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BP shares have underperformed peers for years

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Shell CEO has dismissed rumours of possible bid for BP

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BP's debt structure complicates picture

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Still paying out on 2010 Macondo oil spill

By Shadia Nasralla

LONDON, June 25 (Reuters) - BP 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 says it has net debt of $27 billion - already more than

some rivals - but its disclosures show that it has around $38

billion of additional liabilities.

"We see BP's all-in debt profile as something of a poisoned

chalice for an acquirer," RBC analysts said.

The $80 billion 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 U.S. oil majors such as Exxon Mobil ( XOM ) or

Chevron ( CVX ).

Abu Dhabi National Oil Company considered a takeover in

2024, but did not proceed, Reuters reported.

BP declined to comment.

SHARES UNDERPERFORM

BP's stock has underperformed its peers since 2020 when its

pivot to renewable energy left it lagging behind when global and

gas prices surged.

Despite new CEO Murray Auchincloss reversing course, the

shares have continued to underperform in 2025.

COMPLEX LIABILITIES

Beyond its declared net debt of $27 billion, BP carries

three major additional liabilities.

The largest of these are some $17 billion 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 $12 billion in

hybrids, while Shell has none.

BP also has $12.5 billion in lease obligations for assets

such as vessels and rigs. Unlike Shell, which includes $28.5

billion of such liabilities in its $41.5 billion 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 $8 billion from the spill, part of a $70

billion total cost, company disclosures show. This remaining

liability is also excluded from its net debt.

RATIOS

Shell CEO 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 EV/DACF (enterprise value/debt-adjusted cash flow),

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.

BP's valuation could improve if it completes its $20 billion

asset disposal plan by 2026. But for now, it remains more

leveraged than Shell, which limits its free cash flow.

"Overall, we still believe it likely that no deal will be

agreed. BP carries significantly more debt than Shell," said

Henry Tarr, co-head of energy and environment research at

Berenberg. "This leverage eats into its free cash flow

generation."

($1 = 0.7357 pounds)