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BP to Explore Nova Scotia Blocks

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British energy giant BP Plc (BP - Free Report) has obtained four exploration blocks – 5, 6, 7 and 8 offshore Nova Scotia, Canada, in the latest round of bidding for NS12-1.

BP plans to incur work expenditure of around $1.05 billion. This announcement follows the recently concluded settlement worth $4.5 billion with both the US Department of Justice and the Securities & Exchange Commission.

All the four blocks received by BP are deepwater. The company has allotted a huge amount of $637.98 million in work expenditure on Block 7 alone and even made an $80 million deposit on the block. Moreover, BP has allotted $5.28 million, $322.41 million and $84.33 million, for Blocks 5, 6 and 8, respectively.

Another oil giant – Royal Dutch Shell Plc (RDS.A - Free Report) has also received 4 blocks – 1, 2, 3 and 4, of which only Block 3 is deepwater. Royal Dutch has not committed any huge amount in work expenditure compared to its rival BP.

The Anglo-Dutch company plans to fork out the maximum amount of $25.88 million on Block 3 compared to trivial amounts of a respective $2.36 million, $1.64 million and $1.97 million for Blocks 1, 2 and 4 in work expenditure.

Located about 300 kilometers off Nova Scotia, BP blocks span across almost 14,000 square kilometers and lie in water depths ranging from 100 to 3000 meters.

The issuance of an exploration license to BP is subject to its sending a security in the form of a work deposit to the Petroleum Board within 30 days. On receipt of the deposit, the Petroleum Board shall award the exploration licenses to BP with an effective date of January 15, 2013. Thereafter, an exploration plan must be presented to the Petroleum Board within 90 days of that effective date by BP.

BP expects the deepwater segment to form an important component of its business strategy. We believe the company's new strategy of active portfolio management, higher exploration activity, and refining and marketing repositioning will generate value for shareholders. This is evident from its entry into newer regions like the offshore play, Nova Scotia. Further, BP’s drilling plan entrails assessment of 15 new plays through 2015.

BP carries a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. Longer term, we maintain our Neutral recommendation.

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