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In recent developments, BP has emerged as a significant acquisition candidate within the energy sector, raising questions among market analysts about potential suitors and their readiness to make a move.
As BP prepares for its annual general meeting this Thursday, it has initiated a strategic overhaul to address an ongoing identity crisis. In an effort to restore trust among investors, the company announced in February a plan to reduce investments in renewable energy while increasing capital expenditures in its traditional oil and gas sectors. CEO Murray Auchincloss has noted that this pivot has sparked “significant interest” in some of BP’s non-essential assets.
This strategic shift comes in the wake of BP’s underwhelming performance compared to its competitors, leading to a battered share price that has rekindled discussions about a possible merger with Shell, another British energy powerhouse. Additionally, U.S. oil majors such as Exxon Mobil and Chevron have also been identified as potential buyers for BP, valued at approximately £54.75 billion ($71.61 billion).
While Shell has chosen not to comment on these rumors, BP, Exxon, and Chevron did not respond to inquiries regarding the speculation.
Analyst Maurizio Carulli from Quilter Cheviot confirms that BP is indeed a viable candidate for acquisition. He suggests considering the broader trend of consolidation in the resource sector, noting that recent years have seen many companies opt for acquisitions over the traditional route of organic growth.
For context, Exxon Mobil completed its acquisition of Pioneer Natural Resources for $60 billion last year, while Chevron is currently pursuing a $53 billion deal to acquire Hess, although this deal faces legal hurdles ahead.
Industry consolidation is also evident in mining, as seen with speculation regarding a potential merger between mining giants Rio Tinto and Glencore.
Allen Good, director of equity research at Morningstar, commented on the fluid nature of potential deals in the sector, indicating that anything could be on the table given the current challenges facing the oil and gas industry.
‘An Existential Crisis’
“Oil and gas companies are grappling with what some describe as an existential crisis, though opinions differ on the timeline of this crisis,” Good stated. He believes that for Shell, any move towards BP is more likely to resemble a strategic merger rather than a straightforward buyout, though he does not anticipate immediate developments on this front.
In the case of Chevron, if the Hess acquisition falls through, it is possible that Chevron might consider BP, despite the latter’s less favorable growth outlook compared to Hess. Good speculated about a potential scenario where Chevron could streamline BP’s operations significantly, although he expressed skepticism about how this would address Chevron’s broader growth strategy outside of Permian Basin operations.
Future Prospects for BP
Michele Della Vigna, Goldman Sachs’ head of EMEA natural resources research, found BP’s current strategic repositioning to be “very wise” but questioned whether it would satisfy activist investors who often demand more aggressive changes.
Reports indicate that Elliott Management, a prominent U.S. hedge fund, has recently acquired nearly a 5% stake in BP, positioning itself as a significant shareholder. Moreover, activist group Follow This has encouraged shareholders to oppose the reappointment of BP’s chair, Helge Lund, at the forthcoming shareholder meeting, which could lead to Lund’s eventual resignation in 2026.
Della Vigna highlighted three main aspects of BP’s portfolio that may attract activist investors. Firstly, he pointed out the necessity of monetizing BP’s stake in Rosneft, which was abruptly exited following Russia’s invasion of Ukraine in 2022, marking the end of over 30 years of engagement in the country.
Secondly, he mentioned the potential value of BP’s marketing and convenience segment, emphasizing that this division could yield significantly higher returns compared to other areas within the company.
Lastly, Della Vigna observed that BP holds a unique position as a fundamentally U.S.-focused energy company in terms of cash flow, with 40% of its earnings derived from the U.S. market. He suggested that being listed in the U.K. may undervalue the firm, indicating that a shift in corporate structure or a merger could be beneficial moving forward.
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