Shell to buy BG Group for nearly $70B

Royal Dutch Shell said Wednesday it has agreed to buy BG Group for 47 billion pounds ($69.7 billion US) in a cash and stock takeover.

BG shareholders would own 19% of combined business

Royal Dutch Shell is proposing a liquefied natural gas project in Kitimat, B.C. and BG has a proposal for Prince Rupert. It's unlikely that both will go ahead. (Darryl Dyck/CP)

Royal Dutch Shell has agreed to buy British gas producer BG Group for 47 billion pounds ($69.7 billion US) in cash and stock, the companies announced Wednesday. The move gives oil giant Shell a greater stake in natural gas markets in the wake of tumbling oil prices.

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.

A joint statement said the boards of both companies are recommending that shareholders approve the deal that will create a more competitive, stronger company for both sets of shareholders in today's volatile oil price world.

But there were warnings about the impact on British Columbia's LNG race.

Both Shell and BG have a big global presence when it comes to liquefied natural gas — natural gas that is chilled into a liquid state so that it can be transported overseas on tankers.

"Shell and BG will now be presumably looking to consolidate different assets, including potentially assets in the LNG space," said Alan Ross, a lawyer with Borden Ladner Gervais in Calgary who has worked on behalf of LNG clients.

Shell and BG have competing B.C. projects

Shell leads a consortium of companies planning the LNG Canada project in Kitimat, which could cost up to US$40 billion. BG has its own project near Prince Rupert in the hopper, but last fall decided to pause work on it due to market uncertainty.

There are 19 projects proposed for the West Coast, but none of their backers have made a firm decision to proceed. The outlook for B.C.'s nascent LNG industry has been clouded by low commodity prices and competition from projects elsewhere in the world that are further along.

"It's unlikely in my view that most of the LNG projects that are currently proposed will get built," said Ross. "There's an awful lot of proposed LNG projects and simply not enough need for all of them."

Shell said the BG takeover will add 25 per cent to its 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.

'Strategic move'

"Bold, strategic moves shape our industry," Shell CEO Ben van Beurden said. "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.

Shell said that bringing the two companies together would produce financial gains of about $2.5 billion a year.

Van Beurden said BG was a good fit for Shell looking to the future.

"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," he said.

BG's CEO Helge Lund said 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 said.


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