Reports: Pressure is on bp to merge with Shell, creating a British oil giant
By Bruce Beaubouef, Managing Editor
Leading investment bankers are looking to engineer a merger between bp and Shell to create one national British oil and gas champion, The Mail on Sunday has reported.
The Mail on Sunday is a tabloid British newspaper and a sister publication to the Daily Mail. According to the report, the aim is to bring the two oil majors together so they can compete with international rivals such as France’s TotalEnergies and US majors ExxonMobil and Chevron.
bp’s problems mounted last week when it posted a slump in profits, while New York investor Elliott Investment Management confirmed that it had built up a near 5% stake. That makes the New York-based hedge fund the third-largest shareholder in BP, and the firm is “agitating for change,” according to an op-ed in The National, a UAE state-owned English-language daily newspaper published in Abu Dhabi, UAE. “Elliott has a track record in achieving its agenda, often conducting a protracted campaign of attrition, so the news must be taken seriously,” the op-ed said.
According to The Mail on Sunday report, bp’s chief executive Murray Auchincloss is now under “huge pressure” ahead of a critical shareholder meeting on February 26.
He will be expected to lay out a credible strategy that can put the company back on track.
Some dissatisfied investors reportedly told The Mail on Sunday that the bp CEO is in “the last chance saloon.” Over the past year, bp’s share price has fallen 2% and its market capitalization is now £74 billion (US$93.69 billion).
Shell by contrast has gone from “strength to strength” under its CEO Wael Sawan, who has “cash to spend after slashing its debt pile,” The Mail on Sunday reported.
Shell’s shares have risen 9% over the past 12 months, valuing the business at £164 billion (US$207.65 billion). But valuation remains an issue for Shell too. Sawan has threatened to move the company’s primary listing to the US if it does not improve.
For comparison, according to The National’s analysis, Aramco has a market capitalization of £1.4 trillion ($US1.77 trillion), Exxon Mobil comes next with £378 billion ($US477.64 billion); then would come the new Shell-bp entity at £237 billion ($US299.47 billion), putting it above Chevron’s £222 billion ($US299.47 billion) and PetroChina at £159 billion ($US200.91 billion). Thus the new entity “would form an oil corporation of sufficient scale to compete on the world stage.”
According to The Mail on Sunday, “bankers believe that a tie up between the two companies makes sense.” Such a merger would create a “behemoth” with 180,000 employees. The two companies have similar exploration projects in Iraq and the Gulf of Mexico that could be merged, as well as high performing trading arms. Creating one national British champion would give the companies the scale needed to compete against rivals. Size matters, especially as the growing cost of capital makes E&P campaigns an increasingly expensive business.
Graham Ashby, at asset manager Schroders, which has stakes in both companies, was quoted to say: “Look at the Saudis and the Americans, they have scale. It is the most important factor in the oil industry…The cost of capital is so high that to extract oil without scale means it is impossible to make money.”
Shell’s bankers include Citigroup and Rothschild, while bp has Robey Warshaw and Morgan Stanley. Another investment banker was quoted to say: “Shell’s advisers and the rest of the City will be doing the sums. There is a deal to be done.”
According to The Mail on Sunday report, analysts say that bp may announce plans to offload assets including its US shale oil and gas division and its lubricants business Castrol, which it bought for £4 billion (US$5.06 billion) in 2000. There is even some talk that its “petrol forecourt business” (retail gasoline stations) could be on the block, The Mail on Sunday said.
Elliott, run by Paul Singer, reportedly wants the company to slash spending on renewables and sell a significant proportion of its green assets.
This is not the first time that rumors have circulated regarding these two British oil majors, but this most recent rumor comes when bp has been experiencing a prolonged spell of lower profit and investor frustration. On the positive side, the merger could enhance operational efficiencies, streamline costs, bolster complementary reserves portfolios, and dilute shared investment risk in energy transition upside.
While this type of consolidation has the potential to reshape the global oil, gas, and LNG marketplace, such a merger would undoubtedly face an uphill battle given the antitrust laws that are in place, in both the US and the UK, to prevent market monopoly and stop combinations that have the ability to substantially lessen competition.
Some industry sources believe the merger would or could be a partial one, like the one between Shell and Equinor on the UK Continental Shelf (UKCS), rather than a full portfolio acquisition. On the other hand, others indicate it would be an all-or-nothing kind of combination.
But it should be noted that as of Feb. 21, 2025, there is no confirmed information about such plans or negotiations from the companies themselves. One analyst has noted that a merger of such large energy companies would require careful consideration of multiple factors, including antitrust regulations, strategic objectives, and shareholder approval.
