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Vultures circle BP over fears its days are numbered in US home

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

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