What the Shell-BP Rumor Reveals About BP’s Future
Shell denied a takeover but the rumor highlights what investors are starting to see: BP’s deep discount and strategic pivot may be ripe for revaluation.
BP plc stock (NYSE: BP) surged as much as 10% intraday on June 25 after The Wall Street Journal reported that Shell PLC (NYSE: SHEL) is in early talks to acquire the British oil major in what could be the largest energy deal in decades. Shell quickly denied the report, but the market’s reaction was revealing—BP shares ultimately closed up 1.6%, a sign investors are reevaluating the company’s strategic value and takeover potential.
Trading near $30 per share and up just 3% year-to-date, BP has underperformed the S&P 500 and lags far behind U.S. peers. But beneath the modest performance lies a complex picture: a company in strategic flux, with a large upstream footprint, volatile earnings, and a reworked energy strategy. With a market cap of $80 billion—less than half of Shell’s—BP may be more vulnerable than ever to M&A speculation. That said, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P and clocked >91% returns since inception.
M&A Chatter Unlikely – For Now
Despite the headlines, a full-scale Shell acquisition of BP remains highly unlikely. For one, BP carries $60 billion in debt (or around $27 billion in net debt), a legacy in part from the Deepwater Horizon disaster, which deters financially conservative suitors. Secondly, any merger between two European oil giants would face immediate scrutiny from regulators in the U.K., EU, and U.S., particularly over dominance in upstream production, LNG, and fuel retailing.
Beyond antitrust risk, a deal of this scale would spark political pushback. The U.K. government views BP as a strategic asset, and approving a takeover—even by another British-Dutch firm—could trigger nationalistic resistance. Integrating two global energy titans with divergent strategies would also pose operational headaches.
A more plausible scenario? BP is being broken up and sold piecemeal to multiple buyers. That path would be easier to navigate legally and could unlock more value than a mega-merger.
Valuation: A Discount?
From a valuation standpoint, BP looks attractive. The stock trades at a price-to-sales ratio of just 0.44x – about 20% to 30% below its five-year average. In contrast, integrated oil majors like Exxon Mobil (NYSE: XOM), Chevron Corporation (NYSE: CVX), and Shell command far richer P/S multiples between 0.7x and 1.3x. The discount reflects investor caution over BP’s shifting strategy, weaker earnings, and structural headwinds. But it also creates room for upside if execution stabilizes. See our analysis BP Valuation for more details on what’s driving our price estimate for the stock.
Quarterly Struggles, Long-Term Promise
Q1 results underscored BP’s internal tug-of-war. Oil production and operations delivered solid profits on higher volumes and pricing. But gas trading and low-carbon businesses stumbled, dragging down overall performance. The company reported $1.38 billion in underlying replacement cost profit, falling short of the $1.6 billion consensus and down sharply from $2.7 billion the year before.
Looking ahead, production is expected to decline in 2025 due to asset divestments, while refining margins and FX headwinds continue to weigh. Still, BP has three new startups and six discoveries in the pipeline, offering growth potential if it can stabilize performance.
Strategy Shift: Back to Black Gold
After years of swinging between green ambition and fossil fuel fundamentals, BP is recalibrating. In 2020, the company pledged to slash oil output by 40% and lead the charge into renewables. But tepid returns and rising pressure from shareholders have reversed that stance.
Now, BP is doubling down on oil and gas, targeting 2.5 million barrels of oil equivalent per day by 2030—up from just under 2.4 million last year. At the same time, it has slashed renewable spending from $5 billion to as little as $1.5 billion annually, while boosting traditional capex to $10 billion. Executive reshuffling—most notably the pending exit of Giulia Chierchia, EVP of strategy and sustainability—further signals a decisive pivot back to hydrocarbons.
Hydrogen Plays Still On the Table
Despite cutting back on renewables, BP continues to pursue hydrogen projects. Its pipeline includes joint ventures with Iberdrola in Spain and Cummins in Germany, as well as H2Teesside – one of the U.K.’s largest planned blue hydrogen sites. These efforts indicate BP isn’t abandoning its energy transition ambitions entirely, but rather refocusing on technologies with more immediate economic viability.
The Bottom Line: Merger Unlikely, Value in Focus
A Shell–BP merger may grab headlines, but in reality, it faces too many hurdles—regulatory, political, and financial—to materialize anytime soon. Still, the speculation highlights something more important: BP’s depressed valuation and strategic uncertainty are drawing renewed attention.
For value-oriented investors, BP may offer upside—if the company executes on its renewed oil-forward strategy and restores margin confidence.
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