With BP posting another set of poor quarterly results, speculation continues to grow in the markets that BP is ripe for a merger or acquisition, with Shell being pointed to as the most likely contender (more on this here).
BP has been underperforming for years compared to the other big traditional oil majors. The efforts of former CEO Bernard Looney in moving towards renewable energy didn’t manage to reverse this. The returned focus of the new CEO Murray Auchincloss to the company’s traditional gas and oil business has also not managed to reverse the losses.
The combination of the two companies could produce around 5 million BOED (barrels of oil equivalent per day) in gas and oil, supplanting ExxonMobil as the world’s biggest gas and oil company that is entirely owned by investors. It would also bolster Shell’s leading position as the largest LNG (liquefied natural gas) trader. The companies have some overlap in lubricant products like gear oil under the Shell and Castrol brands, however.
Bloomberg reported RBC analysts as saying:
“We think the combination of BP’s debt, hybrids, lease commitments and Macondo liabilities would present something of a poisoned chalice for Shell, a company that has typically been conservative with its balance sheet.”
Wael Sawan, Shell’s CEO, was also downbeat about the possibility on a Q1 earnings call, telling analysts that:
“…before we ever look at a sizable inorganic, we have to have our own house in order.”
Nevertheless, if BP’s share price continues to drop, it may become tempting for Shell, although such a huge merger would face strong regulatory scrutiny.
