What Potential TNK Sell-Off Means For BP Investors

Jun.11.12 | About: BP p.l.c. (BP)

BP is considering selling its stake in the Russian company TNK-BP.

BP claims it recently received "unsolicited indications of interest regarding the potential acquisition of its shareholding in TNK-BP." In order to maximize shareholder value and stay within the bounds of the shareholder agreement, the company made the announcement that it plans to look into the potential sale.

It is not yet clear where this unsolicited offer comes from, but it is likely that it comes from BP's billionaire Russian partners. These partners have expressed interest in acquiring the oil-and-gas company's 50% holding in TNK-BP, and they are being represented by Alfa Access Renova. About a month ago, Alfa Access Renova made a bid, and that offer still stands. We are all waiting to see what BP's response will be, but at this point, there is no indication or guarantee that the sale will take place.

This is certainly something that investors in the stock should keep an eye on, especially considering how BP is prepared to sell its share in the company. This follows the surprising resignation of TNK-BP's CEO. To me, it seems unlikely that BP will go forward without keeping all investors and the general public carefully informed of its intentions and decisions. Another announcement regarding the sale will be made when it is appropriate to do so.

It seems to me that BP would prefer not to sell its share to its Russian partners. By putting the company on the market and not simply taking the offer made by the partners, BP has indicated that either the offer is too low, or there is some other undefined reason why BP wants to keep the shares away from the billionaires.

There are advantages and disadvantages for BP, should it sell its stake in TNK-BP. It should be able to get around $30 billion for the sale, and this could go a long way in helping the company clean up the mess caused by the Gulf of Mexico oil spill a few years ago. In addition, it will cut the company loose from its Russian partners. The partnership, although highly profitable, has been "plagued by acrimonious legal battles." These are issues that BP does not need in addition to the oil spill problems it is still facing. A decision to sell will cut the company's output by nearly a third, however, which could have very serious long-term effects on the stock.

In addition, it will place oil production in the area in the hands of the Russian partners. On the other hand, BP will be free to explore higher-growth ventures elsewhere. Overall, I do think that the pros outweigh the cons in this case, and BP just needs to find a good buyer. At this point, I believe that a sale is the most sensible thing that the oil and gas company can do.

Now let's take a look at possible buyers. Exxon Mobil (NYSE:XOM) seems to have the right idea and is looking to take advantage of low natural gas prices. The company recently announced its intention to begin constructing a major chemical plant in Texas. Competitors like Dow Chemical (NYSE:DOW), Royal Dutch Shell (NYSE:RDS.A) and LyondellBasell (NYSE:LYB) have had the same idea, however, so Exxon Mobil will need to work quickly to stay ahead. The plant may begin production as early as 2016, and this would make Exxon Mobil a serious competitor for Dow, the largest chemical producer. I believe this expansion will have a positive effect on the stock, both in the short term and in the longer term.

Chevron (NYSE:CVX) is still fighting a lawsuit that began 18 years ago against the Ecuadorean government. When Chevron lost the lawsuit in Ecuador, it was told to pay a substantial fine of $18 billion. Chevron refused, stating that the charges were fraudulent and that the legal system in Ecuador was corrupt. Ecuadoreans could not even seize assets in Ecuador, as the company did not have any assets there. A representative group from Ecuador recently moved the case to Canadian court. If the Canadian court sides with them, Chevron's assets will be seized, and the company will lose a lot. For the time being, this stock is on shaky ground. As a result, I believe it will be dropping, at least for the moment.

One BP competitor that seems to be having great luck is Anadarko (NYSE:APC). According to one report, a well that the company drilled on in Arapahoe County has yielded "the equivalent of 200 barrels of oil a day in [its] first month of production." This is good news for the oil-and-gas stock, as it needs to boost its reserves. At this point, however, more tests are required before it can be finally decided how much oil and gas there is in the area. This is something that investors should watch closely, as a positive outcome will have a positive effect on the stock.

Occidental (NYSE:OXY) has been involved in a lawsuit relating to the supposed damage that it is responsible for in the Peruvian rain forest. However, the case has recently been dismissed. The judge stated that Peru would have been a better location for the trial. Despite the positive outcome for the company, this will continue to have a negative impact on its reputation for some time to come. In addition, the chances are high that Occidental has not heard the last of this situation and will soon be made to answer for its crimes. This stock will suffer at the moment as a result of the company's reputation, but potential court cases in the future may hurt the stock even more.

Considering the most current news stories, I think the situation is fairly neutral for BP. I believe its potential sale will eventually lead to benefits for the company, but some may be concerned by the company possibly giving up its stake in TNK-BP. This will not have a strong effect on the stock, therefore, and the stock will remain stable. In comparison to some of its struggling competitors, however, this seems like a decent oil and gas stock for the time being.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.