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British oil giant BP Plc (BP - Analyst Report) has inked a sale agreement with Kuwait Foreign Petroleum Exploration Company (KUFPEC) relating to its 34.3% stake in the Yacheng gas field in the South China Sea, for $308 million cash.

BP’s decision to divest its Yacheng stake forms part of a broader program that focuses on high value assets with long-term growth potential. However, as one of the leading foreign investors in the Chinese energy sector, BP will carry on investing in both upstream and downstream areas of China.

The field — commissioned in 1996 — was operated by BP till 2004.  CNOOC Ltd (CEO - Analyst Report) acquired the operatorship of the field in 2004 and will remain the majority partner post sale with a 51% stake. KUFPEC will hold the remaining 49% stake.

Situated about 62 miles (100 kilometers) south of Hainan Island in 295 feet (90 meters) of water, Yacheng 13-1 is the largest producing natural gas field offshore China. BP received interests in deepwater blocks 42/05 and 43/11 in the South China Sea in 2010 and 2012, respectively. Currently, exploration work is in progress in the fields.

The deal — likely to close in the second half of 2013 — is subject to regulatory, CNOOC and third party approvals.

At present, natural gas from the field is used for power generation at the Castle Peak Company Limited in Hong Kong and moved through a 780-kilometre pipeline. The consumers on Hainan Island receive the remaining natural gas, condensate and LPG.

The oil giant had set a goal to divest around $38 billion worth of assets by 2013, of which it has contracted to sell assets valued at nearly $37.8 billion till date. This includes the closure of 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 in November 2012.

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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