British oil giant BP p.l.c. (BP) has been gradually making gains in both exploration and production and has quietly been working on offsetting the bad press it has received since the 2010 oil spill. While striving ahead with new plays, the company is selling off some of its assets to pay off litigation bills and claims and to stock up cash reserves.
The company recently agreed to sell some of its Gulf of Mexico oil fields for $5.6 billion to Plains Exploration and Production (PXP). Located in Houston, TX, Plains is a independent oil and gas company with properties and operations onshore and offshore California, the Gulf of Mexico, the Rocky Mountains, and the Gulf Coast region. Plains also recently announced that it will acquire from Royal Dutch Shell (RDS.A) its 50% working interest in the Holstein Field for $560 million. Bob Dudley, CEO of BP, says that the sale assists the company with its long-term growth strategy. "While these assets no longer fit our business strategy, the Gulf of Mexico remains a key part of BP's global exploration and production portfolio, and we intend to continue investing at least $4 billion there annually over the next decade.
This sale, as with previous divestments, is consistent with our strategy of playing to our strengths as a company and positioning us for long-term growth. In the Gulf of Mexico, that means focusing future investments on our strong set of producing assets and promising exploration prospects." As Dudley clearly points out, the company is developing a strategy of making funds available for future growth. This strategy has worked for BP in the past and will continue to work for the future which is why I believe every investor should own a piece of this company.
The recent sale is part of an effort for BP to raise $38 billion from asset sales by the end of 2013. The company wants to focus on producing more high-margin barrels from fewer, larger assets. The sale brings the value of BP's off-loading since the 2010 spill to more than $32 billion. BP will continue to operate four large production platforms in the region even after the completion of the Plains deal. These include Thunder Horse, Atlantis, Mad Dog and Na Kika. The company also holds interests in the three non-operated hubs of Mars, Ursa and Great White. It's been calculated that the company could face a fine of up to $20 billion under the clean water act for the Deepwater Horizon disaster.
Earlier this year, BP announced the $2.5 billion sale of a Californian refinery and 800 ARCO-branded petrol stations to Tesoro (TSO). With a market cap of $5.46 billion, the Tesoro Corporation and its subsidiaries refine and market petroleum products in the U.S. operating in both refining and retail. Tesoro Corporation has a P/E ratio of 8.3, below the S&P 500 P/E ratio of 17.7. With these and other sales, BP will be looking to use the cash for future investments and get back on track of continual progress. The company invested $52 billion in the U.S. between 2007 and 2011 and is looking to better that amount as well as investment time streak.
In its efforts to continue with further expansion plans, BP announced back in late June that will supply shipping fuel to customers in eight more Chinese ports under its joint-delivery contract signed last year with Sinopec (China Petroleum). This is the plan approved earlier this year that gives BP a 40.82% working interest during the exploration phase and 20% during development and production. Under the agreement, BP and Sinopec will distribute shipping fuel, to the ports of Ningbo, Zhoushan, Shanghai, Lianyungang in the east, Xiamen, Shenzhen, Yantian in the south and Tianjin in the north.
BP has received approval from the commerce ministry to explore and develop natural gas resources at deepwater block 43/11, together with China National Offshore Oil - CNOOC (CEO) and Anadarko Petroleum (APC). Anadarko has a 50% interest and China National, a 9.18% interest during the exploration phase and 24.5% interest and 55.5% interest, respectively, during development and production. Anadarko has been looking to conduct a work-over program in China to support its production rates. Gross production for the quarter averaged approximately 46,000 BOPD, which is about 6% lower than the 1st quarter of 2012.
Competitor Royal Dutch Shell is trying to build a multi-billion dollar refinery complex in China in partnership with local companies and also plans to invest considerably in China, expecting to spend approximately $1 billion per year on the exploration and development of shale gas resources in that country. BP's other upstream assets in China include the gas field Yacheng 13-1 in the South China Sea, and an interest BP purchased in September 2010, deepwater block 42/05.
Additionally, BP Egypt has made two shallow gas discoveries on the North El Burg concession offshore on Egypt's Nile Delta. The two wells were drilled by IEOC on behalf of concession operator BP. BP and IEOC share 50-50 interests in the North El Burg Offshore concession, which lies between the BP-operated Ras El Barr development concession and the IEOC-operated Offshore Baltim development concession. BP has a long and successful track record in Egypt. For almost 50 years, the company invested over $17 billion, making BP one of the largest foreign investors in the country.
The continued expansion of BP makes the company that much more attractive. During the second quarter of this year, BP acquired 43 leases in the Gulf of Mexico. All are currently awaiting regulatory approvals. The company resumed operations of its long-term exploration contracts onshore and offshore in Libya; seismic activities are underway in Angola and Namibia and several exploration wells are currently drilling. In addition, a major seismic survey in BP's Ceduna Basin acreage offshore southern Australia, was also completed. Also, the company stated that for second quarter results that its underlying replacement cost profit, which strips out the effect of changes in the value of inventories and one-off items, was $3.7 billion, compared with $5.7 billion a year ago. Earnings per share were $19.37 from $30.20 a year ago. But, as CEO Dudley stated, "I don't think the company's losing its way whatsoever. The company is heading in the right direction for the long term."
Even though the company increased its provision for costs arising from the Gulf of Mexico spill by $847 million, bringing the total set aside to $38 billion, and BP's total revenues for the quarter fell 8.7% to $94.9 billion, the company is still gaining traction for long-term gain and is a sure winner for current investors as well as new ones.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.