Shell is considering a takeover of BP after the oil giant’s botched pivot to net zero left it vulnerable.
FTSE 100 giant Shell is seriously exploring how feasible and beneficial a takeover of BP would be, according to Bloomberg. It is engaging with advisers to plan out what a deal would look like.
It comes amid turmoil at BP over its approach to green energy. The company vowed to slash its oil and gas production and invest heavily in renewables in 2020, making the boldest commitment to net zero in the fossil fuel industry.
However, the strategy failed to deliver financial returns and BP has recently abandoned the plans in favour of a return to focusing on oil and gas. It follows intense pressure on management from US hedge fund Elliott Management, which has become one of BP’s biggest shareholders after building a 5pc stake.
The muddle at BP has left its stock price languishing. Shares have slumped 30pc over the last 12 months and are just 11pc above where they were when BP launched its green energy strategy. By contrast, Shell’s stock has rallied almost 90pc over the last five years as it has focused on oil and gas . The divergence has left BP worth just £55bn, compared to Shell’s £148bn.
A combination of Shell and BP has long been speculated but a deal would be likely to face intense political scrutiny and attract the attention of competition regulators. Any deal would also trigger a bonanza of fees for advisers and bankers.
Shell is understood to be biding its time and awaiting further drops in BP’s shares and oil prices before deciding whether to bid.
A Shell spokesman said: “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.”
Wael Sawan, Shell’s chief executive, told analysts on Friday that the oil giant “of course ... will keep looking at inorganic opportunities” for growth but said the “the bar is high” for deals.
Buying back Shell’s own shares currently presents the best value for money, he argued. Mr Sawan 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.”
The chief executive added that Shell needed to “have our own house in order” before doing big takeovers.
A swoop for BP could help Shell boost output by gaining more exposure to the US. BP has significant operations in the Gulf of Mexico and announced a fresh discovery there just last month.
It would also help Shell build the scale to better compete with US oil giants, whose value dwarfs Shell. Exxon Mobil, for example, is worth $459bn (£345bn).
The threat of a takeover will add to pressure on BP’s management, led by Murray Auchincloss, the chief executive. A fundamental “reset” of the company’s strategy, announced in February, has failed to improve its share price or satisfy Elliott.
Despite jettisoning much of its green energy plans as Elliott wanted, the hedge fund is now pushing for more changes. BP is under pressure to cut jobs across its UK operations to free up cash to return to investors. The oil major has already unveiled plans to cut 4,700 jobs and 3,000 contractors globally.