In the process of collecting cash to pay off the Gulf of Mexico disaster-related costs, BP plc (BP) has signed a deal with Hong Kong-based United Energy Group Limited (“UEG”) for the planned divesture of most of its oil and gas assets in Pakistan.
BP had announced its plans to sell the assets in July and will receive a total consideration of $775 million in cash, slightly higher than the estimated value of the properties given three months ago by analysts.
United Energy Group has exploration and production interests in China and Indonesia. It outpaced the joint bid submitted by The Oil and Gas Development Company Limited (“OGDC”) and Pakistan Petroleum Limited (“PPL”) to win this contract.
Per the deal, UEG will pay BP a cash deposit of $100 million, with the balance of the proceeds payable upon completion of the sale. The deal, pending certain closing conditions and regulatory approvals, will likely be wrapped up within the first six months of 2011.
The portfolio of exploration and production assets to be divested spreads over the Sindh province and the Arabian Sea, comprising nine onshore and four offshore blocks, respectively. Most of these assets are jointly held by BP Pakistan and OGDC.
As of December 31, 2009, proved reserves of the to-be-sold assets were 43.1 million barrels of oil equivalent. BP Pakistan currently generates a net production of approximately 35,000 barrels of oil equivalent a day (boed) and gas production is approximately 200 million standard cubic feet per day.
According to BP’s management, the total cost of the Gulf oil spill has reached $40 billion and the company aims to dispose assets worth $30 billion all over the globe by the end of 2011 to pay for it. Excluding the sale agreement of the aforesaid deal, BP has accumulated approximately $21 billion.
Last month, BP agreed to dispose its 60% stake in Pan American Energy for $7.06 billion to Bridas Corporation. Another major deal by the company was the sale of properties in the U.S., Canada and Egypt to Apache Corp.(APA) for $7 billion in July.
According to reports in The Daily Telegraph, BP also plans to sell its North Sea assets worth approximately $1 billion and has approached many U.K.-focused prospective buyers in this respect. However, management declined to comment on this issue.
We believe that the company’s asset disposal program, which is nearing completion, will help it overcome liquidity concerns. Raising funds will help BP to reduce its net debt level to $10–$15 billion by the end of 2011.
Since most of the divested assets do not account for a major portion of the company’s total reserves, we expect BP’s production volumes to slowly gain traction in the near to medium term. We are maintaining our long-term Neutral recommendation on the stock. BP currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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