Oil giant BP quietly steps out of the takeover spotlight

Five months ago, British energy major BP was firmly in the spotlight as a prime takeover candidate. Now, not so much.

Shares of the London-listed oil giant have climbed more than 32% since early April, outperforming many of its U.S. and European rivals.

The improving sentiment can be attributed to a range of factors, including BP’s fundamental strategic reset, a leadership shake-up, progress on its cost-cutting program and a string of recent oil discoveries.

It marks a stark contrast to earlier in the year, when BP found itself to be the subject of intense takeover speculation, with British rival Shell, UAE oil giant ADNOC and U.S. majors Exxon Mobil and Chevron all among the names touted as possible suitors.

BP CEO Murray Auchincloss insisted the company was focused on growth when asked about any approaches, saying last month: “That’s what is going to drive the share price up for shareholders.”

Shell, for its part, swiftly denied reports in late June that early-stage talks were taking place to acquire BP. The company said at the time that it had “no intention” of making a blockbuster offer for its embattled rival.

Allen Good, equity analyst at Morningstar, said he was unsure of the merit of the takeover speculation from the outset, even while the company was in turmoil and trading at a steep discount to its peers.

“Shares have since done better,” Good told CNBC. “And I think probably the most recent catalyst was the selection of the new chair, who is coming from CRH and has previous experience with meaningful turnarounds and being successful.”

Following a green strategy U-turn earlier in the year, BP announced in July the appointment of Albert Manifold as its new chairman. The former boss of building materials producer CRH has since joined the firm’s board and will formally become chair from Oct. 1.

A BP spokesperson was not immediately available to comment when contacted by CNBC.

BP’s share price gain has coincided with some notable rating and price target upgrades. Berenberg, for instance, recently upgraded BP to buy from hold and raised its price target to £5.00 ($6.73), from £3.85, citing the firm’s significantly stronger second-quarter results.

In early August, BP reported underlying replacement cost profit, used as a proxy for net profit, of $2.35 billion for the three months through June — comfortably beating analyst expectations of $1.81 billion, according to an LSEG-compiled consensus.

Speaking to CNBC’s “Squawk Box Europe” shortly after these results, BP’s Auchincloss highlighted the growth potential of the company’s recent oil and gas discoveries, adding that he was “very optimistic” about the discovery in the Bumerangue block in Brazil’s Santos Basin, just over 400 kilometers (248.5 miles) from Rio de Janeiro.

The discovery marked the firm’s 10th since the start of the year and is regarded as a potentially significant boost as BP continues to double down on hydrocarbons.

Russ Mould, investment director at AJ Bell, said BP’s resilience in the face of skepticism “is interesting and can be a telling sign,” particularly as the share price rise comes despite what he described as “relentlessly negative commentary” on both the company and the oil price.

“Elliott’s arrival on the share register remains a factor, too, as the activist presses for disposals, improved cash flow, deleveraging and improved cash returns to shareholders, a clarion call to which BP appears to be listening,” Mould told CNBC by email.

Activist investor Elliott went public with a stake of more than 5% in BP in late April, bolstering expectations that its involvement could pressure the company to shift back toward its core oil and gas businesses.

Given Shell’s reported interest in a takeover appears to have cooled, Mould said BP’s best defense to any potential suitors would be a higher share price and an improved valuation.

“Valuation, or the price paid, is the ultimate arbiter of investment return and the more they have to stump up, the less likely predators are to appear, as higher valuations limit upside potential and increase downside risks should anything unexpected go wrong,” Mould said.

Looking ahead, energy analysts singled out BP’s relatively high debt burden as a potential cause for concern, however.

BP’s net debt came in at $26.04 billion at the end of the second quarter, down from nearly $27 billion in the first three months of the year.

“If you get a situation where oil prices start falling, then they are certainly the most exposed in the peer group,” Morningstar’s Good said. “So, that would be something that could derail this momentum.”