(BP poll updated for BP asset sales)
NEW YORK (
) -- Optimism about the latest effort from
to stanch the flow of oil from the Macondo well has presented M&A-focused investors with a question: If BP remains successful in capping the runaway well, will the embattled British oil giant be in a better position to remain independent, or will the end to the oil leak increase the appetite of M&A vultures in the oil and gas space?
BP finally said the words last Thursday afternoon that the world -- and the markets -- had been waiting for: the flow of oil into the Gulf of Mexico has stopped. BP began its delayed well integrity test on Thursday afternoon.
BP finally made the first in asset sales that the market is expecting, announcing on Tuesday that it had sold $7 billion worth of assets to
. BP also said on Tuesday that it was planning to sell as much as $1.7 billion in Vietnam and Pakistan assets also, nearing the $10 billion total in asset sales that BP previously said it would pursue. Raising cash from asset sales is seen as an important means for BP of assuring the markets that it can handle the liabilities resulting from the oil spill without running into bankruptcy or being taken over by a competitor.
BP shares sank early in the week when new concerns were expressed about its initial success with the cap, but on Wednesday, with its first asset sales completed, shares rose again by close to 3% at midday.
The cap can not be presented as a resounding success just yet. Over the weekend a new rift developed between the government and BP related to the cap success. There were concerns from the government that all was not well, and leaks from the well at the seafloor as a result of the cap could be a problem.
BP shares slumped in Monday trading, as the cap success -- BP's only major success in its effort to staunch the flow of oil over the past three months -- ran into its first hiccup.
U.S. Coast Guard Admiral Thad Allen, President Obama's point man in the Gulf, tried to provide assurance on Monday afternoon that the leaks were not a concern, and testing would continue on the well. The latest government assurances haven't put the new leak issue to rest for good, but it does seem that the government is willing to give BP the benefit of the doubt and keep the cap on unless the situation worsens in a hurry.
reported over the weekend that BP has started canvassing shareholders about a restructuring that could include a breakup of its businesses, with options including a sale of the group's refineries and petrol stations, and a general reduction in U.S. operations through asset sales.
There's no simple answer to the question about the impact of the BP good news, as far as its impact on all the M&A speculation. BP shares began traded up on Thursday, after it became clear that the well integrity test was moving ahead and showing signs of success. BP shares surged by 7.5%, but they slumped on Friday. After Monday morning's decline in BP shares, they were back under $36, but with the Apache deal have climbed back up on Wednesday.
In fact, it's been a two-step in BP share trading over the past several weeks. Ever since fears of a hurricane in the Gulf of Mexico sunk BP shares to an oil spill low of $27 on June 25, BP shares have rallied.
Optimism that the relief wells being drilled by BP will put an end to the Macondo well leak ahead of scheduled have since been reinforced by the new containment cap's potential to stop the oil gusher, at least until those relief wells have reached their intercept target. At the same time, M&A speculation involving BP has continued, like the oil gusher, unabated.
A question inherent in the two-step involving (1) the BP effort to stop the well and (2) the M&A speculation, is whether one foot follows the other. In other words, as BP finally puts an end to the oil leak, will the fight over the company's fate begin to heat up, as major oil and gas companies can put aside their worst fears of a runaway well continuing to gush?
Last Thursday the M&A speculation was in lock step with the cap success as BP shares rose, with BP reportedly near completion of a deal with independent oil and gas company Apache.
Neither the cap or the Apache deal can put to rest the uncertainty over the fate of BP. After all, estimates for liabilities from the oil spill range from as low as $20 billion to as high as $100 billion. Environmental economists with the non-profit
Resources for the Future
-- who unlike Street analysts have experience modeling the economic impact of environmental disasters, including the Exxon Valdez -- have said that the BP oil spill liabilities could easily exceed $60 billion to $90 billion.
In that case, a $10 billion asset raise from the BP/Apache deal and Asian asset sales would be bare minimum coverage for oil spill liabilities, or in the least, far from enough to put to rest concerns about BP's ability to remain independent, or avoid bankruptcy.
In the latest signs of what is yet to come in BP's long-term battle in the U.S., on Wednesday, state pension fund officials in the U.S. were fighting over the right to lead lawsuits against BP.
Times of London
provided the latest M&A speculation, with the U.K. paper writing on Wednesday that BP CEO Tony Hayward would be leaving his post within 10 weeks as BP prepares to fight takeover attempts from the oil majors. BP denied the claims made by the British paper.
It's not just the integrated oil companies like
Royal Dutch Shell
that are being bandied about in the BP rumor mill.
There have been reports that the Chinese national oil companies, like
are anxious to acquire BP; that India's
is interested in making a bid for BP; and that sovereign wealth funds in the Middle East could take equity stakes in BP as another way for the oil giant to raise cash to meets its oil spill obligations.
Loretta Cross, managing partner of Grant Thornton's restructuring business told
that the real M&A action involving BP would not occur until the runaway Macondo well was under control, and at that point, the circling vultures would finally descend.
That's not the only opinion. An argument to the contrary runs that if one of the integrated oil giants wanted to acquire BP, it would have done so when BP reached its all-time low share price during the oil spill. It's an argument supported by "do the math" logic: buy at the lowest possible price.
Though this argument assumes that a company interested in a takeover as massive and problematic as BP would be primarily triggered by a $27 share price, even though there was no guarantee, even at the BP oil spill low, that the stock wouldn't still go lower. It seems that a lot more thought would be going into a BP acquisition than just a specific share price serving as the call to action. Even with its recent rally, BP shares are still trading at a 40% discount to their pre-oil spill price, so it's not as if BP is suddenly an expensive stock either.
Indeed, it all raises the question,
If BP finally takes control of the leaking Macondo oil well, will the big M&A action finally come into focus, or fade away?
Take our poll below to see what
-- Written by Eric Rosenbaum from New York.
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