Shell is exploring the possibility of acquiring BP PLC

According to media reports citing informed sources, Shell (SHEL.US) is exploring the possibility of acquiring its competitor BP (BP.US), although the company has not yet taken action and is waiting to see if the continued decline in oil prices and BP's stock price will make the deal more attractive. The report also stated that Shell has consulted advisors on the strategic and financial feasibility of such a large merger in recent weeks.

Industry insiders indicated that Shell is closely monitoring BP's deteriorating market value (which has fallen nearly 30% over the past year) before making any decisions. Shell's bid may depend on further deterioration of BP's market value or signals that BP is open to external interest. Another option is that if other bidders emerge first, Shell could act quickly with its current preparations.

Informed sources revealed that discussions are still in the early stages, and Shell may choose to focus on stock buybacks and bolt-on acquisitions rather than a large merger. Additionally, the sources added that several other energy giants are also evaluating whether to participate in a bid for BP.

A Shell spokesperson stated, "As we have emphasized many times before, we are very focused on releasing Shell's value through continuous attention to performance, discipline, and simplification." A BP representative declined to comment.

Discussions about a merger between these two iconic British energy giants have been ongoing for decades. If Shell successfully merges with BP, it would become one of the largest mergers in the history of the oil industry. These two energy companies were once fierce competitors, but strategic differences have led to diverging paths in recent years. Data shows that Shell currently has a market value of approximately £149 billion, more than double BP's £56 billion market value.

BP's long-term underperformance is largely related to the net-zero strategy implemented by its former CEO Bernard Looney. His successor, Murray Auchincloss, announced a strategic shift in February this year, including a renewed focus on oil operations, a reduction in quarterly stock buyback size, and a commitment to asset sales.

However, broader market challenges, including OPEC+'s accelerated production increases and macroeconomic uncertainty triggered by the trade war initiated by former U.S. President Trump, have led Brent crude prices to fall below $70 per barrel, which is the price assumption for BP's financial targets. The frustration surrounding BP's stock price is intensifying. Activist investor Elliott Management recently disclosed that it holds a 5% stake in BP and urged the company's leaders to implement more aggressive reforms to improve performance and fend off potential acquisitions.

On the other hand, under CEO Wael Sawan's leadership, Shell has been seeking its own adjustments—reducing costs, cutting back on underperforming renewable energy sectors, and reinvesting in its core fossil fuel business. Although Shell's stock has performed stronger compared to its U.S. peers Chevron (CVX.US) and ExxonMobil (XOM.US), its valuation still lags behind other companies. Wael Sawan emphasized to analysts last week that any significant acquisition must deliver strong returns and increase free cash flow per share. He stressed that Shell's focus remains on creating value, including stock buybacks, and that larger transactions would only be considered after improvements in the company's internal performance Shell's recent acquisition of liquefied natural gas trader Pavilion Energy is an example of its targeted, value-oriented approach. The merger with BP PLC-Spons could significantly enhance Shell's production capacity and re-establish its position in the major U.S. market, especially after its exit from the Permian Basin in 2021