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BP risks investor outrage at ‘dirty’ oil deal

The Sunday Times
February 14, 2010

Danny Fortson

TONY HAYWARD, BP’s chief executive, has set the FTSE 100 oil group on a collision course with investors and environmentalists over a blockbuster oil sands deal.

The company is in talks to pay about $1.2 billion (£766m) for a majority stake in Value Creation, a Canadian company that has substantial reserves of the oil-rich sand deposits. Environmentalists and some BP shareholders fiercely oppose the oil sands business, which they say is expensive and environmentally damaging.

Value Creation is in financial trouble and faces being put into receivership tomorrow. News of the negotiations with BP is expected to win it a temporary reprieve.

The oil giant’s offer would see it set up a joint venture with the Canadian group, and increase its oil sands holdings by 50%.

Reliance Industries, the Indian conglomerate, is thought to have made a rival $2 billion takeover bid but BP is understood to be the preferred partner.

Fair Pensions, the activist investor group, last week tabled a resolution for BP’s annual meeting in April questioning the financial rationale of oil sand developments and their “unthinkable” environmental effects.

Converting the oil in sand to usable fuel requires vast amounts of energy and destroys the landscape. Royal Dutch Shell recently announced cuts to its own programme after a similar Fair Pensions resolution.

BP seems determined to plough ahead, however. Last week it invited several institutional investors to its London headquarters to put forward its case. The company claims its steam extraction technology is far less destructive than the traditional mining approach.

BP declined to comment.

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