BP to sell minority stake in Ormen Lange gas field

Oct 19, 2004 02:00 AM

BP said it plans to sell its interests in the $ 10 bn Ormen Lange natural-gas development in Norway as the company seeks to exit projects where it has little influence. BP seeks to reach an agreement on the sale by the end of this year, completing the transaction in 2005, it said. London-based BP owns 10.34 % of the Ormen Lange field, which will supply the UK and mainland Europe from 2007, and 10.2 % of the Langeled pipeline system.
"BP likes to be in the front seat" when it develops fields, said Ulf Leineboe, an Oslo-based analyst at Handelsbanken Capital Markets. "BP didn't have enough influence." Leineboe values BP's stake in the field alone at between $ 875 mm and $ 1.1 bn.

BP's decision to leave Ormen Lange follows other disposals of minority holdings, including a sale of 9.5 % of the Kashagan field in Kazakhstan to Total in 2001 and some gas assets in the UK North Sea to Perenco of France last year. The company has said it's seeking more influence in ventures where it can cut costs andimprove profit margins.
"We're selling because our global strategy is to own large influential stakes wherever we do business," Jan Erik Geirmo, a spokesman for BP's Norwegian unit, said. "There is still a strong need for gas in the U.K. and Europe, which we will be able to supply from our global network." BP said it hired J.P. Morgan Chase & Co to advise on the sale.

Some UK gas forward contracts have fallen as much as a third in October. UK gas for delivery in the three months through March 2007 has fallen 9.9 % to 41.76 pence ($ 0.75) a thermal unit at the National Balancing Point in the past 13 days, compared with an average 24 pence for the same months of this year.
Still, the 2007 prices are less than the 49.65 pence price for the same three months of 2005. There are at least three LNG import terminals and two other pipeline projects proposed to compete against Ormen Lange to supply Britain. BP has purchased capacity to import LNG at Isle of Grain in southeast England.

Ormen Lange will cost $ 10 bn to develop, including an onshore processing plant and a 1,200 km (746-mile) pipeline to Easington in the UK, according to Norsk Hydro, which is operator of the field during the development phase. Most of the investments will be made in 2005 and 2006, with production set to start in October 2007.
"We haven't set any limit for our stake in Ormen Lange," said Tor Steinum, a Norsk Hydro spokesman. The Oslo-based company holds 18.1 % of the field. "I'm pretty sure Hydro would like to have this and they have the financial strength" to buy it, said Handelsbanken's Leineboe.

The partners in the Norwegian Sea field, which also include Shell and Statoil, are selling their gas individually. Ormen Lange will pump 70 mm cm of gas daily, enough to supply about a quarter of average UK needs, Western Europe's biggest market. Statoil holds 10.8 % of the field.
"This is news to us, so we will have to consider this internally," said Kristofer Hetland, a spokesman for Stavanger, Norway-based Statoil. Statoil has 10.8 % of Ormen Lange. Shell holds a 17 % stake in the field and will take over as operator when production begins. The other owners at Ormen Lange are Petoro, owned by the Norwegian state, which has 36.5 %, and ExxonMobil with 7.2 %.

Earlier this year, Shell and Norsk Hydro reduced the bookings of their Ormen Lange reserves to comply with the reporting guidelines of the US Securities and Exchange Commission. The changes didn't affect actual reserve estimates for the field. After the change, Hydro has booked about 49 % of its holding as proven reserves. BP estimated last year about 85 % of its interest in Ormen Lange counts as proven reserves, according to SEC filings.
Last year, BP decided not to take part in Norway's 18th licensing round as the company concentrates on parts of the world where exploration and production costs are lower. BP has looked for new oil in places such as Angola, Azerbaijan and the Gulf of Mexico as reserves at its North Sea fields start declining.

The cost of finding and pumping a barrel of oil in Norway is higher than in many other regions, including the Middle East and Africa, because of higher taxes, wages and technical requirements for deepwater operations in a harsh climate.

Source: Bloomberg
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