Shell pur­sues tran­si­tion plan af­ter seal­ing $53 bil­lion BG deal

The Pak Banker - - BUSINESS -

Royal Dutch Shell (RDSa.L) on Mon­day sealed the $53 bil­lion (36 bil­lion pounds) ac­qui­si­tion of Bri­tish ri­val BG Group to form the world's top liq­ue­fied nat­u­ral gas com­pany, even as slump­ing oil prices cast a shadow on the up­com­ing years of tran­si­tion.

The suc­cess or oth­er­wise of the com­plex merger will de­fine the legacy of Shell Chief Ex­ec­u­tive Ben van Beur­den, seek­ing to trans­form Shell into a more spe­cial­ized group fo­cused on the rapidly grow­ing LNG mar­ket and deep­wa­ter oil pro­duc­tion. "We will now be able to shape a sim­pler, leaner, more com­pet­i­tive com­pany, fo­cus­ing on our core ex­per­tise in deep wa­ter and LNG," van Beur­den said in a state- ment. In 2014, Shell ac­quired Rep­sol's (REP.MC) LNG busi­ness.

Van Beur­den's vi­sion won over­whelm­ing sup­port from share­hold­ers, though a num­ber of ma­jor in­vestors had voiced con­cerns that the fore­cast slow re­cov­ery in oil prices would strain Shell's fi­nan­cials and risk its growth plans. The deal, an­nounced 10 months ago, creates a com­bined group which will leapfrog Chevron (CVX.N) to be­come the world's se­cond-largest pub­lic oil and gas com­pany by mar­ket value be­hind Exxon Mo­bil Corp (XOM.N).

BG share­hold­ers largely opted to re­ceive shares rather than cash un­der the pro­posed mix and match deal, ac­cord­ing to a state­ment. BG be­comes a wholly-owned sub­sidiary of Shell and will be headed by Dutch­man Huib­ert Vigeveno, who has headed the in­te­gra­tion plan­ning team and will over­see its im­ple­men­ta­tion. Signs at BG's head­quar­ters in Read­ing out­side Lon­don were re­placed by Shell's redand-or­ange logo over the week­end, ac­cord­ing to com­pany sources.

In­cum­bent CEO Helge Lund, for­mer head of Nor­we­gian oil ma­jor Sta­toil (STL.OL) who led it through a pe­riod of spec­tac­u­lar growth, is set to step down and has yet to in­di­cate his plans. Shell has said it will cut thou­sands of jobs from the com­bined group and sell $30 bil­lion of as­sets over the next three years in or­der to fi­nance the deal, buy back shares and sup­port div­i­dends, which it has vowed to main­tain or in­crease.

Shell is bet­ting heav­ily on a rapid growth in the global LNG mar­ket over com­ing decades as the world turns to less pol­lut­ing sources of en­ergy. Yet with oil prices near a 12-year low, a strug­gling global econ­omy and ma­jor re­struc­tur­ing un­der way of its oil and gas op­er­a­tions across the globe, the merger is set to be a chal­lenge even for 126-year-old An­glo-Dutch com­pany.

Shell saw its in­come drop 87 per­cent in 2015. "The fi­nan­cials will work in time, ad­mit­tedly per­haps not as orig­i­nally hoped, but we still see this deal as ac­cre­tive within a two- to three- year time­frame," said Ja­son Ken­ney, an­a­lyst at Grupo San­tander, who es­ti­mates the ac­qui­si­tion will in­crease Shell's oil and gas pro­duc­tion to around 4.7 mil­lion bar­rels of oil equiv­a­lent by 2020.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.