Investors want BG deal to trigger change at Shell

Thu Apr 9, 2015 1:15pm EDT
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By Dmitry Zhdannikov

LONDON (Reuters) - When it comes to forecasting the oil price, big companies play their cards very close to their chests.

But the 50 percent premium that Royal Dutch Shell agreed to pay this week in a stock and cash deal to acquire smaller rival BG says a lot about Shell's expectations for a swift recovery in oil prices.

The beauty of the deal and the upside, though, won't be in the bold bet turning good, say investors and analysts as they urge Shell to use the deal as a opportunity to review its portfolio and geography.

"The upside comes in the deal becoming a catalyst for change in transforming the upstream business over the next 4-5 years in a way that the previous pivot towards North American onshore really failed to do, in our view," UBS said on Thursday.

Analysts from Barclays agreed that because the BG deal brings Shell rich reserves and production outlook in Brazil and the Gulf of Mexico, it hoped it would prompt the company to slow down or relinquish less competitive assets.

"This includes high breakeven projects such as Shell's heavy oil portfolio in Canada, assets difficult to develop such as those in the Arctic and projects in geopolitically unstable regions such as those in Iraq and onshore Nigeria," it said.

Shell's stock was up 1 percent on Thursday after falling 5 percent on Wednesday when investors expressed unease about the generous premium even though they celebrated the fact that Shell had finally done a big deal.

During a wave of mega-mergers 15 years ago - when BP bought Arco and Amoco and Exxon bought Mobil - Shell stayed on the sidelines.   Continued...

Shell's company logo is pictured at a gas station in Zurich April 8, 2015. REUTERS/Arnd Wiegmann