Why Exxon Plc. should acquire BP Plc.

There are rumors going on for about several months regarding the acquisition of BP plc. by Exxon Mobil Corporation. The major reason mentioned for such acquisition is declining oil prices. The crude oil prices have decreased by almost 50% since June 2014. The decline has caused many big oil companies to consolidate their diversified operations and has been a surge in mergers & acquisitions activity. Lately, BG Group Plc. was acquired by Dutch Shell Plc. for approximately $70 billion.

There are some reasons why BP Plc. should be acquired by Exxon Mobil.

Undoubtedly, BP is way past its golden days. The oil spill incident that took place in Gulf of Mexico in 2010 had a substantial effect on finances of the company.  Until now, BP has spent nearly $50 billion in expenditures related to the oil spill.

Market capitalization of the company has plunged by over 30% and it has become the cheapest non state oil company of the five biggest in the world. The stock of BP is down but not completely out, that makes it a very good time to buy the stock. Majority of the firms take over other companies because they believe that the purchased company fits perfectly to their portfolio or the acquired company would make them more money than their acquisition cost. Let’s take a look on the reasons why BP should be acquired by Exxon.

The biggest that that BP can provide Exxon is its Middle East, Africa and Latin America reserves. Exxon does not have any reserves in Latin America and Middle East. After the acquisition, it will have approximately 1.655 billion barrels of crude oil reserves in Asia, 2.53 billion in Latin America and its reserves in Africa will roughly go up by 2.203 billion. BP’s altogether global reserves are around 17.75 million BOE, which would be a substantial toting to 25.57 billion reserves of Exxon globally.

The previous quarter, Exxon outsourced its refining process to meet its market product demand. From this point of view, total refining capacity of BP i.e. 1.88 million barrels each day will enhance the Exxon capacity by over 36% and it will become more geographically diversified.

Over the year, M&A in the energy industry has surged by 110%. This increase is mainly because of the $70 billion that was taken place between BG group and shell.

IF Exxon acquire BP at 40% premium to its current share price, this will account for $177 billion takeover and will be the largest M&A in the history of energy sector.