BP Planning a Share Buyback, Eyeing Russia for Cash

on Nov 19, 2012

On November 18, the Sunday Times reported that the UK oil giant BP (LON:BP) was planning a share buyback of up to £3.7 billion with the purpose of lifting its share price. Last week, the UK energy group agreed to pay record criminal penalties over the Gulf of Mexico disaster, which triggered the worst oil spill in US history.

**BP Believed to Be Planning a Share Buyback**
The Sunday Times reports that BP believes that it could safely spend up to £3.7 billion to revive its flagging share price, with the UK oil giant’s shares worth around a third less than before the Gulf of Mexico oil spill. The Financial Times reports that the share buyback, which could come early in 2013, is likely to be funded by means of the proceeds from the sale of BP’s half of the TNK-BP Russian joint venture.

Last month, BP announced that it was selling its 50 percent stake in TNK-BP to the Russian oil giant Rosneft (MCX:ROSN) for a mix of cash and shares, which would leave the UK oil company holding a 19.75 percent stake in Rosneft.
The Sunday Times reports that BP could also increase its dividend which was stopped after the 2010 spill, but has been restored at just over half its pre-spill level.

**The Oil Giant Settles Criminal Charges for $4.5 Billion**
!m[UK Oil Company Agreed To A $4.5 Billion Gulf Spill Settlement ](/uploads/story/846/thumbs/pic1_inline.png)The buyback news comes shortly after BP agreed to pay $4.5 billion to resolve criminal and civil charges over the rig explosion in the Gulf of Mexico which killed 11 workers. In a statement on November 15, the company said its agreement with the US government, subject to court approval, would resolve all federal criminal charges and all claims by the Securities and Exchange Commission (SEC) against the company. BP, however, is expected to have to pay more to settle remaining civil claims, including the possibility of hefty fines under the Clean Water Act.

“We believe this resolution is in the best interest of BP and its shareholders,” noted BP’s Chairman Carl-Henric Svanberg in a company press release. “It removes two significant legal risks and allows us to vigorously defend the company against the remaining civil claims.”
**Takeover Target?**
The Financial Times quotes some observers as saying that BP is unlikely to proceed with the share buyback until after it has settled all remaining Gulf of Mexico claims. In the meantime, however, the UK oil company is seen as a potential takeover target, with Bloomberg reporting that it is the cheapest of the world’s five biggest non-state oil companies by market value relative to reserves, earnings and output.

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“You can absolutely make the case that it’s a potential takeover target” once BP’s US settlement and the Russia deal are completed, notes Julian Birkinshaw, a professor of strategy and entrepreneurship at the London Business School, as quoted by Bloomberg. “BP has been fighting wars on both the eastern and western fronts” which held back buyers.
The Sunday Times reports that Royal Dutch Shell (LON:RDSA, LON:RDSB, NYSE:RDS.A, NYSE:RDS.B) has considered a bid for BP in the past, whereas Chevron (NYSE:CVX) is another possible suitor. Yet, Bloomberg quotes BP’s CEO Bob Dudley as saying that the company’s size would make a takeover attempt “very surprising” and would likely create regulatory objections. “The main thing would be that we continue to perform and grow,” noted Mr Dudley, adding that a takeover was not “in the best interest of our shareholders.”

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