Home Fossil Energy Rekindled Shell-BP merger rumor mill going wild: Wishful thinking or real possibility?
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.
Shell recently brought online its new FPSO Penguins; Source: Sevan
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,