- The goal is to unite two major players so they can take on global competitors.
- BP faced increasing challenges after reporting a drop in profits.
- The bold New York investor Elliott has acquired nearly a 5% stake.
The objective is to unite these two oil titans to enhance their competitiveness against global players like France's TotalEnergies and American firms ExxonMobil and Chevron.
BP faced increased challenges last week after announcing a significant drop in profits, while the activist investor Elliott Investment Management disclosed it had acquired nearly a 5 percent stake in the company.
Murray Auchincloss, BP's CEO, is now under considerable pressure as he prepares for a pivotal shareholder meeting scheduled for February 26. He is expected to present a viable strategy to steer the company back on course.
Some frustrated investors have expressed to The Mail on Sunday that this may be Auchincloss's final opportunity. Over the past year, BP's share price has decreased by 2 percent, resulting in a market capitalization of £74 billion.
In contrast, Shell has thrived under the leadership of Wael Sawan, who has available capital following significant debt reduction.
Shell's shares have appreciated by 9 percent in the last year, bringing its valuation to £164 billion. However, valuation concerns persist for Shell as well, with Sawan indicating a potential shift of the company's primary listing to the US if improvements are not made.
Bankers believe that a merger would be advantageous, creating a giant with a workforce of 180,000. Both companies have overlapping exploration initiatives in Iraq and the Gulf of Mexico that could be integrated, along with their successful trading divisions.
Establishing a single national champion would provide the necessary scale to compete effectively against rivals. In the oil industry, size is crucial, as the capital costs associated with oil extraction are substantial.
Graham Ashby from asset manager Schroders, which holds investments in both firms, remarked, 'Look at the Saudis and the Americans, they have scale. It is the most important factor in the oil industry. Forget the war in Ukraine and Opec. They are side issues.
'The cost of capital is so high that to extract oil without scale means it is impossible to make money.'
Shell's financial advisors include Citigroup and Rothschild, while BP is supported by Robey Warshaw and Morgan Stanley. One investment banker remarked, "Shell's consultants and the broader financial community will be calculating the figures. A transaction is feasible."
This speculation arises as the Labour Party seeks to reduce the authority of the Competition and Markets Authority. Doug Gurr, the former head of Amazon, has been appointed as its chairman after Business Secretary Jonathan Reynolds removed Marcus Bokkerink last month.
Investment bankers focused on mergers and acquisitions are also exploring opportunities in various sectors, believing that consolidations could lead to the emergence of national champions. The pharmaceutical, banking, and telecommunications industries are all anticipated to experience a surge in mergers.
Analysts suggest that BP may soon reveal intentions to divest assets, including its US shale oil and gas operations and its lubricants division, Castrol, which was acquired for £4 billion in 2000. There are even rumors that its petrol station business might be up for sale.
Elliott Management, led by Paul Singer, is advocating for BP to reduce expenditures on renewable energy and divest a substantial portion of its green assets. Additionally, there are calls for chairman Helge Lund to resign.
Auchincloss ascended to the CEO position following the unexpected exit of his predecessor, Bernard Looney, due to undisclosed relationships with employees. The Canadian, who previously served as BP's finance chief, assured investors that he understands "precisely what is required to enhance BP's value."