Is Exxon Mobil (NYSE:XOM) interested in buying BP (NYSE:BP)

430

By Ross Schwartz on October 3, 2014 Us News

Oil and natural gas companies have a lot of global dependence for many years. It is natural to see that these companies generate a lot of interest around the world. The latest buzz is the British company BP (NYSE:BP)’s troubles with legal issues. After the last month’s ruling declared by the federal judge, it has become quite evident that BP (NYSE:BP) has been negligible in its handling of the Deepwater Horizon disaster in 2010.

The merger between BP (NYSE:BP) and Royal Dutch Shell (NYSE:RDS.A) had been expected for quite some time now, especially since the two companies have taken the matter into consideration every now and then. However, in this week’s Lex Column by the Financial Times, another prospect has been brought into the limelight. It is said that there might be new interest in BP (NYSE:BP) from Exxon Mobil (NYSE:XOM).

Exxon (NYSE:XOM) has a lot of capital at hand and it is looking to invest it somewhere. According to estimates for next year, Exxon (NYSE:XOM)’s cash flow might exceed $11 billion. However, there are not many opportunities for it to invest its capital and generate profit from there.

Exxon (NYSE:XOM) has managed to disappoint its shareholders by stirring $41 million in U.S shale plays and made an incorrect decision by investing in XTO (NYSE:XTO) at the wrong time. It also invested in some other projects in Iraq, Kurdistan and Russian Arctic, all of which backfired due to political issues.

The observations made by FT seem reasonable, because Exxon (NYSE:XOM) has access to the capital which can be used to attract production prosperity. By collaborating with BP (NYSE:BP), Exxon (NYSE:XOM) can get the aid to boost their production. BP (NYSE:BP)’s production chart has been ascending despite the legal problems that the company is facing. As far as BP (NYSE:BP)’s legal issue with the handling of the deepwater horizon is concerned, it will be a blessing in disguise for Exxon (NYSE:XOM) as the company will be able to trade BP (NYSE:BP)’s shares at 25% discount. This is expected to initiate quick profits.

Exxon (NYSE:XOM) is more knowledgeable as compared to other oil companies when it comes to long term legal issues and therefore BP (NYSE:BP)’s problem with the Deepwater Horizon will not be too overwhelming for Exxon (NYSE:XOM).

Exxon (NYSE:XOM) is known for its single culture with safety as its main focus. BP can heave benefits from this change of culture. BP hasn’t been able to fully adapt to the cultures that it came across with its previous mergers that took place in the late 90’s. However BP (NYSE:BP)’s production portfolio will be beneficial for Exxon (NYSE:XOM). Although the merger of the two companies seems to be beneficial for both; the question that arises is, whether Exxon (NYSE:XOM) is ready to undertake the cultural challenges that the company will have to face once it collaborates with BP (NYSE:BP).