BP Buyout Buzz Puts Spotlight on Transocean’s Comeback Potential

Key Points

• There is a new potential bidding war for BP going on, as the broader oil industry seems to be headed to a cyclically low valuation.
• Out of all bidders, there is one name likely to win due to its size and financial strength to weather such a transaction.
• A worthy mention in another area of the industry can give investors near 100% upside.

There are some uncommon ways to time the financial markets. Still, when these signs show up, investors can gain an unfair advantage over most other participants if they know what to look for and how to read them. The latest sign of potential opportunity comes from the energy sector, specifically in acquisitions. Here's a brief explanation for those unfamiliar with what this might imply.

When companies become acquisition targets, even though they might already be a big and established name in an industry, it can be safely assumed that the entire industry (not just the acquisition target) might be cheap enough for others to consider as a potential upside play. Now the opportunity is coming right out of BP NYSE: BP, an $80.8 billion company that has been a formidable operator in the oil and gas industry for decades.

Numbers have been floating around for the acquisition of BP recently, with bids likely to come from names like Exxon Mobil Co. NYSE: XOM, Chevron Co. NYSE: CVX, and even Shell NYSE: SHEL. Of course, there is some major upside to be had in BP’s acquisition, as investors will see shortly, but another worthy mention is also being considered for major upside potential to come right after.

Why Consider an Acquisition Today?

By looking at the current price action in the Energy Select Sector SPDR Fund NYSEARCA: XLE, investors can notice how the broader industry has underperformed the S&P 500 index by as much as 20% over the past 12 months.

Given this divergence in performance, investors could start to assume that a potential catch-up might be in place.

But this is not just a phenomenon for the broader industry. When looking at the valuation multiples in the names considering a bid for BP, the story looks very similar.

Price-to-book (P/B) multiples, in particular, have also been on a decline over the past 12 months, causing these industry giants to fall to cyclically cheap levels today.

Therefore, it makes sense that the industry is looking to consolidate further now that valuations (along with oil prices) are at cyclical lows. What this means for investors is a handful, especially when they consider the price being considered for BP’s entire business.

Up to $160 billion has been floated as the price tag for BP, which is double today’s market capitalization. If the board approves and accepts this acquisition, shareholders would have a potential 100% upside.

However, there is another angle investors can take in this chess game.

Out of all these bidders, Exxon Mobil is likely to win. The company’s financials show the strongest balance sheet in the group, and since it's European-based, it doesn’t have to jump through as many regulatory hurdles as Shell would.

This potential outcome could explain why allocators from Charles Schwab and Goldman Sachs decided to boost their holdings in Exxon Mobil stock by as much as 1.6% and 3.7%, respectively.

With multi-billion-dollar positions being stacked up as of May 2025, the conviction for who can win this bidding war for BP is clear.

If Oil Is Cheap, Drilling Is A Steal

For those uninterested in joining a bidding war and living with the uncertainty of whether BP will end up fulfilling this 100% upside potential, or whether markets will react positively or negatively to Exxon’s outcome in this acquisition, another space in the industry acts as a worthy mention for more guaranteed additional upside.

Knowing that the oil space is generally cheap today, hence the acquisition willingness and low valuation multiples, investors can assume that the bottoming cycle is close. That being said, when trade tariff deals are landed with the United States and its trading partners, and economic outlooks become clearer, oil demand is sure to follow.

And who will be paid first for higher oil prices? Not the producers, but the ones who enable production to happen in the first place. This is where drillers and drilling equipment manufacturers come into play. Out of all of them, Transocean Ltd. NYSE: RIG takes the lead in terms of what it can offer investors.

After falling by as much as 54.5% over the past 12 months, Transocean stock has arguably priced in the worst-case scenarios for the company and the industry as a whole, leaving investors with only the upside once trade deals are landed.

This theme can be crystallized by looking at how up to 9.9% of Transocean’s short interest declined over the past month alone, a clear sign of bearish capitulation as the risk-to-reward scale tips in favor of the bulls.

More than that, analysts at BTIG Research decided to reiterate a Buy rating on Transocean stock after its recent quarterly earnings report, with a $5 per share price target.