BP Nears $11 Billion Asset Sale to Apache

Source: Bloomberg 7/15/2010, Location: North America

BP Plc may reach an agreement as soon as next week to sell assets including half its stake in Alaska’s Prudhoe Bay field to Apache Corp. for $10 billion to $11 billion, according to two people familiar with the matter.

The deal will probably be an all-cash transaction, said one of the people, who asked not to be named because the negotiations remain private.

BP is pressing to get the deal done before July 27, when it reports second-quarter earnings, said one of the people. Talks were progressing so swiftly this week, negotiators thought the deal might be clinched by July 19. Discussions about the rights of BP’s partners in Prudhoe Bay, the largest U.S. oil field, slowed the timing by a few days, said this person.

"This is the kind of asset that I would expect BP to be selling because it’s a mature asset, and it’s got a declining production profile," said Philip Weiss, an analyst at Argus Research in New York. "Anything that BP does to shore up its liquidity, whether it really needs to or not, is a positive."

Apache’s progress in raising between $6 billion and $7 billion in financing has helped speed negotiations, one of the people said. Apache was able to raise money more quickly for the transaction because lenders saw potential for Apache to squeeze more production from Prudhoe Bay, which has been a declining field, the person said.

$10 Billion Goal
Goldman Sachs Group Inc. and Bank of America Merrill Lynch are advising Apache. Standard Chartered Plc is advising BP.

The deal would accelerate BP’s plan to sell $10 billion of assets over 12 months to fund compensation payments for damages related to the Gulf of Mexico oil spill, caused by the explosion of its Macondo well.

Apache declined 70 cents, or 0.8 percent, to $86.13 as of 4 p.m. in New York Stock Exchange composite trading. BP’s American depositary receipts gained $2.74, or 7.6 percent, to $38.92.

BP said it will concentrate on selling assets outside regions with the most lucrative production growth. Prudhoe Bay’s output, once greater than 1.5 million barrels a day, averaged 234,772 barrels a day this month, according to Alaska state tax records.

Andrew Gowers, a BP spokesman, and Bill Mintz, a spokesman for Apache, declined to comment.

Alaska Partners
BP owns a 26 percent share and is the operator in Prudhoe Bay and neighboring Alaskan fields such as Midnight Sun and Aurora. Exxon Mobil and ConocoPhillips each own 36 percent and Chevron has 2 percent. The partners have a right of first refusal when the company considers selling its stake.

John Roper, a spokesman for ConocoPhillips, said the company doesn’t comment on rumors or speculation. Kurt Glaubitz, a spokesman for Chevron Corp., and Margaret Ross, an Exxon Mobil Corp. spokeswoman, also declined to comment.

Apache, the largest independent U.S. oil company by market value, has bought ma2ture fields from BP in the past. The Houston-based company paid $1.3 billion in 2003 for BP assets in the Gulf of Mexico and North Sea.

Apache has been able to “breathe life” into projects, such as its Forties Field in the North Sea, said Fadel Gheit, an analyst at Oppenheimer & Co. in New York who has an “outperform” rating on both Apache and BP’s American depositary receipts.

Doubling Production
Apache said in 2006 that it almost doubled production in the Forties Field from the second quarter of 2003 through the fourth quarter of 2005 with improved drilling techniques and production efficiency. The North Sea region produced the equivalent of some 22.4 million barrels of oil for Apache in 2009, or about 11 percent of its global output.

Gheit said Apache also is able to cut costs while taking on projects that have reduced risk and lower returns.

A $10 billion deal would be huge for Apache at about one-third of its market value, he said. Last month, Apache closed a deal to buy Gulf of Mexico assets from Devon Energy Corp. for $1.05 billion. The company also announced in April a plan to buy Mariner Energy Inc. in a deal valued at the time at about $2.7 billion.

Weiss, the Argus analyst, questioned whether Prudhoe Bay partners would want BP to remain the operator at a reduced percentage. Weiss has a hold rating on Apache and BP’s American depositary receipts.

BP also may sell its 60 percent holding in Pan-American Energy LLC, as well as fields in Colombia, Venezuela and Vietnam, a person with knowledge of the matter said last week.

Swaps Rise
The cost to protect against losses on Apache bonds rose to the highest in more than a month amid concerns that debt taken on to finance the purchase will lower the company’s creditworthiness.

Five-year credit-default swaps on Apache rose 7 basis points to 112 basis points, the highest since June 11, according to swaps data provider CMA. The contracts reached 122 basis points on June 10, the highest since March 2009, CMA prices show.

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