BP's failed deal worries investors

The collapse of BPs planned sale of a $7bn stake in an Argentinean unit has renewed investors concerns about the claimed turnaround of the group.The failed deal represents its Chief Executive, BP, Mr. Bob Dudleys second failed multi-billion dollar deal this year and Dudley hinted last month that the oil giant could lift its dividend next February, saying the group had reached a turning point after its Gulf of Mexico oil spill.But the failed deal now puts a question mark over those plans.As with all things to do with BP the issue is as much to do with risk and this deal failure does highlight execution issues again, analysts at UBS said in a research note.BP shares traded up by 0.5 per cent at 1524 GMT on Monday, lagging a 0.3 per cent drop in the STOXX Europe 600 Oil and Gas index. SXEP, after the planned sale of its 60 per cent stake in Pan American Energy was abandoned.The decision of buyer Bridas, half-owned by Chinas CNOOC, to terminate talks, will hit BPs cashflow and make a payout hike harder to deliver.As the second major deal to fall apart for BP this yearin May a planned $16bn share swap and multi-billion dollar Arctic exploration deal with Rosneft collapsedanalysts said the failure showed the risks around BPs strategy of rapid deal making.BP launched a $30bn disposal programme last year to help pay the $40bn bill for the spill. The London-based oil giant said this would force it to shrink but that an expansion of exploration and deal making would thereafter, allow it to grow more quickly.Rating agency Fitch said that the failure to seal the Pan American deal did not significantly damage BPs financial health because high oil prices have helped it produce strong cash flows.However, analysts said the fact BP has had to cut the increase in its divestiture target it announced with fanfare on October 25, as it unveiled sluggish results for the third quarter, would hit the oil majors credibility.It is not normal practice to issue a strategic target and then issue a lower one two weeks later, Peter Hutton, at RBC Capital Markets said.Analysts and bankers said the deal likely fell apart because BP was unwilling to renegotiate downward the terms after a recent Argentine legal change, which made the asset less attractive.The measure, aimed at tackling capital flight, will force foreign oil and mining companies to cash in all their export revenue on the local foreign-exchange market. BP said it did not consider a price reduction after this change.
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