BP Discusses Selling Assets to Apache to Pay for Spill

BP Plc is in talks to sell assets to Apache Corp. as it seeks funds to pay for the biggest U.S. oil spill in history, two people familiar with the discussions said.

Apache, the largest independent U.S. oil company by market value, is negotiating for assets that include a share in BP’s Alaska business, for a price of less than $12 billion, according to one of the people, who asked not to be identified because the discussions aren’t public.

“Apache is a very smart acquirer and that’s been part of their growth over many, many years,” Philip Dodge, an analyst at Tuohy Brothers in New York, said yesterday. Apache, based in Houston, has bought BP assets before and is “a company that is very strong financially and liquid.”

BP scrapped its dividend and said last month it will sell some of its assets to raise $10 billion for cleanup costs, fines and legal damages from the Gulf spill. The company has spent more than $3 billion on the spill and agreed to establish a $20 billion fund for damage claims.

Robert Dye, a spokesman for Apache, and Max McGahan, a BP spokesman, declined to comment. The talks between BP and Apache were first reported yesterday by the London-based Sunday Times newspaper, which said the assets may be worth $12 billion.

The Sunday Times also said that Exxon Mobil Corp., based in Irving, Texas, has been told by the U.S. government it can look at a potential bid for BP. London-based BP’s shares rose as much as 9.7 percent and traded at 396.6 pence as of 3:15 p.m.

The company today said that the cost of response to the spill to dates is about $3.5 billion.

Rising Costs

Investors have sold BP’s stock on concerns the company may struggle to cover the rising costs and fend off political ramifications prompted by the April 20 drilling rig explosion. The stock slumped 44 percent as of July 9.

The cost of insuring BP’s debt fell for a ninth day, with credit-default swaps on the company declining 35.5 basis points to 335.5 today, the lowest since June 8, according to CMA DataVision. Those for Exxon and Apache both rose.

Apache paid $1.3 billion in 2003 for BP assets in the Gulf of Mexico and North Sea. The company last month completed the $1.05 billion purchase of Gulf assets from Devon Energy Corp.

BP owns a 26 percent share in Prudhoe Bay and neighboring fields in Alaska with Exxon Mobil Corp., ConocoPhillips and Chevron Corp. The Prudhoe Bay field, the largest field in the U.S., came online in 1977 and can produce about 400,000 barrels of oil a day.

Declining Output

The field is averaging 234,772 barrels a day this month, according to Alaska state tax records. Its production is declining 10 percent a year, according to BP’s website. Because the field is more than 30 years old and output has been declining, Dodge said he would be surprised if Apache buys it.

“When Apache acquires, they always acquire something that has some growth possibilities to it,” he said.

Prudhoe Bay and other Alaskan fields were BP’s largest source of crude in the Western Hemisphere in 2009 after the Gulf of Mexico, according to a public filing. Alaskan fields provided one in every 14 barrels of oil BP pumped worldwide last year. BP operates or owns stakes in 20 other fields on Alaska’s North Slope, as well as four pipelines.

BP also is considering selling oil and natural gas fields in Colombia, Venezuela and Vietnam, a person with knowledge of the matter said earlier this month. The company may dispose of its 60 percent holding in Pan American Energy LLC, Argentina’s second-largest oil producer, the person said, declining to be identified because the information is confidential.

Tighter Cap

BP is working to install a new, tighter-fitting cap over its leaking well in the Gulf of Mexico that it intends to capture all the escaping crude. The old cap was removed to make way for the new, allowing more oil to escape until the new cap is secured sometime this week, Senior Vice President Kent Wells said yesterday.

Doug Suttles, the company’s chief operating officer for exploration and production, said today that BP may stop the flow of crude from the well if it passes a 48-hour pressure test.

The well began leaking after the explosion aboard the Deepwater Horizon drilling rig, which resulted in the deaths of 11 workers.

BP’s $1 billion of 4.75 percent notes due in 2019, which plunged almost 25 cents to as low as 80.5 cents on the dollar in the two months following the Gulf of Mexico explosion, rose 0.5 cent to 90.75 cents to yield 6.143 percent on July 9, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

To contact the reporters on this story: Stanley Reed in London at sreed13@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Katarzyna Klimasinska in Houston at kklimasinska@bloomberg.net

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