Oil giant BP seeks buyers for one of its crown jewels as it looks to stave off a takeover

CNBC

2 days ago

Britain's BP appears to be attracting a number of possible buyers for its Castrol lubricants business as the struggling oil giant seeks to fend off a prospective takeover . Energy companies including India's Reliance Industries and Saudi Arabia's oil behemoth Aramco , as well as private equity firms Apollo Global Management and Lone Star Funds, have all been touted as suitors for BP's Castrol unit, according to Bloomberg , citing people familiar with the matter. It's thought the sale of Castrol could fetch between $8 billion to $10 billion. BP, which launched a strategic review of its Castrol unit in late February, declined to comment on the speculation. The reports come as BP remains firmly in the spotlight as a prime takeover target. The London-listed oil company recently sought to restore investor confidence by launching a fundamental strategic reset. BP's new direction included a green strategy U-turn and the divestment of $20 billion of assets by the end of 2027. Analysts described BP's Castrol unit as one of the "crown jewels" of its portfolio, noting that reports of interested buyers should be viewed positively as the firm's management look to deliver on the new strategy. Read more Oil giant BP is seen as a prime takeover target. Is a blockbuster mega-merger in the cards? BP to slash renewable spending and double down on fossil fuels BP profit falls sharply but CEO says oil major 'off to a great start' in strategy reset Maurizio Carulli, energy and materials analyst at wealth manager Quilter Cheviot, told CNBC that it remains unclear whether the divestment of Castrol would stave off a potential takeover, however. He cited three considerations an industrial buyer might look at. Firstly, Carulli said the level of BP's debt would decrease with the sale of its high-performance lubricants business, potentially making the firm more attractive to a prospective buyer. Ongoing macroeconomic uncertainty could also make it difficult for BP to sell Castrol at an attractive valuation, he added. This could subsequently have a negative effect on BP's valuation, making it a cheaper proposition for any possible suitor. Thirdly, Carulli cited the level of cost and revenues that another energy firm could extract from the purchase, adding that the sale of Castrol is unlikely to substantially affect BP given that it is a small part of its overall business. 'Point of maximum weakness' BP, which reported weaker-than-expected first-quarter profit, has faced renewed pressure from activist investors in recent months. In late April, for instance, U.S. hedge fund Elliott Management went public with a stake of more than 5% in the company. Elliott was first reported to have assumed a position in BP back in February, driving a share price rally amid expectations that its involvement could pressure the firm to shift gears back toward its oil and gas businesses. BP CEO Murray Auchincloss told CNBC's " Squawk Box Europe " on April 29 that the company was "off to a great start" in delivering on its strategic reset. He cited the firm's "highest upstream operating efficiency in history" and six recent oil and gas exploration discoveries. Lydia Rainforth, head of European energy, equity research at Barclays, said BP's future appears to be "really bright" — if the company can get through the next six months. "The sum of the parts is, I think, much greater than where the current share price is, but if I think about when that point of maximum weakness is for BP, it is over the next six months," Rainforth told CNBC's Steve Sedgwick on May 22. "As I get towards the end of the year, hopefully we will see some divestments taking down debt. Things like, they've talked about selling their lubricants business — that could raise $12 to $15 billion," she added. On the right track? Shares of BP, which have underperformed industry peers, are more than 20% lower over the last 12 months. The ongoing weakness has stoked speculation of a prospective tie-up with domestic rival Shell . U.S. oil giants Exxon Mobil and Chevron have also been touted as possible suitors. Shell has declined to comment on the speculation, while spokespersons for Exxon Mobil and Chevron have not previously responded to a request for comment. Russ Mould, investment director at AJ Bell, said shareholders are looking for BP to provide evidence that it can generate more cash to ensure net debt doesn't keep rising and buybacks and dividends can continue at current levels at the very least. Plans for $3 billion to $4 billion in asset sales and lower capital investment in 2025 are clearly part of BP's push to bring down net debt to between $14 billion and $18 billion by the end of 2027, Mould said. "Delivery here, perhaps via a successful disposal of Castrol, would help convince shareholders that BP is on the right track," Mould told CNBC via email. "But too many more quarters of weak cash flow and lower share buybacks may not help management's cause and lead to further engagement by the usually indefatigable Elliott."