Course:ECON371/UBCO20010WT1/GROUP3/Article6

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Summary

An international commodity trader, Trafigura, is purchasing $296 million dollars worth of BP's downstream oil business in South Africa and Sub-Saharan Africa. The deal includes downstream business in 5 countries: Namimbia, Bostwana, Zambia, Malawi, and Tanzania. Trafigura's subsidiary, Puma, is being used to make this acquisition.

BP's energy division also has Assets in Ghana, Nigeria and Angola.

Public Image BP has been monitoring its public image quite closely since the spill. I do not believe the sale of these assets to Trifigura will have any negative implications for BP and should provide evidence of their effort to mitigate the damage to their balance sheet.

Prior to the spill BP like Chevron and Shell had been working to create a green image, as a result of the spill, BP's green image is badly tarnished. It might be reasonable to expect that BP will identify a number of initiatives aimed at rebuilding it's green image. However, they might also conclude that rebuilding their green image will be so challenging that it does not make a useful priority and, instead BP may focus in other more profitable areas, such as extraction.

Analysis

BP suffered a massive increase in liabilities and cash expenses as a result of cleaning and mitigating the damage of the oil spill that occurred in the Gulf of Mexico April 20, 2010. This $296 million dollar sale will be part of the commitment BP has pledged to sell $30 billion of non-core assets to ensure the viability of it's core business while it aims to meet these new financial obligations. BP appears to have made the decision to reduce future foreign direct investments in it's non-core overseas operations for the time being.

The assets being sold to Trifigura are non-core assets as BP's core assets are largely associated with primary extraction and refining, while these assets are associated with retail distribution. With several large integrated oil and gas companies divesting from their downstream operation, Puma should have significant opportunities for accelerated growth.

Prof's Comments

I can see the linkage to BP's need for cash, to deal with the costs following from the Gulf of Mexico spill. However, you have used very little from class or the text in your analysis.