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News // Oil and gas worldwide

BP asset sale hit by Algerian government

07 December 2010 , 08:30Interactive Investor2026

So far, it has refused to accept a request from the British oil major to release data on the In Salah and In Amenas gas fields to TNK-BP, according to reports.

Earlier this year, BP agreed to sell its stake in the two fields, which each have production of up to nine billion cubic metres, for $3 billion, but the government's decision to withhold the data has led to speculation that it is interested in snapping up the assets for itself.

It wouldn't be the first time the Algerian government has intervened - in 2000, it blocked BP's proposed sale of a 40% share in the Rhourde El-Baguel field to energy giant Elf, opting to exercise its pre-emptive right of purchase.

But this latest sale is especially poignant, given that it forms part of BP's multi-billion asset disposal programme announced in July, following the catastrophic Gulf of Mexico oil spill.

The Macondo incident pushed BP into the aggressive programme aimed at raising funds to cover its potential liabilities, as clean-up costs soared and legal challenges mounted.

Just last month, BP increased its financial provisions for the oil spill by $7.7 billion, taking the total to $40 billion in the first nine months of the year.

So far, the sale of reserves in Canada, US, Colombia, Egypt, Venezuela, Vietnam and Argentina have raised $18.5 billion - edging it closer towards its $25 to $30 billion target by the end of 2011.

However, while BP has made firm progress with its scheme, analysts at Evolution Securities said it would appear the market is "still reluctant to recognise the value implications for the rest of BP's business".

They argued that on a value per barrel basis, the average come in just short of $11 per barrel, prompting it to say that the deals had been done at considerably better prices than the market was anticipating.

"Our conclusion is that even if the downstream business was ascribed zero value the implication would be that BP's current market capitalisation is understated by at least $13.5 billion," they said.

As a result, Evo Securities reiterated its 'buy' recommendation and target price of 510p per share.

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