Royal Dutch Shell buys BG Group for £47 Billion. Becomes main foreign oil producer in Brazil

Apr 09, 2015 12:00 AM

Oil and gas company Shell has agreed to buy British rival BG Group for the equivalent of 70 billion dollars, making Europe's largest oil company the pre-eminent player in global natural gas and adding world-class fields in Brazil. The deal may signal a new wave of mega-mergers as the energy industry tries to adapt to lower prices.

Royal Dutch Shell said it will pay the equivalent of 13.67 pounds in cash and stock for each share of BG Group, 50% more than Tuesday’s closing price. The third-biggest oil and gas deal ever by enterprise value will boost Shell’s oil and gas reserves by 25%, including offshore projects in Australia and Brazil, and give it a bigger presence in the fast-growing liquefied natural gas market, Shell said.

Wood Mackenzie, a consultancy, said BG’s large position in the deep waters off of Brazil were likely the most attractive target for Shell. “It’s all about the deepwater oil,” analysts wrote.

BG’s portfolio will make Shell the leading foreign oil company in Brazil, according to Jefferies analysts led by Jason Gammel. BG’s production is set to increase to 557,000 barrels a day by 2020 from 144,000 in 2015, Jefferies said.

BG has non-operating stakes in five blocks in the pre-salt area, an offshore region where Brazil’s Petrobras made the world's largest discovery in at least three decades. Shell also has partnerships with Petrobras, including the giant offshore Libra project in which it holds a 20% stake.

In a brief statement, “Anglo-Dutch Shell will pay a mix of cash and shares that values each BG share at around 1,350 pence, the companies said.
”This is a hefty premium of around 52 percent to the 90-day trading average for BG, setting the bar high for any potential counter-bid by a company like Exxon, which has said it would also use the oil markets downturn to expand.

”The third-biggest oil and gas deal ever by enterprise value will bring Shell assets in Brazil, East Africa, Australia, Kazakhstan and Egypt, including some of the world's most ambitious liquefied natural gas (LNG) projects”, concludes.

Other energy giants may follow suit as they look to boost growth through acquisitions after increased production in the US helped trigger a plunge in oil prices.

The last wave of oil mergers took place in the 1990s after new production from the North Sea, Alaska and Mexico led to excess global capacity and companies linked up to protect themselves, or bought weaker rivals at lower prices.

The deal, the industry's biggest in at least a decade, will push Shell further into producing, shipping and selling gas as the company bets China and other emerging economies switch from coal and oil to cut pollution.

“We are seeing a gasification of energy demand. Shell clearly recognizes this,” said Richard Gorry, director at JBC Energy Asia. “That said, Shell is still taking a big gamble because if the price of oil and gas doesn't go back up (in the next 24 months), I would imagine this might put them in a difficult position in terms of cash flow.”


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