JULY 20, 2010, 5:42 P.M. ET.

Apache to Buy BP Assets for $7 Billion


BP PLC said Tuesday it had agreed to sell assets in the U.S., Canada and Egypt to Apache Corp. for $7 billion.

The deal will help BP finance the mounting costs of cleaning up the Gulf of Mexico oil spill, and allows Houston-based Apache to expand its presence in regions where it already has operations.

The transaction follows BP's move last month to set up a $20 billion compensation fund for spill liabilities. The fund will be financed by BP cutting three-quarters of its dividend and selling $10 billion of noncore assets. Earlier Tuesday, BP said it planned to sell its gas fields and a pipeline system in Vietnam, as well as assets and exploration licenses in Pakistan.

BP "believes that there are opportunities to divest assets which are strategically more valuable to other parties than they are to BP," Chairman Carl-Henric Svanberg said in a prepared statement on the Apache deal. "Today's announcement is the first such transaction and meets the value and strategic criteria of both parties."

Media reports in recent weeks have flagged that BP was in talks with Apache over an asset deal, though these were focused on the British oil giant's considerable Alaska holdings, which weren't included in Tuesday's deal.

BP will sell Apache its Permian Basin assets in Texas and southeastern New Mexico, its western Canada natural-gas exploration and production assets and the Western Desert business concessions and East Badr El-din exploration concession in Egypt.

"This transaction provides a sustainable growth platform for Apache's onshore North America operations as well as strategic infrastructure and exploration potential in Egypt," G. Steven Farris, Apache's chief executive said in a statement.

The assets are a good fit for Apache because the company already has core business operations in these areas, said Fadel Gheit, analyst at Oppenheimer & Co. in New York. "On the other hand, BP doesn't have a big presence in any of these areas so they are smart to monetize marginal assets."

Apache has specialized in acquiring and rehabilitating declining oil and gas fields that no longer fit in the portfolios of its peers. Earlier this year Apache bought the shallow-water Gulf of Mexico assets from Devon Energy Corp. for $1.05 billion.

Oil Companies Reeling From Uncertainty. Access thousands of business sources not available on the free web. Learn More .BP appears to have put the worst of the Gulf spill behind it after stopping the flow of oil last week. But the company still faces massive challenges to clean up spoiled waters and coastline and pay for liabilities related to the spill triggered by the April 20 explosion on the Deepwater Horizon drilling rig.

BP on Monday said the cost of the response to date was about $3.95 billion, including the cost of the spill response, containment, relief well drilling, grants to the Gulf states, claims paid and federal costs.

BP on Tuesday said well-integrity tests were continuing, and no oil was flowing into the Gulf. Coast Guard Adm. Thad Allen said at a Tuesday afternoon briefing that five leaks in and around the broken well were more like 'drips' and didn't mean the well was unstable, according to the Associated Press. He is extended testing of the experimental cap by another day, which means the oil will remain shut in.

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