Shell's BG purchase could be catalyst needed for U.S. shale deals

Thu Apr 9, 2015 1:38pm EDT
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By Anna Driver and Ernest Scheyder

HOUSTON (Reuters) - Royal Dutch Shell Plc's $70 billion agreement to buy BG Group Plc may be just the signal that other dealmakers need to make their own energy takeover bets, particularly in the U.S. shale sector.

Bankers and analysts say that Shell's move is telling potential acquirers that one of the biggest players is now confident enough to make a big play - that the fears of a further big slide in oil and gas prices may be fading.

Following the more than 50 percent collapse in oil prices since the middle of last year, the market has been too volatile to give buyers and sellers clarity on valuations, bankers say, even as potential acquirers knock on doors to examine a range of assets.

The Shell deal with BG brings together two European companies with a global reach. A tie-up will ripple across an energy industry ripe for consolidation.

"Things may be changing," said Rich Eychner, an equity research associate at Raymond James in Houston. "Since the meltdown, the bid-ask spread has been too wide. So maybe this is hinting some deals could start moving forward.”

There are literally dozens of shale oil and gas companies in the United States. Many have responded to the oil price slide by announcing spending cuts of 25-70 percent in a bid to conserve cash and show investors they have staying power.

But analysts have said that any of the companies, especially those with prime acreage in oil-rich shale fields in Texas, North Dakota and Colorado, could be up for grabs if a sweet enough offer is made.

Analysts at Capital One Southcoast said on Wednesday that BG's U.S. shale assets will become likely candidates for divestiture after the Shell deal closes.   Continued...

A Shell logo is seen on a pump at a petrol station in London April 28, 2010.  REUTERS/Toby Melville