BP needs a defence plan against predators
Recent deals raise the prospect of a takeover move by US oil giants
A s the oil industry takes stock of Royal Dutch Shell’s $70 billion (Dh257 billion) move for BG Group Plc, one company has more to chew on than most.
BP Plc, Britain’s most storied oil producer and prime mover in previous rounds of consolidation, is now thinking what was once unthinkable: that it could be next in the crosshairs. BP executives are concerned the company is vulnerable to an opportunistic bid, according to people familiar with the situation. In response, they’ve stepped up internal reviews of takeover scenarios and war-gamed defence strategies with advisers from firms including Morgan Stanley, said the people. Exx on Mobil and Chevron, the two largest US producers, are seen as the only realistic predators.
While some in the industry believe a move for the British company remains unlikely because of still-unknown legal liabilities from the 2010 Gulf of Mexico oil disaster, there’s at least one good reason for CEO Bob Dudley to be paranoid. Before ruling themselves out by going for BG, Shell took a hard look at buying BP, one of the people said. “As a matter of good practice, all companies have possible defence arrangements in place,” BP spokesman David Nicholas said in an email. “BP has made no changes to our long-standing arrangements in response to recent moves in the market.”
“Exxon saw Shell do a deal and they would certainly be looking around, it’s the same for Chevron,” said Christopher Geier, partner in charge at Sikich Investment Banking in Chicago. “From a value perspective, it’s possible BP could be ripe for a takeover.” 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. In the 1990s, its acquisition of US giant Amoco Corp. forced the rest of the industry to react.
As recently as 2010, BP had the same market capitalisation as Shell and produced more oil and gas. Today, even before the BG deal is completed, BP’s value at $131 billion is two-thirds of Shell’s. It’s even further behind Exxon, the world’s most valuable oil company at $368 billion.
Whether Exxon makes a play or not, BP is adapting to a world where Shell’s deal has upended the industry’s expectations on mergers and acquisitions.
“All players are looking at opportunities,” Eldar Saetre, the CEO of Norway’s largest oil producer, Statoil, said last week. “There could be more deals.”