BP’s $7.1 Billion Sale of Argentine Oil Stake Is Scrapped by Cnooc Venture

By Nathan Crooks and Rodrigo Orihuela - Nov 6, 2011 7:52 PM GMT+0700

BP Plc (BP/)’s $7.1 billion deal to sell a stake in Argentine crude producer Pan American Energy LLC to China’s Cnooc Ltd. (883) collapsed, 10 days after Argentina’s leader ordered oil companies to repatriate future export revenue.

Bridas Corp., a company owned by Cnooc and Argentina’s billionaire Bulgheroni family, said yesterday it canceled the deal because of legal reasons and BP’s behavior during the talks. The British company struck the agreement to sell its 60 percent stake in Pan American to Bridas a year ago as it sought to conserve capital after the oil spill at a Gulf of Mexico well left it with a bill of more than $40 billion.

“This isn’t of huge concern,” said Jason Kenney, London- based head of European oil and gas equity research at Banco Santander SA. “They still have plenty to sell. They can keep Pan American and do very well out of it.”

BP has “received a letter from Bridas Corp. exercising their right to terminate the share purchase agreement under which it had agreed to purchase BP’s 60% interest in Pan American Energy LLC.,” London-based BP spokesman Mark Salt said in an e-mailed statement today. “BP will now be considering all its strategic options regarding PAE.”

In her first move after winning re-election, President Cristina Fernandez de Kirchner on Oct. 26 ordered gas, oil and mining companies to repatriate all future export revenue as part of an effort to strengthen central bank controls on dollar purchases.

Continue Negotiations

“Both the Chinese and Argentine governments have always been positive about this transaction,” Bridas said in a statement e-mailed late yesterday. “Neither the European financial crisis nor any measure that has been taken in Argentina have influenced this decision.”

Bridas is willing to continue negotiations, the company said. BP said on Oct. 25 that each party would have the right to terminate the accord without notice after Nov. 1 unless both agreed to extend the deadline. The U.K.-based company also said it expected the deal to be completed in 2012.

“We don’t know how BP is going to react, you’ll have to ask them” said Bridas. “From Bridas’ point of view, there is no reason not to continue with investment programs in Argentina.”

BP Chief Executive Officer Bob Dudley said last week the stake is “not an asset we’re desperate to sell.”

‘No Adverse Effect’

Cnooc said in a statement today that the decision by Bridas to terminate the proposed acquisition “will not have any material adverse effect on the existing business or financial position of the group.”

The decision isn’t related to Bridas’s acquisition of Esso service stations in Argentina from Exxon Mobil Corp. (XOM), the Argentine company said.

“This won’t necessarily be seen as a positive for BP shares,” said Kenney. “Even so, there’s no real reason to see it as a problem.”

Moody’s Investors Service on Oct. 31 cut its ratings on Argentine oil companies including Pan American and placed them on review, citing the “high level of unpredictability of the Argentine government and heightened risk of increased capital controls and regulatory changes in the country.”

Fitch Ratings on Oct. 28 downgraded Pan American and Argentine oil producer YPF SA, Argentina’s largest energy company, because of the South American country’s move to repatriate export revenue.

To contact the reporters on this story: Nathan Crooks in Caracas at ncrooks@bloomberg.net; Rodrigo Orihuela in Buenos Aires at rorihuela@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net