Shell To Buy BG For Nearly $70 Billion

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  • Shell To Buy BG For Nearly $70 Billion

 


LONDON – Famous oil company Royal Dutch Shell has agreed to buy British rival BG Group for 47 billion pounds ($69.7 billion). Royal Dutch Shell has told investors its purchase of BG can work even if oil prices average $50 a barrel for two years, its lowest estimate to date as it seeks to secure shareholder support for the $51 billion deal amid plunging crude markets. The international price of crude oil has plunged from over $115 a barrel last summer to a low around $45 before recovering somewhat in recent weeks to trade at $58 a barrel on Wednesday. Global natural gas prices have also dropped, because most of the natural gas traded internationally is linked to the price of oil.The Anglo-Dutch group is confident investors will back the deal at a Jan. 27 meeting, even though crude prices are languishing near 12 year lows around $32 a barrel and it faces a cut to its credit ratings due to higher debts, sources with knowledge of its meetings with analysts and investors said. When Shell announced the deal in April 2015, with oil trading around $55 a barrel, many investors saw it as a bold move to buy a weakened rival on the expectation that prices would recover to around $90 per barrel within three years. Initially, Shell indicated the combined group would be profitable with prices in the mid $70s a barrel. 


Last month, Shell said the merger would work in the low $60s, as it identified new synergies and cost cutting opportunities. On Wednesday, finance chief Simon Henry told analysts Shell had conducted stress tests that showed it could withstand oil at $50 a barrel over the next two years, the sources told Reuters. A Reuters poll on Monday showed analysts expect benchmark North Sea Brent crude futures to average $52.52 a barrel this year. To weather such an environment, Shell plans to cut capital spending further below the planned $35 billion for 2016, delay share buybacks and extend scrip dividends, where investors are offered discounted shares instead of cash, Henry told analysts. 


Royal Dutch Shell said Wednesday it will pay the equivalent of 13.67 pounds in cash and stock for each share of BG Group, 50 percent more than Tuesday's closing price. The deal will boost Shell's oil and gas reserves by 25 percent, including offshore projects in Australia and Brazil, and give it a bigger presence in the fast-growing liquefied natural gas market, Shell said. 

 

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