Will BP's (BP) Shareholders Have Patience with Long-Term Strategy?

BP (NYSE:BP) continues to march eastwards, but investors aren't along for the ride. Since mid January the oil company's shares have fallen 2.6%, despite a run-up in oil prices and two supposedly groundbreaking deals in Russia and India. Value over volume may be management's new mantra: Right now, few know for sure whether BP is creating either.

BP's recent deals do have strategic logic. To increase production, integrated oil companies increasingly need to form joint ventures in countries with substantial potential reserves, but high regulatory barriers to entry. BP's $7.2 billion investment alongside India's Reliance Industries gives it a 30% stake in oil and gas fields potentially as large as the North Sea's in total. BP also expects India's gas-demand growth to average 5% per year out to 2030. Meanwhile, on Tuesday, BP said it would divest more of its mature assets in the North Sea, in tune with its portfolio shift eastwards.

But the Reliance deal, and BP's joint venture with Rosneft in Russia, will only prove their value in the long run, with plenty of near-term uncertainties. BP's recent deals could increase its resource base by 31% eventually, Citigroup (NYSE:C) says, but they face heavy technical challenges and long lead times.





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