Mergers & Acquisitions

Shell to acquire BG Group

Royal Dutch Shell announced that it has agreed to buy BG Group for nearly USD 70 billion. BG Group is an international exploration and production liquefied natural gas (LNG) company active in 24 countries. LNG is an area in which Shell has invested tens of billions of dollars in recent years.

Shell’s main reasons for wanting to acquire more LNG business are two-fold: first, its use is expected to grow in Asia, especially in China, as it tries to wean itself off coal. BG is a large supplier of LNG to China. Second, it is used for deepwater oil drilling in areas such as the Gulf of Mexico and off of Nigeria.

The acquisition also would give Shell a stronger position in Brazil. Shell estimates that the combined company would potentially increase production in Brazil tenfold to 550,000 barrels of oil and gas per day. Shell says the deal would increase its proven oil and gas reserves by 25% and increase production by 20%.

“If you want to be a leader in deep-water [drilling], you have to have more exposure to Brazil,” Shell C.E.O. Ben van Beurden said in a TV interview with CNBC.

Shell plans to pay for the acquisition with a combination of cash and stock. BG shareholders would end up owning 19% of the combined company. The acquisition still requires shareholder and regulatory approval. So far, Shell shareholders seem less enthusiastic about the deal than BG shareholders. Shares in Shell fell about 5%, while BG shares increased by about 37%, in morning trading on 8 April, when the deal was announced.

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