Shell to buy BG in $47bn deal

Speculation is rife that Shell’s recently announced $47bn takeover of BG will mark the start of a wave of mergers and acquisitions deals in the oil and gas sector, with some market analysts expecting companies such as Tullow Oil, Genel and Gulf Keystone to be potential targets, writes Kim Jackson, Editor of Petroleum Review.

Shortly after the announcement, shares in BG rose by nearly 40% to close in on the bid valuation. The BG share price had fallen significantly in the past year following problems in Egypt and Brazil and the departure of its CEO Chris Finlayson nearly a year ago, after just 16 months in post – a situation further compounded by recent low oil prices. BG had been operating without a formal head until former Statoil boss Helge Lund took over as CEO just a few months ago. Lund is expected to leave post after all regulatory approvals have been secured early next year.

Shell is understood to have based its valuation of BG on the assumption that Brent crude prices will recover from their current level of $58 per barrel (/b) to $67/b in 2016, $75/b in 2017 and as much as $90/b by 2020. BG shareholders will receive £13.50 – split between £3.83 in cash and 0.4454 Shell shares – for every share they currently own in a deal that is designed to allow BG shareholders to own 19% of the new Shell company.

The acquisition is expected to increase Shell’s oil and gas reserves by 25% and its production capabilities by 20%. The deal is viewed by many as a potentially cheaper means of the company increasing its reserve base than expensive exploration, particularly in frontier areas such as the Arctic.

The merged entity will become the world’s largest gas producer at 11.6bn cubic feet per day (cf/d) ahead of ExxonMobil (11.2bn cf/d) and the world’s seventh largest in terms of liquids production (1.7mn b/d). The deal is reported to be the largest in the global oil and gas sector in the past 17 years and the largest ever on record between two British companies.