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Bridas scraps $7.1B purchase from BP

by Laura Board in London | Published November 7, 2011 at 8:16 AM

China-backed Bridas Corp. Saturday, Nov. 5, scrapped a year-old deal to buy out BP plc's 60% stake in their Pan American Energy LLC joint venture for $7.1 billion.

The transaction had been delayed by Argentine antitrust and Chinese regulatory authorities, and Bridas, co-owned by Argentina's Bulgheroni family and China's Cnooc Ltd., exercised its right to terminate the deal after a Nov. 1 deadline had expired.

The Argentine company attributed its decision to legal issues and "the manner in which BP has behaved during the transaction," while BP noted that under the November deal Bridas had been responsible for securing regulatory clearances and had failed in that remit.

The acrimonious collapse of the agreement had been in the cards for several weeks amid reports of legal wrangling. It came just days after Argentina's newly re-elected President Cristina Fernandez de Kirchner dramatically changed the corporate landscape by requiring oil, gas and mining companies to repatriate 100% of their export proceeds and convert them to Argentine pesos. That prompted Moody's Investors Service Inc. and Fitch Ratings Ltd. last week to downgrade the credit grades of Pan American and others. Bridas denied those political headwinds had influenced its decision.

Cnooc said Bridas' decision won't have a "material adverse effect" on its business or financial position, though analysts said the Chinese company may have to strike additional deals to meet a self-imposed 7% to 11% production growth target for 2012

BP put a brave face on Bridas' move, noting that Pan American is a "strong business" and that BP had since June 2010 agreed to sell assets worth $19 billion excluding Pan American. It said it expects to remain a long-term owner of the Argentine company.

"The business is thriving," spokesman David Nicholas said Monday. "The asset is probably more valuable than the price we agreed a year ago. The external [energy] price environment has improved and our need to sell the asset is very different."

Last month BP said it planned to extend its divestment program to $45 billion by the end of 2013 but stressed Sunday that the enlarged restructuring isn't "driven by a requirement to raise cash."

"As such, BP does not currently plan to divest additional assets to offset proceeds which would have been received from the PAE transaction," it said.

BP noted that it had $18 billion of cash as of Sept. 30.

It said it will repay Bridas a $3.53 billion deposit Bridas paid in December 2010 by Nov. 14 and noted that the repayment won't affect its debt-to-equity ratio. As announced last month, BP will also make a separate $700 million payment to Bridas. Nicholas said BP didn't understand Bridas' suggestion that the U.K. company had somehow misbehaved during the discussions.

BP shares by late morning Monday had fallen 4.5 pence to 448.50 pence, giving the company a market value of £84.8 billion ($136.2 billion).

Pan American is engaged in oil and gas exploration, development and production and has interests in the Southern Cone region of South America. The company's main interests are in Argentina, where it ranks as the No. 2 oil and gas producer. The BP stake in Pan American yielded group profit of $581.5 million in 2009.

The November 2010 disposal was one of BP's largest asset sales as it sought to raise funds to pay for the $20 billion in cleanup and compensation costs arising from the disastrous explosion and oil spill at its Macondo well in the Gulf of Mexico. While BP is ahead of schedule in its Macondo-related fundraising efforts, the deal's collapse means it will miss an internal target to have garnered $30 billion of proceeds by year-end. It is also marks a further misstep in BP's checkered recent dealmaking history under CEO Robert Dudley.

In May BP's attempt to forge a Russian joint venture with OAO Rosneft, including a $16 billion stock swap, collapsed after its partners in TNK-BP, its existing joint venture, blocked the deal. Rosneft went on to forge a $3.2 billion alliance with Exxon Mobil Corp. in August.

Over the weekend, it emerged that Calgary, Alberta-based Norex Petroleum Ltd. had claimed in court documents that a BP executive had described its oligarch co-investors in TNK-BP as "crooks and thugs."

Norex has implicated BP in a $1 billion claim against the tycoons over a Siberian oilfield which is now part of TNK-BP. In papers filed with the New York Supreme Court it accused BP of having made a "Faustian bargain" with its TNK-BP co-shareholders when it forged the joint venture in 2003.

BP spokesman Toby Odone called the suit "ancient history which has nothing to do with the company we are involved with now" and said the allegation about BP's unflattering characteriziation of its joint venture partners was "based on hear-say."

He noted that Norex's case has previously been dismissed. BP filed to dismiss the current suit in September.

"The claim is without merit," he said.

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