BP plc (BP) has taken the first tangible step towards divestiture of assets worth $10 billion announced last month. The financially troubled U.K. major will sell $7 billion worth of upstream assets to Apache Corp. (APA). The agreement includes several transactions, expected to close in the third quarter.
 
The properties to be sold include the Permian basin assets of $3.10 billion, Western Canadian gas assets of $3.25 billion and upstream assets of $0.65 billion in Egypt. Separately, the company also intends to sell oil and gas fields in Vietnam and Pakistan for about $2–$4 billion.
 
BP has spent about $4 billion as its oil spill-related costs so far. This accident is one of the worst environmental disasters in U.S. history and BP is liable to pay fines, damages, legal costs and other expenses for years.
 
The entire group has been braving the after-effects of the spill and has already taken several steps to protect the interests of the people who live along the Gulf Coast and depend on it for their livelihood. BP has reduced capital spending by about $2 billion and suspended about $10.6 billion in dividend payments for this year.
 
As per the agreement signed between BP and the Obama administration on June 16, BP will have to contribute $5 billion to the spill fund this year. With this Apache deal, BP will get $5 billion cash deposit on July 30, which will help cover the contribution.
 
On yesterday’s call, management said that the company is on track with the progress of its relief wells. The pressure continues to steadily rise in terms of the well integrity test. Upon successful completion, BP expects to kill the spill permanently.
 
BP shares have rallied during the first half of this month on the development of relief wells. However, it has been trending down since then. As we believe that the troubles will continue at least for the next couple of months, we recommend an Underperfrom rating with the Zacks #5 Rank (Strong Sell) for the stock.
 
However, our long-term recommendation remains Neutral based on the company’s industry-leading track record in terms of reserve replacement ratio and strong business fundamentals.
Read the full analyst report on “BP”
Read the full analyst report on “APA”
Zacks Investment Research