ExxonMobil-BP acquisition talk resurfaces
11 Mar 2017 - 22:38
By Rakteem Katakey / Bloomberg
BP Plc’s shares surged the most this year after a London newspaper reported on rumours that ExxonMobil Corp. sounded out major shareholders over a potential takeover.
While a bid for BP can’t be ruled out, reports about ExxonMobil’s interest have been around for years and analysts from Macquarie Capital Ltd. to Canaccord Genuity said a deal was unlikely.
“The report about ExxonMobil and BP seems to be just a rumor because because there doesn’t appear to be an obvious strategic fit,” said Anish Kapadia, a senior research analyst at Tudor, Pickering, Holt & Co International LLP. “It would create a company potentially too big and complex to be manageable.”
ExxonMobil and BP spokesmen declined to comment.
Oil’s current downturn has resulted in just one big deal -- Royal Dutch Shell Plc’s $54bn acquisition of BG Group Plc last year. Others have preferred to do smaller acquisitions as they preserve cash and protect their balance sheets. While oil prices have increased from the 12-year lows of last year, companies are still unsure if the recovery is sustainable.
Still, Irving, Texas-based ExxonMobil has one of the strongest balance sheets in the industry and hasn’t done a deal on such a large scale since the wave of oil-major consolidation in the late 1990s. In contrast, BP has shrunk significantly since 2010 oil spill in the US Gulf of Mexico forced it to set aside more than $54bn for compensation and penalties.
As recently as 2010, BP had the same market capitalization as Shell and produced more oil and gas. Today, BP’s value of $112bn is about half that of Shell. It’s even further behind ExxonMobil, the world’s most valuable oil company at $337bn.
As well as the daunting scale of a deal, there’s 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, according to company filings.
“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, Chief Executive Officer 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 last year.