BP's shares surged on Tuesday after reports claimed its rival Shell is considering acquiring the British oil and gas giant.
BP's shares rose as much as 2.5% in early trading as Shell has reportedly been seriously weighing the feasibility and merits of a takeover with advisers in recent weeks.
Shell is said to be waiting for further stock and oil price declines before deciding whether to pursue a bid, Bloomberg News reported on Saturday, citing people familiar with the matter.
BP's stock has slumped following a period of massive investment in renewable energy, which failed to deliver enough profits to please investors.
In February, it revealed a new growth strategy focused on extracting more oil and gas after pressure from some investors to boost profits.
At the time, bosses said the business went "too far, too fast" on green energy and confirmed plans to heavily reduce spending on renewables.
It is also facing pressure from influential U.S. hedge fund Elliott Management, which took a nearly 4 billion pounds ($5.3 billion) stake in the company – just under 5% of its shares – earlier this year.
The move is understood to have been aimed at pushing BP back toward fossil fuels to boost profit.
In April, CEO Murray Auchincloss said the company has been making progress with the strategy despite wider economic uncertainty.
But it has done little to arrest the slide in BP's share price, which is down about one-third compared with the same point last year.
Under pressure to improve profitability and cut costs, Auchincloss has announced plans to sell $20 billion of assets through to 2027, reduce spending and share buybacks. It also announced the departure of its strategy chief as it tries to shore up investor confidence.
For several years, BP and Shell were almost equal in size, but over the past few years, Shell has grown to more than double the size of BP.
BP's market capitalization is about 56.5 billion pounds based on its current shares, compared with Shell's 149 billion pounds.
A merger would be among the largest in the oil industry's history, and would end decades of speculation over a possible deal between two of the United Kingdom's biggest companies.
"As we have said many times before, we are sharply focused on capturing the value in Shell through continuing to focus on performance, discipline and simplification," a Shell spokesperson said.
On Friday, when asked about a possible takeover bid for BP, Shell's CEO Wael Sawan told the Financial Times he would rather buy back more Shell stock.
When asked on an earnings call about Shell's capacity to launch sizable acquisitions, he said "we have to have our own house in order" and have "more work to do" despite progress over the last couple of years.
Shell shares were down 1.35% on Tuesday morning.
A takeover of its crosstown London rival would make Shell an even bigger force in the global energy industry, giving it scale to rival the likes of Exxon and Chevron. A merger would also likely invite regulatory scrutiny, considering the size of the deal.
Shell last week reported strong first quarter results, surpassing profit expectations, and launched a $3.5 billion share buyback.
Shell may also wait for BP to reach out or for another suitor to make a first move, and its current work could help it get prepared for such a scenario, some of the people told Bloomberg News.
Deliberations are in the early stages and Shell may opt to focus on share buybacks and bolt-on acquisitions rather than a megamerger, the report added.
