In Troubled Times Is BP Ripe for Acquisition or Split?
James is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Times are bad for British Petroleum (NYSE: BP). This week it was temporarily banned from new US federal contracts as punishment for the 2010 Gulf of Mexico oil spill, and some analysts think the company is now ripe for takeover, while others think a split is more likely.
Regardless, we should see more BP assets up for sale.
Citing BP’s “lack of business integrity” during the April 2010 spill disaster, the Environmental Protection Agency (EPA) on Wednesday banned BP from new federal contracts for an undefined period.
Two weeks ago, BP reached a $4.5 billion settlement with the Justice Department over criminal charges related to the 200-gallon oil spill and the death of 11 men.
On Thursday, three BP figures—two well-site managers and one former executive—pleaded not guilty to criminal charges related to the spill. The two site managers were charged on Nov. 15 with involuntary manslaughter and Clean Water Act Violations.
Can BP recover from the settlement and survive the ban on new contracts? While it can recover from the settlement, surviving the ban will depend on how long it lasts—and for now that is anyone’s guess. It just missed out on a contract for 20 million offshore acres in the western Gulf. It can’t afford too many more of these misses.
When the EPA decides to lift the ban will depend on when BP can demonstrate that it is meeting federal standards. How it would do this remains unclear. Apparently one step towards this has already been taken in the form of a 100-page paper ostensibly demonstrating the company’s commitment to responsibility.
Related Article: BP's Billion Dollar Settlement: Here's Where the Money Will Go
And the settlement and ban on new contracts are not the end-all in the BP drama. In February 2013, the company will be taken to court over a federal civil lawsuit related to violations of the Clean Water Act. BP might see another fine of billions of dollars here.
So far, BP has unloaded some $50 billion in assets to pay for the oil spill.
Last month, the company relieved itself of an uncomfortable joint venture with Russian oligarchs. In return, BP accepted a 20% stake in Russian state-owned OAO Rosneft oil company (ROSN) and another $12.3 billion in cash.
This week, Abu Dhabi National Energy Company PJSC (TAQA) agreed to acquire over $1 billion in BP oil and gas assets in the UK North Sea.
Related Article: The Huge Risk-Reward Scenario In East Africa
Now that BP’s shares have fallen to their lowest point since July, is the company ripe for takeover?
Some analysts point out that because BP is the cheapest major non-state oil company in the world, its troubles make it a prime target for takeover.
Others disagree, saying BP is more likely to be split into parts than to be acquired. They say BP is too big to be merged, and even companies like ExxonMobil (NYSE: XOM)—whom analysts have speculated might be interested in acquiring BP—are not likely to bite. Here, analysts note that such an acquisition does not fit with ExxonMobil’s current strategy, which is to acquire unconventional assets.
oilprice has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!