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BP to shed further North Sea assets in its battle to drive down costs

The British oil major is understood to be in talks to sell legacy, non-core assets in the North Sea
The British oil major is understood to be in talks to sell legacy, non-core assets in the North Sea

BP is preparing to retrench further from the North Sea in its battle to drive down costs after a steep fall in profits in recent months.

The British oil giant is understood to be in talks with private equity backed oil minnows which have been circling BP’s more lucrative legacy fields in the central and northern North Sea since earlier this year. The company is ­expected to report a dramatic slump in profits for the last quarter on Tuesday after taking a $750m (£572m) writedown from a stalled project in Angola.

Analysts expect underlying profits to plummet from $1.5bn in the first quarter of this year to $500m, even lower than the $720m profit in the second quarter of last year, which followed a severe oil price crash.

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Aim-listed Serica Energy has been linked to a possible deal with BP since the spring when the company told The Telegraph that it was hunting for fresh acquisitions after snapping up BP’s share of the Erskine field. The expectation of a second deal deepened last month after Serica opted to make its final payment for the project sooner than expected.

BP boss Bob Dudley - Credit: Dominic Lipinski/PA Wire
BP boss Bob Dudley Credit: Dominic Lipinski/PA Wire

But City sources have said that other funds and explorers are also showing an interest in fields which are no longer core to the BP portfolio but could prove profitable to a smaller player.

Sam Laidlaw, the former boss of Centrica, is understood to be on the hunt for a second major deal after his new venture, Neptune Oil and Gas, bought up a £3bn package of North Sea fields from the rebranded GDF Suez venture, Engie.

Sources say Neptune and its backers, the Carlyle Group and CVC Capital Partners, may look to BP for a final deal before pursuing a listing on the London market.

But reports that BP will make a full exit from the North Sea have been “wildly overplayed”, the sources added.

BP is under pressure to trim the more costly edges of its global portfolio after its “breakeven” market price climbed to $60 a barrel while those of its peers have slowly slipped. The price at which BP’s upstream assets cover its costs stands well above the market rate of around $50 a barrel and the estimated $49 a barrel breakeven average for the industry.

BP share price
BP share price

Following the Deepwater Horizon incident, BP has sloughed off $50bn worth of assets in five years and expects to sell another $4-5.5bn by the end of this year.

As part of its sales drive BP agreed to sell the North Sea’s largest and oldest oil pipeline, once carrying crude from the iconic Brent oilfield, to Ineos for £200m. Alongside the Forties pipeline sale, BP has secured a deal to hand over a 25pc stake in its Magnus oilfield, as well as the field’s operations, to North Sea minnow Enquest for a cost of $85m to be paid through cashflows from the project.

Beyond its older assets BP is preparing to double its North Sea production over the next three years from 100,000 barrels of oil a day to 200,000 barrels.

BP’s new North Sea volumes will come from an area west of the Shetland Islands. In March, the Schiehallion redevelopment project opened and the Clair Ridge field will begin production next year. The explorer has also won the option to develop new fields after securing its biggest clutch of North Sea licence awards since the Nineties last year.