What to Know About BP Asset Sales
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ever since the 2010 oil spill off the Louisiana coast, the leading oil and natural gas producer on the Gulf of Mexico, BP (NYSE: BP) has had to brace itself for tougher times. The oil spill has been termed as the largest ever in the history of the United States, added to the fact that it had disastrous consequences. Soon after this incident, BP began selling off assets to its competitors, a move that I’m sure has had many investors and shareholders confused. These sales, which may seem unprecedented to some, have actually been strategic moves whose effects are bound to be seen in the not so distant future. BP has, however, not only been looking to sell off its assets but has also been looking to make expansion plans which it believes will be instrumental in its growth. It has been reported that BP will present Tangguh expansion plans to the Indonesian government before the month’s end which are expected to cost about $12 billion. This is great news for shareholders since the expected capacity of the plant is expected to peak at about 3.8 million tons per annum. Operations for the new LNG train are expected to start by 2019 and the benefits will not be solely enjoyed by BP. This multi-billion conglomerate signed an agreement with the Indonesian government that will see it provide a long term supply of LNG to the state owned utility company PLN.
Targeted revenue from asset sales
The recent string of asset sales by BP has not all been for naught. Its aim has been to hit a target mark of about $7.9 billion from the sale of the oil fields on the Gulf of Mexico according to unrevealed sources. BP’s spokesman has been quick, however, to iterate that the sale of these non-strategic assets as he termed them, should not be interpreted as a wavering commitment to the Gulf of Mexico. In my view, I believe the answer to this mystery lies in the London based BP, which has stated that it hopes to sell about $38 billion worth of assets by next year to help clean up the oil spill. If this is the reason behind the asset sale then BP deserves nothing short of praise. The fact that it has taken the initiative to clean up its mess gives a clear view of just how responsible it is to the public.
Beneficiaries of these asset sales
Tesoro Corporation (NYSE: TSO) has agreed to acquire the Carson refinery along with associated businesses from BP, which I believe will prove quite instrumental in the long run. The deal is estimated to cost about $1.18 billion, which has been noted as a below average price for the facility. Tesoro will also pay an additional $1.3 billion for other inventories in the refinery according to a statement that was released earlier today. Tesoro, which is the largest independent refiner on the West Coast of the United States, has estimated that it will save about $250 million annually through combining its Wilmington and newly acquired Carson refinery operations. Through this acquisition, Tesoro will be able to reduce the gap in production capacity between itself and Chevron corporation (NYSE: CVX). Reports indicate that a fire in Chevron’s Richmond refinery last week might just have given Tesoro a grander stage to flourish since fuel prices in the region have gone up. As analysts predict, this could be a chance for Tesoro to double its earnings for the next year.
Exxon Mobil (NYSE: XOM), a longtime rival to BP, has on the other hand also found itself in trouble as a result of an oil spill on Nigeria’s shoreline. It was directed to clean up the spill as investigations continue which could be a major snag in their operations. It seems that Transocean (NYSE: RIG) is the only drilling company that is steering away from controversies as there has been more good news for shareholders with each passing day. With its contract extension in Nigeria and another from Total to operate in the U.K., things have been looking up for Transocean as it has increased its competitiveness with other firms.
In summary, from the table above it is evident that BP still maintains a lead in terms of sales, which ultimately translates to revenue. My recommendation is that buying this stock would be in an investor’s best interest and as fuel prices continue to skyrocket, this is your chance to have a piece of the action.
muhammadbazil owns shares of ExxonMobil. The Motley Fool owns shares of Transocean and ExxonMobil. Motley Fool newsletter services recommend Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.