The failed deal may have been caused by Argentine anti-trust issues and Chinese regulatory approvals.
In October, BP’s CEO Bob Dudley said it could increase its dividend in February to recover from the Gulf of Mexico oil spill. However, his planned sale of $7 billion stake in an Argentinean unit failed as supposed buyer Bridas (co-owned by China’s CNOOC) terminated the talks. This is Dudley’s second failed multi-billion dollar deal and investors now question if he can indeed make a turnaround for the group.
On Monday, BP shares traded higher at 0.5% covering the 0.3% dip in the STOXX Europe 600 Oil and Gas index. The failed BP deals will affect its cash flow making pay increase harder to do and analysts said it has casted doubt on BP’s deal making strategies. In 2010, BP launched a $30 billion program to aid the spill payment of $40 billion. It may have caused a shrink but the company said an exploration expansion along with the deal makings would permit quick growth.
Fitch said the failed Pan American deal caused no major blow to BP’s financial situation after high oil prices aided in stronger cash flows. Analysts said though that BP has to reduce its announced divestitures due to its weak 3rd quarter results. Foreign oil and mining companies are being forced by a recent Argentinean measure to cash in all export revenues on the local foreign-exchange market. BP would not renegotiate for lower terms which made the assets unattractive and could have caused the deal’s failure but no reasons were specified.
The failed deal could have been due to a condition in the Argentine anti-trust and Chinese regulatory approvals. Non-receipt of the approvals after the November 1st deadline permitted withdrawal for both parties. But analysts said the Chinese regulatory approval was not supposed to be a problem since CNOOC is state-controlled and consented to purchase energy assets overseas. According to BP, Bridas which owns 40% of Pan-American, was responsible for securing approval. Incidentally, a China Sinopec deal closed during the first quarter will procure Occidental’s Argentina assets for $2.5 billion.
Now, Dudley is pressured after BP shares have not risen in the past year. He said this was a result of investors’ unwillingness to improve safety at facilities. The failed deal meanwhile also puts China’s energy buying reliability at risk. The past 6 months China has had two failed multi-billion dollar deals after Petrochina and Canada’s Encana terminated their $5.6 billion deal talks in June. China used to be better reputed as buyer over India and Korea. India’s reputation was questioned after it failed to complete its takeover of UK’s Imperial energy in 2008. Korea National Oil Corp was also perceived to be an indecisive buyer.
Should oil field owners doubt Chinese companies that back out after deal terms were already agreed upon, it may be difficult for them to secure supports for China’s booming economy. This was opposed by Standard Bank’s Simon Ashby-Rudd who said China, as a fast consumer of oil and gas would remain a strong negotiator.
