BP's PAE Sale Flop Doesn't Change its Outlook

We don't think BP's failure to sell PAE materially changes the company's ability to right its own ship

Stephen Simko, CFA 8 November, 2011 | 1:18PM
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BP's (BP.) previously announced $7 billion sale of its stake in Pan American Energy (PAE) to Bridas and CNOOC CEO has officially fallen through, with both sides blaming the other for the failure to execute the deal.

Because of the failure of the deal, BP will have to repay the $3.53 billion cash deposit it received from Bridas. These funds were classified as short-term debt on BP's balance sheet, and therefore will not be a blow to cash balances in the fourth quarter. Macondo related liabilities in the form of lawsuit payments and fines mean BP will indeed need to divest further assets during the next couple of years. But again, BP is generating a lot of free cash flow, and it has plenty of other options in terms of what it can divest. We therefore don't think selling PAE is a must, nor do we think this materially changes the company's outlook or ability to right its own ship.

The above is an excerpt from the Morningstar Equity Research Report on BP. Premium subscribers can continue reading here. Find out more about Premium here.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BP PLC466.25 GBX-0.01Rating

About Author

Stephen Simko, CFA  is a senior stock analyst at Morningstar.

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