BP Plc (BP) announced that it has agreed to divest its Arco Aluminum subsidiary to a consortium of Japanese companies, as a part of its $30 billion divestiture plan. The transaction is expected to close in the third quarter of 2011.
The consortium led by Sumitomo Light Metal Industries, Furukawa Sky Aluminum, Sumitomo Corporation, Itochu Corporation and Itochu Metals Corporation will acquire the unit for $680 million in cash.
Based in Louisville, Kentucky, Arco Aluminum is a supplier of rolled aluminum sheet utilized mainly for the manufacture of beverage cans. BP has agreed to the divestiture as Arco is a non-strategic asset. The company also expects to unlock shareholder value through the sale.
Over the past one year, BP has been signing major agreements to raise money for spill-related assignments. The Gulf of Mexico (GoM) oil spill cost the company nearly $41 billion. Divestment of non-core assets is the British oil major’s latest drill to streamline its downstream operations and raise money to clear spill-related costs. Including the latest Arco deal, the company has already sold approximately $24 billion of assets and is well on track to complete its divestiture program by this year end.
Meanwhile, the British media reported that the company is seeking permission from U.S. regulators to resume its drilling assignments in the GoM. BP plans to recommence its drilling projects at 10 wells that were operational prior to the accident. On the other hand, the U.S. Bureau of Ocean Energy Management, Regulation and Enforcement denied any such deal relating to the resumption of drilling activities over the deepwater GoM.
This issue marks a delicate affair for the U.S. administration as well as BP, as President Obama has shown interest in seeing higher onshore and offshore domestic production. BP used to be the major oil producer in the Gulf prior to the Macondo incident and any drilling approval is expected to focus on existing production wells, rather than new exploration wells, keeping in mind the stringent safety regulations.
We believe exploration success will be the key for the U.K. major to deliver strong future growth as well as re-establish its position following the oil spill tragedy. Additionally, with Devon Energy Corporation (DVN) and India’s Reliance deals in its pocket, as well as successful divestitures of mature assets, BP certainly seems to be coming back in shape. The company’s position will be further enhanced by a stronger oil price environment and a concentrated upstream portfolio.
BP ADRs currently retain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Our long-term “Neutral” recommendation remains unchanged at this stage.
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