With BP planning $10bn of “non core” asset sales many of its rivals are likely to be licking their lips.
The question is, what counts as “non core”?
For BP, as for many of the majors, a logical first step would be to put its low growth European and US downstream operations on the block.
The problem is that there are very few buyers, meaning the company would struggle to derive value from a sale, let alone be able to find a willing buyer.
In the UK alone, almost half of the country’s refining capacity is currently up for grabs, but auction processes such as the sale of Shell’s Stanlow refinery show no sign of nearing completion.
In the US, so the argument goes, the BP brand is sufficiently toxic to ward off any suitors for its petrol stations. Its North American network of pipelines could prove attractive, but would add relatively little to the $10bn total.
Which leaves upstream operations as the most likely focus of any sales.
BP’s North Sea assets, which currently produce about 300,000 barrels a day from about 30 fields, could be deemed superfluous to the company’s long term prospects, (ignoring recent management mutterings to the contrary).
Again, there are few easy exit routes. Selling the lot would require a large, and committed buyer, of which there are few – especially in the UK North Sea.
In spite of the emergence of a new generation of asset hungry, scavenger-like independents such as Enquest, millions of dollars of unloved fields either remain on the shelf, or have been pulled from the market by spurned sellers.
Theoretically, an exit from the North Sea could come in the form of BP spinning off the business via an initial public offering. But the logistical complexity of siloing off personnel and resources, and the market and execution risk of the listing process make the option appear highly unlikely.
The cash flow from BP’s North Sea production would also seem a illogical step for a company in need of cash.
Away from the North Sea, BP has an array of juicy positions many of its rivals would dribble over.
The most liquid of these would be its US shale gas assets, which contribute to the company’s position as the second biggest US gas producer.
As the recent flurry of deals in the sector illustrate, energy companies are clambering over themselves to establish a position in US alternative gas. France’s Total, which in January bought 25 per cent of Chesapeake’s Barnett Shale assets for $2.25bn, would be a logical bidder.
But any sale would effectively relegate BP to the second tier, and enrage already traumatised shareholders. The same would go for BP’s Angolan assets.
Other strategic positions – Azerbaijan, TNK-BP, and Algeria – are so politically complex any exit would most likely take years, not months.
All of which could mean the most likely disposals will be in capital intensive but profit-light areas such as renewables – which Tony Hayward said in 2008 was “worth between $5 billion and $7 billion”.
In the coming months BP is likely to have many suitors knocking at its door. Who it lets in could have a long-lasting impact on the sector.