The BP-Apache Deal: The Beginning of BP's Demise?

BP is selling $7 billion in assets to Apache Corp.
BP is selling $7 billion in assets to Apache Corp.

The recent agreement by energy company BP (BP) to sell $7 billion in assets in North America and Egypt to Texas-based Apache (APA) is raising speculation about BP's future. The sale is part of BP's planned $10 billion divestiture to raise cash for the cleanup of the Deepwater Horizon oil spill in the Gulf of Mexico that began April 20.

"This is a rare opportunity to acquire legacy positions from a major oil company, with oil and gas production, acreage, infrastructure, seismic data, field studies, exploration prospects and other essential aspects of our business," Apache Chairman and CEO G. Steven Farris said on the company's website. "We seldom have an opportunity like this in one of our core areas, let alone three. This is a step change that will add muscle, enabling Apache to add value for decades to come through our demonstrated exploitation capabilities and exploration drilling."

Taking Advantage of BP's Vulnerable Position?

It's also left some analysts wondering if this deal signals the beginning of BP's eventual dismantling -- with Apache taking advantage of the oil giant's vulnerable position. But Professor J. Robert Brown believes the Apache sale comes at a good time for both companies. Brown teaches at University of Denver's Sturm College of Law. His legal blog,, often deals with his specialty, corporate governance. He says there's no way BP can avoid coming out of its Deepwater Horizon disaster a smaller company, but he maintains that the deal with Apache doesn't necessarily signal weakness.

Nor, he says, should BP engage in a fire sale. "BP ... is not in such a desperate strait that they can't [sell assets] in a coherent, thoughtful way," he says. "Notice that they are selling domestic reserves. I think there's a reason why they think they can get a good price for that. That suggests that, right now, they're not in a big hurry and they're going to raise the cash in the most efficient way. The sale to Apache, to me, looks like it's good news for [BP] shareholders."

The deal includes the sale of oil and gas facilities and land in parts of West Texas, New Mexico and Egypt, and Apache will also gain control of much of BP's gas business in western Canada. Professor Brown says Apache has a lot to gain out of the deal. He points to growing pressure to extend the federal moratorium on deep water oil drilling.

"Let's assume that, because of this, offshore drilling grinds to a halt or slows down significantly or whatever," he says."If that interferes with supplies, that means other supplies are going to be more valuable. It might mean that oil prices will go up."

By All Means, Keep Those Alternative Energy Assets

Brown says his best guess is that "Apache likes buying assets that have no political risk attached to them -- and offshore drilling right now does. Apache, I'm sure, can make a profit off of this."

BP has also made it clear it doesn't plan to sell off its alternative energy assets, a move Professor Brown says is smart business.

"Right now alternative energy is still a new-enough science that it might not be able to command a high price," he says. "But more importantly, I think the last thing that an oil company wants to do right now ... is to suggest that they don't care about the environment. And one way to suggest that you don't care about environment is to offload your alternative energy assets. So I think those are assets that are politically sensitive to sell, right now."