Shell set to buy BG Group for US$69.7bn

shell-Lee Jordan flickrShell is concentrating on the fast-growing business of producing and selling LNG. (Image source: Lee Jordan/Flickr)Anglo-Dutch oil explorer Shell will acquire British gas producer BG Group for US$69.7bn in cash and stock, both companies have announced

The move is expected to give the Shell a greater stake in natural gas markets in the wake of tumbling oil prices. Barring regulatory objections, the deal, which will create a US$300bn oil and gas company, will be complete within 15 months, according to industry sources.

The deal would be the third-largest oil and gas merger in history, after Exxon Corporation’s acquisition of Mobil Corporation in 1998 and the 2004 merger between Royal Dutch Petroleum and Shell Transport and Trading that created the current Anglo-Dutch supermajor.

Consolidations through takeovers and mergers are among the ways energy companies are seeking to reduce costs and become more efficient as oil prices have slumped, reported news agency AP.

A joint statement said that the boards of both companies have recommended that shareholders approve the deal that will create a more competitive, stronger company for both sets of shareholders in current volatile oil price world.

The takeover will add 25 per cent to Shell’s proved oil and gas reserves and 20 per cent to production compared with 2014, and boost its position in new oil and gas projects in Australia and Brazil. With the merge, the new venture is expected to become the largest Western-owned producer of oil and gas, and second only to ExxonMobil in market capitalisation, according to The Economist.

Shell CEO Ben van Beurden said, “Bold, strategic moves shape our industry. BG and Shell are a great fit. This transaction fits with our strategy and our read on the industry landscape around us.”

The terms of the offer would result in BG shareholders owning about 19 per cent to the new combined business.

According to Shell, bringing the two companies together would produce financial gains of about US$2.5bn a year.

van Beurden added, “The addition of BG’s competitive natural gas positions makes strategic sense, ahead of the long-term growth in demand we see for this cleaner-burning fuel.”

BG Group CEO Helge Lund also said that his company also would benefit from the takeover.

“BG’s deep water positions and strengths in exploration, liquefaction, and LNG shipping and marketing will combine well with Shell’s scale, development expertise and financial strength,” he noted.

The deal also demonstrates an important shift — gas is now the more promising market than oil. BG Group has some promising assets in East Africa, Kazakhstan and Trinidad.

New York Times reported that natural gas has become a global commodity with companies bringing supplies from remote locations in Africa to energy-hungry markets like India and China.

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