Oil firm’s shares surge 9% after speculation prompts takeover talk

Terry Macalister: Wednesday 30 June 2010 18.57 BST

A protester demonstrates at a BP petrol station in Manhattan. The company has been vilified in the US. Photograph: Mary Altaffer/AP

In the past an almost double-digit percentage increase in the BP share price would have signalled a spectacular oil strike. It is a measure of the decline in the company’s fortunes that such a surge was triggered by hopes of a takeover or break-up.

The company’s stock soared 9% to 331p at one point as a growing list of companies from China to Russia were linked with potential mega-mergers that could see the end of independence for what was once Britain’s biggest firm.

Investors piled into the troubled oil group amid a growing view that the brand has little future in the US – its biggest single market – and the company will need to reinvent itself through a change of brand, change of boss or change of ownership.

The takeover ball started to roll in earnest when a research note released by JP Morgan Cazenove in London boldly declared that “either ExxonMobil or Royal Dutch Shell could consider a bid for BP”.

And it gathered pace when figures such as Peter Odell, professor emeritus of energy economics at Erasmus University in Rotterdam, said “everyone was contemplating” what it would be like for their company to buy BP. “If the bad news continues to roll for BP then the feeling will grow that the company has had its day and will either be broken up into pieces or bought up completely,” he argued.

The speculation was also given momentum by Maxim Barsky, deputy chief executive of BP’s Russian joint venture, TNK-BP, saying his company could be interested in acquiring assets from BP outside Russia.

Other Russian groups such as Gazprom and Chinese companies such as PetroChina – now the largest quoted oil company in the world – were also being discussed as potential predators.

Analysts believed one of the main stumbling blocks to a merger approach to a company whose share price has more than halved since late April was the difficulty of assessing the scale of its future liabilities, which some think could reach $60bn. But there would also be competition issues and concerns about job losses.

Fred Lucas, the JP Morgan energy analyst, argued that BP could be worth 473p a share to a potential buyer, such as Exxon – a hefty premium to BP’s current share price. “The market has lost sight of the intrinsic value that is resident in an asset-rich company like BP,” he argued.

Odell believed it inconceivable the White House would allow a Russian or Chinese company to buy BP’s American assets, which provide the UK-based company with 40% of its profits, but said it might be quite possible for the US business to be bought by a local group and the international operations taken by someone else. A furore over the planned sale of a strategic oil asset in 2005 prevented another large Chinese firm, China National Offshore Oil Company, buying up the locally owned Unocal Corporation.

Not everyone accepts that BP is doomed and some argue it could still rebuild its reputation and brand in the US by quickly capping the oil leak, bringing in a new chief executive and then reverting to the much heavier use of the Amoco name.

Many believe chief executive Tony Hayward will go before Christmas, with some of his lieutenants, such as the American head of the oil spill operation, Bob Dudley, or the British refining boss, Iain Conn, tipped as possible successors, while the names of outsiders such as Tony Blair have been linked with the post of chairman.

Meanwhile the rebranding of BP petrol stations would be easy. BP took over Amoco in a $110bn mega-merger over a decade ago and gradually replaced the Amoco brand on petrol stations and refineries with its own.

Fadel Gheit, oil analyst with New York brokerage Oppenheimer & Co, argues the sale of BP is far from inevitable, not least because any big tie-up with another local company such as Exxon could cost tens of thousands of jobs. “When Exxon took over Mobil, 50,000 employees left the combined company payroll within three years and this is the last thing that politicians would want to see in the current environment,” said Gheit.

Gheit also holds the controversial view that a big political event away from the gulf would be enough to distract attention away from BP and allow the company to rebuild. “The best thing that could happen to BP is an Israeli and US bombing of Iran, which would take the media spotlight off BP and send the oil price racing up to $100 per barrel. I personally believe there is a very high probability of this within three to six months,” said Gheit.

BP has already said it will suspend dividends to shareholders, reduce its investment programme and sell some of its assets, after agreeing with the US government to set aside $20bn (£13.4bn) to pay for the spill.

Several investment banks have teams reviewing BP’s asset portfolio. The company has sizeable operations in Colombia, Algeria, Australia, and South America, none of which are central to the company’s future strategy.

