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A BP logo is seen on a petrol station in London in this November 2, 2010 file photo. BP's $7 billion deal to sell its stake in South America's Pan American Energy has collapsed because of legal issues, the would-be Chinese and Argentine buyers said on November 6, 2011.SUZANNE PLUNKETT/Reuters

BP's $7.1-billion (U.S.) deal to sell a majority stake in Argentina's second-largest oil producer to Bridas has collapsed in acrimony.

Bridas blamed the U.K. oil group for the failure of the sale of the stake in Pan American Energy in a statement issued in Buenos Aires.

"The decision was prompted by legal issues, by the manner in which BP has behaved during the transaction and the signature," it said without elaborating further.

Bridas, the Argentina-based oil and gas group, is jointly owned by Cnooc of China and Argentina's Bulgheroni family. No one was immediately available at Pan American for further comment.

But BP on Monday hit back at the Argentine group and said the failure of the agreement was caused by Bridas's failure to secure regulatory approval for the deal from authorities in Argentina and China.

"Under the terms of the agreement, Bridas Corporation had exclusive responsibility for obtaining these approvals," BP said in a statement issued on Monday.

It added that the transaction was always "subject to conditions precedent - namely, Argentine antitrust and Chinese governmental approvals".

Shares in BP have rallied in recent weeks amid signs of greater momentum at the group which has been trying to convince investors it is back on track after last year's Gulf of Mexico oil spill.

The deal's collapse will be seen as a blow to Bob Dudley, BP's chief executive. The sale was one of the largest single disposals that BP had agreed in its effort to raise significant amounts of money to help meet the costs of the spill. It has so far raised about $26-billion in sale agreements and increased its disposal target to a total of $45-billion last month.

Peter Hutton, analyst at RBC Capital Markets, said: "At $7-billion, [the disposal]represented a sizeable chunk of the original $30-billion target from divestments, and without it the increase to $45-billion will be more challenging."

Termination of the deal means BP will now have to repay Bridas' $3.53-billion deposit it received at the end of last year. The company said this payment, which was being held as short-term debt pending completion, would be repaid by November 14 and the repayment will not affect BP's gearing which totalled 19 per cent at the end of September.

Speculation has been rife for several weeks that the deal had hit an impasse. Bridas and BP were supposed to have wrapped up approval for the deal this month - November 1 was the deadline for either party to terminate the agreement. Cnooc said, when that deadline passed, that contacts were continuing.

BP said it was "happy to return to long-term ownership of these valuable assets, given the considerable improvement in its own financial strength and circumstances, as well as the improved external trading environment".

BP added that its divestment program was focused on "the sale of non-strategic assets and not driven by a requirement to raise cash".

"As such, BP does not currently plan to divest additional assets to offset proceeds which would have been received from the PAE transaction."

Bridas said it had notified BP of its decision not to proceed with the deal on Saturday, though it said there was nothing to stop negotiations resuming in future and "we have always been ready to find constructive solutions".

Bridas said the decision was influenced by neither the eurozone crisis nor new regulations introduced last month by Argentina, requiring energy companies to repatriate export earnings, and that planned investments remained on track.

BP shares, which have outperformed the FTSE 100 in the last year, dropped 1.7 per cent at 445p.