BP is on a bit of a cash-hoarding mission. The company's clean-up costs for the Gulf oil spill are past the $2.65 billion mark, and it needs to fund a $20 billion escrow account to cover Gulf spill-related claims. Out of all of its cash-grabbing methods, from loans and bond sales to the death of its dividend for 2010, BP's plan to sell $10 billion of "non-core" assets has received the most attention and speculation.
Two possible buyers are already circling BP: China and TNK-BP, the Russian joint venture with BP. TNK-BP has the aspirations to grow outside of its Russian operations. But it's China that wields the greatest power. The country has the need -- its energy appetite is only second to the U.S. and growing -- and it has the money. There's even been a fair amount of speculation that China could buy BP outright, a highly unlikely purchase that would be met with resistance at least here in the U.S. The Chinese state-owned oil company CNOOC attempted to buy Unocal in 2005, but dropped its bid after lawmakers raised a nationalistic ruckus.
The crux for BP is to sell non-core assets that aren't viewed as "non-core" to someone else. As obvious as this may seem, it's difficult to pull off. Take, for instance, BP's downstream assets -- that's refining crude, and the sale and distribution of natural gas and oil-based products -- in Europe and the U.S. Both areas have stagnant to decreasing energy demand and it would make sense to ditch this heap of slow-growth assets.
But integrated majors like Exxon (XOM) and Chevron (CVX) aren't interested in acquiring more downstream assets in industrialized countries for the very same reason BP wants to sell them off. That means bargain-basement prices, not exactly BP's goal. It would only make sense for a buyer deeply vested in the European market to snap up BP's downstream assets there. Which leaves Russia's TNK-BP as the most likely option.
The good news for BP? It's not December 2008, when crude hit $32 a barrel. Oil prices are high enough that prices for exploration and production properties should fetch a pretty decent price. And the company has plenty of options. BP has some $200 billion in upstream assets -- that's oil and gas exploration and production -- spread out over 30 countries.
A far more likely scenario: BP will sell off valuable standalone exploration and production properties, and probably those where it doesn't hold controlling interest. BP's assets in the North Sea and South America have been tossed out as possibilities. BP is reportedly considering a sale of its 60 percent stake in Argentine oil and gas producer Pan American Energy, as well as assets in Venezuela and Colombia. Although it holds a majority stake, Pan American Energy is considered a "relative loner" in its overall portfolio, as FT notes. China's CNOOC would be the likely buyer. CNOOC already has ties to South America and already owns a 20 percent stake in Pan American Energy.
There are a few exceptions, of course. BP will hold onto its stake in southern Iraq's Rumaila oil field. Under the contract with the Iraqi Oil Ministry, BP will only receive a $2 per barrel fee. But this agreement represents a foot into Iraqi oil development for BP. And it's not going to give it up.