BP’s global chief executive Bob Dudley has been forced to defend the British oil giant’s $1.78 billion acquisition of Woolworths’ petrol stations as investors questioned the rationale for the deal.

Mr Dudley pointed to a “somewhat unusual opportunity” in the deal, which will see BP scoop up 527 Woolworths petrol stations should it get past the competition regulator in its full form.

He compared the resulting relationship with Woolworths with BP’s existing links with Marks & Spencer in the UK, and with supermarket chain REWE Group in Germany.

“It’s very consistent with the strategy we have in the downstream, which is develop these high-quality differentiated fuels and convenience offers in the downstream,” Mr Dudley told analysts in the December quarter briefing with analysts late Tuesday Australian time.

The Woolworths deal added to a string of acquisitions BP made last late year which have concerned some analysts because they will contribute to an increase in the break-even oil price for the producer this year and to a rise in capital spending this year at a time when oil prices are about half of mid-2014 levels.

The Woolworths buy was the only one in the “downstream” refining and supply part of the market, from which some of BP’s peers are retreating.

HSBC’s global head of oil and gas Gordon Gray said it could be a good point in the cycle for BP to be building up its upstream exploration and production portfolio, but said the rationale behind the Woolworths deal was “a little bit less obvious”.

Mr Dudley said the deals were “not essential…but just strategically made sense for us, even the Australian one, which does require regulator’s approval” and would probably complete in 2018.

“You’ll know in the UK we’ve got a great model with Marks & Spencer in our retail growth, in revenue growth,” he said. “And we’ve got a chance to replicate that very successful strategy in Australia.”

BP has yet to lodge its submission to the Australian Competition and Consumer Commission, with approval widely thought to be problematic for the regulator given the existing concentration in the retail fuels market.

The deal would increase BP’s share of supply to at least 30 per cent, and Credit Suisse said recently it expected the watchdog to initially block the bid. The oil company may need to sell more than 90 of its combined 1927 sites to get approval, it said.

BP says it would only control 12 per cent of Australian fuel sites after the deal.

The ACCC started monitoring the proposed acquisition on January 12 and said it would start a public review and give a schedule for the process once it has received BP’s submission.

The submission should be submitted around the end of February, a BP spokeswoman in Melbourne said.

Extracted from AFR.