BP hands back $3.5bn as PAE deal collapses

published 7 November 2011

BP will be handing back a $3.53bn deposit following the collapse of a deal to sell its 60% interest in Pan American Energy.

Pan American is a South American oil and gas company which BP had wanted to offload in late 2010 to strengthen its balance sheet in the wake of the Gulf of Mexico disaster.

It agreed a fee with Bridas Corporation, which already owned the other 40% of Pan American but is, itself, 50% owned by the Chinese National Offshore Oil Corporation.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

The deal hinged on Bridas securing regulatory approval from both the Argentinian and Chinese governments but this crucial hurdle has not been overcome.

There appears to be some rancour between the parties over the exact reasons for the collapse but for BP shareholders the implications are that they may not see such a big increase in dividend now the firm will be short of the $7.06bn in cash expected from the Pan American transaction.

Nevertheless BP says the return of the initial deposit will not affect its level of gearing and, perhaps more importantly, it is "happy to return to long term ownership" of what it describes as a "valuable asset".

The basic point is that BP says it does not need the money anymore now that oil and gas prices are rising and in the wake of agreements to sell $19bn worth of assets since June 2010 (with a further $26bn in disposals planned).