Apollo inks US$1 billion deal with BP to fund stake in Trans Adriatic gas pipeline

APOLLO Global Management has agreed to pay BP US$1 billion for a stake in a key Caspian-region natural gas pipeline, a move that will help the energy major reallocate some of its resources as oil prices slump.

The New York-based investor will buy a non-controlling interest in a BP subsidiary holding a 20 per cent stake in the Trans Adriatic Pipeline, the companies said in a statement. The pipeline is part of a network linking a BP-operated gas field in Azerbaijan to countries including Italy and Greece. 

The deal lets BP maintain its governance over the entity as the controlling shareholder, while giving Apollo access to a key gas project. 

Europe has depended on the fuel to boost its energy security after most Russian pipeline supplies to the region were severed in the wake of the war in Ukraine. It is also set to rely on gas for many years while it ramps up investment in renewables.

Meanwhile, energy majors are now facing a collapse in oil prices due to tepid demand globally, a development that threatens their ability to continue funding share buybacks that have become crucial to attract investors. While UK-based BP has paid down significant amounts of debt in recent years, its balance sheet is still weaker than that of its peers.

“BP’s debt is too high for this point in the cycle and this helps,” said Biraj Borkhataria, head of European energy research at RBC Europe. “If you can sell an asset, it helps, but you lose the earnings associated.”

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BP needs an oil price of about US$90 per barrel to maintain its buyback, he said, adding that more detail about the deal’s valuation would be required to fully evaluate its impact.

Proceeds that BP will receive from the pipeline deal, which is expected to close in the fourth quarter, will contribute to the company’s 2024 divestment. 

Shares of the energy major rose as much as 0.6 per cent in London on Monday (Sep 16). 

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Potential Collaboration

BP and Apollo also suggested possible future collaboration, saying that they will “look to partner on additional investment opportunities, including potential cooperation in both gas and low carbon energy assets, and infrastructure”.

Larger private capital firms such as Apollo are increasingly targeting investment opportunities with higher-grade businesses, beyond their typical stable of leveraged deals. This is as the industry increasingly seeks to manage insurance capital, which places greater emphasis on investment-grade ratings.

In Europe, Apollo has already done transactions with Air France and Vonovia. Earlier this year, it signed a deal with Intel, which agreed to sell a stake in a venture that controls a plant in Ireland for US$11 billion.