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Speculation has been running rampant for the last several days that BP (LSE:BP.) was about to divest yet another enterprise in the Gulf of Mexico. The official announcement came just minutes before noon today London time. BP shares had risen from 434.00 at the opening bell to 441.00 at noon.
BP Strategy Stays on Course
BP’s management strategy following the disastrous Deep Water Horizon explosion and spill in the Gulf of Mexico has been both wise and deliberate. Whilst the hole caused by the explosion spewed millions of gallons of oil into the gulf, BP’s response and change in strategy may end up making the oil giant an even more successful company. Investors have already demonstrated their confidence in the plan to the extent that BP’s market capitalization has from £76.8 billion at 31 December 2011 to £83.3 billion as its share price has regained just over 40% of the loss suffered after the spill.
After a “hole in one,” the company has chosen to play the rest of the course by carrying fewer clubs in its bag, but it’s not just dumping them along the way. Realizing that “one person’s trash may be another person’s treasure,” BP is off-loading non-strategic assets. The clubs that BP no longer considers important for its game are happily being snapped up for handsome prices by others who see them as an opportunity to improve their game.
Today’s Sale
BP has entered into an agreement to sell $5.55 billion worth of its interests in several oil and gas fields to Plains Exploration and Production Company. The sale includes its interests in the Marlin, Dorado, King, Horn Mountain, and Holstein fields, plus its stake in two non-operated assets, Ram Powell and Diana Hoover. The agreement includes a projected consummation of the deal before the end of the current calendar year. The properties being sold produce 59,500 boepd. For BP, it’s like selling a 2-iron. For Plains, a company with a market cap of $5.2 billion, it’s more like getting a new driver.
More Course Yet to Play
BP has a long way to go to complete the course with its new strategy. Chief Executive Bob Dudley said that “This deal further demonstrates the value we have been able to unlock through the targeted divestment of high-quality assets that set outside the heart of our strategy. This sale, as with previous divestments, is consistent with our strategy of playing to our strengths . . . and positioning us for long-term growth. It also reflects a greater focus in the Gulf of Mexico on producing more high-margin barrels from fewer, larger assets.”
The company’s operations over the past two years reaffirm that it has a long-term strategy and that it is sticking to it. It has already sold over $32 billion in less-strategic assets toward its goal of divesting a total of $38 billion by the end of 2013.
Dark Cloud on the Horizon
Storm clouds are beginning to crop up on the Horizon as the US Department of Justice said last week that it intends to prove that BP acted with gross negligence in a precursor to the Deepwater Horizon accident. It will be seeking penalties far in excess of what BP has reserved against the repercussions from the spill. BP is going to have to stay on the course and weather the storm.
A Silver Lining
The strategists at BP are doing a great job of looking at the overall picture, restructuring the company to ensure profitability and stability whilst positioning itself to meet unforeseen traps along the way. It has all of the clubs in its bag that anyone could ask for. Its focus is clear. At the end of the course, the plan BP is following could put it in the record books as one of the biggest comebacks of all time.
