How BP became a potential takeover target

CNBC

2 days ago

For weeks, market tongues have been wagging about a potential merger between Britain's oil giants — until, ending weeks of speculation, Shell on Thursday denied reports that it's in talks to acquire BP.
But how did we get to the point that BP, a U.K. oil exploration company that was founded in 1909 under the name Anglo-Persian Oil Company, is now seen as a possible takeover target for its long time rival?
Back in 2020, under the guidance of then newly appointed CEO Bernard Looney, BP announced it would embark on a strategy to remake itself as a "a net-zero company by 2050 or sooner," while ramping up its investment in renewable energy projects. The energy giant committed to "performing while transforming" as it laid out this new strategy.
At the time, Looney acknowledged that the shift would be a challenge but argued that it was "also a tremendous opportunity".
Looney launched the strategy just as the Covid-19 pandemic was making its way across the world, triggering a demand shock and cratering crude prices. The energy giant posted its first full-year loss in a decade, but the company proceeded with its revamp, posting an annual profit in 2021 of $7.6 billion — before more than tripling to $27.65 billion in 2022, as Russia's invasion of Ukraine sent oil prices surging.
Looney lauded the results, telling CNBC the firm was now leaning into its strategy.
"We're announcing up to $8 billion more investment into the energy transition this decade and up to $8 billion more into oil and gas in support of energy security and energy affordability this decade," he said.
This increased investment into the company's energy transition was reinforced by forecasts, published in the 2023 edition of BP's Energy Outlook, that the share of fossil fuels in primary energy would fall from around 80% in 2019 to as low as 20% in 2050.
BP was left reeling when Bernard Looney abruptly announced his resignation in September 2023 after less than four years into the job, with the company revealing he had not been "fully transparent in his previous disclosures" about relationships in the workplace prior to becoming CEO.
Then Chief Financial Officer Murray Auchincloss stepped in as interim CEO before being appointed on a permanent basis in January 2024.
But the man who had driven the vision of BP as a renewable energy giant was now out of the building.
Declining annual profits in both 2023 and 2024, along with Looney's departure and a continued underperformance in BP's shares compared to its peers, raised fresh questions about the oil major's strategy and its future as a standalone company. Aside from Shell, Chevron and Exxon Mobil have also been touted as potential suitors for BP, while the Emirates' Adnoc has reportedly eyed some of its gas assets.
Activist investor Elliott reportedly built up a stake in the oil major in February, just before Auchincloss revealed BP's strategic reset that set out to ramp up investment in oil and gas and reduce the focus on renewables. Investors have yet to be impressed, with shares down 15% since that time.
Speaking to CNBC in April, Auchincloss brushed off concerns that the company was becoming a takeover target, saying "we're a strong, independent company. His peer, Shell CEO Wael Sawan, meanwhile told CNBC in June that "we have a very high bar" for M&A opportunities, but argued that the company continues to favor buying back its own shares.
Shell's robust rejection of these reports appears to have, for now, thrown cold water on a potential takeover bid for BP. Morningstar Senior Equity Analyst Allen Good has questioned the merits of a Shell deal for BP at this point, telling CNBC that "unless the valuation is super attractive" then it would probably not be worth the headache for executives.