BP surges after report of Shell bid

2011-01-04 12:38

London - Shares in oil major BP hit a six-month high on Tuesday, after The Daily Mail newspaper reported rival Royal Dutch Shell  had considered a takeover bid during the Gulf of Mexico oil spill.

BP shares were up 5% to 488.85 pence in morning trade.

The paper, citing sources close to the Anglo-Dutch group, reported that Shell weighed an opportunistic bid for BP as crude gushed into the Gulf, but was discouraged by the potentially uncapped legal liabilities.

The newspaper said Shell could yet bid for BP if another suitor emerged, but Europe's largest oil company by market value was unlikely to be the "first mover".

Mic Mills, head of electronic trading at ETX Capital, said BP was also being boosted by comments late on December 31 from the lawyer running BP's Gulf oil spill compensation fund that suggested damages payments could be half the expected level.

Ken Feinberg told Bloomberg Television about half the $20bn set up by BP should be adequate to cover claims for economic losses.

One dealer said the news reports focused minds on the fact that BP shares were cheap compared to rivals. "BP remains cheap and vulnerable at these levels but I do not think a bid is likely."

BP shares trade on a price-earnings ratio of 6.5 times, consensus 2011 earnings, while Shell trades at 8.9 times, partly reflecting that BP's actual earnings could be far lower if it was found to have been grossly negligent in causing the oil spill which would boost legal costs and fines.

However, Feinberg's comment highlighted how the picture could also be brighter than the company has predicted.

Analysts and industry sources said during the crisis last year it was likely that both US oil giant Exxon Mobil and Shell - the only companies considered large enough to mount a bid - would run the slide-rule over BP.

However, the two notoriously conservative companies were seen as likely to be discouraged by the open-ended nature of BP's liabilities.

Now that BP's shares have rebounded 65% from their June low at 296 pence to give BP a market value of around $140bn, a bid would be much harder to mount, especially for Shell which is worth over $210bn.

Exxon has a market value of almost $370bn.

It is uncertain whether regulators on either side of the Atlantic would support a tie-up in the top tier of the industry.

Shell stock traded up 0.8%, against a 2.1% rise in the STOXX Europe 600 Oil and Gas index which was lifted by crude prices which hovered near a 27-month high.