Investing.com -- Shell’s (AS: SHEL ) shares in Amsterdam fell more than 2.5% in early trading Monday following the Bloomberg report that the oil giant is working with advisers to assess the possibility of acquiring rival BP (LON: BP ) (NYSE: BP ), though any decision to move forward will likely depend on a further drop in BP’s share price and oil market levels.
BP stock was 2.4% higher in pre-market U.S. trade.
The discussions, which have intensified in recent weeks, are focused on the potential benefits and feasibility of such a deal. A final decision, however, is not imminent and could hinge on BP’s stock performance in the near term, Bloomberg said.
When asked by the Financial Times (FT) about the possibility of a bid for BP last week, Shell CEO Wael Sawan said he would prefer to increase share buybacks. On the company’s earnings call, he said “we have to have our own house in order” and acknowledged there is “more work to do” despite recent progress.
A tie-up between the two London-based oil giants would mark a major shakeup in the global energy sector, potentially positioning Shell to compete more directly with the likes of ExxonMobil (NYSE: XOM ) and Chevron (NYSE: CVX ). Such a deal would almost certainly face scrutiny from regulators given the scale involved.
Shell posted stronger-than-expected earnings in the first quarter and announced a $3.5 billion share repurchase program. While the company is preparing for multiple scenarios, Bloomberg said that Shell may choose to wait for BP to initiate contact or for a competing bid to emerge.
Shell’s review remains at a preliminary stage, and the company could ultimately focus on smaller acquisitions and share buybacks instead of pursuing a major merger, the report added.
“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 when asked about the report.
The two oil companies were similar in size for several years, but Shell’s market capitalization has surged in recent years, reaching about £149 billion—nearly double that of BP.