Stephen Pope Comments: House Committee Could Compel BP To Unload Gulf Assets To Rivals

July 15, 2010, Forbes.com

The prospect that BP could face a ban on getting any new offshore licenses to produce oil and gas in the U.S. for a number of years could force BP to jettison its Gulf of Mexico assets to get better value for its shareholders.

The House Natural Resources Committee Thursday approved an amendment to bar new offshore oil and gas drilling permits to BP or any other company with a significant history of violating worker safety or environmental law. Of course, the legislation still has a long way to go, requiring approval from the full House, Senate and President Obama before it is enacted. And it is unclear if the House committee's move is simply posturing ahead of the Congressional mid-term elections or will actually result in real legislation.

If a law does get passed, though, one U.K. analyst says BP may find better value for its Gulf of Mexico assets by finding a buyer for them. "If the company can't fix its reputational damage itself, it could look to the M&A market to get better value for these assets," says Alastair Syme, an oil analyst at Nomura in London. Syme says BP's Gulf of Mexico's assets are worth about $31 billion and he expects that that is about what they would be valued at in the hands of a Chevron or Shell.

"The market value is different from the BP value," says Syme.

Besides the Gulf of Mexico, BP has about $12 billion of assets in Alaska, $11 billion of onshore U.S. gas acreage, and $26 billion in refining and marketing in the U.S. before any apportioned debt or liabilities, says Syme. Its total asset portfolio globally before debt is about $200 billion.

Renewals of permits would obviously not be an issue in refining and marketing though it could be problematic in the Gulf of Mexico. If BP was forced to get rid of the Gulf assets it would change the growth prospects of the company going forward. Six months ago, if you had asked an oil analyst what were the growth engines of BP, they would have told you it was the company's Gulf assets, Angola properties and U.S. onshore gas assets.

"If you are forced to exit one of those growth engines, it looks a lot shakier than it did," says Syme, who still has a "buy" on the stock. One consolation: BP may have to contend with the loss of a key business but Syme believes it won't have to dump it at firesale prices. "The assets that are damaged the most we think are well bid," says Syme, so "at least you wouldn't have the loss of a business and be forced to sell it at 50 cents" on the dollar.

That's not enough to comfort Cantor Fitzgerald global equity strategist Stephen Pope who is staying clear of the stock for now. His reason? "There are a lot of indeterminates about BP right now."