BP (NYSE: BP) Selling Gulf Assets

Brian Hicks

Written By Brian Hicks

Posted September 11, 2012

On Monday, BP (NYSE: BP) announced that it had reached a deal with Plains Exploration and Production Co. (NYSE: PXP) of Houston, Texas, whereby it would sell its stake in some Gulf oil fields to Plains for $5.6 billion.

This asset sale is part of BP’s ongoing effort to raise cash in order to cough up cleanup costs and fines following the Deepwater Horizon disaster in 2010. Overall, BP shoulders responsibility for $38 billion in fees and potentially even more if the company is found grossly negligent.

So far, Robert W. Dudley, chief executive of BP, has focused on high-risk/high-reward frontier exploration activities like deepwater fields. Previously, the company announced that it has entered discussions to sell half of its stake in the low-growth Russian affiliate, TNK-BP.

Plains Exploration has a market capitalization of around $5.2 billion with operations in California, the Gulf of Mexico, and Texas. It’s possible that the deal could backfire on BP should oil prices go up. Matters are made worse by the fact that Gulf oil, thanks to low taxes and development cost, is among the most profitable assets in the BP portfolio.

From the New York Times:

The company insists that the sale is not a sign of a reduced commitment to the Gulf of Mexico. “While these assets no longer fit our business strategy, the Gulf of Mexico remains a key part of BP’s global exploration and production portfolio, and we intend to continue investing at least $4 billion there annually over the next decade,” Mr. Dudley said in a statement.

The fields involved in the deal produce roughly 59,000 barrels a day and comprise nearly a quarter of BP’s overall Gulf production of 240,000 barrels a day. Prior to Deepwater, BP used to produce in excess of 400,000 barrels a day.

BP has stated that it wants to focus on four more major platforms under operations, including Thunder Horse, Atlantis, Mad Dog, Na Kika, and three platforms run by other companies. Altogether, it hopes to have eight rigs operational in the Gulf by the end of this year, which would mark the highest simultaneous number of rigs in company history.

This deal, which is expected to be complete by the end of this year, will see BP reach $32 billion in oil fields and property sales since the beginning of 2011. The company’s goal is to reach $38 billion by 2014, excluding the TNK-BP sale.

Things could change if BP incurs fines for gross negligence, which it insists it was not guilty of. Those fines could go over another $20 billion, and BP is trying to settle the issue before the case reaches courts in January.

Monday’s announcement sent Plains shares down by 7.6 percent in the early hours on Monday in New York, while BP ended 0.7 percent higher at close of business in London.

Plains was up 2.08% on Tuesday afternoon to $36.84.

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