Barsky said that TNK-BP, responsible for a quarter of BP’s output, would be particularly interested in the British oil major’s downstream refining and marketing units in Europe and other assets related to unconventional gas and offshore drilling. But the Kremlin, which has already destabilised Hayward by predicting his departure, may have a bigger prize in mind.

Candidates for the top job

If Tony Hayward does decide to walk the plank as chief executive who is likely to take over?

We assess the main riders and runners along with the odds given by bookmaker Paddy Power.

Bob Dudley (7/2) Serious-minded BP man born in Mississippi and blooded in Russia

Iain Conn (3/1) Steady Briton who has been running BP refineries since 2005 the Texas City fire

Doug Suttles (6/1) Former Exxon man but tarnished by being at BP exploration

Andy Inglis (6/1) British and tarnished even more by being BP head of exploration

Malcolm Brinded (14/1) head of exploration at (less accident prone) Shell

Byron Grote (8/1) Ex-Amoco man running BP finance but wants to retire

Lord Browne (7/2) Even the Sun King would not wish this on himself

Tony Blair (100/1) Even Tony could not make peace with BP’s critics

By John Donovan

A couple of days ago I made a telephone call to Aviva to notify the company I was switching to another car insurer.

I had discovered that similar, although not identical comprehensive cover, could be obtained from a competitor at a lot less than half of the comprehensive insurance premium I was paying. Basically both policies allowed me to drive my car under comprehensive cover.

I had not bothered to check comparable prices for may years.  I had left myself in the hands of a major insurer, Aviva, formally known as Norwich Union Direct, trusting they would remain competitive. Huge mistake on my part.

Further confirmation came that I was dealing with a greedy outfit when I discovered that it would take five minutes to be connected to a human who could deal with the cancellation. In the meantime, I could choose from either Soul, Pop, Jazz, or Classical music while being charged per minute for the privilege, because Aviva does not apparently have enough staff to cope promptly with cancellations.

When I did get connected – it could have been to someone overseas judging from the accent – I found out about Aviva’s loyalty bonus. A cancellation fee of £49, amounting to a quarter of the yearly premium charge from the new insurer.

I have checked the small print over several pages of the insurance papers twice and have not yet managed to find information about this sting in the tail.  Seems I might need a magnifying glass or a lawyer to find that information.

Since I don’t want to waste time complaining through the usual bureaucratic channels, I decided to publish this article and will supply an update when Aviva takes the cancellation payment from my bank account.

Internet gripe sites provide an alternative solution for focusing attention on targeted companies. The impact can be devastating. Ask Shell.

We had a problem with one of our ISP’s some years ago – Pipex Communications Plc – and started a website to record our experience with that company. The website expanded over the years with contributions from many other disgruntled customers. By coincidence or otherwise, the company subsequently changed its name to FREEDOM4 Communications plc, shedding the tarnished name.

I may set up a gripe site focused on Aviva if this initial article attracts attention from others stung by the company.

Related Link: http://www.facebook.com/

Daily Telegraph: BP’S share price fell by a further 2pc, after a prominent City expert suggested it should be bought by US rival Exxon Mobil in the wake of the Gulf of Mexico oil spill.

By Rowena Mason, Energy Correspondent
30 June 2010

Daily Telegraph

Given America’s dislike, nay hatred, of BP it would be ironic if a US company ended up buying it.

By Damian Reece, Head of Business
Published: 7:00AM BST 30 Jun 2010

“In theory, either Exxon Mobil or RD Shell could consider a bid for BP” the analyst added. “They have similar business models and similar global asset structures. They also bear the lowest political risk to a potential combination with BP.”

RIO DE JANEIRO (Dow Jones)–The Brazilian unit of Royal Dutch Shell (RDSA, RDSA.LN) discovered oil in the Campos Basin’s presalt region, the company said Tuesday.

By Fred Pals

June 29 (Bloomberg) — Exxon Mobil Corp. and Royal Dutch Shell Plc may consider bidding for BP Plc after the London-based oil company lost more than half of its market value in the wake of the Gulf of Mexico oil spill, JPMorgan Cazenove Ltd. said.

Exxon Mobil has the stronger balance sheet and proven ability to integrate a large transaction, according to Fred Lucas, a London-based analyst at JP Morgan. It could make a cash and share offer, valuing BP at 473 pence a share compared with yesterday’s close of 308.25 pence, and including a $50 billion spin-off of BP’s downstream assets, according to JPMorgan.

