Q&A: Is the worst really over for BP?

BP shares have rallied more than 20% from recent lows as analysts and investors believe things will get better for the oil giant over the late part of the summer.

Shares in the oil giant (shown by the black lines in the graph below) had fallen to 14 year lows after the group suspended dividend payments this year and fears grew about its ability to pay a rising pile of bills.

Those fears have now ebbed to be replaced by a new confidence that the worst of all scenarios is now reflected in the share price and there is now a greater likelihood of positive surprises than negative ones. 

What could move the shares?

Talk of a bid for BP is picking up pace. While there was little clarity on how soon BP could stem the oil flowing from the well in the Gulf of Mexico and what the total bill would be, few expected a bid.

David Cline, analyst at RBS, does not expect a bid before the Macondo bore is plugged but said ‘once the Macondo well is plugged, we would expect these obstacles to a combination to dissipate.’ 

And while there had been doubts about who would be allowed to bid given the other oil majors have significant overlap with BP in the US, news over the weekend that US government will allow a US company to make an offer means open season for BP takeovers has begun.

It remains to be seen whether the US government will be equally open to a bid from a China or Russian group or from Royal Dutch Shell.

UBS analysts think a full bid remains unlikely but say one of the US giants could buy some of BP’s US assets, pointing out talk of a bid for BP's stake in the Prudhoe Bay field in Alaska makes sense.

What else could move the shares?

If all this M&A speculation comes to nothing there are other reasons why some say – once again – now is time to buy BP.