Hong Kong/London: BP's (BP.L) plan to sell a stake in its South American unit for USD 7 billion (4 billion pounds) has collapsed, potentially trimming the oil major's cash flow and making it harder to raise its payout to shareholders.
China's biggest offshore oil producer CNOOC Ltd (0883.HK) said on Sunday its 50 percent-owned unit Bridas Energy Holdings has terminated a deal to buy BP's stake in Argentina-based oil and gas group Pan American Energy LLC BPPAE.UL (PAE).
BP hinted at its third-quarter results last month that it would announce an increase in its dividend in early 2012.
However, the failure of the sale of its 60 percent interest in PAE could mean cashflow is lower than might have been expected, making it harder to raise the dividend.
At the results, BP said the deal, initially signed last November, was not as important to the firm's cashflow today as it was a year ago.
"We reached that agreement last year at a time when oil prices were lower. It was a time when we actually needed to make some divestments of properties. We're past that point. We don't actually need to make that divestment....if it doesn't happen, it's absolutely fine," Chief Executive Bob Dudley told analysts at the time.
BP said in a statement on Sunday it will repay a deposit of USD 3.5 billion received for the PAE stake at the end of 2010, which would not impact its level of gearing.
BP's planned sale of the stake was intended to help raise funds to pay for the cleanup of its Gulf of Mexico oil spill in 2010.
BP had been waiting on regulatory approval for the deal to proceed.
"The transaction was subject to conditions precedent - namely, Argentine anti-trust and Chinese governmental approvals," said a spokesman at BP.
"Securing these approvals was the sole responsibility of Bridas. Bridas had not yet been able to satisfy these conditions precedent but the approval processes were ongoing and, for reasons known only to them, Bridas has now chosen to terminate the transaction," he added.
BP previously said delays in regulatory approval were understandable given the ongoing election campaign in Argentina.
In a filing with the Hong Kong stock exchange, CNOOC said Bridas Energy sent BP a letter on November 5 to terminate the deal.
It gave no further details.
Late last month, CNOOC said Bridas Corp had not obtained the necessary regulatory approvals to complete the $7 billion bid. It had said Nov 1. was the deadline after which either party would have the right to terminate the agreement.
Bridas already owns a 40 percent stake in the group, which BP has described as Argentina's second-largest producer of oil and gas.
CNOOC may have developed cold feet over the agreement because of the arbitrary and heavy handed nature of Argentina's government that has seen Western oil and gas companies exit the country, according to a report from Jefferies Group at the end of October.
BP said it will now consider all its strategic options regarding PAE.