Shell might be BP and UK government's white knight: Bousso

Reuters

19-03-2025

LONDON, March 19 - In this new era of energy nationalism, the British government will want to keep an oil and gas company like BP (BP.L), opens new tab based in the country, but it may ultimately need the help of another UK energy giant to do so.
London-based BP is currently in dire straits, struggling to get back on its feet following a flawed attempt to veer away from fossil fuels to renewables.
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BP shares have sharply underperformed peers since 2020, and investors appear unconvinced by CEO Murray Auchincloss' fossil fuel-focused strategy reset, opens new tab in late February, judging by the shares.
Things got more difficult when activist fund Elliott Management built a 5% stake in BP in recent months. The fund is reportedly pushing for further changes, from a shake-up of the board to deeper asset sales and spending cuts.
Meanwhile, rumours have swirled in the industry and across financial media about other companies that may seek to acquire BP as part of their growth strategies.
The financial logic behind an acquisition by a U.S. rival or a Gulf national oil company is clear. For all of BP's current struggles, the company has a strong portfolio of oil and gas assets, including in the U.S. onshore shale basins and the Gulf of Mexico, Brazil, the North Sea and the Middle East. It also has a leading trading business and well known retail brand. It produced 2.36 million barrels of oil equivalent per day last year, generating $8.9 billion in net profit.
NATIONAL CHAMPION
This large global footprint makes BP a valuable asset for Britain. Western liberal democracies that do not have state-controlled energy or infrastructure champions must rely on close cooperation with private sector companies to further their national interests around the world. BP helps the UK do just that.
This soft power was recently on display when British Prime Minister Keir Starmer highlighted, opens new tab BP's agreement with Iraq to invest billions in new oil, gas, power and renewables projects in the country following a meeting with his Iraqi counterpart Mohammed al-Sudani in London.
The UK government will be loath to lose such influence by letting BP be snapped up by a foreign rival.
Moreover, energy security is now, perhaps more than ever, a key element of national security. Russia's invasion of Ukraine in 2022 led to a surge in European power prices and disrupted global energy flows, putting a harsh spotlight on the importance of having access to abundant sources of energy and large domestic operators.
European governments have since slowed their energy transition plans and are reconsidering the importance of domestic oil and gas production.
The need for a strong national energy policy is especially important following Donald Trump's return to the White House. His administration's transactional, strong-arm approach to diplomacy has involved pressuring countries to make large-scale investments, such as oil and gas projects. Trump himself took a swipe at Britain's energy policy, urging the UK to 'open up' the North Sea to oil and gas exploration and scrap wind farms.
And BP is a major investor in the United States. It directed around 40% of its $16.3 billion capital expenditure in 2024 to the U.S., where it produces around a third of its oil and gas, has two refineries and is a major buyer of U.S. liquefied natural gas.
The UK won't want to lose this leverage.
WHITE KNIGHT
But what can British policymakers do to make sure BP stays in UK hands?
While the British government will not be able to prevent other companies from putting forward bids for BP, it does have the power to block any such deal on energy security grounds under the National Security Investment Act, opens new tab.
But it will be hard for the government to fight market forces for long if BP remains in a weak financial position.
The obvious solution would be to encourage Shell (SHEL.L), opens new tab, the other British energy giant which moved its headquarters from The Hague to London in 2022, to step in and acquire BP. Such a combination could enable the UK to retain many of the industrial, financial and national security benefits BP brings.
On paper, Shell, with a market cap of around $210 billion, should have no problems acquiring its smaller $90 billion rival. A combination would take years, however, and is bound to face tough anti-trust hurdles in many countries, first and foremost in the United States, where both companies have a large footprint.
Shell would probably need to sell some assets to avoid overlaps between the two businesses.
There's just one problem: Shell likely has little interest in such a deal. A mega-merger of this scale does not align with the ethos of CEO Wael Sawan, who is focused on cutting costs and narrowing the business's focus to liquefied natural gas and trading.
But in this new era of growing nationalism and industrial policy a call from 10 Downing Street might be coming soon.
** The opinions expressed here are those of the author, a columnist for Reuters. **
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.