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Wounded BP ripe for merger or outright takeover?


Jun 01, 2010

Takeover of BP Fraught with Too Much Incalculable Liability Risk

BP’s tragic blunder in the Gulf and overall selloff in global equities have investors in the international oil giant seeing red, with shares of BP plunging 25% since April 20 and recent speculation the company is ripe for merger or outright takeover creeping into Wall Street circles.

Others say, however, the longer the oil continues to gush out the shattered wellhead the less likely any company would have an interest in the wounded BP.

Royal Dutch Shell and Exxon Mobil “are almost certainly running the numbers” to see if a mega-merger is feasible, the New York Times wrote last week.

Calculations of the total costs of the inevitable cleanup project is anything but certain, analysts told CNBC, providing a window of opportunity for rivals to pick up BP on the cheap a possibility, but highly risky, maybe too risky.

“Their liability exposure is all over the map. This is a huge hindrance to successful acquisition,” Tim Seymour, Partner, Triogem Asset Management, said.

Estimates of the costs of cleaning-up the Gulf are from $20 billion to $50 billion, or higher.

The company said last week it estimates the total cost of clean up to reach $990 million, Reuters reported.

Tattered badly from the Gulf spill and to a much lesser extent from smaller spills throughout the years, the company’s image is at its lowest, which some analysts say is now irreparable.

“BP’s name is now so politically compromised that only the bravest company would want to take them over,” said James Batty, Editor of Energy Intelligence Finance, an oil industry newsletter.

Others agree. “I would never buy BP,” said one London-based M&A banker, “because they have such a poor safety record. That inevitably affects the culture of a company. It’s like buying an airline that has a history of plane crashes.”

The ecological ramifications of the Gulf spill are so large, some believe BP will no longer be allowed to operate anywhere near the United States and certainly come under intense scrutiny from other jurisdictions its scours for black gold.

“It’s questionable whether they can continue to business in the United States, John Kilduff, Partner at Round Earth Capital NYC, told

Estimates from U.S. government officials and BP suggest the spill could continue well into August, leaving analysts to believe the monstrous liabilities to the company will ward off potential suitors, at any price.

One prominent oil expert said the catastrophe is bigger than many now can imagine, with the costs of cleaning up the Gulf incalculable at this stage.

Stopping the oil flow may end up involving the U.S. Navy blowing up area surrounding the wellhead, speculates Mathew Simmons of Simmons & Company and energy advisor to Former President George W. Bush.

In an interview with Financial Sense Newshour’s Jim Puplava, Simmons said, “It may be the worst ecological catastrophe the world has ever had [sic]”

Simmons said the estimates the amount of oil coming out of the damaged wellhead to be closer to 120,000 barrels per day, more than earlier estimates of between 40,000 and 80,000 barrels per day from others quoted by the New York Times last week.

If Simmons is correct in his estimated spill rate, the Gulf spill dwarfs the 250,000 barrel total spill of the Exxon Valdez of 1989 by a factor of more than 500. “It couldn’t be a sadder event,” he added.

Simmons also speculates fishing and related industries off the U.S. and Mexican coastal regions are destroyed for generations, opening up BP to lawsuits from too many angles for a mega-merger to be contemplated without involving tremendous risks.


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