BP Cash Flow Dwindles, Sells Pan American Stake
Early this week BP announced the sales of its Pan American Venture to Chinese crude producer Cnooc and Argentine billionaire Bulgheroni for $7.06 billion. The valuation of Pan American in which BP had 40% stake is pretty attractive considering that it is a mature oil field with proven reserves of 1.54 billion barrels and a production capacity of 240,000 barrels per day in Argentina. The $20 billion Louisiana oil spill escrow account payout however may not be the only reason for BP’s rapid fire disinvestment.
As per the agreement BP had with the Obama Administration in June this year BP was supposed to use its non- core US assets as security to meet its $20 billion obligation under the escrow payment. At that time BP was highly liquid with $6.8 billion in cash and liquid assets as surplus ready for payment of dividend and bonus which it held back after the crucial meeting with President Obama. According to an Associated Press report the compensation to be supervised by the Pay Czar Kenneth Feinberg of the 9/11 disaster, was scheduled to disburse $3 billion in the summer, $2 billion during this fall and $1.25 billion per quarter thereafter. This was however only a part of BP's woes.
Soon after the oil spill, BP started losing its clout in the energy trading commodity market. BP’s aggressive trading arm that brought in billions annually — as much as a fifth of the company’s total profits, had been the envy of market makers for years. The company’s balance sheet layered in cross trading profits and multi layered transactions showed that it was extremely difficult to decipher BP’s real output and segregate the lines of production and trading. In June this year BP reportedly lost over $500 million in contango trade when price inversions hit oil storage margins and the incentive to hoard oil in tankers at sea disappeared as oil futures refused to climb and stabilized due to heavy stockpiling.Continued on the next page