Shell plc (SHEL Quick QuoteSHEL - Free Report) is reportedly exploring a potential acquisition of British energy rival BP plc (BP Quick QuoteBP - Free Report) , a deal that could mark one of the largest mergers in the history of the oil industry. While no formal bid has been made, Shell is said to be quietly evaluating the strategic and financial feasibility of such a move, according to a Bloomberg report citing sources familiar with the matter.

Shell Eyes BP as Valuation Slides

Discussions inside Shell have gained momentum in recent weeks, driven largely by BP’s declining market capitalization. BP’s shares have lost nearly 22.4% over the past year due to weak oil prices, strategic missteps and investor discontent. Shell is reportedly monitoring BP’s market value and could make a move if conditions become more favorable, either due to further price declines or an indication that BP is open to external interest.

While a takeover is far from certain, Shell is preparing for different scenarios, including the possibility of another bidder stepping in. Sources note that Shell could use its early groundwork to act swiftly if needed.

At present, Shell’s market capitalization is more than double that of BP, standing at approximately $200.5 billion versus BP’s $76 billion. This highlights a significant divergence in performance and scale between the two London-based oil majors.

BP Struggles With Investor Confidence and Strategy Shift

BP’s vulnerabilities have become more apparent following a turbulent leadership transition. Former CEO Bernard Looney’s rapid push toward green energy alienated investors, and his successor, Murray Auchincloss, has since pivoted toward oil and gas assets. However, broader challenges, including macroeconomic uncertainty and increased crude output from OPEC+, have eroded BP’s financial footing.

Brent crude recently fell below $70 per barrel, complicating BP’s cash flow outlook and further straining shareholder patience. Activist investor Elliott Investment Management has taken a 5% stake in BP and is pressuring the company to enact more drastic changes to revive performance and fend off potential takeovers.

Shell’s Strategic Reset Prioritizes Value & Targeted Growth

Shell, under CEO Wael Sawan, is undergoing its own strategic overhaul. The company has been streamlining operations, trimming underperforming renewable energy units and refocusing on its core fossil fuel portfolio.

Shell's CEO recently stated that any major acquisition would need to substantially enhance the company’s free cash flow per share and overall returns. He emphasized that SHEL’s primary focus is on delivering value and that transformational deals would only be pursued if they align with the company’s long-term financial objectives.

The recent purchase of Pavilion Energy, a Singapore-based LNG trader, reflects Shell’s appetite for targeted, high-return investments. However, a BP acquisition could dramatically expand Shell’s production portfolio and revive its presence in the U.S. market, particularly after its 2021 exit from the Permian Basin.

Several other energy players are also rumored to be examining BP as a possible acquisition target. For now, deliberations remain in early stages. BP is yet to comment on Shell’s reported interest, but the firm’s weakened valuation and restructuring efforts could make it more vulnerable — or attractive — as a takeover target.

As the oil sector grapples with long-term energy transition pressures and fluctuating commodity prices, Shell’s exploratory move highlights the growing importance of scale, efficiency, and investor returns in shaping the next chapter of Big Oil.

Zacks Rank & Key Picks

Both Shell and BP currently carry a Zacks Rank #3 (Hold).

Investors interested in the energy sector may look at some better-ranked stocks like Archrock Inc. (AROC Quick QuoteAROC - Free Report) and EQT Corporation (EQT Quick QuoteEQT - Free Report) . While Archrock presently sports a Zacks Rank #1 (Strong Buy), EQT carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Archrock is an energy infrastructure company based in the United States with a focus on midstream natural gas compression. AROC provides natural gas contract compression services and generates stable fee-based revenues.

Archrock’s earnings beat estimates in three of the trailing four quarters and met once, delivering an average surprise of 8.81%.

As the largest natural gas producer in the United States, EQT is well-positioned to capitalize on the growing demand for clean energy. With numerous premium natural gas drilling locations in the core Appalachian Basin, the company’s production outlook is solid. The firm aims for net-zero Scope 1 and 2 emissions from operations by 2025, underscoring its commitment to sustainability. 

EQT’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 62.9%.