Shell Reportedly Considering bp Acquisition

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Deliberations are in the early stages and Shell may opt to focus on share buybacks and bolt-on acquisitions rather than a mega-merger. Other large energy companies have also been analyzing whether they would want to bid for bp, according to the report.

“As we have said many times before, we are sharply focused on capturing the value in Shell through continuing to focus on performance, discipline and simplification,” a Shell spokesperson said in an emailed statement to Bloomberg. A representative for bp declined to comment.

Is a Takeover Imminent?

bp has been battling prolonged underperformance stemming in large part from a net-zero strategy embraced by its former CEO, Bernard Looney. His successor, Murray Auchincloss, announced a reset in February that included a pivot back to oil, cuts to quarterly share buybacks and promises to sell assets.

Activist firm Elliott Investment Management — which increased its stake in bp to 5% — is calling on the company to consider more transformative measures. Elliott views bp’s plan as lacking ambition and urgency, and believes it could potentially expose the company to a takeover, Bloomberg reported in April.

Under CEO Wael Sawan, Shell has also been cutting costs, shedding poorly performing renewables units and refocusing on fossil fuels. While its stock has outpaced that of Chevron Corp. and Exxon Mobil Corp. in recent years, the company’s valuation has yet to match those of its big oil rivals in the United States, according to Bloomberg.

Sawan told analysts Friday that Shell will “of course” keep looking at inorganic opportunities but will be prudent and “the bar is high.” Any deal would need to add to free cash flow per share in a relatively short period, he said. 

“I have said in the past that we want to be value hunters. Today, value hunting — in my view — is buying back more Shell stock,” Sawan said on the conference call, adding “we have to have our own house in order” before looking at sizable acquisitions, and that Shell has “more work to do” to reach its full potential despite the progress it’s made over the past couple years. 

Shell is doing deals where it has the capability to create value, such as with its purchase of liquefied natural gas trader Pavilion Energy Pte, Sawan pointed out.

A successful takeover of bp could bolster Shell’s output growth by allowing the company to regain exposure to the U.S. after it sold its Permian Basin shale assets to ConocoPhillips in 2021. 

Any transaction would likely dwarf Shell’s 2016 acquisition of BG Group, a deal that was valued at close to $50 billion, Bloomberg said.

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