* China's CNOOC and Bridas say deal cancelled
* Pact for stake in Argentina's PAE brokered in Nov 2010
* CNOOC said had right to break pact after Nov 1. deadline
* BP says Bridas had to win regulatory approvals
* BP had said it was "fine" if deal didn't go through
HONG KONG/BUENOS AIRES Nov 6 BP's $7 billion deal to sell its stake in South America's Pan American Energy has collapsed because of legal issues, the would-be Chinese and Argentine buyers said on Sunday.
China's biggest offshore oil producer CNOOC Ltd and Argentina's Bridas, which is half-owned by CNOOC, had agreed a year ago to buy BP's 60 percent stake in oil and gas group Pan American Energy LLC(PAE).
But the deal ended up being cancelled after a Nov. 1 deadline to complete the transaction was missed.
Bridas cited "legal issues and the way BP handled the transaction" for the deal's cancellation.
BP said the deal hinged on Bridas obtaining Argentine anti-trust and Chinese regulatory approvals and that those permissions had not been won.
"Securing these approvals was the sole responsibility of Bridas," BP said. "For reasons known only to them, Bridas has now chosen to terminate the transaction," BP added.
Bridas emphasized that the Chinese and Argentine governments had voiced support for the deal and said the cancellation "was not influenced by the European financial crisis, nor by any measure taken by Argentina."
Argentine President Cristina Fernandez, known for interventionist economic policies, has introduced rules requiring oil firms to repatriate all export receipts.
BP said it "will now be considering all its strategic options regarding PAE," while Bridas said it would be willing to continue negotiations despite the deal's cancellation.
Bridas already owns 40 percent of PAE, which BP has described as Argentina's second-largest producer of oil and gas.
BP hinted at its third-quarter results last month that it would announce an increase in its dividend in early 2012, but the deal's failure could mean cashflow is lower than might have been expected, making it harder to raise the dividend.
Still, BP had said the deal was not as important to the firm's cashflow today as it was a year ago, when the company was raising funds to pay for the cleanup of its Gulf of Mexico oil spill in 2010.
"We reached that agreement last year at a time when oil prices were lower. It was a time when we actually needed to make some divestments of properties. We're past that point. We don't actually need to make that divestment ... if it doesn't happen, it's absolutely fine," Chief Executive Bob Dudley told analysts at the time.
BP said in a statement on Sunday it will repay a deposit of $3.5 billion received for the PAE stake at the end of 2010, which would not impact its level of gearing.
Late last month, CNOOC said Bridas Corp had not obtained the necessary regulatory approvals to complete the $7 billion bid. It had said Nov 1. was the deadline after which either party would have the right to terminate the agreement.