* Collapse to hit cashflow but Fitch sees no rating impact
* Second Chinese withdrawal from big deal this year
* BP shares lag rivals
By Tom Bergin
LONDON, Nov 7 The collapse of BP's
planned sale of a $7 billion stake in an Argentinean unit is
Chief Executive Bob Dudley's second failed multi-billion dollar
deal this year and has renewed investor concerns about his
claimed turnaround of the group.
Dudley hinted last month that the oil giant could lift its
dividend next February, saying the group had reached a "turning
point" after its Gulf of Mexico oil spill. But the failed deal
now puts a question mark over those plans.
"As with all things to do with BP the issue is as much to do
with risk and this deal failure does highlight execution issues
again," analysts at UBS said in a research note.
BP shares traded up 0.5 percent at 1524 GMT on Monday,
lagging a 0.3 percent drop in the STOXX Europe 600 Oil and Gas
index , after the planned sale of its 60 percent stake in
Pan American Energy was abandoned.
The decision of buyer Bridas, half-owned by
China's CNOOC, to terminate talks, will hit BP's cashflow and
make a payout hike harder to deliver.
As the second major deal to fall apart for BP this year --
in May a planned $16 billion share swap and multi-billion dollar
Arctic exploration deal with Rosneft collapsed -- analysts said
the failure showed the risks around BP's strategy of rapid
BP launched a $30 billion disposal programme last year to
help pay the $40 billion bill for the spill. The London-based
oil giant said this would force it to shrink but that an
expansion of exploration and dealmaking would thereafter allow
it to grow more quickly.
Rating agency Fitch said that the failure to seal the Pan
American deal did not significantly damage BP's financial health
because high oil prices have helped it produce strong cash
However, analysts said the fact BP has had to cut the
increase in its divestiture target it announced with fanfare on
Oct. 25, as it unveiled sluggish results for the third quarter,
would hit the oil major's credibility.
"It is not normal practise to issue a strategic target and
then issue a lower one two weeks later," Peter Hutton, at RBC
Capital Markets said.
Bridas sent a letter to BP last week terminating the talks,
both sides said.
Analysts and bankers said the deal likely fell apart because
BP was unwilling to renegotiate downward the terms after a
recent Argentine legal change, which made the asset less
The measure, aimed at tackling capital flight, will force
foreign oil and mining companies to cash in all their export
revenue on the local foreign-exchange market. BP said it did not
consider a price reduction after this change.
The parties involved did not specify reasons and blamed each
other for the collapse.
A BP spokesman told Reuters that Bridas had chosen to
terminate the transaction "for reasons known only to them".
Dudley said two weeks ago he expected the sale to close in 2012.
Bridas cited "legal issues and the way BP handled the
transaction" without specifying either.
A CNOOC official said the collapse was not, as some reports
suggested, the result of Argentine government opposition but the
result of a disagreement over commercial terms.
"The negotiation regards many commercial terms. We have
disagreement," the official said.
The ending of the deal was possible because it was
conditional on Argentine anti-trust and Chinese regulatory
approvals. When these were not received by a Nov. 1 deadline,
either side were entitled to withdraw.
Since CNOOC is state-controlled and has a mandate to buy
energy assets overseas, analysts said the Chinese regulatory
approval should not have been a problem.
Bankers say that Beijing selects which state-controlled oil
company bids for overseas assets, to avoid them competing
against each other, and this is also seen as reducing the risk
of securing regulatory approval.
A source at the Argentine antitrust commission told Reuters
in September that it had not placed any impediment to the
planned deal, which announced in November 2010.
BP said responsibility for securing regulatory approval lay
with Bridas, which already owns 40 percent of Pan American.
By contrast, a deal in which China's Sinopec agreed to buy
Occidental's Argentina assets for $2.5 billion was announced
last December and closed in the first quarter of the year.
CHINESE REPUTATION HIT
Dudley has admitted to being under pressure from investors
to turn the company around, after lacklustre performance since
the blown-out Macondo well was sealed last September.
The company's shares have not risen in the past year.
Dudley has said the weak operational results are the result
of a programme of investment to improve safety at facilities but
some investors have questioned his judgement.
China's reputation as a reliable energy asset buyer may also
be at risk. This was the second failed multi-billion dollar deal
involving a Chinese state-controlled oil company in the past 6
In June, PetroChina and Canada's Encana called off an
announced $5.6 billion deal whereby the Chinese group would buy
a half share of some of Encana's shale gas assets.
Chinese oil companies have long enjoyed a stronger
reputation as buyers than their Indian and Korean rivals.
ONGC's failed legal attempt to escape being held to a
completion date on its takeover of UK-based Imperial energy in
2008, just as oil prices collapsed, has weighed heavily on
India's reputation in the asset market.
Korea National Oil Corp has also had to battle perceptions
of being an indecisive buyer, although its successful closing of
a hostile takeover of Britain's Dana Petroleum has helped.
If owners of oil fields felt Chinese companies had a
tendency to rethink deals after terms were agreed, it could make
it harder for the companies to fulfill their mandates of
securing new fields to power China's booming economy.
However, Simon Ashby-Rudd, Global Head of Oil & Gas at
Standard Bank, said China's status as the fastest growing
consumer of oil and gas ensured it would retain a prime place at
the negotiating table.