Shell challenges Exxon dominance with $70 billion bid for BG

Wed Apr 8, 2015 2:10pm EDT
 
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By Dmitry Zhdannikov and Karolin Schaps

LONDON (Reuters) - Royal Dutch Shell (RDSa.L: Quote) agreed to buy smaller rival BG Group BG.L for 47 billion pounds ($70 billion) in the first major energy industry merger in more than a decade, closing the gap on market leader U.S. Exxon Mobil (XOM.N: Quote) after a plunge in prices.

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 such as Exxon, which has said it would also use the downturn in oil markets 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. BG has some of the world's most ambitious projects in liquefied natural gas (LNG), where demand is growing as consumers turn away from more polluting fuels such as coal.

Shell is already the world's leading LNG company and it would get BG's capacity in LNG logistics - complex infrastructure that includes terminals, pipelines, specialized tankers, rigs, super coolers, regasification facilities and storage points.

"We are seeing a gasification of energy demand. Shell clearly recognize 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."

BOOST TO RESERVES

Shell said on Wednesday the deal would boost its proven oil and gas reserves by 25 percent.   Continued...

 
Ben van Beurden (L), chief executive officer of Royal Dutch Shell, shakes hand with Andrew Gould, chairman of the BG Group, during a news conference at the London Stock Exchange, April 8, 2015.  REUTERS/Stefan Wermuth