The slide in BP’s share price has left the UK energy major vulnerable to a takeover as rivals weigh the opportunity to buy at a steep discount and put an end to its 116 years as an independent company.
Listed companies Shell, Chevron, ExxonMobil and TotalEnergies, as well as Abu Dhabi’s Adnoc, have separately run the numbers, according to industry sources and advisers, while oil trader Vitol could be interested in elements of the business.
A sum of the parts valuation suggests BP’s assets are worth in excess of £120bn, without including debt and liabilities, more than twice its current market capitalisation of £57bn, which follows a sharp slump in its shares over the past 12 months.
“The continued underperformance of BP makes it open to a takeover,” said a person close to the activist investor Elliott Management, which has built a leading stake in the company.
The M&A teams of major oil companies routinely assess the business case for big takeovers. And while any deal for BP would be complex, triggering competition and political concerns, the prize is significant.
BP’s oil and gas assets, including those in the Gulf of Mexico, and US shale business alone are worth $82bn, according to UBS analyst Joshua Stone — above its market value. But the UK company is weighed down by $77bn of debt and long-term liabilities, including those stemming from the 2010 Deepwater Horizon oil spill.
Shell
A deal for BP would be transformational for Shell, creating an energy giant pumping out close to 5mn barrels per day of oil and gas — more than ExxonMobil or Chevron. It would also have as much as a quarter of the world’s LNG market and a significant presence in the US.
Shell chair Andrew Mackenzie worked at BP for more than two decades, and Shell has considered a combination with BP several times in the past, including a proposed 2004 tie-up that ex-BP chief executive John Browne recently told the Financial Times would have been a “marriage made in heaven”.
Shell has spent much of the past two years improving its financial health. Chief financial officer Sinead Gorman told analysts last week that it was flush with “more than $35bn” of cash and “incredibly well-positioned” to strike deals.
For Shell, the most appealing element of BP’s portfolio would be the gas and LNG assets. Its chief executive Wael Sawan told the FT last week that he wanted Shell to be “the undisputed leader in integrated gas and LNG”.
But asked if he wanted to buy BP, Sawan replied that buying back shares was better value for his company’s investors.
Analysts are unsure of the merits of the deal. “We struggle with the maths,” said Biraj Borkhataria, an RBC Capital Markets analyst, who questioned whether Shell would want BP’s trading business, its refineries or its operations in Azerbaijan, India, Iraq and Abu Dhabi.
“Shell would be much better served to carry on with its [current] plan,” he added.
The integration of the two businesses, with very different cultures, would take several years, according to insiders at both companies, and there would probably be tens of thousands of job losses, a potential political problem for the UK government.
But the cost to Shell of sitting idle could be high. “Could they really stand on the sidelines and let someone else buy BP?” asked one investor.
ExxonMobil and Chevron
As US majors ExxonMobil and Chevron assess how a BP deal would stack up, they are entangled in their own high-stakes takeover drama.
An arbitration ruling is expected soon on Chevron’s $53bn deal for energy company Hess, which would give it a significant stake in the Stabroek block in Guyana, among the most valuable oil discoveries in decades. Exxon has argued that its ownership of a share in the same block gives it first refusal to buy the rest.
The result is that “Chevron and ExxonMobil are focused on Hess”, according to Andrew Gillick, at research group Enverus. But an adverse ruling for Chevron could force the US group to seek growth elsewhere.
Both US companies could be attracted by BP’s gas and trading businesses, and were able to pay a “hefty premium” compared with European rivals because of their higher valuations, said Michael Alfaro at hedge fund Gallo Partners.
Exxon’s chief executive Darren Wood told analysts last week that he was on the “constant lookout” for opportunities, especially as low oil prices left some companies with weaker foundations vulnerable.
Yet there could be political challenges to a transatlantic tie-up, according to Dan Pickering, chief investment officer at Pickering Energy Partners in Houston. “I would put the odds that Exxon and Chevron would make a run [for BP] at pretty low,” he said. One US-based banker said BP’s assets were not attractive enough for Exxon.
Exxon and Chevron did not respond to requests for comment.
Adnoc
Abu Dhabi National Oil Company has a close relationship with BP, dating back to the discovery of oil in the United Arab Emirates in 1958. BP owns minority stakes in Adnoc’s onshore and LNG business, and the pair have a joint venture in Egypt.
Bernard Looney, former BP chief executive, is on the board of an Adnoc subsidiary, and the Abu Dhabi company is keen to expand internationally, recently doing a string of multibillion-dollar gas and chemicals deals.
One oil industry veteran said that since Adnoc did everything from extracting oil to refining and trading oil products, there would be “linkages all along the value chain” with BP.
Two other industry sources suggested the UK government might be receptive to a BP deal if it was part of a broader investment plan by the UAE into UK assets.
But the relationship between the two countries was damaged by the furore around a 2023 Emirati-backed bid for the Telegraph newspaper, and Adnoc would be cautious about running into a repeat of the episode.
In 2015, the UK government under David Cameron warned it would oppose any attempt by a foreign company to buy BP. In recent weeks, BP has been sounding out people close to the government over whether Sir Keir Starmer would also seek to defend against a takeover, according to two people with knowledge of the efforts.
Adnoc declined to comment.
TotalEnergies
Patrick Pouyanné, the dealmaking boss of France’s TotalEnergies, may relish a swoop for a proud British oil company, and would be interested in BP’s gas and LNG assets, as the third-largest global LNG provider seeks to catch up with Shell.
But like Shell, Total is busy buying back its shares, and Pouyanné told analysts the company would have to compare the attraction of buybacks with whether it can “do a beautiful acquisition”.
TotalEnergies, which declined to comment, would be one of the few suitors with an interest in BP’s clean energy assets, since it is committed to growing its own renewable power business.
But elsewhere, analysts said it would be less keen on BP’s refineries, its US shale business or its US offshore wind assets, given the anti-wind stance of the Donald Trump administration.
Ahmed Ben Salem, an analyst at ODDO BHF, a French-German financial group, said Total might find easier deals to pursue elsewhere.
“What’s the point in buying a building if you’re only going to keep hold of a few apartments?” he said.