BP Takeover Unlikely, Industry Members Say

BP being taken over by ExxonMobil is a far-fetched scenario.

July 12, 2010, 4:34 PM

July 13, 2010— -- Reports that ExxonMobil might be looking to take over BP, struggling to contain a massive oil leak in the Gulf of Mexico and facing tens of billions in liability for the disaster, are "far-fetched," analysts say, but they still helped boost the company's stock.

BP shares jumped 9 percent Monday on new containment hopes in the Gulf, and following a report in London's Sunday Times that the giant British oil company was being targeted for takeover by rival ExxonMobil Corp.

While investment bankers and energy analysts were quick to dismiss any such takeover talk as implausible, however, they suggested that separate, simultaneous news reports -- asserting that BP was in discussions to sell off a major oil field stake in Alaska -- are likely spot on.

"There's absolutely no way the board of directors at ExxonMobil would ever sign off on a deal to buy BP when the total liability for this disaster is still an unknown," said one New York-based investment banker who described himself as being close to BP. He insisted his name not be used.

"[BP being taken over by ExxonMobil] seems far-fetched," said Lysle Brinker, co-head of the equity department at IHS Herold, which focuses on energy sector research. Brinker has been following the BP saga closely and several weeks ago predicted the company could not survive without some form of asset sale.

A call to ExxonMobil was not returned.

The Sunday Times and Reuters both reported that BP was in talks with Houston-based Apache Corporation to acquire BP's stake in the Prudhoe Bay, Alaska, oil field. Reuters pegged the deal at around $10 billion.

This BP-Apache scenario seemed much more plausible, Brinker and other analysts said.

For the past decade, Apache has been pursuing a strategy of snapping up undervalued, maturing oil and gas assets that larger energy companies are looking to discard under the rationale that they are close to being tapped out.

In 2003, Apache paid $1.3 billion to buy some BP oil fields in the North Sea and the Gulf of Mexico. Three years later, Apache paid $845 billion for some BP oil fields in the Gulf, on the Outer Continental Shelf.

This past April, Apache announced it would spend $4 billion to buy Mariner Energy, which specializes in deepwater exploration. That deal is still pending regulatory and shareholder approval.

Apache also just closed a deal to buy Devon Energy's Gulf of Mexico shallow water assets for $1.05 billion.

Silence on the Street

By midday Monday, Apache's shares had tumbled nearly 4 percent, as traders and investors seemed to view the Prudhoe price tag as being too steep for Apache to absorb easily. Shares eventually closed down 3 percent, to $85.07.

Including the two recent deals, Apache, which has a market capitalization of $30 billion, has spent a total of $10 billion on strategic acquisitions during the past decade.

"Let's just say that I know Apache very well, and I can tell you the Prudhoe Bay deal is right up their alley," the New York-based energy investment banker said.

Neither BP nor Apache would comment on media reports that the companies were in talks.

"We don't comment on rumors or speculation," said Apache spokesman Bill Mintz.

Scott Dean, a BP spokesman, did not return two phone calls. Another BP spokesman, Steve Rinehart, told The Associated Press Monday that the company had no comment.

Major stock analysts who cover Apache for several large Wall Street banks, including Goldman Sachs, Bank of America-Merrill Lynch, Credit Suisse and Deutsche Bank, all also declined comment.

At least one of those analysts admitted off the record he was "restricted" from discussing Apache at the moment, although it was not made clear why that was the case.

CNBC reported last month that BP had hired Goldman Sachs and Credit Suisse as investment bankers.

BP owns 26 percent of the Prudhoe Bay field, the largest in North America. ExxonMobil holds a 36 percent stake. ConocoPhillips (36 percent) and Chevron (2 percent) own the rest. It's possible that if ExxonMobil did seek permission from the Obama administration to pursue a deal with BP, it could be to merely acquire some stakes in properties that both companies currently co-own, Brinker theorized.

BP on Monday was trying to put a tighter-fitting containment system over the leaking undersea well, one which could capture close to all of the leaking oil by week's end. A permanent fix by way of relief wells was expected by the middle of next month.

The latest projected BP liability tab was, in a recent research note from Goldman Sachs, pegged at $80 billion.

Any notion that BP is in a panicked rush to raise cash is mistaken, said the banker close to BP.

"These liabilities will be paid out over a long period of time," he said. "So they do not need to act hastily."

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