BG Group has confirmed that it is “in advanced discussions” with energy giant Shell over a possible merger, in what could be one of the biggest deals of 2015.
The mega-merger could produce a company with a combined market capitalisation of more than £200bn ($296bn; €274bn).
BG Group confirmed the news, first reported in the Wall Street Journal, but a Shell spokesman told the BBC: “We’re not making any comment.”
Shell has until 5 May to make an offer.
But BG added: “There can be no certainty that any offer will ultimately be made for BG.”
If the deal goes ahead, the recent collapse in oil prices will have played a large part in it.
BG Group, Britain’s third largest energy company, said in February that it would write down the value of its oil and gas assets by nearly £6bn ($9bn) due to the oil price slump.
Similarly, Shell announced in January that it would be cutting spending by nearly £10bn over the next three years.
Shell’s £177bn market capitalisation dwarfs that of BG, which now stands at £31bn after a 20% fall in its share price over the last 52 weeks.
A deal between the two energy companies could be controversial if it lands new BG Group boss, Helge Lund, with a huge payout.
In December, BG’s board revised Mr Lund’s proposed £12m upfront shares bonus, after shareholders and the Institute of Directors complained.
The former Statoil chief executive, who took up his role in March, can still earn nearly £11m in shares over the next five years if certain performance targets are met.
This is on top of his base salary of £1.95m.