Speculation Abounds Over Potential Shell-BP Merger

Speculation is running rampant over a potential business combination between two oil majors, with the energy industry abuzz over the alleged merger between the UK-headquartered Shell and BP and the implications such a mega consolidation move could have on the global scene.

This is not the first time such rumors started circulating regarding these two UK-headquartered energy giants, but the latest one comes when BP has been experiencing a prolonged spell of lower profit and investor frustration. What do the industry and energy market connoisseurs have to say about such a move?

An interesting take on the Shell-BP merger rumors came from John MacArthur, Director of Highland Sustainability, who is Senior Advisor Industry Pathways for the World Business Council for Sustainable Development (WBCSD). MacArthur, who has a rich career history, served as ADNOC’s first-ever Group Climate Change Officer after his more than two-decade-long stay with Shell in various roles internationally, one of the most recent being Shell’s first Chief Carbon Engineer.

MacArthur emphasized: “The opportunity is to create a Shell-BP tie-up with ~$300 billion market cap to compete with US rivals and others. The merger could enhance operational efficiencies, streamline costs, bolster complementary reserves portfolios, and dilute shared investment risk in energy transition upside. This scale is on par with Chevron’s ~$270 bn market cap, but behind ExxonMobil at ~$470 bn. Let’s also remind ourselves that US rivals are valued at ~13-15 x earnings on the NYSE whereas Shell and BP are valued ~8-9 x on the LSE.

“If we apply this ratio to Shell-BP market cap then ~$490 bn surpasses ExxonMobil. A merger to create a European global rival to ExxonMobil is a major prize. Would there be some way for the LSE to value a new European super major at those levels? The LSE is chronically undervalued, and political hostility to oil and gas in post-Brexit UK will be a continued challenge to navigate, but the UK and Europe remain dedicated to fostering energy transition growth.”

While this type of consolidation has the potential to reshape the global oil, gas, and LNG landscape by forging a giant truly able to compete with rivals in the U.S. and elsewhere, the completion of this type of mega consolidation would likely be flagged for an uphill battle given the antitrust laws that are in place to prevent market monopoly and stop combinations that have the ability to substantially lessen competition.

MacArthur continued: “It is no wonder that Elliott Investment Management L.P. has built a BP stake reflecting investor frustration with its performance. This underscores the urgency for BP to consider its revitalisation strategies, including a merger. The energy transition is rebalancing now, and this creates a decision point. Many will advocate to regress to an oil and gas single focus, but that may last only one US Presidential term. In any case, I encourage a recalibration to seize on demonstrably commercial energy transition opportunities, and to harvest oil and gas profits which fund them.

“This is not mutually exclusive. Profitable growth in non-linear transition requires both resilience and vision. Warren Buffet said: ‘be fearful when others are greedy, and greedy when others are fearful.’ It may be that the energy transition is as cyclical as its oil and gas predecessor. Is it time to greedily hoover up renewables projects, renegotiate project terms and supply chain costs, or to fearfully divest?”

Ilham Shaban, a partner in Baku-based consultancy Caspian Barrel, outlines that BP’s share price has dropped 2% over the past year with market capitalization going down to £74 billion while Shell’s share price has gone up by 9%, hitting £164 billion. According to him, the merger between the UK-based duo would allow the new energy heavyweight to surpass Chevron in market capitalization.

Shaban pointed out: “The possibility of BP being acquired by Shell has been discussed in the past, particularly in 2012, when BP was considered a potential target for acquisition by companies such as ExxonMobil and Shell. However, as of February 2025, there is no confirmed information about such plans or negotiations. A merger of such large energy companies would require careful consideration of multiple factors, including antitrust regulations, strategic objectives, and shareholder approval.

“Without official statements or reliable sources confirming such intentions, it is difficult to assess the likelihood of such an acquisition. If Shell were to take over BP, it could have a significant impact on production and exports in the Caspian Basin, especially in the context of Kazakh oil exports via Azerbaijan. Shell would have signed a new contract to develop the Karabakh oil field in the Azerbaijani sector of the Caspian Sea. It would also have accelerated the Dostlug oil and gas production project on the border of Azerbaijan and Turkmenistan.”

Some industry sources believe the merger would be a partial one, like one between Shell and Equinor on the UK Continental Shelf (UKCS), rather than a full portfolio acquisition. On the other hand, others indicate it would be an all-or-nothing kind of combination. Offshore Energy has reached out to Shell and BP to get their views on the rising merger speculation and other business combination plays that may be in the works.

Shell’s spokesperson stated: “No significant inorganic acquisitions are on the table. Instead, we are focused on consistent performance, delivery and financial discipline as we methodically improve Shell. Our shares represent an extremely attractive investment opportunity, and so we would rather allocate capital to them than elsewhere.”

Shaban further said: “Given that Shell has sufficient capital and high-tech solutions for offshore gas production, the Shah Deniz-3 project would have been implemented at a faster pace. In addition, Shell has production assets in Kazakhstan. Shell is one of the largest foreign investors in the oil and gas industry of Kazakhstan. It has a 16.81% stake in the giant Kashagan (NCOC) oil field development project. It also has a 29.25% stake in the Karachaganak (Karachaganak Petroleum Operating B.V. (KPO) gas condensate project.

“Control of BP would give Shell additional leverage in the region, especially if the company focuses on developing alternative oil export routes through the Caspian. A takeover of BP by Shell would consolidate the Western presence in the Caspian Basin. It would give Shell control over key Caspian oil export routes, which is especially important given changing global energy flows. Kazakhstan would likely use this to increase oil supplies through Azerbaijan, reducing its dependence on Russian pipelines.”

Furthermore, MacArthur also highlighted the role of artificial intelligence (AI) and underlined: “Should we put AI at the centre of the energy transition to develop secure, affordable connected energy, and to design energies for the future to take humanity to Mars and beyond?

“A merger between Shell and BP presents a unique opportunity to create a global energy titan with such game-changing imagination. This merger may not come to fruition, but it represents an opportunity to redefine and launch the future of energy.”

Meanwhile, Shell put into work mode its first new North Sea floating production, storage, and offloading (FPSO) unit in nearly three decades at the start of February 2025, resuming oil and gas production from a field in UK waters that has been offline since 2021.