With Or Without BP, Buy Shell

The energy sector’s shifting dynamics in 2025 have thrust Royal Dutch Shell and BP into stark contrast. While both face headwinds from volatile oil prices and regulatory pressures, Shell’s disciplined execution, financial resilience, and strategic agility position it as a superior investment opportunity—even if its rumored acquisition of BP does not materialize.

Shell’s Strong Positioning Amid Turbulence

Shell’s Q1 2025 results underscore its ability to navigate market volatility. Despite a 35% year-on-year drop in attributable income to $4.78 billion, the company delivered a 415% sequential surge in profits from Q4 2024, driven by cost discipline and reduced write-offs. reveals Shell’s shares outperforming BP’s by 20% over this period, reflecting investor confidence in its operational rigor.

Key strengths include:
- Liquidity and leverage: Shell’s net debt of $41.5 billion (as of Q1 2025) is offset by a gearing ratio of 18.7%, well within its target range. This contrasts with BP’s higher net debt of $27 billion but weaker cash flow generation.
- Strategic focus: Shell’s $20–22 billion 2025 capex budget prioritizes high-return projects, including its $11 billion LNG Canada venture, which began production in mid-2025. This aligns with its “countercyclical” strategy of maintaining shareholder returns (dividends + buybacks) at 40–50% of cash flow.

Shell’s Q1 buyback of $3.5 billion, part of a 14-quarter streak of at least $3 billion in quarterly repurchases, signals confidence in its balance sheet. Even if BP remains independent, Shell’s ability to capitalize on LNG’s growing demand—and its disciplined capital allocation—supports a bullish stance.

BP’s Struggles Highlight Shell’s Edge

BP’s Q1 2025 profits plummeted 50% to $1.4 billion, underscoring its vulnerability to operational and strategic missteps. Key issues include:
- Weak refining margins: BP’s downstream segment faced a $1 billion decline in gas marketing and trading profits, dragging down its Gas & Low Carbon Energy division.
- Debt and cost pressures: BP’s net debt rose to $27 billion, with plans to reduce it to $14–18 billion by 2027 relying on divestments like its Castrol lubricants business. This path remains fraught with execution risks.
- Activist investor pressure: Elliott Management’s 5% stake has pushed BP to accelerate its “reset” strategy, but this pivot toward fossil fuels risks alienating ESG-focused investors.

symbolizes Shell’s focus on high-growth, capital-efficient assets. BP, by contrast, struggles to balance its legacy operations with transition investments.

Why Shell Wins Regardless of a BP Acquisition

Even if Shell does not acquire BP—a deal still in early stages—its intrinsic value remains compelling:
1. Financial resilience: Shell’s free cash flow of $5.3 billion in Q1 (despite a 46% YoY drop) is far more robust than BP’s $2.8 billion operating cash flow.
2. Strategic flexibility: Shell’s LNG dominance and renewables progress (narrowing losses to $42 million in Q1) position it better to capitalize on energy transition trends.
3. Management credibility: CEO Wael Sawan’s focus on “free cash flow per share accretion” has earned investor trust, contrasting with BP’s leadership under scrutiny over refinery outages and margin erosion.

Conclusion: Shell’s Case Is Unassailable

Shell’s Q1 2025 results and strategic moves confirm its status as the sector’s most compelling investment. Even if BP remains independent, Shell’s superior liquidity, disciplined capital allocation, and focus on high-margin LNG and renewables make it a safer bet.

Consider the numbers:
- Shell’s gearing ratio (18.7%) is half BP’s (net debt-to-equity of 44%).
- Shell’s dividend yield of 5.2% (vs. BP’s 6.1%) may seem lower, but its stronger cash flow supports sustainable payouts.
- Shell’s 2025 capex targets are 30% higher than BP’s, yet its free cash flow generation ensures no overextension.

In a sector where execution and discipline matter most, Shell’s fundamentals—regardless of BP’s fate—make it the clear winner.