Analysts: BP More Likely to Split Than Be Acquired

HOUSTON -- Rumors that oil giant BP may soon become an acquisition target recently resurfaced, thanks to its $4.5 billion criminal settlement with the U.S. Justice Department for the 2010 Deepwater Horizon oil spill, and its agreement to sell Russian partner TNK-BP. However, BP is more likely to splinter into multiple businesses than be purchased by another, according to media reports.

"Although anything is possible, BP is too big to merge," stated Fadel Gheit, an energy equity analyst for Oppenheimer.

BP's market cap of nearly $132 billion is so large that it would be difficult to find a company both interested in and capable of acquiring it, reported the Houston Business Journal. ExxonMobil Corp. was suggested as a possible buyer, but Guy Baber, vice president for equity research at Simmons & Company International in Houston, noted that ExxonMobil has focused more on pursuing unconventional assets, according to the report.

"If anything, the majors are becoming less and less integrated, so I don't see [BP] being a takeover target," stated Stacey Hudson, an analyst at Houston-based Raymond James.

Additionally, ExxonMobil insiders told Fortune that there has been no talk of pursuing a deal with BP recently.

Liabilities such as charges brought against BP under the Clean Water Act and the Oil Pollution Act, which could cost the company $5 billion to $30 billion or more, could also deter an acquisition.

BP could also splinter into independent companies as Marathon Oil Corp. and ConocoPhillips did, a possibility Hudson downplayed to the HBJ, noting that BP sold its two largest U.S. refineries earlier this year, streamlining its downstream business to one with a solid Midwest geographic footprint.

"With that done, they have a good refining profile, and I don't see them wanting to do something like [splitting]," said Hudson.

However, Baber stated that while a split is not a major possibility, it could happen. "I think it's certainly something they [would] consider," Baber stated. "It's more likely than a takeover, but it's still not something we would bet on."