BP Mulls Selling Off Billions in Assets
MOSCOW (Dow Jones Newswires), July 12, 2010
BP is in talks with Apache on a deal worth as much as $10 billion that could include stakes in BP's vast Alaska operations, according to people familiar with the matter.
A deal, which would go a long way to helping BP cope with the financial stress of paying for the clean-up of the Gulf oil spill, could be reached in the coming weeks, though there is no guarantee it will succeed, one of these people said.
BP and Apache declined to comment.
The Apache deal is one of a number of options the U.K. oil major is exploring to raise cash as it struggles to clean up a spill that has fouled huge sections of the Gulf coast.
BP has already suspended its dividend and trimmed capital spending.
The talks come amid BP's efforts over the weekend to remove a containment device located over the gushing Macondo well and replace it with a much tighter cap that should collect all the leaking oil and gas. The operation, which began Saturday, will take between four and seven days, BP says.
To prepare for the new cap, engineers early Saturday afternoon had to remove the more loosely fitting cap that had funneled as much as 15,000 barrels a day to a ship on the surface, which has been moved off location. This means oil is now flowing freely, though some crude continues to be siphoned via a separate system and flared off from a ship, the Q4000.
BP noted that such a sealing cap has never been used at such depths and warned "there can be no assurance" that it is going to be successfully installed within the hoped-for time frame.
White House adviser David Axelrod, who appeared on several network television shows Sunday, said the new cap installation could take up to 10 days -- longer than BP officials have estimated.
Timing is crucial, as the Gulf region is expected to face an active hurricane season. Over the next several days, forecasts call for favorable weather.
BP has consistently said it will complete a relief well in August to intercept its runaway Macondo well and plug the leak.
As of a week ago, BP said it had made 47,000 payments on compensation claims totalling almost $147 million. But it is expected to face much larger claims for damages, as well as potential criminal and civil penalties.
Despite the mounting cost of the spill, BP's share price has risen about 20% over the last two weeks, in part due to progress on the relief well and expectations that Middle Eastern sovereign wealth funds might buy into the stock to prop up the oil major and help preserve its independence. After hitting a 14-year low of 302.9 pence ($4.59) on June 29, BP shares closed Friday in London at 364.8 pence.
The asset sales represent one element in a broad capital-raising effort. BP has also secured new credit lines, and could also sell bonds, according to people familiar with the situation.
These people say BP could announce the deal with Apache, or other asset sales, on July 27 -- the same day it unveils its second quarter earnings.
People familiar with the matter say that with its asset sales, BP is moving along two tracks: It is in talks with a number of companies regarding a wide spectrum of assets and is also in "material" discussions with a single company -- Apache -- on a package deal worth $10 billion. If BP can pull off that transaction, that could ease pressure on the company to divest other assets. The Apache talks were first reported in London by the Sunday Times.
BP opened its first office in Alaska in 1959 and has a 26% stake in the Prudhoe Bay oil field -- which after 33 years of production remains the largest in North America. It operates 14 other oil fields on the North Slope, and has minority interests in six others. It also operates four pipelines there and has a big stake in the 800-mile Trans Alaska Pipeline System, which brings oil from Prudhoe Bay in the north to the port of Valdez.
But its Alaskan assets are mature, and output there has been gradually declining. Last year, BP's net production in Alaska was 181,000 barrels a day of oil and gas, down from 197,000 barrels a day in 2008.
As its output has fallen, BP has also been beset by operational problems in Alaska. In 2006, a pipeline leak led to a 200,000 barrel oil spill -- the worst on the North Slope in Alaska's history. Under a criminal settlement the following year, BP pleaded guilty to a violation of the federal Clean Water Act and paid $20 million in fines and restitution. The company has suffered a number of other spills and pipeline ruptures in Alaska since then.
BP has a history of big deals with Apache. In 2003 it sold to the U.S. independent oil exploration and production company its Forties field in the North Sea and a package of shallow-water assets in the Gulf of Mexico for $1.3 billion.
Apache has a reputation for snapping up the majors' mature assets and applying cutting-edge technology to squeeze more oil out of them -- a strategy it has successfully applied in the North Sea and the Gulf of Mexico.
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