MW Why a potential Shell blockbuster deal for BP makes sense

By Barbara Kollmeyer

Shell reportedly wants to see BP and oil prices lower before moving ahead

With speculation swirling that oil giant Shell might be interested in a takeover of rival BP, analysts say such a marriage may be the latter's best hopes of putting years of lackluster management behind it.

With London markets closed for a holiday on Monday, U.S. traded shares of each were offering a glimpse of how investors might be feeling about such a deal, with BP $(BP)$ up nearly 2% and Shell $(SHEL)$ down 1.7%.

Some of Shell's weakness though, could be linked to oil prices (CL00) (BRN00), slumping after OPEC+ over the weekend said it was again raising oil production. Chevron $(CVX)$ and Exxon shares $(XOM)$ fell 1% each.

Over the past few weeks, Shell has been discussing with advisors the possibility of a tie-up with BP, but wants to see its rival's shares and crude prices weaken before moving forward, Bloomberg first reported on Saturday, citing sources.

"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 emailed comments to MarketWatch. The company also pointed to comments on Friday's earnings call from CEO Wael Sawan, who said that when Shell sees that it can create value, it is "making moves," such as its Pavilion Energy LNG acquisition last month.

BP declined to comment to MarketWatch.

BP's U.S.-listed shares have dropped nearly 5% this year after a 16% decline in 2024, while Shell is up 6% after dropping 5% in 2024.

A deal financed through shares and cash would be the most likely option for Shell, said analysts at Alphavalue in a note.

But while BP shares are likely benefiting from the speculation, as was seen Monday, Shell stock will likely weaken on worries by investors the oil major will "launch into an operation for which execution risks are significant and would be paid (at least partially) in new Shell shares," said the Alphavalue analysts. They added that Shell would be "equally attractive" on its own.

Talk of a tie-up between the two U.K. major oil companies stretches back to the 1990s, but this time it's likely to get done, said Danilo Onorino, portfolio manager at Dogma Capital, who predicted oil deals would be an ongoing feature back in 2020.

That's because BP "has made one mistake after another" since the exit of former CEO John Browne in 2007. "What's happened now is BP basically got lost in its corporate direction. From 2020 onward, they focused on renewables and recently switched back to fossil fuels," wasting that investment, Onorino told MarketWatch.

Activist investor Elliot Management has also been reportedly BP pushing for change, such as job cuts and making its structure more simple to help boost share prices.

"BP is a national champion that requires capital and direction," said Onorino. The manager added that it makes little sense for any other rival to step forward, where potential acquirers have their own acquisitions to digest, and a U.K.-to-U.K. deal makes the most sense.

Shell's market cap, at around GBP148 billion ($196.4 billion), dwarfs that of BP, around GBP55 billion ($73 billion).

Putting the two together would mean synergies at an operational level, at least, as companies could combine management for starters, Onorino said.

"There's no value in BP. The only value is to break up the company, to spin out renewables that were started and not following through on, and operational synergies for fossil fuels," he said.

-Barbara Kollmeyer

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May 05, 2025 08:37 ET (12:37 GMT)

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