Royal Dutch Shell will acquire British oil and gas firm BG Group in a £47-billion ($70 billion) cash-and-share deal, which will strengthen the energy giant’s position in the global LNG and deep-water sectors, as the industry shifts its priorities in the wake of the drop in crude oil prices.
Shell will pay £3.83 a share in cash and 0.4454 B shares — equivalent to £13.50 — for every BG share. Based on a 90-trading day volume weighted average price, it is a 50 per cent premium to BG’s closing price on Tuesday.
Royal Dutch Shell B shares fell 5.3 per cent in early afternoon trade in London, while those of BG Group rose 34 per cent, reflecting the high premium paid, even by the standard of other recent deals (the acquisition price is around $12.5/barrel of oil equivalent against the $10.4 paid by Repsol to acquire Talisman Energy in an $8.3-billion deal).
Consolidation in the sector was expected in the low oil price environment.
Strategic step In a conference call on Wednesday, Shell’s Chairman Jorma Ollila said the deal was the right strategic step for the two groups, providing a “step change” in their growth priorities, strengthening Shell’s position in two of its greatest priory areas — the production and processing of LNG and in deep-water production.
The deal was not fundamentally driven by the fall in oil prices but had strategic value for a “scale business” where the ability to re-configure its portfolio was essential, he said. Around $30 billion worth of assets will be divested between 2016 and 2018, across both groups.
The deal will add 25 per cent to Shell’s oil and gas reserves and 20 per cent to the production of each, and $2.5 billion in pre-tax synergies. It is expected to be completed in 2017 and earnings accretive from the same year.
The companies have highlighted Australia, Brazil, the US, Canada and Qatar as priorities, and emerging economies as key growth markets.
India presence Shell employs 3,000 people in India, while though BG has a small presence having existed most of their Indian businesses. Recent Shell investments in India include a global IT centre in Bengaluru and a stake in an LNG terminal in Andhra Pradesh.
“Overall our approach to investment in India remains positive though we don’t know enough now to make a sensible judgment,” said a spokesperson for Shell in London.
OUR BUREAU adds:
BG silent on India plans
While the Indian arm of BG remained silent on the global sale of the energy business to Shell, its local partners in Mahanagar Gas Ltd (MGL) said they are yet to hear anything from the British company.
In MGL, BG and GAIL (India) hold 49.75 per cent each, with the rest held by the Maharashtra government. In India since 1995, BG has a stake in western offshore fields Panna-Mukta-Tapti, an exploration block (MB-DWN-2010/1) in the Mumbai Basin.
BG also has a 20-year contract with Gujarat State Petroleum Corporation for supply of 1.25 million tonnes per annum of LNG beginning 2015, scalable to 2.5 mtpa after two years.