

BP, for example, had been fined hundreds of millions of dollars and pleaded guilty to criminal environmental violations before the Gulf spill and before receiving stimulus money.

The involvement of BP in this stimulus project also poses a sticky political calculus, pitting anger at BP against the desire to create jobs and advance alternative energy.

The White House and some congressional critics of BP also support “clean coal” projects like the one this stimulus money will advance.

Critics of the stimulus bill, Sens. John McCain, R-Ariz., and Tom Coburn, R-Okla., issued a report Tuesday that highlighted the Hydrogen Energy plant as one of 100 stimulus projects that waste taxpayer money, stating “BP may have found itself staring down huge financial losses over the past several months, but executives can take solace knowing that a stimulus windfall will help offset them.”

The grant appears to be the only significant stimulus award for BP. A review of the $219 billion in stimulus funds awarded nationwide did not turn up any other major grants to the company.

A spokeswoman for the power plant partnership distanced the project from BP.

“Most people understand that Hydrogen Energy California LLC, and not BP, is the entity that received a DOE (Department of Energy) grant after a competitive solicitation that was conducted, evaluated and awarded in 2009,” Tiffany Rau wrote in an e-mail.

“DOE reimbursements provide cost sharing in HECA’s (Hydrogen Energy California’s) expenses – no money is flowing to BP.”

Hydrogen Energy California is a 50/50 partnership owned by BP and Rio Tinto and registered to a BP address. The project’s manager, as well as Rau, came to the project from BP.

At a public hearing last fall, when a local landowner asked about potential disasters the plant could cause, Gregory Skannal, who worked at BP before becoming the project’s health, safety, security and environmental manager, addressed the question: “One of our parent companies is BP,” he said. “And in that same vein, we do have resources internal to the company that provide security assessments. And those are the resources that we will be relying on in supporting us and doing those assessments to determine vulnerabilities, security measures and consequences.”

BP declined to comment for this story, but departing CEO Tony Hayward had stated in 2007, when announcing the joint venture, that “projects such as these have the potential to help deliver the carbon emission reductions which companies and countries around the world are now seeking. This will only be possible if companies work together and work alongside governments.”

Read the full story at CaliforniaWatch.org.

Related by the Econotwist:

New CEO Isn’t the Long-Term Answer at BP, Expert Says

Readers Response: The BP Conspiracy

Statoil May Buy BP Assets, Expert Says

Fears Of Oil Spill Consequences Subside, CDS Spreads Show

BP Rules Out Issuing New Shares

Response To The BP Derivatives Story

So, You Thought BP Was An OIL Company?

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New CEO Isn't the Long-Term Answer at BP, Expert Says

Money Morning have published an interesting interview with Dr. Kent Moors is an adviser to six of the world’s Top 10 oil companies and a consultant to some of the world’s largest oil-producing nations.  Ihe CEO-replacement saga began to unfold earlier this week, it seem clear that Robert Dudley will be the new CEO of BP. Dr. Moors doesn’t just know about Dudley – he actually knows him.

“BP will emerge as a smaller company. It will pick and choose upstream projects, and will emphasize the downstream refinery to retail distribution. Dudley will spend much of his time serving as the source of sound bytes on the liability issues emerging from the spill.”

Kent Moors


“I’ve been a journalist for nearly 30 years, and before I moved into editing, was considered one of the top business reporters in the country. So I know a true industry insider when I see one. In the few months since he’s joined Money Morning’s roster of global experts, I’ve talked with Dr. Moors enough to know that – in the global energy sector – he’s the ultimate insider,” William Patalon III, Executive Editor at  Money Morning writes.


William Patalon (Q): What was your reaction to BP’s decision to oust CEO Tony Hayward and replace him with Robert Dudley, an American and an insider? A solid, strategic move? Window-dressing? A non-factor?

