Shell is reportedly exploring the possibility of acquiring its longtime rival BP, a move that could reshape the global energy sector, according to sources close to the situation. Internal discussions within Shell have centered on evaluating the potential benefits and challenges of such a monumental deal. If this acquisition were to proceed, it would be one of the largest mergers the energy industry has ever seen.

BP Struggles Amid Leadership Shifts and Market Concerns

The buzz surrounding the potential merger comes as BP’s stock continues to underperform. Over the past year, BP’s shares have fallen by more than 30%, a result of investor concerns about CEO Murray Auchincloss’s strategic overhaul and the overall decline in oil prices. In the face of these challenges, BP is seeing increased scrutiny from investors and industry analysts.

In particular, Auchincloss’s efforts to revamp BP’s strategy, including a shift back toward traditional oil and gas operations while scaling back on the company’s climate-related goals, have not yielded the expected results. For the first quarter, BP reported earnings of $1.4 billion, a significant drop from $2.7 billion in the same period last year. This decline in profitability has raised alarms among investors, with some questioning the company’s future direction.

Shell’s Strategic Options: Waiting or Expanding Share Buybacks?

Despite the talks of an acquisition, sources suggest that Shell may take a more cautious approach. Instead of rushing into a merger with BP, Shell may opt to wait and observe whether BP pursues an alternative buyer. Another possibility is that Shell could focus on less risky avenues for growth, such as expanding its ongoing share buyback program or acquiring smaller firms to bolster its portfolio.

The potential size of a merger between the two oil giants would be immense. Currently, Shell’s market value stands at £145.6 billion—more than double BP’s £55.9 billion. While Shell has not officially commented on any acquisition plans, a company spokesperson emphasized Shell’s commitment to streamlining operations and improving its financial performance. BP, for its part, has declined to comment on the speculation.

BP Under Pressure from Activists and Falling Confidence

BP’s weak financial performance and leadership changes have drawn attention from activist investors. Notably, Elliott Management, a prominent activist investor, has voiced concerns about BP’s direction and its long-term prospects. Additionally, BP’s leadership has been marred by the sudden resignation of former CEO Bernard Looney in 2023 over personal misconduct allegations, further shaking investor confidence.

With BP’s stock performance faltering, some investors have questioned the company’s ability to recover under its current leadership. The pressure is mounting for BP to address its internal challenges and demonstrate a clear path forward that aligns with investor expectations.

Shell CEO Cautious, Focused on Internal Growth

Shell CEO Wael Sawan has expressed caution regarding any potential large-scale acquisitions, signaling that Shell is not in a rush to make any major moves. Speaking to the Financial Times, Sawan highlighted that the company’s priority remains on returning value to shareholders through initiatives such as share buybacks. Shell reported adjusted earnings of $5.6 billion for the first quarter—lower than the previous year but ahead of analysts’ expectations.

“We always consider these options,” Sawan stated. “But at this point, investing in ourselves makes the most sense.”

While the prospect of a merger between Shell and BP generates significant industry buzz, it remains to be seen whether Shell will pursue the acquisition or opt for alternative strategies. For now, the company is focused on internal growth and optimizing its current operations. With energy markets remaining volatile and oil prices fluctuating, Shell’s cautious approach could be a prudent move as it navigates the challenges facing the global energy industry.

As BP struggles with its declining stock and shifting strategic goals, Shell’s interest in acquiring the company highlights the ongoing turbulence within the energy sector. While a merger would have significant ramifications for the global energy landscape, it’s clear that Shell is weighing its options carefully, with a focus on long-term sustainability and shareholder returns. Whether Shell decides to pursue this acquisition or take a more conservative path, the coming months could reveal the direction the company is set to take in this evolving industry landscape.