BP chief under pressure over failed deal
London, November 7, 2011
The collapse of BP's planned sale of a $7 billion stake in an Argentinean unit is chief executive Bob Dudley's second failed multi-billion dollar deal this year and has renewed investor concerns about his vaunted turnaround of the group, said experts.
Dudley hinted last month that the oil giant could lift its dividend next February, saying the group had reached a "turning point" after its Gulf of Mexico oil spill. But the failed deal now puts a question mark over those plans.
"As with all things to do with BP the issue is as much to do with risk and this deal failure does highlight execution issues again," analysts at UBS said in a research note.
BP shares traded down 0.9 percent at 1305 GMT on Monday, lagging a 0.1 percent drop in the STOXX Europe 600 Oil and Gas index , after the planned sale of its 60 percent stake in Pan American Energy was abandoned.
The decision of buyer Bridas, half-owned by China's CNOOC, to terminate talks, will hit BP's cashflow and make a payout hike harder to deliver.
As the second major deal to fall apart for BP this year -- in May a planned $16 billion share swap and multi-billion dollar Arctic exploration deal with Rosneft collapsed -- analysts said the failure showed the risks around BP's strategy of rapid dealmaking.
BP launched a $30 billion disposal programme last year to help pay the $40 billion bill for the spill. The London-based oil giant said this would force it to shrink but that an expansion of exploration and dealmaking would thereafter allow it to grow more quickly.
Bridas sent a letter to BP last week terminating the talks, both sides said. It did not specify its reasons, but cited "legal issues and the way BP handled the transaction" for the deal's cancellation.
BP said the deal hinged on Bridas obtaining Argentine anti-trust and Chinese regulatory approvals and that those permissions had not been won.
Since CNOOC is state-controlled and has a mandate to buy energy assets overseas, analysts said the Chinese regulatory approval should not have been a problem.
Bankers say that Beijing selects which state-controlled oil company bids for overseas assets, to avoid them competing against each other, and this is also seen as reducing the risk of securing regulatory approval.
While a Presidential election in Argentina may have slowed the regulatory approval process, a deal in which China's Sinopec agreed to buy Occidental's Argentina assets for $2.5 billion was announced last December and closed in the first quarter of the year.
BP and Bridas, which already owns 40 per cent of Pan American, announced the deal in November 2010.
BP said the reasons for the termination of talks were unknown to it and on Oct. 25, as he announced sluggish results for the third quarter, Dudley said he expected the deal to close in 2012.
The CEO has admitted to being under pressure from investors to turn the company around, after lacklustre performance since the blown-out Macondo well was sealed last September.
The company's shares have not risen in the past year. Dudley has said the weak operational results are the result of a programme of investment to improve safety at facilities.-Reuters