The best course of action would be a merger with Shell, as BP's days as an oil giant are coming to an end

Can a Shell takeover save BP, which has been declining for a while?

BP appears to be nearing the end of its independent existence. According to a Wall Street Journal story published last week, Shell has discussed acquiring its rival. Since Shell has denied that it is planning to submit a bid, it will not be permitted to do so for at least six months. However, the fact remains that BP has been declining for a considerable amount of time.

A quarter of a century ago, when the transition to green energy started, BP and Shell were about on par. After a century of competition, neither of the two titans of the European oil and gas sector emerged victorious. However, Shell has gained ground in the past ten years. BP has fallen to 14th place in the industry, while this company, with a market value more than twice BP's, is still in the top five.

There are numerous causes for the relative drop in BP. No matter how effectively the company was run, it would always take years to recover from the Deepwater Horizon catastrophe. With a string of CEOs who were unable to establish their dominance over the company in the manner that John Browne did from 1995 until his departure in 2007, the management lost focus. The main issue, however, was that by emphasizing green energy, it made life extremely challenging for itself.

It was always a crazy choice, looking back. An oil company leaving the fossil fuel industry makes about as much sense as GSK giving up the pharmaceutical industry or Unilever ceasing to make soap. When a company abandons its roots, it does so at its own risk. BP's roots were in the extraction and distribution of black gold from its inception as the Anglo-Persian Oil Company. Even though green energy was more trendy, it never seemed to have the company's best interests at heart and never produced the same kind of returns for shareholders.

Shell, on the other hand, has always taken a more sensible course, growing its gas and oil businesses while simultaneously making investments in alternative sources. It is hardly surprising that it has gotten so big that it can now offer to buy out its fiercest competitor. One of the biggest and once-greatest companies in the UK appears to be going to pay the ultimate price for making a hasty decision regarding green energy.

Candidates for a merger with BP.

Considering how poorly BP has performed, a merger with Shell is most likely the best course of action available. In the oil industry, scale has always been crucial, and BP has now lagged behind its competitors too much to be competitive. It will most likely be acquired by a foreign entity if it does not merge with Shell. Given that BP has extensive operations in the US and that both companies would almost certainly be interested in its assets, as well as the fact that a deal would present relatively few competition issues, the US behemoths ExxonMobil and Chevron are the clear contenders.

PetroChina could certainly afford it, but if it made an offer, the British government would be put to the test. The most likely bidder is by far the massive Saudi Aramco, but any of the Gulf giants might be interested. Its market value of £12.5 trillion makes it significantly bigger than any other oil company in the world. Although Brazil's Petrobras is marginally smaller than BP, it could be able to present a merger offer that would create a new giant. Perhaps even one of the private equity firms would be interested.

All of those scenarios are believable. Furthermore, they would all have a negative impact on the British economy. There aren't enough truly international companies left in the UK for it to afford to lose any more. Furthermore, the departure of yet another of the London stock market's major companies would be devastating. Britain would benefit much more from a robust and successful BP.

In the past, the UK was a true global player in the oil industry. Unfortunately, that is no longer true. To be regarded as one of the industry giants any longer, BP has dropped too far down the rankings. Right now, not much can be done about that. Given its decline, a merger with Shell would be the best course of action for the stock market and the economy.