Tony Hayward

Dr. Kent Moors: A move was inevitable. Hayward had become a lightning rod. Short-term, replacement of the CEO allows for a “new renewal” approach. Largely a PR factor in that sense, but BP still makes its moves to embellish its image when in difficulty. Bob Dudley has senior level experience and has been awaiting something serious to do after being ousted as head of TNK-BP, BP’s major Russian joint venture. Dudley managed to alienate the Russian partners to the extent that BP was in danger of losing its position in Russia if Dudley was not removed. BP saw TNK-BP as a way into Russian E&P (exploration and production) work, but did not want the venture to operate outside of Russia (where it would be a competitor to BP itself). The Russian partners, however, did.

Dudley is an interim appointment to appease the U.S. government. From a tactical standpoint, BP needed to make a move by July 27 – the day it made its quarterly financial report.

Q: Do you know Dudley? If so, what’s your assessment of him as an executive? Is Dudley qualified? In your travels, have you crossed paths with him? Any thoughts, impressions, comments?

Dr. Moors: Yes, we met in Russia. He delegates excessively, [and is] not a particularly good administrator or executive on details. He is primarily a strategist. Has little field experience – he looks at matters with the view of a director, not a program manager. He sees the big picture, but is lost in the details. Problems, of course, arise from the details – not the overall strategic policy.

Q: What moves do you expect that he’ll make once on board? Are they the moves that you would have him make were he asking you for advice?

Dr. Moors: BP will emerge as a smaller company. It will pick and choose upstream projects, and will emphasize the downstream refinery to retail distribution [part of the business]. Dudley will spend much of his time serving as the source of sound bytes on the liability issues emerging from the spill. That would have been his job anyway, had he not been elevated to the CEO slot. The company must fundamentally revise its strategic-risk-management plan. This is the third time I am making this suggestion. Since I was advising BP the last two times I made it, I doubt they will listen this time, either.

Dudley does not seek outside advice. Owing to his limited project experience – I am talking here about having to get your hands dirty in the actual operational elements – he tends to defer excessively to inside advice. That’s a bad idea when you stop to consider that it was the “inside advice” that resulted in the current disaster.

Q: Does this “swap at the top” change your outlook on BP’s shares? Why or why not?

Dr. Moors: Not in itself. The situation has to stabilize and a new BP structure has to emerge before the value of the stock itself can be correctly estimated.

Q: Does the move have other, ancillary effects on energy-sector stocks? If so, which sub-sector, or which stocks, and why?

Dr. Moors: Only to the extent that senior management has to be more adept at explaining organizational elements and serving as a conduit between company and the outside. The days of the audience of a major energy CEO being limited to his board of directors are drawing to a close.

Q: Given Dudley’s reported better rapport with the U.S. government, what’s the prognosis for offshore drilling in the U.S. Any better? Or is this a non-factor?

Robert Dudley

Dr. Moors: Dudley will be treated easier in upcoming committee hearings because he is the guy who replaced Hayward. His appointment means nothing in terms of changing the offshore drilling dynamic. That is currently playing out on Capitol Hill with the discussion on several pieces of legislation. The single-biggest development from the industry that will help that along was the announcement of a multi-company emergency-reaction plan.

Q: Anything new on the spill itself? The relief wells? I recall that, in one of your last columns for us, you outlined the “nightmare scenarios” for the relief wells.

Dr. Moors: I am still not sold on doing both a static kill from the top and a direct kill from below. The idea is to move as much mud down to offset pressure differences. If there are significant pressure differentials between the annulus (the space between the production casing and the borehole) and inside the production casing (the pipes of the blown well), the combination could create a major collapse and pipe implosion. The static kill is moving in from 5,000 feet down (the blowout preventer above the wellhead on the seabed floor). The direct kill is moving in at a 47-degree angle to intersect with the production casing about 17,500 feet down (13,500 feet below the seabed).

Q: Anything else we should be watching for?

Dr. Moors: Increasing problems experienced with an aging pipeline, terminal and capped field structure. In the last week alone, we’ve seen a barge collision with a capped well in the Gulf, a dramatic pipeline explosion in Dalian (China) and a Michigan pipeline rupture that sent oil spilling into the Kalamazoo River. More incidents such as these are on the way. The required capital expenditure to maintain this infrastructure are increasing fast.

By William Patalon III

Executive Editor

Money Morning

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