ALEX BRUMMER: BP's survival is core to UK

BP’s Future: A Critical Juncture for the UK Economy

Strategic missteps and leadership instability have rendered BP susceptible to a potential acquisition. This oil and gas giant faces significant vulnerability, particularly with its outgoing chairman, Helge Lund, remaining in position without the impetus to mount a strong defense or secure adequate shareholder value.

Leadership Vacuum and the Need for Swift Action

It is imperative that Dame Amanda Blanc, spearheading the search for Lund’s replacement, acts decisively. Companies facing adversity have the prerogative to expedite typically slow governance procedures.

The Impact of Leadership Changes on BP

Bernard Looney’s focus on green initiatives, coupled with the circumstances surrounding his departure, have proven detrimental to BP.

His successor, Murray Auchincloss, has yet to stabilize the company. The concurrent change of both chairman and chief executive is uncommon, yet sometimes unavoidable.

BP’s Valuation and Potential Suitors

With a market capitalization of approximately £58 billion, BP represents a considerable bargain, given its estimated sum-of-the-parts valuation of £120 billion.

It is unsurprising that competitors such as Chevron, ExxonMobil, Total, and Middle Eastern investors are evaluating this FTSE 100 heavyweight.

As previously reported, senior investment bankers have been advocating for the creation of an all-British oil major through a merger of Shell and BP.

Protecting BP’s Identity and Independence

A dismantling or transfer of BP to overseas ownership should be off the table.

Unlike BAE Systems or Rolls-Royce, BP lacks a golden share to safeguard its autonomy.

Nevertheless, this 116-year-old UK enterprise, originally established as the Anglo-Persian Oil Company, is deeply embedded in the nation’s economic fabric.

Over the decades, it has exerted significant influence on both the political and economic landscape for Britain globally.

It also possesses an exceptional history in the exploration and production of liquefied natural gas and oil, in addition to a premier trading operation.

Moreover, having weathered a severe crisis in 2010 following the Deepwater Horizon incident in the Gulf of Mexico, the recent 28% decline in stock value pales in comparison.

It should be remembered how Texan Bob Dudley revitalized the company after former US President Barack Obama exploited its challenges for political gain.

Shareholder Analysis and Defense Strategies

An examination of BP’s shareholder registry indicates the difficulty in protecting it from foreign acquirers.

BlackRock possesses a substantial 9.27% stake. Legal & General is the largest UK shareholder, holding just 1.03% and ranking seventh overall.

This leaves BP vulnerable, relying on a Labour government that has voiced opposition to fossil fuels, despite the significant investments big oil companies are making in green initiatives such as hydrogen.

The most effective defense for BP lies in implementing swift leadership changes, similar to those seen at Unilever and other companies.

Potential Merger with Shell: A Viable Option?

If a transaction is unavoidable, a merger with Shell would represent the least unfavorable result, even though Shell’s chief executive, Wael Sawan, has publicly stated that share repurchases are preferable to creating a UK-based competitor to ExxonMobil.

However, large-scale deals are notoriously complex to execute smoothly and successfully.

A Shell transaction carries the added risk of the Anglo-Dutch group potentially relocating its listing to New York.

Conclusion: Prioritizing British Independence for BP

The top priority for BP should be maintaining its British identity and operational independence.