Undervalued BP Will Sell A Chunk Of Its Gulf Assets For Spill Costs

by Trefis Team
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BP Plc (NYSE:BP) has entered into a definitive agreement to sell some of its oil assets in the Gulf of Mexico to Plains Exploration & Production Co. (PXP) for $5.55 billion. The transaction will commence in October and is expected to close by the end of this year. [1]

See our full analysis for BP

BP’s Gulf operations are among the most profitable in its portfolio, and produce around 231,000 barrels of oil equivalent net per day, over 23% of its net production. The region offers other benefits as well, such as relatively low taxes and easy access to the US energy market.

The company plans to sell its interests in properties such as the Marlin, King and Horn Mountain fields, among others, and plans to focus on more lucrative fields such as Thunder Horse, Atlantis, Mad Dog and Na Kika. The fields being sold produce a total of around 60,000 barrels per day, around 25% of the Gulf operations. [2]

More sales are expected to follow, as the company plans to offload $38 billion worth of assets in order to settle expenses related to the 2010 Macondo oil spill.

In 2011, BP produced 992,000 barrels per day on average. We currently estimate that production will decline at an annual rate of around 1% to 919,000 barrels per day by 2019. However, considering this recent sale and the possibility that the company will be forced to sell more assets, there could be a substantial decline in net production over the course of our forecast period.

We currently have a price estimate of $50 for BP, which is around 15% above the market price.

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Notes:
  1. Plains Exploration & Production Co Announces Definitive Agreement With BP Plc, Reuters, September 2012 []
  2. PXP Press Release, September 2012 []
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