The energy sector is in turmoil as oil prices continue their slide. Brent crude oil is at $61 a barrel, down 6% from last month and almost 27% below last year's price of $83 a barrel.
While oil stocks report higher earnings, their revenue is taking a hit. British multinational oil and gas company BP (BP) is in a two-year long slump that accelerated last year with shares losing nearly one-third of their value.
After former CEO Bernard Looney bowed to environmental activists and pursued reducing fossil fuel production, BP stockhas underperformed the sector. It is the world's fifth largest integrated oil and gas stock by market valuation, but is the worst performer of the majors. In contrast, Exxon Mobil (XOM) has lost just 10% and Chevron (CVX) is down 14% in the past year.
Looney's successor Murray Auchincloss immediately began watering down the green initiative, following instead the lead of its rivals, especially Exxon, which leaned heavily into oil and gas production and raked in record profits.
Amid the decline, rival Shell (SHEL) is reportedly considering making a bid for its ailing rival, using the opportunity of an industry slump and a depressed rival to scoop up a major player at a discount.
Bloomberg reports Shell is working with advisors on a takeover proposal, but would like to see BP stock fall even more, along with lower oil prices, before moving in. Shell would also prefer if BP made the first move and reached out to it to save it, or if another company made a takeover bid first.
In a period of weak oil prices where more inefficient producers have higher break-even costs, the depressed energy industry could see a wave of consolidation as larger players consume smaller ones to gain access to potentially lucrative assets.
In the meantime, Shell CEO Wael Sawan prefers returning value to shareholders by buying back SHEL stock. He told the Financial Times, "We will always look at these things, but you are also looking to see what is the alternative. Right now, buying back Shell [shares] for us continues to be absolutely the right alternative to go for."
Shell is the only major oil and gas giant whose stock is up in 2025. With a $200 billion market cap, making it the third largest player behind Exxon ($459 billion) and Chevron ($242 billion), it has the wherewithal to buy its distressed rival.
Auchincloss wouldn't speculate at BP's shareholder meeting two weeks ago on whether the company is a takeover target, but he also said the oil and gas company wasn't seeking protection from the British government to prevent one either.
While BP stock is up 10% following its earnings report and rumors of an acquisition, a patient Shell could see its rival's shares slip again. While its CEO says buybacks are preferred, BP owns numerous lucrative assets across its upstream, midstream, and downstream operations that Shell would undoubtedly want to get its hands on.
Among them are its oil fields in Azerbaijan and the Gulf of Mexico, gas operations on the North West Shelf of Australia that supply one-third of the continent's natural gas, as well as extensive refining and marketing assets.
With BP not closing the door on an acquisition, a merger with Shell could ignite a bidding war across the oil and gas industry.
