Shell Plc is actively evaluating a potential acquisition of BP Plc, but is holding off on making any decision until further deterioration in BP’s share price and global oil prices presents a more favorable opportunity. This potential blockbuster merger could reshape the global oil landscape, combining two of the UK’s most iconic energy giants.

Shell's Strategic Assessment of BP

According to sources familiar with the matter, Shell has been consulting with advisers more frequently in recent weeks to explore the feasibility and potential value of acquiring BP. While Shell has not initiated formal talks or approached BP, the intent appears to be preparing for a possible move if market conditions align.

The deliberations are still in early stages, and Shell may opt for alternative strategies like share buybacks or smaller, value-focused acquisitions if a BP deal is deemed too risky or complex. Shell is reportedly also monitoring whether another suitor makes a move on BP first, which would force its hand or alter the dynamics of any potential transaction.

BP's Struggles Set the Stage

BP’s current troubles form the foundation of Shell’s interest. Over the past year, BP shares have dropped nearly 33%, largely due to:

• A failed turnaround strategy initiated by former CEO Bernard Looney, which leaned heavily on net-zero goals and renewable energy investments.

• Declining investor confidence in the company’s direction.

• A surprise downturn in oil prices, with Brent crude falling below $70 per barrel, undercutting BP’s financial projections.

Following Looney's exit, current CEO Murray Auchincloss announced a strategic reset in February 2025. The new approach includes a shift back to oil, reducing share buybacks, and divesting non-core assets, all in an effort to stabilize performance.

Market Capitalization Gap Between Shell and BP

Shell is now in a significantly stronger financial position compared to BP:

• Shell's market value: £149 billion ($197 billion)

• BP’s market value: £56 billion

That makes Shell more than twice the size of BP in terms of market capitalization. The disparity reflects their divergent performance over recent years. Shell has benefitted from a refocus on fossil fuels and disciplined cost-cutting under CEO Wael Sawan, whereas BP has lagged behind in execution and investor perception.

Shell’s Acquisition Criteria

CEO Wael Sawan has maintained a disciplined acquisition strategy, emphasizing that any major deal must deliver value per share quickly. In a recent call with analysts, Sawan commented:

“We want to be value hunters, and today that means buying back Shell stock. Any acquisition must contribute immediately to our free cash flow per share.”

Shell has already demonstrated a preference for targeted, value-adding acquisitions, like its recent purchase of Pavilion Energy Pte, a Singapore-based liquefied natural gas (LNG) trader.

Despite the appeal of a BP merger, Sawan cautioned that Shell still has “more work to do” internally before embarking on large-scale takeovers. The message is clear: Shell will not act unless the deal is both financially prudent and strategically sound.

Activist Pressure on BP

Adding to BP’s vulnerability is the involvement of activist investor Elliott Investment Management, which disclosed a 5% stake in BP earlier this year. Elliott has criticized BP’s lack of urgency and ambition and is reportedly urging the company to consider transformative changes, including asset restructurings or even selling itself.

This external pressure could hasten BP’s decision-making and increase the likelihood of a major corporate action—something Shell is watching closely.

Industry Context: Oil Price Slump and Global M&A

The backdrop to all this is a slump in oil prices triggered by:

• Geopolitical tensions, particularly the aftermath of U.S. policy changes and trade wars.

• Unexpected supply increases by OPEC+, which disrupted pricing equilibrium.

These developments have hurt energy stocks across the board. However, for acquisitive companies like Shell, this presents a strategic window to pursue undervalued assets—especially competitors like BP whose stock performance has significantly deteriorated.

Other large energy companies are also said to be evaluating BP as a potential target, which raises the stakes for Shell. A bidding war could emerge, but Shell’s deep pockets and strategic alignment could make it a frontrunner if it chooses to act.

Historical Significance of a Shell-BP Merger

A successful Shell-BP merger would be one of the largest takeovers in oil industry history. The two companies have been long-time rivals, and merger speculation has surfaced occasionally over the past decades, but never materialized.

Combining Shell and BP would result in a global oil behemoth with unmatched reach in:

• Exploration and production

• Refining and distribution

• Natural gas trading

• Upstream and downstream integration

It would also significantly bolster Shell’s exposure to U.S. markets, which it reduced in 2021 by selling its Permian Basin shale assets to ConocoPhillips. Acquiring BP would allow Shell to re-enter those markets at scale.

Elliott’s Role and Future Scenarios

The presence of Elliott Investment Management is particularly critical. Known for activating corporate change, Elliott could play a pivotal role in either facilitating a sale or pushing BP to reconsider its current strategy.

If BP’s performance continues to falter and oil prices remain subdued, pressure from both shareholders and the market could lead to one of several outcomes:

• BP may proactively seek a buyer to unlock shareholder value.

• Shell may step in with a hostile or friendly offer.

• Another energy major may outbid Shell, forcing it to pivot.

Shell's Position Going Forward

As Shell continues to shed low-performing renewables and refocus on fossil fuels, it is aligning more with traditional oil business models that prioritize cash flow, output, and dividends.

Still, Shell has not committed to a BP deal, and sources confirm that buybacks remain the priority. Sawan has stated clearly:

“We must have our own house in order before looking at big acquisitions.”

This disciplined approach means that while Shell is interested, no sudden moves are likely unless the opportunity becomes too compelling to ignore.

Conclusion: A High-Stakes Watch-and-Wait Game

The Shell-BP acquisition story represents a classic case of strategic patience in corporate M&A. Shell is watching BP’s ongoing struggles closely, weighing the risks and rewards of a historic merger. While no firm decision has been made, the groundwork is being laid, and industry insiders are paying close attention.

Whether Shell acts, waits, or pivots, one thing is clear: a major transformation in the oil industry could be on the horizon, and it may be driven by British energy giants navigating a volatile and rapidly changing market.

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