BP is Europe's biggest oil company in terms of market value, marking the first time it has overtaken Royal Dutch Shell since October 2006, following the adoption of cost-cutting measures and output revival.
BP's market value now stands at $192.2bn (£119.2bn), while Shell's market value is $190.75bn (£118.3bn).
BP's increase in market value can be attributed to a turnaround strategy adopted two years ago that saw the company double its cost savings and increase output by expanding operations in the Gulf of Mexico, reports Bloomberg.
Shell is now adopting a similar approach to reduce jobs and cut expenditure, the company said.
In 2009, BP's cash costs were $4bn less compared with earlier predictions of $2bn.
BP's output in the third quarter of 2009 increased to 3.9m barrels of oil equivalent a day.