Monday, November 29, 1999

DEALTALK - BP sales may be rapid, but values should be full

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BP Plc may be accelerating its asset sales as it works to fill a $20 billion fund to pay for its Gulf of Mexico oil spill, but don't expect fire sale prices.The British oil company announced a $10 billion asset sales program on Wednesday as part of a broader set of moves designed to ease pressure from the U.S. government. Those moves also included the suspension of BP's dividend for three quarters and a 10 percent cut in capital spending in 2010.Investment bankers and analysts in the oil and gas industry said that BP's asset base is broad enough that it should be able to pick out assets that will have quite a bit of interest from competitors.BP said the bulk of the sales would be non-core oil or gas producing assets. Bankers said it was too early to know which assets the company will put on the block, but many felt divestments would come mostly from outside the United States."They are going to be very mindful of asset selection," said one investment banker, who spoke on the condition of anonymity. "They are only going to sell assets where there is enough competitive intensity that people will end up bidding a full price."Oppenheimer & Co analyst Fadel Gheit said BP told him that it was confident about the values it would receive for the sales.The company's assets are worth more than $250 billion, Gheit said, which means the sales would account for less than 4 percent of its oil and gas base.The sales will also take place in a red-hot oil and gas mergers and acquisitions market and follow divestment programs of a similar size by smaller companies in the sector -- Devon Energy and ConocoPhillips .Oil and gas deal activity is at a record high this year, with more than $128.5 billion of transactions worldwide through June 4."It is definitely a seller's market right now" in the oil and gas industry, Gheit said. "We've seen recently what people are paying for assets in the Marcellus shale and elsewhere -- it's been outrageous numbers."ASSETS: U.S. vs ELSEWHEREThe U.S. government might prefer that BP hold on to its assets in the country as collateral in case costs from the spill overrun the $20 billion fund, an investment banker said.Another suggested that BP did not want to be viewed as retreating from what has long been considered one of its primary growth areas.Still, the company does have interest in several joint ventures in North American shale plays, underground rock formations that hold natural gas and other fuels.These shale formations have been among the most sought after energy assets in recent years, as the technology to drill for natural gas there has improved."Right now, they are wondering, 'What is the stuff that we won't have to discount that we can sell as quickly as possible?'" said Ian Fay, founding partner of Odin Advisors, an energy-focused M&A advisory boutique."Maybe it'll be some of the shale acreage they've got in the U.S. That's a hot area right now and there's a lot of money chasing the shale," he said.NO CASH CRISISBP has lost more than 40 percent of its market value since the April 20 explosion of the Deepwater Horizon rig that led to the worst U.S. oil spill ever.But according to Raymond James analyst Pavel Molchanov, "there is no urgency to these asset sales.""Management has said they would like to do it, but if they didn't choose to do these asset sales there would certainly not be any cash crisis at the company, given the dividend suspension," he said.On top of the roughly $2.6 billion a quarter it should save in dividend payments, the company has said it would generate over $30 billion from operations this year. It also has massive credit lines.That should also give the company the support it needs to hold out for a good price for its assets despite the pressure to sell them.(For more M&A news and our DealZone blog, click reporting by Ernest Scheyder; Editing by Richard Chang)(For more business news on Reuters India click
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