Shell Denies $80 Billion BP Merger Rumors Amid Market Turmoil

Shell, the London-based oil giant, has firmly denied rumors of a potential merger with its struggling rival, BP. The speculation, which surfaced late Wednesday, suggested that Shell was in early discussions to acquire BP in a deal valued at nearly $80 billion. The report, which sent shockwaves through the energy markets, was swiftly refuted by Shell, which emphasized its commitment to maintaining capital discipline. BP, on the other hand, chose not to comment on the matter.

BP has been under significant pressure recently due to a year of poor stock performance and operational setbacks. The company's stock has declined by more than 6% year to date, leading analysts to flag BP as a potential takeover target. For Shell, which has seen a 4% increase in its stock this year, acquiring BP would have provided instant control over more oil fields and an expanded presence in key regions like the Permian Basin. However, such a move would not be without its challenges.

Analysts have raised questions about the value and impact of such a deal. Allen Good, who runs equity research at Morningstar, stated that the numbers do not add up for Shell. He noted that while the idea might seem appealing on paper, any real benefit would depend on Shell significantly reducing costs and divesting BP’s underperforming assets, a move that would likely face internal resistance. Good also suggested that selling BP might be the best course of action for BP’s board and management to benefit shareholders.

BP’s leadership has been working to stabilize the company. Earlier this year, CEO Murray Auchincloss announced a comprehensive reset of the company’s direction, aiming to rebuild trust. Despite this pivot, BP’s first-quarter results were weaker than expected. In late April, Murray insisted that the company was “off to a great start” in its new direction, though the financials painted a different picture. This rough start led to a significant drop in BP shares in April, partly due to trade war tensions that affected global financial markets. Since then, the stock price has stabilized, but uncertainty persists, keeping the idea of a takeover alive.

From a regulatory standpoint, merging the UK’s two largest oil companies would raise immediate red flags. Analysts warn that such a combination could face serious antitrust pushback, particularly in Europe, and would likely result in major job cuts. Shell and BP have different corporate cultures and overlapping operations, making the integration process complex and politically sensitive.

Russ Mould, investment director at AJ Bell, noted that Shell’s denial of the merger rumors aligns with the company’s current financial strategy. He highlighted that while the deal could provide significant scale in oil and gas, the integration would be far from straightforward due to the companies’ different cultures and the potential job losses. Mould also observed that Shell’s stock price dipped slightly when the merger rumors surfaced but rebounded nearly 1% by Thursday morning after the denial.

Nick Wayth, now CEO of the Energy Institute and a former BP executive, confirmed the complexity of such a deal. He noted that even if a merger were to occur, it would involve navigating overlapping portfolios and significant regulatory hurdles. Wayth also disclosed that he still holds shares in BP.