Apollo Global Management and BP enter into a billion-dollar deal

In the context of the growing challenges of European energy security and diversification of resources comes a key agreement between Apollo Global Management and BP Plc. The move not only underlines the importance of the Trans Adriatic Pipeline (TAP) to Europe, but also shows how major investors are beginning to see opportunities in the energy sector as a route to stable returns in turbulent times. What are the specific details of this deal and what impact will it have on European energy policy?

Apollo Global Management $APO has entered into a $1 billion agreement with BP Plc $BP to finance BP's stake in the Trans Adriatic Pipeline. Apollo has acquired a minority stake in BP Pipelines subsidiary TAP Limited, which owns BP's 20% stake in the key pipeline. Despite this transaction, BP will retain management control, allowing it to continue to have a decisive say in TAP-related operations.

The Trans Adriatic Pipeline is a strategic infrastructure project that provides transportation of natural gas from the Caspian Sea to Europe, specifically to countries such as Greece and Italy. With the disruption of gas supplies from Russia as a result of the war in Ukraine, European countries are looking for new ways to strengthen their energy security. TAP is thus a crucial element in these efforts, as it diversifies gas sources and reduces dependence on Russian supplies.

Proceeds from the deal, which is expected to be completed during the fourth quarter of 2024, are expected to support BP's planned asset disposals for 2024. BP, which has focused on reducing its debt in recent years, has come under pressure to maintain its attractiveness to investors, particularly through share buybacks.

Why is Apollo investing in TAP?

Interestingly, Apollo, known primarily for its private equity investments and use of leveraged transactions, is increasingly focusing on opportunities associated with higher quality businesses. The BP deal is not unique - Apollo has already done deals in Europe with companies such as Air France, Intel and Vonovia. This shift indicates a strategic intent to focus on the energy sector, which promises stable returns over the long term.

In addition, the current volatility in oil markets threatens the ability of large energy players such as BP to continue funding share buybacks, a key tool for maintaining investor interest. However, BP, which has shed much of its debt in recent years, still faces challenges associated with a relatively weak balance sheet compared to its peers.

According to Biraj Borkhataria, head of European energy research at RBC Europe Ltd, the deal helps BP manage debt, but at the cost of losing the profits associated with the assets in question. BP needs an oil price of about $90 a barrel to sustain its share buybacks, underscoring the energy giants' dependence on oil prices.

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