Sunday, July 11, 2010

BP Starts Liquidation Early

If this morning’s media reports are accurate, BP is likely to sell its Prudhoe Bay assets to Apache (Reuters). This would be a good start on the liquidation process for BP. BP executives don’t have to commit to a full-scale liquidation — if they just sell off enough assets to stay above water financially, it amounts to the same thing in the end.

The Reuters story also repeats rumors that at least two major oil companies are looking at the possibility of buying BP (or its U.S. operations) more or less intact, given BP’s sinking stock price. That’s unlikely to happen, however. Any acquiring company at this point would also be acquiring BP‘s ill will and its boycott, and that would stick even if it ends up spinning off most of the BP assets. The story would be similar to the way that Verizon has never quite recovered from its acquisition of the post-bankruptcy remnants of MCI, but worse because of BP’s untold liabilities. A major U.S. oil company that purchased BP this year could very well be buying its way into bankruptcy.

But if they start buying BP’s refineries, or individual gasoline stations, that’s a different story. With that strategy, they do not have to position themselves as BP’s successor, and they can avoid most of BP’s problems. That’s the process that the Prudhoe Bay deal is pointing toward.