An­drea Perez-Sobers

In a de­vel­op­ment that is be­ing care­ful­ly mon­i­tored in Port-of-Spain, Shell is re­port­ed­ly as­sess­ing the pos­si­bil­i­ty of a po­ten­tial ac­qui­si­tion of BP, Bloomberg re­port­ed yes­ter­day, cit­ing peo­ple fa­mil­iar with the mat­ter.

Shell is mon­i­tor­ing stock and oil price trends be­fore mak­ing a move.

The de­ci­sion to pro­ceed de­pends on BP'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 US$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.

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 chal­lenges. The com­pa­ny's CEO, Mur­ray Auch­in­closs, has out­lined a strat­e­gy to di­vest US$20 bil­lion in as­sets by 2027, along­side re­duced spend­ing and share buy­backs, to bol­ster prof­itabil­i­ty and in­vestor con­fi­dence.

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

Tony Paul: What is Shell's in­ter­est

Lo­cal en­er­gy ex­pert An­tho­ny Paul told Guardian Me­dia that while the talk of Shell ac­quir­ing BP has been hint­ed at for some time, com­pa­nies al­ways as­sess their com­peti­tors, in terms of strate­gies, strengths, and weak­ness­es.  

The com­pa­nies, he said, al­ways look at op­por­tu­ni­ties for growth, and in look­ing at op­por­tu­ni­ties for growth, look­ing at where they can get val­ue.  

“Some­times, it looks at where they can ad­just their port­fo­lio, ei­ther in terms of in­creas­ing re­serves, in­creas­ing pro­duc­tion, chang­ing ge­o­graph­ic fo­cus, chang­ing prod­uct fo­cus, mean­ing oil or gas.”

In giv­ing an ex­am­ple, Paul said when BP bought Amo­co, it was be­cause they want­ed to get more gas in their port­fo­lio. Amo­co's biggest gas growth area was Trinidad, so Trinidad was a strong strate­gic in­ter­est.  

He in­di­cat­ed that if Shell were to ac­quire BP, the ques­tion is, one, what is Shell's in­ter­est? And two, why would BP want to sell?

How­ev­er, Paul point­ed to BP's share price which has dropped tremen­dous­ly be­low the mar­ket.  

“You may have seen that BP's pro­duc­tion has de­clined, but BP is on­ly one of the ma­jors whose re­serves re­place­ment has been neg­a­tive. In oth­er words, they've been los­ing re­serves, pro­duc­ing more than they're putting back to­geth­er.”  

“Now, Shell and BP, over the last few years, have made a lot of mon­ey, a lot more than the mar­ket ex­pect­ed, through trad­ing, mean­ing sell­ing prod­ucts.  A high pro­por­tion of that came from Trinidad, be­cause in Trinidad, fis­cal mod­els don't cap­ture the val­ue from trad­ing. So, in that re­spect, Trinidad has an im­pact on Shell's on­line, in terms of BP, in­ter­est,” Paul ex­plained.

He said BP has some­thing in Trinidad that Shell does not.

“BP has re­serves po­ten­tial in the acreage they hold. Shell does not have much of it.

On the oth­er hand, Paul said Shell's track record in T&T, most­ly BG its pre­de­ces­sor, has been very poor at find­ing oil and gas. If Shell were to ac­quire BP from a T&T per­spec­tive, Shell's in­ter­est would be not on­ly in the re­serves but al­so in the process­es BP used.  

“Shell has some of that in­for­ma­tion, but not all of it.  That would be Shell's in­ter­est in Trinidad.  Of course, it will give them the mo­nop­oly po­si­tion, al­most, in the At­lantic. And that is a key as­set for them, both in terms of the re­gion­al mar­kets for LNG, Latin Amer­i­ca, in their glob­al trad­ing port­fo­lio, and in terms of po­ten­tial growth for Venezuela gas to be liq­ue­fied,” he added. (with Ya­hoo Fi­nance)