Why the Deepwater Horizon spill may have led to BP’s restructuring

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Restructuring initiatives

BP PLC (BP) went on a major asset sale to meet the financial requirements of the Gulf of Mexico clean-up and the penalties imposed. BP divested $38 billion of assets by the end of 2013. The sell-off occurred mostly in the UK, the U.S., China, and Canada.

The divestiture programs have also led to a 32% decrease in BP’s total head count.

In October 2013, the company announced a further $10 billion asset divestiture before the end of 2015. The company plans to use the proceeds for distributions to shareholders and share buybacks.Restructuring chart

As we see in the table above, upstream asset sales accounted for ~13 billion or 34% of total divestiture proceeds in the past three years. The TNK-BP divestiture, for $16.6 billion in 2013 alone, accounted for 43%.

Recent asset sales

In 2013, BP restructured its upstream business. It sold its interests in the Maclure, Harding, and Devenick fields and in the Brae complex of fields—all in the central North Sea—to TAQA Bratani Ltd.

Plus, it sold interests in the Yacheng field in China to Kuwait Foreign Petroleum Exploration Company, as well as other interests in the North Sea and the U.S.

BP’s major asset sales in 2012 include its interests in the Marlin, Horn Mountain, Holstein, Ram Powell, and Diana Hoover fields in the Gulf of Mexico to Plains Exploration and Production Company. Plains Exploration and Production Company is a subsidiary of Freeport-McMoRan Inc. (FCX).

BP also disposed its Jonah and Pinedale upstream operations in Wyoming to LINN Energy, LLC (LINE). It sold a number of interests in the North Sea, including the disposal of the Southern Gas Assets, to Perenco UK Ltd.

In April 2013, BP sold its 31.5% interest in the Freedom field in the Gulf of Mexico to Ecopetrol America.

TNK-BP sale

In November 2012, BP and Rosneft—the Russian state-owned energy company—signed an agreement for the sale of BP’s 50% interest in TNK-BP to Rosneft for cash consideration of $25.4 billion.

The transaction took place in 2013. TNK-BP accounted for $3.3 billion revenues in 2012. TNK-BP’s proved gas reserves were 4,492 billion cubic feet, or Bcf, comprising 38 Bcf in Venezuela, 78 Bcf in Vietnam, and 4,376 Bcf in Russia in 2012.

BP to run its U.S. business separately

Following the ongoing restructuring, BP has announced plans to create a separate structure for its lower 48 onshore oil and gas business in the U.S. It will start to disclose separate financials for the new entity in 2015.

The penalty may induce more sales

If the $18.5 billion penalty charge is indeed imposed, BP may find its coffers inadequate to fulfill its obligations. It may be forced sell more assets. Some of its potential sale targets include BP’s projects in Australia, Brazil, and some oil fields in Norway.

Key stocks and ETFs

Other energy majors that have significant international presence include Exxon Mobil (XOM) and Hess Corporation (HES). These are components of the Energy Sector Select SPDR ETF (XLE).

The oil spill incident has also affected rig servicing operators like Halliburton (HAL) and Transocean (RIG).

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