venerdì 16 luglio 2010

Breaking Down the British Giant: Who Will Buy BP's Best Assets?

By Jason Simpkins, Managing Editor, Money Morning


There's no question that some of BP PLC (NYSE ARD: BP)'s assets are on the block.

The company said Monday that the total cost of the Gulf oil spill had already risen to $3.5 billion. And while it's too early to estimate the final costs associated with the spill, analysts have pegged the tab at $20 billion to $40 billion. Some even believe the total cost could come in near $100 billion.

BP has already paid $165 million to settle individual claims and agreed to set up a $20 billion escrow fund to absorb further damages. It's also suspended its dividend to conserve cash.

But that's not enough. With costs soaring, BP said in June that it is looking to raise at least $10 billion through asset sales in the next 12 months. With that the run on BP's assets commenced.


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Magellan Midstream Partners L.P. (NYSE: MMP) on Tuesday that it would acquire 7.8 million barrels of oil storage and more than a 100 miles of active petroleum pipelines from BP in exchange for $289 million. The crude storage is located in Cushing, Oklahoma, and the pipelines run between Houston, Texas and Texas City. Magellan also will acquire certain crude oil tank working inventory at fair market value, which is currently estimated at about $50 million.

BP is also rumored to be in discussions with Apache Corp. (NYSE: APA) regarding the sale of some of its Alaskan operations. The Sunday Times of London and Reuters both reported that Apache is keen to acquire a stake in Prudhoe Bay, the largest oil field in North America, for $10 billion - $12 billion.

BP owns a 26% stake in Prudhoe Bay, ExxonMobil Corp (NYSE: XOM) and ConocoPhilips (NYSE: COP) each own 36%, and Chevron Corp. (NYSE: CVX) owns the remaining 2%.

Analysts say the field's declining output makes it a prime candidate for Apache, which has a history of taking over wells that other companies have given up on and using technology and resolve to revitalize production.

In 2003, Apache paid BP $1.3 billion for oil fields located in the North Sea and the Gulf. It took just two years before Apache found some 800 million more barrels of oil in the famed Forties Field than its previous operator had been aware of.

"That field was nearly exhausted as far as BP was concerned," Kevin Banks, director of Alaska's Division of Oil and Gas told KTUU, NBC's Anchorage affiliate. "But with more investment and new technologies, Apache was able to bring the field back up into production substantially."

Prudhoe Bay began producing in 1977 and output has fallen more than 75% from its 1987 peak. Still, BP's stake yielded 69,000 barrels per day (bpd) in 2009 and accounted for more than one-third of BP's output from Alaska's North Slope. That would supplement Apache's output, which averaged 586,000 barrels of oil equivalent per day in the first quarter.

"Let's just say that I know Apache very well, and I can tell you the Prudhoe Bay deal is right up their alley," a New York-based investment banker who's familiar with the situation told ABC News .

However, Apache has been busy recently, and there are questions over whether or not the company is in the financial position to make another big acquisition - even if it's a bargain.

On April 12, Apache announced that it would acquire Devon Energy Corp.'s (NYSE: DVN) oil and natural gas assets in the Gulf of Mexico for $1.05 billion. And just three days later the company struck a deal to buy Mariner Energy Inc. (NYSE: ME), which specializes in deepwater exploration, for $2.7 billion in cash and stock. Mariner also has assets in the Gulf.

"They've got the capability to manage the asset, but it might be too big a chunk just for Apache on its own. That makes me think it's either going to do it as a partner deal or only have a part share in the Alaskan asset base," said Jason Kenney, an analyst at ING in Edinburgh.

BP operates 14 other oil fields and four pipelines in the Prudhoe Bay area.

Apache has a market value of about $30 billion, and its debt to market capitalization hovered below 25% last year. That should allow the company to access the capital markets to pay for an acquisition, but investors have punished its stock of late.

Shares of Apache are down almost 10% in the past month, and rumors of another acquisition are a big part of that.

"It's unfortunate that the stock is falling strictly on rumors and what could be an opportunistic deal for Apache," Bill Fitzpatrick, equity analyst at Optique Capital Management in Milwaukee, told Reuters. "My gut feeling is that we are still in a tenuous economic recovery. If you are the buyer, you are taking on more debt, and more risk. The market seems to be punishing companies in that position."

Indeed, with so much uncertainty surrounding the global economy, potential buyers could be more interested in some of BP's smaller operations.

"They've got 13 or 14 different asset packages all considered peripheral to the core business," said ING's Kenney.

In addition to its Alaskan assets, BP has ventures in Asia, Africa, and South America:


•BP is a partner in Colombia's two biggest oil fields, with assets worth as much as $2 billion.
•In Argentina, BP owns 60%s stake in Pan American Energy (PAE), which is valued at $9 billion.
•In Vietnam, BP has a $1.3 billion stake in the Nam Con Son gas project offshore of Ho Chi Minh City.
•In Venezuela, BP has minority stakes in two exploration-and-production joint ventures with Petróleos de Venezuela SA ( PDVSA), and is a partner in the Petromonagas crude upgrader - assets that could be worth up to $1 billion.
•And BP owns a minority stake in Russia's Rosneft NK OAO that could be worth between $900 million and $1 billion.
"These assets aren't ones that they've been focusing on as much as in other regions," David Hart, an analyst at Westhouse Securities, told the Sydney Morning Herald. "Pan American stands out because they can get close to the amount they're targeting with one asset."

China's CNOOC Ltd. (NYSE ADR: CEO), which already owns 20% of Pan American through its stake in Argentina's Bridas Corp., might be interested in increasing its position.

Meanwhile, analysts say Thailand's PTTEP and India's ONGC could be interested in BP's Vietnamese assets, which are smaller in scale and less likely to draw interest from large multinationals.

BP has discovered four gas fields in Vietnam, and it owns a gas-fired power plant and a pipeline there, which combine to create the country's largest gas project - Nam Con Son.

"With crude reserves of 4.5 billion barrels, the potential there is moderate," Neil Beveridge, a Hong Kong-based senior oil analyst at Sanford Bernstein, told Reuters. "While I expect to see a bit of growth going forward, I don't think it has the potential to yield the large discoveries that would attract the supermajors."

"ONGC and PTTEP are possible," he added. "They are active in Vietnam and are always looking for overseas assets."

Finally, rumors recently surfaced that ExxonMobil was considering buying BP outright.

The Sunday Times earlier this week reported that Exxon had gotten assurances from the U.S. government that it would not stand in the way of an attempted takeover. Analysts have also speculated that Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B) would launch a hostile bid for the beleaguered BP.

However, most industry experts consider a hostile takeover a remote possibility, as BP is still worth more than $100 billion, and financial penalties linked to the oil spill are still largely undetermined.

"It's very debatable that any company would be comfortable wading into this legal nightmare - which would last many years. The biggest problem is getting your hands around the liabilities," Pavel Molchanov, an analyst for Raymond James in Houston, told CNNMoney.

Other analysts cite the social and political scrutiny that BP is under.

"The likelihood of BP getting taken over is next to nil. Why would a U.S. company want to buy BP given the black eye that it has?" said Doug Ober, CEO of Petroleum & Resources Corp. (NYSE: PEO).

Still some analysts are cautious about dismissing the possibility entirely. After all the company has lost more than one-third of its value since April and remains in control of some of the world's most valuable energy assets.

"If Exxon shows its hand, there would be others queuing up behind it," said ING's Kenney. "BP screams cheap at the minute because the value of its assets is about $90 billion more than its asset value."

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