What is going on between Shell and BP and what does it mean?

It seems patience at Shell has now run out.

Media and industry speculation over the oil giant bidding for its North Sea rival BP has been rife for some time.

In recent months, it has gathered pace.

On Thursday, the latest story in the Wall Street Journal spoke of talks taking place between the two sides.

However, this morning Shell could not have been clearer.

It said it hadn’t been “actively considering” an offer for BP, it hadn’t “made an approach to” the firm and “no talks” had taken place.

It went on to say: “Shell confirms it has no intention of making an offer for BP”.

If the deal had happened it would have created, according to experts, a business worth in the region of £200bn.

It would have seen two of the major players in oil and gas and the wider industry, join forces in what would have been one of the biggest UK mergers in recent years.

The striking part of the statement is that it was made under what is known as 2.8 of the UK City Code on takeover and mergers.

That might seem dull, but in theory, it means Shell has barred itself from making an offer for BP within the next six months.

I say in theory, because there are a number of ways it still can.

If BP’s board agree to an approach, if someone else makes an offer and if the Takeover Panel decides there is a change in circumstances.

Why would Shell be interested in BP?

Well, firstly, the share price in BP has declined significantly, dropping 22% in the past year.

The firm earlier this year said it was cutting its investment in renewables and instead focusing more on oil and gas.

Chief executive Murray Auchincloss said at the time the firm had gone “too far, too fast” on its green strategy, first launched under its pervious CEO, Bernard Looney.

That was a desperate attempt to bolster its share price and keep investors happy.

Particularly one investor, Elliott Investment Management, which has been pushing for changes to the strategy at BP.

It would appear the reset has done little to arrest the drop in share price or to appease the investors who are desperate for better returns.

Market analysts AJ Bell this morning said this about BP’s position as a takeover prospect.

“BP is an obvious takeover target in the oil and gas sector due to its relatively cheaper valuation versus peers, a muddled strategy that has seen the business lose its way, and the presence of an activist investor pushing for change,” it said.

“It looks like a sitting duck.”

Shell on the other hand has been doing reasonably well of late.

It has focused instead on buying back shares, it too is looking more at oil and gas production and has some big deals of its own in recent decades.

What could a deal mean for the North Sea?

The attention of both has slightly shifted from the North Sea.

Although, Shell is at the forefront of the Jackdaw development.

That field was at the centre of a legal case, along with Rosebank, which has struck at the very heart of the future of the North Sea.

Shell also announced last year it was to merge its North Sea assets with Equinor and create a new, joint independent producer instead.

It would appear, that is where its focus is when it comes to the UK.

BP, still has significant presence in the North Sea but has gradually been selling off assets over the years.

It still employs a lot of people in its North Sea headquarters in Aberdeen, although it did announce it would globally be cutting jobs.

If its strategy is to look at oil and gas more, then the UK won’t likely be the place, given the UK Government’s stance on the granting of new offshore drilling licences.

Whatever happens, the UK Government is likely to keep a keen eye on any deal.

A merger with Shell might keep the business in the UK but it could lead to job losses, like any merger can.

If a foreign investor was to swoop in, that might not sit well either with the Government and others concerned about a British firm, with such a rich history, now in foreign ownership.

Of course, the statement today from Shell won’t stop the market and industry speculation.

There could be a bid at some point in the future.

It also won’t stop speculation about the future of BP and its position as a takeover target.