Shell is working with consultants to evaluate the potential acquisition of BP PLC, although it is waiting for further stock and oil prices to drop before deciding whether to bid, according to people familiar with the matter.
People say the oil professional has discussed the feasibility and merits of his consultants more seriously in recent weeks, as the information is private, so please do not identify unidentified.
Any final decision may depend on whether BP stock continues to decline, the people said. Over the past 12 months, BP's stock has lost nearly a third of its value as turnover plans have been on par with investors and oil prices stumbled. Some say Shell may also wait for BP to reach out or get another suitor to take the first step, and the current work can help it prepare for the situation.
They said the deliberations were in an early stage and Shell might choose to focus on stock buybacks and bolt acquisitions rather than large businesses. People say other large energy companies are also analyzing whether to bid for BP.
“As we have said many times before, we are very focused on capturing Shell's value by continuing to focus on performance, discipline and simplification,” a Shell spokesperson said in an emailed statement. A representative for BP declined to comment.
The successful combination of Shell and BP will be one of the largest takeovers ever in the oil industry, bringing together iconic British professionals, a deal that has been discussed for decades. The two companies were once close competitors – similar in size, coverage and global reach – but their paths have differed in recent years.
Shell's shares have fallen about 13% in London trading over the past 12 months, bringing the company's market cap to £149 billion. That's more than double the £56 billion market capitalization of BP.
BP has been battling long-term underperforming against the net zero strategy accepted by former CEO Bernard Looney. His successor Murray Auchincloss announced a reset in February, which included a return to the oil pivot, cutting quarterly share buybacks and pledging to sell assets.
Since then, U.S. President Donald Trump’s trade war and Opec’s unexpected acceleration of supply, putting Brent’s crude well below $70 a barrel (the price assumption of BP’s financial target), while investors are increasingly impatient. The radical company Elliott Investment Management holds a 5% holding in BP and calls on the company to consider more transformative measures.
According to Bloomberg News in April, Elliott believes BP's plan lacks ambition and urgency and believes it may allow the company to take over the company's acquisition.
Under CEO Wael Sawan, Shell has also been cutting costs, shedding underperforming renewable energy units and refocusing on fossil fuels. Shell has surpassed Chevron and ExxonMobil in recent years, but the company's valuation has not yet matched the valuations of major U.S. oil competitors.
Sawan told analysts Friday that Shell will “of course” continue to study the opportunities of inorganic, but cautiously, “the bar is high.” He said any transaction would require increasing free cash flow per share in a relatively short period of time.
“I have said in the past that we want to be value hunters. Today, I think value hunting is buying back more shells,” Sonam said on the call.
He added, “We have to own our own house” before looking at the considerable acquisition, and despite the progress made in the past few years, the company has “more work to do” to reach its full potential. Sawan said Shell is doing deals that have the ability to create value, such as buying liquefied natural gas trading hall energy PTE.
After selling its Permian Basin shale assets to Conocophillips in 2021, the successful acquisition of BP could enhance Shell's output growth by allowing the company to resume exposure to the United States.
With the assistance of Mitchell Ferman, Liezel Hill, Ruth David and David Carnevali.
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