The concept of an enormous British oil and gas takeover takes us way back to the turn of the century.Â
BP, then led by Lord Browne, swallowed American giants Amoco for $48.2billion in 1998 and Arco (Atlantic Richfield) for $26.8billion in 2000.
A quarter of a century later and all the speculation centres on a Shell merger with BP to create a genuine great British energy champion – not the fake Great British Energy of Ed Miliband.
Shell is doing its best to kibosh the notion of absorbing its long-time rival.
Since Wael Sawan took the helm as chief executive of Shell in 2023 there has been an intense focus on oil and gas production, cash flows and returning funds to shareholders.
Irrespective of the oil price, which has been on a roller-coaster ride, the group has managed $3billion of share buybacks for 14 quarters in a row.
The group’s market value has zipped up to £152billion and now dwarfs its old rival BP, which is worth a footling £58billion.
Denials: British oil giant Shell is doing its best to kibosh the notion of absorbing its longtime rival BP
It is the vulnerability of BP which has caused takeover talk to swirl around the historic explorer.
In the last two decades, BP has had to navigate a series of crises dating back to the Texas City refinery fire in 2005 and the debilitating Deepwater Horizon explosion in 2010.
Subsequently, it had to rapidly pull out of its investment in Russia gusher Rosneft after Vladimir Putin turned the might of the Kremlin on Ukraine. A torrid series of events left the group overloaded with debt.
Further value was lost when the last chief executive Bernard Looney doubled down on a carbon neutral BP before being forced out when he misled the board over a priapic personal life.
The transformation of BP from predator to preyed upon has taken a quarter of a century.
The business has a rich history during which the Government has at times been an investor and BP has been a factor in the country’s foreign policy. That engendered a special status in Whitehall and the City.
Some 38pc of BP’s share register is in the hands of UK long investors, which is a point of difference for most of the FTSE 100 where UK pension funds have been doing a disappearing act.
It is BP’s status and its dominant global presence in markets such as Indonesia, India and parts of Africa which makes it part of Britain’s DNA.
No British government, of any political colour, would want to see the prize disappear into the hands of American giants Exxon Mobil or Chevron – both are perceived as potential buyers.
So it should come as no surprise that there have been sotto voce contacts with ministers and Whitehall as to what their response might be to an unwanted bid.
Unsurprisingly, the answer is that the Government would rather see an all-British merger. Shell remains in London despite speculation it might leave for New York.
The Government may be seen as hostile to fossil fuels, but the importance of both companies to UK jobs, exports, output, engineering, oil trading and growth
is indisputable. They have also become big investors in green transformation, developing electric vehicle (EV) charging forecourts on the highways of Britain.
Current BP chief executive Murray Auchincloss has set a course to restoring his company’s status through disposals to reduce debt, cost reductions (which don’t compromise safety) to improve cash flows and ambitious capital spending – too ambitious for key activist shareholder Elliott, which has built a 5pc holding.
Auchincloss is in a race against the clock to restore value. It won’t help if oil and gas prices, which stormed ahead in the 12-day war between Israel and Iran, remain subdued.
Shell is out of the picture for six months under the terms of the takeover code, which gives Auchincloss some temporary breathing space.
But the Anglo-Dutch group also has the option of coming back into the picture should BP request it do so.
The experience of both companies with mega-billion takeovers is that they take years, if not decades, to fully integrate.
Neither Shell chief executive Sawan nor BP boss Auchincloss particularly wants that distraction. Shell is the most likely safety net should BP tumble off the high wire.
DIY INVESTING PLATFORMS
AJ Bell
AJ Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing and investment ideas
interactive investor
interactive investor
Flat-fee investing from £4.99 per month
InvestEngine
InvestEngine
Account and trading fee-free ETF investing
Trading 212
Trading 212
Free share dealing and no account fee
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
