Shell is reportedly assessing the possibility of a potential acquisition of BP, reported Bloomberg, citing people familiar with the matter.

The company is monitoring stock and oil price trends before making a move. The decision to proceed depends on the target company's declining stock value. For years, both the oil and gas giants have been comparable in size, but recently Shell has surged ahead, now boasting a market value of approximately £149 billion ($197.7 billion), nearly double that of BP.

Amidst this backdrop, Shell CEO Wael Sawan expressed a preference for stock repurchases over acquisitions in a statement to the Financial Times, while also noting the importance of having "our own house in order" during an earnings call. A potential merger would bolster Shell's position in the global energy market, rivalling US counterparts Exxon and Chevron.

However, such a deal would also likely attract intense regulatory scrutiny. Shell's recently announced better first-quarter results, exceeding profit expectations, and launched a US$3.5 billion share buyback programme. While deliberations are still in the preliminary stages, Shell might also be positioning itself for other eventualities, such as BP initiating contact or another bidder entering the fray.

The company could alternatively continue prioritising share buybacks and smaller acquisitions over a blockbuster merger. A Shell spokesperson said when asked about the report: "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.”

On the other side, BP is facing its own challenges. The company's chief financial officer, Murray Auchincloss, has outlined a strategy to divest US$20 billion in assets by 2027, alongside reduced spending and share buybacks, in an effort to bolster profitability and investor confidence.

This comes as activist investor Elliott Investment Management, which has recently increased its BP stake to over 5%, is pushing for a strategic overhaul to enhance free cash flow by further cutting costs.

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