Posted: January 25th, 2017
Can Britain retain ownership of its former imperial oil company – BP? BP was a member of the “Seven Sisters” collective of international oil companies in the 1970s, rubbing shoulders with Exxon and Shell as one of the top 3 oil giants of that era. Since then, it has encountered several troubles, not least of which was its involvement with the Texas City refinery fire and the Deepwater Horizon disaster in the Gulf of Mexico in 2010. The cost of the Gulf of Mexico debacle, at $43 billion and still counting, in fines, legal costs and clean-up has seen enter into asset sales of some $40 billion to help finance these gigantic bills. Whilst doggedly maintaining its generous shareholder dividends, on which many private and institutional portfolios rely on both sides of the Atlantic, BP shares have fallen by one-fifth in the past 10 years. This contrasts significantly with broader stock market indices which show growth of some 20% in the same period. Shareholders have become nervous, not only because the dividend returns are slightly negative, even if the yield remains good and attractive, but that BP is rapidly becoming a potential take-over target. Stock market capitalisation is still large at $107 billion, but in April 2010 BP’s market capitalisation was at a high of $190 billion. BP still has some strengths – its expertise in deep-water drilling and a 20% stake in Rosneft, Russia’s biggest oil company. More recent reactions by BP senior management to falling oil prices and the ongoing USA lawsuits have seen a 15% reduction in capital expenditure this year, and the announcement of a $1 billion restructuring programme. Is all this enough to keep BP independent, or will rivals seek to capitalise on BP’s weakness and make a take-over bid for it? In a 2,000-word essay, discuss both the attractions and disadvantages of BP as a possible take-over target, and identify the most probable bidders for BP. Give some examples of the problems that face these potential bidders in terms of political issues and managerial styles. Discuss whether a continuation of low oil prices, as seen in the first quarter of 2015, will accelerate any take-over bid, or would low prices be another barrier. Your own interpretations and conclusions from your researches are fundamental. Supporting your own arguments in a robust and objective manner will qualify for better marks than a simple re-statement of the data and opinion found in the research. Total marks for assignment
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