Shell stakes $70.2 billion on BG Group in buyover deal
Royal Dutch Shell has agreed to buy British Gas (BG) for £47 billion ($70.2 billion) in the first major energy industry merger in more than a decade, giving the company a greater stake in the world’s natural gas markets in the wake of tumbling oil prices.
This is coming barely two weeks after selling off its OML 29 to an indigenous oil firm in Nigeria.
Already, the company has signed agreements for the divestment of interests in more onshore Oil Mining Leases (OMLs), which completion is subject to the consent of the Federal Government of Nigeria.
Shell has so far divested from over 10 oil assets in Nigeria in the last two years, blaming it on insecurity and the uncertainty in the Nigeria oil and gas sector.
In the new deal, Shell is expected to pay a mix of cash and shares that values each BG share at around 1,350 pence.
A joint statement yesterday, said that the boards of both companies are recommending shareholders approve the deal and that it will create a more competitive, stronger company for both sets of shareholders in today’s volatile oil price world.
Shell said that the takeover will add 25 per cent to its proved oil and gas reserves and 20 per cent to production compared with 2014, and boost its position in new oil and gas projects in Australia and Brazil.
Chief Executive of Shell, Ben van Beurden 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 pointed out that at the start of 2014, Shell embarked on an improvement programme, including divestments and the restructuring of underperforming businesses, whilst at the same time delivering profitable new projects for shareholders.
According to him, BG will accelerate Shell’s financial growth strategy, particularly in deep water and liquefied natural gas: two of Shell’s growth priorities and areas where the company is already one of the industry leaders. “Furthermore, the addition of BG’s competitive natural gas positions makes strategic sense, ahead of the long-term growth in demand we see for this cleaner-burning fuel.
“This transaction will be a springboard for a faster rate of portfolio change, particularly in exploration and other long term plays. We will be concentrating on fewer themes, and at a larger scale, to drive profitability and balance risk, and unlock more value from the combined portfolios.
Over time, the combination will enhance our free cash flow potential, and our capacity to undertake share buybacks, where I expect to see a substantial increase in pace.”
Commenting on the transaction, Chairman of BG, Andrew Gould said that the offer represents an attractive return for BG shareholders.
“BG has a strong portfolio of operations including growth assets in Australia and Brazil and a highly competitive LNG business, as well as an enviable track record of exploration success. The BG Board remains confident in BG’s long-term prospects under the leadership of Helge Lund.
“Shell’s offer, however, allows us to accelerate and de-risk the delivery of this value. The structure of the offer will provide BG shareholders with an attractive premium and a substantial cash return as well as enabling them, if they wish, to participate in the benefits of the combination through the share component. For these reasons, the BG Board recommends the offer”, he added.