BP chief executive Murray Auchincloss laughed off the question when asked this year if everything at the struggling oil company was up for sale. “I don’t know,” he responded, “no one ever comes with the right price.”
Attempts to restore the fortunes of the 116 year-old group and preserve its independence received a boost this week when its UK rival Shell declared it had “no intention” of pursuing a deal that would have created a supermajor to rival ExxonMobil.
Yet while Shell is now barred from making a new offer before Christmas, unless BP initiates talks or another suitor emerges, the respite for the embattled Auchincloss and his fellow executives is likely to be short lived.
BP’s future has been an open question for months, and in particular since February when it abandoned the multibillion-dollar push into renewable energy that had angered some investors. Even a vow to refocus on its core skills in oil and gas could not halt the slide in its share price, down a further 14 per cent since.
Advisers to rival energy groups said the pressure on BP to take action to reverse the rapid erosion of shareholder value will only increase in the coming months. “If the oil price stays at this level for a year, BP will be in a desperate state,” was the view of one veteran investment banker working in the energy sector.
Benchmark crude, which spiked this month during the war between Israel and Iran, was trading at $68 per barrel on Friday, and most analysts expect it to trend lower after the end of the peak summer driving season.
Yet one obstacle to a full takeover of BP is that few potential buyers — even Shell — would really want to purchase all of the company, bankers say. Abu Dhabi’s national oil company Adnoc, for example, which has a close relationship with BP and has looked across its portfolio, is keen to expand in gas but not in oil.
BP has already pledged to sell $20bn of assets by 2027 as it seeks to bolster its balance sheet, including its profitable lubricants arm Castrol.
But Auchincloss — a 54-year-old Canadian brought in to replace Bernard Looney, architect of the company’s green push, in 2023 — has so far tried to ringfence what he sees as BP’s core assets. These are its extensive oil and gas production, the refineries that feed its lucrative trading business, and its remaining clean energy assets.
The question is whether BP will now be forced to go further than Auchincloss wishes. “It doesn’t help that everyone knows BP wants to sell things,” said Josh Stone, a UBS analyst who covers the sector. “So it doesn’t surprise me that you’re seeing some opportunistic bids coming in.”
Most oil industry experts believe that BP trades at a significant discount to the sum of its parts. Bank of America estimates that the oil company’s equity value is at least $5bn higher than its current market capitalisation of just under £60bn.
A senior executive at one large oil trading firm pinpointed what he said were BP’s five great businesses. These are its deepwater oil operations in the Gulf of Mexico, its US shale arm BPX, its oil and gas businesses in Abu Dhabi and Azerbaijan, and the company’s liquefied natural gas assets.
“Everything else they have is costing them money,” the executive said.
The Gulf of Mexico is widely considered BP’s crown jewel. The company is working to raise production there to 400,000 barrels of oil per day and is also now drilling a new generation of projects that have been long dormant because the technology to extract oil at such depth and pressure has only recently been developed.
BPX meanwhile, could appeal to US bidders seeking acreage in the huge shale basins in Texas. European and Middle Eastern producers, including Shell, Adnoc and TotalEnergies of France, have publicly declared ambitions to grow in the US, although Shell left the Permian basin in 2021 in a $9.5bn sale to ConocoPhillips.
“There is a large appetite for North American shale assets,” said Andrew Dittmar, an analyst at Enverus. He said BP’s Haynesville holdings would be especially attractive to LNG-focused companies, and that BP could even consider spinning BPX into a separately listed US entity.
But carving out these businesses would disrupt BP’s increasingly integrated business model, where its trading arm sources crude for its refineries before then selling petrol, diesel, jet fuel and other products. The loss of any core assets would weaken this chain, which delivers at least $4bn of annual earnings, according to analysts.
“The good upstream [oil and gas] assets are the heart of BP [and] you don’t want to be selling your heart,” said Stone, the UBS analyst. “The rest is integral to trading, which is a very significant contribution to earnings, so it is not easy to disentangle.”
He added that BP has already assessed what it could safely sell as it tries to cut its debt and placate activist investor Elliott, which holds a 5 per cent stake in the company. “It settled on Castrol, which was available,” he said.
Elliott has urged BP to exit renewables entirely, following years of investment in wind, solar and biogas, as the company scales back its clean energy ambitions. But with an enterprise value of $14bn, Stone said BP’s renewables unit may be too large for a single buyer. Market speculation has in recent days widened to suggest that buyers could team up to pick up their favoured assets.
However big deals in the sector have slowed this year after oil market volatility first triggered by an increase in production by Opec+ and more recently by the Israel-Iran conflict.
“It’s very difficult to sell anything if you do not know what your oil price is looking like,” said Stone.
