Commodities Today: On The Lookout For Oil Mergers, Who Is In Play

by: Matthew Smith


The UK does not want to see BP sell to a foreign oil company, so it appears that the company will remain single unless it is the buyer.

Royal Dutch Shell could not buy BP either, as the UK wants to have two "champions" in the energy business.

Investors might finally see consolidation among China's major oil companies as the country looks to decrease waste and unnecessary competition.

Today investors are faced with countries once again putting up walls to block takeovers while they look to strengthen home-grown firms to create their own champions. While this has traditionally been a communist strategy, in the last couple of decades it has become prevalent across Europe and continues to play a role in M&A strategy, as bankers and potential acquirers must test the waters before officially going public with their plans. There have been many companies embarrassed in years past, but it seems that all of this quantitative easing has gone to governments' heads. It is almost as if they want a controlled economy. Either it is that or fear; fear that a big disruption among a major employer could upset the weak rebound many countries are seeing.

Looking at the commodities markets, it is quite obvious that the precious metals are where the strength is at. Gold, platinum and silver are all strongly higher and energy (excluding natural gas) is marginally higher. Natural gas has broken through the $2.50/MMbtu level on the session.

Chart of the Day:

Gold opened up strong, got stronger and has remained strong all day. The big bull run has seen prices move back above the all-important $1,200/ounce level once again.

Source: Kitco

Commodity prices are as follows (at time of submission):

  • Gold: $1,203.50/ounce, up by $28.40/ounce
  • Silver: $16.385/ounce, up by $0.749/ounce
  • Oil: $57.36/barrel, up by $0.21/barrel
  • RBOB Gas: $2.0133/gallon, up by $0.0054/gallon
  • Natural Gas: $2.47/MMbtu, down by $0.061/MMbtu
  • Copper: $2.7655/pound, up by $0.0175/pound
  • Platinum: $1,141.00/ounce, up by $19.90/ounce

British Government & BP Independence

Over the weekend news came out that the government in the United Kingdom has notified BP (NYSE:BP) that it wants to see the oil giant remain independent. Sources indicated that the government wants to have to two energy champions, so a deal with Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B) would also be out of the question as the two companies are the UK's energy champions. While this may be good news for unions in the UK and BP's employees, the company's shareholders have to be scratching their heads and wondering what the heck has happened.

The financial news media has been speculating for months how consolidation will play out within the industry, and BP has long been a sexy pick to be taken over by one of the super majors such as Royal Dutch Shell, Chevron (NYSE:CVX) or ExxonMobil (NYSE:XOM). The UK government really does not have a lot of say in the matter, however they have indicated that they would make it well known that they object to a takeover and could chase away bidders before they have a chance to formally announce their bid!

So it seems fair to say that BP is definitely off of the table as a potential takeover target now, which is bad news for shareholders who were betting that an offer would emerge but good news for other oil companies out there that could now find themselves a takeover target for BP or those who might have been interested in launching a bid for BP but now must look elsewhere.

Chinese Consolidation On The Way?

We could see consolidation soon take place among China's large state-owned and sponsored companies across various industries, if the reports and articles we have read turn out to be true. This is of interest to us today because it could enable Chinese firms to focus more on margins and less on unprofitable mines. China is the 'Wild West' in the resource world and we have seen the government try to encourage firms to consolidate in order to focus more on doing business the correct way (less polluting, better working conditions, etc.) while shutting down projects that have little economic value. We have seen this take place in the rare earth elements mining industry as well as coal and it seems likely that a merger among China's largest oil companies could be next.

The speculation for months has been that China Petroleum & Chemical Corporation (NYSE:SNP) and PetroChina's (NYSE:PTR) parent companies would be combined, but CNOOC Ltd. (NYSE:CEO) could also be a player in all of this. Like many countries in Europe and other parts of Asia, China is trying to create local champions. If the articles, such as the one located here, that we have read today are in fact true regarding China's intentions, then we would be surprised if two of China's 'Big Three' oil companies did not merge in the next 12-24 months.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: BP has previously been recommended.