Shell BG deal will ‘shape more competitive company’

Post Thumbnail

Royal Dutch Shell has hailed its 52.6 billion US dollar (£36.4 billion) takeover of BG Group as a step towards becoming a “simpler, leaner, more competitive company”.

The mega-deal – creating the biggest trader of liquefied natural gas – came into force on Monday after shareholders waved through the tie-up at the end of January.

Chief executive Ben Van Beurden said it marked an “important moment for Shell”, which would bolster its cash flow and “significantly boost” its reserves and production.

The impact of the deal – coupled with the low oil price – will lead to 10,000 job losses, with Shell already cutting 7,500 staff, while a further 2,500 positions are expected to be lost now the deal is complete. Shell also looks set to offload 30 billion dollars (£20.6 billion) of assets.

Mr Van Beurden said: “We have acquired productive oil and gas projects in Brazil and Australia and other key countries.

“We will now be able to shape a simpler, leaner, more competitive company, focusing on our core expertise in deep water and LNG.”

Shell’s shares fell by just under 1% in early trading.

Shell described the takeover of BG as a “new chapter” earlier this month when it announced an 80% plunge in annual profits triggered by the tumbling oil price.

There have been concerns over the rationale for the deal following the recent hefty falls in oil prices due to over-supply and falling demand as the world economy slows.

The cost of crude has collapsed by more than 70% since a peak of around 115 US dollars a barrel in the summer of 2014.

Shell has priced its BG acquisition based on oil prices rising sharply from their current low levels – predicting a bounce back of more than 35% this year and further rises next year.

Shell saw full-year earnings tumble to 3.8 billion US dollars (£2.6 billion) in 2015 from 19 billion US dollars (£13 billion) in 2014, when it reported its annual results at the beginning of February.

However, BG Group showed signs of resilience when it revealed its full-year results a few days later, guiding the business back into the black despite continued pressure from tumbling oil prices.

The company announced on February 5 that it had driven home a full-year pre-tax profit of three billion US dollars (£2 billion) for 2015, turning the business around from a 2.3 billion US dollar pre-tax loss (£1.6 billion) the year before.

It came as rival energy giant BP posted its largest annual loss for at least 20 years on February 2 and unveiled another 3,000 job losses as it continued to count the cost of plunging oil prices.

The company revealed at the beginning of the month that it had slumped into the red by 5.2 billion US dollars (£3.6 billion) in 2015, surpassing even the mammoth losses seen in the wake of the Deepwater Horizon explosion and oil spill in the Gulf of Mexico in 2010.

There were signs of recovery in the oil price last week when it rose by 2.5 dollars to 32.5 US dollars per barrel, amid mounting speculation that members of the Opec oil cartel were ready to negotiate over possible production cuts.