Monday, November 7, 2011

BP's failed Argentina deal renews investor fears

LONDON (Nov 7):'' The collapse of BP's planned sale of a $7 billion stake in an Argentinean unit has renewed investor concerns about its strategy, a fortnight after Chief Executive Bob Dudley said the group had reached a "turning point" after its Gulf of Mexico oil spill.

BP shares traded down 1.7 percent at 1033 GMT on Monday, lagging a 1.3 percent drop in the STOXX Europe 600 Oil and Gas index , after the planned sale of its 60 percent stake in Pan American Energy was abandoned.

The decision of buyer Bridas, half-owned by China's CNOOC, to terminate talks, will hit BP's cashflow and could limit its ability to boost the dividend -- something Dudley hinted the oil giant planned do next February.

As the second major deal to fall apart for BP this year -- in May a planned $16 billion share swap and multi-billion dollar Arctic exploration deal with Rosneft collapsed -- analysts said the failure showed the risks around BP's strategy of rapid dealmaking.

"As with all things to do with BP the issue is as much to do with risk and this deal failure does highlight execution issues again," analysts at UBS said in a research note.

BP launched a $30 billion disposal programme last year to help pay the $40 billion bill for the spill. The London-based oil giant said this would force it to shrink but that an expansion of exploration and dealmaking would allow it to thereafter grow more quickly.

Bridas sent a letter to BP last week terminating the talks, both sides said. It did not specify its reasons, but cited "legal issues and the way BP handled the transaction" for the deal's cancellation.

BP said the deal hinged on Bridas obtaining Argentine anti-trust and Chinese regulatory approvals and that those permissions had not been won.

Since CNOOC is state-controlled and has a mandate to buy energy assets overseas, analysts said the Chinese regulatory approval should not have been a problem.

Bankers say that Beijing selects which state-controlled oil company bids for overseas assets, to avoid them competing against each other, and this is also seen as reducing the risk of securing regulatory approval.

While a Presidential election in Argentina may have slowed the regulatory approval process, a deal in which China's Sinopec agreed to buy Occidental's Argentina assets for $2.5 billion was announced last December and closed in the first quarter of the year.

BP and Bridas, which already owns 40 percent of Pan American, was announced in November 2010.

BP said the reasons for the termination of talks were unknown to it and on Oct. 25, as he announced sluggish results for the third quarter, Dudley said he expected the deal to close in 2012.

The CEO has admitted to being under pressure from investors to turn the company around, after lacklustre performance since the blown-out Macondo was sealed last September.

The company's shares have not risen in the past year.

Dudley has said the weak operational results are the result of a programme of investment to improve safety at facilities. - Reuters

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