博彩对冲

Reports this weekend that Shell is working with advisers to evaluate a potential acquisition of BP have captured the industry's attention as observers scramble to envision what a Shell-BP tie-up might look like. But with a firm bid far from certain, a bigger question looms: How has the once-mighty supermajor found itself in such a vulnerable position to begin with?

博彩对冲 understands that Shell is not alone among industry heavyweights in going through the process of thinking through a BP takeover, even if only as a valuation review exercise. And while BP鈥檚 current underperformance woes can rightfully be linked to former CEO Bernard Looney鈥檚 overly ambitious attempt at an energy transition-facing strategic pivot in 2020, focusing exclusively on those diversification missteps belies nearly two decades of one-step-forward, two-steps-back positioning that makes BP鈥檚 current vulnerability deserving of greater attention than the fanciful megamerger tales that often creep into the industry zeitgeist.

Whether BP is ultimately absorbed by a larger rival or carries on alone, sharp realities will inform its fate. The deep shadow still cast by the 2010 Macondo oil spill disaster in the US Gulf of Mexico is one such limiting factor. But more broadly, BP lacks the deep-seated corporate DNA that peers have been able to fall back on when trouble strikes, leaving it adrift at a time when investors have minimal appetite for gaps in strategic continuity given uncompromising demands for robust shareholder returns.

Shell, for example, reasserted its standing as the largest Western LNG portfolio player to refocus its value proposition after its own diversification missteps. Exxon Mobil successfully addressed its shareholder pressures by applying its deeply ingrained integrated engineering prowess onto better-positioned assets. But BP has spent much of this century swinging the pendulum between bold strategic bets under big personality CEOs and quieter capital stewardship attempting to mop up the costlier consequences of prior actions.

Potential suitors are now faced with weighing the opportunity of acquiring several billion barrels of proved reserves at a potential discount and vast potential savings from implementing sweeping cost control measures across BP鈥檚 asset base against the 鈥渃osts鈥� of filling in BP鈥檚 strategic void as well as taking on the firm's remaining Macondo liabilities and greater debt load.

A Bridge Too Far 

BP鈥檚 disappearance as a standalone oil major would be something of an ironic twist for the UK major, given that it was former CEO Lord Browne who championed and effectively instigated the megamerger consolidation of the late 1990s that reduced the 鈥淪even Sisters鈥� 鈥� the initial iterations of BP, Exxon, Mobil, Gulf, Chevron, Texaco and Shell 鈥� to four. But it is also Browne鈥檚 megamerger vision and determination to participate in that trend that helped set BP on its whipsawed strategic course.

BP鈥檚 $33 billion buyout of Los Angeles-based Atlantic Richfield (Arco) in April 2020 did not turn out as planned, with the major opting to proceed with the deal despite having to sell off Arco鈥檚 highly valuable Alaska North Slope assets to satiate US regulators. But attempts to still eke out initially promised cost savings and synergies set the stage for rampant cost-cutting and a trepidation among staff to report budget overruns 鈥� to the detriment of BP鈥檚 environmental and operational safety practices. BP鈥檚 financial performance meanwhile materially lagged its peers in the final years of Browne鈥檚 tenure.

Fast-tracked successor Tony Hayward took the helm in 2007 with a mandate to both address systemic safety and operational concerns as well as right BP鈥檚 financial ship. The young CEO found favor on Wall Street as his swift and significant restructuring moves put profitability at the fore. But the ghosts of BP鈥檚 operational risk-taking had yet to deal their sharpest blow.

That came on Apr. 20, 2010, when the deadly Macondo well blowout and resulting oil spill in the US Gulf of Mexico set BP on a course from which it has yet to fully recover and whose effects cannot be overstated.

BP stood at its market capitalization peak in January that year at $193 billion 鈥� roughly equal to Shell鈥檚 and second only to behemoth Exxon. BP similarly boasted the second-largest proved reserves portfolio and production profile of the majors at the time, buoyed by its 50% stake in Russian venture TNK-BP.

Now BP鈥檚 market cap of $76.3 billion sits closer to EOG Resources ($60.5 billion), a US shale-focused independent with less than half of BP鈥檚 production, than it does to the nearest major, France's TotalEnergies ($138.4 billion), data from Macrotrends.net shows. Independent E&P ConocoPhillips, which produces less than 2 million barrels of oil equivalent per day against BP鈥檚 2.3 million boe/d, boasts a market cap 50% greater than BP鈥檚.

To be sure, the loss of production and reserves via BP鈥檚 19.75% stake in Rosneft 鈥� which was acquired as part of a wider deal that saw BP鈥檚 troubled stake in TNK-BP sold to the Russian state oil giant in 2013 but debooked in 2022 following Russia鈥檚 invasion of Ukraine 鈥� dealt a big blow to BP鈥檚 status. Its production and reserves now sit at the bottom of its peer group, although with production roughly equal to Total鈥檚.

More broadly, however, the major has yet to come out from under Macondo.

The Shadow of Macondo

The 2010 oil spill disaster is estimated to have cost BP more than $65 billion, with the company still paying out around $1.1 billion annually through 2033. Those eye-watering sums alongside the vast amounts of human capital fixated on ensuring BP鈥檚 survival translated to something of a lost decade for the major.

Former CEO Bob Dudley, who was quickly ushered in to replace Hayward after a series of Macondo-related leadership blunders, is credited for stewarding BP through the unprecedented turmoil by keeping its finances and operations in order while facilitating massive divestments to foot the major's Macondo bill.

But as his tenure drew to a close in 2019, BP was left facing a fundamental question: What is BP aside from being a large international oil company? After all, 鈥渟urvivalist鈥� only goes so far as a corporate identity.

It is against this backdrop that Looney stepped in with his grand scheme to reinvent BP as the industry鈥檚 transition leader. In a best-case scenario, that strategy鈥檚 success required systemically lower oil and gas prices to aid renewables鈥� returns competitiveness, the preservation of BP鈥檚 Rosneft stake, accelerated customer demand and supportive policies for low-carbon energies, and near-flawless execution in its oil and gas business to ensure sufficient cash flows to pay investors and fund substantial low-carbon growth.

The loss of Rosneft was impossible to predict, and BP is hardly alone on missing calls on macro energy trends. But current CEO Murray Auchincloss finds himself in a similar position as predecessors Hayward and Dudley 鈥� charged with righting capital wrongs and bridging yawning gaps with peers. This time, however, it is far less clear that investors will accommodate his strategy.

Activist investor Elliott Management is breathing down the neck of the UK major, a first for BP. And with investors more broadly treating the oil sector as a near-term cash cow than a buy-and-forget long-term investment, the clock is ticking.