CORRECT: $7B Asset Sale To Apache Seen As Good Deal For BP

21st Jul 2010 12:27

("=2nd UPDATE: $7B Asset Sale To Apache Seen As Good Deal For BP," at 1112 GMT, misstated the proportional difference between market capitalization and analysts' estimates in the 12th paragraph. The error also appeared in "UPDATE: $7B Asset Sale To Apache Seen As Good Deal For BP" at 0946 GMT. The correct version follows:) By James Herron Of DOW JONES NEWSWIRES LONDON (Dow Jones)--BP PLC's (BP) agreement to sell $7 billion of oil and gas assets in North America and Egypt to Apache Corp. (APA) looks like a good deal for the embattled British company that is reeling from the Gulf of Mexico oil spill, said analysts and investors Wednesday. The price tag demonstrates that BP can easily raise the funds to cover the huge cost of the spill and the current share price seriously underestimates the value of the company, they said. "These assets were in (BP's) books for about half the price they've sold them at," said Colin Morton, a fund manager at Rensburg Fund Management, which is an investor in BP. The deal demonstrates that "the underlying value of BP assets is much higher than many people think," he said. "BP has got a good commercial price. I don't see the process as a fire sale," said ING analyst Jason Kenney. The market reacted positively to the deal, with shares rising up to 4.1% in London trading. BP had spent almost $4 billion on the oil spill as of Monday, has agreed to pay another $20 billion into a cleanup and compensation fund over the next 3 1/2 years and could face tens of billions of dollars in fines under the Clean Water Act. To cover these costs, BP has canceled its dividend and said it will sell $10 billion of assets. BP agreed Tuesday to sell to Apache its Permian Basin assets in Texas and southeastern New Mexico, as well as its western Canada natural-gas exploration and production assets. The deal also includes the Western Desert business concessions and East Badr El-din exploration concession in Egypt. Apache will pay a cash deposit of $5 billion on July 30, ahead of BP's first payment of $2.5 billion into the $20 billion compensation fund. The value of the deal is at the top end of expectations, said NCB Stockbrokers analyst Peter Hutton. The $7 billion price equates to $4.50 per barrel of estimated resources, higher than recent deals by Royal Dutch Shell PLC (RDSB.LN) and Total SA (TOT) at $3.90 and $2.10 per barrel respectively, he said. "This is speedy action and divests assets which are not really core to BP at an attractive price, achieving the lion's share of BP's $10 billion target from divestments in 12 months," Hutton said. "This transaction should remove concerns on BP's ability to finance its obligations," analysts at Credit Suisse said in a reasearch note. The sale proceeds and existing credit lines of around $10 billion mean BP can already meet spill costs of around $34 billion over the next 18 months, they said. Applying the per-barrel value of the Apache deal across BP's whole portfolio puts a valuation of between $332 billion and $375 billion on BP's exploration and production assets, more than three times the company's current market capitalization, said Credit Suisse. "The company is worth substantially more than its current share price," even factoring in tens of billions of dollars in spill costs, said Morton. Doubts linger over BP's future as a major operator in the U.S., but, "if you're brave and willing to wait a year or two, this might be an opportunity to make a bit of money," he said. BP also said Tuesday it has also begun the process to sell primarily gas-producing assets in Pakistan and Vietnam. Hutton said that sale could raise another $1.7 billion. Contrary to earlier press reports, the Apache deal did not include assets in Alaska--one of BP's core operational areas. "This is a good opportunity for BP to offload some peripheral businesses," he said. "BP can really focus on its core asset base." -By James Herron, Dow Jones Newswires; +44 (0)20 7842 9317; [email protected] (END) Dow Jones Newswires July 21, 2010 07:27 ET (11:27 GMT)