The Largest Deal Since ExxonMobil’s Merger in 1998
BP Struggles in the Aftermath of the Gulf of Mexico Oil Spill
BP’s Push for Renewable Energy Development Also Becomes a Burden

The UK-based global energy company Shell is reportedly engaged in preliminary negotiations to acquire its rival, BP (British Petroleum). BP, which has been grappling with a series of incidents and declining performance, now faces a formal takeover proposal from a competitor. The market views this potential deal as one that would mark the largest energy sector merger since the 1998 merger of Exxon and Mobil in the United States.

A Shell–BP Merger Would Secure a Strong Position to Rival ExxonMobil

On the 25th (local time), The Wall Street Journal (WSJ) reported that Shell is in early-stage negotiations to acquire BP. Citing sources familiar with the matter, the WSJ noted that while talks are actively underway, the deal’s terms have not yet been disclosed, and the outcome remains uncertain. Responding to the report, a Shell spokesperson said, “We remain focused on performance, discipline, and simplification, intending to maximize value for Shell.” BP has yet to issue an official statement.

If the deal goes through, it would become one of the largest mergers in European history. Shell currently has a market capitalization of USD 208 billion, ranking third among private energy companies globally, excluding state-owned firms. BP’s market cap stands at USD 84 billion.

The merger would create Europe’s first ‘supermajor’ oil company capable of competing directly with U.S. giants like ExxonMobil and Chevron. The combined upstream (exploration and production) output is expected to reach 5 million barrels of oil equivalent (boe) per day. The company would also gain a dominant position in the global liquefied natural gas (LNG) market.

However, the deal is expected to come with a hefty price tag. Some analysts believe that Shell would need to offer a premium of approximately 20% over BP’s current market value for the acquisition to succeed. BP’s substantial debt is also seen as a major hurdle. While BP officially reports net debt of USD 27 billion, some estimates suggest its total liabilities may reach as high as USD 38 billion.

In a note, global investment bank RBC commented, “BP’s debt load is a poison pill for any acquirer.” It argued that BP’s debt is excessively high relative to its enterprise value of USD 80 billion. Notably, Abu Dhabi National Oil Company (ADNOC) also considered acquiring BP last year but ultimately walked away, citing concerns over BP’s debt burden.

Green Push Backfires as BP Stumbles

BP and Shell were once considered equals in terms of scale, business scope, and global influence. However, in recent years, BP has fallen behind. A major turning point was the 2010 Deepwater Horizon explosion in the Gulf of Mexico, which caused a massive oil spill. The disaster severely damaged BP’s corporate image and financial performance.

Subsequent failures, including the collapse of BP’s attempt to acquire Russian oil giant Rosneft due to geopolitical tensions, further exacerbated the company’s decline. While Shell focused on improving profitability by doubling down on its fossil fuel operations—oil and gas —BP shifted aggressively toward renewable energy, losing competitiveness in the process. Former CEO Bernard Looney’s decision to accelerate BP’s low-carbon energy transition strategy was a key factor in weakening the company’s profitability.

In 2020, as the pandemic struck, Looney declared that the “oil era was coming to an end” and rolled out an ambitious roadmap to achieve net-zero emissions by 2050. His plan included cutting oil and gas production by 40% from 2010 levels by 2030. This strategy widened the market cap gap between BP and Shell to more than double. Paul Sankey, lead analyst at Sankey Research, remarked, “BP’s attempt to turn an oil company into a renewable energy firm was a major mistake. The capital costs between the two industries are too different; BP should never have gone down that path.”

In the end, Looney resigned in September 2023, and his successor, Murray Auchincloss, has since attempted to reverse course by renegotiating Iraq’s fossil fuel projects, selling off renewable assets, and reducing the workforce by 5%. However, most investors and analysts believe these efforts are too little, too late.

BP on the Brink: U.K. Blue Hydrogen Exit Looms

Adding to BP’s troubles, there is now a high likelihood that it will cancel its £1.2 billion (about $1.5 billion) blue hydrogen project announced in 2021. The project, H2Teesside, was a flagship blue hydrogen initiative aimed at producing hydrogen from natural gas through carbon capture and storage (CCS). It was expected to supply over 10% of the U.K. government’s 2030 hydrogen production target.

The immediate cause of the crisis is the potential withdrawal of Saudi Aramco’s petrochemical subsidiary, SABIC, which was supposed to be a key offtaker of the hydrogen. SABIC is now considering halting or closing its hydrogen-consuming plant upgrade, which would collapse the project’s stable demand base and severely undermine BP’s investment case.

BP is now reportedly requesting subsidies from the U.K. government not only for hydrogen production but also for securing demand. This marks the second major hydrogen project BP has scaled back, following the cancellation of its green hydrogen project, HyGreen Teesside. As a result, BP’s broader USD 2.6 billion regional hydrogen investment plan, announced in 2021 by then-CEO Looney, is now under full review.