BP joins race with RIL for stake in Canadian firm

BP Plc, the British energy company, has joined the race to acquire a majority stake in Canadian oil-sand major, Value Creation, with an offer of $1.2 billion. Though the offer is less than Reliance Industries' $2-billion acquisition proposal, given on February 5, agencies reported that BP might set up a joint venture with the Canadian group, and increase its oil-sand holdings by as much as 50 per cent.

Alberta-based Value Creation has oil sands -- a type of bitumen deposit -- covering 430 square miles, according to Value Creation's website. The company owns proprietary technologies to upgrade bitumen to refinery-ready light crude at lower costs.

Sources had earlier told Business Standard that RIL had formally registered an expression of interest for acquiring the Canadian company and was looking for funds to settle its debts.

"RIL is reviewing a number of global opportunities for growth in its core business. The difficult operating environment of the past year has made available several interesting opportunities, where an investment by a strategic operator of industrial assets can add substantial value," an RIL spokesperson said.

The move is part of the company's overall plan to expand globally and also to enter into multi-level oil production.

Two weeks earlier, a New York bankruptcy court halted RIL's move to acquire petrochemical giant LyondellBasell, allowing the existing management to put in place a re-organisation plan.

"The review is ongoing and there can be no assurance that any approach will be made with respect to the opportunities under review or that any such approach will result in a transaction," added the RIL spokesperson.

RIL had a cash reserve of $3.5 billion (Rs 16,280 crore) at the end of the last quarter. It had also raised Rs 9,330 crore since September 17 last year, from three tranches of treasury-stock sales.

Agencies add: BP, however, is likely to face fierce opposition from environmentalists, who believe converting the oil in sand to usable fuel requires vast amounts of energy and destroys the landscape. The company claims its steam extraction technology is far less destructive than the traditional mining approach. Some of its stockholders also believe the method is too expensive.

Value Creation is in financial trouble and faces being put into receivership. This is a type of bankruptcy a company enters into when a "receiver" is appointed by bankruptcy courts or creditors to run the company. "News of the negotiations with BP is expected to win it a temporary reprieve," the report added.