Houston's Apache Corp. is in talks to buy $10-12 billion of BP plc's properties, including some of its Alaskan assets, two people familiar with the discussions told NGI.

In addition, ExxonMobil Corp. separately is rumored to be interested in a takeover bid for BP, according to the UK's Sunday Times. Apache, ExxonMobil and BP did not comment.

A possible transaction involving some of BP's Alaska properties is in the works and could be completed before the end of the month, two sources told NGI Sunday. BP is scheduled to issue its 2Q2010 earnings report on July 27, and various media reports have said the company wants to report positive news to shareholders after taking devastating hits to its reputation and its stock price that have followed the April 20 rig explosion in the Gulf of Mexico (GOM).

BP, which has operated in North America for 50 years, now is part owner (26%) of the biggest oilfield in the United States at Prudhoe Bay, AK. ExxonMobil and ConocoPhillips also hold stakes in the venture. BP operates 15 North Slope oilfields (including Prudhoe Bay, Endicott, Northstar and Milne Point), and four North Slope pipelines, according to the company. It also owns a stake in six other producing fields and in the Trans Alaska Pipeline System (TAPS), which carries oil supplies to the Lower 48.

In Alaska's Beaufort Sea BP has slowed plans to develop the Liberty reservoir, where it plans to drill some of the world's longest wells -- two miles deep and up to eight miles from the drilling base at Endicott, AK. Whether potential sales may involve BP's natural gas businesses is unknown. BP last week lost its title as the largest gas producer in the United States to ExxonMobil, which completed its takeover of XTO Energy Inc.

Apache has a history of doing big transactions -- including its biggest ever with BP. In January 2003 Apache paid BP $1.3 billion to acquire a package of properties, including 61 producing fields in the GOM (see Daily GPI, Jan. 14, 2003). Last month Apache completed a $1.05 billion acquisition of Devon Energy Corp.'s properties in the GOM's shallow waters (see Daily GPI, June 11). Apache also is working to complete a $2.7 billion takeover of Mariner Energy Inc. (see Daily GPI, April 16). Once the Devon and Mariner transactions are completed, Apache has estimated that its production could climb by 5-10%.

ExxonMobil's possible bid to take over BP also continues to fuel some rumors. UK's Financial Times (FT) noted that some analysts are betting on an ExxonMobil bid -- or by some cash-heavy producer. "BP's headed for a date with destiny" on July 27, and, "The risks involved in such a huge deal, while BP faces as-yet unknown liabilities, would make a bid an uncharacteristic gamble for Exxon, but if BP continues to flounder, it could appear an attractive option."

Even though the companies have refused to comment, "it is no doubt a major step for BP following the its suspension of its dividend and trimming of capital spending," wrote Zacks Equity Research.

"When a bunch of newspapers all start talking about something, it is more than just smoke and mirrors," wrote the exploration and production (E&P) research team at Tudor, Pickering, Holt & Co. (TPH). "BP could use some cash and they are persona non grata in the U.S. for the foreseeable future after the Macondo debacle, so why shouldn't they sell Alaska and bring in some coin to enhance their liquidity/flexibility? Sort of like the job that you quit before you are fired...feels better if you have some control in the process."

Apache historically has bought mature properties from the oil majors and "enhanced them with more operational focus and more cost control," noted TPH. Apache has resisted "shalemania," except in the Horn River play of British Columbia, and it's "waited in the weeds for the past several years for acquisition opportunities. All these factoids combine to say this type deal has to be at least lukewarm."

However, it's unlikely that BP would sell its entire Alaska portfolio for $10 billion -- that would imply half of the recent book value, noted TPH. BP's recent filings, said analysts, indicated that the E&P business in Alaska generated $3 billion in earnings last year; its estimated book value of the Alaska E&P assets was $31 billion, including $12 billion of fixed assets.

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