Dmitry Zhdannikov and Karolin Schaps London
ROYAL Dutch Shell agreed to buy rival BG Group for $70 billion (R827bn) 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 would pay a mix of cash and shares that valued each BG share at about £13.50 (R237), the energy companies said yesterday.
This is a hefty premium of about 52 percent 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 multibillion-dollar operations in Brazil, east Africa, Australia, Kazakhstan and Egypt. These include some of the world’s most ambitious liquefied natural gas projects.
Stitched together by Shell chief executive Ben van Beurden and BG chairman Andrew Gould, the deal comes after oil prices halved since 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,” Van Beurden told a conference call. “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 percent.
The company also plans to increase asset sales to $30bn between 2016 and 2018 on the back of the deal. Britain’s BG had a market capitalisation of $46bn as of Tuesday’s close, Shell was worth $202bn, while Exxon, the largest oil firm by market value, was worth $360bn.
BG shares have tumbled almost 28 percent 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 EU might require a detailed conversation with antitrust 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 US 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 break even.
The company was able to maintain capital and operating expenses and pay dividend at a price of oil of about $75 a barrel without borrowing too much money.
However, BG’s breakeven is as high as $145 a barrel, according to analyst estimates.
The deal, which should generate pretax synergies of around £2.5bn per year, will result in BG shareholders owning around 19 percent of the combined group. – Reuters