BP Plc is now getting hit with takeover talk.
JP Morgan Cazenove analysts issued a research note Tuesday, noting that the London oil giant’s steep decline in share price makes it a prime candidate for a buyout.
“The market has lost sight of the intrinsic value that is resident in an asset-rich company like BP. We very much doubt that keen-eyed industry players have lost sight of BP’s value,” JP Morgan Cazenove’s Fred Lucas wrote in the report, according to Reuters.
Lucas named Irving-based Exxon Mobil Corp. (NYSE: XOM) and Royal Dutch Shell as the most likely bidders. PetroChina has been mentioned in the past as a potential suitor.
Indeed, BP’s stock price has cratered since the April 20 Deepwater Horizon rig explosion that has resulted in the largest oil spill in U.S history.
It closed at $27.05 per share on June 28, way down from its closing price of $60.48 on April 20.
But Dan Pickering, a research analyst with Houston-based Tudor, Pickering, Holt & Co., believes a complete takeover by another major is unlikely.
“One operational and one business challenge associated with another major acquiring BP is the refining business and the overlap from refining,” notes Pickering. “Historically, this has been an area the DOJ has been very sticky about…They clearly want to protect the U.S. gasoline supply and distribution.”
Another issue is the firm’s unknown liability.
“Are you acquiring the obligation to pay a $20 billion fund or a $40 billion fund? What are the losses going to be over time?,” asks Pickering. “I think it’s unlikely that a ‘healthy’ major would want to run the risk of getting entangled in the legal quagmire which could wind up being very, very expensive.”
As such, Pickering predicts that another major buying assets from BP would be more likely.
On June 28, BP (NYSE: BP) denied rumors that Tony Hayward, chief executive, would be stepping down. Also on June 28, CNBC’s Jim Cramer argued BP should move to declare a prepackaged bankruptcy to keep the most potential value intact.
Meanwhile, the company faced a potential delay in its clean-up efforts as Tropical Storm Alex, which may turn into a hurricane, threatened the Gulf of Mexico.
As of June 28, BP said it has spent $2.65 billion on the spill response, containment, relief well drilling, grants to the Gulf states, claims paid and federal costs.
To date, the total volume of oil recovered or flared by the containment systems is about 435,600 barrels, according to BP. On the surface, operations to skim oil have recovered about 652,000 barrels (27 million gallons) of oily liquid. In addition, a total of 275 controlled burns have been carried out, removing an estimated 238,000 barrels of oil from the sea’s surface.
