BP Wraps Up PAA Pact - Analyst Blog


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BP Plc ( BP ) has closed the previously announced divestiture agreement with a subsidiary of Plains All American Pipeline LP ( PAA ) − Plains Midstream Canada ULC − related to its Canadian natural gas liquids (NGLs) as well as its liquefied petroleum gas (LPG) business. The transaction was valued at $1.67 billion. The concord, which mainly aims to streamline the U.K. major's portfolio, was announced last year in December.

The sale of the Canadian business comprises NGLs extracting unit, along with pipelines and storage facilities. As a whole, the Canadian operation, with a processing capacity of 8.3 billion cubic feet of gas a day, holds about 4,000 kilometers (2,480 miles) of pipeline systems. The business mainly involves the transportation, extraction and processing of NGLs across Canada as well as in the Great Lakes region of the U.S.

The latest pact is a part of BP's extensive asset divestiture program, which will help it overcome liquidity concerns for all spill-related liabilities. With the completion of the latest deal, BP's residual business in Canada will be under its Canadian affiliate − BP Canada Energy Group ULC. The business comprises integrated supply and trading business, oil sands, and existing Arctic significant discovery licenses. The company's Beaufort Sea exploration licenses will continue to be under BP Exploration Operating Company Limited.

Recently, BP inked an asset disposal agreement with Perenco UK Ltd to sell its share in its southern gas assets in the UK North Sea as a part of BP's $38 billion asset divestiture plan as well as to develop a more focused North Sea business. The $400 million all in-cash transaction is expected to be completed before the end of 2012 and is subject to customary closing conditions. Perenco has already paid $100 million, while the balance will be paid upon the completion of the contract.

We believe BP, U.K.'s second-largest oil company after Royal Dutch Shell Plc ( RDS.A ) is offloading its non-core properties while creating a portfolio with potentially higher margin base. Since the catastrophic Macondo accident, BP has tried to re-establish its position and aptitude to bring continued returns for shareholders.

The company has expended to a large extent this year in an attempt to rebuild its portfolio in the wake of the Gulf of Mexico (GoM) disaster. We believe this will eventually turn out to be beneficial for the British giant, whose focus on a string of upstream activities in high margin areas like the GoM, Angola, the North Sea, Brazil, Australia and India bodes well for its future growth.

We maintain our long-term Neutral recommendation for BP, which retains a Zacks #3 Rank (short-term Hold rating).

BP PLC ( BP ): Free Stock Analysis Report
PLAINS ALL AMER ( PAA ): Free Stock Analysis Report
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This article appears in: Investing , Business , Stocks
Referenced Symbols: BP , PAA

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