BP may be lousy at drilling offshore oil wells, but it turns out the company is a whiz at selling assets. To raise the estimated $40 billion needed to cover clean-up of the Deepwater Horizon oil spill in the Gulf of Mexico earlier this year, BP has undertaken to dispose of $25 billion to $30 billion in assets, including the sale announced over the weekend of its 60 percent stake in Pan American Energy. By most accounts, the sale, for $7.1 billion, was a coup. It’s not the first.
BP’s interest in Pan American, Argentina’s second-largest oil and gas producer, was sold to its partner Bridas, which already owns 40 percent of the venture. Bridas, in turn, is half owned by China’s CNOOC; the remaining stake is owned by an Argentinian businessman. The agreed-upon price of BP’s holding works out to about $7.70 per barrel of proven reserves – towards the high end of expectations. It is not quite as lush a price as the $3.1 billion paid by CNOOC in March for its piece of Bridas. Nonetheless, judging from analysts’ reviews of the sale, it was a sweet deal.
In July, BP arranged a $7 billion sale to Apache of an assortment of onshore gas assets in Texas, Egypt and Canada. Reviews of that transaction were also positive, claiming that the company received a 58 percent premium for the fields. The sale involved proven reserves valued at about $19 a barrel, according to a Barclay’s analyst, compared to the going rate in the U.S. of $11 to $12 per barrel.
BP’s success in selling off oil and gas assets at prices above stated or expected value sends several messages. First, it is clear that the Chinese are eager to build a portfolio of energy assets. The country’s rapid growth depends on escalating energy consumption; China’s leadership wants to secure its access to needed resources. Like a billionaire buying a weekend house in the Hamptons, they aren’t particularly concerned about price.
Second, the trading of energy assets is hot territory. Apparently investors are not too optimistic that the nations currently gathering in Cancun to discuss climate change will do much to cut back the world’s dependence on fossil fuels.
Third, while BP is pruning assets like the Grinch stripping ornaments off a Christmas tree, the company will likely emerge from this period in good shape. Those hoping that BP would pay a dire price for the terrible damage done to the U.S. Gulf Coast from the Deepwater Horizon spill – as a warning to its competitors, perhaps -- will be disappointed. The company’s stated asset value is about $250 billion. Sales of $30 billion – especially if most are above book value, as seems likely for the $21 billion in properties sold so far – will not have a significant impact on the company. As a result, analysts are assuming the company will soon resume paying a dividend. Consequently, the company’s stock, trading at around $40 per share, has rebounded sharply from its low of around $27 in late June.
Indeed, reports that BP management has signed World Television to produce a feature-length film about the Deepwater Spill will likely cause much teeth-grinding among critics. My guess – to the disappointment of some, this will not be a horror show.
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