It may seem hard to deny that BP plc (NYSE: BP) is a cheap oil stock. The British oil and gas giant is valued at a mere 10-times earnings, and both its London and New York shares have a dividend yield that screens above 6% at the current listing prices. But being cheap isn’t good enough, particularly if you have to consider leverage and debt. After some serious activist investor pressure started earlier in 2025, BP may now somehow find itself vulnerable to a takeover. Or will the scenario just prove to be too complicated to pull off?

The news of a potential takeover may cloud an already fluid and volatile situation for BP. Activist Elliott Management has taken more than a 5% stake and is pressing the company hard. Reports that Shell plc (NYSE: SHEL) is evaluating a potential buyout could throw BP into a state of limbo when investors consider how much is already on the table. And sub-$60/barrel oil prices and larger supplies from OPEC remain dual headwinds to all players in the oil and gas sector.

A review of a BP acquisition by Shell could face regulatory hurdles in multiple jurisdictions. Shell’s market cap of $175 billion or so and BP’s market cap of $75 billion are not larger than U.S. rivals like Exxon Mobil Corp. (NYSE: XOM) and Chevron Corporation (NYSE: CVX). But on a combined basis, even with potential asset divesting and debt reduction efforts (see below), it becomes easier to see where some rival companies and governments could become less than thrilled about a combined Shell/BP.

But wait, there is more. Wael Sawan, CEO of Shell, has ducked questions about any acquisitions with its earnings report just last week. His comments pointed out that acquiring more of Shell’s shares in buybacks probably makes more sense. Shell’s recent earnings report noted that its balance sheet gives the company confidence “to commence another $3.5 billion of buybacks for the next three months…” And it should also be noted that this will mark the 14th consecutive quarter with at least $3 billion in buybacks. And Tactical Bulls has pointed out that, yes, big buybacks matter!

Activist investor Elliott Management has already taken a large stake and is proposing more action by the company. Among the efforts are a potential change to BP’s board of directors, streamlining management (including management level layoffs and closing down some operational divisions) and to lower BP’s annual capital spending.

One interesting aspect of the proposal is that Elliott wants BP to shut its venture unit which has funded about 75 startups that BP believes can or will become profitable. Also in the mix of proposed cuts are efforts to trim its strategy team which was heading the prior effort to move away from fossil fuels to be a greener company — an effort which has since been reversed and killed. Another effort to save capital is a proposal to eliminate BP’s team of forecasters who evaluate macroeconomic data and the future price of oil.

BP Chairman Helge Lund has also started the process of stepping down, hence the board changing efforts. Lund had been a backer of BP’s efforts to become a green energy company. Giulia Chierchia is also on her way out as head of strategy and heading BP’s now dead move toward sustainability and prior net-zero ambitions.

BP is also targeting about $20 billion in asset sales to reduce its bulging debt. Its Castrol lubricants business is currently under review along with other divesting efforts that may come as soon as this year. Where the capital issue becomes more interesting is that BP’s latest earnings miss on a replacement cost profit basis included a reduction in its stock buybacks, down to $750 million per quarter from $1.75 billion per quarter.

Another issue in evaluating major oil acquisitions is that smart companies want to make acquisitions when commodity prices are low, and companies that are being acquired (friendly and hostile alike) generally want to sell when prices are high. Prices of WTI have fallen from $80 in January to under $60 at the present time. A similar drop in Brent oil has been seen, but its price of $82 earlier this year was still above $62 on last look. Dropping under $60 is problematic in the oil and gas sector. The large companies with global operations can generally operate in a lower-price environment than smaller companies with stretched balance sheets and higher fixed costs.

What would U.K. regulators do in relation to a Shell-BP merger? The National Security and Investment Act 2021 gave the U.K. government more power to investigate and potentially prohibit mergers and investments based on national security grounds. It may sound like this would make U.K. national security better, but there is the issue of consumer protection that comes to mind when dealing with a more dominant and powerful company. A review by the U.K. Competition and Markets Authority may be rather long — and the same may apply if E.U. regulators or U.S. regulators drag their feet if they can point out that less competition may harm consumers.

How a merger of this magnitude would play out is not an easy thought process. There are many moving parts to consider on top of the regulatory issues, and assessing regulatory risks would be the job of attorneys who are experts in this area when an overwhelming majority of us are not.

And to prove that 2025 has been a tough year for the oil and gas giants, just look at their overall equity performance based on New York-listed shares:

• BP -1.3% YTD and -23% over a year
• Shell up 3.9% YTD but down 8.2% over a year
• Exxon Mobil -4% YTD and -11% over a year
• Chevron -6.4% YTD and -15% over a year
• Occidental -21% YTD and -39% over a year
• Schlumberger -12% YTD and -28% over a year

Winston Churchill’s was famously quoted about predicting what Russia might do in 1939 as a riddle wrapped in mystery inside an enigma. The same may be true about considering all of the potential facets and moving parts of any would-be merger between Shell and BP.