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Page added on May 17, 2017

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Will Exxon Mobil Buy BP?

Business

Summary

Exxon Mobil holds the best balance sheet; thus, is in a position to consolidate the industry.

Big deals have happened when oil prices were low.

BP is very cheap relative to the huge reserves the company owns.

XOM could finance such an acquisition relatively easily via a 50% equity/50% cash deal.

Regulatory headwinds and concerns of the British government are headwinds to a deal.

This spring chatter about a deal between Exxon Mobil (NYSE:XOM) and BP (NYSE:BP) resurfaced, which sent BP’s shares higher for a while. A takeover by Exxon Mobil would be possible and could turn out positive for Exxon Mobil’s shareholders, but there are hurdles to a deal like this; thus, it is not very likely.

BP Chart

BP data by YCharts

The rationale for such a deal is easily explained: BP’s share price is comparatively low right now, which means the company’s market capitalization and thus also the takeover price are rather low right now as well. Market consolidation happens during oil price downturns, such as the mergers that created Exxon Mobil (Exxon + Mobil in 1999) and Chevron (NYSE:CVX) (Chevron + Texaco in 2001) around the year 2000, when oil was trading even below current levels:

WTI Crude Oil Spot Price Chart

WTI Crude Oil Spot Price data by YCharts

The current downturn in oil markets led to one big takeover so far (When Shell (NYSE:RDS.A)(NYSE:RDS.B) acquired BG Group for $70 billion), but Exxon Mobil hasn’t made any big moves yet, despite owning the best balance sheet in the industry, which poises the company to make a big move.

Seeeking Alpha



18 Comments on "Will Exxon Mobil Buy BP?"

  1. CIA-MOLE on Wed, 17th May 2017 7:35 am 

    Since finance is the leading force in any industry venture, this gives me hope because it leaves out many other real possibilities that’s not been explored.

  2. Dredd on Wed, 17th May 2017 8:59 am 

    No matter how much is paid, improper or meaningless measurements lead to an improper or meaningless world (The World According To Measurements – 3).

  3. bobinget on Wed, 17th May 2017 11:28 am 

    BP, going deeper into debt continuing paying dividends to all those widows and orphans….
    Kidding about orphans.

    XOM (formally Exxon and Mobile.Call the new company Ex Mobile British Petroleum (EMBP)

    The combined could simply swing another IPO thereby
    raising enough cash to invade the Arctic.

    I gotta get a new hobby.

  4. Midnight Oil on Wed, 17th May 2017 11:31 am 

    Most definitely!
    Wasn’t it Barry Goldwater who said that Communist China would one day become more like us and we become more like us?
    Now all we need is for Exxon/Mobile/BP to merge with TRUMP Inc. and go on from there.
    Banks next!

  5. rockman on Wed, 17th May 2017 12:31 pm 

    “XOM could finance such an acquisition relatively easily via a 50% equity/50% cash deal.” Actually if such a deal happens it might not cost XOM $1 of cash…borrowed or out of their fat piggy bank. Typically such large acquisitions are done via a stock swap. By issuing new stock that allows a premium to be paid to the shareholders provides the major BP owners (funds etc) to immediate book a higher return. While its stock is currently above its 20 year low of $27/share the current price {$36.50/share) it’s still 30% lower then its recent high of $53/share just 3 years ago. And over that same 3 year period its debt to equity ratio has increased 70%.

    The Brit govt might not like the idea but in the end the major BP share holders will have the final decision. One small silver lining if it happens: the largest supplier of fuel globally, currently BP, to the US DOD will become an American corporation.

    Timing is always critical for both sides: the XOM acquisition of XTO’s huge NG reserves came just before a significant slump in prices. But as the former CEO explained a year after the deal closed XOM, as always, is in it for the long game. “Tillerson noted that the XTO deal was predicated on a 30-40 year outlook that sees natural gas growing in importance as part of the global energy mix. The company’s outlook to 2040 envisaged global demand for NG will grow by 65% between 2010 and 2040, and overtake coal as the world’s second-most widely used source of energy.”

    Which takes us full circle to the ridiculous claim some make that PO will “destroy” the petroleum industry. It will certainly lead to the eventual disappearance of many companies small and large. But those remaining will still be producing what reserves are remaining. And there will be periods (as there has always been) when those companies will earn very nice profits subject to the condition of the global economy.

    Yes: regardless of what some thermodynamic models might predict there are some great days ahead for the CONSOLIDATED petroleum industry. Just as there has been on a number of occasions over the last 100 years or so. Remember companies are currently acquiring PROVED PRODUCING oil reserves for considerably less then they were able to do so by drilling. Consider the possibility that XOM might acquire the BP reserves for around $12 to $18 per bbl…the common range over the last year. If oil were to fall to $25/bbl XOM would still be making a nice profit from a BP acquisition.

  6. dave thompson on Wed, 17th May 2017 12:56 pm 

    Why not just merge all of the oil companies into one? What could possibly go wrong?

  7. Plantagenet on Wed, 17th May 2017 1:22 pm 

    The future is shale oil and BP does’t have any good shale oil holdings so Exxon won’t buy them.

    Instead, look for Exxon to go after Pioneer or one of the other oil companies with excellent land positions in the Texas Permian shale oil play.

    Cheers!

  8. rockman on Wed, 17th May 2017 1:41 pm 

    ExxonMobil, if it did acquire BP or any other company, will have minimal interest in undrilled acreage, As I mentioned the primary goal would be acquiring BP’s proved PRODUCING reserves. If XOM wanted to drill the shales for oil they could CHEAPLY acquire 100’s of thousands of acres from companies that have been crippled by low oil prices. It wouldn’t pay BP shareholders the required PREMIUM PRICE to pick up a bunch of leases that have, at most, just a few years before they expire. That would require XOM to go into a huge and very expensive drilling program. And that would mean greatly expanding its drilling budget…which would be just the opposite of what it has announced.

