BP Plc (BP) plans to divest its refined petroleum products’ terminals as well as pipelines in the U.S. to Buckeye Partners L.P. (BPL), the country’s leading petroleum distributor. The transaction is worth $225 million and is expected to close in the second quarter of 2011, subject to regulatory approvals and other customary conditions.
The agreement comprises 33 refined products terminals and 992 miles of pipelines across 13 states in Midwestern, Southeastern, and Western United States. The terminal has a total storage capacity of more than 10 million barrels. The pipeline assets include BP’s 50% stake in Inland Corporation, representing $60 million of the selling price. Inland Corporation is a joint venture between BP Oil Pipeline Company, Shell Oil Company, Sun Pipeline Company and Midwest Pipeline Holding, LLC.
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. For the British oil major, divestment of non-core assets has become a drill to streamline its downstream operations and raise money to clear the spill-related charges.
The company has already sold approximately $22 billion of assets and is well on track to complete its $30 billion divestiture program by the end of 2011. Management remains positive on the company’s growth profile and looks forward to a marked recovery as well as reduction in operational risks.
We see a slow but gradual economic recovery, deeper focus on upstream exposures and increases in oil prices as beneficial for BP.
However, we remain concerned about BP’s long-term growth prospects as its upstream activity might be affected by delays in deepwater GoM projects and limited access at its U.S. acreages. Further, near-term headwinds with respect to weak U.S. refining margins and competitive disadvantages versus its European peers, such as Royal Dutch Shell plc (RDS.A) keeps us on the sidelines. Consequently, we maintain our “Neutral” recommendation.
BP ADRs currently retain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
BP PLC (BP): Free Stock Analysis Report
BUCKEYE PARTNRS (BPL): Free Stock Analysis Report
ROYAL DTCH SH-A (RDS.A): Free Stock Analysis Report
Zacks Investment Research
