Royal Dutch Shell agrees 47-bil.-pound deal for BG Group

The China Post - - FRONT PAGE -

En­ergy ti­tan Royal Dutch Shell on Wed­nes­day an­nounced a mega takeover of Bri­tish ri­val BG Group worth 47 bil­lion pounds, con­sol­i­dat­ing their po­si­tions in a sec­tor bat­tered by slid­ing oil prices.

The cash and shares deal, ap­proved by the BG board and worth the equiv­a­lent of US$70 bil­lion or 64 bil­lion eu­ros, will help Shell to boost its flag­ging out­put thanks to BG’s strong po­si­tion in liq­ue­fied nat­u­ral gas (LNG), a cleaner al­ter­na­tive to en­ergy types such as coal and nu­clear.

The new com­pany will be worth twice the value of BP and over­take U.S. en­ergy gi­ant Chevron Corp. on fi­nal­iz­ing the sec­tor’s big­gest deal in a decade, ac­cord­ing to Bloomberg News.

BG’s share price, which has tum­bled over the past year on plung­ing oil prices, soared by al­most 40 per­cent in re­ac­tion to Wed­nes­day’s an­nounce­ment.

“The boards of Shell and BG are pleased to an­nounce that they have reached agree­ment on the terms of a rec­om­mended cash and share of­fer to be made by Shell for the en­tire is­sued and to be is­sued share cap­i­tal of BG,” said a state­ment is­sued by the An­glo-Dutch group.

The of­fer rep­re­sents a pre­mium of about 50 per­cent com­pared with BG’s closing share price on Tues­day, cost­ing Shell “ap­prox­i­mately 47.0 bil­lion pounds” for its ri­val, the state­ment added.

“The re­sult will be a more com­pet­i­tive, stronger com­pany for both sets of share­hold­ers in to­day’s volatile oil price world,” Shell chair­man Jorma Ollila said in the re­lease.

BG Chief Ex­ec­u­tive Helge Lund said the deal “de­liv­ers at­trac­tive re­turns to share­hold­ers and has strong strate­gic logic.”

He added: “BG’s deep wa­ter po­si­tions and strengths in ex­plo­ration ... will com­bine well with Shell’s scale, devel­op­ment ex­per­tise and fi­nan­cial strength.”

It is the first ma­jor deal for Lund, for­merly chief ex­ec­u­tive of Nor­we­gian en­ergy gi­ant Sta­toil, since he took up the reins at BG ear­lier this year.

Out­put Boost

The tie-up will im­prove Shell’s proved oil and gas re­serves by a quar­ter and lift out­put by a fifth, while de­liv­er­ing “en­hanced po­si­tions in com­pet­i­tive new oil and gas projects, par­tic­u­larly in Australia LNG and Brazil deep wa­ter,” the state­ment added.

“The deal be­tween Royal Dutch Shell and BG Group will prompt sec­tor con­sol­i­da­tion,” noted Marc Kim­sey, se­nior trader at Ac­cendo Mar­kets.

“The decline in oil prices over the past year has bat­tered some stocks which are clearly now look­ing at­trac­tive. In the last year BG shares fell 30 per­cent ... By com­par­i­son sec­tor be­he­moths BP and Royal Dutch Shell have only shed 10 per­cent over the same pe­riod leav­ing them in the po­si­tion of preda­tor rather than prey.”

Fol­low­ing Wed­nes­day’s an­nounce­ment, BG’s share price was up by a huge 37 per­cent to 1,251 pence on Lon­don’s bench­mark FTSE 100 in­dex, which was 0.48-per­cent higher over­all to 6,995.43 points in early deals.

Shell “B” shares — the ones used to fi­nance the trans­ac­tion — dropped 5.82 per­cent to 2,080 pence.

“UK eq­ui­ties are trad­ing higher, buoyed by con­fir­ma­tion that Shell has agreed to buy BG Group,” said Re­becca O’Ke­effe, head of in­vest­ment at stock­bro­ker In­ter­ac­tive In­vestor.

“In what is the big­gest deal in the sec­tor in 10 years, the com­pany is set to be­come the sec­ond largest global en­ergy com­pany, be­hind only Exxon in terms of scale and re­sources.”

Crude oil prices lost more than half their value be­tween last June and the end of Jan­uary ow­ing to a sup­ply glut fu­eled largely by ro­bust out­put from U.S. shale rock and weak global de­mand.

That in turn has weighed heav­ily on en­ergy ma­jors such as Shell, dent­ing their prof­its and share prices and caus­ing them to cut op­er­at­ing costs.

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