Shell in Takeover Bid for BG Group

Published Apr 15, 2015 4:20 PM by Wendy Laursen

Royal Dutch Shell has agreed a deal with BG Group to buy the UK-based company for £47 billion ($69.6 billion) in cash and shares.

Since taking over Shell in 2014, chief executive Ben van Beurden had been trying to cut costs, and the deal is expected to enable the two oil and gas companies to reduce costs at a time when the industry is suffering from prolonged low oil prices.

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

Shell is one of the world’s largest energy producers, with a market value of about $192 billion.

Buying BG will add to Shell’s proven oil and gas reserves by 25 percent and to production by 20 percent, including BG’s offshore oil fields in Brazil’s Santos Basin, natural gas reserves in East Africa and the Queensland Curtis LNG project in Australia.

Shell and BG said the offer is about 50 per cent above the closing price of April 7. BG Group shareholders will end up with close to 20 percent ownership in the newly formed group.

By applying its capabilities to BG’s assets, Shell believes that, by around 2020, the combined group will have two strategic growth businesses – deep water and integrated gas – that could potentially each generate $15-$20 billion in cash flow per annum. It will also have upstream and downstream capacity to generate a further combined $15-$20 billion in cash flow per annum.

BG had a market capitalization of $46 billion at Tuesday's close, Shell was worth $202 billion and Exxon, the world's largest energy company by market value, was worth $360 billion.

With BG, Shell would be the leading foreign oil company in Brazil. Analysts at investment bank Jefferies said they now expected Shell to surpass Exxon as the world's largest publicly traded oil and gas producer by 2018, with output of 4.2 million barrels of oil equivalent per day.

Global LNG production was 246 million tonnes last year. The new Shell-BG group would have 18 percent of world output.

There are still a number of regulatory hurdles to be overcome before the deal is finalized with authorities in Europe, China, Brazil, the United States and Australia.

Shell acquired Spanish oil company Repsol’s LNG business in January 2014.