BP has been told by UBS that it needs to cut debt before investors will back a return to dealmaking.
The warning follows a Reuters report, citing six sources, that BP has entered the data room on a small number of US shale assets put up for sale by their owners.
A data room is a secure online space where prospective buyers review confidential information about an asset before bidding.
BP has mainly looked at oil-producing assets valued at between $2 billion and $5 billion, including the Eagle Ford operation of Devon Energy, the US oil producer.
Timing questioned
UBS said it was not surprised that BP shares underperformed the sector by about 1.5% on the news.
The broker said the assets would complement BP's US shale business, but the timing looked early.
It pointed to crude trading above $100 a barrel, the absence of a new financial framework and several announced asset sales that have yet to be agreed.
A licence to spend can only be granted after building a track record, UBS said, and the market would prefer to see more progress on deleveraging first.
It added that entering a data room does not always lead to a deal.
Shale strength
BP's US shale business is concentrated in the Permian, Eagle Ford and Haynesville basins.
Volumes have risen 37% since 2023 and unit costs have fallen 8%, with UBS estimating the business breaks even on free cash flow at about $45 a barrel.
New Eagle Ford wells drilled closer together are producing twice as much as the original wells drilled a decade ago.
UBS rates BP a buy with a 675p price target, against a share price of 572p.
It expects BP's full-year results in February, which will include a strategy update, to act as the next major catalyst.
