CORRECT: Less Urgency In BP Asset Sale Than Headlines Imply

14th Jul 2010 16:42

("=DEALWATCH: Less Urgency In BP Asset Sale Than Headlines Imply," at 1428 GMT, misstated the type of cash flow in the eighth paragraph. The correct version follows:) By James Herron Of DOW JONES NEWSWIRES LONDON (Dow Jones)--BP PLC (BP) is in no great rush to complete the sale of $10 billion of assets to raise cash for Gulf of Mexico oil spill costs, and it's unlikely to announce any deal within the next few weeks, according to people familiar with the sale process. BP has a large number of high-quality assets, lots of interest from potential buyers and access to tens of billions of dollars in capital to cover short-term costs, "so there is no need for a fire sale," said one person familiar with the process. After agreeing June 16 at the White House to pay $20 billion over the next 3 1/2 years into a cleanup and compensation fund for the Gulf of Mexico oil spill, BP said it would sell $10 billion of non-core oil and gas production assets over the next 12 months to partly fund this liability. BP has declined to comment on the sale process since then, but there has been considerable press speculation about which assets it will sell and to whom. Sky News reported July 1 that BP was talking about selling its $9 billion stake in Pan-American Energy to state-controlled China National Offshore Oil Company (CEO) and could reach a deal "within weeks." BP is also talking to Apache Corp. (APA) over the sale of around $10 billion of assets including stakes in BP's vast Alaska operations, the Sunday Times and the Wall Street Journal reported this week. Other reports have said BP is mulling the sale of its operations in the U.K., Colombia, Venezuela and Vietnam. Talks with potential buyers remain at an early stage, and BP is unlikely to announce closure of any deal by its second quarter results announcement on July 27, said two people familiar with the sale process. BP is taking a very measured and prudent approach to the divestments, and things are not moving as quickly as reports suggest, said one of the people. "They have the luxury of time," the person said. BP has amassed at least $20 billion in cash and committed credit lines from banks in the wake of the spill, and analysts estimate its global operations will generate around $30 billion of operating cash flow this year, so the proceeds of the asset sales will not immediately be needed. "[The divestment] is a prudent measure to underpin the $20 billion commitment," said ING analyst Jason Kenney. "I don't see there is any urgency." There is also no guarantee that BP will sell all the assets it is discussing with potential buyers, said Kenney. "They've got 13 or 14 different asset packages all considered peripheral to the core business," Kenney said. The combined value of these assets is around $45 billion, meaning BP can be fairly picky in what it chooses to sell. "Buyers have got to go in and offer a decent price for these things," he said. Despite the lack of urgency, there is little doubt that BP needs to bolster its balance sheet as it faces the prospect of large civil penalties for the oil spilled into the Gulf. Under the U.S. Clean Water Act BP may have to pay a fine of up to $1,100 per barrel of oil spilled, rising to $4,300 per barrel if it were found guilty of negligence. The International Energy Agency estimated Tuesday that 4.5 million barrels of oil have spilled from BP's well, putting the maximum fine at between $5 billion and $19 billion. BP would probably have to pay a fine in two installments in 2011 and 2012, said analysts at Bernstein Research, so it will need to have built up a sizeable cash reserve by that point. -By James Herron, Dow Jones Newswires; +44 (0)20 7842 9317; [email protected] (END) Dow Jones Newswires July 14, 2010 11:42 ET (15:42 GMT)