Environment & Energy | Thursday 9 April, 2015 10:08 am |

Takeover of the company would be one of the biggest deals in the oil and gas sector in the last 20 years


Oil giant Royal Dutch Shell has agreed a £47bn takeover of gas group BG in one of the biggest deals seen in the oil and gas sector in the last 20 years. It will create a company worth more than £200bn.

BG confirmed on Wednesday that it was offering a cash and shares deal worth £13.50 a share – a 50% premium on BG’s market value on Tuesday night when news of the deal first leaked.

BG’s share price soared 42% to £13 on the news, while Shell shares fell 4% to £21.16. Shares in other energy stocks rose, with rival BP climbing 4.3% to 475p amid speculation that it could become the next target. BP is valued at around £83bn.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: “The deal could prompt other companies who have been running the slide rule over potential targets to make their move.”

Oil executives have been predicting a round of consolidation among oil and gas companies as a result of the sharp slide in oil prices, as was witnessed in the 1990s, when BP and Exxon both snapped up rivals.

BG’s chairman Andrew Gould described Shell’s offer as “compelling”. The group’s new chief executive, Helge Lund, who joined the company in February, is expected to leave once the deal goes through. Following the recent controversy over his £25m pay deal, Lund now looks to be in line for a multi-million pound departure package after just two months with the group.

Ben van Beurden, chief executive of Shell, said: “Bold, strategic moves shape our industry. BG and Shell are a great fit. This transaction fits with our strategy and our read on the industry landscape around us.” He added: “BG has always been on the top of [our] list.”

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

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The transaction will be the biggest this year and the fourth largest oil and gas deal globally since 1996.

Van Beurden said the combined business will sell off $30bn (£20bn) of assets (from both portfolios) between 2016 and 2018, most of which will be returned to investors via a $25bn share buyback.

Shell said the deal would create pre-tax cost savings of about $2.5bn a year. It will add some 25% to the company’s proved oil and gas reserves and 20% to production, as well as strengthening its position in new oil and gas projects, particularly in Australia LNG and Brazil deep water. BG and Shell both have huge interests in the LNG market – liquefied natural gas that can be shipped around the world in tankers.

When the stockmarket closed on Tuesday, BG group – which has 5,200 employees and was once part of the nationalised British Gas business – was valued at some £31bn. It also has debt of around £8bn.

Like other companies operating in the oil and gas business, BG has been hit hard in recent months by falling prices. A glut of oil has seen the price fall nearly 50%, to around $59, since last summer. The company’s profits were down nearly 20%, to just over $900m, in the three months to the end of last year.

Shell has also been affected by falling oil prices. Only two weeks ago the vast Anglo-Dutch business unveiled 250 job cuts in the North Sea and changes to shift patterns for North Sea workers in a bid to cut costs. But van Beurden said the company was committed to the North Sea and would invest £4bn between 2016 and 2018.

Shell is a strong enough business to be in a position to buy assets in order to be well-placed to cash in when prices eventually rebound. Buying proven oil and gas assets when prices have fallen is far cheaper than exploring for new reserves.

BG has had a difficult couple of years. Once a stockmarket favourite, it fell out of favour as its performance faltered. Its shares are down around 30% on a year ago.

BG’s chief executive departed nearly a year ago and the group’s chairman Andrew Gould took over, saying it was key that BG “accelerate the creation and delivery of longer-term value for our shareholders”.

At that time there was widespread speculation that BG would become a takeover target, with many City oil experts predicting Exxon would make a move on the British business.

Last week Lund hired two former Statoil executives, including Katie Jackson as vice-president for global strategy and business development. Jackson had been responsible for merger and acquisition deals at Statoil under Lund’s leadership.

@theguardian