BP wary of bids as Shell takes over BG

A driver refuels his Vauxhall Zafira minivan with diesel at a gas station operated by BP in Guildford, UK. The company's oil production has fallen from almost 4 million barrels a day in 2010 to 3 million recently. Photo: Bloomberg

A driver refuels his Vauxhall Zafira minivan with diesel at a gas station operated by BP in Guildford, UK. The company's oil production has fallen from almost 4 million barrels a day in 2010 to 3 million recently. Photo: Bloomberg

Published Apr 22, 2015

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Rakteem Katakey, Matthew Campbell and Dinesh Nair London

As the oil industry takes stock of Royal Dutch Shell’s $70 billion (R845bn) move for BG Group, one company has more to chew on than most.

BP, the UK’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 cross-hairs.

BP executives are concerned the company is vulnerable to an opportunistic bid, according to people familiar with the situation. In response, they had stepped up internal reviews of takeover scenarios and war-gamed defence strategies with advisers from firms including Morgan Stanley, said the people, all of whom asked not to be identified discussing a private matter.

Exxon 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 is at least one good reason for chief executive Bob Dudley to be paranoid. Before ruling themselves out by going for BG, Shell had taken 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. “BP has made no changes to our long-standing arrangements in response to recent moves in the market.”

Representatives for Exxon, Chevron, Shell and Morgan Stanley declined to comment.

“Exxon saw Shell do a deal and they would certainly be looking around; it’s the same for Chevron,” Christopher Geier, a partner in charge at Sikich Investment Banking in Chicago, said. “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 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 $131bn is two-thirds of Shell’s. It’s even further behind Exxon, the world’s most valuable oil company, at $368bn.

There’s one clear reason, of course: the Gulf oil spill that left BP facing costs that may eventually exceed $40bn, forcing it to shrink to survive. Since taking over in the months following the spill, Dudley’s 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.

Some have applauded the creation of a leaner, more profit-focused company, but BP can no longer claim to be in the first rank of global oil and gas producers. – Bloomberg

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