BP is gearing up to unveil a $40bn (£26.5bn) defence strategy in the teeth of growing speculation that US predators have been given the green light by Washington to swoop on the British company.
BP will outline what will effectively be a defence document at its second quarter results on 27 July. Although no approach has been made, ExxonMobil of the US is understood to have sought clearance from the White House for a bid that could create a $400bn global juggernaut. A possible bid from Chevron is also believed to have been approved.
BP’s fightback hinges on hopes the company will be able plug the continued oil spill in the Gulf of Mexico and stop the precipitous fall in its share price. In its Q2 statement, BP will demonstrate its strong liquidity by giving a much clearer picture of its operational and financial position.
The company is expected to say it could double the $10bn figure of targeted asset disposals – with the possibility of sales bringing in closer to $20bn.
These include the $12bn of assets in Alaska’s Prudhoe Bay – expected to go to US rival Apache Corporation; BP’s 60pc stake in Argentinian Pan American Energy – thought to be worth $9bn; assets in Vietnam, as well as BP’s businesses in Colombia and Venezuela.
Through its advisers Goldman Sachs, BP has studied the bond market with a view of raising $5bn bond. However, this option has been viewed as expensive with the coupon expected to be in the region of 6pc-8pc.
Instead, BP plans to announce a bigger debt financing package than previously committed to. In June, BP’s finance director Byron Grote said the company had room for more debt in its capital structure than the current $35bn.
At the time, Mr Grote said BP would utilise $15bn through the long-term capital market. That figure is likely to swell to $20bn. This will include not only untapped bank facilities but also cash delivered through financing against receivables and pre-paid oil sales.
The company will also show a very strong operating quarter and strong free cash flow, heightened by the fact that $2.5bn of quarterly dividend payments has been cancelled. Last year, BP generated $30bn of cash flow.
According to analysts its assets are worth more than $250bn but the company ended last week at 364¾p, valuing it at £69bn. Last week shares rose 20pc from its 302p low, half the pre-crisis price. Hopes are that if its second cap proves successful the shares could see another bounce, rising above 400p. However, until the larger cap is in place oil will again rush freely into the Gulf.
“Hopefully, we have turned a corner and are moving from a position that so far has been very defensive, to one where the company is dealing with the effects of a finite event,” said a source. “If the well is capped, there will be much more clarity.”
The plan for 27 July rests on BP being able to give this clearer view of its liabilities. At that point the company will be able to focus on the results of its internal review into the causes of the leak – expected in August, and the permanent fix to the well, which will happen in the same month. BP will be focused after that point on the future strategic direction of its business shorn of its non-core assets.