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BP seeks go-ahead for European oil mergers

THE BUSINESS: BP seeks go-ahead for European oil mergers

“British oil giant BP, is lobbying the European Commission (EC) in Brussels to relax its competition rules to allow mega-mergers…”: “references to competition policy will stir speculation that it has Royal Dutch/Shell in its sights.

By Fraser Nelson

Political Editor

26/27 Sept 04

British oil giant BP, is lobbying the European Commission (EC) in Brussels to relax its competition rules to allow mega-mergers between French, British, Italian and Scandinavian oil companies.

Nick Butler, BP’s head of strategy, will warn the EC in a forthcoming article that Europe’s demand for energy is being increasingly matched by fuel-hungry countries such as India and China. He will say that European consumers’ interests lies in having oil firms large enough to cope with this challenge. For that to happen, he says, the rules must be relaxed.

BP, headed by chief executive, Lord Browne, declined to expand on Butler’s comments, although his references to competition policy will stir speculation that it has Royal Dutch/Shell in its sights. Its rival’s share price has been reeling from the recent writedown of oil assets and threatened legal action.

The Business understands that BP lobbyists in Brussels have also been arguing that the energy market is global and that the oil industry should not be bracketed with engineering firms when it comes to mergers. BP wants the commission to adopt a “global dimension” to its competition policy.

The proposal to allow more consolidation among Europe’s oil majors is understood to have been already rebuffed by the commission. It has argued that BP and Shell are not only national champions but also global players big enough to meet these challenges. The commission has told BP that it would not wave through a merger based on long-term forecasts on the energy market.

BP intends to continue its efforts when Neelie Kroes takes over next month as competition commissioner from Mario Monti. The commission has told BP its competition policy already has a global perspective and that it has blocked only 18 of 3,000 mergers sent for approval in 15 years.

Butler says in the article for the Centre for European Reform, a respected pro-European London think-tank, that, by 2015, world demand for oil will have risen by a third as “more and more people can afford the energy they need”. By then, he writes, Europe will be dependent on foreign sources for up to 80% of its oil and gas – leading to concerns about the security of these imports. An alliance with Russia and North Africa could only address part of the problem. “Private companies have to make the long-term investments that are necessary 1 > develop new resources and >ring them to market.” he writes. “Given the nature and scale of the energy market, such companies will be global.”

He said he did not advocate the Franco-German argument that some mergers should be allowed purely to strengthen the continent. “The role of governments in Europe is not to pick winners or to designate European champions,” he writes. “But European competition policy should be founded on an understanding that it is in the long-term interests of European consumers to be served by businesses that have the strength and reach to invest in energy supplies and infrastructure.”

A Brussels source told The Business: “Unless I am mistaken, we already have two global champions in oil – BP and Shell. It would be hard to argue that they need to merge simply to be strong enough to compete in a global market.”

The commission’s authority on takeovers was damaged after its decision to block the merger between Schneider, the French electrical equipment giant, and Legrand, its rival, in a deal agreed in February 2001. Its objection was overruled by the EU’s Court of First Instance 18 months later but only after Schneider sold Legrand for €3.6bn ($4.5bn, £2.5bn) after it paid €5.4bn for it. Last October, it sued the commission.

Kroes, the Dutch minister named last week as competition commissioner, is not rethinking competition law. “Our sole consideration is for the consumers, not the egos of governments or companies,” the Brussels source said.

BP’s merger with America’s Amoco six years ago created the world’s largest oil company, but it has been leapfrogged by Exxon-Mobil. A combined BP and Shell would dwarf ExxonMobil with $340bn of assets against $180bn.

New York brokerage Oppen-heimer, says a BP/Shell merger would lead to $10bn of synergies within five years and that it could sell a further $10bn of assets to beat regulatory hurdles and provide cash for a share buyback.

Oppenheimer argues that only a new management team would lift shares. “BP is an ideal merger partner for Shell and shareholders of both companies should urge such a. combination,” said John Cusick, oil analyst at Oppenheimer. “If they wanted to merge, they could find a way around competition hurdles.”

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