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Daily Mail (London): Merger mania “will sweep oil industry”

Oct 25, 2006
Sam Fleming

BP boss Lord Browne predicted a wave of acquisitions will dramatically reshape the oil industry in the coming years, amid growing speculation he could seek a merger with Royal Dutch Shell.

Unveiling a drop in earnings and disappointing oil output, Browne warned the golden age of sky-high energy prices is giving way to a less favourable environment that could force companies into each others” arms.

He acknowledged that “many people are talking about” BP uniting with its biggest European rival Shell.

Browne declined to comment specifically, but said: “Looking at it from 50,000 feet, you’d have to say there are an awful lot of players here dealing with very small pieces of an industry which probably in the fullness of time will change shape.

“I think any reader of strategy long-term would say this industry probably will consolidate.”

BP saw a 9pc drop in third-quarter profits, excluding one-off gains, to GBP2.6bn. It will miss its full-year oil production forecasts of between 4.1m and 4.2m barrels a day.

Browne said he had seen a “very significant” drop in refining margins.

He warned that the oil sector is facing its toughest challenges for five quarters. “No one should expect that the absolute levels of performance which we have recently seen will be sustained.” BP shares added 6 1/2p to 608p.

The results come in the wake of a torrid year for Browne, who retires in 2008. While the firm enjoyed record oil prices over the summer, its US business has been in a state of near-crisis.

BP is grappling with the fallout from Alaskan pipeline leaks, a fatal explosion at its Texas City refinery, allegations of market manipulation and repeated delays of its key Thunder Horse platform in the Gulf of Mexico.

The group set aside an extra GBP214m in provisions to cover Texas City legal claims, bringing the total to GBP856m. Also, the refinery lost GBP107m in the third quarter alone. BP has also been dogged by fears that relations with the Russian government have taken a turn for the worse.

Browne denied this, but refused to comment on reports Gazprom will take control of the Russian half of its key TNK venture.

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