BP and Bridas to combine PAE and Axion Energy, forming new integrated energy company

BP has agreed with Bridas Corporation to form a new integrated energy company by combining their interests in the oil and gas producer Pan American Energy (PAE) and the refiner and marketer Axion Energy (Axion) in a cash-free transaction. The new company, Pan American Energy Group (PAEG), will be the largest privately-owned integrated energy company operating in Argentina.

PAEG will be owned equally by BP and Bridas Corporation, itself a 50:50 joint venture of Bridas Energy Holdings of Argentina and CNOOC Limited of China. PAE is currently owned 60% by BP and 40% by Bridas, while Axion is wholly-owned by Bridas. There will be no payments for the equity exchange.

The combination of PAE and Axion under unified ownership will align the PAEG shareholders’ interests across the upstream and downstream value chains in Argentina, Uruguay and Paraguay. PAEG is expected to benefit from BP’s global upstream technical and downstream marketing experience as well as Bridas’ deep operating knowledge. The combination may also offer further integration synergies; the Axion refinery is already the primary customer for PAE’s Argentine crude oil production.

“Supported by the combined skills and expertise of BP and Bridas, this new integrated business will be able to pursue growth and development opportunities in Argentina, Uruguay, Paraguay and Mexico,” said Bob Dudley, BP Group Chief Executive.

“We see value-enhancing opportunities throughout PAEG’s businesses; from extending the life of mature production and developing new unconventional resources including Vaca Muerta, to growth in retail fuels and lubricants marketing. These fit well with BP’s strategy and will allow us to strengthen and deepen our long-term relationship with Bridas.”

“For the past 58 years, we have been investing in the energy sector in Argentina and the region. Efficient investment has been the main factor behind our growth as an oil and gas company. By signing this agreement, a new phase begins for our company, as we integrate our operations with those of our partners,” remarked Alejandro Bulgheroni, Chairman and President of Bridas Corporation

“This integration agreement ratifies our commitment to investment, employment and the efficient development of resources our region needs,” stated Marcos Bulgheroni, Executive Director at Pan American Energy.

PAE is Argentina’s second largest producer of oil and gas. It had daily production in 2016 of around 262,000 barrels of oil equivalent (boe), equivalent to approximately 18% of Argentina’s total oil and gas production. It has interests in Argentina’s four main hydrocarbon basins, including operating Cerro Dragon, Argentina’s largest oil field, and interests in the prospective Vaca Muerta shale. PAE also operates the Hokchi block in the shallow water Mexican Gulf of Mexico.

Axion Energy owns and operates the 90,000 barrels of oil a day (b/d) refining capacity Campana refinery north of Buenos Aires, has over 750 retail sites in Argentina, Uruguay and Paraguay, and also has material lubricant and aviation fuels businesses.

PAEG’s board of eight will comprise four directors from each shareholder and the shareholders will share nomination rights for key senior executives for the company. PAEG will be self-funded.

The transaction is subject to regulatory filing or approval in several jurisdictions. Completion of the agreement is anticipated in early 2018. 

BP at a glance

BP's history is full of discoveries, starting in 1908 with oil found in a rugged part of Persia after a long and difficult search.

BP is now one of the world's largest petroleum and petrochemicals companies. The company's main activities are exploration for and production of crude oil and natural gas; oil refining, marketing, supply and transportation; and manufacturing and marketing of petrochemicals.

In addition, BP also has a growing activity in gas, power and renewables and in solar power generation. BP has well established operations in Europe, North and South America, Asia, Australasia and Africa.

Reported production for the fourth quarter of 2016, including BP’s share of Rosneft’s production, was 3,338 thousand barrels of oil equivalent per day (mboe/d), compared with 3,342mboe/d for the same period in 2015. For full year 2016, production was 3,268mboe/d, compared with 3,239mboe/d in 2015.

Future growth includes an expected 800,000 barrels of oil equivalent per day of production from new projects by 2020, with 500,000 barrels of oil equivalent per day of this new capacity planned to be online by end of 2017. This, combined with their recent portfolio additions, is expected to increase new production by around 1 million barrels per day by 2021. 

Argentina operations

In Argentina, BP owns 60% of Pan American Energy, while China's CNOOC Ltd. has a 20% stake through Bridas Corp. Bridas Corp. is a joint venture between CNOOC and Bridas Energy Holdings Ltd., the oil and gas company owned by Argentina's Bulgheroni family.

Pan American Energy (PAE) is the largest private hydrocarbon producing company in Argentina. It contributes 18% of hydrocarbon produced in the country and has had the highest growth rate and the highest reserve replacement ratio in Argentina for the past 10 years. The company has invested 13 billion dollars between 2001 and 2015.

Over the past 14 years, the company increased its oil production by 34% and gas production by 67%. PAE employs more than 12,000 people either directly or indirectly and has presence in the four major hydrocarbon producing basins in Argentina: Golfo San Jorge, with the highest oil production in Cerro Dragón, the largest oilfield in the country; Neuquina, the largest gas basin and the hub for the future development of unconventional reservoirs; Noroeste (province of Salta) and the Austral Basin (located offshore Tierra del Fuego), with significant production of gas, the main source of energy in the country.

In July 2016, BP unit PAE announced plans to spend $1.4B in exploring and producing the country's conventional and unconventional energy reserves.

The company reported a 34% increase in its oil output in Argentina from 2001 and 2015, bringing it to 108K bbl/day, and a 67% rise in its gas production to 19M cm/day.

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