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BP Talks With Apache to Sell Prudhoe Bay Stake

Source: Bloomberg 7/19/2010, Location: North America

BP Plc’s talks to sell half its stake in Alaska’s Prudhoe Bay oil field to Apache Corp. stalled twice over the weekend, raising doubts about whether the deal will be completed, said a person with knowledge of the matter.

Talks between BP and Apache faltered late in the evening on July 16 before resuming Saturday. They hit a snag again early yesterday over issues ranging from the valuation of the deal to how current and future legal liabilities will be addressed, the person said.

BP, Apache and their advisers began speaking again today, this person said. The companies last week were on track to clinch an agreement for Apache to buy half of BP’s Prudhoe stake for between $10 billion and $11 billion in an all-cash transaction, according to two people familiar with the matter. Deals often stop and start in the late stages of negotiations as final points are worked out.

"I don’t think the issue of future liabilities would be the main issue in these kind of negotiations," said Victor Shum, an oil and gas analyst at energy consultants Purvin & Gertz Inc. in Singapore. "Valuations are likely to be far more significant, in my view. If a company was to buy the whole of BP, then the issue of future liabilities over the oil spill might be more significant."

Sheila Williams, a spokeswoman for BP, and Bill Mintz, a spokesman for Houston-based Apache, declined to comment.

BP fell as much as 7.4 percent in London and traded at 381.9 pence at 8:39 a.m. local time. The shares are down 42 percent since the April 20 accident on the Deepwater Horizon rig that triggered the worst oil spill in U.S. history.

Macondo Well
A failure of the negotiations with Apache, the largest independent U.S. oil company by market value, would be a setback for BP’s efforts to restore investor confidence and raise capital to pay for costs related to its Macondo well oil spill in the Gulf of Mexico.

The well spewed 35,000 to 60,000 barrels of oil a day after the explosion until it was capped July 15, according to a U.S. government-led panel of scientists. U.S. government officials yesterday ordered BP to submit plans for reopening the sealed well and resuming efforts to capture oil after tests found a suspected leak seeping from the seabed.

In June, BP said it would suspend paying dividends to shareholders, trim capital spending and sell $10 billion of assets over the next year. It also agreed under pressure from President Barack Obama to establish a $20 billion escrow fund to compensate victims of the spill.

Price Important
A sale of half of Prudhoe Bay may allow BP to raise all the money it needs immediately for the spill in one transaction. It may enable BP either to take other assets marked for sale off the market or adopt a tougher line with potential buyers.

"Apache has a history of buying assets with a lot of growth potential and there’s talk of it buying these mature oil assets in Alaska, so questions of price would be very important," Shum of Purvin & Gertz said.

BP is seeking offers for several other holdings, including its 60 percent stake in Argentina’s Pan American Energy LLC and fields in Venezuela, Colombia and Vietnam, said a person familiar with the matter.

BP’s success in at least temporarily capping the leaking well has helped revive investor confidence. BP rose as much as 11.6 percent last week, a third consecutive weekly gain.

Prudhoe Bay wouldn’t be the first big deal to collapse in recent months. American International Group Inc.’s sale of its Asian unit to Prudential Plc for $35.5 billion fell through in June when the two sides couldn’t agree on a lower price.

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