A big deal could be brewing in the energy sector and it probably
will not involve any of the U.S. oil majors. BP (NYSE:
) is looking to part with its 50 percent interest in TNK-BP, the
British oil giant's highly lucrative, but highly problematic joint
venture with Russian oligarchs.
Estimates for how much BP's TNK-BP stake is worth range from
$20-30 billion. Even at the low end of that range, BP would exit
the venture with quite a windfall. BP paid $7 billion to acquire
the interest in TNK-BP, Russia's third-largest oil company, in
2003. Since then, BP has reaped $19 billion in dividends alone,
BP's willingness to sell its interest in TNK-BP, which accounted
29 percent of the British company's production and
27 percent of total reserves
last year, has likely been greeted warmly by an array of buyers.
OAO Rosneft, Russia's largest oil company appears to be the most
likely suitor at this juncture, but acquisition-happy
Chinese oil majors
could enter the picture as well.
What is clear is when BP walks away from TNK-BP, it will do so
with a sizable chunk of change and plenty of options regarding how
to spend it. Those options include:
Legal Bills Earlier this year, BP lowered its costs associated
with the Gulf of Mexico oil spill, the largest spill in U.S.
history, to $37.2 billion from more than $40 billion following
settlements with various parties. In March, the company agreed to
pay $7.8 billion to resolve plaintiffs' economic hardship
BP's total spill liabilities are still not 100 percent clear at
this point. However, it is clear selling the TNK-BP stake at the
midpoint of the estimated range, or $25 billion, would go a long
way toward helping BP put the spill tragedy behind it.
Raise The Dividend With a dividend yield of close to five
percent, it might not appear that BP should raised its dividend,
but consider the following: Prior to the spill, the company was
paying a dividend of 84 cents per quarter on its American
depositary receipts. The dividend is now 48 cents per ADR per
quarter. With a windfall from the sale of the TNK-BP stake, BP
could easily boost its dividend and still have plenty of cash left
Buy Range Resources Several times over the past few years, a
rumor about BP's bitter rival, Royal Dutch Shell (NYSE: RDS-A),
buying Range Resources (NYSE:
. Range is still an independent company.
An independent company with a market value of less than $10
billion, meaning BP could buy Range right now if it wanted to. The
sticking point here would be that even though Range is looking to
increase its oil output, the bulk of its production is still
natural gas. Range said it expects to produce just 7,600-7,800
barrels of oil per day in the current quarter.
Buy Anadarko Petroleum This scenario is extremely far-fetched,
but it is not impossible to imagine, either. Anadarko Petroleum
) and BP previously knocked heads because the former held a 25
percent non-operating interest in the Macondo well project. It took
a while, but Anadarko eventually paid a $4 billion settlement to BP
to avoid expensive and extensive litigation.
So it is fair to say these two companies are not best friends.
Still, that does not make a deal impossible. The issue would boil
down to price. Anadarko has a market value of almost $36 billion.
Assuming a 25 percent premium, BP would be forced to shell out $45
billion for Anadarko. That means the sale of the TNK-BP stake would
not be enough to cover the purchase of Anadarko.
Add in the potential of its Ghana and Mozambique wells, and
Anadarko might be worth more than $45 billion. In other words,
Anadarko will not come cheap and it would likely take a big price
tag to get the company to even come to the negotiating table.
However, BP needs to recoup lost production, particularly if it
sells its TNK-BP interest. The company's asset sales program,
started soon after the Gulf of Mexico spill, has trimmed output and
the loss of TNK-BP's contribution to BP's overall production could
take decades to organically replace. An Anadarko purchase would
quickly solve BP's production problems.
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