The oil/energy industry is witnessing a wave of consolidation as energy giants seek to strengthen their market position amid changing dynamics. The latest speculation about a possible merger between Shell plc SHEL and BP plc BP has reignited discussions about mega-mergers, drawing comparisons to ExxonMobil’s XOM acquisition of Pioneer Natural Resources and Chevron Corporation’s CVX deal with Hess Corporation HES.

All the companies mentioned above currently have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shell-BP Merger: A European Energy Titan in the Making?

Rumors of a Shell-BP merger have surfaced again, with industry insiders debating whether such a deal is feasible or a mere speculation. The proposed merger would create a combined entity with a market capitalization of around $300 billion, potentially rivaling ExxonMobil ($480 billion) and Chevron ($282 billion). Proponents argue that consolidation would bring operational efficiencies, stronger financial resilience, and a more competitive edge against U.S. oil majors, especially given the valuation gap between European and American energy firms.

However, significant hurdles remain. Antitrust regulators could challenge such a deal, given concerns about reduced competition. Additionally, Shell’s leadership has downplayed the likelihood of large acquisitions, signaling a focus on organic growth rather than major buyouts. BP’s poor stock performance and investor frustration, highlighted by activist investor Elliott Investment Management’s stake in the company, could urge it to explore strategic options, including a merger.

Industry-Wide Consolidation: Lessons From Exxon-Pioneer and Chevron-Hess Mergers

Beyond Shell and BP, major oil companies are already pursuing transformative deals. ExxonMobil’s $59.5 billion acquisition of Pioneer Natural Resources solidifies its dominance in the Permian Basin, while Chevron’s $53 billion deal for Hess strengthens its portfolio, particularly in Guyana’s offshore oil fields. These mergers reflect a broader strategy among energy majors to secure high-quality reserves, streamline operations and position themselves for long-term profitability.

For ExxonMobil and Chevron, acquiring smaller players ensures greater control over production costs, enhances capital efficiency and mitigates risks associated with volatile oil prices. In contrast, European majors like Shell and BP face additional pressure from stricter climate policies and lower valuations on the London Stock Exchange, raising questions about their ability to compete with U.S. peers in a rapidly evolving market.

What’s Driving the Consolidation Trend?

Several key factors are driving the surge in oil industry consolidations. The ongoing energy transition is pressuring oil majors to secure a financial scale that allows them to sustain both traditional fossil fuel operations and renewable energy investments. A potential Shell-BP merger could provide the financial strength needed to accelerate this shift while ensuring profitability from hydrocarbon assets.

Geopolitical and supply-chain considerations also play a critical role, as consolidations strengthen Western influence in key energy-producing regions. A Shell-BP merger, for instance, could reinforce control over vital assets in the Caspian Basin, just as ExxonMobil’s acquisition of Pioneer Natural Resources and Chevron’s purchase of Hess enhance American dominance over strategic reserves. Shareholder expectations further fuel these moves, with activist investors pushing for higher returns. Mergers present an opportunity to achieve cost synergies, boost dividend payouts and improve capital allocation, making them an attractive option for companies looking to maximize shareholder value.

More Mergers Ahead?

While the Shell-BP merger remains speculative, the broader trend of consolidation in the oil industry is undeniable. Amid the ongoing energy sector consolidation, Subsea7 SUBCY and Saipem have also agreed to merge, creating Saipem7, a $4.63 billion offshore energy services leader.

The deal, backed by key shareholders, should expand the company's global footprint across more than 60 countries and enhance its fleet capabilities. With a combined backlog of €43 billion, the merger aims to drive operational synergies, improve market presence and generate €300 million in annual cost savings by 2029. The move reflects the broader consolidation trend in the energy sector as companies seek scale and efficiency amid evolving industry dynamics.

As companies strive to balance short-term profitability with long-term sustainability, further mergers and acquisitions could be on the horizon. The energy landscape is shifting, and the next few years will determine which players emerge as dominant forces in the global market.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

BP p.l.c. (BP) : Free Stock Analysis Report

Chevron Corporation (CVX) : Free Stock Analysis Report

Exxon Mobil Corporation (XOM) : Free Stock Analysis Report

Hess Corporation (HES) : Free Stock Analysis Report

Subsea 7 SA (SUBCY) : Free Stock Analysis Report

Shell PLC Unsponsored ADR (SHEL) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research