BP posts $17bn loss as asset disposal programme gets under way
THE US gulf oil spill has devastated BP's finances. The company posted a second-quarter loss of $16.97bn – one of the biggest in UK corporate history
The loss factors in $32.19bn spent on its response to the spill, including a payment of $20bn into an escrow account.
To cover part of that, BP is selling US, Canadian and Egyptian assets to Apache Energy for $7bn. Further assets sales in Asia, the North Sea and Alaska could take the total beyond a $30bn divestment target the company within the next 18 months. Analysts in Russia say BP could raise up to $14bn for its stake in the TNK-BP joint venture, but is unlikely to sell. The remainder of the escrow will be covered by corporate debt and strategic investments.
The assets to be sold to Apache are non-core for BP – but material for the US independent, which has used divestments from the majors in recent years to build its business. Steven Farris, Apache's chief executive, said in a statement: "This is a rare opportunity to acquire legacy positions from a major oil company, with oil and gas production, acreage, infrastructure, seismic data, field studies, exploration prospects and other essential aspects of our business."
Andrew Neff, an analyst at IHS Global Insight, claims $10bn in asset sales is only the initial target. One option, he says, could be in the US downstream, where the recovery in refining margins, would make it "a useful sale". This could be a sensible move for BP's finances, but also reducing its exposure to consumer anger in the wake of the spill, taking a step back from the US forecourt and into a predominantly upstream position.
The properties being sold to Apache are BP's Permian basin assets in Texas and southeast New Mexico; upstream gas assets in western Canada and the Western Desert business concessions and East Badr El-din exploration concession in Egypt. And in mid July, BP informed the governments of Pakistan and Vietnam of its intention to sell its upstream assets in the countries. The Pakistan properties include the existing oil and gas production business at Badin, exploration acreage at Mirpur Khas Khipro, Dighri and Sanghar South, and offshore operated and non-operated blocks. The combined value of the assets is around $0.73bn.
The Vietnam properties include parts of the Nam Con Son gas project, which could together fetch around $0.97bn. India's state-owned ONGC has emerged as a possible buyer of the Vietnam assets.
The asset sales will entrench BP still further in its core areas of the US and Russia. Yet the scale of its cash-raising programme is such that Alaska's Prudhoe Bay oilfield, historically BP's most important asset in the US, was also thought to have been up for discussion with Apache. BP would not confirm if the company's Alaskan assets remained on the block, but properties in Colombia or Venezuela could yet be sold.
Raising sufficient cash to pay for the mess in the Gulf will help restore some investor confidence in the company. Since collapsing in the wake of the Gulf oil spill, BP's share price has been steadily rising.