28 October 2016
Royal Dutch Shell is acquiring BG Group when it's unloading some oil fields and pulling back from shale development in Europe and China. Photo: WSJ
Royal Dutch Shell is acquiring BG Group when it's unloading some oil fields and pulling back from shale development in Europe and China. Photo: WSJ

Shell in advanced talks to buy BG Group

Oil giant Royal Dutch Shell Plc. is buying Britain’s BG Group Plc. in a deal likely be top US$50 billion, the latest sign of how tumbling energy prices are shaking up the global industry.

BG confirmed an earlier report in The Wall Street Journal about advanced talks between the two sides but made no further comment.

The deal could be announced as early as Wednesday, according to people familiar with the matter.

BG, formerly known as British Gas, had a market value of nearly 31 billion pounds (US$46 billion) based on the closing price Tuesday of its shares in London, before the report.

Should the deal come to fruition, it would be a marriage of two companies that have been buffeted by a sharp drop in oil-and-gas prices since last summer as technological advances and other factors have contributed to a surge in world energy supplies.

It would enable the two European energy giants to eliminate overlapping costs to help compensate for the toll lower prices have taken on their top lines.

The two companies are not the only energy companies looking to mergers and acquisitions to shore themselves up.

In November, Halliburton Co. agreed to buy smaller oil-field-services rival Baker Hughes Inc. for some US$35 billion.

But in a sign of how difficult such tie-ups can be to strike in such a volatile pricing environment, Whiting Petroleum Corp., a medium-size US oil and gas company, recently aborted an effort to find a buyer.

Shell is one of the world’s largest energy producers, with a market value of about US$192 billion.

In addition to being a major oil producer, the Anglo-Dutch company is also among the world’s largest natural gas companies, with more than three trillion cubic feet of output in 2014, a 4 percent drop from the year before.

In addition to the cost-cutting potential it would likely afford, combining with BG would give Shell prime gas reserves and help bolster the company in the stiff competition in the market it faces from rivals including Exxon Mobil Corp. and Chevron Corp.

The deal talks come after Shell scaled back its ambitions to become a major producer of shale gas.

The process of hydraulic fracturing, or fracking — which uses sand and fluids to crack shale and release gas — has created an oil and gas boom in the United States.

But Shell and its other big rivals have largely failed to benefit from the boom after acquiring shale assets that turned out to be unprofitable.

Shell has been unloading some of those fields and pulling back from shale development in Europe and China.

A BG investment would refocus Shell’s gas operation on the big, offshore projects it has a history of developing profitably.

In January, the company said it would curb its planned spending over the next three years by US$15 billion.

– Contact us at [email protected]


EJI Weekly Newsletter