BP's Bid to Purchase TOTAL Stakes in Venezuela Rejected

BP plc’s BP bid to purchase TOTAL SA’s TOT stake of 49% in the promising but inactive natural gas project along the maritime border with Trinidad and Tobago was rejected by Venezuela’s oil ministry in October 2018.

Venezuela’s socialist government’s hostility toward foreign companies is reflected by the rejection of the bid. Foreign companies intending to expand liquefied natural gas (LNG) portfolios in OPEC nation’s unexploited gas reserves will face this hurdle.

The ministry informed the parties that the area’s reserves are required to be re-estimated, a reason that has been used to decline other similar deals.

Per a report, BP owns the rights to the Trinidad side of the gas play. The company would have used the production from the neighboring area the Deltana Platform’s fourth block off Venezuela’s eastern coast to supply operations on the island.

Per sources, the sale of TOTAL’s stake has been awaiting approval for two years. The remaining stake of 51% is held by Equinor ASA EQNR. The stakeholder reported the completion of exploration drilling 10 years ago and did not reveal TOTAL’s plans.

At the end of 2017, Venezuela’s undeveloped gas reserves were estimated at 225 trillion cubic feet (tcf) compared with Trinidad’s 9.2 TCF, per BP’s Statistical Review of World Energy. The development of these reserves can help Venezuela reimburse lack of capital for its oil industry. Production in Venezuela, which has the world’s largest crude reserves, continues to decline amid political and economic crisis.

BP and Royal Dutch Shell plc RDS.A own all four LNG plants in Trinidad, also known as trains. Royal Dutch Shell intends to approach Venezuela to allow it produce gas in the offshore Dragon field, adjacent to the Hibiscus platform off Trinidad.

Recently, TOTAL downgraded Venezuelan projects to the lowest investment category, meaning that it will continue looking for buyers. TOTAL’s attempt follows the scenario where western oil firms intend to lower exposure to Venezuelan operations due to growing reputational risk. U.S. sanctions and corruption probes related to government officials and state-run oil company PDVSA are other negative factors.

Zacks Rank

Currently, BP carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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TOTAL S.A. (TOT): Free Stock Analysis Report
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