BP signs US$2.2 bn onshore oil field deal with Abu Dhabi

British multinational oil and gas company BP PLC cemented its 77-year relationship with Abu Dhabi with the signing of an agreement involving swapping around US$2.2 billion of BP’s own shares for a stake in one of the emirate’s largest onshore oil concessions.

BP will issue new ordinary shares to pay for 10% of the Abu Dhabi Co. for Onshore Petroleum Operations Ltd. (ADCO), giving the emirate a 2% holding in BP, the company said in a statement.

Abu Dhabi investor Mubadala Development Co. is likely to hold the BP shares, two people with knowledge of the matter said, asking not to be named before a formal announcement.

The agreement promises the London-based company additional cash flow and revenue following a downturn that has forced the industry to slash billions of US dollars of investments worldwide in the past two years. The payment in shares also helps BP preserve its own cash and maintain a balance sheet that has seen debt and leverage rise during the oil-price collapse.

“The economics are good for us and for our shareholders, and for BP it brings a strategic partner,” chief executive officer Bob Dudley said in an interview in Abu Dhabi. “This agreement will provide BP with long-term access to significant and competitive resources that we already understand very well.”

The deal would provide an output of 160,000 barrels per day (bpd), in addition to the 95,000 barrels BP now produces in Abu Dhabi, Dudley said.

The 40-year concession includes the Bab, Bu Hasa, Shah and Asab fields with total resources of as much as 30 billion barrels of oil equivalent, BP said.

“What the majors bring is how to deploy technologies and also how to manage and organize large scale projects,” said Robin Mills, chief executive officer of Dubai-based oil consultant Qamar Energy.

“It always made sense that Abu Dhabi will look for another partner for the Abu Dhabi onshore fields. More major oil companies could come in,” he said.

France’s Total SA owns a 10% stake in the Abu Dhabi onshore concessions, Japan’s Inpex Corp has 5% and South Korea’s GS Energy 3%, BP said.

The Abu Dhabi National Oil Co. is still looking for partners to take the remaining 12% of the 40% reserved for overseas oil companies.

Abu Dhabi’s 2% stake would make it one of BP’s biggest shareholders. Kuwait, which along with the United Arab Emirates (UAE) is a member of OPEC, owns 1.7%. The British company said the new shares will be priced at 447 pence a share.

BP has been present in Abu Dhabi since 1939 and held a 9.5% stake in the company that operates the onshore fields since the 1970s, according to the statement.

The concession expired in 2014 and Abu Dhabi started negotiating partnerships again in the following year. BP also has stakes in offshore fields and a gas liquefaction company.