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BP, Shell Sell Assets at Record $49 Billion Pace as China Inflates Prices

The world’s largest oil companies sold assets at a record pace this year, finding buyers at higher prices as China and other emerging economies vie for reserves.

BP Plc, Royal Dutch Shell Plc and ConocoPhillips led 95 sales in 2010 valued at $49.5 billion, the most in at least 12 years, data compiled by Bloomberg show. The pace of disposals has picked up through the year -- deals in the fourth quarter topped $20 billion -- signaling momentum may carry into 2011.

BP has agreed to $21 billion of sales in less than six months to help cover the cost of the Macondo oil spill. Even without the troubled London-based explorer, deals would have topped 2007’s $16 billion tally. Explorers are using funds from asset sales to meet the rising costs of production projects including deepwater drilling and liquefied natural gas plants.

“There’s a bit of a sellers’ market, they’re getting premium prices,” said Lucy Haskins, an oil industry analyst at Barclays Capital in London. “It’s a wave of new buying interest from emerging markets.”

China’s state-controlled oil companies were the biggest buyers. Cnooc Ltd. and Bridas Corp.’s $7.06 billion purchase of BP’s 60 percent interest in Argentina’s Pan American Energy was the largest acquisition of an energy asset from a major. Last week, Occidental Petroleum Corp. agreed to sell its fields in Argentina to Sinopec Group for $2.45 billion.

Photographer: John Guillemin/Bloomberg

The world’s largest oil companies sold assets at a record pace this year, finding buyers at higher prices as China and other emerging economies vie for reserves. Close

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Photographer: John Guillemin/Bloomberg

The world’s largest oil companies sold assets at a record pace this year, finding buyers at higher prices as China and other emerging economies vie for reserves.

BP Disposals

BP’s disposals helped shore up confidence as spill costs rose and legal battles loomed, with shares up more than 50 percent since the end of June. The stock dropped the most since August today after the Obama administration filed a suit saying the company and four others violated environmental laws.

The sales also showed buyers paying a premium to secure supplies. The average price per barrel of BP reserves sold in Argentina, Venezuela, Vietnam, Colombia, Canada and Egypt is about $11 a barrel of oil equivalent, Evolution Securities said in a Dec. 6 note. That compares with a valuation of less than $8 a barrel based on BP’s market capitalization.

“BP has got quite good prices,” said Colin McLean, chief executive officer of SVM Asset Management Ltd. in Edinburgh, who oversees about $900 million, including Shell shares. “That has attracted some others to test the market. We’ll see more M&A activity.”

The cost of developing new fields is rising as companies depend on deepwater drilling, oil-sands mines and LNG projects to replace spent fields.

Chevron Corp., the second-largest U.S. oil company, said last week it will boost capital spending 20 percent to $26 billion next year, led by deepwater projects in the Gulf of Mexico and Nigeria and an LNG project in Australia.

Supply Economy

China is keen to buy fields to supply an economy where energy demand will jump 75 percent by 2035, accounting for more than a third of the increase in the world’s need for fuel, according to the International Energy Agency. That’s drawn Asia’s other oil importers into the fray.

Rising oil prices are adding pressure to secure supplies. Crude futures in New York trading rose above $90 last week, the highest this year.

Oil & Natural Gas Corp., India’s biggest energy explorer, this month submitted a binding bid for Exxon Mobil Corp.’s stake in Angola’s Block 31. The government has ordered it to make at least one big acquisition before March 31.

PTT Exploration & Production Pcl, Thailand’s biggest explorer, last month agreed to buy a 40 percent stake in Statoil ASA’s oil sands project in Canada for $2.28 billion in the biggest acquisition by a Thai company.

BP’s Dudley

BP may be the largest seller of fields for a second year in 2011. Chief Executive Officer Robert Dudley promised to sell as much as $30 billion in assets after the Gulf of Mexico oil spill forced the company to set aside $40 billion to cover cleanup and litigation costs.

Dudley said last month he’ll continue to “identify further assets that may be strategically more valuable to others than to BP.” The next disposals may include fields in Alaska and in the North Sea, regions where BP pioneered exploration in the 1960s. The company is also selling a gas-processing business in Canada that may fetch $2 billion, people with knowledge of the company’s plans said.

Shell CEO Peter Voser has already met a target of selling as much as $8 billion in assets this year and next. Last week, The Hague-based company agreed to the $1.8 billion sale of gas fields in Texas to Occidental Petroleum Corp.

Shell ‘Overachieving’

“They’re overachieving” by selling more than promised and moving ahead of schedule, said Gudmund Halle Isfeldt, an analyst at DnB NOR ASA in Oslo, who covers BP, Shell and other European oil companies. “The best option would be to use the proceeds and redeploy at least 80 percent in upstream.”

Shell is spending on high-technology projects. Together with PetroChina Co. it bought Arrow Energy Ltd. this year to develop an LNG project in Queensland using gas from coal seams. Shell expects its $19 billion Pearl gas-to-liquids plant in Qatar to be fully operational in early 2012.

ConocoPhillips is also investing in LNG in Australia, while BP earlier this year bought licenses for deepwater exploration off the coast of Brazil from Devon Energy Corp.

“The mantra is that these guys are carrying a bit of weight,” said Jason Kenney, an analyst at ING Wholesale Banking. “They can slim down, and there’s a market for it at the minute because others need access to resources. Some of the mature assets aren’t worth the majors’ time when they really need to focus on exploration.”

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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