Shell's imminent takeover of BG Group will create a £200bn oil and gas giant.
Collapsing oil prices have triggered company consolidations before - for example, the 1990s deal which created ExxonMobil for $82bn. The proposed deal between Shell and BG - the spin-off from British Gas, could be start of a new round of mergers.
Shell's £47bn bid is at a 50% premium on the BG's market valuation, which the oil giant says is based on the assumption that Brent crude prices would recover from their current level of $58 a barrel to $67 next year and as much as $90 by 2020.
But Shell's Chief Executive, Ben van Beurden, was keen to state that the BG takeover was “not a bet on the oil price. This deal works in a range of scenarios. The price of oil certainly doesn’t need to come all the way back up. We have been looking at BG for a long time and we have admired the company but we felt that this was the right time… the environment made the value of a bid more compelling.”
The deal will make Shell the world’s largest producer of liquefied natural gas, as well as gaining access to BG’s deep-water drilling operations in Brazil and its gas field in Australia.
A drop in BG's share price by almost 30% in a year has now been reversed with the company's shares jumping by almost 40%. If approved, the deal is likely to complete at the beginning of next year, but awaits the nod from regulators in Brazil, China, Australia and Europe, as well as a separate written letter from the UK’s Secretary of State for Energy and Climage Change regarding BG’s exploration and production licence.