Global Markets: The O&G Deal Of The Decade Is Now Complete

Royal Dutch Shell And BG Group Agree To A $70 Billion Deal

BG Group, which was the UK’s third-largest oil and natural gas company, is no more. The company’s absorption by Royal Dutch Shell is officially complete, with full delisting going into force today. Shell confirmed in a Monday statement, “The entire issue ordinary share capital of BG Group is now owned by Shell.” It’s the biggest deal in the sector since 1998, when Exxon acquired Mobil.

Shell Is Now The World’s 2nd-Biggest Oil Company

A report by Barclays on Monday showed that after the acquisition, Shell has surpassed Chevron as the world’s second-largest oil company, raising its market cap to $177 billion. ExxonMobil is the world’s largest oil company, with a $337 market cap.

Here’s a chart from Bloomberg showing the trajectories of Chevron and Shell’s market value over the past year:

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The deal also gives the Anglo-Dutch major new assets in Brazil (deepwater) and Australia (LNG) that gives it more flexibility during the downturn (more on this below).

From April To Today…

The move marks the conclusion of a process which began on April 8, 2015, when the $53bn takeover was announced. Earlier this year, shareholders of both companiesgreen-lighted the deal, and last week the High Court of Justice of England and Wales sanctioned the acquisition, delivering the Court Order to the Registrar of Companies today. Shares in BG Group were suspended on the London Stock Exchange at the close of trading Friday.

In its recent 4Q15 report, Shell said its acquisition of BG Group marks the beginning of “a new chapter.” The deal results in BG Shareholders owning approximately 19% of the combined company. Shell expects the acquisition to accelerate its LNG and deepwater growth strategy.

Facilitating Shell’s LNG/Deepwater Strategy

Shell confirmed in the aforementioned quarterly report its previous announcement that it is reducing its headcount by about 10,000, reducing investment and selling assets as the Anglo-Dutch major responds to low oil prices amid the imminent merger with BG Group. (Recall that various media outlets inaccurately reported the 10K layoffs as “new news”. .)

CEO Ben van Beurden described the completion of the O&G “deal of the decade” as “the start of a new chapter in Shell, rejuvenating the company, and improving shareholder returns.”

The combination will add around 25% to Shell’s proved O&G reserves and 20% to production, each on a 2014 basis. It will also provide Shell with enhanced positions in competitive new O&G projects, particularly in Australia LNG and Brazil’s deepwater sector.

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Shell CEO Ben van Beurden said during the April 8 conference call announcing the deal, “LNG is a very important component of this…The whole idea is that we turn the company on the back of this deal into a much more focused company, very, very strong in gas and very, very strong in deep water.”

Here is Shell’s Monday morning announcement:

“Royal Dutch Shell is pleased to announce that the Scheme has become effective and that the entire issued ordinary share capital of BG Group plc (“BG”) is now owned by Shell. This follows the Court’s sanction of the Scheme at a hearing held on February 11, 2016 and the delivery of the Court Order to the Registrar of Companies today, February 15, 2016.”


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