By Laura Hurst
The renegotiation of the deal will come as a relief to the London-based oil major, which is leaning on asset sales to rein in its debt and sustain its dividend amid a historic oil crash that has battered company valuations globally.
Under the revised agreement, the total consideration for the sale remains unchanged at $5.6 billion, but the structure and phasing of payments has been modified, BP said Monday.
BP shares were trading up 1.3% at 312.6 pence as of 9:28 am in London, reaching as much as 319 pence after the announcement.
The terms of the revised deal are light on detail and are likely to be scrutinized on Tuesday, when the major announces its first-quarter results under its new chief executive, Bernard Looney. The new deal includes lower completion payments in 2020 and new cash-flow sharing arrangements over the near-term, BP said in a statement. The companies continue to expect completion in mid-2020.
The proceeds from the deal will be key in supporting BP’s dividend, said Bloomberg Intelligence analyst Will Hares. “Still, the new phased payment structure, likely through the second half of this year at least, means the deal won’t represent the deleveraging windfall for BP’s indebted balance sheet as it had originally.”
In February, BP said it had announced $9.4 billion of divestments since the start of 2019. The Hilcorp sale represented the lion’s share of that figure, meaning a change to the price would affect BP’s divestment target of $15 billion by mid-2021. The disposal of unwanted assets is key in reducing BP’s debt burden. The company’s gearing – a measure of debt to equity – remained stubbornly above its self-imposed target of 30% at the end of last year.
Earlier this month, consultant Wood Mackenzie Ltd. said that about $25 billion worth of oil and gas deals were awaiting completion. With the industry going through unprecedented turmoil, executing these deals will be of paramount importance for companies trying to strengthen their balance sheets.
As BP announces its earnings, industry watchers will be looking out for insights into what the major expects the rest of the year has in store. With Big Oil feeling the heat from low oil prices and demand savaged by the coronavirus pandemic, shareholder payouts have come under increasing scrutiny. BP increased its dividend in the fourth quarter to 10.5 cents a share.