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Here’s the deal: how BP is investing in a low carbon future

Release date: 15 August 2019

As well as brokering more traditional transactions like last year’s deal with BHP, BP’s mergers and acquisitions (M&A) team is increasingly targeting new low carbon opportunities too. We talk to global head Rob Lawson to find out more about the deal-makers using skills honed on oil and gas transactions to help BP to advance the energy transition

When BP recently announced a new joint venture with US agri-commodities company Bunge that will grow its existing biofuels business in Brazil by more than 50%, BP’s mergers and acquisitions (M&A) team in the UK and the US was working behind the scenes to get everything in place. The thriving market for low carbon deals is a growing part of the job, as established players like BP look to make bigger forays into the new energy economy. 


The assets might be new and emerging, but one thing that won’t change is the importance of relationships. While technology has made the process of buying and selling more efficient, there’s one place where people still have the edge over computers.


“I don’t see robots replacing an M&A negotiator any time soon,” says Robert Lawson, head of BP’s M&A team since 2012.


“Yes, technology will play an increasing role. We are already beginning to see algorithms determining the most efficient terms between buyer and seller. However, striking a deal is still about relationships, trust and repeat business.”


A case in point: the $10.5 billion acquisition of the bulk of BHP’s onshore US shale assets that BP’s M&A team, working with the BPX business, clinched last year.


The two companies already had a strong relationship, having worked together in the Gulf of Mexico and elsewhere. “In addition to a tremendous effort by both deal teams, our relationship and the trust that existed enabled us to make the deal happen quickly,” says Lawson.

Landmark deal

The BHP deal  ̶  BP’s biggest acquisition in 20 years  ̶  was an important milestone. It signalled a new direction and marked an important step in delivering BP’s growth strategy and transforming the Lower 48 upstream business after a period of divestments associated with the Deepwater Horizon accident and oil spill. BP has divested more than $65 billion of assets since 2010.  


The BHP US onshore acquisition was paid for in cash and gives BP a strong position in one of the world’s hottest oil patches, including the prolific and much-coveted Permian basin.


Its success highlights the ability of BP’s M&A unit to identify and execute the right opportunity  ̶  an ability that comes from the make-up of the team and their decades of experience.

A Texas drill site in the Permian-Delaware basin, part of the BHP deal

Growing markets

Like Lawson, all the team worked in other parts of BP before joining the M&A group and learning the art of deal making. Their commercial expertise, industry experience, networks and know-how provide insight into the impact of potential transactions and their strategic fit.

 

Additionally, throughout the deal cycle, expertise is leveraged from a broad range of in-house specialists, including legal, human resources, environmental and IT experts. “We like to have BP people on the deal team and not rely on external advisors,” says Lawson.


High on the M&A agenda now is supporting BP’s efforts to advance the energy transition. While deals focused on alternative energy and low carbon technologies begin small, they can have an outsize impact by providing an early foothold in growing markets.


Recent examples include the $170 million acquisition of Britain’s largest electric vehicle charging company, Chargemaster, and a $200 million investment in solar development company Lightsource.


The Chargemaster deal will see BP scale-up and deploy a fast and ultra-fast charging network on its UK forecourts.

“We’re always looking at the follow-up to these deals  ̶  how we can create joint ventures and how we bolster what we already have in renewables and new energies.” 

Commercial potential

The Lightsource partnership returns solar to BP’s Alternative Energy portfolio, alongside wind and biofuels businesses. BP estimates solar could generate up to 10% of total global power by 2035 and sees significant commercial potential in targeting this demand.


“We’re always looking at the follow-up to these deals  ̶  how we can create joint ventures and how we bolster what we already have in renewables and new energies,” says Lawson.


One such example is the recently-announced joint venture between BP and Bunge’s biofuels businesses in the fast-growing Brazilian market. The combination of assets and experience creates value through scale and efficiency, while demonstrating BP’s commitment to playing a leading role in the transition to a low carbon future. 

Lightsource BP solar panels in India

Group collaboration

The M&A team is increasingly working with colleagues across the company from BP’s Alternative Energy business, BP’s downstream commercial development team, BP Ventures and the new integrated gas and power team, to help target and execute future opportunities.


Working alongside BP’s upstream business development team, other priorities include large-scale natural gas assets that can be quickly brought into production and which are located in areas where BP or partners have existing infrastructure. 


Known as advantaged gas, examples include the 10% stake BP scooped up in Egypt’s giant Zohr gas field in 2017 and a 2016 agreement to acquire a working interest and operatorship of blocks in Mauritania and Senegal.


Egypt is well-positioned to become a major regional gas hub. Its location between Europe and Asia allows gas to flow east or west depending on markets and its export infrastructure is already well developed.


At the Mauritania and Senegal project, BP announced its final investment decision for the first phase last year  ̶  a speedy pace for the deepwater development.

Aker BP Valhall platform

Capital discipline

Elsewhere, Lawson’s team is looking at downstream opportunities in big emerging markets where rising prosperity is expected to drive energy demand.


Selective M&A, underpinned by strict capital discipline, is what shareholders want, says Lawson. Investors seek value and returns, favouring companies with top-quality assets over those with a larger volume of tired and tail-end assets.


“One of the trends we’ve seen across all industries is a rise in shareholder activism. Activists are focusing on what companies are doing to ensure they high-grade their portfolios and divest underperforming assets.”


BP was ahead of many of its peers high-grading its portfolio, emerging leaner and more focused following the post-Deepwater Horizon divestments, analysts have said. 


To secure market opportunities while retaining capital discipline, Lawson’s team has led the way on innovative transactions beyond the traditional buy and sell model. Known as ‘Smart M&A’, these transactions have included asset swaps, innovative financing structures that access third-party capital and equity stakes, as was the case in the creation of Aker BP. 

 

“The Aker BP story is remarkable,” says Lawson. “Our growth prospects in Norway were limited and constrained by little access to capital. We, therefore, elected to put the assets into an existing company and took a 30% stake in that entity. Now, that company has almost quadrupled in size and we’re part of the most exciting player in Norway.”

 

 

“In my view, the biggest mistake you can make in our line of work is falling in love with a transaction. For that reason, the team is independent from the business and needs to stay impartial and commercially focused.”

 

 

Inevitably, the M&A team is frequently asked for their top tips for negotiating a deal.

 

“In my view, the biggest mistake you can make in our line of work is falling in love with a transaction,” Lawson says. “For that reason, the team is independent from the business and needs to stay impartial and commercially focused.”

 

Combining this robot-like impartiality with the unique ability of humans to connect and build trust is why, in the age of AI, we will still need negotiators for some time to come. 

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