Reports and rumors have intensified this year that BP is in the crosshairs of rivals, especially Shell, for a potential takeover that would be the largest deal in the oil industry since the Exxon and Mobil merger in 1999.
Five years of U-turns in strategy and the abrupt departure of the architect of the ‘greener’ BP, Bernard Looney, have left investors unconvinced in the direction the UK supermajor is taking and whether it could – at some point, finally – convince shareholders and the market that it is a stock worth holding.
The latest speculation, from a few days ago, again placed UK-based rival Shell as a potential buyer of BP. Shell dismissed the latest market talk with a statement, but didn’t close the door on a potential bid down the line, or “if there has been a material change of circumstances.”
Shell, and any other suitor for that matter, would need to carefully consider the idea of a takeover because of the enormity of a deal, the debt level and ratio at BP that are higher than these of its peers, and likely stumbling blocks in regulatory approvals in numerous jurisdictions, including at home in the UK.
How BP Became The Weakest Link
A BP-Shell tie-up has been the talk of the market for years. BP’s stock has underperformed those of its peers for years, and the two strategy resets in five years this decade alone haven’t helped investors believe that either of the two strategy shifts could bring significant value.
First it was former CEO Looney who, in 2020, steered BP into turning into an integrated energy company from an international oil major by reducing its oil and gas production and boosting investments in low-carbon energy solutions. This “performing while transforming” strategy failed to convince investors as returns from renewables were meager, at best, and the stock market did not appreciate reduction of the most profitable business, oil and gas, at the expense of costly and lower-value-creating renewables.
Then came 2022 and the energy crisis, which upended all plans and strategies. All majors started emphasizing the need for affordable, reliable energy in a move to continue producing more oil and gas. BP’s then CEO Looney talked about solving the energy trilemma – affordability, security, and sustainability, until September 2023, when he abruptly departed over previously undisclosed relationships at the workplace.
Then, CFO Murray Auchincloss took over in the interim before being officially elected chief executive officer in 2024.
Strategy Reset
Early this year, Auchincloss announced a fundamental strategy reset to return to the core business of pumping more oil and gas and slashing investments in renewables.
The reset was likely also the result of activist hedge fund Elliott buying nearly 5% in the UK-based supermajor early this year. Elliott, known for aggressively demanding changes, big and fast, at any company in which it is building stakes, pressured BP to reward shareholders by reducing debt.
Hopes at BP that the strategy reset would now reverse the fortunes for the BP stock were quickly dashed.
In a very unfortunate development for BP, any positive short-lived share performance from the strategy reset was obliterated within a month by the tariff and trade wars, which crashed the price of Brent Crude oil to the low $60s per barrel in April and May.
The prices were already lower in the first quarter of 2025 compared to a year earlier—and BP’s financials showed it.
After BP reported the weakest set of Q1 results among Big Oil and reduced by $1 billion its quarterly share buyback program as cash flow declined and net debt rose, speculation of a Shell-BP megadeal intensified in April.
What’s Next?
The speculation resurfaced in the last week of June, after The Wall Street Journal reported that Shell is in early-stage discussions to acquire its British rival.
A day later, Shell said it hasn’t actively considered an offer for BP and has no intention of making such a bid.
“In response to recent media speculation Shell wishes to clarify that it has not been actively considering making an offer for BP and confirms it has not made an approach to, and no talks have taken place with, BP with regards to a possible offer,” Shell said in a statement, addressing the report.
Under UK market rules, Shell confirmed it has no intention of making an offer for BP, and by confirming this, Shell will be bound by the restrictions in the rules not to make an offer for BP in the next six months.
The supermajor, however, left the door slightly open to an offer in the future if a third party announces a firm intention to make an offer for BP, or “if there has been a material change of circumstances.”
Shell and other majors, including the U.S. giants, are not being ruled out as BP suitors in the future.
“The fact rumours keep circulating might suggest there is some truth in the matter, be it Shell or someone else looking to buy the UK oil and gas producer,” Dan Coatsworth, an investment analyst at AJ Bell, told Yahoo Finance.
Yet, any bid for BP would need to clear a lot of regulatory hurdles in various jurisdictions, and the bidder will have to weigh the potential benefits of synergies against BP’s debt and potential asset sales to win regulatory approvals.
By Tsvetana Paraskova for Oilprice.com