BP Poised to Reach $30 billion Divestment Target in 2011

June 2nd, 2011 by Trefis Team
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BP (NYSE:BP) has successfully managed the unwanted challenge of raising $30 billion through divestments in the current year. The third largest of the six oil & gas ‘supermajors’ set a difficult goal to raise enough cash to cover all expected costs as a result of the Gulf of Mexico oil spill. The company estimates costs will exceed $40 billion due to the world’s biggest oil spill to date. [1] BP competes with other oil & gas heavy-weights including Exxon Mobil (NYSE:XOM), Royal Dutch Shell (NYSE:RDS.B), Chesapeake (NYSE:CHK), Anadarko (NYSE:APC) and Chevron (NYSE:CVX).

We have a price estimate of $53.67 for BP stock, a premium of about 15% to market price.

BP has made strategic changes to accommodate the $30 billion target

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BP has focused its operations in its recent past, with all assets deemed non-core and non-essential being disposed of. The company has also been working on concentrating its business in regions with better exploration opportunities, and has either sold or intends to sell-off its interests in projects deemed less profitable.

With the company committed to making payments to the Gulf of Mexico oil spill escrow fund, these changes to strategy have been pressing – as the company could see a huge outflow in the years to come.

… and has already been able to divest more than $25 billion

The year has been pretty hectic for BP with the company making regular divestment announcements. Some of the more prominent divestment decisions include the sale of its Texas City and Carlson refineries in early February [2] followed by the sale of its Veedol and Duckhams lubricant brands later that month. [3] The company then decided to sell-off its aluminium business, about which you can read in detail in our article titled, Arco Aluminum Sale is a Good Move for BP.

A little while ago, the company completed the sale of some of its US fuel storage and pipeline assets to Buckeye Partners – a deal announced in mid-March. And more recently, the company reached an agreement to sell its Wytch Farm assets in the UK to Perenco UK for up to $610 million in cash. [4]

With less than $5 billion to go before BP hits its target for the year, it hardly looks like an issue anymore.

See our full analysis for BP

Notes:
  1. BP leak the world’s worst accidental oil spill, The Telegraph, Aug 3 2010 [↩]
  2. BP to Reshape US Downstream Business and Seek Buyers for Texas City and Carson Refineries [↩]
  3. BP is to Sell its Veedol and Duckhams Lubricant Brands, BP Press Releases, Feb 23 2011 [↩]
  4. BP Agrees Sale of Wytch Farm to Perenco UK Limited, BP Press Releases, May 17 2011 [↩]