The Great Debate UK
from Breakingviews:
BP assets worth risk of indigestion for Apache
It's potentially hazardous to swallow a meal a third your size. But it could make sense for Apache to grab $10 billion of BP's Alaskan assets. The U.S. firm's flair for squeezing oil from older wells makes it an ideal buyer -- and BP is a keener seller than it was.
With a market capitalization just shy of $30 billion and only $2 billion in cash on hand, Apache might not find it easy to digest a big deal. Nor is it coming to the table with an empty stomach. Just days before BP's Gulf of Mexico rig explosion in April, Apache snapped up Mariner Energy for $2.7 billion and bought $1 billion of assets from Devon Energy.
As yet there's no certainty about any deal. But if Apache spent $10 billion and funded the purchase entirely with debt, it would raise the company's ratio of debt to total capital sharply -- towards 50 percent from around 25 percent currently.
Even so, it would not break the bank, especially if combined with issuing new equity. Apache's focus on late-stage assets gives it strong cashflow to help pay down debt quickly -- some $7 billion this year and $8 billion next, by Tudor Pickering Holt estimates.
