MINSK: Royal Dutch Shell agreed to buy smaller rival BG Group for $70 billion in the first major oil industry merger in more than a decade, closing the gap on market leader US ExxonMobil after a plunge in prices.
Anglo-Dutch Shell will pay a mix of cash and shares that values each BG share at around 1,350 pence, the energy companies said. This is a hefty premium of around 52 per cent to the 90-day trading average for BG, setting the bar high for any potential rival bidders.
The biggest merger this year will give Shell access to BG’s multi-billion-dollar operations in Brazil, East Africa, Australia, Kazakhstan and Egypt. These include some of the world’s most ambitious liquefied natural gas (LNG) projects.
Stitched together by Shell CEO Ben van Beurden and BG Chairman Andrew Gould, the deal comes after oil prices halved since last June, putting a premium on access to proven assets rather than costly exploration. “We have been scanning quite a few opportunities, with BG always being at the top of the list of the prospects to combine with,” Shell’s Van Beurden said. “We have two very strong portfolios combining globally in deep water and integrated gas”.
Shell said the deal would boost its proven oil and gas reserves by 25 per cent. The firm also plans to increase asset sales to $30 billion between 2016-2018 on the back of the deal. Britain’s BG had a market capitalisation of $46 billion as of Tuesday close, Shell was worth $202 billion while Exxon, the world’s largest oil company by market value, was worth $360 billion. BG shares leapt 37 per cent for 1,250 pence, while Shell’s were down 2.2 per cent at 2048 pence by 0905 GMT. BG shares have tumbled nearly 28 per cent since mid-June, when the slump in global oil prices started
Van Beurden said the presence of two large firms in Australia, Brazil and China and the European Union might require a detailed conversation with anti-trust authorities but was unlikely to lead to forced asset sales. The halving in crude prices on the back of a shale oil boom in the United States and a decision by Saudi Arabia not to cut production has created an environment similar to the turn of the century when many large mergers took place.
Back then, oil major BP acquired rival Amoco and Arco, Exxon bought Mobil and Chevron merged with Texaco.
Shell has long been seen as a potential purchaser thanks to its healthy cash flow and relatively low oil price breakeven.
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