Shell’s Buyback Strategy Over BP Bid: A Calculated Move for Shareholder Value?

The Financial Times reported in May 2025 that Royal Dutch Shell CEO Ben van Beurden and CFO Sinead Gorman have ruled out pursuing a bid for BP, opting instead to prioritize share buybacks and dividends. This strategic stance underscores Shell’s disciplined capital allocation approach, even as market speculation about a potential merger briefly flared. With Shell’s first-quarter net profit at $5.58 billion—despite a 28% year-on-year decline—the company is leveraging its financial resilience to reward shareholders, while BP’s weaker performance and reduced buybacks highlight a stark divergence in strategy.

Shell’s financial fortress
Shell’s decision hinges on its robust balance sheet. With a debt-to-equity ratio of 18.7%—far lower than BP’s 25.7%—the company can afford to maintain its buyback program, allocating $3.5 billion over the next three months. This marks the 14th consecutive quarter of buybacks exceeding $3 billion, a streak that has returned over $100 billion to shareholders since 2020. CFO Gorman emphasized the strategic logic: “Our share price remains undervalued, so buying back more shares is a compelling use of cash.”

In contrast, BP has scaled back buybacks to $750 million from $1.75 billion to bolster liquidity, a move that reflects its weaker financial footing. Shell’s adjusted refining margins, though down year-on-year, remain stronger than BP’s: $6.2 per barrel versus BP’s dragged-down gas trading results. Shell’s dividend breakeven point—$40 per barrel—also offers a buffer in volatile oil markets, where Brent crude averaged just $62 by May 2025.

Strategic focus: Buybacks vs. acquisitions
Shell’s management has repeatedly prioritized shareholder returns over large-scale acquisitions. Their annual investment budget of $20–$22 billion is directed toward LNG trading, chemicals, and production growth—not mergers. Gorman’s March 2025 capital markets update reinforced this stance, outlining a plan to boost top-line output while maintaining buybacks even at $50/barrel oil prices.

The market has taken note. Shell’s shares rose 2.8% post-earnings, outperforming a broader energy index up 1.1%. Meanwhile, BP’s share price has dropped 30% over 12 months, signaling investor skepticism about its ability to turn around its struggling gas trading division.

Why no bid for BP?
Speculation about a Shell-BP merger was always a stretch. BP’s 30% share price decline and operational struggles—exacerbated by weak gas trading—would likely come with costly liabilities. Shell’s focus on capital discipline avoids the risks of integrating BP’s underperforming assets. Instead, Shell is capitalizing on its LNG trading prowess, rerouting cargos to “more profitable destinations,” and planning a chemicals business review by decade’s end.

Conclusion: A winning formula?
Shell’s buyback-first strategy is a calculated bet on shareholder value creation. With a stronger balance sheet, higher margins, and a track record of returning cash, the company has positioned itself to weather energy market volatility. Its 2.8% post-earnings stock surge versus BP’s decline underscores investor confidence in this approach.

Key data points reinforce the case:
- Shell’s buybacks have totaled over $100 billion since 2020, versus BP’s cumulative $30 billion over the same period.
- Shell’s $40/barrel dividend breakeven is nearly half BP’s $75/barrel requirement.
- Shell’s debt-to-equity ratio (18.7%) is 7 percentage points lower than BP’s, offering greater flexibility in uncertain markets.

While BP grapples with structural challenges, Shell’s focus on buybacks and disciplined capital allocation may prove the smarter long-term play. For investors, the choice between the two is clear: Shell’s fortress balance sheet and shareholder-friendly policies make it a safer bet in an uncertain energy landscape.