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BP sells $7 billion in oil and gas assets to Apache Corp.

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By Steven Mufson
Wednesday, July 21, 2010

BP has sold oil and gas properties in the United States, Egypt and Canada to Houston-based Apache Corp. for $7 billion as part of the oil giant's effort to raise cash to cover oil spill expenses and bolster its financial position, the two companies announced Tuesday.

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The sale takes BP most of the way toward its goal of raising $10 billion over the next year by selling exploration and production assets. Those asset sales would cover half of the $20 billion BP has pledged to put in an escrow fund to cover claims resulting from the spill.

The deal includes oil and gas reserves in Texas and southeastern New Mexico, natural gas reserves in western Canada, and the Western Desert business concessions and East Badr El-din exploration concession in Egypt.

"It is a win-win situation. BP is a motivated seller, and Apache is an opportunist. Both are happy with the deal," said Fadel Gheit, an oil analyst at Oppenheimer & Co. Gheit said the transaction involved "marginal assets for BP but core business areas for Apache."

He said Apache paid "reasonable prices" of $18 per barrel of proven reserves of oil or the natural gas equivalent.

"I think Apache got a fair deal," said Pavel Molchanov, an oil analyst at Raymond James. "But it is not a fire-sale price. Far from it."

BP shares had fallen 1.5 percent to close at $35.20 before the announcement but recovered most of that ground in after-hours trading.

This is the fourth deal between the two companies in the past six years, Gheit said.

Apache said it would acquire the equivalent of 385 million barrels of oil reserves, which Molchanov said was about 2 percent of BP's proven reserves. The properties currently produce 28,000 barrels of oil and 331 million cubic feet of gas a day.

The purchase price includes $3.1 billion for 10 areas in West Texas's Permian Basin, an oil and gas region where Apache already has substantial production. G. Steven Farris, Apache's chief executive, said in a statement that they were "under-exploited assets." The package also includes $3.25 billion for gas and unconventional gas properties in western Canada. The rest covers concessions for exploration and some infrastructure in Egypt.

BP Chairman Carl-Henric Svanberg said in a statement that "over the last two months the Board has considered BP's options for generating the cash necessary to meet the obligations likely to arise from the Gulf of Mexico oil spill." He said that the company sought "to divest assets which are strategically more valuable to other parties than they are to BP."

Apache's Farris said that "this is a rare opportunity to acquire legacy positions from a major oil company." He added: "We seldom have an opportunity like this in one of our core areas, let alone three."

The deal did not include a share of BP's Alaska holdings, which sources close to the company said might be sold. A failure to reach agreement on Alaska might explain why the package fell short of the $10 billion to $12 billion figure that had been widely reported.

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