Almost a week after revealing plans to buy £8 billion worth of US shale assets, BP has yet to convince analysts that the deal with BHP Billiton represents value for money.
In that time, the oil giant has set out a robust case on two occasions, firstly with a webcast and conference call on Friday morning, and again during the presentation of its first half results on Tuesday morning.
BP’s biggest deal in two decades includes assets in the Permian-Delaware, Eagle Ford and Haynesville basins will add 190,000 barrels of oil equivalent (boe) per day to its portfolio.
The Permian Basin is regarded as one of the world’s most coveted and productive regions.
The deal can be accommodated within BP’s existing financial framework of £11.5-£13bn annual organic capital expenditure.
It also enables BP to lift its upstream free cash flow target by £760m to £10.5-£11.5bn in 2021.
BP was so confident in the outlook for group cash flow that it increased its dividend for the first time since Q3 2014.
But not everyone is convinced of the timing, or the numbers.
Biraj Borkhataria of RBC Europe said yesterday that his colleagues were “questioning the merits” of the transaction with BHP Billiton.
“We find ourselves mulling over the numbers around the deal, particularly what impact this is likely to have on free cash flow per share,” he said.
He said the deal represented a “sizeable cash outflow”, but also suggested it could be funded via divestments planned by BP, without the need to issue new equity.
Brewin Dolphin’s Iain Armstrong said people would ask why BP had opted to invest in Permian eight years after selling 405,000 acres to Apache for $3bn (£2.3bn).
“Is BP investing at the top of the cycle?” Mr Armstrong asked.
But he said BP had clearly put a lot of thought into the acquisition and that he could see “both sides of the coin”.
He said the need to invest in renewables created a Catch 22 situation which made investment in hydrocarbons unavoidable.
“It’s a problem for the big guys,” he said. “If they want to get their carbon footprint down, they have to invest in renewables, but they’re not making any money there.
“To invest in renewables, they need strong cash flow in rest of the business and that means investing more in oil and gas, but mainly gas.”
He ultimately felt BP’s strong financial performance justified the deal.
BP’s first half underlying replacement cost profits more than doubled to £4.1bn, while pre-tax profits rocketed 190% to £6.7bn.
Mr Borkhataria said he expected the second half to be even better, with higher cash flow from operations and lower Macondo payments forecast.
The company plans to divest up to £4.6bn worth of assets, mainly in the upstream segment, after it completes the BHP deal.
Earlier this month, BP agreed to give ConocoPhillips a 39.2% interest in the Greater Kuparuk Area in Alaska in exchange for a 16.5% stake in the Clair field, west of Shetland.
Mr Armstrong said he would not be surprised if BP “dumps” its Alaskan business.
Generally, BP and its peers are getting rid of non-core assets in areas where the outlook is gloomy.
Few are positive about the North Sea’s long-term prospects, but Mr Armstrong said all the recent signs showed BP was not coming out of the UKCS.
The company is investing to double North Sea production to around 200,000 barrels per day by 2020 and is evaluating a third phase of development for Clair.
Mr Armstrong added: “BP will look at areas where they can’t be number one or two, or where they’re not the operator.
“That becomes more important as oil demand slows down. What you don’t want is to be stuck in operations where you have no control.”