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16 March 2006

The notion is based on more than mere financial wizardry or broking whimsy. It also makes good strategic sense. There are few good reasons for oil firms to keep their upstream and downstream units together. There are many to split them apart.

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BP's house broker Cazenove recommended on Thursday that the oil company should break itself up, spurring a rally in the share price of the UK's biggest firm.

It is time to question more severely the generally accepted wisdom of upstream/downstream integration and to consider more seriously the net benefits of separating these two businesses, analyst Fred Lucas wrote in a report.

Cazenove is one of BP's three house brokers; Merrill Lynch and UBS are the two others. Cazenove argued that BP suffered from a 15% to 20% conglomerate discount, and that this was a growing concern for top management.

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