A year ago, as part of a review into the trend towards deintegration among oil majors, we mooted the possibility of a strategic break up of BP. A wholesale divestment of the group's assets was unlikely at the time, as it was still committed to pursuing upstream expansion. But in the wake of its botched Arctic tie-up with Russian energy giant Rosneft, and recent aggressive submissions from the US Department of Justice, an orderly break up of the group's assets does not seem quite so implausible now.
Grist for the mill has been provided by analysts at Investec Securities, who suggests the only way that BP shareholders will be able to unlock the underlying value of the shares is for the group to keep hiving-off assets, even after the proposed sale of its TNK-BP stake is completed. Investec gives a sum-of-the-parts valuation of 732p a share which, if correct, means that BP currently trades at a 40 per cent discount to its break-up value. Factoring in oil price variations, this is broadly in line with estimates published last year by JPMorgan Cazenove.
A sale at the upper end of estimates for TNK-BP would leave the group virtually debt-free. But BP will struggle to replace lost production, particularly as it has just sold mature interests in the Gulf of Mexico to Plains Exploration for $5.55bn (£3.51bn). The price was substantially in excess of analysts' estimates, underlining the point about the break-up value of the group, and should put BP well on the way to meeting its divestment target to cover the expected Gulf of Mexico costs. Or does it?
Doubts have now been raised that BP will be able to reach an equitable out-of-court settlement following aggressive new submissions from the US Department of Justice (USDJ), which have raised the spectre of a charge of "gross negligence", which, if proved in court, could potentially result in an additional $21bn in charges being levied on BP, according to estimates.
