Financial Times: BP sells its stake in Norwegian gas field for $1.2bn: “Analysts and bankers said the high deal value appeared to vindicate BP's bullish booking of its proved reserves from Ormen Lange. After the scandal earlier this year when Shell overstated its reserves, the group said it would record only 20 per cent of its reserves from Ormen Lange as "proved" to bring it into full compliance with the US Securities and Exchange Commission, which governs how international oil companies report reserves.” (ShellNews.net) 24 Nov 04

By James Boxell

Published: November 24 2004

BP has sold its stake in Norway's Ormen Lange gas field for $1.2bn (£650m). The figure - which was much higher than expected - once again called into question the way oil companies book their reserves with US regulators.

Dong, the Danish state-owned gas utility, is the buyer of the 10 per cent stake in Norway's second-biggest gas field and its related pipeline into the UK and continental Europe. At peak production, Ormen Lange could provide a fifth of the UK's gas.

BP and JPMorgan, its financial advisers on the agreement, had hoped to raise at least $700m from the sale, but strong competition from European utilities such as Centrica and Eon helped to push up the price.

Utilities are keen to acquire energy assets because it helps protect them from price volatility and guarantees supply. Higher-than-expected gas prices were also a factor in the bidding.

Several of BP's partners in the field - including Royal Dutch/ Shell, Norway's Statoil and Norsk Hydro - were interested in the auction. BG Group also made a bid but some analysts had said the stake was worth only about $300m to a typical oil and gas company. Utilities can justify higher deal values than oil and gas groups because they use a lower discount rate when calculating the value of assets, because their business is considered less risky. Analysts and bankers said the high deal value appeared to vindicate BP's bullish booking of its proved reserves from Ormen Lange.

After the scandal earlier this year when Shell overstated its reserves, the group said it would record only 20 per cent of its reserves from Ormen Lange as "proved" to bring it into full compliance with the US Securities and Exchange Commission, which governs how international oil companies report reserves.

BP considers 80 per cent of its share of Ormen Lange proved, which means the gas can be taken from the ground and is commercially viable. Analysts said the $1.2bn price showed the market was more interested in BP's assessment of its reserves than the SEC figure. Peter Nichol at ABN Amro said: "This puts the SEC in a weak position on all the companies' bookings on Ormen Lange. You have real bidders here and you get this price."

Petoro, the state-owned Norwegian group that owns 36.5 per cent of Ormen Lange, has the right to pre-empt the sale and is evaluating the agreement.