Today’s $5.6 billion Gulf of Mexico asset sale checks one more box for BP Plc’s divestiture program and brings the company within $6 billion of its $38 billion cumulative divestment target (not including the potential TNK-BP sale). BP has been in discussions about selling its stake in the joint Russian venture, TNK-BP. While the venture is extremely profitable, there have been issues between BP and its Russian partners.
The combined result of these divestments is a smaller, more streamlined asset base with an enhanced profitability profile.
BP Plc (NYSE:BP) has sold a total of $32 billion of assets since the Gulf of Mexico (Macondo well) oil spill.
Consistent with plans disclosed earlier this year, BP Plc (NYCE:BP) (LON:BP.A) (LON:BP) is selling its interests in three company-operated assets: Marlin hub (100%), Horn Mountain (100%), and Holstein (50%). BP is also selling its interests in the non-operated Ram Powell (31%) and Diana Hoover (33.3%) fields. Plains Exploration & Production Company (NYSE:PXP) is paying $5.55 billion for the assets, with the deal expected to close by year-end.
Given production of 59,500 Boe/d (84% oil/NGLs) as of late July, the purchase price equates to $92,400 per flowing Boe. This metric compares favorably to the $62,000 per flowing Boe that BP received when Stone Energy purchased a 75% interest in the Pompano field (83% oil) in late 2011. The Plains Exploration & Production Company (NYSE:PXP) multiple even tops the valuation of $90,000 per flowing Boe that Stone Energy received for the sale of its oilier Main Pass assets (96% oil) in 2011.
With this transaction, BP Plc (NYCE:BP) (LON:BP.A) (LON:BP)’s Gulf of Mexico footprint will be reduced to its four operated developments (Thunder Horse, Atlantis, Mad Dog, Na Kika) and three non-operated hubs (Mars, Ursa, Great White). BP remains a major player in the deepwater Gulf of Mexico, and its activity level there continues to recover, with the rig count rising from six to eight by year-end – the highest level ever. BP is the leader of leases in the Gulf of Mexico, with over 700 signed leases.
In other company news, (NYCE:BP) (LON:BP.A) (LON:BP) has further prepared the groundwork for the expansion of its 7.6mtpa Tangguh LNG plant (37.6% BP) following the signing of a deal with the Indonesian state electricity company PT PLN. The company has agreed to supply up to 40 percent of the LNG from the third train to PLN for use in the domestic market as well as supplying 4 megawatts (MW) of electricity from the Tangguh plant to PLN to be distributed to local communities starting in 2013 rising to 8 MW in subsequent years. Pricing has yet to be finalised and BP appears to be targeting FID in 2014 although reported costs for the third 3.8mtpa train are estimated at $12bn. All the LNG currently produced is allocated for export not least to China and Korea. Assuming a 2014 FID the expansion is expected to commence deliveries by 2018.
Raymond James expects BP to earn $4.44 a share in 2012, and $2.73 in 2013.
(Disclosure: The author of this article has a long position in BP)