Shell Explores Buying BP, Potentially One of Oil’s Biggest M&A

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Shell may also wait for BP to approach another potential suitor before initiating contact, those people familiar with the situation told.

Shell is discussing with advisors the possibility of buying rival oil company BP, according to sources.

In recent years, the oil company has been debating the viability and benefits of buying BP with its consultants, adding that it depends on whether the competitors’ shares continue to slide.

If this acquisition becomes a success, it will be one of the biggest transactions in the history of the oil and gas industry.

There was speculation about a potential takeover as BP’s stocks have declined this year. They have dropped by more than 30% in the last 12 months as oil prices dropped and the recovery plan led by its chief executive, Murray Auchincloss, failed to impress investors.

Shell may also wait for BP to approach another potential suitor before initiating contact, those people familiar with the situation told.

According to sources, discussions are reportedly in their early phases, and Shell may focus on smaller acquisitions and share buybacks rather than a big merger.

Shell’s market value is £145.6bn, more than twice as much as BP’s, worth £55.9 billion. For many years, BP and Shell were almost equal in market share, but in the recent few years, Shell has grown its business to more than double the size of BP.

A Shell representative stated that the company intends to maximize Shell’s value by keeping their performance, discipline, and simplification as their top priorities.

A BP representative chose not to comment.

In February, Auchincloss promised to radically restructure BP’s approach, which will involve reducing its climate commitments and pursuing new fossil fuel projects to increase its market worth.

He revealed plans to sell $20 billion worth of assets through 2027, reduce spending, and repurchase shares because of demands to increase profitability and reduce expenses. The company also announced the departure of its strategy chief to strengthen investor confidence.

In the first three months of this year, its profits fell by nearly half to $1.4 billion (£1 billion) from $2.7 billion during the same period last year.

Elliott Management, a New York-based hedge fund, has also targeted the company due to its declining share price.

It had requested a change of strategy chief to increase free cash flow through more comprehensive cost and spending cuts.

After its previous chief executive, Bernard Looney, put BP on track to become a net zero energy company, its shares underperformed compared to other oil and gas companies in recent years. Then, he left BP abruptly in September 2023.

Shell reported first-quarter adjusted profits of $5.6 billion on Friday, more than City experts had anticipated but 28% down from last year.

Shell CEO Wael Sawan stated he would prefer repurchasing more of the company’s stock rather than a takeover offer for BP.

When asked about Shell’s ability to launch large acquisitions during an earnings call, he stated, “We have to have our own house in order.” Despite improvements over the past few years, “there is still more work to do.”

He added that buying Shell is the best course of action.

If it were to buy its cross-town London competitor, Shell would become a more powerful force in the global energy sector and have the scale to compete with companies like Exxon and Chevron.

Given the magnitude of the transaction, the merger would also probably attract regulatory attention.

According to a regulatory filing, it has increased its ownership of BP to just over 5%, putting it between major shareholders Vanguard and BlackRock.