BP said it has net debt of US$27bil but its disclosures show that it has around US$38bil of additional liabilities. — Reuters
LONDON: BP Plc has been the subject of takeover talks for several years due to its shares’ relative underperformance, but analysis of its disclosures shows the British energy firm may not be as cheap as its market valuation would indicate.
BP said it has net debt of US$27bil – already more than some rivals – but its disclosures show that it has around US$38bil of additional liabilities.
“We see BP’s all-in debt profile as something of a poisoned chalice for an acquirer,” Royal Bank of Canada analysts said.
The US$80bil company has underperformed its competitors for years, which investors and analysts say has made the company a potential takeover target.
Companies seen as potential suitors have included British rival Shell, along with US oil majors such as Exxon Mobil or Chevron.
Abu Dhabi National Oil Co considered a takeover last year, but did not proceed, Reuters reported.
BP’s stock has underperformed its peers since 2020 when its pivot to renewable energy left it lagging when global oil and gas prices surged.
Despite new chief executive Murray Auchincloss reversing course, the shares have continued to underperform this year.
Beyond its declared net debt of US$27bil, BP carries three major additional liabilities.
The largest of these are some US$17bil in hybrid bonds which blend debt and equity traits. While they pay fixed income like bonds, issuers can skip payments, making them riskier and costlier.
These often do not count as debt, helping preserve credit ratings. TotalEnergies holds about US$12bil in hybrids, while Shell has none.
BP also has US$12.5bil in lease obligations for assets such as vessels and rigs. Unlike Shell, which includes US$28.5bil of such liabilities in its US$41.5bil net debt, BP excludes them.
Finally, BP is still paying for the 2010 Macondo disaster, when a blowout at an offshore platform in the Gulf of Mexico caused one of the world’s worst oil spills.
BP still owes US$8bil from the spill, part of a US$70bil total cost, company disclosures show. This remaining liability is also excluded from its net debt.
Shell chief executive Wael Sawan has long argued that buying back Shell’s own stock offers better value than investing in BP.
Analysts point to BP’s higher all-in debt load as a key reason.
While BP’s share price may appear cheap, financial measures such as, enterprise value/debt-adjusted cash flow or EV/DACF, which compares a firm’s value to its cash generation, tell a different story.
“BP’s stock may look inexpensive from a share price point of view, but that masks the additional liabilities needing to be absorbed, with the current shares trading largely in line with Shell on EV/DACF,” said UBS analyst Joshua Stone. — Reuters
