…as Gulf funds buoyant on BP

Sovereign Wealth Funds (SWFs) from the Gulf swooped in to buy stakes in troubled financial institutions during the financial crisis – now there is speculation they are sizing up stakes in BP as the oil giant seeks to raise capital following the Deepwater Horizon disaster.

Investors from the Middle East were running a ruler over BP’s operations after the company’s announcement in June that it aimed to raise $10 billion by selling assets, Abu Dhabi daily newspaper The National reported this week.

Facing political and financial pressure, BP is understood to be selling non-core assets to raise cash, strengthen its business and direct more capital to clean-up efforts in the Gulf of Mexico.

Buying stakes in certain BP oil and gas projects – including production, processing and transport infrastructure and early-stage developments – would not be a financial or operational stretch for the Gulf region’s government-backed investors.

For weeks, analysts and energy industry consultants have speculated that the strategic investment arms of certain Arab governments would target BP shares at beaten down prices. This intensified when the company announced it would aim to raise capital.

Gulf SWFs have a history of investing in large companies in distress, and have garnered mixed results by doing so. The Abu Dhabi Investment Authority (ADIA) and the Qatar Investment Authority profited from realising their investments in British bank Barclays last year, but other deals have soured: ADIA is currently in arbitration with Citigroup regarding the terms of its $7.5 billion investment in the bank during November 2007.

Observers have speculated that instead of buying BP projects outright, Middle East investors could be more interested in providing capital for strategic partnerships in which BP would provide technical knowledge and experience, enabling it to redirect project funding commitments to the spill in the Gulf of Mexico.

In the Middle East, the oil giant runs gas projects in Algeria, Libya, Jordan and Oman. While these would be strategic interests for those nations, The National indicated that projects in the Caspian Sea would be attractive for Mubadala, a strategic investment company owned by the Abu Dhabi government, and the emirate-owned International Petroleum Investment Company.

BP’s lines into major liquefied natural gas deposits in Indonesia and north-eastern Australia, and coal-bed methane project in West Papua, are oriented towards Asia-Pacific markets which have recently been a focus for the governments of Qatar and Abu Dhabi.

Also, the Abu Dhabi National Energy Company, which is 75 per cent owned by the emirate, is exposed to oil production in the UK North Sea, and could be interested in expanding its presence there through selected BP projects.