I hope this does not sound too obnoxious, but it is gratifying to see your predictions working out. In this case, I remember saying a few weeks ago that I thought BP (NYSE: BP) would look to asset sales to generate some additional cash. I have also mentioned, from time to time, that Apache (NYSE: APA) could come out of this whole situation as a winner -- not only because of that company's greater conservatism, but because of its historical skill at buying good assets on the cheap.
Well, apparently there might be something to this. Stories are spreading now that Apache and BP are talking about a potential deal worth up to $12 billion, a deal that would include some (maybe all) of BP's Alaska assets. BP's Prudhoe Bay is considered to be a declining field, but Apache has shown a lot of skill in the past at squeezing more oil out of a field than almost anybody else. So what is certainly a declining asset for BP may look a little better in the hands of Apache.
If these rumors are true (and the dollar figure is accurate), I figure that Apache is probably looking at acquiring something like 400-500M barrels of oil reserves.
Specifics matter, of course, but I feel confident that Apache will come out on the winning end of just about any deal. Apache has always been a good buyer and BP is what I think we could all call "a motivated seller". Add in to that analysis the facts that it is likely to get more expensive to do business in US oil fields and the declining nature of those Alaskan assets and there might not be too many competing bidders stepping up -- another positive for Apache.
There is one other rumor apparently going around now, too - that ExxonMobil (NYSE: XOM) may be preparing to make a bid for BP. Would this deal make sense? For Exxon, absolutely. Exxon is cursed with being huge - it is all but impossible that they can grow enough through the drillbit to matter, and there just are not too many potential acquisitions that would make a dent either (the recent deal with XTO not withstanding). So, for Exxon is its a pretty simple choice -- keep finding new ways to grow assets and production, or accept its destiny to ultimately just become a default trust company that sends checks to its owners every quarter.
On top of all that, BP is certainly a lot cheaper today than it was a year ago. And obviously whatever problems revolve around BP right now, the oil they own does not carry those problems with it - in other words, a barrel of oil held by BP may only be worth "X" today, but transfer it over to Exxon and it could suddenly be worth "X times 1.4" or somesuch.
While this is all just a rumor, it does not immediately sound like a great plan to me for BP. Desperate sellers do not get fair market value. So if BP *has* to sell something to raise cash, and has to accept below-market value because of desperation, it makes a great deal more sense to me to sell a percentage of assets at a poor price than sell the entire company at a poor price.
Time will tell how this all works out ... at this point, though, I think it is pretty likely that Apache and BP ultimately do a deal ... and I think it is very likely that it will end up being yet another savvy deal for Apache.
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