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BP May Sell Prudhoe Bay Stake As Spill Costs Mount

Source: Bloomberg 6/3/2010, Location: North America

BP Plc may have to sell some of its most-valued assets, including a stake in the biggest U.S. oil field, to pay cleanup costs, fines and legal damages from the largest offshore spill in U.S. history.

The 26 percent stake in Prudhoe Bay on Alaska’s North Slope and other BP assets could attract suitors such as China National Petroleum Corp., Occidental Petroleum Corp. and Hess Corp., said Douglas Ober, chief executive officer at Petroleum & Resources Corp. in Baltimore, the oldest U.S. oil fund.

"BP is going to have to look to other assets to pay for this mess they’re creating," said Ober, who oversees a combined $1.6 billion at the fund and Adams Express Co. "They won’t be able to use any of that cash flow to expand production or add to reserves, and that’s really going to put them in a bind."

BP lost 34 percent of its market value since an April 20 fire in the Gulf of Mexico killed 11 workers, sank a $365 million rig and triggered subsea leaks that have spewed millions of gallons of crude into the Gulf. The company has spent more than $1 billion trying to stanch the leaks and remove oil from the ocean. Ober sold all of his BP stock after 15 refinery workers perished in a 2005 explosion at the company’s Texas City, Texas, plant.

Asset sales by BP are more likely than a takeover of the company because it’s too soon to estimate how much the spill and its aftermath will end up costing, said Gianna Bern, founder of Brookshire Advisory & Research Inc. in Flossmoor, Illinois, and a former BP crude trader.

Think Twice
"A potential investor would think twice because this is unprecedented and it would take a decade to sort out liability and any potential litigation," Bern said.

BP, the largest oil and natural-gas producer in the U.S. region of the Gulf of Mexico, is facing criminal and regulatory probes into the causes of the disaster at its deep-sea Macondo well drilled with Transocean Ltd.’s Deepwater Horizon rig.

BP’s latest attempt to contain the leaks stalled yesterday when a saw blade attached to a subsea robot snagged while cutting the pipe leading from the well. BP wants to sever the pipe to install a device that will divert the crude to a ship on the surface.

The plunge in BP shares since the disaster wiped out 42.2 billion pounds ($61.8 billion) in market value, or more than the economic output of Nigeria, Vietnam or the Czech Republic.

Biggest Crude Source
Prudhoe Bay and other Alaskan fields were BP’s largest source of crude in the Western Hemisphere in 2009 after the Gulf of Mexico, according to a public filing. Alaskan fields provided one in every 14 barrels of oil BP pumped worldwide last year. BP operates or own stakes in 20 other fields on the North Slope, as well as four pipelines.

In addition to Prudhoe Bay, rival companies may target the company’s holdings in oil-rich nations such as Azerbaijan and Angola, analysts said.

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