BP shares on fire following Exxon report
• Reports about such a bid have been around for years
BP’s shares surged the most for 2017 after a London newspaper reported on rumours that Exxon Mobil had sounded out major shareholders over a potential takeover.
While a bid for BP cannot be ruled out, reports about Exxon’s interest have been around for years and analysts, from Macquarie Capital to Canaccord Genuity, said a deal was unlikely.
“The report about Exxon and BP seems to be just a rumour because there doesn’t appear to be an obvious strategic fit,” said Anish Kapadia, a senior research analyst at Tudor, Pickering, Holt & Company International.
“It would create a company potentially too big and complex to be manageable.”
Exxon and BP spokesmen declined to comment.
Oil’s current downturn has resulted in just one big deal — Royal Dutch Shell’s $54bn acquisition of BG Group in 2016. Others have preferred to make smaller acquisitions as they preserve cash and protect their balance sheets.
While oil prices have increased from the 12-year lows of 2016, companies are still unsure if the recovery is sustainable.
Still, Irving, Texas-based Exxon has one of the strongest balance sheets in the industry and has not done a deal on such a large scale since the wave of oil-major consolidation in the late 1990s.
BP DECLINE
In contrast, BP has shrunk significantly since 2010 oil spill in the US Gulf of Mexico forced the company to set aside more than $54bn for compensation and penalties.
As recently as 2010, BP had the same market capitalisation as Shell and produced more oil and gas. Today, BP’s value of $112bn is about half that of Shell. It is even further behind Exxon, the world’s most valuable oil company at $337bn.
As well as the daunting scale of a deal, there is potentially a poison pill. Any buyer might be forced to accelerate the payment of as much as two-thirds of the more than $20bn in penalties levied on BP for the Gulf of Mexico oil spill, company filings show. “That will significantly add to the costs,” Kapadia said. “It may not be what someone would want to take on.”
That BP’s independence is even up for discussion shows the relative decline of a company that pioneered exports from the Middle East, helped start Alaska’s oil industry and led the exploration of the North Sea.
Since taking over in the months following the accident, CEO Bob Dudley sold about a third of the company’s assets and production has fallen from close to 4-million barrels a day in 2010 to a little more than 3-million. The company is trying to grow again, with a series of deals in the Middle East and Africa in 2016.