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BP, Plains Close $5.5B Gulf Deal


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British oil giant BP Plc (BP - Analyst Report) has closed a $5.5 billion cash deal with Houston’s Plains Exploration & Production Company relating to the divestment of various oil and gas fields in the deepwater US Gulf of Mexico.

The agreement, formally announced on September 10, 2012, is part of BP’s $37 billion divestment plan started in 2010. The ongoing program sees the British major getting rid of its mature, non-core upstream assets to create a portfolio with stronger growth potential from a smaller base.

The closure of the Plains Exploration deal will help BP to retain its flexibility while reshaping its US operations by releasing up to $5 billion to $6 billion in cash, after taxes, to pay down its liabilities. The agreement comprises BP’s interests in three company-operated assets and two non-operated assets. This is also one of the biggest transactions in the US Gulf of Mexico.

The BP-operated properties include the Marlin hub and Horn Mountain, where BP has a 100% working interest. The third property is Holstein, where BP has a 50% stake.

The non-operated assets comprise Ram Powell and Diana Hoover, with a stake of 31% and 33.3%, respectively.

BP plans to concentrate its exploration and investment activities around its four remaining operated hubs –– Thunder Horse, Atlantis, Mad Dog and Na Kika as well as three non-operated facilities –– Mars, Ursa and Great White. BP also targets to spend about $4 billion annually in the Gulf region over the next ten years.

The divestment activities could hurt the company’s performance in the near term but are expected to turn out to be beneficial eventually.

BP holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. Longer term, we maintain our Neutral recommendation.

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