What Would Happen If BP Broke Up?

oilbarrel.com (06/09/2010)
"BP has seen its shares fall by 30% since one of its oil wells started to gush into the waters of the Gulf of Mexico in April. Its market cap has shrunk by an estimated £42 billion. The company managed to fit a partial cap on the well, but it seems that it will continue to spew forth until two relief wells are finalized and that will not be until August. The spill is now recognized as the worse oil accident ever; greater that the Exxon Valdez disaster in 1989. The cost of BP's attempts to plug the well is put at US$22 million a day. The total claims against BP are expected to run into many billions of dollars.

Tony Hayward, BP's beleaguered CEO is said to have enraged President Obama by going ahead with a dividend payment of £7 billion. The oil giant is the UK's biggest dividend payer accounting for £1 in every six £6 that goes to pension funds. This is barely understood in the U.S. where there is a feeling that Hayward should not be paying out dividends to rich shareholders in Britain, at a time when he should be settling claims from fishermen and small businesses in the U.S.

Hayward is now said to be America's most hated man. All kinds of sanctions have been threatened from criminal investigations to measures that would lead to the breakup or takeover of BP. Washington, it is said could make life so hard for BP—denying it licenses, cutting it out of contracts, piling on fines—that it would be forced to sell out or broken up.

This is unlikely to happen. A third of America's oil comes from offshore, and BP is the biggest operator. The U.S. is always worried about security of oil supply. It seems likely that once the well is plugged then the political climate will cool, and BP will probably survive.

But you can't help wondering what would happen if BP were forced out of the U.S. and broken up. I thought of this when there was news of a new oil discovery in the UK North Sea in the past week. BP was in at the start of the discoveries in the North Sea in the 1970s. While 40% of BP's assets are now said to be in the U.S., some 5% remain in the North Sea. This is 5% of a lot of assets. The North Sea is in decline it is said, yet there clearly continues to be much to go for.

There do not seem to be large elephant fields to be found in the North Sea, anymore. But there are many smaller pools. Some estimates suggest there could be as a much as 20 billion BOE in place still to be exploited in the UK sector of the North Sea. Assets there are actively sought by companies.

BP's acreage would be a prize worth having in the event of a breakup of the company. But it probably won't happen."

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