In May 2025, the energy sector is abuzz with speculation as Shell Plc (LSE:SHEL) considers a potential acquisition of its British counterpart, BP Plc (NYSE:BP). This contemplation arises amidst a backdrop of declining oil prices and BP's underwhelming performance. BP's stock has plummeted over 30% in the past year, leading to a market capitalization of approximately £56 billion, nearly half of Shell's £149 billion valuation. Shell's CEO, Wael Sawan, has expressed a preference for share buybacks over large-scale acquisitions, yet the strategic benefits of acquiring BP's assets cannot be ignored.
Strategic Asset Synergies
A merger between Shell and BP would consolidate significant assets, enhancing operational efficiency and market reach. BP's strong presence in the Gulf of Mexico and its liquefied natural gas (LNG) portfolio would complement Shell's existing operations, potentially creating a dominant player in these sectors. The integration could lead to cost savings through the elimination of redundant operations and optimization of overlapping assets. Additionally, BP's upstream assets in the U.S. shale sector could provide Shell with renewed exposure to this market, following its previous divestment from the Permian Basin. The combined entity would also benefit from a diversified portfolio, balancing traditional oil and gas operations with renewable energy investments, aligning with global energy transition goals.
Market Consolidation & Competitive Positioning
The potential merger would create a European energy powerhouse with a combined market value nearing $300 billion, positioning it as a formidable competitor to U.S. giants like ExxonMobil and Chevron . This consolidation could lead to increased market share in various segments, including retail fuel, LNG production, and deepwater exploration. However, such a significant merger would likely attract regulatory scrutiny, particularly concerning antitrust laws in multiple jurisdictions. To address these concerns, the merged entity might need to divest certain assets, such as BP's Castrol lubricants division, to maintain market competitiveness and comply with regulatory requirements.
Financial Leverage & Shareholder Value
BP's current financial challenges, including a substantial debt burden and declining stock performance, have made it a potential acquisition target. Activist investor Elliott Investment Management, holding over 5% of BP, has been advocating for transformative changes, indicating shareholder openness to strategic shifts. For Shell, acquiring BP at its current undervalued state could be a financially strategic move, potentially leading to increased free cash flow and shareholder value in the long term. However, Shell must carefully assess the integration costs and potential dilution of its financial metrics to ensure that the acquisition aligns with its fiscal objectives.
Energy Transition & ESG Alignment
Both Shell and BP have committed to energy transition goals, albeit with differing strategies and timelines. BP has set a more aggressive net-zero target by 2045, while Shell aims for 2050 . A merger could harmonize these objectives, pooling resources to accelerate investments in renewable energy, carbon capture, and other sustainable initiatives. The combined R&D expenditures of both companies could foster innovation and expedite the development of clean energy technologies. However, aligning corporate cultures and ESG strategies would be essential to ensure a cohesive approach to sustainability and to meet stakeholder expectations.
Final Thoughts
Source: Yahoo Finance
We can see the dramatic fall in BP’s stock price over the past year in the above chart. The company is currently trading at an LTM EV/ Revenue multiple of 0.73x and an LTM EV/ EBIT of 5.34x which make it even more attractive for Shell, especially given how the industry is grappling with energy transitions and market volatility. The low valuation of BP indicates that it could easily attract other oil majors as potential acquisition suitors and not just Shell. We believe that the prospect of a Shell-BP merger presents both opportunities and challenges. While the strategic alignment of assets and potential for enhanced market positioning are compelling, considerations around regulatory approvals, financial implications, and integration complexities cannot be overlooked.