Falling fortunes at BP and Shell could force the two oil and gas giants into a “mega-merger” within a couple of years, some City analysts believe.
“Robust” figures from Shell yesterday and a healthy performance in the same three months by BP, reported on Tuesday, may dampen speculation of a tie-up.
But the second-quarter results mask a drop in first-half profits at both – in Shell’s case by 7% to £5.7billion – and talk persists of longer-term trends making conditions ideal for a deal.
Like most of their peers, BP and Shell are under heavy pressure from shareholders to boost dividends and tighten budgets as soaring costs and relatively stable oil prices crimp profitability.
A decade ago, BP’s then chief executive, Lord Browne, outlined a proposal for a tie-up with Anglo-Dutch rival Shell.
Plans for the world’s biggest oil merger – creating savings of more than £5billion a year – were reportedly discussed in secret with Shell chief executive Jeroen van Der Veer.
In his autobiography, Lord Browne said the idea was quashed by opposition from some BP board members.
Some senior City sources now think falling fortunes could force the giants into each other’s arms in the next year or two.
Their central argument is a problem affecting the whole industry – declining profits as oil majors are hit by a “perfect storm” of headwinds.
Lower oil and gas prices mean falling margins in downstream businesses making petrol, diesel and other finished products.
Profits are further pinched because many fields around the world are ageing and producing less oil, forcing firms into more expensive drilling in deeper oceans and more remote places.
Some of Shell’s big shareholders are said to be frustrated by the company’s spending on expensive far-flung projects that fail to yield.
But Stuart Lamont, an investment manager at financial-planning specialist Brewin Dolphin in Aberdeen, said the likelihood of a merger between BP and Shell was “remote”.
He added: “With both companies showing genuine signs of improvement, it is difficult to envisage – at this time – any significant pressure from shareholders to contemplate or even force such a merger.”
By Keith Findlay