BP’s market value has collapsed by more than $100 billion since the April 20 explosion aboard the Deepwater Horizon drilling rig that killed 11 crew members and caused the leak. The company has set aside $20 billion to pay for Gulf restoration and compensation claims and said yesterday the cost of battling the spill had reached $2.65 billion.

Any potential attempt to buy BP would have to be backed by “ruthless integration,” JPMorgan said. BP has many high quality assets, including deepwater positions and upstream operations, Lucas wrote under a future possible scenario.

Sheila Williams, a spokeswoman for BP, declined to comment, as did Kim Blomley, a London-based spokesman for Shell.

–Editors: Stephen Cunningham, Reed Landberg.

To contact the reporter on this story: Fred Pals in Amsterdam at fpals@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

THE WALL STREET JOURNAL

JUNE 29, 2010

By Hassan Hafidh Of DOW JONES NEWSWIRES

The Iraqi cabinet Tuesday approved a deal with Royal Dutch Shell PLC (RDSA) and Mitsubishi Corp. (8058.TO) to develop a gas-structure project in southern Iraq, paving the way for a final signature of the multibillion deal, a government spokesman.

Ali al-Dabbagh said that Shell and Mitsubishi Corp. would hold 49% stake in the venture while Iraq’s state-owned South Gas Co. would hold 51%.

The decision was taken at the cabinet’s weekly meeting, Dabbagh said in a statement, a copy of which emailed to Dow Jones Newswires,

The proposed $10 billion-$20 billion joint venture aims to capture a huge amount of gas from four super-giant oil fields in the southern governorate that is currently being wasted.

“The venture will process associated gas produced from Rumaila, Zubair, West Qurna Phase 1 and Majnoon oil fields,” Dabbagh said.

Dabbagh didn’t say, however, when exactly the deal will be signed.

According to the preliminary agreement signed in September 2008, South Gas Co. will control 51% of the project, while Shell will hold 44%, and the remaining 5% will be owned by Mitsubishi.

-By Hassan Hafidh; Dow Jones Newswires; +962 799 831 831; hassan.hafidh@dowjones.com

SOURCE ARTICLE

Paddy Briggs’ letter, published in “The Guardian” 28th June 2010

It is understandable that, as you report, many artists and green groups are protesting against arts institutions receiving sponsorship from BP – but it is important to describe what such corporate charitable donations are – and what they are not. They are not in any way ever a meaningful contributor in a company’s overall obligations to its stakeholders. The amounts are collectively too small and the selection of recipients is far too random for the largesse to be anything than incidental in the context of a big company’s finances.

While some companies might seek to suggest that donations to good causes are part of their commitment to “corporate social responsibility” the public is unlikely to be fooled – you cannot buy yourself a good reputation or build brand approval by making such gifts. In reality one of the main reasons that big companies donate to arts institutions is to buy their directors privileged access to events, such as to premium seats at the opera house. For the arts institution it is a harmless and valuable source of funds to pander to the vanities of a few corporate fat cats. No wonder they are rallying round BP at the moment.

Paddy Briggs

Teddington, Middlesex

My compliments to Panorama and your programme “How on earth did this happen”

Please see the attached analysis sent to the US investigators and Professor Robert Bea who according to CBS News 60 minutes has a role in collating survivors testimony and the Chemical Safety and Investigation Board (CSB) tasked I understand to investigate the disaster.

I have no connections whatsoever with BP, your people in Aberdeen are aware of who I am and I took part in 2006 in the BBC Frontline Scotland Programme the Human Price of Oil.  I have from time to time supplied Channel 4 with technical input on questions re offshore safety also.

My analysis is dependant on the credibility of the survivor testimony by Professor Bea has in writing stated he thinks it credible and went on record on the CBS programme as stating BP were to blame.

My analysis concludes otherwise. See attached, I think it is in the public interest to have a more balanced viewpoint known.

rgds

Bill Campbell B.Sc MIET C.Eng.

How on earth did this happen, again!

From the testimony of survivors it is apparent that high levels of gas were being released on Deepwater Horizon in the months and weeks prior to the fateful day on the 20th May.

All activities were halted on several occasions with gas being emitted from the drilling cuttings in the mud treatment area.

