Public anger at the UK-based oil major is, of course, entirely justified. The environmental damage is enormous. Local economies are suffering — and BP rightly has to pay. The $20 billion pledged to an escrow fund is a good start, but more will have to follow. Political posturing, too, comes as no surprise. The specter of Katrina haunts the White House, and mid-terms loom large on the electoral calendar.
London certainly “gets” all this. But what Whitehall doesn’t get so much is the “ass kicking” rhetoric coming from the White House. BP is no doubt far from being “Beyond Petroleum,” but President Obama’s attacks on “British” Petroleum — the name the company dropped in 1998 — has given the crisis a distinctly political edge.
|If China’s largest oil and gas producer and distributor were to come up with a decent offer, BP shareholders would surely snap their hands off.|
Londoners wonder whether the "special relationship" between Britain and America is really that special — and expect another shoe to drop soon, when Washington will begin to highlight that BP used to be the Anglo-Iranian oil company.
This impasse has all the ingredients for an interesting debate — but it misses the point. President Obama is actually spot on: BP is essentially a British company — and this is precisely why Washington needs to be careful what it wishes for.
Pushing the oil firm to the edge of bankruptcy or forcing a break-up may quench the American public’s thirst for revenge. But it provides no answers to the "what next" question. Ailing companies don’t simply vanish: They are either gutted out or taken over. And in a globalized market, the assets don’t always go to the political “vultures” of choice.
True, Bear Stearns was gobbled up by JPMorgan Chase, chunks of Lehman are enjoying their second life as Neuberger Berman. But where BP’s concessions, fixed investment, know-how and, indeed, liabilities end up remains highly uncertain.
Those assuming that Exxon et al. should pick up cheap British pieces dispensed at Washington’s behest could be in for a shock: ”U.S. oil, refined by U.S. companies for U.S. consumers” may have a nice all-American ring to it, but Brits are notoriously cynical when it comes to fairytale endings.
Once BP starts spinning off “non-core” assets and finally gets a grip on the liabilities question, then the big boys with big cash will start to play. When they do, the most likely suitor in town will be PetroChina.
|Prime Minister Cameron could wrangle handsome concessions out of China in order to reduce the Crown’s borrowing costs in exchange for the BP keys.|
The Hong Kong, New York and Shanghai-traded arm of the state-owned China National Petroleum Corporation (CNPC) recently announced plans to invest $60 billion to expand overseas production from roughly 10% to 50% by 2020. If China’s largest oil and gas producer and distributor, currently valued at $334 billion, were to come up with a decent offer, BP shareholders would surely snap their hands off. No questions asked.
Investors are horribly aware that liabilities in the Gulf will continue to rise in tandem with the political bluster — and they are also aware that a BP-PetroChina tie-up would leave them with oil and gas reserves around 73% larger than Exxon’s and 187% greater than Royal Dutch Shell's.
The alternative is to watch BP wither away, unlikely to win new concessions or to develop new offshore sites, not least in the United States of America. British pension funds are thus left with a no-brainer: Become a ”new Norway” or get run over by an American Hummer.
The difficulty is that Washington doesn’t see this: U.S. politics is local first, national second. International thinking doesn’t really come into it. As the 2005 Unocal debacle proved, the United States simply can’t contemplate foreign ownership of one of its oil majors, least of all China.
CNOOC's handsome $18.5 billion bid was instantly rejected in favor of Chevron’s knockdown offer. And Washington is banking on Britain “sailing” exactly the same protectionist course.
But while London might waver on principle, it won’t budge on price. Whoever puts the best bid on the table will get the prize, irrespective of the national colors involved. This dissonance — i.e., that money actually matters — is where the real misunderstanding in the “special relationship” comes into play.
|President Obama is actually spot on: BP is essentially a British company — and this is precisely why Washington needs to be careful what it wishes for.|
If anything, "going East" is an easier sell for Her Majesty’s Government right now. Tony Hayward’s congressional dressing down didn’t do much for transatlantic relations. More importantly, the newly installed Conservative government will want to avoid the mistakes of the 1980s — that is, selling off vital state assets cheaply. That remains the hallmark of the Thatcher days.
Selling the assets isn’t the problem for Britain, it’s just the price. Whitehall, the halls of power in London, was only too happy to offload British Energy to state controlled Éléctricité de France (EDF) of late, but it had to come with a very healthy $23 billion fillip before ministers signed the deal.
Given the parlous state of Britain’s finances right now, the UK Treasury is hardly going to allow for much else. For those wanting a reference point on this, just see George Osborne’s emergency budget unveiled recently. It’s grim stuff to be sure.
A congressional onslaught designed to set the scene for a BP fire sale with U.S. oil majors acting as the extinguishers is therefore not a shoo-in — no matter how much Washington assumes the British value the ”special relationship.”
What is far more plausible from Prime Minister Cameron’s perspective is to wrangle handsome concessions out of China in order to reduce the Crown’s borrowing costs in exchange for the BP keys.
”Heresy,” some might say. ”It ain’t gonna happen,” is the other obvious quip. But from a geopolitical perspective, a worn out Foreign & Commonwealth Office (FCO) could actually gain here. Put simply, a PetroChina-BP deal would be very good news for ”UK Plc.”
|Ailing companies don’t simply vanish: They are either gutted out or taken over. And in a globalized market, the assets don’t always go to the political “vultures” of choice.|
Unless PetroChina changes tune, it will set up some sort of joint venture that would keep Britain firmly in the BP equation, allow the company to keep its U.S. concessions and make London the pivot of Sino-American energy talks.
A privileged relationship with China, valuable in its own right, might revive the ailing special relationship. If the bridge between Beijing and Washington is paved with diplomatic gold, the old one between the United States and Europe is looking distinctly rusty.
Some newfound oil could certainly help grease UK wheels into a Pacific world order. And what the FCO might notionally lose in Central Asia (a traditional BP stronghold), it could more than offset by privileged access to Beijing. You never know, a hungry Chinese dragon might even tame an angry Russian bear and put TNK-BP back on track.
This leaves Washington with a problem. Local politics have unleashed international forces that it can no longer control as far as BP’s fate is concerned. Clearly, the United States might try to block a PetroChina bid. But after branding BP as a British company, this might be a tough sell — both to the American public and to foreign investors who toy with the idea of entering the American market.
Brandishing Petro-China merely as another CNOOC would be seen as politically lazy beyond U.S. shores. It would also upset Washington’s most generous creditor: China.
If anything, this is now PetroChina’s game to lose. The Chinese company has to reassure skeptics that even when ownership moves beyond Britain to Beijing, the markets would be allowed to play out. It is no secret that the acquisition of BP could give China control over roughly one-third of its overseas oil supplies.
|While London might waver on principle, it won’t budge on price. Whoever puts the best bid on the table will get the prize, irrespective of the national colors involved.|
But Beijing can surely offer reassurances that the deal would not be about gaining "control," but about providing a useful hedge against potential disruptions in the energy markets.
Get this right and the United States would have few options but to acquiesce and let the markets do what they are designed to do: Set a benchmark price and let oil follow the gravitational forces inexorably pulling East.
The real issue with BP is not the environment, but the grittier world of energy geopolitics. If China chimes with BP, then President Obama is probably right once more: The United States would see this as another 9/11 moment. Rhetoric might actually become a self-fulfilling prophecy as far as American reality is concerned.