British energy behemoth BP Plc (BP) plans to offload its operations in Wyoming to LINN Energy, LLC (LINE) in a $1 billion all-cash deal to help pay for the catastrophic 2010 Gulf of Mexico (GoM) oil spill.
Under the agreement, the assets to be sold comprise more than 12,500 acres in the Jonah field, which is located in the Green River Basin of southwest Wyoming. The properties include approximately 750 producing wells and hold 73% gas, 23% natural gas liquids and 4% oil. It has 730 billion cubic feet equivalent of proven natural gas reserves and the potential reserves of the assets could grow to 1.2 trillion of cubic feet equivalent.
The deal is part of the British giant’s divestiture plan, announced following the Deepwater Horizon disaster in the GoM two years back. The company has a fund-raising objective of about $38 billion by the end of next year and with this latest divestment, it has already accumulated around $24 billion since the start of 2010. However, BP’s upstream operations in Moxa and Wamsutter, Wyoming remain unaffected by this pact.
The transaction is expected to close on or before July 31, 2012 and is the second deal signed between the parties this year. In February, BP sold assets in the Hugoton basin of Kansas to Linn Energy for about $1.2 billion. The sale comprised BP’s working interest in about 2,400 wells in the Hugoton natural gas field, accompanied by a 450 million standard cubic feet per day (MMscf/d) gas processing plant – Hugoton Jayhawk.
Notably, the company contends that the latest divestment does not mark its exit from the U.S. onshore market. On the contrary, onshore upstream operations in the U.S. continue to be a fundamental part of BP’s business strategy and it is seeking long-term opportunities for growth. In this regard, BP’s entry into a new liquids-rich basin through an agreement to lease around 84,000 acres of the Utica shale basin in Ohio is worth mentioning.
BP aims to reinvest the proceeds of the latest deal in its North America gas business and elsewhere. Its North America Gas business, comprising seven of the leading gas basins in the lower 48 states, produced more than 1,800 MMscf/d last year. The company has already spent $52 billion in the U.S. over the past five years.
We believe the company is offloading its non-core upstream properties while creating a portfolio, with potentially stronger growth from a smaller base. Additionally, BP’s focus on a string of upstream activities in high margin areas like the GoM, Angola, the North Sea, Brazil, Australia and India bode well for its future growth.
We maintain our long-term Neutral recommendation for BP, which holds a Zacks #3 Rank (short-term Hold rating).
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