According to one worker’s account submitted to Professor Bea at one point so much gas came belching to the surface that a loudspeaker announcement called for a halt to all hot work meaning any smoking, welding, cooking or other use of fire.  Smaller belches, or kicks had stalled work as the job was winding down.

The US regulator MMS was apparently aware of this and advised the Operator Transocean to proceed with caution.

There appears to be a tolerance to the risks of flammable atmospheres being present on offshore installations in the US.  This is in marked contrast to the UK where in 1988 on Piper Alpha 167 lives were lost as a direct result of the ignition of a flammable atmosphere.

This would not be acceptable in the UK where Operators have to demonstrate in a Safety Case how they would reduce the risks of such events.  They would further require through design and operating practices to demonstrate that if gas was accidentally released into the atmosphere that sufficient measures were in place to ensure this would not be ignited.

It was gas entering an area not protected to prevent egress of gas into that area that caused the Piper Alpha explosion.  From the testimony of a survivor of Deepwater Horizon it would appear that the gas ignited when it was ingested into areas where electrical equipment was housed that was capable of causing the explosive gas-air mixture to ignite.

So almost quarter of a Century after the largest loss of live on an offshore installation the same causal factors aligned on Deepwater Horizon.  From analysis of the statements from survivors there were many other similarities between Piper Alpha and Deepwater Horizon that would suggest that the US oil industry failed to learn from the 1988 event.

Perhaps a reason for this is that the Oil Industry offshore US was never compelled to implement a Safety Case approach to assess risks to employees offshore, or in modern times, an HSE case approach.  Although agencies such as the International Association of Drilling Contractors (based in Houston) produced HSE Guidelines for Mobile Drilling Units such as Deepwater Horizon the US Regulator MMS does not require the industry to comply with these.

Perhaps the US president and the legislative bodies in Congress need to look for asses to kick elsewhere and look at the role they played in the likely blocking of such initiatives such as Safety Case implementation.  The industry thought that this was likely to be a British overreaction and any case it was too costly.  This is despite Safety Case approaches to assessment of risk have been adopted world-wide.

You can already see the pressure building to recommence deepwater drilling from the decision of a judge and with agencies such as IADC lobbying for such.

Whatever the culpability of BP in the earlier decisions re the shear rams of the sub-sea BOP et al they were not accountable in Law for the design, operation and maintenance of Deepwater Horizon.  The owner and Operator Transocean bear that responsibility and as should need be held accountable if through their negligence they allowed flammable atmospheres to exist and when they did exist took inadequate precautions to prevent ignition.  It is interesting to Note that in the massive coverage of this event there is virtually no mention of Transocean.  In their web-site they talk of the BP oil spill as if they had no part to play at all in how the blow-out developed and how the explosion occurred.

It is certainly in the interests of BP, and its shareholders, lest they be driven to bankruptcy in part at least, due to the negligence of others.

The BP CEO has already alluded to this in his statements that Deepwater Horizon was not their installations and its procedures and controls were not theirs also.  It’s a pity he did no emphasis this theme more forcibly in his testimony to congress.

It’s time for a more balanced discussion of these issues and the Oil Industry needs to proceed with caution until such times as the Chemical Safety Board (the agency charged with the investigation) come up with at least some preliminary finding re the root causes of this disaster.

There is of course an issue today.  How many installations have the same residual risks apparent on Deepwater Horizon?  Could this happen again?

Whether the rig is drilling in deepwater or on the shallower shelf does not in essence matter.  It is the concurrence of an explosive gas air mixture with a source of ignition that needs to be avoided at all costs.

The UK industry learned those lessons, and at great cost spent some billions to ensure that such events had to be avoided as far as was reasonably practicable, but it would appear that the insular US did not.

regards

Deepwater Horizon: Analysis of Cause of Explosion on Deepwater Horizon – 24/06/2010

Comment by “Judgekelly” Submitted on 2010/06/29 at 1:33pm

yes, i agree that transocean will be held responsible under comparative negligence. testimony before congress stated that there were six people on the ship (rig) who could stop the operation at any time. one of the six was the captain of the deepwater horizon ship. each of the six (and their employers) will be given a percentage of liability when the jury trials begin.

bp will pay, but they will survive. transocean and cameron will not survive. they do not have the market cap to pay the damages they will owe.
this is a very good article.