Takeover Talk Swirls Around BP

LONDON -- BP PLC's steep decline in share price makes it a prime candidate for a buyout now, according to analysts.

"The market has lost sight of the intrinsic value that is resident in an asset-rich company like BP. We very much doubt that keen-eyed industry players have lost sight of BP's value," JP Morgan Cazenove's Fred Lucas wrote in a research note issued Tuesday.

Lucas named Irving, Texas-based Exxon Mobil Corp. and Royal Dutch Shell as the most likely bidders. PetroChina also has been mentioned in the past as a potential suitor.

BP's stock price has cratered since the April 20 Deepwater Horizon rig explosion that has resulted in the largest oil spill in United States history. The stock closed at $27.05 per share on June 28 -- way down from its closing price of $60.48 on April 20, according to a report by the Houston Business Journal.

But Dan Pickering, a research analyst with Houston-based Tudor, Pickering, Holt & Co., said he believes a complete takeover by another major is unlikely.

"One operational and one business challenge associated with another major acquiring BP is the refining business and the overlap from refining," Pickering told the publication. "Historically, this has been an area the DOJ has been very sticky about ... They clearly want to protect the U.S. gasoline supply and distribution."

Another issue is the firm's unknown liability, he noted.

"Are you acquiring the obligation to pay a $20 billion fund or a $40 billion fund? What are the losses going to be over time?" Pickering questioned. "I think it's unlikely that a 'healthy' major would want to run the risk of getting entangled in the legal quagmire which could wind up being very, very expensive."

Because of this, Pickering said another major buying assets from BP would be more likely.

As of June 28, BP said it had spent $2.65 billion on the spill response, containment, relief well drilling, grants to the Gulf states, claims paid and federal costs. Meanwhile, the company is facing delays in its clean-up efforts as a result of Hurricane Alex.

To date, the total volume of oil recovered or flared by the containment systems is about 435,600 barrels, according to BP. On the surface, operations to skim oil have recovered about 652,000 barrels (27 million gallons) of oily liquid. In addition, a total of 275 controlled burns have been carried out, removing an estimated 238,000 barrels of oil from the sea's surface, the Houston Business Journal reported.
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