Bailout

Buying BP

By Felix Salmon

Did the markets really think the top kill was going to work? Evidently so — BP shares fell 15% today, to $36.52. But before we declare this the end of BP, let’s put this in perspective: the shares traded as low as $34.06 in March 2009. And over the last three years, BP is down 46%, compared to 30% for the S&P 500 (and Exxon Mobil) and 93% for Citigroup.

The most likely fate for BP at this point isn’t death but rather takeover. There’s been a lot of speculation along those lines, and with BP’s leadership looking even weaker than its stock price, the rest of Big Oil is surely salivating at the prospect of picking BP up without much difficulty.

What’s more, BP could easily be broken up, like ABN Amro, and divvied up according to its various geographical units. Here’s what the analysts at Norwegian financial group DnB NOR are thinking:

If several companies were to bid on BP ? on a combined basis ? Exxon, Royal Dutch Shell, Total and Statoil would fit well together. Then more companies could split the risk of the final massive oil spill bill.

My guess is that this kind of a disappearance into the footnotes of oil history is now the base-case scenario, and the main thing supporting the BP share price. The Deepwater Horizon catastrophe might well spell the end of BP as an independent company, and it’s unspeakably tragic for hundreds of thousands of families in the Gulf. But it might just represent the opportunity that ambitious oil executives in other companies have long dreamed of — and I doubt that BP shareholders, scared as they are of billions of dollars in possible costs and fines, would put up much of a fight.

Full post as published by Macroprudential on June 01, 2010 (boomark / email).