Photo by: Bloomberg
PERTH (miningweekly.com) – The $70-billion takeover of global liquefied natural gas (LNG) producer BG Group would enhance Royal Dutch Shell’s position in new oil and gas projects, particularly in the Australian LNG market.
Through the transaction, announced on Wednesday, Shell would gain control of BG Group’s Queensland Curtis LNG (QCLNG) project in Gladstone, which turns gas from coal seams into LNG.
The $20-billion project loaded its first LNG cargo at the end of December last year. Production at QCLNG would plateau at eight-million tonnes a year by 2016.
BG Group recently agreed to sell its QCLNG pipeline business to APA Group for $5-billion.
In a joint statement, Shell and BG noted that the takeover would also enhance Shell’s position in Brazil’s deep-water projects.
The combined deep-water and integrated gas businesses could potentially each generate between $15-billion and $20-billion in yearly cash flow, while upstream and downstream engines could potentially further generate a combined $15-billion to $20-billion in yearly cash flow.
Shell expected the combination of the two companies to generate pre-tax synergies of about $2.5-billion a year.
“This is an important transaction for Shell, accelerating the delivery of our strategy for shareholders. The result will be a more competitive, stronger company for both sets of shareholders in today’s volatile oil price world,” said Shell chairperson Jorma Ollila.
The takeover would result in BG shareholders owning a 19% combined stake in Shell, and would contribute about 25% to Shell’s proven oil and gas reserves, as well as a 20% increase in the company’s production.
Shell CEO Ben van Beurden described that the two companies as a “great fit”, adding that the BG acquisition would accelerate Shell’s financial growth strategy, particularly in two of Shell's growth priorities and areas where the company was already one of the industry leaders.
Van Beurden said that the addition of BG's competitive natural gas positions made strategic sense, ahead of the long-term growth in demand that the group expected for this cleaner-burning fuel.
“This transaction will be a springboard for a faster rate of portfolio change, particularly in exploration and other long term plays. We will be concentrating on fewer themes, and at a larger scale, to drive profitability and balance risk, and unlock more value from the combined portfolios.
“Over time, the combination will enhance our free cash flow potential, and our capacity to undertake share buy-backs, where I expect to see a substantial increase in pace.”
Under the recommended offer, Shell was offering BG shareholders 383p in cash and 0.4454 Shell B shares for each BG share held, valuing the company at £47-billion. The offer price represented a premium of 50% to the closing price of BG shares on April 7.
BG chairperson Andrew Gould stated that the offer represented an attractive return for BG shareholders.
“The structure of the offer will provide BG shareholders with an attractive premium and a substantial cash return as well as enabling them, if they wish, to participate in the benefits of the combination through the share component. For these reasons, the BG board recommends the offer,” Gould said.
The takeover offer would be subject to a number of conditions, including anti-trust and foreign investment approvals, as well as regulatory consent.
The takeover was expected to become effective in early 2016, subject to the satisfaction of the conditions precedent.