BP’s plan to sell a stake in its South American division for $7 billion (4 billion pounds) has collapsed, Economic Times reported. This issue has potentially trimmed the oil major’s cash flow and making it harder to raise payout to shareholders.

China’s biggest offshore oil producer CNOOC  Ltd said , its 50% owned unit Bridas Energy Holdings has concluded an agreement to buy BP’s stake in Argentina-based oil and gas group Pan American Energy LLC, the reports said.

BP had hinted at its third-quarter results last month that it would announce an increase in its dividend in early 2012. But, the failure of the sale of its 60% interest in PAE will mean cashflow is lower than might have been expected, making it harder to raise the dividend.

BP said the deal, initially signed last November, was not as important to the firm’s cash flow 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 said.

BP said will repay a deposit of $3.5 billion received for the PAE stake at the end of 2010, which would not impact its level of gearing.

The planned sale of BP was aimed to help in raising 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.

BP Plc is a global oil and gas company headquartered in London. It is the third-largest energy company and fourth-largest company in the world.