BP Plc (BP) intends to offload its natural gas assets in Kansas to a subsidiary of LINN Energy, LLC (LINE), in response to a weak natural gas price environment and in order to streamline its portfolio. The U.K. giant plans to sell its entire share in the natural gas producing fields in Kansas as well as a gas processing plant for a total consideration of $1.2 billion in cash.
The agreement, which is expected to close on March 30, 2012, is pending customary closing conditions as well as necessary governmental and regulatory approvals.
Per the agreement, the sale includes BP’s working interest in about 2,400 wells in the Hugoton natural gas field, accompanied with a 450 million standard cubic feet of gas per day (MMscf/d) gas processing plant – Hugoton Jayhawk. The company has a current net production of about 110 million cubic feet of gas equivalent in the region that is being processed through the plant.
The present sale is a part of BP’s ongoing asset divestiture program, which will help it overcome liquidity concerns for all spill-related liabilities. The latest deal will also allow the company to concentrate on its core operational area in the U.S. and worldwide.
In October last year, BP announced its intentions to expand its $35 billion asset-sale program to a further $15 billion before 2014. However, the collapse of its deal to sell its stake in Argentina’s Pan American Energy late last year has enforced the company to revise its program to $38 billion. BP has already disposed worldwide assets worth almost $22.9 billion, including the those to be sold to Linn.
We believe the company is offloading its non-core upstream properties while creating a portfolio with potentially stronger growth from a smaller base. Additionally, BP’s focus on a string of upstream activities in high margin areas like the Gulf of Mexico, Angola, the North Sea, Brazil, Australia and India bodes well for its future growth.
Again, the decade-low natural gas price forced the companies to take on cash-raising activities. Chesapeake Energy Corp. (CHK), the second-largest U.S. natural-gas producer, and ConocoPhillips (COP) are also keeping gas production under check in response to the weak natural gas prices.
Hence, we maintain our long-term Neutral recommendation for BP, which holds a Zacks #3 Rank (short-term Hold rating).
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