Assets Exceed Market Value: Competitors Bid for Troubled BP

Introduction: BP’s Stock Price Has Plunged Over the Past Year, Putting the Company at Risk of Acquisition BP’s sharp stock decline has placed this British energy giant at risk of acquisition, as competitors are weighing offers at steep discounts—potentially ending its 116-year history of independent operation. According to industry insiders and advisors, publicly listed companies including Shell, Chevron, ExxonMobil, TotalEnergies, and Abu Dhabi National Oil Company (ADNOC) have each run their own financial models; commodity trader Vitol may also be interested in certain parts of BP’s business. Sum-of-the-parts valuations suggest BP’s assets—excluding debt and liabilities—are worth over £120 billion, more than double its current market capitalization of £57 billion. Its stock has tumbled sharply over the past 12 months. “BP’s persistent underperformance has left it vulnerable to acquisition.” M&A teams at major oil companies routinely assess the commercial feasibility of large-scale acquisitions. Although any deal involving BP would likely be highly complex—raising competition and political concerns—the potential returns are substantial. UBS estimates that BP’s oil and gas assets—including its Gulf of Mexico holdings—and its U.S. shale business alone are valued at $82 billion—higher than BP’s entire market capitalization. Yet this British company carries $77 billion in debt and long-term liabilities, including obligations stemming from the 2010 Deepwater Horizon oil spill. Acquiring BP would transform Shell into an energy behemoth producing nearly 5 million barrels of oil and gas per day—surpassing both ExxonMobil and Chevron. Shell would also command up to one-quarter of the global liquefied natural gas (LNG) market and gain a major foothold in the United States. Shell’s chairman spent over two decades working at BP, and Shell has previously considered merging with BP on multiple occasions—including a formal proposal in 2004. BP’s former CEO described such a merger as a “match made in heaven.” Over most of the past two years, Shell has been strengthening its financial position. The company holds “over $35 billion” in cash and is “very capable” of executing such a transaction. For Shell, the most attractive components of BP’s portfolio are its natural gas and LNG assets. Shell has stated its ambition to become “the undisputed leader in integrated natural gas and LNG.” Yet when asked whether it intends to acquire BP, Shell emphasized that share buybacks offer greater value to its investors. Analysts remain uncertain about the transaction’s merits. “It’s difficult to make precise estimates,” they note—questioning whether Shell would even want BP’s trading operations, refineries, or its assets in Azerbaijan, India, Iraq, and Abu Dhabi. “Shell stands to benefit more by continuing to execute its (current) strategy.” According to insiders at both companies, integration would take years due to starkly different corporate cultures—and could result in tens of thousands of job losses—a potentially sensitive political issue for the UK government. But Shell’s opportunity cost of inaction may be high. “Will they really stand by and let someone else acquire BP?”

Case Study: Corporate Governance and Lessons Learned from BP (British Petroleum)

British Petroleum (BP) was founded in 1909 and is one of the world’s leading oil and gas enterprises. Headquartered in London, BP operates production and business activities in over 70 countries worldwide. It employs 74,500 people globally, and its shares are listed on both the London Stock Exchange and the New York Stock Exchange. In the 2021 Fortune Global 500 ranking, BP ranked 18th with $183.5 billion in revenue. I. BP’s Equity Structure and Evolution of Business Operations BP began as a private oil company engaged in petroleum exploration in Iran. Facing chronic capital shortages, its business development stalled. In 1913, the UK government—recognizing the richness of Iran’s oil resources—acquired BP, providing it with both financial backing and political support. The UK government held a majority stake (51%) and adopted a relatively hands-off management approach: appointing only two directors to BP’s board and refraining from interfering in commercial operations; its veto power at the board level was limited solely to foreign policy matters. In 1977, the UK launched its state-owned enterprise privatization program, beginning with the sale of 19% of its BP stake. By 1987, the government had fully divested its remaining BP shares, completing privatization. Today, BP has over one million shareholders. BlackRock, Inc., an investment management firm, is BP’s largest single shareholder, holding 8.79% of its shares. In 2020, BP announced its commitment to achieving net zero across its operations by 2050—or sooner—and to helping the world transition toward zero emissions. To realize this vision, BP has evolved into a more focused and integrated company, organized into four core business segments: Production & Operations; Customers & Products; Gas & Low Carbon Energy; and Innovation & Engineering—each designed to drive performance and value creation. Three integrated organizations—Strategy & Sustainability; Regional Affairs & Cities Low-Carbon Solutions; and Trading & Shipping—identify new opportunities and maximize their value. Four central functions—Finance, Legal, People & Culture, and Corporate Communications & Government Affairs—support operational execution. II. BP’s Corporate Governance Model As a multinational oil company with over a century of history, BP has developed a mature and robust corporate governance structure. BP adopts a unitary board system: shareholders, as owners, retain the right to elect or remove directors—including the right to sue individual directors—but once authority is delegated to the board, shareholders may not interfere arbitrarily in board decision-making. This well-developed governance framework provides a solid foundation for BP’s effective organizational design and internal management practices. During 2020, BP enhanced its governance effectiveness by building an integrated operating system spanning goals, strategy, culture, and values—with an overarching focus on formulating BP’s new strategy to support its transformation into an integrated energy company, while maintaining rigorous performance oversight. 1. Goals: Consider BP’s purpose—its foundational decision-making criterion—and monitor whether BP’s strategy, values, and culture remain aligned with that purpose. 2. Strategy: Receive regular updates to assess whether the board’s strategic direction continues to represent the optimal path for BP’s long-term, sustainable success—consistent with its stated purpose.

BP sells stake in Norway's Aker BP at 12% discount

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British oil major BP sold a 5% stake in Norway's Aker BP for $1.06 billion at a 12% discount. The remaining 10.9% holding will be subject to a 90-day lock-up period following the transaction.

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