    In reality acquiring a company with much of it’s reserve base represented by shale production wouldn’t look very attractive. Recent wells would still be going thru their high decline rate phase and the older wells have declined to relatively low production rates. And while those older wells would have a much lower decline rate they also tend to have much higher lifting costs.

    Acquisition of PROVED PRODUCING is always based upon the NET PRESSENT VALUE of hose reserves. And in general fracture shale reservoirs tend to appear rather poorly in that light.

  9. rockman on Wed, 17th May 2017 1:51 pm 

    dave – “Why not just merge all of the oil companies into one?” That process has been underway for many decades and will continue into the future.

    What could go wrong? Imagine a future world when most oil production is owned by a few companies. Especially when the state owned oil companies make up the majority. It would probably look similar to the situation in the 1950’s when the Texas Rail Road Commission had absolute control over how much oil the world had access to and thus the price.

    Such thoughts might have you laying in bed at night starring at the ceiling. LOL.

  10. Kenz300 on Wed, 17th May 2017 3:57 pm 

    Fossil fuel companies need to divest from fossil fuels and move to acquire clean energy resources. Doubling down will leave more stranded assets.

  11. dave thompson on Wed, 17th May 2017 10:19 pm 

    “Such thoughts might have you laying in bed at night starring at the ceiling.” YEA SURE ROCK,maybe you did not pick up on the sarcasm.

  12. rockman on Wed, 17th May 2017 10:38 pm 

    Dave – No, that’s why I sarc’d right back at you. But I probably should have warned you. LOL.

  13. bobinget on Thu, 18th May 2017 9:30 am 

    http://oilprice.com/Geopolitics/International/Venezuelas-Oil-Production-On-The-Brink-Of-Collapse.html

    Predictions of dearth of Venezuelan exports, already becoming unavoidable.

    Few seem to be paying attention to Venezuela on a humanitarian basis, even almost certain petroleum
    shortages.

    When, not if, production slows to a point where there’s no gasoline or diesel the government will collapse.
    Refineries are complicated machines. Even with good maintenance, refineries burst into flame. One thing is certain, ‘good’ Venezuelan maintenance won’t be available anytime soon.

    Less certain, will Chinese money, Russian personal
    will be able to save the existing Maduro government.

    AS I’ve said in the past, because President Trump and his entire staff are in crisis mode, only China may step up to the plate are attempt to salvage what remains
    ofVenezuelan oil bidness.

    Real life: China and Russia will control a percentage of US oil supply. (Russia ‘owns’ CITGO) China ‘Owns”
    Venezuelan oil.

    Fasten seat belts. For investors, watch Canada.

  14. bobinget on Thu, 18th May 2017 10:15 am 

    PS, This just in:
    Mnuchin on Venezuela
    Dodged question re Russia taking over Venezuela’s assets after a default. Said he would discuss in confidential hearing.

    Question misstated. Russia will foreclose on Venezuela’s CITGO, Not (all) Venezuela’s ‘assets’.

    In order to raise cash and avoid US lenders from
    grabbing CITGO’s real-estate, refineries, etc.
    Russia stepped up and somehow gained control.
    Congressional contributors are worried about getting 100% screwed. (they will)

    Bigger picture: The US loses almost all Venezuelan crude oil exports. (one million B p/d in good times.)
    Russia can sell off substantial real-estate, take profits.
    If Russia can’t get enough heavy oil into the US, Russia
    can sell those large refineries to Suncor or CNQ etc.
    (Suncor has two US refineries near Denver)

    Losing Venezuelan crude will most certainly get XL
    pipeline going as a matter of need.

    When traders figure this out, Crude will spike.
    Our economies can’t deal with crude over that magic $100. a barrel number. This is when I plan to sell.

  15. dave thompson on Thu, 18th May 2017 10:45 am 

    Rock;” Dave – No, that’s why I sarc’d right back at you. But I probably should have warned you. LOL.” That is the problem with online sarcasm you proved it well, most do not get it you and me included.

  16. tk on Fri, 19th May 2017 5:46 am 

    Ahh… the final cannibalizing phase started…

    “global corp becomes global corpse”

    last “name” standing…

  17. onlooker on Fri, 19th May 2017 6:22 am 

    Yep, the battle of attrition continues

  18. rockman on Fri, 19th May 2017 9:44 am 

    Bob – “Russia can sell off substantial real-estate, take profits. If Russia can’t get enough heavy oil into the US, Russia can sell those large refineries to Suncor or CNQ etc.”

    You’re talking about physical assets in Venezuela, right? If the Russia actually got such legal ownership (questionable IMHO) you do understand the Russians would only be taking over smoking piles of rubble…right? LOL.

    The only hope for Russia or China to get any payment out of Vz is the IMF. And then only if Vz remains solvent enough to continue to have functioning international trade. It always tickles me to see silly folks laugh about companies suing countries and the inability to get judgements paid. Like the US majors oil company that won a $850 MILLION judgement against a S American country over its illegal confiscation of some of its in country assets.

    And the country paid Big Oil every f*cking penny. LOL. And did so because the IMF said it wouldn’t facilitate the country’s international trade if it didn’t. What, you don’t remember seeing that headline? Of course not: all parties were sworn to secrecy…at the demand of the IMF. The only reason I know is that my stepdaughter was part of that Big Oil legal team.

    And she only told me me because I promised not to repeat the story. Silly girl. LOL. But it happened years ago so no harm, no foul.

    The IMF aspect is not part of some conspiracy theory. In general the IMF doesn’t make much effort to hide its huge power in world affairs.

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