BP plc (BP) is gainning momentum with its upstream activities amid continuous debate on the company’s ability to complete the relief well to stop the Macondo leak in the Gulf of Mexico. BP has purchased a 40.82% stake in block 42/05 in the South China Sea’s Pearl River Mouth Basin from Devon Energy (DVN).
Chevron Corp. (CVX) acquired the remaining 59.18% interest and will be the operator during the exploration phase. However, Chinese offshore player CNOOC Ltd. (CEO) will hold as much as 51% interest during the development phase in this block.
As an international destination, the South China Sea is not a new place for BP to work in. The company is currently producing gas from the Yacheng 13-1 field in this area, for supply into Hong Kong and Hainan Province. The acquisition in the 42/05 block is a welcome development for BP to increase its footprint in the region.
The company has been operating in China for the past 40 years. A total investment of $4.7 billion made at the end of 2009 makes BP one of the leading foreign investors in China. Its Chinese operations include offshore gas production, chemical joint ventures, aviation fuel supply, LPG import and marketing, oil product and lubricant retailing, solar power installations and manufacturing, chemicals joint ventures manufacturing and technology licensing.
Following last month’s underperformance, BP ADSs have been turning around. In the past two weeks, price of the stock increased more than 10%.
Last month’s weak performance was mainly due to the negative sentiment on the delay in the relief well and uncertainities associated with future liabilities. The company is closer to plugging the well and is acquiring property for further development. We see these as reasons for an upswing. However, we are currently Neutral on BP with the Zacks #3 Rank (Hold).
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