BP Plc (BP) has inked an asset disposal agreement with Perenco UK Ltd to sell its share in its southern gas assets (SGA) in the UK North Sea. The deal is a part of BP’s asset divestiture plan to help pay off the charges ensuing the disastrous Gulf of Mexico (GoM) incident and to develop a more focused North Sea business.
The divestiture includes the Cleeton stream fields, the West Sole stream fields, the Amethyst field and the Dimlington terminal that together produce 25,000 barrels of oil equivalent a day. The $400 million all in-cash transaction is expected to be completed before the end of 2012 and is subject to customary closing conditions. Perenco has already paid $100 million, while the balance will be paid upon the completion of the contract.
The latest deal is part of BP’s venture to develop a more focused North Sea business in the country as well as in Norway. The U.K.’s second-largest oil company after Royal Dutch Shell Plc (RDS.A) − BP − plans to spend approximately 10 billion pounds over the next five years in the North Sea region marking the highest annual investment into UK's offshore industry made by the company in its entire history. The company already got the approval last year for the Clair Ridge project development in the west of Scotland’s Shetland Islands and remains busy with a multi-billion pound program, with four major field development projects in the UK and two more in Norway.
Moreover, the sale is also part of BP’s ongoing asset divestiture program, which will help it overcome liquidity concerns for all spill-related liabilities. In October last year, BP announced its intentions to expand its $35 billion asset-sale program by another $15 billion before 2014. However, the collapse of its deal to sell its stake in Argentina's Pan American Energy late last year forced the company to revise its program to $38 billion. BP has already disposed worldwide assets worth almost $23 billion, including those to be sold to Perenco.
We believe the company is offloading its non-core upstream properties while creating a portfolio with potentially stronger growth from a smaller base. Additionally, BP’s focus on a string of upstream activities in high margin areas like the Gulf of Mexico, Angola, the North Sea, Brazil, Australia and India bodes well for its future growth.
Hence, we maintain our long-term Neutral recommendation for BP, which holds a Zacks #3 Rank (short-term Hold rating).
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